Incoming NCBJ President Shares Views on Shape of Bankruptcy System

Journal Issue

Oct 1999

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Editor's Note:

Hon. Mary Davies Scott (E.D. & W.D. Ark.) will become the next president of the National Conference of Bankruptcy Judges (NCBJ) at the close of its annual meeting in San Francisco this month. ABI Journal Editor-in-Chief Sam Gerdano recently interviewed Judge

Scott about current issues.

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Gerdano: In your 12 years as a judge, what have been the biggest changes you've observed in

the bankruptcy system?

Judge Scott: The biggest changes I have seen in the last 12 years have been in the area of

automation. When the federal judiciary decided, somewhat belatedly in comparison to law

firms, that it was time to automate, the bankruptcy courts were the ones initially chosen to

undergo the process. It is obvious why they were chosen—there is a staggering amount of

paperwork that accompanies a million plus filings per year. We have not only automated the

courts, but now electronic filing is just around the corner. Court personnel as well as

practitioners who have avoided technology will be left behind. Practicing in the bankruptcy

courts in the very near future will be, to a very great extent, in cyberspace.

Gerdano: The Senate is apparently poised to take up its version of bankruptcy reform (S.

625). The NCBJ has taken a high profile during the last two Congresses in commenting on the

bill's impact. What is your view of the legislation?

Judge Scott: At the time the recent Bankruptcy Review Commission was formed, one of the

reasons given for appointing the Commission was to stop the piecemeal amendments to the 1978

statute. The Commission's report was not even out for public and Congressional review before

efforts were made to circumvent its recommendations. Given the time and effort that went into

the Commission's report, this development proved disheartening to many. While it is true that

there was a strong dissent to the final report and little unanimity on most of the important

issues discussed by the Commission, these issues were thoroughly discussed in public hearings

and all sides were given a chance to voice concerns. The pending legislation working its way

through Congress was not initially subjected to public comment. Rather, there was an attempt to

quickly pass it through the system without these safeguards. Delays did ensue, however, and the

first proposals have now had a chance to be scrutinized and, in many cases, strongly criticized.

In spite of this, the process continues, and compromise looks unlikely except regarding fairly

inconsequential provisions.

My colleagues in the NCBJ are of two minds regarding whether bankruptcy judges ought to comment on pending

legislation. There are those who feel that judges should only comment on substantive legislation

if it will have an impact on the administration of justice. Others believe that the judges should

comment without that restriction. I am in the former group. The NCBJ, as a group, has

attempted at every opportunity to comment either upon the impact this legislation will have on

the administration of the system or state that the impact is unknown and that time is needed to

assess it. Individual judges also have commented on the legislation. The entire legislative

process for the past two Congressional terms has been evolving toward some sort of "reform" of

the existing statute, and today it seems inevitable that we will have significant amendments to

the statute.

Gerdano: One theme that seems to run throughout the bill is a kind of distrust of judicial

discretion that now exists (i.e., a formulaic means test rather than §707(b) under current

law; strict time limits on exclusivity in chapter ll; fixed time limits on the ability to accept or

reject commercial leases, etc.). Do you have this impression? If so, to what do you attribute

this approach?

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I have every reason to believe that those who

practice under the statute going forward will

continue to find creative ways to utilize not only

the provisions that survive this reform act, but

certainly the new provisions. There will always be

a place for creative lawyering.

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Judge Scott: My initial response to the question is that the Bankruptcy Code is already replete

with provisions that attempt to limit the discretion of the bankruptcy court. I do not interpret

these provisions to be so much a distrust of judicial discretion as an attempt to discourage abuse

or possibly even the use of the system. The Bankruptcy Code has been utilized for purposes

never imagined by the drafters of the initial statute—mass torts, staying the effect of

mega-dollar judgments, etc. I have every reason to believe that those who practice under the

statute going forward will continue to find creative ways to utilize not only the provisions that

survive this reform act, but certainly the new provisions. There will always be a place for

creative lawyering. Statutes are constantly being amended to close so-called loopholes, and when

that happens, others always seem to open up. Bankruptcy judges do not necessarily perceive an

attempt to amend the Bankruptcy Code as a criticism of the use of their discretion. Rather, new

legislation may simply reflect Congress' attempts to remedy perceived abuses.

Gerdano: From your perspective as a judge, which provisions in the new bill will lead to the

most litigation, or otherwise have the biggest effect on your workload?

Judge Scott: The judges have weighed in on these issues as many times as the current

legislation pending in both houses has been changed. We have gone on record and the current

NCBJ president, Judge Randall J. Newsome, and the chair of our Legislative Committee, Judge

Robert Hershner, have appeared and testified before Congress, at its request, on behalf of the

Conference on many occasions. These comments have been reprinted numerous times, including

in this Journal. Another colleague, Judge Eugene Wedoff, has spent countless hours going

through the legislation and providing scholarly comments, which have included the judges'

perspective, and these have been made available on the ABI web site. At this point, since there is

no final bill and no one really knows what will happen in Conference committee, any response I

would give you today would undoubtedly be out of date or irrelevant.

Gerdano: Several recent reports, published on the ABI web site and elsewhere, seem to show

that women make up the largest and fastest growing segment of individual filers. Has this been

your sense too, and if so, what factors do you think are responsible for it?

Judge Scott: Your question and your report of the study (which I have not reviewed) raise a

certain amount of skepticism in my mind. For the most part, I find that studies of trends in

bankruptcy filings are often limited or flawed. If the empirical data support that conclusion, I

have not noticed such a trend in my court. That is not to say, however, that such a trend would be

noticeable because cases generally come before the court in the form of piecemeal issues, rather

than a flow of debtors. I would note, however, that the trend is supported by two other long-

studied trends: (1) bankruptcy and divorces are often filed in tandem; and (2) women's

financial stability and circumstances are often significantly reduced by divorce. It is not

surprising that women might begin taking advantage of the fresh start offered by the

Bankruptcy Code.

Gerdano: Overall, bankruptcy filings are down this year, for the first time since 1995. To

what do you attribute this decline? Do you think it will have any impact on the provision to add

more bankruptcy judges?

Judge Scott: What causes an increase versus a decrease in bankruptcy filings is, for the most

part, conjecture. I could only add my own supposition and it would be limited to the small

geographical area I serve. The downturn in filings is probably due to the economy in general.

However, any downturn, because it is measured by one number at the end of the court's fiscal

year, does not reflect the up and down cycles within the year. There was a dramatic increase in

filings in our court at the end of 1998. The reasons are not entirely clear, but I do not think it

is a coincidence that lawyer advertising increased at the end of the year warning debtors to "file

before the new law takes effect." When Congress failed to act, filing numbers returned to

normal. I expect, if Congress does actually pass something by the end of 1999, and if the

effective date is postponed six months, we may see a similar aberration.

The downturn in filings

should have no effect upon the request for bankruptcy judgeships since the federal judiciary's

recommendation regarding 18 of the 24 recommended new bankruptcy judgeships was based on

pre-1992 statistics, and the other six judgeships were based on 1996 numbers. Current

filings, although down, still exceed those numbers. We still need those judgeships. Although

there is little public knowledge of what goes into the process before the Judicial Conference of

the United States makes a recommendation to create a new judgeship, the entire process is

painstaking, thorough and can take up to four years. Districts begin the process of requesting an

additional judgeship only after it is determined that a need exists, and historically, the need does

not abate during the approval, creation and funding process.

Gerdano: A large number of judges have come up for reappointment recently, or are in the

process of their reappointments. In your opinion, and from talking to colleagues, how are the

circuits doing at handling the process?

Judge Scott: I just read an excellent and thoughtful article in the July/August 1999 issue of

the ABI Journal written by my colleague, Judge Leif Clark, addressing this question. I cannot add

more to his assessment of the process from the judges' perspective. By all accounts, the circuits

are handling the process in a uniform way, and reappointments, for the most part, are being

made expeditiously. As of the date of this interview [Sept. 10, 1999], 31 bankruptcy judges

have been reappointed. There are 14 bankruptcy judges whose terms expire between now and

the end of 1999. The appointments of 66 bankruptcy judges will expire during 2000, and the

terms of 40 will expire in 2001. These numbers total 151, almost half of the active

bankruptcy judges.

Gerdano: Do you think we will ever see Article III status for bankruptcy judges?

Judge Scott: No.

Gerdano: The NCBJ Endowment has been very active in funding worthwhile research projects.

What new studies are underway? Do you plan to continue this practice?

The NCBJ is extremely

proud of its Endowment for Education. We are particularly proud of the program we jointly

sponsor with the ABI, which endeavors to educate state court judges, including judges of general

jurisdiction and family law specialists, regarding the intricacies of bankruptcy law. From

1995 to 1999, more than two dozen bankruptcy judges have assisted the ABI in presenting

these programs. In August, the Endowment unanimously approved an additional grant for this

program.

In addition, the

Endowment continues to support the American Law Institute's Transnational Insolvency Project.

The report from that project is now circulating, and it is excellent.

Finally, this question

comes too early to allow me to report on the new grants that are being considered by the

Endowment. Its board will meet in October in conjunction with the NCBJ's annual meeting in San

Francisco.

Journal Date

Friday, October 1, 1999 - 12:00