Judicial independence, autonomy, and the bankruptcy courts.

AuthorMcKenzie, Troy A.

INTRODUCTION I. JUDICIAL INDEPENDENCE AND ARTICLE III VALUES A. From Formalism to Balancing 1. The Bankruptcy Code and the rise of the autonomous bankruptcy court 2. Northern Pipeline and the "demise'" of the autonomous bankruptcy court 3. The retreat from formalism toward pragmatic balancing 4. Lingering questions B. Appellate Review Theory II. ARTICLE III THEORY AND THE REALITY OF BANKRUPTCY ADJUDICATION A. Beyond Balancing B. The Limitations of Appellate Review 1. The Code and doctrine 2. Constraints of bankruptcy litigation a. The preference for negotiation over extended litigation b. The structure of appellate review in bankruptcy cases c. Fees and bankruptcy litigation d. The problem of delay e. Equitable mootness 3. Article III judges and bankruptcy cases III. BANKRUPTCY COURTS AND ARTICLE III VALUES A. Autonomy and Independence from Political Pressure 1. The insulation of the appointment process 2. (Non)promotion of bankruptcy judges B. Bankruptcy Judges and Their "'Audience" 1. The bench and the bar: cooperation or capture? a. The case of Judge Scholl 2. Guild interests and the public interest CONCLUSION INTRODUCTION

How much power should we grant to bankruptcy judges? That question has taken on new prominence as lawmakers and commentators consider responses to the financial crisis that contemplate an active role by bankruptcy courts. Recently, proposals to allow bankruptcy judges to restructure mortgages on primary residences have generated heated debate. (1) For millions of homeowners who cannot meet the obligations of their current loan terms, those proposals might avert foreclosure, but they would also give bankruptcy judges a prominent role in, essentially, restructuring substantial parts of the residential real estate market. Bankruptcy judges similarly took center stage in debates about restructuring another swath of the national economy--the domestic automobile industry--as Chrysler and General Motors filed for reorganization under Chapter 11 of the Bankruptcy Code. (2) Beyond their massive size, the automakers' bankruptcies were remarkable for the active role of the federal government in encouraging the filings and charting the course of the proceedings---circumstances leading to concerns that their bankruptcy cases were unduly influenced by political actors. (3)

Left unasked in these debates, however, is the necessarily antecedent question: how much power can we grant to bankruptcy judges? Article III of the Constitution would appear to require that all federal judges share twin guarantees--undiminishable salary and secure tenure during good behavior. (4) But bankruptcy judges lack those protections, which are the conventional foundations on which an independent federal judiciary rests. (5) Instead, they serve for a term of fourteen years, and can be removed from office for cause. (6) How, then, can we entrust them with broad powers to adjudicate important disputes without undermining the core values of the federal judiciary?

There are, of course, accounts of why departures from the requirements of Article III are sometimes permissible. The first rationale--a balancing test adopted by the Supreme Court in a series of landmark cases--assumes that non-Article III adjudication is typically appropriate to resolve disputes in discrete, specialized areas of the law. The second, grounded in the Court's doctrine and advanced by scholars, holds that appellate review by Article III courts is generally sufficient to control subordinate non-Article III adjudicators. (7)

This Article questions the application of those rationales to the bankruptcy courts. Simply put, neither one supports the continued practice of non-Article III adjudication in bankruptcy.

First, although conventional wisdom holds that bankruptcy is a highly specialized area of the law, (8) thereby justifying adjudication by non-Article III judges, that wisdom is deeply flawed. Bankruptcy may be a specialized process, with its own rhythms that differ from litigation in other forums, but the substance of bankruptcy cases is not specialized. Bankruptcy judges hear disputes from across the legal spectrum, confronting matters sounding in contract, tort, property, labor, and almost every other area of civil law. It makes little sense to talk of "specialized" or "technical" bankruptcy adjudication when the matters decided by a typical bankruptcy judge are often indistinguishable from the civil disputes on the docket of a federal district judge.

Second, appellate review by Article III courts does not serve as an effective check on non-Article III judges in bankruptcy cases. Bankruptcy judges, perhaps more so than any other non-Article III adjudicators in the federal system, are largely autonomous. Bankruptcy cases generate very few appeals, the structure of appellate review in bankruptcy cases complicates the generation of binding precedent to guide the resolution of future disputes, and the Article III courts have little appetite for entertaining those appeals that do make it out of the bankruptcy courts. (9) In bankruptcy, the model of a non-Article III tribunal wholly subordinated to a reviewing Article III court is elegant in theory but unavailing in practice.

Does the inadequacy of the standard justifications for non-Article III adjudication in bankruptcy mean that our current system of bankruptcy courts and judges must be abandoned? This Article makes a tentative, and perhaps uneasy, case for continued non-Article III adjudication in bankruptcy by offering an alternative justification for why the current system does not raise serious Article III concerns. Despite their non-Article III status, the bankruptcy bench nevertheless exhibit the "Article III values" we attribute to the life-tenured judiciary. The process of their selection and their continued connection to an audience--the bankruptcy bar--that holds in high esteem professional, creative, and non-ideological resolution of complex disputes explains their pronounced autonomy. But those same factors provide the kind of insulation from political pressures for which Article III is totemic.

This Article proceeds in three Parts. Part I briefly traces the development of the modern bankruptcy courts and the lingering doubts about the non-Article III status of bankruptcy judges. There is a long history of adjudication by non-Article III judges in the federal system. There is also a long history of concern by the Supreme Court and scholars who study the federal courts that the proliferation of non-Article HI adjudicators threatens to erode the independence of the federal courts. (10) For that reason, both the Supreme Court and scholars have attempted to police the boundary between the exercise of the "judicial Power of the United States" (11) reserved for the Article III courts and the appropriate resolution of disputes by non-Article III tribunals. Bankruptcy has been central to the story of that attempt at line drawing. Twice, the Supreme Court has acted to limit the power of bankruptcy judges out of concern that they do not enjoy the tenure and compensation protections of Article Ill--with a fractured decision in Northern Pipeline Construction Co. v. Marathon Pipe Line Co. going so far as to require Congress to restructure the entire bankruptcy court system. (12)

Part II explains the Court's balancing test approach to policing the boundaries of Article III adjudication and the scholarly substitute of appellate review theory. But Part II documents that neither justification for non-Article III adjudication persuasively supports the current workings of the bankruptcy courts. (13) The assumption that the specialization and political unimportance of bankruptcy cases excuse the use of non-Article III adjudicators on closer inspection. Given the vast number of disputes that bankruptcy judges resolve every year (14) and the broad subject matter of those disputes, (15) the Court's balancing test fits uneasily with the work of bankruptcy judges. In reality, bankruptcy cases routinely involve a wide range of subject matters beyond technical parsing of the Bankruptcy Code. Bankruptcy judges are often called upon to decide sensitive questions of social and economic policy that garner the attention of the public and political actors. It is therefore unsurprising that questions about the status of bankruptcy judges trigger deep concerns about the need to preserve the "essential attributes" of the judicial power under Article III. (16)

Part II also questions the basic assumption of appellate review theory--that Article III courts will exercise effective control, particularly through the process of post-adjudication appeals, over the work of non-Article III tribunals. That assumption does not fit comfortably with the life of even the most sensitive matters in the bankruptcy courts. There are important structural and doctrinal limitations on the effectiveness of bankruptcy appeals. But more importantly, the realities of bankruptcy litigation place constraints on the frequency and effectiveness of appeals to Article III courts. A bankruptcy case is largely a space for negotiated resolution of disputes. Concerns about delay and cost increase the pressure to settle well before a bankruptcy judge's ruling can be challenged on appeal, and often before a bankruptcy judge has issued a formal ruling at all. Those proceedings that do make it up to the Article III courts often face indifference by the life-tenured judiciary.

Part III attempts to fill the void left by the demonstrable weaknesses of the balancing approach and appellate review theory. Despite the unpersuasiveness of the dominant explanations for non-Article III adjudication, Part III suggests that there are alternative reasons to believe that the current bankruptcy system provides a sufficient level of the attributes valued in Article III courts: principally--but not only--insulation from political pressures. By looking chiefly at the...

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