SPEAKERS CONTENTS INSERTS
Page 1 TOP OF DOCBANKRUPTCY JUDGESHIP ACT OF 1997
THURSDAY, JUNE 19, 1997
House of Representatives,
Subcommittee on Commercial and
The subcommittee met, pursuant to notice, at 10 a.m., in room 2237, Rayburn House Office Building, Hon. George W. Gekas (chairman of the subcommittee) presiding.
Present: Representatives George W. Gekas, Lamar Smith, Bob Inglis, Ed Bryant, Steve Chabot, Jerrold Nadler, Sheila Jackson Lee, and William D. Delahunt.
Also present: Representative John Conyers, Jr.
Staff present: Raymond V. Smietanka, chief counsel; Charles E. Kern II, counsel; Susana Gutierrez, clerk/research assistant; Audray Clement, staff assistant; Peter J. Levinson, counsel; and Perry Apelbaum, minority chief counsel.
OPENING STATEMENT OF CHAIRMAN GEKAS
Mr. GEKAS. The hour of 10 o'clock having arrived, the subcommittee on Administrative and Commercial Law of the full Judiciary Committee will come to order. We recognize that the gentleman from Massachusetts, Mr. Delahunt, is present, along with the Chair, therefore constituting a hearing quorum.
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The subject matter of today's hearing is well known to all those who have followed recent events in this area for an increase in the number of judges to handle the increasing number of bankruptcy cases. Although this requires an increase in funding, we have never shrunk from the necessity to match funds with new judgeships, new marshals, new Federal judges, whatever the cause may be, in the pursuit of an increasingly better judicial system.
So, with that, we are ready to proceed by calling to the witness table the first panel. Judge David R. Thompson graduated from the University of Southern California Law School in 1955 and was in private practice in San Diego for 28 years before being appointed to be a judge on the ninth circuit by President Reagan in 1985. He appears before us in his capacity as Chairman of the Judicial Conference Committee on the Administration of the Bankruptcy System.
Judge Tina L. Brozman is a graduate of New York University and Fordham University School of Law and was in private practice in New York for 9 years. She was appointed to the bankruptcy bench in 1985 and since March 1996, she has served as Chief Bankruptcy Judge for the Southern District of New York, one of the most important jurisdictions for chapter 11 corporate reorganization filings.
Judge Frank W. Koger graduated from Kansas City University School of Law in 1953 and thereafter practiced bankruptcy law until appointed to the bench in 1986. He is currently the Chief U.S. Bankruptcy Judge for the Western District of Missouri and president of the National Conference of Bankruptcy Judges, on whose behalf he appears before us this morning.
[The bill, H.R. 1596, follows:]
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INSERT OFFSET RING FOLIOS 1 TO 4 HERE
Mr. GEKAS. We now acknowledge the presence of the gentleman from New York, the ranking member, Mr. Nadler. Does the gentleman have an opening statement? We hope not.
Mr. NADLER. Yes, I do.
Mr. GEKAS. My hopes are shattered.
Mr. NADLER. Thank you, Mr. Chairman. I want to thank the chairman for scheduling this hearing and the markup of the Bankruptcy Judgeship Act of 1997. I am also pleased to have sponsored the legislation we will be considering with you, with the chairman, Mr. Hyde, and the ranking member of the full committee, John Conyers.
The need for additional bankruptcy judges around the country has reached a critical point. Congress has waited far too long to provide the resources needed to keep our bankruptcy system operating efficiently. For that reason, I am glad that this measure is bipartisan and is being moved forward expeditiously and in a cooperative spirit across party lines.
Everyone has an interest in seeing the bankruptcy system function smoothly. For the more than one million American families that now file for bankruptcy each year, to the parties involved in the megachapter 11 cases which now cross not just the United States, but the globe, all have the same interest.
Page 4 PREV PAGE TOP OF DOC I am especially pleased that in evaluating the need for additional judges, the Administrative Office of the U.S. Courts has taken a fresh look at the work required to adjudicate the megachapter 11 cases. As you may recall, until recently the largest unit of measure used for the purpose of calculating judicial workload was a $1 million chapter 11. The case weight figures therefore did not fully reflect the amount of judicial work in districts that receive a disproportionate share of extremely large chapter 11 filings, such as the District of Delaware or the Southern District of New York.
Under that system of measuring judicial workload, a case involving $1 million worth of debt was statistically indistinguishable from a $5 billion case. This was, as you recall, Mr. Chairman, an issue of some contention when we looked at the issue in the last Congress.
My frustration with the failure of the administrative office to address this problem led me to ask the General Accounting Office to review the existing system of case weight measurement, a system which administrative offices since revised to more realistically measure the impact of the megachapter 11 cases.
While the very large cases may come through our courts in New York, the parties affected by them live in every congressional district in the country. Since all cases have the benefit--seeing that all cases have the benefit of the resources they need, it is truly in everyone's interests.
So, Mr. Chairman, I want to commend you for your leadership on this important legislation, and I look forward to working with you to ensure its expeditious passage.
Page 5 PREV PAGE TOP OF DOC I also want to take this opportunity to extend a particular welcome to the chief bankruptcy Judge for the Southern District of New York, Judge Tina Brozman. Judge Brozman is a distinguished and respected judge who works on the front line of what has to be the most demanding bankruptcy court in the United States. It is not just an exceedingly busy court, Mr. Chairman, but the cases it hears are among the most complex.
To make it all just a little more challenging, the judges of New York's Southern District must deal with one of the most sophisticated bankruptcy bars anywhere. So I am pleased to welcome Judge Brozman to the subcommittee and I look forward to hearing her testimony.
I thank you, Mr. Chairman.
Mr. GEKAS. We recognize the gentleman from Massachusetts.
Mr. DELAHUNT. Mr. Chairman, I do not want to rain on any parade, but my aide informs me there is a vote going on. It is a motion to adjourn.
Mr. GEKAS. Well, I am going to stay here and listen to the testimony. I am going to skip the vote.
Mr. NADLER. Mr. Chairman, I must say, that is not proper. I object.
Mr. GEKAS. You can leave the room.
Mr. NADLER. No, I think the committee ought to stand in recess.
Page 6 PREV PAGE TOP OF DOC Mr. GEKAS. I will consider that.
Mr. NADLER. For at least 10 minutes.
Mr. GEKAS. I am going to listen to the testimony of at least the first witness. The first witness may proceed.
STATEMENT OF HON. DAVID R. THOMPSON, CHAIRMAN, COMMITTEE ON THE ADMINISTRATION OF THE BANKRUPTCY SYSTEM, JUDICIAL CONFERENCE OF THE UNITED STATES
Judge THOMPSON. Thank you. Mr. Chairman and members of the subcommittee, I am David Thompson, U.S. circuit court judge from the ninth circuit. I appear before you today as Chairman of the Committee on the Administration of the Bankruptcy System in the United States. I thank you for your willingness to hear us and have us come before you.
I appear before you today in support of the judicial conference request for 18 additional judgeships in 14 districts. This request goes back approximately 4 years to 1993. You may recall that a number of the judgeships, many that are in this present request, were requested some 4 years ago. I am sure you will agree that this request is not one which has been hastily made. Indeed, it is one which has been thoroughly studied over a long period of time.
We have based our analysis on the case weighting system, the development of which we really should give credit to this committee, because it was this subcommittee in the late 1980's that urged the judicial conference to come up with a more scientific method of measuring the need for additional bankruptcy judges. We did that.
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We came up with the case weighting method of measurement. By that method, we look at the number of case-related hours spent by bankruptcy judges on case-related matters.
Mr. GEKAS. Judge, I will have to intervene here. I thought we had 15 minutes remaining when we started your testimony. It appears we only have 7 minutes left to cast this important vote on whether or not to adjourn. So we will recess at this moment and return to the committee room as fast as possible and resume hearing your testimony.
Judge THOMPSON. Thank you, sir.
[The prepared statement of Judge Thompson follows:]
PREPARED STATEMENT OF HON. DAVID R. THOMPSON, CHAIRMAN, COMMITTEE ON THE ADMINISTRATION OF THE BANKRUPTCY SYSTEM, JUDICIAL CONFERENCE OF THE UNITED STATES
Mr. Chairman, members of the subcommittee, my name is David Thompson, and I am a judge of the United States Court of Appeals for the Ninth Circuit. My chambers are located in San Diego. I am also Chairman of the Judicial Conference Committee on the Administration of the Bankruptcy System, and it is in that capacity that I appear before you today. I have been a member of the Bankruptcy Committee for the past six years and have served as its chairman since October 1996.
Thank you for the opportunity to appear today in support of the Judicial Conference recommendation that 18 additional bankruptcy judgeships be authorized. The process for the pending request effectively began in early 1993. At that time, I was a member of the Bankruptcy Committee's ''Judgeship Subcommittee'' which thoroughly screened, reviewed, analyzed, and assessed the pending requests for additional bankruptcy judgeships. We separated the requests into categories, identifying needs that could be met without adding a judgeship and securing short-term relief for those in the greatest distress. In short, we tried to stabilize those situations we deemed most critical while we waited for new bankruptcy judgeships to be authorized. As you know, the wait for new positions continues.
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Never would I have foreseen that the process I, and others, so eagerly and carefully began would not be finished that year--1993--or the next year, 1994--or in 1995 or 1996. Nineteen ninety-seven is now almost half over.
Before addressing specific judgeship recommendations, I would like to provide, as background, a brief explanation of the system used by the federal judiciary to determine the number of bankruptcy judges necessary to support the bankruptcy system.
In the late 1980s, encouraged by urging from this Subcommittee, the Bankruptcy Committee requested that the Federal Judicial Center conduct a detailed, quantitative study of the bankruptcy judges workloads and recommend a comprehensive case measurement system. A copy of the report containing the Federal Judicial Center's work, entitled ''A Day in the Life: The Federal Judicial Center's 1988--1989 Bankruptcy Court Time Study'' by Gordon Bermant, Patricia Lombard, and Elizabeth Wiggins, is enclosed for the record. Based on time records of the activities of 97% of all bankruptcy judges recorded over a 10-week time frame, staggered throughout a one-year period, the Federal Judicial Center designed a work measurement system consisting of a case weight for each of the 17 specific case types within the jurisdiction of the bankruptcy courts. These are categorized as cases filed under chapters 7, 9, 11, 12, and 13 of the Bankruptcy Code; adversary proceedings, i.e., a lawsuit within a case usually initiated by filing a complaint; and contested matters, i.e., controversies usually initiated by the filing of a motion or an objection. The cases or proceedings are generally grouped by type and by the amount of assets or scheduled debts. For example, chapter 13 cases are categorized into subgroups according to the amount of liabilities--one subgroup applies to cases in which the liabilities are less than $50,000 and another to those with scheduled liabilities of $50,000, or more. While the chapter 13 case weights are based on liabilities, case weights for chapter 11 cases and both the business and non-business chapter 7 cases are based on assets.
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Through the comprehensive case weighting work measurement system, the ''weighted judicial caseload'' in the United States bankruptcy courts can be determined and analyzed. This thorough system helps the judiciary ascertain the minimum number of bankruptcy judges needed.
The Judicial Conference carefully reviewed the Time Study and adopted the proposed case weighting system at its January 1991 session. The Judicial Conference acknowledged the Center's determination through the study that 1,280 hours was the ''average'' amount of time spent by bankruptcy judges on ''case-related'' matters, noting that this figure excludes the nearly 700 hours per year the average judge spends handling general office-chambers matters, addressing personnel issues, traveling to divisional locations, attending meetings and seminars, conducting general research, etc. The Conference determined, however, that a district should have a weighted caseload of even more--at least 1,500 annual ''case-related'' hours per judge--before a request for an additional bankruptcy judgeship should be considered.
I hasten to add that, while that Judicial Conference policy statement remains the general standard, it is not the sole determinant of whether the Judicial Conference endorses or denies a judgeship request. Other factors considered include: 1) the nature and mix of the court's caseload; 2) historical caseload data and filing trends; 3) geographic, economic, and demographic factors; 4) the effectiveness of the court's case management efforts; 5) the availability of alternative resources for handling the court's caseload; 6) the impact that additional resources will have on the court's per judgeship caseload; and 7) any other relevant factors. It is only after all these factors are considered that a decision is made regarding whether an additional judgeship should be requested from Congress.
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In December of 1995, when representatives of the federal judiciary testified before this Subcommittee on the need for additional bankruptcy judgeships, you were advised that the Judicial Conference denied 52 percent of the initial requests received from the judicial councils. Some of these denials were based on information obtained during the on-site surveys. An ''on-site'' survey generally consists of a review at the requesting district by a survey team made up of a judge from the Bankruptcy Committee and one or more members of the Bankruptcy Judges Division from the Administrative Office of the U.S. Courts. The survey team reviews the court's policies and practices, focusing particularly on the court's calendaring procedures and docket sheets. Interviews are held with key court personnel, members of the local bar, the U.S. Trustee's office, panel trustees, and judges of the bankruptcy, district, and circuit courts. Before completing the on-site visit, the judge member of the survey team often meets with the judges of the bankruptcy court and furnishes a candid evaluation of the court's practices. Suggestions for improvements and ways to achieve greater efficiencies and productivity are discussed. This form of ''peer review'' has proved to be extremely helpful both to the courts and the Bankruptcy Committee in determining whether additional judges are the solution to the court's heavy workload.
Continuous improvements and enhanced efficiencies are a constant goal and, as satisfied as we have been with the case weight and assessment system, we recognize that periodic refinements are necessary. Thus, with encouragement from this Subcommittee, the Bankruptcy Committee asked the Federal Judicial Center to re-examine and attempt to quantify more precisely the judicial work required by chapter 11 ''mega cases''--an area that the Center had acknowledged at the outset of their report that the system may have undervalued. The Federal Judicial Center responded to this request by developing a prototype for adjustment to the case weight system in districts with a number of the mega cases, which the Bankruptcy Committee accepted and authorized at its June 1996 meeting.
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We anticipate that additional adjustments to the case weighting system will be made as we gain experience with the six-year-old system, so that we can ensure that the system provides as accurate an assessment as possible of the judicial workload for the various categories of bankruptcy cases and proceedings.
THE NEED FOR ADDITIONAL JUDGESHIPS
Today, I ask for your assistance and believe that together we will complete the process begun so long ago to secure authorization of the number of bankruptcy judges necessary to administer this country's bankruptcy system and to adjudicate the rights and responsibilities of debtors and creditors, corporations and individuals. The judiciary, through the processes and procedures established by the Judicial Conference of the United States, has determined that 18 additional United States bankruptcy judges in 14 judicial districts are absolutely necessary to administer the United States bankruptcy system and has recommended that they be authorized. The Judicial Conference has further recommended, based on the past and current statistics, that 11 of these 18 new positions be created as temporary judgeships. We believe that this approach, which provides a minimum of five years of additional judgeship time, is a prudent use of our scarce federal funds: it meets the immediate and foreseeable future needs of our bankruptcy system, yet affords an opportunity to reassess a district whose long-term needs are uncertain.
Indeed, I have a specific example of how this reassessment or second look approach works. The District of Delaware was authorized a temporary bankruptcy judgeship in 1992. Accordingly, the first vacancy which occurs in the District of Delaware on or after October 23, 1998, may not be filled. Based on the current filings, as well as the district's filing pattern, however, it is projected that a position will be needed for a much longer period. Therefore, the Judicial Conference has recommended that this temporary judgeship be extended for a period of five years. On the other hand, the Bankruptcy Committee is reviewing temporary judgeships in other districts and anticipates recommending that some be permitted to expire. This is part of the ongoing process by which the Judicial Conference carefully reviews the need for additional judgeships.
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It cannot be stressed too fervently that the need for the required additional judicial officers is at a critical level. Although the majority of these positions were requested in 1993, a request for additional judicial resources is made only after a pattern demonstrates the judicial caseload cannot be administered by other methods, such as utilization of more efficient and effective case management procedures, assistance from other districts or circuits, expansion of automation programs, and additional supporting personnel. Thus, each district for which a new judgeship has been requested had already experienced a sustained period of filings constituting a caseload that far exceeded the abilities of its judges to administer and adjudicate before the Judicial Conference recommended that Congress authorize an additional United States bankruptcy judgeship.
Bankruptcy filings continue to reach all-time highs and exceed previously unprecedented levels. In 1996, for the first time in history, the number of bankruptcy petitions filed in a one-year period exceeded one million. This ''record'' was followed by two more when the first quarter filings for 1997--311,131--exceeded the previous number of cases ever filed in one quarter and the second quarter filings for 1997--335,073--were even higher. The total number of filings increased during 1996, from the same time period in 1995, by 27%. Helping to create that rise, chapter 12 cases increased by 17% from 1995 to 1996; chapter 13 filings, often referred to as the wage earner chapter, increased by 23.9%; and chapter 7 filings (liquidation proceedings for both individuals and businesses) increased by 29.4 %.
The 23.9% increase in chapter 13 filings in 1996--although not generating much commentary--is of interest because the much-stated goal of the Bankruptcy Reform Act of 1994 was to encourage greater use of chapter 13 over other chapters of the Code.
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Reports and commentary on bankruptcy filings are front-page stories in our county, state, and national newspapers and on televised news reports. Because bankruptcy petitions are being filed in unprecedented numbers and continue to increase, commentators have expressed concern because the country and economy are said to be in good economic shape.
Yes, bankruptcy filings have reached an all-time high and still continue to climb. ''Why'' is a practical, philosophical, and complex question. I will attempt a brief, practical answer. First, I do not believe that there is one single reason or cause. Economic analysts and academics have identified a number of ''triggering events.'' For example, the lack of health care insurance has often been cited as a primary cause of bankruptcy. According to data released by the Small Business Administration, at the time of the 1993 Census, 37.4 million persons lacked health care insurance. Of this number, over 22 million of the uninsured were either self-employed or employed by small businesses.
Another major, often-cited contributor to high filings is stagnation in real wages over the past twenty years. While 1989 showed a brief peak in income, it then declined from 1989 to 1992. Economic commentators predict further decline.
The debt-to-income ratio, with abuse of credit card use, is also generally cited. Downsizing appears to be another factor. According to the Department of Labor, the total number of workers displaced from January 1993 to December 1995 was 8.4 million. Almost half of these workers obtained employment at the same level of pay or higher; however, approximately one-third of the reemployed suffered earnings losses of 20 percent or more.
Page 14 PREV PAGE TOP OF DOC Financial illiteracy is not mentioned as often but is, I believe, yet another contributor to the increased filings.
Thus, the factors which trigger or contribute to bankruptcy filings are numerous and often complex. Yet failure is an inexplicable part of life, both in our ''business'' and in our ''personal'' lives. We make poor judgments and our businesses fail; good health ceases and we lose our homes. As a nation, we have decided that the individuals behind the business and personal bankruptcy filings must be helped to begin anew--for their good and for society's. Our bankruptcy system, after all, serves as a safety valve for the nation, contributing substantially to economic stability.
Regardless of the causes, an unprecedented number of cases are pending in our bankruptcy courts and need to be administered. The need for more judicial resources to handle the burgeoning workload is grave. Sadly for many districts, the need for more resources arose years ago and grows greater with each passing day.
WORKING MORE EFFICIENTLY: DOING MORE WITH LESS
Our courts and judges know they must do more with less. I am pleased to tell you that they are not only doing more, but they are constantly expanding their efforts in that regard. For example, a project I am involved with is the Workload Equalization Project sponsored by the Judicial Council of the Court of Appeals for the Ninth Circuit. Through this pilot project, numerous adversary proceedings from districts within the circuit with oppressive caseloads are transferred to volunteer bankruptcy judges in other districts. I chair a group which has developed the evaluation criteria for the project. Within the past year, I have met with the chief bankruptcy judges within the Ninth Circuit and with representatives of the bankruptcy judges from the Central District of California, the district with the highest percentage of bankruptcy cases, and consequently of adversary proceedings, in the nation. A cost-benefit of the pilot project was conducted and that analysis was recently completed. I am pleased to tell you that last month we submitted our report to the Ninth Circuit Judicial Council. The project is a success and is now firmly in place. Although it is no substitute for necessary full-time bankruptcy judges where those judges are needed, the Workload Equalization Project is a tool the judiciary is using to deal with part of the crushing workload in districts impacted by increased bankruptcy case filings and contested adversary proceedings.
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The various proceedings that occur within the federal court system, especially our bankruptcy courts, are unfortunately not widely understood by those who have not been participants in these matters. For example, the name ''adversary proceeding'' may not indicate the fact that it is an often complex, time-consuming lawsuit within a bankruptcy case that may be initiated by a debtor or a creditor or a trustee. The debtor may be trying to recover money or property for the estate or a creditor may be trying to prevent confirmation of a plan. Adversary proceedings are also often filed to avoid transfers or preferences, obtain an injunction, subordinate a claim, challenge the dischargeability of a debt, or avoid a lien.
I hope you will indulge me in listing another example from my circuit of how we are expanding our efforts to do more with less. In 1991, the Central District of California, in coordination with the U.S. Trustees Office and state of California authorities, began a project to try and address the ''bankruptcy mills'' problem--that is, bankruptcy petition preparers filing petitions on behalf of debtors for the sole purpose of avoiding eviction. Quite often the debtors were not even aware of the actions being filed in their names. When the program started, again in 1991, 17 percent of the bankruptcy cases filed in the Central District of California were for the sole purpose of avoiding eviction. The Central District addressed this, and I think you will be pleased to know that today these same filings represent 1% of the bankruptcy cases filed in the Central District of California.
Another district which is in dire need of additional judicial resources is the Southern District of Florida. I can only wonder, however, how much worse the situation would be if, included among that district's many efficiencies and improvements, it did not have the thoughtful, innovative, and hardworking cadre of bankruptcy judges it now has. Pointing out specific individuals over others is always unfair, but I must commend the actions of Bankruptcy Judge Robert Mark who, when faced with the Piper Airplane case and the specter of hundreds of ''future'' claims, administered the case in a manner which led to what is considered by others to be a landmark decision. The issue of ''future'' claims is especially difficult because it is not a matter which had received statutory guidance or judicial precedent. Judge Mark's opinion has been followed by others, saving literally hundreds of hours of judicial time. I also commend Judge Mark for following in the footsteps of another innovator, Judge Thomas Small, well known for his small business chapter 11 procedures.
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There are many aspects to the bankruptcy system. An important one is the minimum number of bankruptcy judges necessary to administer the system today. The case-weighting system which the judiciary and Congress have used to assess this need is based on the number of cases already filed. As discussed earlier, these cases must not only have been filed, but the district for which a judgeship is recommended must have had a need for additional judicial resources for a sustained period of time. I am here today because of the sustained, excessive growth in filings and associated judicial workloads and the urgent need for additional bankruptcy judgeships.
Another vital aspect of the bankruptcy system is the need to update or modify the system's procedures periodically in order to maintain the necessary balance between debtor and creditor interests. The public's perception of the system is dependent upon an understanding of why virtually every country in the world has a bankruptcy system. Periodic adjustments to that system are essential to ensure that it addresses the economical, commercial, and technological advances of our world.
Congress created the National Bankruptcy Review Commission to conduct a two-year study of the bankruptcy system and submit a report of its findings and recommendations to the heads of our three branches of Government for any necessary adjustments or changes. As you are aware, the Commission's report is due to be presented by October 20, 1997. The expectation by many is that the receipt of this report will trigger a period of omnibus review of the bankruptcy system.
I respectfully suggest that both aspects of the system should be reviewed, but urge you to address the urgent need for additional bankruptcy judges as soon as possible. As I stated before, the majority of these districts demonstrated an oppressive caseload well before 1993. A system which is receiving excessively large numbers of new cases, year after year, without also receiving a sufficient number of judicial officers to adjudicate these cases, cannot operate in the manner which the federal judiciary and Congress envisioned. Timely resolution of a bankruptcy case, be it a consumer's or a corporation's, is important to everyone. Delay is a disservice to the rights of the creditors and to the rehabilitation--the fresh start--of the consumer, family farmer, small business, corporation, and municipality.
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Thank you for arranging this hearing so quickly after the Judicial Conference forwarded its recommendations to the 105th Congress.
This Subcommittee has a long history of not only tremendous efforts, but tremendous accomplishments in the operation and administration of the United States bankruptcy system. Once again, the system is in critical need of your efforts and accomplishments.
From a personal perspective, I ask your assistance in ensuring that the goals sought so long ago by a then new member of the Judgeship Subcommittee be realized by the new Chairman of the Bankruptcy Committee.
I stand ready and available to answer any questions or provide any assistance in this matter now or at any time. In addition, I am enclosing a one-page summary of relevant statistical data for each of the 14 districts and a consolidated chart comparing these districts to the national totals. Again, thank you for your obvious and prompt interest in this request.
INSERT OFFSET RING FOLIOS 5 TO 21 HERE
Mr. GEKAS. The subcommittee will come to order and we will resume. Where we left off, Judge Thompson was telling us about how this subcommittee had recommended to the Judicial Conference that a new evaluation system be set up in order to bring us to a point where we could prove the need. We will allot you a new 5 minutes. We will try to restrict your oral testimony to 5 minutes, but each written statement will be made a part of the record and will be considered in the final disposition of this matter.
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So, Judge Thompson, you may proceed.
Judge THOMPSON. Thank you, Chairman Gekas. We did establish the measuring formula, the case weighting system, and determined at that time that the average number of case-related hours bankruptcy judges across the nation were spending on case-related hours was 1,280 hours per year. That has gone up to 1,317 now.
In addition to that, however, bankruptcy judges spend an additional 700 hours approximately doing noncase-related duties, chambers management, court administration, continuing education, attending seminars and workshops. To support an additional judgeship request, we require more than the 1,280 base from which we started, we require more than 1,317 hours. We require 1,500 case-related hours in a district, and then we will take a look at that district if a district requests a new judgeship, if it is close.
If the district has been up and down, just hit 1,500, but it doesn't look like that is going to be a continuing trend, we might send a team in to survey the district. We require a sustained period of more than 1,500 hours before we would recommend an additional judgeship.
In a difficult case, we will look at the mix of the cases. Are there just a lot of 7's and 13's that are not going to require a lot of time, or are there chapter 11's. What is the geographic and demographic make up. If we think the district might benefit from our counsel for effective case management, we do that, and in some instances that has solved the problem temporarily. We look at alternate methods for processing cases.
Page 19 PREV PAGE TOP OF DOC In sum, we are not an easy mark. In December 1995, my predecessor testified before you and at that time the Judicial Conference had turned down 52 percent of the requests for additional judgeships.
In sum, the need exists for our 18 additional judgeships in the 14 districts and extension of the term of the Delaware temporary judge for an additional 5 years. That is the request. There have been unprecedented filings of bankruptcy which the other witnesses will mention. We believe the justification for the request has been shown, and we hope you will act favorably upon the request. I stand ready to answer questions to the best of my ability. Thank you.
Mr. GEKAS. We thank the gentleman. We turn to Judge Brozman.
STATEMENT OF HON. TINA L. BROZMAN, CHIEF BANKRUPTCY JUDGE, SOUTHERN DISTRICT OF NEW YORK
Judge BROZMAN. Thank you. On behalf of the Judicial Conference and my own district, the Southern District of New York, I would like to thank you for the opportunity of testifying this morning.
I have been on the bench for 12 1/2 years, and in that period of time, I have seen what I can describe only as an exponential increase in the number of cases that come before the court. The burdens on bankruptcy judges as a result in my own district, and this is mirrored nationwide with the increase in filings so we have now over 1 million cases a year being filed and some, I think it is 68,000 of them, approximately, in the second circuit of consumer cases this has put a tremendous burden on bankruptcy judges.
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I would like to spend just a minute or 2 to explain to you what it is we do. Although we have a very strong adjudicative role, that is not all that we do.
In business cases, for example, chapter 11 cases, which in the Southern District of New York is a large part of our docket, we have a very strong case management function. We have to oftentimes act as the catalyst for movement in a case. We bring parties into chambers and have conferences. We will sometimes appoint independent third parties in order to try to break log jams in the cases.
All in all, we are geared towards trying to create a financially viable entity that can emerge from chapter 11 and preserve an enterprise and jobs.
Our caseload is somewhat unique. It is hard to say somewhat unique, but there is one other district with a somewhat similar case load and that is the District of Delaware. Their cases, however, tend to be of the prepackaged bankruptcy type. Although we deal with prepackaged cases as well, we deal more with those cases that involve the need to restructure the business and not simply a balance sheet.
In addition to these sorts of mega cases, we deal with cases that involve transnational insolvency. That is a very important growing area in bankruptcy jurisprudence and in the case load of bankruptcy judges. These are cases which involve more than one country, where you have an international conglomerate typically or sometimes where you have a foreign bankruptcy proceeding and we are asked to give what we call ancillary relief to the foreign bankruptcy court.
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Unfortunately, the law has not caught up with the global economy, and we simply do not have the necessary law in order to enable us to deal with these cases. So we have attempted to be creative in dealing with them, including appointing individuals to act as our emissaries abroad and to create what we call protocols for the conduct of these sorts of cases.
This has now become the norm, and we are hopeful of spreading it across the world as a method of dealing with insolvency cases in the absence of necessary treaties.
I see that my time is up, so I will end with just one last thought, and that is some of the innovative things that we have put into place in order to try to most efficiently handle our caseload, a burgeoning case load. We have put in place fee guidelines in order to try to keep a handle on administrative expenses. We put in place budgeting committees composed of business people rather than the professionals in order to try in advance of services being rendered to keep an eye on what is occurring in chapter 11 cases in order to both cut down on their time and their expense.
We have put in place a very full scale mediation panel in order to try to adjudicate--excuse me, not adjudicate, resolve disputes quickly and less expensively than through traditional litigation. And in addition, we have very recently, with the considerable technical assistance of the Administrative Office of the U.S. Courts, instituted an electronic filing program by which chapter 11 cases are filed electronically over the Internet and no paper enters the court.
The beauty of this system is that the court's docket and all of its papers are available to registered users of the system on a 24-hour basis.
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Notwithstanding all of these innovative techniques, we still find ourselves in a position where it is imperative that we have another judge in order to try to handle this staggering caseload.
I thank you for the opportunity to address you.
[The prepared statement of Judge Brozman follows:]
PREPARED STATEMENT OF HON. TINA L. BROZMAN, CHIEF BANKRUPTCY JUDGE, SOUTHERN DISTRICT OF NEW YORK
Thank you for the privilege of allowing me to appear on behalf of the Judicial Conference and the Judges of the Southern District of New York. I am Tina Brozman and I have the honor of serving as the Chief Judge of the Bankruptcy Court for the Southern District of New York. I have been a bankruptcy judge for more than 12 years and have personally witnessed an exponential increase in the volume and complexity of the workload generated by the case filings in our district.
Mister Chairman, I can state unequivocally that the Southern District of New York needs the additional judgeship if debtors and creditors are to continue to receive the relief under the Bankruptcy Code envisioned by Congress. Let me take a moment to explain what transpires in our court.
All chapter 11 cases, big or small, need immediate attention from the judge to provide a smooth transition into a debtor in possession status. Debtors file bankruptcy for a variety of reasons but almost always to maintain the status quo so they may appraise their financial difficulties and provide an orderly process for satisfying claims. Orders from the court are necessary to pay employees, use cash to continue the operation of the business and furnish assurances of adequate protection of the assets for secured creditors until such time as the business is reorganized. However, issuance of these early orders is not the court's only role. In all chapter 11 cases in the Southern District of New York, the judge quickly schedules an initial case management conference to bring together the major constituencies and discuss such matters as the advisability of establishing a budgeting procedure, the nature and number of professionals to be retained, when claims resolution is to begin and what matters in the case will need immediate attention. Such conferences are conducted throughout the tenure of the case.
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Formally, with court established scheduling orders, and informally, in chambers conferences, the judge orders, rules, directs, cajoles, and leads parties through the intricacies of the chapter 11 process. Numerous matters find their way onto the court's calendar, some of them administrative or geared toward case management issues, and many of them substantive. In large chapter 11 cases it is usual to have thousands of creditors claims to adjudicate, hundreds of motions and hundreds of multiple defendant adversary proceedings, the bankruptcy equivalent of civil lawsuits.
A plan of reorganization is built from the debtor's disclosure statement which contains adequate information for creditors to vote on the plan. Once accepted by the judge, the disclosure statement is forwarded to creditors and they are allowed to vote on a plan of reorganization by amount and classification of their claims.
From the onset of the case the judge sets the tone by balancing the concerns of the debtor, creditors and equity security holders. A debtor's obligation is not only to meet the legal requirements under Title 11, but to produce business results and financial viability through a successful reorganization. Because negotiations on plans may bog down, the bankruptcy judge must often be the catalyst for movement. Successful administration of chapter 11 cases is more of an art than a science. The judge must be attuned to nuances and, when necessary, spur the parties through such devices as case conferences, appointment of a mediator or chapter 11 trustee or curtailment of the debtor's exclusive period to file a plan of reorganization.
Additional time is spent on cases brought under the Securities Investor Protection Act. Because New York City is home to the nation's major financial markets, the Securities Investor Protection Corporation (SIPC) asks our court to administer the liquidation of many multiple- million dollar stockbroker concerns. Contrary to popular myth these cases often are time consuming, involving numerous adversary proceedings and claims disputes. Compared to other chapters, the number of these cases is low. The overall demands on judicial resources, however, are significant.
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The hours devoted by bankruptcy judges in domestic cases are greatly augmented in so-called transnational cases. These come in two basic types: (i) chapter 11 cases where a foreign company or national has a place of business or assets here and abroad and (ii) cases ancillary to foreign bankruptcy proceedings. The Southern District of New York has an unparalleled number of both types of cases and, as a result, has been responsible for a great majority of the jurisprudence in this area of the law. These multinational cases have become more complicated over the past several years, present many legal issues of first impression, and require extensive amounts of judicial time. As an example, in order to decide whether to grant ancillary relief to a foreign proceeding, the judge must determine whether the foreign law is generally consonant with our own and consistent with our notions of due process. Naturally, this requires some delving into foreign law--which oftentimes derives from civil law rather than the English common law system from which our own law was spawned. Knowledge of principles of international law is also essential for questions arising as to what country's law applies to a particular dispute.
Judicial creativity is a must in these cases because international insolvency treaties most often do not exist. You probably remember the media magnate Robert Maxwell who met an untimely death when he parted company from his yacht. I presided over his enterprises chapter 11 cases. There were concurrent insolvency proceedings in England for the same parent company. The parties threatened the legal equivalent of international warfare between the two courts. To avert such a calamity, I appointed an individual to harmonize the American and English bankruptcy proceedings. From my instructions was born the first protocol to govern the conduct of simultaneous proceedings in two or more countries. Through this vehicle, in only sixteen months, we were able to confirm a plan of reorganization and to save the hundreds of well-known companies which Maxwell owned, including Macmillan Publishing Co., Thomas Cook Travel, Berlitz and Official Airlines Guide, to name but a few. This method of dealing with multinational cases has now become the norm. Given the leadership of our district and the explosion of multinational conglomerates, we anticipate that many more transnational cases will be filed in the Southern District of New York.
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Because of New York City's status as a financial, commercial, and legal center, a substantial number of extremely large chapter 11 cases are filed with us. The only other district with an equally heavy load of such cases is Delaware. Our bench enjoys a national reputation for expertise in administering so-called ''mega'' cases, particularly those requiring restructuring of the business and not simply a reduction in debt. We have been innovative in handling such cases and their related myriad disputes. These examples come to mind: First, we created guidelines for the submission of fee applications in order to keep fees down. We followed this with implementation of budgeting committees to review planned activities in cases for their cost effectiveness. Our guidelines were ultimately adopted across most of the nation. Our lead in budgeting is being similarly embraced. Second, we created a full-scale mediation program so that we could resolve more matters in less time and at less expense. And third, with the considerable technical assistance of the Administrative Office of the United States Courts, we have designed and are now using an electronic filing system which employs the Internet, permitting registered attorneys to electronically file and serve case-related documents, retrieve documents, and view documents and court calendars. This system makes court records available at any time of the day or night.
Our methods for handling business reorganization cases have become so well known that delegations of judges from all over the world have visited our court to study them. Some recent visitors include the governments of Japan, Thailand, China, Peru and Sweden.
A caseload such as ours requires a sufficient complement of judges. We are fortunate to enjoy the services of two recalled bankruptcy judges, one borrowed from the Eighth Circuit and one from our own circuit, but we cannot count on their long term availability. Bankruptcy requires prompt adjudication, responsiveness to emergencies and hands-on case management. Unlike in the general corporate world, troubled companies can be pushed over the precipice to liquidation simply because their legal disputes are not timely adjudicated. The old aphorism ''Time is money'' says it all in reorganizations. With inadequate staffing, our ability to provide these necessary services declines measurably. Unfortunately, the demands of an overly heavy caseload can have physical consequences as well. About five years ago, we had only five judges in Manhattan and business filings were at their all-time peak. Although the five of us worked nights and weekends to meet the demands, three of us became seriously ill. And a fourth judge, who had not physically succumbed, became so emotionally strained that it was very difficult to work with him. Tempers flared in courtrooms and in chambers, all to the detriment of our institutional objectives. I am certain that these same consequences occur in all understaffed districts.
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The majority of cases filed nationally have been chapter 7 and 13 consumer bankruptcies. The people who find themselves in bankruptcy court seeking an equitable resolution of their debt problems are your constituents. They include people laid off by corporate downsizing, self-employed business owners, and hard-working families who want to pay their debts yet find themselves unable to meet their obligations. While there has been much speculation about the causes for the recent increase in personal bankruptcies (more than one million personal cases for the year ending December 31, 1996--67,213 in the Second Circuit consisting of New York, Connecticut, Vermont), ranging from the improvident extension of credit to illness and divorce, the fact is the cases are here and the work is now. All of the districts for which additional judges are sought have felt the consequences of this burgeoning case load. Administrative review would be no panacea. Adversary proceedings are filed to determine whether discharges should be granted even in cases where the debtor has no assets. And absent judicial review of files, it is probable that questionable conduct such as that recently admitted by Sears, which had secured from thousands of debtors reaffirmation agreements which were unenforceable, unbeknownst to the debtors, would go undetected.
To return to what I know best, my own district, the increase in our workload has reached the level where an additional judgeship is critical if we are to continue to provide, in the words of the court's mission statement: ''A fair and effective forum for the protection and marshaling of estate assets, the discharge or adjustment of debts, and the timely distribution of property or securities, consistent with the law.''
I would like to thank you for the opportunity to appear before you today and will attempt to answer any questions you may have.
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Mr. GEKAS. We thank you, Judge.
STATEMENT OF HON. FRANK W. KOGER, PRESIDENT, NATIONAL CONFERENCE OF BANKRUPTCY JUDGES
Judge KOGER. Mr. Chairman, thank you for allowing me to appear and to testify today on behalf of the National Conference of Bankruptcy Judges. My name is Frank Koger. I am the president of that organization, but more important, I am an 11-year veteran of the bankruptcy bench and a 40-year veteran of bankruptcy practice.
As such, I have seen the evolution of bankruptcy from a form of the law business that was somewhat less respectable than ambulance chasing to an area where every major law firm in this country has a department which they call their insolvency department.
Naturally, that has led to an increasingly complex and massive system of litigation. Even in my State of Missouri, we have had a 35 percent increase in the last 2 years and look for another 20 percent increase this year. The bankruptcy judges face two problems: We are getting a deluge of cases, and we are getting more and more complex issues that require quality time by the bankruptcy judge to hear and rule.
Just as important is making sure that the individuals who come to our courts feel that they have had an adequate and fair hearing and a courteous opportunity to present their problem and have it considered by someone other than a party who is overworked and harried and simply signing orders.
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Everywhere in the system, judges who have less load than the national average are volunteering to help in districts with overload problems. I have sat in Iowa, which is within my circuit, the eighth circuit, when they had a problem. I have sat in Kansas, which is a neighboring circuit, the tenth circuit, when they had a problem. I have now volunteered to sit in New Mexico to help out where Judge Rose is hospitalized. That identical thing is occurring all over the country.
In 1984, the year Congress reestablished the Bankruptcy Court following the decision of the Supreme Court in the marathon case, there were 232 bankruptcy judges who processed a total national caseload of 348,521 cases. This worked out to be 1,502 cases per judge.
Last year, there were 326 judges and they faced a caseload of 1,178,555, or 3,615 cases per judge. While the caseload increased 238 percent, the number of bankruptcy judgeships increased only 40 percent.
The bankruptcy system badly needs the positions we are asking for if we are to continue to provide the relief to debtors and creditors envisioned by Congress.
There seem to be two reasons why the judges have been able to handle this tremendous increase without asking for literally hundreds of new judgeships. First, automation has increased our efficiency, and second, very honestly, we are working harder and longer than ever before.
Last year, over 1,100,000 individuals, family farmers, partnerships, small businesses, public entities, and big and small corporations, filed petitions in Bankruptcy Court. This was with a robust economy, an extremely low unemployment rate, and an irrationally exuberant stock market. The Bankruptcy Court has become the commercial court of the United States.
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I predict that it will never again see less than 1 million cases per year filed, and I fear that the next dip in our economy may very well produce 3 million filings.
The assistance this committee has given the bankruptcy judiciary many times in the past is desperately needed again. In asking for your help, I assure you this request for new positions is made only after the judiciary has taken every possible step to maximize all other programs to meet the needs before asking for your assistance.
For all these reasons, I wish again to thank you, Mr. Chairman, and would be happy to answer any questions that the committee might have.
[The prepared statement of Judge Koger follows:]
PREPARED STATEMENT OF HON. FRANK W. KOGER, PRESIDENT, NATIONAL CONFERENCE OF BANKRUPTCY JUDGES
INSERT OFFSET RING FOLIOS 22 TO 29 HERE
Mr. GEKAS. Thank you, Judge. I have just a couple of questions and comments. First, as a matter of personal information, Judge Brozman, did you allude to the Delaware bankruptcy jurisdiction as being appendant to yours?
Judge BROZMAN. No, no. Similar. They have the same sorts of large chapter 11 filings that we have.
Page 30 PREV PAGE TOP OF DOC Mr. GEKAS. I see. You were just quoting comparative statistics.
Judge BROZMAN. A comparison, correct.
Mr. GEKAS. As a matter of information to all who are concerned, I am committed to support this legislation and have sought to expedite the process by which we will get this matter to the floor, so that today we have scheduled not only your testimony to add to the substantial record that we already have to document the need, we are going to be proceeding toward markup later this morning.
What I also wanted to assert for the record is that this Member, as a rank and file Member of the House and as chairman of this subcommittee, places a great deal of credibility on the decisions and recommendations of the Judicial Conference. In that vein, we are in concert, because all of you in one way or another have asserted or reasserted the function of the Judicial Conference, and the fact that they have steadily supported these additional judgeships and sought to convince the Congress that it ought to act on this subject matter.
So we seem to be on a good glide path toward success in this matter. But we do not know the outcome yet.
The gentleman from New York, Mr. Nadler, has some questions for Judge Brozman. They are probably softball pitches, but, nevertheless, he has requested that we ask these questions.
Judge Brozman, do you believe that the AO's new method of measuring the judicial workload in the megachapter 11 cases accurately measures the work involved?
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Judge BROZMAN. Yes, I do. I am thrilled with the change. When the team came up to the Southern District of New York, I spent a great deal of time with them personally in going over our docket with them and explaining to them how chapter 11 worked and why a case that was a $5 billion case was a much more time-consuming and difficult case typically than a case that was a $1 million case. And I was heartened that they took our dockets and our explanations and understood very well the nuances of the practice and made an adjustment, which I think much more fairly and accurately reflects the judicial workload.
Mr. GEKAS. In his second question, Mr. Nadler says the Southern District has devised new case management procedures to more efficiently move cases through the system. How has this been working?
Judge BROZMAN. I think I mentioned those in my prepared remarks to you. I think that they are working very nicely. They have enabled us to handle this extensive caseload. However, in and of themselves, they are not sufficient to make up for the lack of a sufficient number of judges.
Mr. GEKAS. I thank you. We now note the presence of the gentleman from Tennessee, Mr. Bryant, and the return of Mr. Nadler. The testimony of the first panel has been completed. Mr. Nadler, half of your time has been consumed in the questions that I posed to Judge Brozman on your behalf, but we will still provide you with the opportunity for an additional set of questions.
Mr. NADLER. Well, I will simply thank you for asking those questions on my behalf, and yield back the balance of my time.
Page 32 PREV PAGE TOP OF DOC Mr. GEKAS. All right, we will invite the second panel to proceed, with thanks to the first panel.
Our next panel will include Richard L. Wynne, who received his J.D. degree from Columbia Law School in 1982 and has practiced in Los Angeles since 1985. He is a partner in Wynne Spiegel Itkin of Los Angeles, and has spoken and written extensively about developments in the law. He appears on behalf of the Los Angeles County Bar Association and served as chairman of its Bankruptcy Committee in 1995 and 1996.
He is joined at the witness table by Michael P. Richman, one of the first male graduates of Vassar College, and is an honors graduate of Columbia Law School. He is in private practice with the New York office of Mayer, Brown & Platt, and is a court-appointed mediator in the U.S. Bankruptcy Court for the Southern District of New York. He is also on the board of directors of the American Bankruptcy Institute, which he represents at this hearing.
We will begin in the order in which we introduced, with the same rules that we established for our earlier witnesses, 5 minutes of oral testimony. The written testimony will be accepted for the record, and you may proceed to summarize or in any other way present your testimony.
STATEMENT OF RICHARD L. WYNNE, ESQ., WYNNE SPIEGEL ITKIN, LOS ANGELES COUNTY BAR ASSOCIATION
Page 33 PREV PAGE TOP OF DOC Mr. WYNNE. Thank you, Mr. Chairman. It is a great pleasure to be here on behalf of the Los Angeles County Bar Association and particularly the commercial law and bankruptcy section.
The L.A. County Bar Association has approximately 20,000 members, 1,000 of whom are members of the commercial law and bankruptcy section. To a large extent, we do represent the primary practitioners in the Bankruptcy Courts in the Central District of California.
I do not want to repeat everything in my prepared statement, but the statistical analysis done by the Administrative Office of the U.S. Courts really shows what we in the practice know anecdotally is happening in the Bankruptcy Courts in terms of an overwhelming caseload. I have practiced exclusively bankruptcy law since 1985 in Los Angeles and the level of judicial overload is unprecedented.
Last year, we had 102,000 bankruptcy filings. In the first quarter of this year the statistics show that those are up 23 percent and there is a projected 123,000 bankruptcy filings this year.
The first panel talked about the national statistics, and there are other districts that are overloaded as well. But if you look at the per judge filings of 3,600 nationwide last year, the Central District of California had almost 5,000 filings per judge.
The way that this is really translated for us is that there is a system in crisis. When people ask me what I do for a living, I often tell them, because no one wants to say first that you are a lawyer, I say I am a crisis manager. And that is really my orientation.
Page 34 PREV PAGE TOP OF DOC When I look at the Bankruptcy Court system, I see that it is in crisis, except it is different than any other organization I might counsel.
With other companies that are in crisis, and my practice is fairly large chapter 11's, you might be able to add replacement management. You can put in information systems, you can bring in financial help, you can add production workers in a factory, you can sell a division. With the bankruptcy court system, the fundamental limiting factor is that we can't add judges without the assistance of Congress. The judges are the key factor that I believe is missing in the system and that we need to increase.
The prior panel discussed, and I would echo, that the Bankruptcy Court nationwide, and particularly in the Central District and certain other districts, have done a lot to add technological changes. They have computerized calendars, computerized everything basically that they can.
We now have modem access to court dockets, we have tentative rulings issued by judges in advance of hearings, and even judges allowing attorneys in noncontested matters occasionally not to have to attend hearings.
All of these efficiencies, including a greatly increased alternative dispute resolution program, have helped the court deal with their increasing case load, but it still can't take the place of having enough judges to handle the cases.
The last thing that I think that practitioners want or need are members of the public who are affected by bankruptcy cases, and every case affects more than just the debtor that filed it. Even a consumer chapter 11 case to the largest other cases, you have many creditors involved. In corporate cases you have the interests of employees, members of the public, and hundreds if not thousands of creditors in the larger cases.
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All of these interested groups want to go before a Bankruptcy Court making critical decisions in either their personal finances or the company's finances. You want to go before a judge who is calm and thoughtful and has time to read the pleadings, has time to hear the evidence. You really do not want to have a judge who is harried, overburdened, who has to consistently work nights and weekends to try to keep up with this volume of cases that keeps flowing. And that is the fundamental problem.
In the last several years, we have seen an overburdened bench, and no matter how well-meaning or thoughtful the judges want to be, they end up simply being overloaded.
One of the judges that I have appeared before a great deal is Judge Fenning, who is a very fine judge in our district. She is very quantitative and statistical. Judge Fenning has kept statistics on her bench hours, how many hours a day she spends on the bench for the last 10 years. In speaking with her before this hearing, I asked her about that. And she reported to me that her hours on the bench are up almost 60 percent this year, and her in-office hours are up almost approximately 30 percent.
I do not know if all of the judges are up that same amount, but that level of extra work affects the quality of time and judicial resources that can be devoted to important cases.
I want to thank the Members for hearing us. I know that there are many districts that are overburdened, but obviously I know the most about the Central District of California and the burdens that we face. I want to thank the committee for its support of the bill.
Page 36 PREV PAGE TOP OF DOC [The prepared statement of Mr. Wynne follows:]
PREPARED STATEMENT OF RICHARD L. WYNNE, ESQ., WYNNE SPIEGEL ITKIN, LOS ANGELES COUNTY BAR ASSOCIATION
Chairman Gekas and members of the subcommittee, I am Richard L. Wynne appearing on behalf of the Executive Committee of the Los Angeles County Bar Association's (''LACBA'') Commercial Law and Bankruptcy Section. I am pleased to testify in support of the Bankruptcy Judgeship Bill, H.R. 1596. This bill adds critically needed judges to those districts that need them, such as the Central District of California Bankruptcy Court.
There is a recognized crisis in our local bankruptcy courts with respect to overcrowded court calendars and the unavailability of judicial time and resources. Frankly, the experience of many practitioners in the Central District of California (''Central District'') is that our bankruptcy judges are simply overwhelmed with the increased filings. No matter how well-meaning, well-intentioned, hard-working, or capable, the bankruptcy judges simply cannot keep up with the volume of work. We all suffer, as do our clients, when judges are overworked, do not have time to adequately prepare for hearings, review papers or take complicated matters under submission for more careful consideration. In addition, this district is so overwhelmed that the bankruptcy judges do not often have the time and ability to write opinions for publication on some of the more critical and pressing issues. While, as discussed below, the Central District has implemented numerous improvements to streamline and upgrade its operations, and the Central District Bankruptcy Court is operating at a high level of efficiency, the excessive workload on the judges is a major problem.
Page 37 PREV PAGE TOP OF DOC The statistics are staggering. In 1996, the Central District of California had 102,645 bankruptcy cases filed, making it the nation's busiest district. The next largest district had only 30,000 filings. The rate of filings in California is one case per 59 households, the 5th highest rate in the country. Bankruptcy filings per authorized judgeship are also substantially higher, as there were almost 5,000 filings per bankruptcy judge in 1996, as opposed to a national average of 3,800. The per judge weighted case load of hours also indicates that our judges have a weighted case load of approximately 500 hours per year higher than the national average of 1,300 hours.(see footnote 1) This backlog has contributed to certain abuses of the bankruptcy system which have been chronicled elsewhere and which disadvantage all honest and deserving participants.
Attached hereto as Exhibit ''1'' is a chart prepared by the Central District Bankruptcy Clerk's Office, updating an April, 1987 report on relevant facts [The complete report is attached as Exhibit ''2'' hereto]. The projected bankruptcy filings for 1997 are 123,437, over a 20% increase from 1996. This means that per judge, filings will increase from 4,888 in 1996 (as compared to a projected national average of 3,615) to 5,878, as compared to a national average of 4,937.
The American Bankruptcy Institute (the ''ABI'') has, on June 10, 1997, [Exhibit ''3'' hereto] reported over the Internet that in the first three months of 1997 the greatest number of bankruptcy filings ever in a single quarter--335,073 were recorded, according to figures released June 9, 1997, by the Administrative Office of the U.S. Courts. This is a national increase of 26 percent over the first quarter of 1996. For the 12-month period ended March 31, 1997, there were 1,247,065 total bankruptcy filings nationwide.
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The Central District had, again, the greatest number of bankruptcy filings in the nation this past quarter, 28,637, a 23% increase over the first quarter of 1996. Interestingly, the filing numbers do reflect a decrease in local chapter 11 filings. It appears that one of the reasons for the decrease in chapter 11 filings may be the increased vigilance of bankruptcy judges in weeding out fraudulent and inappropriate chapter 11 filings with new case management techniques. Every judge in the district, I believe, now holds an early case status conference in all chapter 11 cases, and many set deadlines for debtors to file reorganization plans and disclosure statements unless cause is shown to extend those deadlines. The increased judicial time spent on these procedures, along with the U.S. Trustee Office's efforts to investigate and bring to the Court's attention inappropriate chapter 11 filings, has, I believe, directly translated into fewer of the abusive and fraudulent chapter 11 filings that have plagued this district. I have discussed this with many of the judges and they do not believe that their overall chapter 11 case workload has decreased with the decreased number of filings, they simply have somewhat fewer cases that need to be dismissed immediately. While the district is unfortunately still the victim of certain abusive filing practices, the measures taken by virtually all members of the judiciary in having early involvement in their cases and early analysis of whether or not a case is appropriately in chapter 11, has made a significant difference.
The Central District has had a recognized need (by the Judicial Conference) for at least four additional judgeships since 1992 and has not yet been able to obtain authorization for them from Congress. The time from passage of an authorizing law until the appointment of an actual new judge averages 18.5 months. Thus, new judges authorized now would not be available until the fall of 1999, which is 7 years since the need for them was first established.
Page 39 PREV PAGE TOP OF DOC The LACBA has over 20,000 members in Los Angeles, and the Commercial Law and Bankruptcy Section has approximately 1,000 members. Quite simply, speaking as a representative of the primary practitioners in this district's Bankruptcy Courts, this is our crisis, and a crisis for our clients. This issue is of particular importance on a national level as more individuals and business are involved (as debtors and creditors) with the bankruptcy court system than any other kind of court in the country. It is of particular concern that these high filing figures have occurred during a time of relative economic prosperity, and causes us great concern that if there is an economic down-turn the bankruptcy courts will be even more overwhelmed.
Pursuant to the Committee's rules, I have included my resume as Exhibit ''4''(see footnote 2) to this Statement so the Committee can review my background. In addition, neither I, nor the Commercial Law and Bankruptcy Section of the LACBA, nor my firm, have received any federal grant, contract or subcontract in the last two years. I have been practicing law since 1982 after having graduated from Columbia University School of Law. After practicing for three years in New York, where I handled a variety of commercial litigation and bankruptcy matters, I moved to Los Angeles and have specialized exclusively in bankruptcy and corporate reorganizations since 1985. While I joined a small ''boutique'' firm of six attorneys, the firm grew to approximately 20 attorneys as our bankruptcy practice expanded in Los Angeles, and nationally. My firm's primary emphasis was on debtor and creditor committee representation, although we represented, on occasion, individual creditors as well as purchasers of assets and bankruptcy trustees. Two years ago I formed a new firm with two of my former partners and we continue to practice exclusively in the area of bankruptcy and corporate reorganization, fairly evenly split between representing debtor entities and creditors committees, as well as trustees in bankruptcy cases and purchasers of assets. I am currently an editor of the California Bankruptcy Journal, and former chairman of the LACBA's Bankruptcy Committee. I am admitted to practice in New York, New Jersey and California and am a certified bankruptcy mediator in the Central District.
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My specialty has been fairly large and complex cases, although I have handled numerous smaller cases throughout my career. I cannot estimate how many chapter 11 debtors I have represented, but it numbers in the hundreds, particularly since I represented a large number of small businesses through the 1980's, including numerous real estate partnerships. Some of my most significant cases, in terms of time however, have involved representing creditors committees. I believe that this range of representation gives me a fairly balanced viewpoint on many issues, as I am not simply an advocate for positions that benefit debtors or creditors but have to represent both types of interests, as well as bankruptcy trustees, and others, simultaneously in my practice.
The Central District Bankruptcy Court, like any over-burdened system, is functioning under distress. It is, however, actually functioning remarkably well, considering the severe strain on its most scarce resource, the judges. This is not a situation where operating efficiencies and alternative means of expediting case handling have been ignored. Quite the contrary, innovative case management techniques and systems, as well as increased use of technology have been emphasized, designed and implemented on a regular basis.
The local bar associations and their members have responded to this recognized need and attempted to assist the bankruptcy courts in handling the high volume of cases. The LACBA's Bankruptcy Committee recognized several years ago that there was an unacceptably high volume of cases and assisted a Bankruptcy Judges Committee in implementing a mediation program for the Central District. Bankruptcy Judge Barry Russell heads the Judge's Committee and is responsible for designing and implementing the mediation program on an extremely expedited and successful basis.
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The Central District of California Mediation Program requires that volunteer mediators (not otherwise qualified by prior training and experience) receive four full days of training from the Pepperdine University School of Law Institute for Dispute Resolution. Due to the support given by bankruptcy judges and bar association leaders, the mediation program has been an unqualified success and is assisting in the on-going attempt to unclog court dockets. Over 220 practitioners, the vast majority of them senior partners or experienced attorneys at law and accounting firms throughout Los Angeles, have volunteered to become mediators. So far, approximately 805 mediations have been referred to the voluntary panel and the settlement rate is a very successful 63% for concluded mediations. See Exhibit ''5'' attached hereto. In addition to these voluntary mediations, a number of skilled practitioners have started handling paid mediations in more complex bankruptcy cases which can be successful, as well, in reducing court calendars. Judge Russell, as Program Administrator, and Susan Doherty, as Program Coordinator, run the program and have sponsored numerous educational seminars to educate the other bankruptcy judges and practitioners about the benefits of Mediation and Alternative Dispute Resolution. A copy of their regularly published newsletter is attached hereto as Exhibit ''6.''
The Central District Bankruptcy Court has also participated in a visiting judgeship program to relieve case load stress and improve public service. My two firms have had several experiences with visiting judges handling bankruptcy cases and while their efforts are appreciated, it is frankly not a workable solution or substitute for the additional needed judgeships. It is extremely inconvenient for lawyers and litigants to have to deal with the visiting judge's partial schedule and the lack of availability of a visiting judge for emergency matters makes this a very unattractive long-term solution.
Page 42 PREV PAGE TOP OF DOC In recent years, there have been other major improvements in the use of technology and the automation of the Clerk's Office, facilitating handling the heavy paper and information flow, for both the court staff and public case work. The Clerk of the Court, Jon Ceretto, and the former chief bankruptcy judge, Judge Ashland, and their staffs, have worked extensively to upgrade and improve the court systems, designing and implementing faster, and more easily accessible information systems. In addition to improved court and clerk's office staff training, the Bankruptcy Court has implemented faster processing and docketing of pleadings, faster scheduling, self-calendaring systems, conference call hearings for out of town counsel, computerized docketing and calendaring systems, and modem access to court calendars and dockets. These changes have now become standard practice in this District, greatly improving the service to the bar and public, and reducing costs. For example, instead of incurring substantial messenger services, charges, delays and substantial copying charges, the public and professionals can now regularly check court dockets and court information via modem. Some judges also now post tentative rulings on the Court's PACER information system, and allow for counsel to waive appearances on uncontested matters. These procedures save substantial cost in attorney fees, but do take the judges and court staff more time to prepare the written tentative rulings in advance of the hearings, and post them on the computerized services.
These improvements have been outlined so that your Committee understands that the Central District of California caseload problems are not due to a lack of diligence, foresight, planning or ability of the clerk's office, court staff or judges. The improvements in the smooth functioning of the clerk's office and court staff over the past several years has been, in fact, quite dramatic.
On a qualitative basis, having practiced in numerous bankruptcy courts around the country, I do believe that the Central District has an excellent group of judges, who are hard-working, energetic and thoughtful. They are however, overwhelmed. Extensive problems are created by having a system and judges that are consistently overwhelmed with new cases. Such overwhelmed judges do not always have the time and ability to think and reflect upon the more difficult issues they face, as more and more difficult issues, motions and trials are right behind each day's filings. Judges from the Central District do not often have the time to write opinions and provide needed guidance to the bar, and members of the public as to those many areas of bankruptcy law that are unsettled. Overworked and overburdened judges and their staffs are unable, at times, to give adequate time and attention to deserving matters, and it is a fairly common experience for court hearings to have to proceed straight through lunch and into the evening. I have had judges schedule week-end hearings and I know by personal experience that many of the judges are at times simply overwhelmed by the heavy flow of papers. This also results in judges who cannot take many matters under submission after hearings in order to carefully analyze the pleadings. All of these factors ultimately hurt the quality of the administration of justice in our district, causing judges to have to make decisions, at times, without full evidentiary hearings or delay decisions for long periods of time to conduct such evidentiary hearings. Under such pressure, a higher percentage of erroneous decisions can be expected, resulting in meritorious appeals and further costs and delays.
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The LACBA's Executive Committee of the Commercial Law and Bankruptcy Section believes that the only solution, given the number of filings and the increasing trend, is to have an increase in judges, as proposed in H.R. 1596. The Executive Committee was therefore very pleased, on behalf of the bankruptcy practitioners in the Central District, to have four additional judgeships proposed for the Central District in the bill. One of the significant advantages that we foresee from having additional judges is an improvement in the quality and quantity of judicial time that can be spent on bankruptcy cases and the ability to have appropriate time for each case. We believe that the proper administration of these important cases requires these additional appointments, as soon as possible.
I want to thank the Subcommittee for inviting us to participate in this important hearing, and look forward to providing any further information you might find helpful.
Thank you for your attention and consideration.
INSERT OFFSET RING FOLIOS 30 TO 43 HERE
Mr. GEKAS. We thank the gentleman. We will turn to Mr. Richman.
STATEMENT OF MICHAEL P. RICHMAN, ESQ., MEMBER, BOARD OF DIRECTORS, AMERICAN BANKRUPTCY INSTITUTE
Mr. RICHMAN. Chairman Gekas, members of the subcommittee, I am truly honored and privileged to appear before you today on behalf of the American Bankruptcy Institute, and I thank you for inviting us to testify in support of the bill to create additional bankruptcy judgeships.
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The American Bankruptcy Institute, as you probably know, has some 5,600 members who span all areas of bankruptcy practice--lawyers, judges and other parties in interest--and generally does not lobby for specific positions on legislation pending before Congress. But in selected areas such as this, where the efficiency of the administration of the bankruptcy system is implicated, the ABI has taken positions, and this is one such position.
Keeping within the time limits and understanding that our prepared statement is already part of the record, I wanted to take the opportunity to add some personal observations about the critical need for additional bankruptcy judgeships. In fact, I would submit that you may soon find that the additional judgeships that would be created are insufficient.
Beginning with the point that I believe Judge Koger alluded to in the earlier panel, let's observe something very interesting. We all have seen the statistical presentations which make a compelling case, based on the increase in bankruptcy cases in the last year alone, for additional judgeships. But what is happening in our economy generally? We are having a huge increase in bankruptcy cases at a time when our economy is relatively stable and healthy.
What is going to happen when the next business cycle comes? I do not think we have eliminated business cycles. At that point in time, I would submit we are going to see a huge increase in the most intensive cases, the large commercial chapter 11 cases, as companies who have been able to sail along during current economic times, find themselves under pressure with perhaps rising interest rates and other competitive forces.
Those are the cases that create the greatest burdens on the judiciary. So I think that if we are also planning ahead, even if we didn't have these statistics, we would see an important need to have the judges ready and trained to take on these cases as new cases come into the system, especially if, as Judge Koger predicted, it could go up to perhaps 3 million filings a year.
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Another problem with the current system and the overburden on the judges is just in the day-to-day life of the Bankruptcy Court. Many people misjudge the bankruptcy judge's time by how much time is spent in the court and think of a Bankruptcy Court as simply rendering decisions and moving cases along. But as Judge Brozman pointed out, that is not really how it works. The judges have to spend large amounts of time off the bench preparing for all the cases, writing decisions and otherwise being prepared to go forward. Then on a typical day in the Southern District of New York, where I frequently appear, there may be at 10 o'clock, 20 or 30 matters scheduled on the calendar.
Because the judge doesn't have the time to ascertain how long each matter is going to take, everyone has to show up at the beginning of the calendar call. Hours are consumed waiting for the case to be called. This increases the cost to the parties in interest, to the debtors, to the creditors, the lawyer time and the judge time, just waiting for cases to be handled, all of which is a consequence of the judge not being able to manage because of the overburdened caseload.
Also because of this tremendous case load, the Judge cannot, no matter how good he or she is, spend the time to deliberate as much as they might like. And this is a problem, not just because of decisions that may be made too quickly, which may lead to errors, which may lead to more appeals, and therefore to an increase in the cost of justice throughout the system, but also, and I think Judge Brozman alluded to this, one of the most important things that a bankruptcy judge does, especially in a complex chapter 11 case, is not decide.
Chapter 11 cases are a forum for negotiation. Most disputes in a large chapter 11 case, the restructuring, the disputes among creditors, disputes between the debtor and creditors, most of these are resolved through controlled negotiations in which the bankruptcy judge is the referee moving the system along, managing the case, making things happen. It takes an enormous amount of patience by the judge to allow those negotiations to unfold.
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I have been in many cases where the judge will take a recess and allow the parties to negotiate further during the course of the hearing, come back the next day, continue to negotiate, because the judges understand that often the best results in the bankruptcy system are those that the parties themselves negotiate rather than those that the judge dictates.
If the judge doesn't have the time to exercise that patience, then the system will fail. It will not do the best job it can do. And if a judge has an overburdened calendar and can't give the time because he or she is rushing to the next case, then a quick decision might be made that would have been better deferred to allow a negotiated resolution. That is really the way large chapter 11 cases work.
As I indicated before, also as a lawyer who wants to ensure that his clients get the best justice, I also want to be certain that the judge involved in my case has the time to read the papers, to listen to all of the things that we like to spew out in the court, and to make the best decision, and not feel as though a snap decision is being made that may lead to appeals and further costs.
So, again, I would refer to the prepared statement of the ABI, but I did want to add those personal observations based on my daily practice in New York.
[The prepared statement of Mr. Richman follows:]
PREPARED STATEMENT OF MICHAEL P. RICHMAN, ESQ., MEMBER, BOARD OF DIRECTORS, AMERICAN BANKRUPTCY INSTITUTE
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Chairman Gekas and members of the Subcommittee, I am Michael P. Richman, a member of the Board of Directors of the American Bankruptcy Institute (ABI), and bankruptcy partner in the New York office of Mayer, Brown & Platt. I am admitted to practice in New York and the District of Columbia and regularly appear in federal and state courts around the country. I am also active in the New York State and American Bar Associations and am a certified mediator in the U.S. Bankruptcy Court for the Southern District of New York. I am pleased to appear before you today on behalf of the ABI and in support of H.R. 1596, the Bankruptcy Judgeship Act of 1997.
As you know, the ABI is the nation's largest multi-disciplinary organization devoted to research and education on issues related to bankruptcy and insolvency. Founded in 1982 to assist Congress in the development of sound bankruptcy policy, the ABI is non-profit and non-partisan. Our more than 5,600 members span the entire spectrum of bankruptcy professionals: judges, attorneys, accountants, bankers, academics, trustees, credit managers and others on all sides of bankruptcy issues. The ABI is not a lobby group, nor do we typically advocate positions before Congress. However, the ABI has in the past supported legislation regarding the salaries of bankruptcy judges, to provide for retirement benefits, and to increase the number of judges where needed and appropriate. We appeared before the subcommittee on the need to increase bankruptcy judgeships in December, 1995.
The ABI applauds the work of the Judicial Conference of the United States, and particularly Judge Thompson and his committee, for carefully studying the workload needs of the bankruptcy courts. As this subcommittee is well aware, the number of bankruptcy filings exploded during the years between 1984 and 1996, rising by 238%. Alarmingly, the explosion of new bankruptcies continues in 1997. In the first three months of this year, for example, a record 335,073 cases were filed. This figure not only marks the fifth consecutive quarter of record filings, but it exceeds the total number of cases filed in all of 1980. The result has been emergencies in a number of districts, with overworked judges and clerks offices, and long delays for the parties seeking access to the courts.
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Bankruptcy filings are now more than double the level recorded in 1987. But unlike the increases in the 1980's, which tended to be regionalized, the new wave of bankruptcy filings is nationwide: each of the 94 judicial districts reported an increase in 1996 over the previous year. Based on these filing trends, there appears to be a clear need for additional bankruptcy judges. However, perhaps more important is that these increased filings are occurring during an unusually long period of marked economic stability and prosperity. When the next recession arrives, as inevitably it will, we think it likely that there will be a literal explosion of new bankruptcy filings, especially large commercial cases that require the most judicial attention. This is therefore the time when we should be ensuring that there are sufficient judges with experience and ability to manage not only the current volume of cases, but the potential crisis of a vastly-increased number of cases.
The legislation before you is also timely given the delays typically attendant to the filling of any new bankruptcy position by the regional courts of appeal. Accordingly, we hope this committee and Congress can successfully complete action on this bill without delay.
Mr. Chairman, as the one who regularly litigates cases in the bankruptcy courts--particularly busy districts such as the Southern District of New York--let me try to provide some insight on the practical and real problems parties face when dealing with overworked judges. The first consequence is that the judges necessarily have less time to spend on each case. For simple motions and proceedings, this may be of little consequence. But many cases require bankruptcy judges to have extended hearings, with witnesses, equivalent to trials and mini-trials. In those cases, judges are often forced to delay proceedings for many months until sufficient time may be found.
Page 49 PREV PAGE TOP OF DOC Another consequence of overworked judges is increased demands and costs placed on debtors and creditors. On a typical day in the Southern District of New York, for example, a bankruptcy judge may be required to schedule 20 or 30 matters at 10 a.m. The attorneys and parties on all those matters are required to appear at 10, as none can be certain how long any single matter will take, or when their particular matter might be called. If by 1 p.m. or so, the calendar has not been completed, the matters spill over to the afternoon. Thus, three or four hours of lawyer and party time may end up being consumed, on a matter that might only take 10 or 15 minutes, all as a consequence of the crowded calendar.
Perhaps some of these problems could be alleviated if judges had more time to ascertain in advance how long a matter might take, and then schedule matters on a staggered basis. But even that time is not available for the overworked judges. When there is precious little time for the substantive casework to be done, the judges cannot be expected to devote time to the preparation of schedules to make it less onerous on the lawyers and parties who appear before them.
Finally, on a more fundamental level, as a lawyer who wants to ensure that his clients receive a full measure of justice, I am concerned that the stress of overwork placed on the bankruptcy judges may potentially impair the quality of justice received. No matter how capable the judge, it seems to me that under the stress of overwork, more mistakes will be made, more snap judgments will be made, more reversible error made. This leads to more appeals, increasing the caseloads for the district and court of appeals judges, and increasing the cost of justice for the parties. It is important to our system of justice that the full deliberation that a judge should bring to important decisions not be impeded by the competing demands of having too many cases, especially where the problem can be addressed by increasing the number of judges.
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While it is important to meet the resource needs of the courts, it is also important in this era of budget restraint to authorize only those judgeships that are essential. As Congress downsizes its committees and eliminates support agencies, and the executive branch faces possible budget cuts, it is only prudent that this subcommittee scrutinize the resource needs of the third branch, including the bankruptcy courts. In H.R. 1596, the Judicial Conference appears to have struck the proper balance between the resource needs of the bankruptcy courts and the prudent use of taxpayer dollars.
Here again, the ABI commends the Judicial Conference for its careful calculation of the case weighing statistics, resulting in this recommendation of 18 new bankruptcy judgeships. Each district provided for in this bill is substantially above the national average of weighed filings per judge. Indeed, in all but one of the districts, (E.D. Pa), the weighed filings per judge will still be higher by at least 8% than the national average, even after the new judges provided for here are installed.
One cost-conscious innovation we support is the concept of ''temporary judgeships.'' Eleven of the 18 new positions at H.R. 1596 would be temporary positions. However, we suggest that some greater degree of flexibility be maintained to fill vacancies arising after five years, in cases where the temporary designation may cause unanticipated hardships.
For example, a vacancy arising from the sudden death of a judge would not be filled if the district was designated as temporary and the death occurred at least five years after the appointment date. In such a case, it is easy to imagine a two judge district (such as the Middle District of Pennsylvania) suddenly becoming overworked, using the Judicial Conference's caseload measurement guidelines. Under the temporary judgeship provision in H.R. 1596, however, the vacancy ''shall not be filled.'' Relief could come only from the Judicial Conference, going through the lengthy process of recommending a new position and the Congress approving both a judgeship authorization bill like the one before you today and an appropriations bill. Clearly, this is not a process designed to move quickly.
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We suggest that some flexibility be retained by the courts of appeal in determining the continued need. Perhaps the legislative language in 28 U.S.C. 152 could include a presumption against filling a new vacancy designated as a temporary position, but one that could be overcome upon the Judicial Conference's certification of an ongoing need.
Such an arrangement would accommodate the cost-conscious purpose of temporary judgeships, without unduly limiting the discretion of the judiciary to best serve the needs of the bankruptcy system. We would, of course, be pleased to work with the subcommittee and others in formulating language to meet these interests.
We thank the subcommittee for inviting the ABI to participate in today's important hearing and we look forward to assisting you and your staff in any way you find helpful. I would be pleased to answer any questions you might have.
INSERT OFFSET RING FOLIO 44 HERE
Mr. GEKAS. We thank the gentleman. The Chair yields 5 minutes to itself for the first round of questioning. I only have a couple of questions. Both of you alluded, of course, to the judicial burdens which have brought us to this stage in these proceedings. The judges talked about prepackaging many of the cases which runs in the face of what Mr. Wynne was talking about, and Mr. Richman, that we need more time for the judges to deliberate.
So I guess we have to do both at the same time to discourage lawyers from fighting a case to the hilt by prepackaging something that can be routinely accepted and adjudicated by a judge in bulk, as it were.
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Any comment on that?
Mr. RICHMAN. Well, actually, Mr. Chairman, I think the prepackaging, which I think is more typically and exclusively in chapter 11, is a timesaver, when it can be done. Many cases are not suitable for it. But in cases----
Mr. GEKAS. You say it is more prevalent in 11?
Mr. RICHMAN. Yes. And it is typically a way in which parties, before they come to the Bankruptcy Court, sit down, negotiate their plan of reorganization, obtain their votes, and then come in. Those cases can be over in 60 or 90 days.
There are many cases, however, not suitable for resolution that way and do require the intervention of the Bankruptcy Court and the regular bankruptcy process.
Mr. GEKAS. I wanted the Members to note that I am going to present exhibit A as to the quality of our witnesses. This is the Los Angeles Lawyer Magazine, with the picture of Mr. Wynne on the front cover. The next issue, I think, is going to have Mr. Richman. We are in good company with the witnesses we have here.
Mr. CONYERS. Mr. Chairman----
Mr. GEKAS. Do you want a copy of this?
Page 53 PREV PAGE TOP OF DOC Mr. CONYERS. Mr. Chairman, when is your picture going to appear on this?
Mr. GEKAS. It has already been, only on the Police Gazette.
Mr. WYNNE. After the bill is passed, I think the Members will probably be on the next issue of the Los Angeles Lawyer.
Mr. GEKAS. We will accept that. I yield back the balance of my time. Does anyone else seek time? The gentleman from New York.
Mr. NADLER. Thank you. Let me say that as the chairman mentioned earlier, this bill is one of the priorities of this committee, and I am very glad it has gotten to this stage. We have worked very hard on getting to this and changing the apportionment formula to recognize some current realities. I want to particularly welcome, take this opportunity to welcome Mr. Richman from the Southern District, which is from our district.
Let me ask you, Mr. Richman, first, would you comment briefly on the importance and the impact of the change in the apportionment formula to recognize the difference between a case of $1 million and $1 billion?
Mr. RICHMAN. Oh, unquestionably, that is a valuable and important change. In fact, as I was listening to the testimony and reading the statistics, I wondered whether it still underrepresents the burden in a complex chapter 11 case, because there can be so much, especially with multiple parties, so much intensity on many different levels.
Page 54 PREV PAGE TOP OF DOC I just got finished representing a party in the Olympia and York bankruptcy cases before Judge Garrity in the Southern District. Those cases went on for 2 years or so and involved well over 100 different significant parties in interest and negotiations, and the pressure on the judge in that situation was just enormous.
I wonder how Judge Garrity had time to do anything else, and yet he carried a full caseload besides that. So I would think even with that change in the weighting system, there may be some unusual cases that should be singled out and be given even greater weight.
Mr. NADLER. I have just one further question. I do not think you mentioned in your oral statement, but it is in your written statement, about your opinion as to the advisability of amending this bill to give some flexibility to courts of appeal in determining the necessity of continuing a temporary judgeship should the incumbent die or resign. You state that this is important, could be important to some districts where there might be only two judges and one suddenly disappears from the scene and we would need a more flexible method of replacing him than waiting for another congressional enactment.
Could you comment to the committee on this?
Mr. RICHMAN. Yes, Congressman. I think one of the concerns or one of the issues with the bill that the ABI has identified is that apparently after 5 years, if there is a vacancy in a temporary judgeship, that there is no right or ability under the bill to fill that vacancy unless there is a new statute, a new bill, brought before the committee and passed.
We felt that particularly if you believe, as I do, that there could well be an explosion of new cases in the coming years, and especially in those districts that have only a few judges and would be having a temporary added, that it would be a very wise thing to provide some mechanism in the bill to fill a temporary vacancy after 5 years.
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One of the suggestions that we made was to enable the judicial conference to make a recommendation, and on that recommendation provide the authority to fill the slot, without coming back to Congress.
Mr. NADLER. You do not mean necessarily to fill it, but to have the option upon the recommendation by the judicial conference to decide whether it is necessary to fill it, and if so, to do so?
Mr. RICHMAN. Yes, and to have that mechanism embedded in the current legislation, rather than having to go through enacting new legislation with the time attendant to that while the emergency is pending.
Mr. NADLER. Especially in a district with only a few judges, where the deletion of one judge would be a tremendous percentage change in the capacity of the courts.
Mr. RICHMAN. Yes, exactly.
Mr. NADLER. Thank you for that recommendation. I, for one, will certainly see what we can do about it. I yield back the balance of my time.
Mr. GEKAS. The gentleman from Tennessee has requested time.
Mr. BRYANT. Thank you, Mr. Chairman. I also want to thank you as a former practitioner in the Bankruptcy Courts for your continuing series of bankruptcy-related hearings, and also with today's hearings on H.R. 1596.
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As we have learned from earlier hearings, we will no doubt have a number of other issues to consider when the National Bankruptcy Review Commission releases its report this fall. There is, however, no reason for Congress to defer action on responding to the Judicial Conference's longstanding bankruptcy judgeship request.
The simple fact of the matter is that the districts identified in this bill are overworked. Bankruptcy judges in the Western District of Tennessee, for instance, have weighted caseloads that are 90 percent above the national average.
In my judgment, all of the requested judgeships in H.R. 1596 are merited, and for that reason I have cosponsored your bill. I want to thank the very distinguished members of the two panels we heard today, and I hope we can move this noncontroversial bill expeditiously through the committee and on to the House floor. I thank the gentleman.
Mr. GEKAS. The gentleman from Ohio, Mr. Chabot.
Mr. CHABOT. I just had one question. It is my understanding that the cost of each judge, when one adds in the staffing and, I guess, equipment, et cetera, is somewhat over $700,000 a year per judge; is that correct? Would the gentleman at the time know?
Mr. RICHMAN. I do not have that information.
Mr. GEKAS. Our cost information is $768,533 for the first year, and $595,415 per year thereafter. I guess there is less coffee needed the second year.
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Mr. CHABOT. As Mr. Bryant mentioned, the Commission's report is due out this fall, I believe; is that correct?
Mr. RICHMAN. The National Bankruptcy Review Commission Report, yes, it is due out, I believe, in October.
Mr. CHABOT. You certainly made clear the number of bankruptcy filings has increased fairly dramatically over the years, and you also mentioned in your testimony that the economy is doing reasonably well right now. You can argue that some people are doing better or worse than others. But overall unemployment is down and things are going pretty well.
Obviously, the President would like to take credit for that. Congress would like to take its share of credit for it. But, nonetheless, it is happening.
Why, in your opinion, are bankruptcies, why are people opting to file so many bankruptcies nowadays as compared with the past when filings were lower in number? Would you want to comment on that?
Mr. RICHMAN. I think, Congressman, much of this is speculation, but it is my opinion that bankruptcy doesn't carry the stigma that it once did. I think that more and more as our economy matures, people recognize bankruptcy as a restructuring tool, something which is a benefit, and which should simply be added to the arsenal of tools that a business has, for example, to restructure and to be able to survive and preserve jobs.
Page 58 PREV PAGE TOP OF DOC In individual cases, I think the same is true. I think much of the recent filings are probably more heavily weighted toward individuals who perhaps overextended their credit cards and got into difficulties that way. But, again, I think that my own belief, besides the fact we have a population growth, a more mature body of population able to spend money and acquire debt, because bankruptcy doesn't have a stigma and is viewed as a positive, that people are more willing to use the bankruptcy court as a commercial court to resolve their problems.
Mr. CHABOT. Thank you. My final comment would be that we get, as you can imagine, considerable numbers of requests from all sorts of very worthy causes to increase various sizes of the government by adding additional employees, sometimes judges, sometimes other types of employment, and I do not want to be the skunk at the garden party or whatever the expression is, but I am always a very hard sell when it comes to adding anybody to the Federal Government. For that reason, I will probably vote in the negative.
Mr. NADLER. Will the gentleman yield for a moment? If I may, I am not sure of the form here, but I would ask Mr. Richman to comment. You had in your testimony, I think, something, or maybe it was Mr. Wynne, something to the effect of the extra costs of not having enough bankruptcy judges.
Would you just comment on that in light of what was just said?
Mr. RICHMAN. What I referred to in my testimony was a concern that I have and a belief that I have that as the bankruptcy judges are overburdened and therefore are forced by the pressure of their workloads to make decisions rapidly, that they will make more errors. More errors will lead to more appeals. More appeals will lead to greater burdens on the district courts and the courts of appeal and greater costs.
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In addition to that, I alluded to the fact that the case load right now requires huge amounts of time to be spent by individual parties in interest just waiting in the court for a matter to be called. The judges, because of the numbers of cases, really do not have the means to schedule matters in any orderly way. So, for example, in the Southern District, there may be 20 or 30 matters scheduled at the same time because you can't predict how long each is going to take, and parties in interest and their lawyers may be in the courtroom for 4, 5 or 6 hours for a matter that might take 10 minutes to resolve.
Mr. NADLER. So in other words, would you conclude that not having enough bankruptcy judges imposes a very substantial cost on private businesses?
Mr. RICHMAN. That is correct.
Mr. CHABOT. Reclaiming my time, again, we hear the argument all the time that if you just spend some more money now, we will save money down the road. You can add that we ought to double the spending for the Head Start program, for example, because over the long-term we will save money. You could say we should double the size of education because kids have a better education. They won't have to pay for jails later on. You can always--that is why we do spend a certain amount of money for all these worthy causes and generally do increase the funding at least by inflation every year, and sometimes by more, sometimes less.
You can always make the argument that if we just spend more money, we will save more money at some point. We just have to make those decisions. But I do appreciate the gentleman's testimony here this morning. Thank you.
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Mr. GEKAS. The time of the gentleman has expired. We note the presence of a voting quorum in the committee, and reporting quorum to boot, as Mr. Parliamentarian has reminded me. We invite the witnesses--we are excusing the present panel. We invite the witnesses to hang on, because you will be seeing your product reach its successful conclusion.
Does Mr. Conyers wish to make any comment?
Mr. CONYERS. Mr. Chairman, should I ask questions before we report or after?
Mr. GEKAS. I would prefer you do not ask any, but the gentleman is an ex-officio member of the subcommittee. We grant him the privilege of asking any questions he wants to of Mr. Wynne and Mr. Richman. I had asked if anybody wanted to be recognized. I didn't see you ask for recognition. But I yield to the gentleman.
Mr. CONYERS. Thank you very much. First of all, I want to welcome all the witnesses here. Assuming that the Commission recommends article 3 for bankruptcy judges, what effect, Attorney Wynne, might this have on the workload of the courts that we have talked about here?
Mr. WYNNE. I think it would be a very positive effect, speaking from bankruptcy practitioners. I practice in many districts, not just the Central District. It would effectively eliminate some of the double jurisdiction issues where certain issues may have to go to the district court today and where you have essentially two levels of appeal, one level to the district court and the bankruptcy appellate court or panel, depending on the choice of the litigants, and then to the court of appeals.
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Mr. CONYERS. Do you agree, Mr. Richman?
Mr. RICHMAN. I would make a slightly different point. That is I do not, Congressman, think it would affect the workload, the case load, and the time pressures that exist on the bankruptcy judges today. It is possible that there would be--if in connection with the enactment of article 3 status, there was also enactment of the provision to eliminate an appeal from the Bankruptcy Court to the district court, because I believe that is a separate issue that the Review Commission is looking at, then by saving a level of appeal, you would have the Bankruptcy Court perhaps save some costs. But I do not think that article 3 status would have any effect on the issues we have been discussing today insofar as the current burdens on the bankruptcy judges are concerned.
Mr. CONYERS. Some of us up here think it would make it more efficient. It would ease the workload.
Mr. RICHMAN. Assuming that the bankruptcy judges with article 3 status continue to be the bankruptcy judges and we do not also have bankruptcy matters being determined, adjudicated, by other district court judges, then I do not believe there would be a difference.
Mr. CONYERS. All right. Let me raise the question of the fee. This is the only Federal court that there is no waiver for fees. In other words, to go into bankruptcy because you are in debt, you have to be able to afford it.
Does anybody feel a little uneasy that maybe we ought to look at that? Mr. Wynne.
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Mr. WYNNE. One of the problems that we have had, particularly in the Central District, is really a rash of improper bankruptcy filings, and one of the entry barriers is the fee.
Now, what the judges do do, they do allow basically installment payments, and I have often sat in court and listened to debtors come into court personally and explain the situation to the judge and get very minimal payment plans, and they are honest, deserving debtors.
I think my concern from our district would be that you would have perhaps an increase in what we are having now, which is houses or other pieces of real estate having fractional interests given to up to 64 people we have seen, and then you have serial bankruptcy filings, thereby preventing a bank from foreclosing, because each time you have someone new filing a bankruptcy.
Mr. CONYERS. You are missing the point. Mr. Richman.
Mr. RICHMAN. I am advised by Samuel Gerdano, the executive director of the American Bankruptcy Institute here today, there is a pilot program.
Mr. CONYERS. I know about that. What is your feeling? I am talking about legitimate debtor. I am not talking about the hot shots that you were talking about, Mr. Wynne. I am talking about a poor working stiff that can't afford the filing fee. By the way, what is the filing fee? How much?
Mr. RICHMAN. $175.
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Mr. CONYERS. Is it due to go up?
Mr. RICHMAN. I do not believe so. Congressman, my personal feeling is that there is no reason why anyone should be denied access to any court for any reason.
Mr. CONYERS. Why don't you recommend a fee waiver when you come before the Congress? I mean, I am glad you have got all these great sentiments about poor people, but for God's sake, the Bankruptcy Court is the last stop for a working stiff, and you are telling him he has got to somehow get $150, or $175. So, please, gentleman, and I want you to take this back to all the associations and all the lawyers and all the judges, to let's think about how we can, without letting people finesse the system, that we give a break to them. You can go into the Federal district court and get a waiver.
OK, let me make another point, because I know the chairman wants to get to the markup. But I have these two questions. Let me just get them out, if we can get them finished. I wanted to find out if we are authorizing enough judges.
Mr. Richman, you implied we might not be, that we are just holding off, holding them off. We have 11 temp, 7 permanent, and extending 1 temp, and you suggest that might not be enough.
Then I wanted to find out if Senator Grassley's complaining about the judges traveling too much to seminars, should be seriously considered at this hearing?
Page 64 PREV PAGE TOP OF DOC Mr. RICHMAN. Congressman, I am sorry, the first question?
Mr. CONYERS. The first question was the point you raised that we might not be appointing enough judges.
Mr. RICHMAN. Yes, thank you. The point I was making, and I think you could make that argument that certainly the statistics and the careful work of the judicial Conference----
Mr. CONYERS. How many do you think we should appoint? How much should we increase these numbers by if you do not think there are enough?
Mr. RICHMAN. In my personal opinion, in the larger districts where it is more case-intensive, anticipating the likelihood of a large increase in cases in the next couple of years, I would increase the numbers by at least one in each of the large districts.
Mr. CONYERS. Mr. Wynne.
Mr. WYNNE. I think that would be fair. My concern is we have been in a very good economy, and we are seeing unprecedented levels of filing, and that the next economic downturn or cycle, the courts will be----
Mr. CONYERS. I want to get this on the record.
Mr. GEKAS. The time of the gentleman has expired. I yield an additional 2 minutes.
Page 65 PREV PAGE TOP OF DOC Mr. CONYERS. I thank you, Chairman Gekas. What about Senator Grassley's complaint over there on the other side?
Mr. WYNNE. In 2 minutes, I can't really address it.
Mr. CONYERS. You need more time than 2 minutes?
Mr. WYNNE. My view is it is not really an issue with respect to the need for judges. How judges spend a certain amount of time in terms of seminars, the particular judges he was concerned about were at the same time they were teaching seminars taking very little vacation time.
I have worked on lot of international bankruptcy cases and the work that they were doing was in Eastern Europe. I think on a lot of levels, it is very important work, but it has had no discernible effect upon our district. We have 21 judges that are overloaded. The fact that one or two would have spent 1 or 2 weeks a year of what could have otherwise been their vacation time teaching in 2 or 3 years, I do not think is a major issue.
Mr. CONYERS. OK. All right. I will tell him you said so.
What about you, Mr. Richman? We will close this down.
Mr. RICHMAN. The quality of justice and the quality of the administration of justice in this country is improved immeasurably when judges get together with lawyers and they teach one another and they speak with one another at conferences, which really is the only time where practically they can do so. So I do not believe there is any excess at all in that. I think the entire system is improved by that.
Page 66 PREV PAGE TOP OF DOC
Mr. CONYERS. Thank you. Thank you for the extension of time, Chairman Gekas.
Mr. GEKAS. We thank the gentleman. We thank the panel, and the previous witnesses. We bring this hearing to a close. This meeting is adjourned.
[Whereupon, at 11:30 a.m., the subcommittee adjourned.]
A P P E N D I X
INSERT OFFSET RING FOLIOS 45 TO 52 HERE
BANKRUPTCY JUDGESHIP ACT OF 1997
COMMERCIAL AND ADMINISTRATIVE LAW
Page 67 PREV PAGE TOP OF DOCCOMMITTEE ON THE JUDICIARY
HOUSE OF REPRESENTATIVES
ONE HUNDRED FIFTH CONGRESS
BANKRUPTCY JUDGESHIP ACT OF 1997
JUNE 19, 1997
Serial No. 17
Printed for the use of the Committee on the Judiciary
Superintendent of Documents, Congressional Sales Office, Washington, DC 20402
COMMITTEE ON THE JUDICIARY
HENRY J. HYDE, Illinois, Chairman
Page 68 PREV PAGE TOP OF DOCF. JAMES SENSENBRENNER, Jr., Wisconsin
BILL McCOLLUM, Florida
GEORGE W. GEKAS, Pennsylvania
HOWARD COBLE, North Carolina
LAMAR SMITH, Texas
STEVEN SCHIFF, New Mexico
ELTON GALLEGLY, California
CHARLES T. CANADY, Florida
BOB INGLIS, South Carolina
BOB GOODLATTE, Virginia
STEPHEN E. BUYER, Indiana
SONNY BONO, California
ED BRYANT, Tennessee
STEVE CHABOT, Ohio
BOB BARR, Georgia
WILLIAM L. JENKINS, Tennessee
ASA HUTCHINSON, Arkansas
EDWARD A. PEASE, Indiana
CHRISTOPHER B. CANNON, Utah
JOHN CONYERS, Jr., Michigan
BARNEY FRANK, Massachusetts
CHARLES E. SCHUMER, New York
HOWARD L. BERMAN, California
JERROLD NADLER, New York
Page 69 PREV PAGE TOP OF DOCROBERT C. SCOTT, Virginia
MELVIN L. WATT, North Carolina
ZOE LOFGREN, California
SHEILA JACKSON LEE, Texas
MAXINE WATERS, California
MARTIN T. MEEHAN, Massachusetts
WILLIAM D. DELAHUNT, Massachusetts
ROBERT WEXLER, Florida
STEVEN ROTHMAN, New Jersey
THOMAS E. MOONEY, Chief of Staff-General Counsel
JULIAN EPSTEIN, Minority Staff Director
Subcommittee on Commercial and Administrative Law
GEORGE W. GEKAS, Pennsylvania, Chairman
STEVEN SCHIFF, New Mexico
LAMAR SMITH, Texas
BOB INGLIS, South Carolina
ED BRYANT, Tennessee
STEVE CHABOT, Ohio
JERROLD NADLER, New York
SHEILA JACKSON LEE, Texas
MARTIN T. MEEHAN, Massachusetts
WILLIAM D. DELAHUNT, Massachusetts
Page 70 PREV PAGE TOP OF DOC
RAYMOND V. SMIETANKA, Chief Counsel
CHARLES E. KERN II, Counsel
JAMES W. HARPER, Counsel
C O N T E N T S
June 19, 1997
TEXT OF BILL
Gekas, Hon. George W., a Representative in Congress from the State of Pennsylvania, and chairman, Subcommittee on Commercial and Administrative Law
Brozman, Hon. Tina L., Chief Bankruptcy Judge, Southern District of New York
Koger, Hon. Frank W., president, National Conference of Bankruptcy Judges
Richman, Michael P., Esq., member, Board of Directors, American Bankruptcy Institute
Thompson, Hon. David R., Chairman, Committee on the Administration of the Bankruptcy System, Judicial Conference of the United States
Wynne, Richard L., Esq., Wynne Spiegel Itkin, Los Angeles County Bar Association
LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING
Page 71 PREV PAGE TOP OF DOC Brozman, Hon. Tina L., Chief Bankruptcy Judge, Southern District of New York: Prepared statement
Koger, Hon. Frank W., president, National Conference of Bankruptcy Judges: Prepared statement
Richman, Michael P., Esq., member, Board of Directors, American Bankruptcy Institute: Prepared statement
Thompson, Hon. David R., Chairman, Committee on the Administration of the Bankruptcy System, Judicial Conference of the United States: Prepared statement
Wynne, Richard L., Esq., Wynne Spiegel Itkin, Los Angeles County Bar Association: Prepared statement
Bankruptcy statistical information
(Footnote 1 return)
The weighted case load hours bears no relation to actual time, for example, each chapter 11 reorganization case receives only 7 weighted ''hours'' of time, even though many chapter 11 reorganization cases take substantially more judicial time. However, the weighted case load provides a good relative indicator of judicial caseload. These figures are estimates from the Central District Bankruptcy Court Clerk's Office, as the official figures from the Administrative Office were not available at the time of preparation of these comments.
(Footnote 2 return)
Résumé is in the subcommittee files.