Letter to House Judiciary Committee on H.R. 5532
The National Bankruptcy Conference opposes H.R. 5532, which would allow parties to request reassignment of cases from assigned judges. The NBC argues the bill's peremptory challenge provision is unworkable when applied to bankruptcy courts because bankruptcy is a multi-party collective proceeding where party alignment is unclear and fiduciary relationships create conflicts.
- H.R. 5532's reassignment provision is impractical for bankruptcy courts because 'case' in bankruptcy refers to the overall filing, not discrete disputes, making it unclear which parties qualify
- In chapter 11, debtors in possession act as fiduciaries for creditors on certain issues, creating situations where the same party may be on both sides of a dispute
- The 20-day deadline for reassignment requests is unworkable in bankruptcy practice where pleadings and motions are filed on varied schedules
November 14, 2006
Re: H.R. 5532
Dear Chairman Sensenbrenner and Representative Conyers:
The National Bankruptcy Conference has reviewed H.R. 5532 and recommends against its passage (at least insofar as it applies to bankruptcy courts). Attached for your convenience is a copy of H.R. 5532. The bill at § 464(a)(1) provides that "if all parties on one side of a civil . . . case . . . to be tried in a federal . . . bankruptcy court file an application requesting the reassignment of the case, the case shall be reassigned to another appropriate judicial officer." Because "case" is the term used for the overall bankruptcy filing (as opposed to discrete litigation that arises in the course of a bankruptcy), application of the proposed provision in this context would be fraught with difficulties.
Bankruptcy is a multi-party collective proceeding, and each of the multiple parties may have rights and objectives different from all others. It is thus virtually impossible to determine who is on the "same side." Furthermore, because a chapter 11 debtor in possession is given the powers and responsibilities of a trustee, it may act as a fiduciary for creditors on certain issues in the case. If the debtor in possession were able to make a peremptory challenge to any assigned judge, it might find constituents to whom it owes a fiduciary duty on both sides of the case. Similarly, an individual debtor might be deemed a party and a "side" and thus be permitted to challenge a judge assigned even as against the trustee in the case. And since each creditor could be seen to be in opposition to all of the others, every creditor might be deemed a party and have a right to exercise a peremptory strike.
Because § 464(a)(1) refers to a "case to be tried in a federal . . . bankruptcy court," it might be interpreted only to apply to trials on whether an order for relief should be entered in an involuntary case. All other disputes in a bankruptcy case, as the term case is used in 28 U.S.C. § 1334(a), would be separate "proceedings." On the other hand, if the force of the bill were to allow the reassignment of each separate proceeding within a case to a separate bankruptcy judge, it would defeat a central intention of the Bankruptcy Code which is to provide a single forum for hearing the various disputes within a "case."
In addition to the problems identifying which matters ("cases") are covered and which parties are on a "side," the requirement that the request be made within 20 days would seem to be unworkable when most parties have neither received pleadings nor pleaded within 20 days of a bankruptcy case being filed. After the initial filing of a case, evidentiary motions and responses are filed or called for on a considerable array of times for notice.
For the reasons stated, the National Bankruptcy Conference recommends that bankruptcy courts and bankruptcy cases and proceedings be eliminated from the coverage of H.R. 5532.
The Drafting Committee of the National Bankruptcy Conference recommends the following changes to the language of the bill:
- 1.At the beginning of § 464(a)(1), insert "Unless the court's jurisdiction is based on § 1334 of title 28,"
- 2.In § 464(a)(1), change "Federal district court, the United States Court of Claims, or a bankruptcy court" to "Federal district court or the United States Court of Claims," and
- 3.Delete § 464(c)(3) and add "and" to the end of § 464(c)(2).
Recommendation number 1 above is necessary because it will avoid possible confusion as to whether the peremptory challenge law would apply when a district court withdraws the reference in a bankruptcy case or in a proceeding within 1334's "arising in," "arising under" or "related to" jurisdiction. The law should not apply in bankruptcy cases and proceedings, regardless of whether they are in the bankruptcy or the district court. Also, recommendation number 1 will avoid the possibility that a court would interpret "Federal district court" to include a bankruptcy court, because the bankruptcy court is a unit of the district court.
Very truly yours,
Donald S. Bernstein
Chair, National Bankruptcy Conference
Enclosure
cc: Hon. Chris Cannon The Honorable Steve Chabot The Honorable Howard Coble The Honorable William Delahunt The Honorable Randy Forbes The Honorable Trent Franks The Honorable Louie Gohmert The Honorable Mark Green The Honorable Jerrold Nadler The Honorable Chris Van Hollen The Honorable Debbie Wasserman Schultz The Honorable Melvin L. Watt