Plain-meaning Cases Lead to Costly and Flawed Amendments to the Bankruptcy Code

<p>Judge Learned Hand observed that "it is one of the surest indexes of a mature and developed jurisprudence
not to make a fortress out of the dictionary." The late respected Judge Hand notwithstanding, a fashion in
statutory interpretation has arisen in the land, predicated on heavy reliance on the dictionary.

</p><p>The "new textualists" hold, often harangue, that legal texts have a meaning that is to be discerned without
the aid of any confusing legislative history, other extrinsic evidence of legislative intent, historical
background, or most especially, consideration of the social consequences of one interpretation or another.
The Supreme Court has chosen to make the Bankruptcy Code a kind of proving ground for "textualist"
interpretation, regularly adopting textualist interpretations to settle the law on contested questions arising
under the Bankruptcy Code.

</p><p>Recently, with the generous financial support of the ABI Endowment Fund, I decided to test the quality
of textualism as an interpretive method. The results are reported in "Textualism's Failures: A Study of
Overruled Bankruptcy Decisions," <a href="http://www.westlaw.com/find/default.asp?rs=CLWP2.1&amp;vr=1.0&amp;cite=… Vand. L. Rev. 887 (2000)</a>.

</p><p>Like textualism, the pragmatic school of statutory interpretation, which has dominated American
jurisprudence during most of the 20th century, generally focuses first on statutory text and context.
Pragmatists, however, go further and consider sources outside the text in order to give concrete meaning
to the statute in particular circumstances. Traditionally, these nontextual sources include legislative history,
pre-enactment law and other circumstantial evidence of legislative intent examined with reference to the
comparative policy implications of various interpretations.

</p><p>The new textualists presume a lack of judicial competence to assess nontextualist sources and argue that
textualism, despite its flaws, yields better results from a policy perspective than pragmatism. This
essentially utilitarian defense of textualism is counterintuitive. On its face, pragmatism is more consistent
with utilitarianism than textualism. If one accepts, as a utilitarian presumably does, that the goal of statutory
interpretation is rational development of complex statutory schemes in a manner consistent with
democratically selected policy goals, then all things being otherwise equal, pragmatic judges, adopting
appropriately deferential attitudes toward political choices when informed by actual circumstances in real
cases, should do better in achieving this goal than judges who defer to <i>ex ante</i> legislative drafting choices
made without consciousness of the real consequences in the present unimagined or foggily anticipated
case.

</p><p>Determining error in the exegesis of a complex statutory scheme is generally a question of judgment
and depends on an assessment of consequences and an understanding of the policies of the statute. Most
interpretive "errors" are debatable.

</p><p>Nevertheless, the textualist suggestion that legislative error correction is the appropriate safeguard to
textualist excess suggests one reasonable, neutral (but partial) definition of error: interpretations
subsequently superseded by statute. Statutory overruling indicates that the law as interpreted does not meet
present political and policy goals in a substantial enough way to overcome the very considerable inertia
within the legislative process. Given the subsequent legislation, the overruled interpretation is socially
costly; the benefits of the overruled interpretation are not realized because of the later statutory change, but
all the costs of adjudication and new legislation are paid. And there is an obvious injustice worked on the
litigant who loses and others subject to the court decision that is destined for overruling, while future
similarly situated persons obtain the benefit of the later amendment. If textualists make more errors that
require statutory overruling, and if it is apparent that statutory overruling is costly, time-consuming and
inefficient as error correction, these facts should be relevant to judges in choosing an appropriate method
of statutory construction.

</p><p>First, I identified and analyzed for interpretive method the 58 bankruptcy decisions under the 1978
Bankruptcy Code intentionally overruled by statute. For purposes of comparison, I then selected a group
of random cases that Congress has not overruled from those federal appellate bankruptcy cases for which
petitions for <i>certiorari</i> were acted upon by the Supreme Court between its 1982 and 1998 terms—a total
of 804 cases. From this universe of cases, I drew six random samples of 30 cases each, for a total of 180
cases.

</p><p>Comparing these two groups of cases—the overruled ones and the random ones—yields striking
findings. Even a casual look at the data indicates that textualism is not a dominant mode of statutory
interpretation in the courts of appeals, even in the bankruptcy area, notwithstanding the Supreme Court's
particular insistence for a decade on "plain-meaning" constructions of the Bankruptcy Code. Approximately
80 percent of the control group cases were decided on largely or entirely nontextualist grounds.

</p><p>On the other hand, of the 58 overruled cases, 31 (54 percent) were decided on textualist or primarily
textualist grounds, while of the 52 cases in the control group, nine (18 percent) were decided on textualist
or primarily textualist grounds. Three times as many overruled cases are textualist or primarily textualist.
Conversely, 30 control group cases (58 percent) were decided on pragmatic or primarily pragmatic grounds.
This is true of eight overruled cases (14 percent). That is, more than four times as many control group cases
are pragmatic or primarily pragmatic.

</p><p>Treating the categories of interpretive method as discrete and applying the chi-square test to determine
statistical significance, these results are significant at the .001 level. Treating the categories of interpretive
method as a continuum and applying the t-test procedure, the control group and overruled group exhibit
approximately equal variances but significantly different means. The t-test confirms that the control group
is significantly more pragmatic than the overruled group, with results at the .0001 level of significance.

</p><p>There is virtually no chance that the larger number of pragmatic interpretations observed in the control
group is a random event. The data strongly support the hypothesis that textualist decisions are more likely
to be overruled by Congress than pragmatic ones.

</p><p>Cases subsequently overruled by Congress presumably do not serve current policy goals well, at least
in the view of Congress, which, after all, has the constitutional prerogative to set bankruptcy policy. The
observation that overruled cases are disproportionately textualist in method should trouble utilitarian
textualists. The observation is consistent with pragmatic intuitions that pragmatic interpretation leads to
superior implementation of existing bankruptcy policy. Moreover, overruled cases are likely to be
inconsistent with the intent of the enacting Congress as well. There is no evidence that as a general matter
bankruptcy policy has sufficiently changed within the last 20 years such that, on average, honoring the
intent of the drafters of the Bankruptcy Reform Act of 1978 would disserve current policy or vice-versa.
Most of the overruled cases that form the subject of this research do not raise broad ideological issues, but
rather deal with the details of bankruptcy administration and policy. Corrective legislation in such cases is
likely to mean that the overruled case was inconsistent with the intent of the enacting Congress as well as
current policy.

</p><p>If one accepts the proposition that cases subsequently overruled by the Congress are not consistent with
the legislative intent of the enacting Congress, the observation that overruled cases are disproportionately
textualist in method should also trouble at least some judges who adopt textualism for legitimacy reasons.
This observation is consistent with the pragmatic intuition that pragmatic interpretation leads on average to
statutory interpretation that better approximates congressional intent.

</p><p>The Bankruptcy Code is complicated and amendments often have unintended consequences, fail in part
or sometimes fail completely. The median time required to overrule the 58 superseded cases was three
years, with a minimum of less than one year and a maximum of 15 years. In 20 cases (34 percent),
legislative correction took five or more years. Overruling by amending the Code is clearly a
time-consuming business. Moreover, amending the Code is an uncertain and faulty business. The
overrulings generated substantial further litigation or serious unintended consequences, or were botched,
in 36 instances (62 percent). This appears to be equally true of amendments overruling textualist or
primarily textualist decisions as it is of more pragmatic judicial decisions. Relying on legislation to correct
judicial misinterpretations is like relying on surgery to correct ills caused by misprescribed drugs. It is
costly, risky and rarely as efficacious as administering the correct medicine in the first place.

</p><p>The evidence from bankruptcy shows that the clearest and most costly interpretive errors—the ones
requiring legislative correction—are disproportionately textualist in origin. If we can agree that Congress
and the courts should work together to achieve the most sensible and effective statutory scheme possible,
the evidence is that over time, pragmatic interpretation appears more likely to lead to that result than
textualism. Analysis of random bankruptcy cases indicates that pragmatic interpretive methods continue
to be the norm in the bankruptcy field. Comparison of the random cases to the overruled ones indicates
that pragmatism should remain the dominant mode of statutory construction.

</p>