Unfinished Business What the Bankruptcy Reform Bill Still Needs to Fix

<p>Considering the length of the pending bankruptcy legislation, and the length of time it has been pending,
it would seem that there should be little left to deal with. But, regardless of what happens with the current
bill (and, as I write, there is still no clear answer as to its fate), there are other matters that government
counsel believe need to be addressed. My relatively modest proposals don't have the high profile of
consumer bankruptcy issues, won't attract any campaign contributions, and produce the dreaded MEGO
("my eyes glaze over") syndrome when raised with Congressional staff.

</p><p>Yet, as boring as they seem, they would make a significant difference for government counsel in being
able to represent the state's citizens in an efficient and cost-effective manner. They would be helpful for
others as well, but for now I limit my arguments to government counsel, which hopefully removes some
of the potential controversies that might be raised if made generally applicable. If they work out well in that
limited context, it would be reasonable to consider expanding the program to all counsel later.

</p><p>So what am I suggesting? That's simple—national admissions to bankruptcy court and a removal of the
<i>mandatory</i> requirement for use of local counsel.

</p><p>The national admissions/local counsel provisions were dealt with by the National Bankruptcy Review
Commission (see pp. 883-888 of its report), which recommended that a national admissions provision be
implemented generally, but made no proposal on the more controversial topic of local counsel
requirements. During the Commission discussions, Judge Edith Jones expressed concerns about the national
admissions proposal, which I take as a starting point for analyzing the merits of this issue. As discussed
below, Ibelieve her concerns, and those of others who might oppose this provision, miss the mark and can
be readily resolved by the structure of the particular proposal being made.

</p><p>Judge Jones in particular argued that providing for national admissions would give a "special benefit"
to bankruptcy practitioners. In fact, though, it merely removes the unique difficulties that bankruptcy
filings <i>impose</i> on other parties to the case. Because the venue provisions of the Code give a debtor great
leeway to set the locale of the case, he can easily create a situation where his creditors must leave their local
courts and appear in a jurisdiction to which they otherwise never could have been brought. Not only will
those creditors now face significantly greater burdens in bringing their evidence and their witnesses to a
distant forum, but on top of that they are told they must take additional burdensome steps just to appear.
When creditors' lawyers are forced to seek admission to a foreign court, they are not voluntarily swarming
into other states to expand their practices, they are there because the debtor has forced them to come. It adds
insult to injury to suggest they are receiving a "special benefit" just to be allowed to continue representing
their own clients.

</p><p>If this were the inevitable result of all federal litigation, then Judge Jones's comment might be correct.
But in fact, the result is exactly the opposite in the most closely analogous form of complex federal
litigation, namely multidistrict litigation. Cases before the Judicial Panel on Multidistrict Litigation have
many similarities to bankruptcy cases; there, too, for reasons of convenience, multiple parties may be forced
to leave their home courts and litigate their issues in a common forum that may be distant from their
location. In such litigation, though, they need not suffer the difficulties inherent in bankruptcy litigation;
instead, Multidistrict Rule 6 provides exactly what I am arguing for:

</p><p>Every member in good standing of the bar of any district court of the United States is entitled
without condition to practice before the Judicial Panel on Multidistrict Litigation. Any attorney of
record...may continue to represent his or her client in any district court of the United States to which
such action is transferred. Parties to any action transferred under ß1407 are not required to obtain
local counsel in the district to which such action is transferred.

</p><p>If this is appropriate in multidistrict litigation, why not equally so in bankruptcy?

</p><p>The need to obtain admission to the local court and local counsel is particularly onerous in light of the
speed at which bankruptcy moves. "First-day" orders routinely decide issues of great significance in the
case, and out-of-state parties are severely hampered if they must first jump through procedural hoops and
obtain local counsel before they can say a word. When bankruptcy matters often proceed on expedited
schedules, and statutes of limitations are compressed to a few months, procedural barriers that might
otherwise be manageable become major problems.

</p><p>State and local governmental counsel are particularly disadvantaged in this regard. Most governmental
debts are incurred involuntarily so there is less ability for the government to dictate a choice of laws, or to
control where their debtors may live or hold their collateral. Moreover, unlike the federal government,
which has offices and staff nationwide, states and localities will normally have no one working in other
states. Yet, local rules on admissions and local counsel generally exempt only federal employees from their
coverage, but not employees of other governmental entities. Nor are states and localities like a large
business with offices all over the country that may already have counsel under contract in each area.
Instead, they normally handle all legal work through their own staff. In some cases, there even may be legal
restrictions on hiring outside counsel; even if not, it will undoubtedly be a more complex and burdensome
contracting process than for private businesses. Indeed, states have found themselves embroiled in
significant political controversy merely arising out of the decision as to whom to hire as outside counsel,
which is another reason why they generally find it to be preferable to use their own staff.

</p><p>The burden of moving for admission and securing local counsel is further exacerbated by the lack of
<i>any</i> uniformity in the requirements in various local rules. The differences from state to state and, indeed,
from district to district, are startling. In some, one can appear immediately and let the paperwork follow
as it may; in others, one may not do anything until the paperwork has been formally approved by the judge.
Similarly, some courts require little more than that a party obtain a signature by a local counsel on an initial

<i>pro hac vice</i> motion; others require local counsel to <i>personally</i> attend every hearing in the case even if the
primary counsel is there, thus doubling the cost the client must bear. The disparity of the rules ensures that
this is yet one more time-wasting research project for the lawyer—as well as a good indication that courts
can function quite well with far less stringent requirements than the most burdensome districts impose.

</p><p>Congress has already authorized national admission for counsel for domestic support creditors, and the
attorneys general believe, and have repeatedly urged, that it should do no less for other agencies of state
and local government when they must appear on behalf of their other citizens. Some would argue (as did
the Commission) that a national admissions provision, standing alone, is enough. I suggest that an
admissions policy, without relief from burdensome local counsel rules, provides little meaningful relief for
governmental entities.

</p><p>First, as noted above, hiring such counsel can be extremely burdensome and expensive, and will usually
be in addition to, not in lieu of, the use of staff counsel. Strict requirements for the bidding process make
it difficult to obtain private counsel on an expedited basis and the cost factor militates against their use.
Thus, the state will usually seek assistance from the local attorney general's office, not from outside hired
counsel, at least in the opening phases of the case and if the matter is not overly complex. In short, with or
without local counsel requirements, government claimants are unlikely to provide a large market for
services from the local bar—thus eliminating an important (if not always conceded) reason for imposing
local counsel requirements.

</p><p>Second, abolishing <i>requirements</i> for local counsel does not mean they will no longer be used. Prudence
dictates that the states <i>will</i> normally consult with the local attorney general's office—indeed, the National
Association of Attorneys General (NAAG) maintains a directory of state bankruptcy counsel for this
purpose. And if there is to be substantial involvement in a distant case, states do not need a local rule to tell
them that it makes sense to have someone who can devote the significant time that is necessary, which
probably does mean eventually hiring private counsel. But <i>mandating</i> such involvement in every case,
particularly to the point of requiring that local counsel sign all pleadings and appear at all hearings, is highly
burdensome, disruptive of the work of the local office and likely to dissuade them from being willing to
assist their out-of-state compatriots at all.

</p><p>Third, because of bankruptcy's unique jurisdiction, local counsel may often have no knowledge of the
relevant substantive issues. What can local Tennessee counsel in a Tennessee bankruptcy court, for
instance, really add to a discussion of New York state tax issues by a New York state attorney? If his only
real purpose is to initiate out-of-state counsel into the critical arcana of how the local court wants its
pleadings to look, it is overkill to put a lawyer on that job, since the lawyers usually just leave such matters
up to their secretaries and paralegals anyway.

</p><p>A fourth policy reason often raised—and one that is explicit in many of the rules dealing with local
counsel—is that they are necessary to ensure that the court can move quickly in an emergency or because
they require that there be someone with whom, as many rules read, the other side can "communicate
readily." While that may sound reasonable on its face, the argument does not bear close scrutiny. To begin
with, in this era of fax machines and e-mail (not to mention the old-fashioned telephone), getting notice to
someone across the country takes no longer than to someone across the street. Nor is there reason to believe
that local counsel are sitting magically waiting and poised in their office, ready to appear at a moment's
notice on some case for which they do not even bear primary responsibility. Certainly, I am unaware of any
evidence that would suggest that one is more likely to be successful in catching in-town lawyers at their
desk than out-of-town counsel. Nor is it likely that most local counsel are really ready to step in and handle
a hearing without notice unless the court is one that requires the creditor to pay for keeping two lawyers
fully conversant with the case. Such rules are truly oppressive and ultimately suggest that parties cannot
be trusted to have the good sense to decide whether there is so much work in a particular case that it makes
practical and financial sense to turn the matter over to the local lawyer.

</p><p>A final reason for treating governmental counsel separately is that they have no pecuniary interest in
appearing out-of-state or obtaining additional work there. They are forced into those foreign courts by the
debtor's choice, not their own, and they work only for the state. Thus, there is no likelihood that they will
attempt to use these rules as a way of increasing their own practice or to avoid the control of the courts in
which they practice. Government counsel also may be less likely to raise concerns that the court will lose
its ability to control their conduct. In the first place, as our proposal below suggests, the discipline question
can be relatively easily addressed in the structure of the admissions process. In addition, government
counsel do work in a formal employment structure and are answerable to their superiors, which gives a
court a responsible official with whom it may lodge its complaints.

</p><p>In short, for all of these reasons, I suggest it is worth bringing this issue back to the forefront. I was
pleasantly surprised to learn that this issue is also being studied by the American Bar Association in its
re-examination of the Rules of Professional Conduct. Although it takes a different tack, it too recognizes
that the growing nationalization of law strongly argues for a greater ability of counsel to work across state
lines. That rationale is obviously highly pertinent to bankruptcy practice, which is, by definition, national
in scope and subject to a uniform national law. What better place to start the experiment with a uniform
national admissions practice? My suggested language follows:

</p><p><b>111. Admission to Practice and Local Counsel Requirements</b>

</p><blockquote>
(a) An attorney employed by a governmental unit who is admitted to practice before any bankruptcy
court of the United States and is a member in good standing in all jurisdictions in which he or she
is a member of the bar shall be entitled to practice in one or more cases in any bankruptcy court of
the United States on the following conditions:
<blockquote>
(1) On or before the first time the attorney appears in court or files a pleading, he or she files
with the clerk of the court a Certificate of Admissibility in a form to be prescribed by the
director of the Administrative Office for the U.S. Courts, signed under penalty of perjury, that
attests to his or her compliance with the requirements of this paragraph and his or her
affirmation that he or she has read and is subject to all local rules of the court;<br>
(2) Appearance in the bankruptcy court will subject the attorney to the disciplinary authority
of the court to the same extent as if the attorney had been admitted on a motion <i>pro hac vice;</i>
and<br>

(3) Notwithstanding the foregoing, nothing herein will preclude a bankruptcy court from
requiring that counsel who reside, have an office in, or appear regularly and substantially in
multiple cases within the bankruptcy district be admitted to the local bar before being allowed
to practice in the bankruptcy court.
</blockquote>
(b) Any attorney who is admitted to the bankruptcy court under these provisions shall also be
entitled to appear in the district court under the same conditions in appeals of any decisions rendered
by the bankruptcy court, or in matters withdrawn from the bankruptcy court, by filing an updated
Certificate of Admissibility with or before his or her first such appearance or filing of a pleading in
the district court.<br>
(c) Any attorney regularly employed by a governmental unit shall not be subject to any local counsel
requirements prescribed in local rules of the bankruptcy or district courts when appearing on behalf
of that governmental unit in the circumstances described in paragraphs (a) and (b).
</blockquote>