Judge Arthur Gonzalez is a senior fellow at the New York University Law School and the former chief judge of the United States Bankruptcy Court for the Southern District of New York, a position in which he served from 2010-2012.
Judge Gonzalez is highly respected in the bankruptcy law community, having forged a long career over the last three decades, which has included two judicial appointments to the bankruptcy court. During that time he has presided over some of the most noteworthy corporate bankruptcy cases in recent memory, including Enron in 2001, WorldCom in 2002, and Chrysler in 2009.
As The New York Times said in a 2011 profile of the judge, “Many judges are lucky to handle just one era-defining case during their tenures on the bench. In his 16 years as a federal bankruptcy judge, Arthur J. Gonzalez has handled three.” This experience is why Judge Gonzalez will likely garner serious consideration for a board seat.
In Enron, during which I had the pleasure of appearing before him, Gonzalez was praised for his handling of the high-profile Chapter 11 that came on the back of Enron’s highly-publicized scandal. The case involved $62 billion in assets, and Gonzalez won plaudits for achieving higher returns to creditors than were expected at the outset, including 93 cents on the dollar for energy traders with guaranteed claims.
He again won nearly universal admiration for his handling of the even-larger WorldCom bankruptcy, which involved over $100 billion in assets and began while Enron proceedings were still ongoing. The company was eventually purchased by telecommunications giant Verizon after it emerged from bankruptcy.
However, in his last major case, Chrysler, has more of a mixed legacy. The 2009 bankruptcy was famously quick – a fact that was praised by some, but derided by creditors who felt they got a raw deal. The main point of contention, of course, was the treatment of Chryslers UAW pensioners – an issue that will again play a major role in Puerto Rico’s restructuring – where union pensions received a better deal than the companies’ secured creditors, which included other pension and retirement funds.
This is widely seen as the precedent that allowed for similar treatment of secured creditors in the General Motors and Detroit bankruptcies and, without doubt, it will loom large here in PR, where creditors have seemingly been pitted against public pension funds by our government and others.
Verdict: Yellow-Red Flag – Judge Gonzalez is immensely experienced and has won praise for his handling of “era-defining” corporate bankruptcy cases. However, Congress should be wary that his appointment is not a political ploy from those who would seek a similar result to the GM case with regard to the treatment union pensions either in practice or perception. If it is, then it will surely serve as a major point of contention amongst stakeholders.