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strong authority for the creation of an independent bankruptcy court such as that envisioned by both the Judges' bill and the Commission's bill.
Further support for the proposed indepndent court may be found in the precedent of the Tax Court. Until 1969, the Tax Court was an agency within the Executive Branch. In that year, as part of the Tax Reform Act of 1969, Congress created the United States Tax Court as a court of record expressly under Article I of the Constitution. The preexisting tax tribunal and its judges were folded into the new Article I court. The salary of the judges was increased, a 15-year term was established in place of 12 years, and retirement and annuity benefits enhanced.
In creating the Article I court the Congress noted that the Court was performing solely judicial duties. It also noted that the powers of the Court as an executive agency were inadequate in that it had to look to the United States District Courts to enforce its own authority. The old Tax Court, for example, could not punish for contempt, it could not secure compliance with its subpoenas and it could not compel the carrying out of its orders generally,
Under section 956 of the Tax Reform Act of 1969, section 7456 of the Internal Revenue Code was amended to confer upon the Tax Court the power to punish, by fine and risonment, contempts of its authority arising out of "misbehavior in its presence" and "disobedience or resistance to its lawful writ, process, order, rule, decree or command ..."
The amendment goes on to provide that the Court: “... shall have such assistance in the carrying out of its lawful writ, process, order ... as is available to a court of the United States."
The constitutionality of the Article I Tax Court was challenged and upheld in Burns, Stix, Friedman & Co., Inc., 57 T.C. 392 (1971). There the taxpayer argued that the power to adjudicate tax liability, being a judicial matter, can be exercised only by an Article III court. The Tax Court, in upholding its own constitutionality, relied on the statement of the Supreme Court in Eæ parte Bakelite Corporation, 279 U.S. 438, to the effect that Congress, in addition to its powers under Article III to establish inferior courts exercising only judicial functions, also had authority to create other inferior courts and to "clothe them with functions deemed essential or helpful in carrying ... [legislative) powers into execution." Id. at 449.
In a concurring opinion, Judge Raum, speaking for himself and for four other judges, emphasized the judicial character of the court's powers and proceedings, the finality of its decisions and the fact that like a District Court, the Tax Court's decisions may be attacked only by appeal to the Court of Appeals.
In spite of the conclusion reached in Burns, Stix, Friedman & Co., it can be argued that the Tax Court is distinguishable from the bankruptcy court for purposes of determining whether such a court need be an Article III court or may be an Article I court. It has been suggested that since Congress could permit summary collection of taxes on the basis of the findings of an IRS agent alone, Congress is not required to provide the taxpayer with a full-fledged Article III court for proceedings to review such findings.
Nevertheless, the fact is that the Tax Court has been given broad powers which are exclusively those of a court, including the power to punish for contempt and to enforce its orders by fine and imprisonment. The Tax Court would also appear to have broad equity powers customarily exercisable only by courts. Furthermore, like other courts it decides only cases and controversies. In short, the court is exercising judicial powers although its judges do not have the tenure prescribed by Article III. Given the broad language of Palmore, the Tax Court would appear to be a reasonable precedent for the proposed bankruptcy court.
Additional support for the constitutionality of the proposed bankruptcy court may be found in the Report of the Commission to Study the Bankruptcy Laws. While the Commission did not consider the constitutional question at any length in its report, it did address it briefly and concluded that the proposed court would be valid under the Constitution. It is our understanding that this conclusion was based upon consultations by the Commission staff with at least one eminent Constitutional scholar, Charles Alan Wright.
All of this is not to say that the constitutionality of the proposed bankruptcy court is absolutely clear and certain. However, we believe that it is reasonably clear and that the only way we shall know for certain is to go forward. Constitutional certainty can be achieved, of course, by establishing the bankruptcy court under Article III with lifetime appointments. There is precedent for spe cialized Article III courts in the Court of Claims, the Court of Customs and Patent Appeals, the Customs Court and in the old Commerce Court. However, there are obvious questions as to the legislative feasibility and desirability of such an approach to the problem. Again we defer to the Subcommittee as being far better equipped to answer those questions than are we.
Mr. EDWARDS. You may introduce your colleague, Murray Drabkin, an old friend and former valued member of the staff of the House Judiciary Committee. TESTIMONY OF HON. JOHN T. COPENHAVER, JR., BANKRUPTCY
JUDGE, WEST VIRGINIA, AND PRESIDENT, NATIONAL CONFERENCE OF BANKRUPTCY JUDGES, ACCOMPANIED BY MURRAY DRABKIN, GENERAL COUNSEL, NATIONAL CONFERENCE OF BANKRUPTCY JUDGES
Judge COPENHAVER. Thank you, Mr. Chairman.
I am accompanied today by the general counsel for the National Conference of Bankruptcy Judges, Murray Drabkin, an attorney in this city. And subsequently in the proceedings, I would like to call upon him to address the committee.
Gentlemen, of the varied and difficult issues confronting the Congress in devising a new substance and system for the field of insolvency law, none merits more thoughtful consideration than transition. If chaos is to be avoided and stability maintained in the transfer from the old to the new, it is essential that the experienced corps of bankruptcy judges on hand at the date of enactment be retained as judges of the newly created court throughout the transition phase which the Judges bill envisions as spanning a period of 7 years.
Unlike the draft bill proposed by the National Conference of Bank ruptcy Judges, the bill drafted by the Commission on the Bankruptcy Laws of the
United States is virtually devoid of any provision to meet the problems of transition.
This omission on the part of the Commission becomes understandable when one considers the earlier testimony before this subcommittee of the Commission Chairman, Harold Marsh, Jr., who acknowledged the fairness of the Judges' criticism respecting transition, noting in defense of the Commission that it had only 2 years in which to rewrite the entire Bankruptcy Act and that, in the natural course of things, the Commission considered transition last at a time when the deadline for its existence was rapidly approaching.
Indeed, one need not agree with all of the Commission's findings and conclusions to stand in awe of the remarkable amount of work otherwise performed by it in such a limited time and with such a modest budget.
With the luxury of adequate time for contemplation, the difficulties of transition have not escaped the attention of others whose credentials in this specialized field are readily recognized and highly respected. The National Bankruptcy 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 agreed 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 5 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.
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 he, as distinguished from his staff, now per. sonally performs. But even now, the major portion of the judge's work 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 jurisdiction 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 snits 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 not-so-benign neglect with which their actions in nonbankruptcy 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 91/2 years, be extended in office.
As a group they will prove at least as capable, industrious, seasoned, and judicially tempered as any group that would be selected to replace them. Their integrity will have withstood the test of time and exposure.
The Judges bill provides that the terms of bankruptcy judges in office on the date of enactment will be automatically extended for 7 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 then organize his office on a national and local level, no doubt 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 Judges bill contemplates that a period of 3 years of experience is required
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 asembled 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. Should the Director be slow in gearing up or the Congress be dissatisfied with the Director's survey and recommendations, this final year provides a modest time cushion during which such problems can be solved.
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 located 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 Court 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, as of early April, were folded into the new system, 51 of the 185 full-time sitting judges would have reached age 70 by the end of the 7-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 7-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 7 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 7 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 7-year period in keeping with emerging need. Interim replacements would be appointed for an initial term expiring at the end of the 7-year period.
Meanwhile, competent individuals are encouraged to enter the system and well-qualified 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 hệ 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 affected individual would nevertheless be inclined to remain on duty until the lapse of the 7-year period in order to accrue the more attractive retirement benefits 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.
A second solution to meet the transition problem has been adopted by the National Bankruptcy Conference. Upon enactment, all fulltime sitting bankruptcy judges would automatically become judges of the new bankruptcy court for a term of 15 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 bankrupcty 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 new bankruptcy judge would be for a term of 15 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.
That is, 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 itself.
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 with 4 months, has been in response to the judges' observation that Presidential appointment often results in considerable delay, averaging some 11 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 of whom is confronted from the outset 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.