The Role of the Bankruptcy Judge
This panel asked the question, what is the role of the bankruptcy judge? To answer that question, they featured two retired judges, Judge Robert Drain from the Southern District of New York and Judge Harlan “Cooter” Hale from the Northern District of Texas along with sitting judges Erithe Smith from the Central District of California and Grace Robson from the Middle District of Florida. Rather than trying to recreate their panel, I will try to distill their presentation into a series of rules.
1. Bankruptcy is a collective proceeding. It involves many more people than traditional litigation and bankruptcy judges have to spend more time managing the proceeding.
2. Bankruptcy is a problem solving court. In any case, there are a finite number of assets that can be distributed among the group of creditors. The bankruptcy court needs to be able to find a way to get the assets to the creditors before the case is consumed by administrative expenses. In unique cases like the City of Detroit, the bankruptcy court may be the only court equipped to solve a problem involving many different groups.
3. Bankruptcy courts exist to build consensus when they can and make decisions when they can’t. There is an element of truth telling to being a bankruptcy judge. According to Judge Smith, “We can make lemonade, but it may not be a very big pitcher.”
4. Bankruptcy courts deal with the human element. Bankruptcy judges deal with issues critical to ordinary people, such as whether someone gets to keep their house or car. That is not something that big firm practitioners experience on a regular basis but bankruptcy judges do.
5. Bankruptcy judges need to look out for the parties who may not be present at the beginning of a case. Especially when dealing with interim first day orders, the judge needs to realize that no everyone has had a chance to read the filings. Judges can control how much gets done how fast by adopting local rules and setting expectations.
6. Bankruptcy is the Emergency Room of the legal system. The first priority is to keep the patient alive until you can do more long term fixes. When the debtor comes in on the first deal, the goal is to allow the company to survive for another week or month so that more permanent solutions can be explored.
7. Sometimes you can’t go with the consensus. When someone is objecting, the judge needs to ask whether that person is really being hurt and does that outweigh the benefits of the consensus. Sometimes the Code gives definitive answers and sometimes it is more ambiguous. In the City of Detroit case, Judge Steven Rhodes was offered an early compromise where the people of Detroit were not in the room. It takes a lot of courage to go against the consensus.
8. Consent makes life easier. Issues can be waived. In Judge Hale’s National Rifle Association case, there was a major problem with venue (and I said so in this blog). However, no one raised venue and the case stayed in Judge Hale’s court by the tacit agreement of everyone involved.
9. Bankruptcy judges are given a vast amount of discretion. According to Judge Smith, the Bankruptcy Code is a beautiful document, but it can’t address every issue. This means that much is left to the judge’s interpretation.
10. Bankruptcy courts are courts of equity–sort of. While bankruptcy courts are referred to as courts of equity, they are still governed by the Bankruptcy Code. However, some provision so of the Code are flexible enough to allow lawyers to present creative solutions to comply with the letter and the spirit of the law.
11. Judges have different styles when it comes to showing their views. Judge Drain said that as part of managing an entire case, he would let the parties know where he thought the case was going. He said that during the mortgage crisis he would ask lenders if they really wanted to foreclose when they had so many vacant properties. However, he acknowledged that what might not seem rational to him could make perfect economic sense to a lender.
Judge Hale joked that sometimes confusion could be confused with a poker face. He said that while he was not an activist judge. even people with poker faces can signal to parties that there is something on your mind. When he wanted to send a message to the parties, he would have his law clerk send them an email encouraging them to address certain issues.
Judge Smith said that you can have poker face but be screaming on the inside until someone makes a completely, utterly ridiculous argument. She said her law clerks could hear argument in chambers and instantly recognize that a case was not going well for a party. She said that you can let them hang themselves. She added that it’s learned behavior to just sit there and not show anything.
12. Exercising discretion is a skill judges develop over time. Judge Robson said that she felt very constrained at first. Judge Smith added that in her first years on the bench, she saw things pretty stringently but five years later, ten years later, they looked differently.
The judges agreed that competing sales offers were an area where the judge could exercise discretion. Judge Robson said that if the offers were close, she would consider the option that saved jobs, but that she had to consider the interest of creditors first. Judge Smith added that the highest offer might not be the one that is most likely to close.
13. Sometimes the judge needs to insert himself into the process. Judge Hale gave the example of the NRA case where the parties were aggressively sparring. He said that sometimes the judge needs to say something to set the right tone. Judge Robson that in dealing with a pro party, she may ask questions if the debtor doesn’t know what’s relevant so she can try to get to the right result. Judge Smith said that she would ask questions if she wanted to clarify the testimony but she would never step in if one side forgot to ask an important question. Judge Drain said that if he thought a witness was lying, he might ask him questions because the witness might just be nervous.
14. Sometimes justice means an orderly process. Judge Drain said that justice is a loaded word. He quoted Judge Bonapfel as saying that our job is to stop people from killing each other. He said that people don’t appreciate the role that an orderly process plays in ensuring justice, but that there are times in history when that has broken down and people start shooting each other because they want revenge.
15. The judge should not step in when the lawyers are mismatched. Judge Drain said that he won’t weigh in unless one of the lawyers is being a real bully. He said I will not become the less effective lawyer’s senior partner. Judge Smith said that one lawyer is not making arguments that are obvious, it’s hard not to say something but you don’t want to put your thumb on the scale for the person that’s dying in court. Judge Smith said that you don’t want to ask questions that are outcome determinative. She said that you spend your whole career as an advocate and then you go on the bench and you have to assume a different role.
16. Judges notice how lawyers behave. Judge Hale said that we hate lawyers who are bullies. If you are the better lawyer, don’t be so proud of it that you are obnoxious. Judge Drain said that people want to get better and will do so if you have high expectations. He said that it is great to see a young lawyer catch on. Judge Smith said that it is a pet peeve of hers when someone says a case is on all fours with a situation and then they can’t tell her about the facts.
17. The judge has a duty to look out for the party that is not there, to balance the need for speed with due process. Judge Drain said that you have to ask always who’s hurt by this particularly when its fast. He said that he had done one day prepackaged plans when they just addressed one element of capital structure. Judge Hale said that he felt comfortable taking out pieces from a debtor in possession financing order presented on the first day of the case. He said that would consider putting them back in at the final hearing when all the parties have had a chance to consider them.
18. Even good judges have regrets–sometimes. Judge Drain said that he had learned to forget about a decision that he wrote almost immediately and not to get out of shape if he got reversed later on. However, the other judges gave examples of rulings they regretted.
Judge Smith she regretted appointing a fee examiner in a case. She thought that it would simplify the process. However, there was so much animosity between the firms that there ended up being scorched earth attacks on the fee examiner and it ended up costing more to litigate the fee examiner’s recommendations than the ultimate fee reductions made.
Judge Hale said that a ruling he made denying a discharge has weighed on him for weighed on him for nineteen years. He said that the case was a learning experience and always regretted barring the discharge.
19. Judges have experiences they remember fondly. Judge Drain remembered a case involving a 1920s amusement park where he was able to get the parties to mediate.
Judge Smith had a case where she granted relief from the automatic stay which resulted in the debtor losing her home. About two days after the hearing, she got a letter from debtor who said that she realized that she had no equity in the home but wanted to see how process worked. She said that she was so mesmerized that she stayed for all the hearings. Judge Smith said that it reminded her of how important our job is.
Judge Hale remembered the case of a hospital district in Quanah, Texas which had filed chapter 9. The government officials rented a bus and brought in 50 people so they could participate in the hearing.