Incoming NCBJ President Shares Views on Shape of Bankruptcy System

Incoming NCBJ President Shares Views on Shape of Bankruptcy System

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Editor's Note: Hon. Mary Davies Scott (E.D. & W.D. Ark.) will become the next president of the National Conference of Bankruptcy Judges (NCBJ) at the close of its annual meeting in San Francisco this month. ABI Journal Editor-in-Chief Sam Gerdano recently interviewed Judge Scott about current issues.

Gerdano: In your 12 years as a judge, what have been the biggest changes you've observed in the bankruptcy system?

Judge Scott: The biggest changes I have seen in the last 12 years have been in the area of automation. When the federal judiciary decided, somewhat belatedly in comparison to law firms, that it was time to automate, the bankruptcy courts were the ones initially chosen to undergo the process. It is obvious why they were chosen—there is a staggering amount of paperwork that accompanies a million plus filings per year. We have not only automated the courts, but now electronic filing is just around the corner. Court personnel as well as practitioners who have avoided technology will be left behind. Practicing in the bankruptcy courts in the very near future will be, to a very great extent, in cyberspace.

Gerdano: The Senate is apparently poised to take up its version of bankruptcy reform (S. 625). The NCBJ has taken a high profile during the last two Congresses in commenting on the bill's impact. What is your view of the legislation?

Judge Scott: At the time the recent Bankruptcy Review Commission was formed, one of the reasons given for appointing the Commission was to stop the piecemeal amendments to the 1978 statute. The Commission's report was not even out for public and Congressional review before efforts were made to circumvent its recommendations. Given the time and effort that went into the Commission's report, this development proved disheartening to many. While it is true that there was a strong dissent to the final report and little unanimity on most of the important issues discussed by the Commission, these issues were thoroughly discussed in public hearings and all sides were given a chance to voice concerns. The pending legislation working its way through Congress was not initially subjected to public comment. Rather, there was an attempt to quickly pass it through the system without these safeguards. Delays did ensue, however, and the first proposals have now had a chance to be scrutinized and, in many cases, strongly criticized. In spite of this, the process continues, and compromise looks unlikely except regarding fairly inconsequential provisions.

My colleagues in the NCBJ are of two minds regarding whether bankruptcy judges ought to comment on pending legislation. There are those who feel that judges should only comment on substantive legislation if it will have an impact on the administration of justice. Others believe that the judges should comment without that restriction. I am in the former group. The NCBJ, as a group, has attempted at every opportunity to comment either upon the impact this legislation will have on the administration of the system or state that the impact is unknown and that time is needed to assess it. Individual judges also have commented on the legislation. The entire legislative process for the past two Congressional terms has been evolving toward some sort of "reform" of the existing statute, and today it seems inevitable that we will have significant amendments to the statute.

Gerdano: One theme that seems to run throughout the bill is a kind of distrust of judicial discretion that now exists (i.e., a formulaic means test rather than §707(b) under current law; strict time limits on exclusivity in chapter ll; fixed time limits on the ability to accept or reject commercial leases, etc.). Do you have this impression? If so, to what do you attribute this approach?

I have every reason to believe that those who practice under the statute going forward will continue to find creative ways to utilize not only the provisions that survive this reform act, but certainly the new provisions. There will always be a place for creative lawyering.

Judge Scott: My initial response to the question is that the Bankruptcy Code is already replete with provisions that attempt to limit the discretion of the bankruptcy court. I do not interpret these provisions to be so much a distrust of judicial discretion as an attempt to discourage abuse or possibly even the use of the system. The Bankruptcy Code has been utilized for purposes never imagined by the drafters of the initial statute—mass torts, staying the effect of mega-dollar judgments, etc. I have every reason to believe that those who practice under the statute going forward will continue to find creative ways to utilize not only the provisions that survive this reform act, but certainly the new provisions. There will always be a place for creative lawyering. Statutes are constantly being amended to close so-called loopholes, and when that happens, others always seem to open up. Bankruptcy judges do not necessarily perceive an attempt to amend the Bankruptcy Code as a criticism of the use of their discretion. Rather, new legislation may simply reflect Congress' attempts to remedy perceived abuses.

Gerdano: From your perspective as a judge, which provisions in the new bill will lead to the most litigation, or otherwise have the biggest effect on your workload?

Judge Scott: The judges have weighed in on these issues as many times as the current legislation pending in both houses has been changed. We have gone on record and the current NCBJ president, Judge Randall J. Newsome, and the chair of our Legislative Committee, Judge Robert Hershner, have appeared and testified before Congress, at its request, on behalf of the Conference on many occasions. These comments have been reprinted numerous times, including in this Journal. Another colleague, Judge Eugene Wedoff, has spent countless hours going through the legislation and providing scholarly comments, which have included the judges' perspective, and these have been made available on the ABI web site. At this point, since there is no final bill and no one really knows what will happen in Conference committee, any response I would give you today would undoubtedly be out of date or irrelevant.

Gerdano: Several recent reports, published on the ABI web site and elsewhere, seem to show that women make up the largest and fastest growing segment of individual filers. Has this been your sense too, and if so, what factors do you think are responsible for it?

Judge Scott: Your question and your report of the study (which I have not reviewed) raise a certain amount of skepticism in my mind. For the most part, I find that studies of trends in bankruptcy filings are often limited or flawed. If the empirical data support that conclusion, I have not noticed such a trend in my court. That is not to say, however, that such a trend would be noticeable because cases generally come before the court in the form of piecemeal issues, rather than a flow of debtors. I would note, however, that the trend is supported by two other long- studied trends: (1) bankruptcy and divorces are often filed in tandem; and (2) women's financial stability and circumstances are often significantly reduced by divorce. It is not surprising that women might begin taking advantage of the fresh start offered by the Bankruptcy Code.

Gerdano: Overall, bankruptcy filings are down this year, for the first time since 1995. To what do you attribute this decline? Do you think it will have any impact on the provision to add more bankruptcy judges?

Judge Scott: What causes an increase versus a decrease in bankruptcy filings is, for the most part, conjecture. I could only add my own supposition and it would be limited to the small geographical area I serve. The downturn in filings is probably due to the economy in general. However, any downturn, because it is measured by one number at the end of the court's fiscal year, does not reflect the up and down cycles within the year. There was a dramatic increase in filings in our court at the end of 1998. The reasons are not entirely clear, but I do not think it is a coincidence that lawyer advertising increased at the end of the year warning debtors to "file before the new law takes effect." When Congress failed to act, filing numbers returned to normal. I expect, if Congress does actually pass something by the end of 1999, and if the effective date is postponed six months, we may see a similar aberration.

The downturn in filings should have no effect upon the request for bankruptcy judgeships since the federal judiciary's recommendation regarding 18 of the 24 recommended new bankruptcy judgeships was based on pre-1992 statistics, and the other six judgeships were based on 1996 numbers. Current filings, although down, still exceed those numbers. We still need those judgeships. Although there is little public knowledge of what goes into the process before the Judicial Conference of the United States makes a recommendation to create a new judgeship, the entire process is painstaking, thorough and can take up to four years. Districts begin the process of requesting an additional judgeship only after it is determined that a need exists, and historically, the need does not abate during the approval, creation and funding process.

Gerdano: A large number of judges have come up for reappointment recently, or are in the process of their reappointments. In your opinion, and from talking to colleagues, how are the circuits doing at handling the process?

Judge Scott: I just read an excellent and thoughtful article in the July/August 1999 issue of the ABI Journal written by my colleague, Judge Leif Clark, addressing this question. I cannot add more to his assessment of the process from the judges' perspective. By all accounts, the circuits are handling the process in a uniform way, and reappointments, for the most part, are being made expeditiously. As of the date of this interview [Sept. 10, 1999], 31 bankruptcy judges have been reappointed. There are 14 bankruptcy judges whose terms expire between now and the end of 1999. The appointments of 66 bankruptcy judges will expire during 2000, and the terms of 40 will expire in 2001. These numbers total 151, almost half of the active bankruptcy judges.

Gerdano: Do you think we will ever see Article III status for bankruptcy judges?

Judge Scott: No.

Gerdano: The NCBJ Endowment has been very active in funding worthwhile research projects. What new studies are underway? Do you plan to continue this practice?

The NCBJ is extremely proud of its Endowment for Education. We are particularly proud of the program we jointly sponsor with the ABI, which endeavors to educate state court judges, including judges of general jurisdiction and family law specialists, regarding the intricacies of bankruptcy law. From 1995 to 1999, more than two dozen bankruptcy judges have assisted the ABI in presenting these programs. In August, the Endowment unanimously approved an additional grant for this program.

In addition, the Endowment continues to support the American Law Institute's Transnational Insolvency Project. The report from that project is now circulating, and it is excellent.

Finally, this question comes too early to allow me to report on the new grants that are being considered by the Endowment. Its board will meet in October in conjunction with the NCBJ's annual meeting in San Francisco.

Journal Date: 
Friday, October 1, 1999