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ABI - National Bankruptcy Review Commission

National Bankruptcy Review Commission




Thursday, June 20, 1996
Friday, June 21, 1996
Washington, D.C.


Prepared by: Susan Jensen-Conklin
Deputy Counsel

Dated: July 15, 1996

Georgetown University Law Center
Washington, DC


Commission Members Present:

Brady C. Williamson, Chair
Honorable Robert E. Ginsberg, Vice Chair
Jay Alix
Babette A. Ceccotti
John A. Gose
Jeffery J. Hartley
Hon. Edith Hollan Jones
James I. Shepard

Commission Reporter and Staff Present:

Professor Elizabeth Warren, Reporter/Consultant
Susan Jensen-Conklin, Deputy Counsel
Elizabeth Holland, Staff Attorney
George Singer, Staff Attorney
Carmelita Pratt, Administrative Officer


American Bankruptcy Institute
Professor Robert M. Zinman
Hon. Ralph M. Kelley
Deborah D. Williamson
Richard M. Meth

American Bar Association - Business Law Section
Hugh Ray

American College of Bankruptcy
Hon. Roger Whelan

Commercial Law League of America
Robert S. Bernstein
Ilene F. Goldstein

National Bankruptcy Conference
Leonard M. Rosen
J. Ronald Trost

National Conference of Bankruptcy Judges
Hon. Thomas E. Carlson

Resource Participants:

Service, Ethics
Michael Bloom
Jerry Patchan
Gerald Smith
Charles Wolfram

Small Business, Partnership
Joseph Giampapa
David Lander
Sally Neely
Jerome Shulkin

Consumer Bankruptcy
Richardo Kilpatrick
Hon. Keith Lundin
Ike Shulman

Public Attending:

Approximately seventy-five people were in attendance including representatives from the Administrative Office of the United States Courts, Executive Office for United States Trustees, the Securities and Exchange Commission, Chapter 13 and 7 trustee offices, state government, professional and trade associations, private industry, law firms, and the media.


Chair Williamson called the meeting to order at approximately 9:10 a.m. and made preliminary comments. He thanked Dean Judith Areen for making the meeting facilities at Georgetown University Law Center available to the Commission. He then described the meeting agenda and format. He stated that if the format proved to be productive, it would be continued throughout the Commission’s life. The minutes of the May 16-17, 1996 meeting were approved by oral vote of the Commissioners, subject to certain technical corrections being made. Chair Williamson then reported on the Commission’s budget and stated that an adjusted budget may be prepared for the next meeting. With regard to Commission members’ speaking engagements, Chair Williamson reminded the Commissioners to keep the staff apprised of these matters. Thereafter, Susan Jensen-Conklin, Deputy Counsel, gave a brief update on the status of Bankruptcy Technical Corrections Act, proposed legislation pending in the Senate.

Chair Williamson concluded his introductory remarks by discussing the time frame and content of future mailings to the Commissioners. He encouraged the Commissioners as well as interested parties to assist the Commission in its efforts to hear viewpoints not previously expressed. Chair Williamson then introduced the representatives appearing on behalf of the American Bankruptcy Institute.



Appearing on behalf of the American Bankruptcy Institute ( ABI ) were Professor Robert M. Zinman, President; Deborah Williamson, Vice President of Publications; Richard Meth with Freidman & Seigelbaum, Rosalyn, New Jersey; and the Honorable Ralph Kelley, United States Bankruptcy Judge in the Eastern District of Tennessee.

Professor Zinman began his remarks by noting that the ABI did not generally take advocacy positions on matters of substantive bankruptcy policy as his organization represents all constituencies in the bankruptcy area. He noted, however, that the ABI was committed to the notion that modern commercial society must have a method for dealing with financial failure.

Professor Zinman observed that the ABI has sponsored over the past year the Bankruptcy Reform Study Project designed to frame the issues most in need of review by the Commission. He then identified the components of the Study Project. First, he noted that the ABI had sponsored nine symposia as part of its National Symposia Series, the results of which were reported in published format. Second, the ABI Law Review devoted two of its issues to the Bankruptcy Reform Study Project. Among the articles included in these publications were two empirical studies from the Central District of California. As the third component of the Study Project, Professor Zinman discussed the ABI membership survey. The fourth component comprising the Study Project that he described were the analytical studies being performed by 20 committees. In concluding his opening remarks, Professor Zinman emphasized that ABI and its members were anxious to help the Commission, they supported the Commission’s efforts and they wanted to see that the Commission succeeded in those efforts.

Judge Kelley discussed various issues presented in bankruptcy law and practice. With regard to Chapter 13, he recommended that the minimum repayment percentage under a plan be determined by the bankruptcy judges. He noted that the standing trustee system generally worked well. Referring to certain statistics supplied by the Administrative Office of the United States Courts, Judge Kelley observed that 98.5 percent of all cases filed in 1995 were either Chapter 7 or Chapter 13 consumer cases. Based on the projected one million cases that are anticipated to be filed this year, he estimated that 32 million individuals, families, and businesses would be affected. Concerning repeat filings, Judge Kelley said that while they were troublesome, bankruptcy judges could devise remedies under the present law to deal with this problem and thus was not an area that had to be addressed by the Commission. As to prepetition exemption planning, he observed that 95 percent of the consumer filings were no asset cases and that he was not aware that much exemption planning occured in most of these cases. He suggested that a law which prohibited exemption planning would be difficult to enforce.

Turning to Section 707(b) of the Bankruptcy Code, Judge Kelley noted that this provision was awkwardly worded, but reasonably useful. With regard to whether the scope of the discharge should be further constrained or restored to its original dimension, he observed that the a bankruptcy court did not need specific nondischargeability provisions to prevent abuse.

Ms. Williamson prefaced her remarks by noting that they were not on behalf of the ABI and in some instances were not her personnel positions, but represented consensual responses to Professor Warren’s issues memoranda. In the area of improving jurisdiction and procedure, Ms. Williamson reported that there was complete consensus that many of the issues presented therein would be resolved by giving bankruptcy courts Article III status over a reasonable period of time. Absent Article III status, she noted that the means for addressing these jurisdictional and procedural issues were more complex. For example, she observed that the current system of appeals to the district court was uniformly viewed as being time-consuming, expensive and lacking precedential value. In addition, she said that there was a perception that a majority of district court judges do not afford bankruptcy appeals the requisite degree of analytical review. There should be some form of reference system, she stated. With regard to jury trials, she proposed that bankruptcy courts should be permitted to conduct jury trials, but only with the consent of all parties. Additionally, bankruptcy courts should have limited contempt powers, subject to district court review. With regard to venue selection, Ms. Williamson reported that the consensus was that there should be some restrictions imposed such as the debtor’s principal place of assets as opposed to the state of incorporation.

The primary goal of Chapter 11, Ms. Williamson noted, should be to preserve going concern value and jobs as well as to provide for the orderly disposition of a business entity. She observed that there was a perception that Chapter 11 was being utilized to extort participation for equity or junior holders who have no continuing economic stake in the debtor. The issue of whether or not entities with no continuing economic stake in the debtor should have a right to participate in the process is one that the bankruptcy judge should determine early in the case.
Concerning the issue of new value as a method of obtaining contribution from existing equity, Ms. Williamson noted that there was no strong opposition provided exclusivity is terminated if existing equity or management proposes a plan that does not provide for payment in full of all claims. In addition, she noted that there was some concern with the concept of allowing the new value exception to apply to single asset cases.

As to claims trading, Ms. Williamson said that it should be clear that the court has the authority to adjust the rights of claimants if adequate disclosure is not made to the persons selling their claims. Likewise, she stated that the court should have the ultimate authority to change the composition of committee members and to review the appointment decisions of the United States Trustees.

The question as to small businesses and partnerships, Ms. Williamson observed, was how they should be treated differently. She noted that a majority of the courts have concluded that a partnership agreement is an executory contract subject to Section 365 of the Bankruptcy Code. There was a growing recognition that non-debtor partners were often financial investors and management was absolutely fungible. A Chapter 11 trustee should be able to succeed to the rights of a debtor/general partner and the partnership agreement should be capable of being assumed, she stated. In addition, she suggested that right of contribution in partnership cases should be clarified as well as the statutory basis for temporary or plan injunctions to protect partners. It was also recommended, she noted, that the rights of a Chapter 7 trustee be equally available to Chapter 11 trustees, but that the actual extent of liability be determined under state law. Further, the Bankruptcy Code should be amended to ensure that a limited liability corporation is an eligible debtor.

Concerning mass torts and future claims, Ms. Williamson reported that the consensus was that the bankruptcy system was the most appropriate forum to process these claims. Proffered suggestions included having the definition of a claim bind both present and future claimants under a plan or legal representative for future claimants. The failure to deal with future claims has resulted in the unintended policy decision to elevate the rights of unknown creditors over known creditors with injuries, she observed. The consensus believed that claims should not be given a priority over administrative or other unsecured claims, she reported. Likewise, punitive damages should not have a priority over compensatory and contract-based claims. Ms. Williamson said that there should be a clear preemption of state-based access or liability claims against the purchasers of assets from a debtor or trustee. Given the uncertainty of such liabilities, she noted that this resulted in substantial discounts in the prices paid for assets. Concluding her remarks, Ms. Williamson noted that many of the concerns she discussed regarding mass torts and future claims pertained as well to environmental issues.

Mr. Meth noted that he was a member of the ABI Bankruptcy Reform Study Project Steering Committee which prepared a membership survey for dissemination. The result of a two-year effort, the survey reflected input from judges, counsel for debtors and creditors, representatives of the United States Trustee system, trustees, accountants, and turnaround professionals, he noted. The final version of the survey, he observed, will be released in the July/August issue of the American Bankruptcy Institute Journal and distributed to more than 5,200 members. He explained that the survey attempts to deal with overall bankruptcy policy issues to determine how the process works and to identify the most significant issues.

Judge Kelley suggested that while it would be catastrophic if Chapter 7 was combined with Chapter 13, he supported expanding Chapter 13 to apply to corporations and partnerships with a limited amount of debt.

Chair Williamson acknowledged the specificity of the ABI panelists’ comments in light of the fact that the Commission had reached a point where it will have to turn from conceptual discussions to very specific proposals. He also acknowledged the assistance that Sam Gerdano, ABI Executive Director, has provided.


After a brief recess, the remaining panelists presented their views individually and then in an interactive format. Appearing on behalf of the Commercial Law League of America ( CLLA ) were Robert S. Bernstein, President, and Ilene F. Goldstein, Chair of the Bankruptcy and Insolvency Section. Mr. Bernstein explained that his organization viewed its role as assisting the Commission in attempting to define and narrow the issues. To that end, he noted that the CLLA submitted a paper which prioritizes the issues identified in Professor Warren’s May 12, 1996 memoranda. In addition to its previous paper regarding capital gains issues involved in the administration of Chapter 7 cases, he said that the CLLA had other substantive papers that were in the process of being prepared.

Judge Roger Whelan, speaking on behalf of the American College of Bankruptcy ( ACB ), described the work of his organization and standards for admission. He stated that the ACB was very concerned about the future of bankruptcy law and that it had formed a steering committee chaired by Gerald Smith. The steering committee, in turn, has instructed several focus groups to examine those substantive and procedural areas that were problematic, he noted. These focus groups, Judge Whelan reported, prepared an exhaustive study with specific positions.

Appearing on behalf of the National Bankruptcy Conference ( NBC ) were Leonard M. Rosen and J. Ronald Trost. Mr. Trost explained that the NBC had been working on improving the administration of bankruptcy law since 1934 and was active in assisting the 1973 Commission. He said that the NBC had seven points on which it wanted the current Commission to focus. First, the NBC strongly supported according Article III status to the bankruptcy court, he noted. Second, the Commission should recommend amending 28 U.S.C. § 2075 to permit the Supreme Court to promulgate rules of practice consistent with the Bankruptcy Code. Third, the United States Trustee Program should be reviewed very carefully to make sure that it is properly administered and that its duties are clearly delineated, Mr. Trost said. Fourth, Section 105(d) of the Bankruptcy Code should be expanded to put the bankruptcy judges into case management. Fifth, he noted that the provisions concerning executory contracts, partnerships and future claims should be totally revised. Sixth, the special purpose legislation that has been engrafted upon the Bankruptcy Code since its enactment in 1978 has eroded the equality of distribution, rehabilitation and discharge protections of the Code, he observed. As the NBC’s seventh concern, Mr. Trost said that he hoped the Commission would address the bankruptcy appellate process.

Judge Thomas E. Carlson, appearing on behalf of a committee formed by the National Conference of Bankruptcy Judges ( NCBJ ) to assist the Commission, noted that the views he was expressing represented a consensus of the committee’s views and not the official views of the NCBJ.
The NCBJ, according to Judge Carlson, should work to give the Commission a broader perspective of the bankruptcy process. He described the issue as to how the Chapter 11 process, particularly as it applies to small businesses and partnerships, can be made more efficient and less costly as the single most important question that the Commission faces. Although Chapter 11 was beautifully crafted, he noted that it does not work well in small cases and that a simpler special track for these cases should be devised.

Hug Ray spoke on behalf of the Business Law Section of the American Bar Association. He explained that the Section has 50,000 members and that it has advised the Commission in writing about its positions on various issues.

At this point, the panelists then discussed several topics and used Professor Warren’s issue memoranda as the framework for their discussion. With regard to whether or not the district court should be eliminated from the bankruptcy appellate process, Ms. Goldstein said that the League viewed this issue to be a priority that should be considered by the Commission. Judge Carlson said that his Committee believed that the best approach was to permit direct appeal to the circuit as the current system did not establish a coherent body of precedent. In addition, he noted that the appellate review should be conducted by a generalist, not specialized court. Further, there should be provision for discretionary review of interlocutory orders. He suggested that a provision similar to Section 158(a) of Title 28 would satisfy that requirement.

Judge Whelan, for the ACB, reviewed appellate procedure under the former Bankruptcy Act and noted that a direct appeal to the circuit court clearly makes sense given current bankruptcy law developments as well as improvements in travel and mass communication. He suggested, however, that the issue should be addressed in connection with the constitutionality of the court system itself.

Mr. Rosen commented that the NBC agreed with the previously articulated positions regarding appellate structure and explained that a direct appeal to the circuit court would avoid the double appeal and waste of judicial time. In addition, he said that the NBC believed that the bankruptcy court should be an Article III court.

Given the apparent consensus regarding the bankruptcy appellate process issue, Commissioner Shepard asked the panelists whether it should be presented to Congress prior to the time when the Commission submits its report. Speaking in his personal capacity, Mr. Ray responded that the appellate and venue issues should, perhaps, not await the Commission’s report. Disagreeing, Mr. Trost said that as there was no crisis, it should await the completion of the report as he wanted to see how it would be affected by the Article III issue. Ms. Goldstein noted that there was a danger to using up Congress’ attention. Mr. Rosen observed that the legislative history of the Article III issue with regard to the 1978 Bankruptcy Code should be remembered and that this recommendation will be a political issue. He suggested that the appellate procedure issue should be considered in conjunction with the Article III issue and that it would be better to incorporate them in an overall bill.
Chair Williamson asked the panelists who were bankruptcy judges to comment on two questions: what was the position of their colleagues who serve on bankruptcy appellate panels regarding the appellate procedure and Article III issues and what was their understanding of the district court judges’ position on these issues. Judge Whelan responded that the view from the district court judges varies. He cautioned, however, that the Commission should focus on the ultimate goal, rather than the obstacles. Judge Carlson commented that while his colleagues enjoyed serving on the bankruptcy appellate panel, they would support a direct appeal to the circuit court. With regard to the position of the district court judges on this issue, he mentioned that this proposal was discussed at a meeting of the chief district court judges in the Ninth Circuit and that no resistance to the proposal was expressed. He anticipated that the resistance would come from the circuit courts based on increased workload. He estimated that there could be a six percent increase in the number of appeals. In addition, he said that the reaction to the Article III status for bankruptcy courts would generate massive resistance from the district court judges.

With regard to Article III status for bankruptcy courts, Ms. Goldstein stated that while the CLLA has historically supported this concept, it has asked the Commission to treat this as a non-priority item as it was a political hot potato. The Commission’s resources should be directed to those areas which will produce meaningful improvements, she added.

Judge Whelan reported that the overwhelming consensus of opinion from the ABC supported Article III status for bankruptcy courts as this protected the integrity of the court system which currently does not address jurisdictional issues out of economic necessity. He recalled that H.R. 8200 specifically provided for Article III status for bankruptcy courts and that the issue will eventually have to be addressed by Congress or the Supreme Court. In sum, he noted that the bankruptcy court system would operate more efficiently as an Article III court.

Mr. Trost observed that the Commission may want to examine into the amount of judicial resources consumed by the need to determine whether the bankruptcy court is the proper forum to resolve certain disputes. The NBC, he stated, supported Judge Whelan’s views.

Commissioner Hartley asked Judge Carlson whether his Committee considered the inconvenience of parties if required to appeal to circuit courts distant from their venues and whether this widens the gap geographically and financially. Judge Carlson agreed, but noted that every proposal has advantages and disadvantages. He noted that the opt out rate for the bankruptcy appellate panel in the Ninth Circuit is higher in Montana and Idaho than it is in Los Angeles because of the location of the appellate panels. Although the inconvenience to parties presented by the appellate proposal is a detriment, he concluded that more was gained from it on balance.

Citing the example of the Fourth Circuit which conducts appellate hearings at various locations, Judge Whelan responded that travel considerations are less problematic. He acknowledged that it would be more of a problem for individuals with relatively small disputes and resources.
Judge Carlson said that the NCBJ had no position on Article III status for bankruptcy courts because it would not make much difference in the day-to-day work of the judges. Nevertheless, there were two areas which presented problems: jury trials and contempt powers. In general, however, these happen infrequently and do not significantly impact on the efficient adjudication of cases. He commented that the constitutionality of Article III status lacks certainty until passed upon by the Supreme Court. He mentioned that the Article III status proposal would generate very determined resistance from the Judicial Conference of the United States and also noted that the Commission should consider the political capital that would have to be expended in connection with this issue.

Commissioner Hartley asked Judge Carlson whether this constituted a form of cop-out as he was not sure if the Commission should be concerned with the political viability of a recommendation. Judge Carlson said he was just suggesting that the Commission keep these concerns in mind. He also questioned how the Commission would be able to inform Congress that Article III status was necessary, but if it was able to do this, then it should definitely pursue the proposal.

Commissioner Shepard asked whether there were sufficient reasons to distinguish bankruptcy courts as a specialized Article I court from other specialized Article I courts. Commissioner Alix noted that consideration should also be given to the economic and practical impact of this issue such as court room size and other accutrements as well as its budgetary aspects. Judge Whelan said he was unaware of any constitutional requirement that all Article III judges must have the same court facilities and the problem could be addressed in a constructive and imaginative way.

When asked by Commissioner Ginsberg as to whether the bankruptcy judges were solicited for their views on this issue, Judge Carlson said no. Commissioner Ginsberg then asked whether the specter of possible dissent among the bankruptcy judges themselves on this issue is problematic. Judge Carlson acknowledged that there was division among the bankruptcy judges. Commissioner Ginsberg wondered whether the opposition stemmed from some bankruptcy judges’ fear that they would not receive Article III appointments. Judge Carlson agreed.

Mr. Trost reminded Commissioner Ginsberg that the impetus for recommending Article III status was that people involved in the bankruptcy system believed that the bankruptcy court should have pervasive jurisdiction to limit the litigation resulting from the present statutory scheme. He also recalled that pervasive jurisdiction of the bankruptcy court was a pivotal point in many of the prior Commission’s recommendations. This proposal was joined with the concept that bankruptcy court judges have Article I status and a 14-year term of appointment because it was deemed to be constitutional. The reason H.R. 8200 provided for Article III status was because the House Judiciary Committee felt that there was a constitutional problem if pervasive jurisdiction was accorded to a court with only Article I status, he said. The Senate, however, did not support Article III status and Congress enacted the Bankruptcy Reform Act to see what would happen, Mr. Trost stated. As a practicing attorney, he said that there was a significant problem presented by the fact that bankruptcy courts do not have pervasive jurisdiction. He said the NBC would present a white paper on its position which could include a statistical analysis of the issue and how it manifests itself. Mr. Rosen cautioned that while cases and instances of where there are problems could be identified in this paper, he was not sure if the NBC had the capacity to analyze the percentage of judicial time consumed by this issue. Commissioner Alix suggested that the NBC could employ its resources to produce a meaningful overview of the problem and the system.

Mr. Ray noted that if the Commission makes this proposal the centerpiece of its report, then there was a good chance that the political process will negate a lot of good work that the report will cover in other areas. Commissioner Alix stated that he agreed with Commissioner Hartley on this matter and that the Commission, representing both sides of the political spectrum, has a job to study and report on the bankruptcy system regardless of whether the body politic agrees or disagrees with the report. In addition, he said that every issue and everything involved in the process was political.

Mr. Ray asked if there was a specialized court or non-court for the smaller consumer cases, would the Article I/Article III issue work out differently. Commissioner Gose asked why was the bankruptcy court referred to as specialized. Judge Carlson responded that he did not think the bankruptcy court was highly specialized as it considers a broad spectrum of areas, but that it did have limited jurisdiction and did not have to deal with certain matters such as criminal, anti-trust and prisoner civil rights cases. He agreed with Commissioner Gose’s characterization of the bankruptcy court as a generalist commercial court.

Seeking to clarify his prior statements, Judge Carlson noted that he was not suggesting that the Commission should not address an issue simply because it was unpopular. Rather, he said the Commission should consider whether, given the likely opposition, it can make a case that this recommendation is necessary and not something that some people merely want. Commissioner Alix noted that the NBC, among other entities, is prepared to brief the Commission on this issue and suggested to Mr. Trost that he coordinate with the appropriate working group that is assigned this issue.

Commissioner Shepard asked whether the Commission had the duty to consider the needs of the public in general rather than just the players such as the debtor’s counsel, creditor’s counsel, judges and related parties. He thought that others may not agree that expanding the bankruptcy court’s jurisdiction would be in the interest of the public in general.

Noting that it was in the best interest of attorneys to have existing chaos, Mr. Trost suggested that pervasive jurisdiction would eliminate litigation which would be bad for lawyers but further the public interest. He observed that some areas require too much time to be resolved and that justice delayed is justice denied. Ms. Goldstein said that there was no question that the Commission should consider what is in the public interest. To that end, she noted that chaos does not enhance either the reorganization or liquidation process. Nevertheless, she observed that in the majority of cases, the issue of Article I/Article III status never arises. While the CLLA believes this issue should not be ignored, she noted that it should not be all-consuming to the detriment of the Commission’s limited time and resources.

Mr. Ray observed that society demands two things from its legal system: stability and some form of measured change. He characterized the Article I/Article III issue is an unstable element. With regard to the current appellate structure, he noted that this was an enormous problem. When asked by Commissioner Shepard if it was in the public good to have a more powerful bankruptcy court, Mr. Ray said that it ties into the appellate structure and that if you have a stable structure, it is in the public good. Mr. Rosen noted that the Supreme Court could find tomorrow that the current system is unconstitutional. When this last happened, he recalled that there was chaos. He said that the effort to divide jurisdiction on basis of core and non-core was not working and that bankruptcy judges were doing things that they should not be doing because they were not Article III judges. He cautioned that no one anticipated the Marathon decision.

Judge Whelan noted that there was significant historical precedent for the pervasive jurisdiction of the bankruptcy court and cited the Bankruptcy Act of 1841. Noting that the perspective of bankruptcy is much different than what was contemplated historically, Commissioner Shepard cited Section 105 as an example. Commissioner Ceccotti explained that the bankruptcy laws are now being applied in virtually limitless areas where traditionally they were applied in a more limited fashion. Commissioner Alix observed that this uncertainty conflicted with the Commission’s vision statement.

The panelists then addressed consumer bankruptcy. Ms. Goldstein opened the discussion by asking whether or not there should be some form of financial counseling. Based on her experience as a trustee, she noted that many debtors do not understand how they encountered financial difficulty and how to mange their money.

Mr. Ray mentioned the possibility of having consumer Chapter 7 cases processed by an administrative system, rather than the judicial system. Ms. Goldstein said as there were so many legal and substantive issues presented in consumer cases, these cases must remain in the judicial system. When asked if a judge needed to hear all these issues, Judge Whelan responded that a lot of matters did not have to be heard by a bankruptcy judge, but that it would be a big mistake to have all of the issues determined in a non-judicial forum.

With regard to financial counseling, Judge Whelan said that the local bar in his district participated in pro bono programs which assisted debtors. Mr. Bernstein noted that many bar associations were involved because they were trying to ease the burden on the system. He also observed that bankruptcy court calendar congestion can consume time and money. Accordingly, he concluded that mediation is important whether it is supported by the court or the trustee. He also agreed with Ms. Bernstein in that he did not believe there was a need for a separate administrative system for consumer cases. Judge Carlson likewise concurred that there was no need. He explained that the disputes arising in Chapter 7 and Chapter 13 cases that require judicial determination do no unduly impose on the court’s time. He said that when a dispute involving a legal issue arises, the parties should have the same access to a judge as parties have in the larger cases. In addition, Mr. Bernstein observed that the increased debt limits in Chapter 13 made it applicable not just to consumer cases as it was being used with greater frequency by small businesses, professionals and sole proprietorships. This, in turn, would create more complicated issues, he noted.

Ms. Goldstein said there were three issues in the consumer bankruptcy area that the CLLA deemed to be important. The first concerned whether or not there should be uniform exemptions, considered to be a priority issue to the CLLA, according to Ms. Goldstein. The lack of uniformity among the states on this matter encouraged debtors to engage in forum shopping and concealing assets. The second issue that she identified concerned Section 707(b) and its implementation. The third issue pertained to various tax issues presented in consumer cases.

Mr. Ray asked whether any of the panelists had a position on whether or not a separate Chapter or procedure for small business Chapter 11 cases should be created. Mr. Trost reported that the NBC opposed this proposal. He said the problems presented by these cases could be addressed through case management techniques and an expanded version of Section 105(d).

Judge Whelan said that the position of the ACB was that the overall structure of Chapter 11 was working reasonably well and that some time should pass following the enactment of the 1994 amendments to the Bankruptcy Code. Personally, he expressed concern about the high failure rate of Chapter 11 cases as well as the delay and expense incurred in smaller Chapter 11 cases that were doomed to failure from the date of filing.

Judge Carlson reported that there was a strong consensus among members of the NCBJ that Chapter 11 was not working well in small cases as there was very little involvement by creditors and nominal oversight. He suggested that there should be some form of review as to whether or not there can be some process devised either within Chapter 11 or in an expanded version of Chapter 13, or by the creation of a separate Chapter, to deal with these cases.

Mr. Bernstein noted that the CLLA has been supportive of separate treatment for small business Chapter 11 cases. As the problem of creditor participation in small cases would not be resolved by moving these cases into Chapter 13, he said that a separate Chapter for these cases would be acceptable. In addition, he noted that the CLLA deems the partnership issues identified in its submission as priority matters for the Commission.

Commissioner Shepard asked whether the high failure rate of Chapter 11 cases was attributable to the complexity of the system or a lack of feasibility which existed at the commencement of these cases. Mr. Rosen said that the bankruptcy judges in the Southern District of New York recognized the concern about lingering Chapter 11 cases and accordingly utilized Section 105 status conferences early in these cases. In smaller Chapter 11 cases, the status conference serves to identify those cases that should be weeded out of the system, while in larger Chapter 11 cases it serves a different purpose. Mr. Trost recalled that NBC’s position during the 1970s was that if bankruptcy judges were granted pervasive jurisdiction, then they should be removed from case administration. The NBC, however, now favors broader use of Section 105(d), he stated. Under current law, Mr. Trost noted that a bankruptcy judge can actively manage a case by holding a status conference at the initial stage of the case. Referring to previous comments regarding the court’s equitable power under Section 105, Mr. Trost specified that this provision should be limited to authorizing the bankruptcy court to effectuate the Bankruptcy Code’s provisions. While ordinarily the NBC wanted the bankruptcy judges to not become involved in active case management, it now favored such active involvement as the United States Trustee system and creditor interest had not generated sufficient oversight.

Commissioner Ceccotti asked whether the problem was that there was a vacuum as no one was managing these cases or that the court should do this function under Section 105(d) rather than have the United States Trustee perform it. Mr. Trost said that this position resulted from the conclusion that there was a vacuum. Commissioner Ginsberg asked whether Mr. Trost was proposing to return to the practice under the former Bankruptcy Act. Agreeing, Mr. Ray recalled how these conferences were conducted. Mr. Rosen said that their proposal regarding status conferences did not obviate the ex parte contact rules, but would provide an opportunity for every interested party to attend. The thrust of these conferences should not be to deal with issues that may be litigated, but to focus on whether the case should remain in the system, he clarified. Mr. Trost recognized that while there was a risk to having the bankruptcy court engage in case management, the Commission should consider it or better alternatives. Commissioner Ceccotti said that this was not very different than the status conference conducted by district courts where discovery schedules are set and the possibility of settlement is discussed. She expressed concerns about who would attend the 105(d) status conference and whether all parties’ interests would be represented.

Commissioner Alix stated that there was a big difference between how conferences are conducted in district court as opposed to how they are conducted in bankruptcy court. Whereas in district court considers issues pertaining to litigation and historical fact, the bankruptcy court looks at ongoing situations with a lot of future aspects to it. Accordingly, he noted, a status conference in the beginning of a case would permit parties to argue rehabilitative prospects, creditworthiness, cash flow, valuation, and other factors. Debtor’s counsel would have a professional responsibility to argue in support of the debtor’s rehabilitation.

Judge Carlson explained that in his district the court provides notice to all parties that a status conference will be held in a case. He said that they are usually scheduled about 60 to 90 days into the case and conducted on the record. Basic questions asked are what does the debtor need to accomplish before it can file a plan and how long will it take? He noted that it was very different from trying to administer the debtor’s business. Commissioner Shepard that it would be appropriate to require that tax returns be filed by Chapter 11 debtors and that all postpetition taxes be paid. This would provide a useful way of determining feasibility.

Ms. Goldstein said that while much of case management depends upon the bankruptcy judge, the CLLA would be opposed to extending case management to non-legal issues, that is, administrative matters. It is very difficult in a status conference held in a bankruptcy case to isolate all these issues. Mr. Ray recalled that under Chapter X, the district court conducted these conferences without anyone impermissibly crossing any lines. Ms. Goldstein responded that Mr. Ray was referring to the preliminary hearing and that her concern pertained to bankruptcy judges crossing the line from case management to administrative matters. Judge Whelan said the latter was the responsibility of the United States Trustee. In response to Judge Carlson’s request for clarification, Ms. Goldstein stated that a bankruptcy judge should be able to set a timetable for filing a plan as part of the court’s case management responsibilities. Mr. Trost observed that bankruptcy courts, in addition to Section 105(d) status conferences, were utilizing the services of examiners and mediators as part of case management.

Addressing Commissioner Ceccotti’s comments regarding access to these status conferences, Mr. Bernstein suggested that a system that guarantees access should pertain to whatever process is instituted. In addition, he noted, the conference should be on the record.
Mr. Ray then asked each of the panelists to identify the most important change he or she would recommend to improve Chapter 11. Mr. Bernstein and Ms. Goldstein said it would be to foster and improve creditor participation through promoting creditors’ committees and reviewing the current venue provisions. Judge Whelan agreed with the need to improve creditor participation and cited the status conference provisions instituted by the 1994 amendments to the Bankruptcy Code as being an improvement. Mr. Rosen said the treatment of future claims is the most important item that is lacking in Chapter 11 currently. Mr. Trost said that he would search for a way to deal with the great bulk of Chapter 11 cases that lack creditor interest. Judge Carlson agreed with Mr. Trost and proffered as a solution similar in form to Chapter 13 with fixed time frames.

Commissioner Alix asked the panelists if they thought creditors wanted to participate. Ms. Goldstein responded in the affirmative, but that creditors did not want to spend good money after bad. She suggested that creditors’ committee counsel should be permitted to be paid some form of retainer from the estate. She said the greatest impediment to creditor participation is lack of money. Commissioner Alix asked that if there was money for creditors, then there would be funds for a creditor’s attorney.

In concluding the morning session, Chair Williamson introduced the Commission’s staff attorneys: Elizabeth Holland, Melissa Jacoby and George Singer. He then explained the working group concept and its goal, namely, to refine and define the issues as well as explore possible directions that the full Commission should consider. He observed that the working groups served to further the focus and analysis process and that each would be assisted by professionals who would share their experience with the groups. He noted that this pool of resources will change depending on the focus of the working groups. He stated that the working group approach was an experiment that if successful would be continued indefinitely. He also noted that the working group sessions were open to the public and that the discussions were not transcribed because the intent was to have a free-flowing exchange. He said that Professor Warren, the Commission’s reporter, along with Professor Larry King and Steve Case will each be assisting the working groups as their senior counsel. He then reviewed the schedule for the remainder of the meeting.


The meeting recessed as of 12:07 p.m. and, thereafter, the Service, Ethics; Small Business, Partnerships and Single Asset Realty; and Consumer Bankruptcy working groups convened their meetings during the afternoon session.

Georgetown University Law Center
Washington, DC


Commission Members Present:

Brady C. Williamson, Chair
Honorable Robert E. Ginsberg, Vice Chair
Jay Alix
M. Caldwell Butler
Babette A. Ceccotti
John A. Gose
Jeffery J. Hartley
Hon. Edith Hollan Jones
James I. Shepard

Commission Reporter and Staff Present:

Professor Elizabeth Warren, Reporter/Consultant
Susan Jensen-Conklin, Deputy Counsel
Elizabeth Holland, Staff Attorney
George Singer, Staff Attorney
Carmelita Pratt, Administrative Officer

Resource Participants:

Jurisdiction, Procedure
Professor Susan Block-Lieb
Hon. Leif Clark
Hon. David Coar
Nate Feinstein

Harrison J. Goldin
Joel Gross
J. Christopher Kohn
Harold Novikoff
Mickey Sheinfeld
Steve Csontos

Resource Participants (Continued)

Chapter 11
Professor Barry Adler
Ken Klee
Harvey Miller
Claude Montgomery
Arthur Newman
David Thompson
Myron Trepper

Open Forum Witness:

Thomas Ambro

Public Attending:

Approximately sixty people were in attendance including representatives from the Administrative Office of the United States Courts, Executive Office for United States Trustees, the Securities and Exchange Commission, Chapter 13 and 7 trustee offices, state government, professional and trade associations, private industry, law firms, and the media.


At approximately 9:08 am, Chair Williamson reconvened the meeting and reviewed the day’s agenda. He then asked the Commissioners whether they had any matters to discuss.

Commissioner Alix noted that the Commission had received invitations from various groups. He recalled that Chair Williamson would be reviewing the budget as to how the meeting expenses were running and noted that the Commission may want to consider taking advantage of some of these invitations to defer the cost of these meetings.

After asking if there were any other comments, Chair Williamson explained the content of future mailings of materials to the Commissioners and their time frames. He said that if any Commissioner wanted materials distributed to other working groups, he or she could simply request the staff to forward these items.


Chair Williamson explained that the conceptual proposals slated for discussion were initially discussed at the Commission’s February meeting and thereafter discussed in a less comprehensive fashion at several subsequent meetings. He noted that these proposals did not reflect the Commission’s final decision, but rather a direction. If there was consensus from the Commission as to either of these proposals, he noted that they would then be given to the staff to research and develop in greater detail. They would then be slated for full consideration and discussion at a subsequent meeting. Using the appellate structure as an example, Chair Williamson explained that there were a number of related and ancillary issues flowing from the proposal that needed to be reviewed in greater detail. These would be addressed in the subsequent staff memorandum which would be issued to the Commission for full and final consideration. In sum, Chair Williamson characterized the consideration of the conceptual proposals as an invitation to make an initial conceptual decision on direction and approach.


Chair Williamson stated the appellate structure proposal as follows: The current system which provides two appeals as of right from final orders in bankruptcy cases should be changed to eliminate district court review. He then asked the Commissioners to discuss the proposal.

Commissioner Alix questioned whether the proposal should be phrased as a statement of position as opposed to a question. The former conveyed a tone or direction, he noted. While the Commission had generally heard from individuals in support of these proposals, he observed that the Commission had not endeavored to find or hear opposing opinions. He expressed concern that phrasing the proposal as a statement of position would have a chilling effect on the research conducted by the staff. Although he was not substantively against the proposal, it appeared that by adopting this format the Commission was effectively taking a position before having analyzing it.

Commissioner Jones analogized the format to reading bench memoranda and writing opinions. If one starts with a hypothesis, then one must confront the arguments against it, she observed. During the course of that writing process, it may ultimately appear that the hypothesis was wrong. Accordingly, she did not believe that this format would constrain the staff from eliciting views in disagreement with this proposal. Indeed, she noted that it requires the staff to focus on the opposing views in order to make a persuasive case to the Commission and then perhaps to Congress. While it may tend to push things in a certain direction, Commissioner Jones observed that it would not deter the furnishing of other viewpoints and may actually inspire viewpoints. Commissioner Shepard indicated that he agreed with Commissioner Jones.

Chair Williamson explained that there was no issue that could not be reconsidered at a later time in the Commission’s process. He said, for example, the research memorandum on the appellate structure would have to include a discussion of the problems associated with its implementation.

Responding to Commissioner Jones’ comments, Commissioner Alix noted that there were always instances where a hypothesis can tend to become a self-fulfilling prophesy. Commissioner Ginsberg observed that the Commission must start to define the direction in which it is going as this is the only way in which it will get the feedback that it needed. He said that mechanically there was a problem with the proposal as it did not discuss the current bankruptcy appellate panel system.

Chair Williamson responded that the next level of research would fully develop and address the issues. To the extent the proposals attracted controversy and debate, he said that was good because it established a model for full discussion and review as well as provide a good way to test the proposal. And, he added, if the process was insufficient, then the Commission should reconsider changing it.

Commissioner Hartley stated that he agreed with Judge Ginsberg in that the Commission must begin somewhere. While the proposals concerned fairly bold positions on very important matters, the attendant controversy, debate and discussion was exactly what should result, he observed.

Commissioner Ceccotti observed that the question format espoused by Commissioner Alix would just ensure that the public understood that the proposal was open for further discussion.

Chair Williamson suggested that the proposal be considered as a rough consensus without an actual vote. Hearing no objection, he said that the Commission would tentatively approve the appellate structure conceptual proposal subject to having a fully developed issue paper for further discussion at a subsequent meeting.


Chair Williamson read the conceptual proposal into the record: The current venue system should be modified to prohibit corporate debtors from filing for relief in a district based solely on the debtor’s incorporation in the state where that district is located, or based solely on a earlier filing by a subsidiary in the district. All other venue options should be left intact and the court’s discretionary power to transfer venue in the interest of justice and for the convenience of the parties should not be restricted.

Observing that this proposal attracted more comment in the prior week than it had in the previous three months, Chair Williamson explained that this was an important aspect of the process of encouraging debate and controversy.

Commissioner Alix stated that he had even greater concerns with the venue proposal than he had with regard to the prior proposal. He said that the Commission had heard from no one who represented an opposing view during its two-hour discussion of the proposal in February. He specifically referred to the transcript of that meeting. Explaining that he was not an obstructionist and in favor of progress, Commissioner Alix stated that the proposal was presented in the form of a position and that this was objectionable.

Responding to Commissioner Alix’s comments, Commissioner Gose stated that he did not view the proposal as a final position, but rather as teeing up the discussion. While observing that the proposal as stated was not cast in stone, Commissioner Ginsberg indicated that he would not be opposed to having it phrased as a potential proposal if that would make Commissioner Alix more comfortable. Commissioner Alix responded that his approach would save the Commission a lot of inconvenience if it would stay neutral in the development of its proposals. This proposal, he noted, was very alarming to certain people and that the Commission had an obligation to represent all interests. He suggested that the Commission should follow a process where all the facts are heard and the research is performed prior to stating positions.

Commissioner Gose recommended that the word should appear at the beginning of the proposal’s wording. Commissioners Jones, Shepard and Ceccotti concurred with this suggestion. Chair Williamson stated that he had no objection to the change as it was semantic. He reminded the Commissioners that they did not have the time or resources to fully research and brief every issue and that he considered this process as a way of having the staff expend its valuable time and resources on issues on which the Commission saw a possible direction.

Stating that he was uncomfortable with having to equivocate on every statement, Commissioner Butler noted that the Commission would not make any progress if the proposals were not stated as positions. Specifically, he said that by changing the statement into a question, the process itself was changed entirely. Commissioner Hartley noted that he agreed to an extent with Commissioner Butler. He also noted that Commissioner Alix was correct in that the Commission should hear every view on an issue.

Responding to Commissioner Butler’s comments, Commissioner Alix noted that the Commission’s proposals should be phrased as questions. Commissioner Hartley observed that the Commission was not making law, but just making some recommendations on bankruptcy policy for the future.

Professor Warren stated that Commissioner Alix was correct in that there were literally hundreds of issues that the working groups were in the process of winnowing and deciding. The question, she noted, was how to involve everyone in this process. This can be done, she suggested, by making the proposal specific enough to draw fire. Although the venue proposal had been circulated since January in question form, no one opposed to the proposal voiced any opposition until it was put in the form of a stronger statement. She said that this was a perfect example of where a stronger statement forced the Commission to confront disagreement early in the process. She also noted that there was no intent in the affirmative wording of the proposal to limit the scope of the staff’s research.

On motion of Commissioner Gose, a majority of the Commission voted to approve rephrasing the proposal to begin with the word should. Chair Williamson and Commissioner Butler opposed the motion.

At approximately 9:48 a.m., the meeting recessed and the Jurisdiction, Procedure; Government; and Chapter 11 working groups thereafter convened.


Chair Williamson reconvened the meeting at approximately 12:50 p.m. He explained that the advisor for each working group would summarize the areas discussed and the issues that will and will not be considered as well as any areas on which there was any consensus. He noted that the transnational and mass torts, future claims working groups would convene at the July meeting. In addition, he said that the research and analysis process for the appellate structure proposal would start immediately with the goal of having it considered further at the July meeting.


Professor Warren stated that the working group began with the query as to whether or not Chapter 11 should remain in the bankruptcy system in its current form, whether there should be minor or major changes, or none at all. She mentioned that the working group discussed replacing it with an auction system as well as reviewed the advantages and disadvantages of the present Chapter 11 system. She noted that there was general agreement that the Chapter 11 system should stay intact and that the group aimed to identify some moderate changes. She identified this as the group’s basic working principle.

The working group also identified the goals that Chapter 11 should accomplish and attempted to divide the issues into three categories. These categories consisted of those issues where there was consensus and where the group desired to move forward on them, issues that warranted further consideration, and those issues that should be eliminated from consideration. In the first category, there was consensus on a proposal that the Bankruptcy Code clearly permit a new value exception to the absolute priority rule and that this provision be tied to terminating exclusivity if a new value plan is made in the context of a cramdown. The second proposal, where there was working consensus, concerned the need to clarify the claims classification provisions. Specifically, the proposal would permit separate classification of legally similar claims providing there was a business justification supporting separate classification and that such classification did not unfairly discriminate among the other classes.

Professor Warren then identified issues warranting further consideration as those pertaining to labor/employee’s rights, claims trading and executory contracts. She noted that amending plan exclusivity provisions was tentatively in the third category as the working group presently did not want to change them except as noted in connection with the new value exception to the absolute priority rule.

Commissioner Ceccotti added that several areas were identified as additions to the Chapter 11 issues list, namely, the use of mediators and examiners with expanded powers, the issue of what is ordinary course, and valuation.

Commissioner Alix recalled that the working group was split on the issue of claims trading and that it was directed at the amount of disclosure required, not at restricting claims trading. With regard to valuation in Chapter 11, he said that there should be a way to provide some structure to this concept. Concerning exclusivity, Commissioner Alix stated that he was personally interested in hearing more from the creditor’s side, especially unsecured creditors, as the resource participants that assisted the working group primarily represented the debtor’s perspective.

Chair Williamson then asked the Commissioners not serving on the Chapter 11 working group to comment on the summary. Commissioner Jones noted that there were a number of areas that were not mentioned and observed that the issues that were identified by the working group did not address the principal problems that exist in Chapter 11 such as the extent of debtor control and the amount of time and transaction costs associated with the system. She also observed that working group’s resource participants mostly represented debtor interests.

Professor Warren explained that the working group had not completed its review of the issues list and that any issues not presently listed that Commissioners wanted added would be included on the list. She noted that the new value and classification issues would be presented to the full Commission at the next meeting in the form of a short memorandum which would include an explanation of the proposal.


Professor King said that there were several matters on which the working group had some general consensus. The working group concluded that the disinterestedness requirement of Section 327(a) for professionals be deleted as it basically is anomalous in Chapter 11 because the debtor in possession was not disinterested. Professionals would still be required to be free of any adverse interest to the estate, he noted. The working group recommended reviewing the proposals of the American Law Institute Restatement of Law Governing Lawyers which redefine materially adverse interests with greater specificity. The rule would create a nationwide standard and thus obviate the need to rely on local or state ethical rules, he observed.

The working group examined the question of who are professionals and attempted to devise a working-type definition, Professor King reported. If, for example, there were continuing relationships with attorneys, accountants and others who had nothing to do with the Chapter 11 process, then court approval of their continued retention may not be necessary. Left for further discussion was how to treat turnaround management. He noted, however, that none of these concepts did away with the need at the outset of the case for proper disclosure. Concerning disclosure, the working group generally agreed that the current rules were very broad. The working group also discussed dual representation by professionals and that it may not be necessary for multiple committees, for instance, to have their own sets of accountants and other professionals, he noted. Also with regard to multiple representation, the working group considered the propriety of the simultaneous representation of debtor affiliates, such as the corporate entity and shareholder.

In addition, the working group considered and resolved without objection a provision which would not require the use of local counsel where the principal attorney is not admitted to the district where the case is pending. The working group also considered having a national admission policy for counsel in bankruptcy courts. Left for further consideration was the general issue of compensation and the rights and responsibilities of the debtor in possession and its counsel.

Commissioner Ginsberg explained that the working group’s discussion regarding the conceptual relationship of various officers of the Chapter 11 estate and the debtor in possession highlighted the difficulties presented by this issue. Commissioner Alix commented that the working group’s discussion regarding compensation concerned the idea of value billing and giving professionals optimum fees in exchange for optimum results. The compensation scheme he described would move more toward a market-based system and less toward a straight hourly system. The second component to this concept was tying compensation to the amount of time it takes to achieve the results.

Commissioner Jones suggested that the working group consider the issue of trustee compensation. Commissioner Shepard noted that it should also consider trustee liability.

Noting that there were areas where the interests of different working groups would overlap, Chair Williamson suggested there may be combined meetings of these working groups at future meetings. Professor King noted that the role and duties of the United States Trustee may be suited to having a special working group appointed.


With regard to partnerships, Mr. Case noted that there was a consensus of the working group members that the most effective use of the Commission’s resources would be to review the detailed studies of partnership bankruptcy issues prepared by the American Bar Association Business Bankruptcy Committee and the National Bankruptcy Conference and to ask these groups to identify their differences for the Commission.

Concerning small business and single asset real estate cases, Mr. Case reported that there was a clear consensus that the Bankruptcy Code did not work well for either. Among the issues that the working group identified in the small business area were: how should small business be defined; should the absolute priority rule automatically apply in all small business cases; should creditors have a right to vote in a small business case; should small business cases be given a separate track inside Chapter 11 or have its own chapter; should business entities such as corporations be permitted to file Chapter 13 petitions; how should the Section 105(d) status conference be utilized; and should there be some form of business analog for the Chapter 13 trustee.

Under the single asset real estate category, Mr. Case noted that the working group expressed concern that there were instances where these cases were abusive and extortionate, although there was not a consensus as to how this concern should be addressed. Among the ideas discussed was whether there was sufficient a federal interest in single asset real estate cases to warrant extending the protection of the bankruptcy laws to them; whether stringent controls should be imposed on these types of cases to require automatic dismissal should these debtors fail to pay postpetition taxes and some form of debt service on the mortgage; should there be an automatic trustee for these debtors; should there be different rules for cases where the debtor aims to repay the mortgage debt in full as opposed to those that want to bifurcate the mortgage claim; and what protection should be given to junior lien holders.

Commenting on the issue with regard to defining small business, Commissioner Alix noted that generally 80 percent of the value was in 20 percent of the cases and suggested that the Pareto analysis may provide a guide. Commissioner Gose said that the working group concluded that this issue warranted further analysis and that the staff would research previous legislative efforts in this regard. Commissioner Shepard added that the group examined the definition from two perspectives: cases that should never have been filed and cases entitled to fast track treatment.
Commissioner Alix recommended that the working group may want to consider how exclusivity could be used to move these cases along. He also suggested that it review whether an alternative to the disclosure statement requirement could be devised and whether it could be tied to exclusivity.


Thomas Ambro with Richards, Layton & Finger spoke on behalf of the Delaware Bar Association. As his organization intended to submit a position paper with regard to the venue proposal, he asked that the Commission defer its further consideration of this proposal until its September meeting.

He noted that the discussion concerning venue has largely centered around Delaware. He then reviewed the venue provisions under prior law and practice. He stated that the current bankruptcy venue provisions were essentially the same as those for non-bankruptcy matters. He recalled that after Continental Airlines filed its case in Delaware, other large, national corporations also filed their cases in Delaware.

He expressed concern regarding the perception of those that oppose having state of incorporation be a venue filing option. Although he described his practice as being primarily creditor oriented, he said that the bankruptcy judges in Delaware were no more pro-reorganization than bankruptcy judges elsewhere. He said that cases are filed in Delaware because the bankruptcy judges are consistent, experienced and have demonstrated their ability to deal with large cases. In addition, Delaware is chosen to file bankruptcy cases because it is convenient, its court scheduling staff is efficient and responsive, and the clerk’s office is well-organized. Further, lenders and other creditors are comfortable in Delaware, he observed.



Professor King noted that the working group discussed Article III status for the bankruptcy court and determined that statistics and other data be accumulated with regard to the present system concerning this issue. Regarding the appellate structure proposal, he said that the general consensus at this point was to eliminate the first layer of appeal that presently exists. This would include the district court and bankruptcy appellate panel as well. The working group also focused on the discrete issues created by the proposal. As to the finality issue, the working group considered the appealability of interlocutory orders, but did not complete its review of this issue. The consensus of the group was not to deal with the issue of mootness. There was consensus to eliminate the mandatory withdrawal of the reference provisions in Title 28.

Mandatory abstention and the exclusion of personal injury claims from bankruptcy court jurisdiction were two areas which the working group deemed to require further analysis and discussion. The working group determined that to recommend permitting bankruptcy courts to conduct jury trials without consent of the parties would be not be worth examining at this time because of the constitutionality concerns. He noted that the group discussed the practice in certain districts where there is some cooperative effort between the bankruptcy and district courts concerning jury trials.

Professor King said there was consensus that the bankruptcy courts should have contempt powers to the broadest extent permitted constitutionally. Regarding the rulemaking provisions of 28 U.S.C. § 2076, the working group concluded that they not be changed. And, with respect to status conferences, the working group found the present provision to be clear enough and that it should not be changed to make the conference mandatory.

While agreeing with Professor King’s summary, Commissioner Butler noted that much of the discussion would be moot if the bankruptcy courts had Article III status. Commissioner Jones was dubious about granting life tenure to bankruptcy judges. She noted that if status conferences were not to be used to monitor cases, the Commission should develop other ways to accomplish this.

Observing that Professor King outlined some areas with respect to the appellate proposal that will be subissues for further development, Commissioner Ceccotti recommended that standing be added to this list. She also asked that the rules with respect to the appealability of interlocutory orders in bankruptcy and non-bankruptcy cases be reviewed. Expressing disappointment with the group’s proposal to delete the mandatory withdrawal provisions of 28 U.S.C. § 157(d), she asked the group to reconsider this decision.

In response to Chair Williamson’s question, Professor King said that the contempt powers concept was ripe for further preliminary analysis.


Mr. Case prefaced his remarks by complimenting the resource participants for their contributions to the working group. He then noted that there was a rough consensus that Chapter 9 did not require enough substantive attention to accord it a priority at this time. Given the enormous numbers of bankruptcy cases filed, Mr. Case observed that the bankruptcy system imposes a double burden on the federal government in that it must follow all the cases and the resultant taxes lost when these cases are not monitored. He then identified various issues of concern to the government including serial filings, whether the Chapter 13 discharge favors tax defrauders, and whether the automatic stay should be waived to permit offsets of tax refunds.

The noticing problems were particularly acute in the environmental area, Mr. Case noted. In major cases, for example, the Department of Justice must send a dragnet letter to its 120 agencies to determine whether any have claims against the debtor. Another adverse impact of bankruptcy in the environmental area was the need to conduct studies and other remedial efforts before it was appropriate to do so, he observed. He noted that there was a need for some relatively minor clarification of those provisions regarding claims for cleanup liability. The group also discussed the need to provide some form of protection for bankruptcy trustees of toxic site facilities. He reported that the Justice Department believes that Section 105 is used excessively by bankruptcy judges to interfere with its regulatory processes.

In the pension area, there were issues regarding the debtor in possession’s obligation to pay prepetition pension liabilities and remain current on these obligations postpetition. There was also a need to clarify the treatment of employee benefit plans such as health and uninsured 401K pension plans.

In the tax area, Mr. Case mentioned several issues as being illustrative of the extensive and broad-ranging concerns presented therein. These included whether Section 505 should be expanded to permit the bankruptcy court to adjudicate the tax liability of non-debtors and how the endemic lack of uniformity in the treatment of tax issues in Chapter 13 should be addressed.

Commissioner Alix suggested that the net operating loss carry forwards and rules pertaining to them often constituted the key asset in the debtor’s estate that can create value for creditors. He noted that if it will not be addressed by this group, then the Chapter 11 working group may have to consider it. Commissioner Shepard said that the Government working group would be reviewing these matters as they were intertwined with other tax issues that it was considering. Commissioner Alix also suggested that the group consider the area of trustee liability. Commissioner Jones agreed and also noted that there were some real problems in ERISA in that context as well.


Professor Warren reported that the working group began its analysis by looking at the huge variation in outcomes among districts for both consumer debtors and creditors as well as the cost attendant to such variability. She noted that the group attempted to determine whether there was a principle that could guide it through its analysis.

As there was much resistance to combining Chapter 7 and 13, the group worked to sharpen the distinction between them and to narrow the variability within each. To this end, Chapter 7 was described as an asset-based system concerned with the liquidation of assets and the provision of a discharge within approximately 40 days. Chapter 13 was viewed as a income-based system concerned with payout and the treatment of other items over a long period of time.

The group then reviewed what could be moved out of each of these Chapters, Professor Warren reported. Reaffirmation of debt in Chapter 7, for example, encumbered future income in an asset-based Chapter. If the effect was to encumber future income, then it belonged in Chapter 13.
At the conclusion of this thought experiment, it was concluded that this was not an entirely satisfactory approach. So the group found itself in a position where it had identified a problem as well as two possible solutions, but found neither of them satisfactory. In sum, Professor Warren observed that more thought and discussion was necessary.

As to other areas, Professor Warren noted that the group considered the appropriate role for consumer credit counseling and whether it could be integrated into the system. There was also discussion regarding changes in consumer credit reporting to create incentives for debtors to deal with their debt differently.

In an effort to learn more about consumer bankruptcy, Commissioner Alix stated that he and his associate, Linda Hamel, met with their local Chapter 13 trustee and attended hearings before the three bankruptcy judges in his district. He noted that the quality of the bar that practices in these courts varied to a significant degree. The judges and trustees concurred with this observation as well. Accordingly, he suggested that the group consider whether or not there should be certain minimum standards for practitioners in this area given the fact that the bankruptcy area is complex, requiring some specialization and a minimum level of competence. Commissioner Ginsberg agreed with Commissioner Alix’s comments. Commissioner Alix suggested that there should be some form of certification process which provided economic incentives to move people toward a higher level of practice. Commissioner Ginsberg observed that the ABI has made some strong efforts in this area.


Chair Williamson concluded the meeting by thanking Dean Judith Areen for providing the facilities at Georgetown University Law Center. He noted that the meeting had been a very satisfying and productive effort and that the Commission had made very specific progress toward very specific recommendations.

On behalf of the Commission, Chair Williamson expressed appreciation to the resource participants. He noted that many of them would be asked to assist again at the next meeting and that there would be others invited as well because the Commission’s goal was diversity in its broadest sense. Commissioner Alix said that he personally appreciated having the assistance of the audience and the participants as the interchange was useful.

Commissioner Alix also extended his appreciation to Chair Williamson for his leadership and efforts in ensuring that the process is open and inclusive. In addition, Commissioner Alix noted that Chair Williamson had committed substantial personal time and expense to make himself available to anyone wishing to meet with him. Commissioner Alix also commended Chair Williamson for his style of leadership as well. He believed that it was a combination of Chair Williamson’s and Professor Warren’s leadership which enabled the Commission to reach the point where it is now functioning.


After thanking Commissioner Alix for his comments, Chair Williamson adjourned the meeting at approximately 2:31 p.m.


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