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Conference, the Bankruptcy Division of the Administrative Office of the United States Courts, and the National Conference of Bankruptcy Judges have each devoted considerable time and thought to changeover problems. The judges agree with the view earlier expressed in these hearings by the National Bankruptcy Conference representative that the judicial workload of the bankruptcy courts under the new system is apt to equal or exceed the total workload of the bankruptcy courts today. The judges likewise agree with the testimony given on behalf of the Administrative Office of the United States Courts that a period of some five years from the effective date of the new act will be required to find out just what the judicial workload of the new court will be and to implement those findings. The scope of the problem

On the effective date of the new act, the judges will be confronted on average with perhaps 1,000 or more pending cases each. These cases will involve not only the winding up of the administration of estates under the old law, but also the myriad of pending lawsuits within the framework of that caseload. Under the new order, the judge would be relieved of a number of administrative matters be, as distinguished from his staff, now personally performs. No longer would he be responsible for supervision of the trustee's administration of the cases. Neither would he be required to preside at the first meeting of creditors in every case without regard to the need for his presence. But even now the major portion of the judges' work under the existing act is judicial. Doubtless the judicial portion will be retained entirely within the ambit of the court.

To this would be added two major judicial assignments likely to equal at the least the administrative work withdrawn from the judge. First, it would be the court's responsibility to determine the fair market value of property which the act would permit the bankrupt to redeem from the claims of secured creditors. Second, and most significantly, the jurdisdiction of the court would be expanded to cover all civil controversies and plenary proceedings arising out of the case. The expansion of jurisdiction to cover breach of contract actions, including suits to collect obligations owing to the bankrupt, as well as suits for the recovery of preferences and avoidance of fraudulent transfers would mean that similar actions now being brought in state or federal district courts would be initiated originally in the bankruptcy court. Additionally, it would mean that many more such suits would be instituted than heretofore. This is so simply because so many valid claims of bankrupt estates are now being settled or sold for near nothing (or even abandoned entirely) by trustees discouraged over the years by the notso-benign neglect with which their actions in non-bankruptcy forums have often been received.

In order to conclude the pending caseload and move smoothly into the new system, it is requisite that the existing cadre of experienced bankruptcy judges, having an average age of 54 and an average length of service of nine and onehalf years, be extended in office. As a group they will prove at least as capable, industrious, seasoned, judicially tempered and court-oriented as any group that would be selected to replace them. Moreover, their integrity will have withstood the test of time and exposure. The nation needs them and is fortunate that they are there to blend the old into the new. The transition provisions of the Judges' bill

The Judges' bill provides that the terms of bankruptcy judges in office on the date of enactment will be automatically extended for seven years. The first year will span the period elapsing from date of enactment to the effective date. During this period, the appointing authority will select the Director who will organize his office on a national and local level, undoubtedly drawing generously from existing clerical personnel who now staff the bankruptcy courts throughout the land. During the same interim, Rules of Bankruptcy Procedure must be promulgated by the Supreme Court of the United States and ultimately adopted by the Congress in keeping with the procedure prescribed by 28 U.S.C. § 2075.

Upon the effective date, the Judge's bill contemplates that a period of three years of experience is required under the new act before an assessment should be undertaken of the impact of the jurisdictional and other substantive changes in the law. The ways of the old die slowly. The legal profession will not immediately grasp and pervasively employ the novel tools that will be available. These three years will be ones of adjustment, ones in which practical procedures are sharpened. In terms of use the new law is not apt to mature until the third year when the quality and quantity of litigation coming before the court can be gauged as a

barometer of the future. Of course, throughout these second, third and fourth years, statistical data will be under compilation in order to permit, during the course of the fifth year, a careful analysis and evaluation of the assembled data so as to enable the Director to conclude his survey of the number and location of bankruptcy courts and judges required under the new act.

The recommendations of the Director would in due course be reported to the Congress. Thereupon, during the sixth year, the Congress would determine the number and locations of bankruptcy courts, the number of judges and the territories to be served by them. During the seventh year, appointments to the bankruptcy bench for full 15-year terms would be made. It is to be observed that an entire year for the making of those appointments is at least a half year longer than ought to be required. Still, this leaves a modest cushion that may indeed be welcome should the Director be slow in gearing up or the Congress be dissatisfied with the Director's survey and recommendations.

The Judges' bill envisions that the 15-year appointments to the new court will be made by the Judicial Council of each circuit, composed of the judges in regular active service of the court of appeals in each circuit. For technical reasons later discussed, the appointive power would more properly be lodged in the Circuit Court of Appeals itself. It has throughout been the belief of the National Conference of Bankruptcy Judges that appointment by the active judges of the Circuit Courts of Appeals is apt to remove the selection of the bankruptcy judges from the political arena to the end that appointments to the court would more likely rest on merit. As a consequence, we would anticipate that a substantial number of those bankruptcy judges in office at the end of the seventh year would under this proposal be continued on the bankruptcy bench.

In the meantime, however, there will doubtless have been a very considerable turnover in the individuals manning the bankruptcy courts. If the proposed legislation were enacted today, and the 214 judges on duty were folded into the new system, 51 of the 185 full-time sitting judges would have reached age 70 by the end of the seven-year period and be subject at that time to compulsory retirement. No doubt many of these 51 seniors would have been separated from service during the course of the seven-year period by voluntary retirement or perhaps by disability or death. Further, all of the 29 part-time judges would stand retired at the end of the seven years except to the extent that Congress might determine to continue any of their positions. In the interim, of the remaining 134 judges, some will have retired, some will have resigned to resume the practice of law or accept other judgeships, and still others will be deceased or disabled. It seems clear enough that less than one-half of the present judges would remain for full-time duty under a new act seven years hence.

By virtue of this attrition, in part natural and in part imposed by the age-70 mandatory retirement provisions, substantial flexibility is built into the appointment process so as to permit replacements to be made or withheld during the seven-year period in keeping with emerging need. Interim replacements would be appointed for an initial term expiring at the end of the seven-year period. Meanwhile, competent individuals are encouraged to enter the system and wellqualified bankruptcy judges are induced to remain in service by virtue of the existence of a reasonable prospect for appointment to a 15-year term. Yet, should an incumbent recognize that he may fail to gain appointment to a 15-year term by reason of, say, a reduction in the number of positions in his territory, the af. fected individual would nevertheless be inclined to remain on duty until the lapse of the seven-year period in order to accrue the more attractive retirement benefits available under the new act. Thus, competent and experienced judges can be expected under this approach to occupy the bench until their successors are named. Conversely, a system which fails to allow for the human needs and concerns of those who are expected to staff it will inevitably be abandoned by those best suited to carry on. Other suggested transition solutions

A second solution is that adopted by the National Bankruptcy Conference. Upon enactment, all full-time sitting bankruptcy judges would automatically be come judges of the new bankruptcy court for a term of fifteen years subject to the retirement provisions of the new act (including mandatory retirement when one reaches age 70) and also subject to certification by the Judicial Council as to qualification for the post. A part-time bankruptcy judge would be entitled to serve out the term for which he was last appointed. After enactment of the proposed bankruptcy legislation, any appointment of a bankruptcy judge would be for a term of fifteen years, such appointment to be made by the President with the advice and consent of the Senate, subject to a determination by the Judicial Conference of the need for the position and the requirement that the appointment be made promptly. If not made within 120 days from certification of need for the appointment by the Judicial Conference, the NBC approach would authorize the Judicial Council to make the appointment.

The suggestion by the National Bankruptcy Conference of appointment by the Judicial Council, should the President with the advice and consent of the Senate fail to act within four months has been in response to the judges' observation that presidential appointment often results in considerable delay, averaging some eleven months in the federal judiciary. Unlike most private lawsuits between two parties, the administration of the bankruptcy laws will simply not await the lapse of such a lengthy period. A single bankruptcy case, including nearly every consumer case, involves the bankrupt and countless creditors, each one of whom is confronted with the injunctive processes of the court restraining repossession of various assets, halting garnishment of wages and enjoining judicial proceedings of all sorts designed to obtain judgment liens, levy of execution, attachment or the like. Involved as well are the discharge of the debtor, his need for a prompt fresh start and, ofttimes, the emotional stability of his family which only conclusion of his case can bring. In the commercial case especially, it is essential that immediate aetion be taken to liquidate or continue the operation of the business, as the case may be, before waste, theft, vandalism and depreciation render the estate assets valueless. Absent prompt action, frequently necessitating judicial decision as a prerequisite, the loss may be irreparable. Of course, the Judges' bill would lodge the appointive power with the active circuit judges in the first instance so as to reduce the likelihood of any delay as well as to enhance the role of merit in the selection process.

Finally, the judges suggest a third possibility; namely, that the six-year terms of incumbent bankruptcy judges be automatically extended upon the date of enactment to a period of fifteen years from the date of original appointment. Both full-time and part-time bankruptcy judges would remain in office through the seven-year period above noted, pending the survey and ultimate fixing by the Congress of the territories and the location and number of bankruptcy judges. Thereupon, all those who have reached age 70 would then be subject to compulsory retirement. Presumably, the part-time positions would largely, if not entirely, have been eliminated by the Congress as of the close of the seven-year period. And, should the survey have resulted in a constriction in the number of bankruptcy judges in a given territory, it would fall the duty of the active circuit judges to appoint from among the incumbents.

The judges recognize the desirability of the creation of full-time judgeships throughout the system. On the other hand, it is apparent in some states and in some broad geographical areas within a given state that there simply may not be an adequate caseload to merit the full-time attention of a bankruptcy judge: We naturally defer to the Congress the question of how these situations are to be met, including the possibility of combining existing territories even when located in separate circuits. Administration under the nero act

It is possible, even likely, that the Director having administrative responsibili. ties under the new act will not be fully equipped on the effective date to carry out all of the duties and responsibilities of his office. In order to avoid the confusion and neglect which might otherwise develop on a local level, it would seem wise to provide a safety valve within the proposed structure that would permit the court to bring about the performance for a limited time of the Director's duties locally where he makes request of the court therefor, coupled with provision of the funds necessary to meet the cost of any such undertaking. Constitutionality of fold-in provisions

As already observed, both the Judges' bill and the Commission's bill propose the establishment of an independent bankruptcy court with judges appointed for 15-year terms. The National Bankruptcy Conference, in its draft, has endorsed the creation of an independent bankruptcy court and approved 15-year terms for judges of that court. Indeed, there is general agreement on these two principles-an independent court and a 15-year term.

There is some difference of opinion as to the procedures for appointment. The Judges' bill provides for appointments by the Judicial Councils; the Commission's bill and the NBC draft proposal provide for appointment by the President with the advice and consent of the Senate.

Both the Judges' bill and the NBC draft proposal provide for a fold-in of incumbent bankruptcy judges-the Judges' bill for a period of seven years and the NBC proposal for 15 years. The Commission's bill, which for reasons earlier noted largely overlooked the problems of transition, contains only precatory language with respect to the retention of incumbents.

It is our understanding that the Subcommittee staff as a result of its analysis of the pending proposals has raised questions concerning the constitutionality of the appointment procedure a well as of the constitutionality of the new court itself.

First, I should like to address myself to the appointment procedure. As I understand it the staff's concern was prompted by the recent decision of the United States Supreme Court in Buckley v. Valeo, 44 Law Week 4127 (Jan, 30, 1976), the Federal Elections Commission case. In Buckley, the pertinent facts were that Congress had created a commission to administer a new law govern. ing campaign practices in federal elections. The Commission was to be composed of six voting members, two to be appointed by the President, two by the Speaker of the House and two by the President pro tempore of the Senate. The Court held that the appointments by Congress violated the principle of separation of powers as embodied in the Appointments Clause, Article II, 82, cl. 2, of the Constitution. The Appointments Clause states:

"[The President) shall nominate, and by and with the Advise and Consent of the Senate, shall appoint Ambassadors, other public Ministers and Consuls, Judges of the Supreme Court, and all other Officers of the United States, whose Appointments are not herein otherwise provided for, and which shall be established by Law: but the Congress may by Law vest the Appointment of such in. ferior Officers, as they think proper, in the President alone, in the Courts of Law, or in the Heads of Departments."

As applied to the bankruptcy judges, the concern is that by folding-in incumbent judges, the Congress would, as in Buckley, be exercising the power to appoint "Officers" or "inferior Officers” of the United States—a power which is vested in the President and the courts. We think that Buckley does not apply.

In Buckley, the Congress conferred upon itself the power to select any four people it chose as its appointments to the Commission. In the case of the bankruptcy judges fold-in, the Judges' bill simply provides for an extension in the term of office of those serving on the date of enactment for a period of time. That period of time was calculated to be the time required to obtain experience with the operation of the new law adequate to determine the number of judges to serve for fifteen-year terms and their locations. Furthermore, the bankruptcy judges whose terms will be thus extended were appointed not by the Congress but by the courts, a method sanctioned under Article II, 82, cl. 2. All that Congress would be doing is extending their terms of office to meet the transitional problem of insuring adequate, experienced personnel on the bankruptcy court benches pending the initiation of the new system.

In short, we think that while Buckley says that Congress may not appoint, it does not say that only the President may appoint. Here we have a proper appointment by the courts for a term set by the Congress and a subsequent extension of that term by the Congress to accommodate the problems of transition. We find it difficult to believe that this kind of rational exercise of legislative powers constitutes the kind of overreaching against which the doctrine of the separation of powers was designed to protect us.

Although the fold-in provisions proposed by the NBC are somewhat different from those contained in the Judges' bill, we reach the same conclusion as to their constitutionality. The NBC proposes that all judges in office on the effective date of the new act be folded in for a period of fifteen years from that date subject to the certification of their qualifications by the Judicial Councils. Again the selection of judges would be made not by the Congress but by the courts.

In the first instance the courts selected the incumbents; in the second instance it will be the courts through the Judicial Councils and not the Congress which will determine which of the incumbents should be folded-in. It may be that a more meticulous compliance with the language of the Appointments Clause would require that the screening be done by the Courts of Appeal rather than the Judicial Councils since the Councils may be viewed as not being courts of law, although they are composed entirely of federal Court of Appeals judges in regular active service. The Court: Article I or III

The staff raises the possibility of there being another constitutional Issue in the establishment of the independent court proposed by both the Judges and the Commission. The suggestion is made that the administration of the bankruptcy law and the adjudication of cases thereunder by the bankruptcy courts is an exercise of the "judicial Power of the United States" and that under Article III, 81, the judicial power can be exercised only by judges who are appointed for life, subject to good behavior, and whose salaries may not be diminished during their continuance in office. In short, the question is raised as to whether only a so-called Article III court may adjudicate cases arising under the laws of the United States, and particularly the Bankruptcy Act.

Over the years, Congress has established a number of courts with judges whose terms of office were for fixed periods of years rather than life. These courts have included the various territorial courts, the Court of Claims, the Tax Court, the Court of Customs Appeals, the Court of Military Appeals and the District of Columbia Courts. In those cases, the power to establish such courts has been viewed as derived from the specific grants of legislative authority contained in Article I, 8 8 of the Constitution rather than Article III, Clause 4 of that Section provides for the enactment of federal legislation on the subject of bankruptcies.

The extent of Congress' power to establish Article I courts was determined most recently in Palmore v. United States, 411 U.S. 389 (1973). In that case Palmore, the appellant, had been convicted by a District of Columbia Court of a felony under the D. C. Code. Palmore contended that this conviction was invalid because:

"Art. III vests the 'judicial Power of the United States in courts with judges holding office during good behavior and whose salary cannot be diminished; the judicial Power that these courts have to exereise 'shall extend to all Cases, in Law and Equity, arising under this Constitution, the Laws of the United States, and Treaties made, or which shall be made, under their Authority ...'; the District of Columbia Code, having been enacted by Congress, is a law of the United States; this prosecution for violation of $ 23-3204 of the Code is therefore a case arising under the laws of the United States, involves an exercise of the judicial Power of the United States, and must therefore be be tried by an Art. III judge."

In the Palmore case, the court that was challenged was expressly established under Article I of the Constitution and not under Article III. The United States Supreme Court rejected Palmore's contention :

“This position (Palmore's] ultimately rests on the proposition that an Art. III judge must preside over every proceeding in which a charge, claim, or defense is based on an Act of Congress or a law made under its authority. At the very least, it asserts that criminal offenses under the laws passed by Congress may not be prosecuted except in courts established pursuant to Art. III. In our view, however, there is no support for this view in either constitutional text or in constitutional history and practice.

“Article III describes the judicial power as extending to all cases, among others, arising under the laws of the United States; but, aside from this Court, the power is vested in such inferior Courts as the Congress may from time to time ordain and establish.' The decision with respect to inferior federal courts as well as the task of defining their jurisdiction, was left to the discretion of Congress. That body was not constitutionally required to create inferior Art. III courts to hear and decide cases within the judicial power of the United States, including those criminal cases arising under the laws of the United States.

"It is apparent that neither this Court nor Congress has read the Constitution as requiring every federal question arising under the federal law, or even every criminal prosecution for violating an Act of Congress, to be tried in an Art. III court before a judge enjoying lifetime tenure and protection against salary reduction. Rather, both Congress and this Court have recognized that state courts are appropriate forums in which federal questions and federal crimes may at times be tried; and that the requirements of Art. III, which are applicable where laws of national concern are at stake, must in proper circumstances give way to accommodate plenary grants of power to Congress to legislate with respect to specialized areas having particularized needs and warranting distinctive treatment ..."

While Palmore did not deal with the bankruptcy power and is therefore not dispositive, nevertheless the conclusions reached by the Supreme Court in that case, with respect to the power of Congress to establish Article I courts, is

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