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knows other people are getting away with theirs—that's the real danger, and nobody can assess that, that's a matter of taxpayer psychology.

But it seems to me if you know the other fellow is paying his taxes you are more ready to pay them yourself, unless, of course, it's somebody that's really busted and nobody gets any money from him anyway.

I was reading the Senate debate on this alternative that the Finance Committee offered on the discharge provision, and Senator Curtis talked about the prizefighter and the speculator. Those people get in the news, and that does have an adverse effect.

Mr. PARKER. Thank you, Mr. Chairman.
Mr. Edwards. The gentleman from Virginia, Mr. Butler.

Mr. BUTLER. Mr. Plumb, I just want to apologize, that's the way this life is. But I want you to know that I'm aware of your preeminence in this field, and I have reviewed your statement—this modest little thing here--with some care. I appreciate all your interest you have taken in this.

But I want to assure you that I intend to read everything you have said with care, and that I thank you for your contribution.

Mr. PLUMB. Thank you, sir.

Mr. EDWARDS. Mr. Plumb, you are a true friend of the committee, and we appreciate very much your past contributions and your present contributions. We are looking forward to much more communication with you, and much more assistance. We are deeply grateful, and Mr. Butler and I speak for all 33 members of the Judiciary Committee.

Mr. PLUMB. Thank you, Mr. Chairman.

[Whereupon, at 11:35 a.m., the subcommittee adjourned, subject to the call of the Chair.] [The following material was received subsequent to the hearing :)

HOGAN & HARTSON,

Washington, D.C., April 6, 1976. Hon. Don EDWARDS, Chairman, Subcommittee on Civil and Constitutional Rights, Committee on the

Judiciary, U.S. House of Representatives, Washington, D.C. DEAR MR. CHAIRMAN: This refers to the question raised at the hearing on April 2 with regard to section 11-104(b) and (c) of H.R. 31, by which all referees in bankruptcy now in office would automatically become judges of the proposed bankruptcy court, to serve for a “transitional term” of six years, with preferential consideration later to be given to them for full-term appointments. (In contrast, section 10–104 (b) of H.R. 32, which reflects the Bankruptcy Commission's views, merely expresses the sense of the Congress that, if found qualified, the referees should be given first consideration for appointment as bankruptcy judges by the President.)

The obvious starting point for discussing the validity of $ 11–104 (b) of H.R. 31 is Buckley v. Valeo, 96 S. Ct. 612, 682-92 (1976). The Court there held that the members of the Federal Election Commission are officers of the United States, whose appointment must, therefore, be vested either in the President with the advice and consent of the Senate, in the President alone, in the courts of law, or in the heads of departments. Const. Art. 2, § 2, cl. 2. If “all persons who can be said to hold an office under the government were intended to be included within one or the other of these modes of apointment" (United States v. Germaine, 99 U.S. 508 (1878)), and if even the clerk of a district court is such an officer (Ex parte Hennen, 38 U.S. (13 Pet.) 230 (1839)), it seems clear that the judges of the new bankruptcy courts are officers who must be so apointed. See Buckley v. L'aleo, supra, at 685.

The permanent system for appointments of bankruptcy judges hy the judicial council, consisting of the active circuit judges (under H.R. 31), seems to meet

the constitutional requirements. Rice v. Ames, 180 U.S. 371 (1901). But, as Buckley v. Valeo makes clear (at p. 686), Congress itself cannot appoint "officers of the United States." The question, therefore, is whether H.R. 31, in continuing the present referees in office as judges of the new court for six years, is itself making the appointment to an office.

In searching for useful precedents, I examined some of the situations in which Congress has changed the status of an existing court. The first ones that come to mind are the laws by which Congress declared the Court of Claims and the Court of Customs and Patent Appeals to be Article III courts. The judges of those courts already had lifetime apointments, but the Supreme Court had held that this was not constitutional tenure but could be changed by Congress, because the courts were deemed to be Article I courts in view of the nature of the powers they exercised. Williams v. United States. 289 U.S. 553 (1933); Ex parte Bakelite Corp., 279 U.S. 438 (1929). Congress, in 1953, 1956 and 1958 (28 U.S.C. $$ 171, 213, 251), declared those courts, as well as the similarly situated Customs Court, to be Article III courts, and indicated in the legislative history that this had been the original intent. When the question arose whether judges of those courts would be assigned to sit on cases in the regular federal courts, the Supreme Court held them to be constitutionally tenured Article III judges, even though they had been appointed before the law was amended. Glidden v. Zdanok, 370 U.S. 530 1962). Only seven Justices heard the case, and they divided three ways. The plurality of three Justices avoided the issue of whether an Article I judge could become an Article III judge without being formally reappointed, since they construed the later legislation as a declaration of the intended meaning of the earlier law and as demonstrating the error of the earlier decisions.

The two other Justices (Warren and Clark) who made up the majority disagreed on the effect of the later legislation as a valid declaration of the original intent, but they held it effective to change the character of the courts from the time of enactment. They were thus confronted directly with the question whether an Article I judge could become an Article III judge without a new Presidential appointment. Stating simply that Congress had merely renounced the power to alter their tenure and salary, and that “Much more drastic changes have been made without reappointment" those Justices viewed the transformation as valid. 370 U.S. at 580.

Unfortunately, only those two Justices addressed the question, so the authority is not strong. It might be helpful, however, to examine the briefs to see what other authorities may have been relied upon by the parties.

A similar situation arose when the Tax Court was converted from an “independent agency in the Executive Branch of the Government” (Int. Rev. Code of 1954, $ 7441, 68A Stat. 879, as originally enacted) into a court "established, under article I of the Constitution" (id., as amended by $ 951 of the Tax Reform Act of 1969). That was a conversion from an executive agency that, for all practical purposes

was a court (Blair v. Oesterlein Machine Co., 275 U.S. 220, 227 (1927)) to a legislative court. No reappointments were made, but it was provided that the “United States Tax Court estabilshed under the amendment made by sertion 951 is a continuation of the Tax Court of the United States as it existed prior to the date of enactment of this Act (and] the judges of the Tax Court of the United States shall become the judges of the United States Tax Court upon the enactment of this Act, ..." Tax Reform Act of 1969, $ 951. (However, the terms of the existing judges, which had been 12 years, were not extended, although for the future the law estabilshed 15 year terms. Tax Reform Act of 1969, $ 962!c).) Although the power of the nontenured judges of the Tax Court to function as an Article I court has been litigated and upheld (Stia Friedman & Cn. y. Coyle, 467 F.2d 474 (8th Cir. 1972); Burns, Stia Friedman & Co., 57 T.C. 392 (1971)), I am not aware of any case in which the failure to provide Presi. dential reappointment when they were transferred from the executive branch to Article I status (presumably in a subcategory of the judicial branch) has been questioned in litigation.

While the judicial authority is less than satisfying (at least so far as my research has been pursued), the actions of Congress in those situations suggest a legislative position that the status of an existing court can be changed without need for reappointing the judges thereof. If the referees may be viewed as already, in effect. judges of the bankruptcy court, rather than merely officers of the court, those precedents would suggest that they could remain as judges of the reconstituted bankruptcy courts without reappointment. Although the term "judge" in § 1(20) of the Bankruptcy Act is defined to exclude the referee, and the redesig.

nation of him as a "bankruptcy judge” in Bankruptcy Rule 901 (7) does not necessarily change his legal status (and, if it did, it would merely shift the question of need for reappointment back a year or two), it is nevertheless true that the term "court" has since 1938 been defined to "mean" the referee as well as the judge. Bankruptcy Act § 1(9). See also g 38(6). Even before the 1938 amendment, it had been held that the term "court" included the referee when he properly exercised jurisdiction (Mac Donald v. Plymouth Trust Co., 286 U.S. 263, 267-68 (1932); In re Williams Supply Co., 77 F.2d 909, 911 (2d Cir.), cert. denied, 296 U.S. 612 (1935)), although it was also held in that period that “The referee is not the court of bankruptcy, but an officer of it," exercising "such powers as the act and the order of reference give him or as the judge specially delegates to him." Chandler v. Perry, 74 F.2d 371, 373 (5th Cir. 1934). See also, Weidhorn v. Levy, 253 U.S. 268, 271 (1920). It seems clear, under present law, that the referee "acts as a court; not as some sort of special master" (In re Woody, 248 F. Supp. 855, 864 (W.D. Mo. 1966)), although he is not a separate court. Heiser v. Woodruff, 150 F.2d 867, 868 (10th Cir.), cert, denied, 326 U.S. 778 (1945).

The legislative precedents for covering in existing judges when the status of a court changes are not one way, however. When Hawaii and Alaska were territories, the United States District Courts for those jurisdictions were legislative courts, the judges of which served for limited terms. When Hawaii was admitted, section 9 of the Statehood Act declared that, upon admission, "the United States District Court for the District of Hawaii established by and existing under title 28 of the United States Code shall thenceforth be a court of the United States with judicial power derived from article III, section 1, of the Constitution of the United States." But it provided further that the terms of office of the existing district judges should terminate and the President, with the advice and consent of the Senate, should then appoint judges for the reconstituted Article III court.

When Alaska was admitted, a special problem was presented by the fact that the Territory had not previously established a system of local courts and the District Court for the Territory of Alaska had handled both federal and local cases. Sections 15–17 of the Statehood Act made provision for the division of pending cases among the state courts and the United States District Court that was to be established. It was provided in section 18 that the succession of courts should not go into effect for a period, not in excess of three years, in order to enable the new court systems to be established. And, when that occurred, “the tenure of the judges ... of the United States District Court for the Territory of Alaska shall terminate" (section 18).

Significantly, however, litigation arose concerning the continued functioning of a nontenured federal court with respect to matters within federal jurisdiction during that transitional interval following statehood. A defendant in a federal criminal trial contended that he should have the same constitutional right to trial by a tenured judge that was enjoyed by federal defendants in other States. The district court upheld the provision as a valid transitional measure. United States v. Starling, 171 F. Supp. 47 (D. Alaska 1959). That suggests that, even if the Congressional designation of the existing referee to serve as judges of the new court, without reappointment, could not be sustained on the basis of the precedents first cited. it might be upheld as a transitional measure (but a “trangition" period extending six years beyond the effective date, which itself is one year after enactment, goes well beyond the Alaskan precedent).

If it should be determined to give Article III status to the new bankruptcy courts, the precedents first cited may not be sufficient to sustain covering in the referees without reappointment. The Tax Court precedent involved no extension of the terms of the existing judges when they were declared to be an Article I court. In the Glidden situation, the judges already had life terms, although-if the Warren-Clark rationale is accepted--an insecure life tenure was changed into one with security.

I do not present the foregoing as an exhaustively researched discussion, but as one that may suggest lines for further study. Sincerely yours,

WILLIAM T. PLUMB, Jr.

BANKRUPTCY ACT REVISION

MONDAY, APRIL 5, 1976

HOUSE OF REPRESENTATIVES,
SUBCOMMITTEE ON CIVIL AND CONSTITUTIONAL RIGHTS
OF THE COMMITTEE ON THE JUDICIARY,

Washington, D.C. The subcommittee met, pursuant to notice, at 9:30 a.m., in room 2226, Rayburn House Office Building, the Honorable Don Edwards (chairman of the subcommittee) presiding.

Present: Representatives Edwards, Drinan, and Butler.

Also present: Alan A. Parker, counsel; Richard B. Levin, assistant counsel; and Kenneth N. Klee, associate counsel.

Mr. EDWARDS. The subcommittee will come to order.

Today the subcommittee continues hearings on the revision of the bankruptcy laws. The hearing this morning is to hear the views of the Justice Department on the nontax aspects of the two bills, H.R. 31 and H.R. 32, and the views of the Securities and Exchange Commission on the reorganization provisions found in Chapter VII of the Commission's bill, and chapters VII and VIII of the Judges bill.

First, appearing for the Department of Justice is ichard A. Lavine, deputy assistant attorney general for the Civil Division.

Mr. Lavine, we welcome you. Without objection, Mr. Lavine, your prepared statement will be made a part of the record. You have colleagues with you, will you introduce them?

Mr. Lavine. On my right is Jane Restani, from the General Claims Section. On my left is Robert Kaplan, also from the General Claims Section of the Civil Division.

Mr. EDWARDS. We welcome you all, Mr. Lavine.

[The prepared statement of Richard A. Lavine follows:] STATEMENT OF RICHARD A. LAVINE, DEPUTY Assistant ATTORNEY GENERAL, CIVIL

DIVISION, DEPARTMENT OF JUSTICE MR. CHAIRMAN, I am Richard A. Lavine, Deputy Assistant Attorney General for the Civil Division of the Department of Justice. I appreciate the opportunity to present to the Committee the views of the Department of Justice on certain features of current proposals for the revision of the bankruptcy laws. I defer to my colleague, Scott Crampton, Assistant Attorney General in charge of the Tax Division of the Department of Justice concerning those features of the current proposals which have special significance from the standpoint of tax claims of the Government, as well as the substantive tax aspects of the bills.

The study and draft legislative proposal of the Commission on the Bankruptcy Laws and the alternative draft of that legislation prepared by certain of the bankruptcy judges have contributed importantly to the dialogue on bankruptcy which is essential to an informed consideration of revisions in the bankruptcy laws. For simplicity of reference my testimony will be keyed to H.R. 32, the pro. posal of the bankruptcy judges. However, consideration has been given to the proposal of the Commission on the Bankruptcy Laws found in H.R. 31.

Oral testimony does not lend itself well to an exhaustive discussion of the myriad of comments, corrections, and suggestions entailed in discussing a complex bill of nearly 300 pages in length. Accordingly, we have prepared written comments dealing with most sections of H.R. 32. These comments will be forwarded to the Chairman as soon as possible. My testimony today will focus on certain key provisions of H.R. 32 and the Commission's draft bill.

SEGREGATION OF JUDICIAL AND ADMINISTRATIVE FUNCTIONS

At the outset I can report that we applaud the segregation of judicial and administrative functions, a reform agreed upon in principle by both the Commission on the Bankruptcy Laws and the bankruptcy judges. This reform, including the appointment of trustees by an authority other than the judges who are so initmately involved in the subsequent handling of adversary proceedings involving these estates, should contribute importantly to the public's confidence in the bankruptcy process.

APPOINTMENT OF BANKRUPTCY JUDGES

H.R. 32 provides that bankruptcy judges be appointed by the judicial counsel of each circuit. We propose that bankruptcy judges be appointed by the President on the basis of merit, ability, integrity and experience from the bar of the territory to be served by the particular court. This method of appointment would put to rest the concerns of members of the Commission on the Bankruptcy Laws, the lawyers who appear in bankruptcy proceedings, and various parties thereto over appeals being taken to an authority that bas had a hand in appointing the judge whose decision is to be reviewed.

We agree with the Commission's proposal that judges now serving should continue to serve through the end of their current appointive terms. Obviously such judges should be given serious consideration for appointment to positions in any reformed bankruptcy system.

BANKRUPTCY ADMINISTRATION The time is ripe for administrative innovations to computerize accounting, disbursement and statistical reporting functions to achieve the economies and efficiencies which the public has a right to expect of the bankruptcy system. Funds collected should be aggregated and deposited at interest to the extent feasible in the light of operating needs of the estates involved. The draft legislation prepared by the Commission on the Bankruptcy laws would make greateruse of a centralized administrative agency in handling individual estates than does the proposal of the bankruptcy judges. The judges' bill on the other hand would rely more heavily upon the individual appointment of trustees in no-asset and limited-asset estate cases than we think is desirable. Absent a reasonable basis for suspicion of improper conduct by debtors, we believe tbat in many districts a salaried standing trustee might well administer all no-asset or limitedasset estates at substantial savings. We believe it is desirable to test use of an enlarged roles for the Administrative Office of U.S. Courts, as the bankruptcy judzes propose, coupled with use of salaried standing trustees in certain districts. to see what results and economies can he obtained thereby. If these results and economies do not meet expectations, further study can then be given to the proposal of a separate Bankruptcy Administration in the Executive Branch.

UNIFORM EXEMPTIONS We agree fully with the Commission on the Bankruptcy Laws that the archaic and widely-varying state exemption laws for individual debtors should longer be applied in bankruptcy proceedings. The exemption laws of some states make those states a debtors' paradise. Dehtors should not be favored in bankruptcy depending upon their choice of such a state of residence or the accident of their residence there.

PRIORITIES

A proposal which would have major impact on gorernments, State, local and Frderal, is that which would very substantially modify the order for the para ment of claims asserted against bankrupt estates. See section 4-405 of H.R. 32 entitled “Distribution of proceeds." I refer you to Assistant Attorney General Crampton's comments concerning the fallacy of this proposal from the stand

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