ADVISORY COMMITTEE ON BANKRUPTCY RULES
Meeting of September 27 -28, 1999
Jackson Lake Lodge, Moran Junction WY
Minutes
The following members attended the meeting:
District Judge Adrian G. Duplantier, Chairman
District Judge Robert W. Gettleman
District Judge Bernice B. Donald
District Judge Norman C. Roettger, Jr.
Bankruptcy Judge Robert J. Kressel
Bankruptcy Judge Donald E. Cordova
Bankruptcy Judge A. Jay Cristol
Bankruptcy Judge A. Thomas Small
Professor Kenneth N. Klee
Professor Mary Jo Wiggins
Gerald K. Smith, Esquire
Eric L. Frank, Esquire
J. Christopher Kohn, Esquire, United States Department of Justice
Professor Alan N. Resnick, Reporter
District Judge Eduardo C. Robreno, Leonard M. Rosen, Esquire, and R. Neal Batson,
Esquire, were unable to attend the meeting. Circuit Judge A. Wallace Tashima, liaison to this
Committee from the Committee on Rules of Practice and Procedure ("Standing Committee"),
Bankruptcy Judge Frank W. Koger, a member of the Committee on the Administration of the
Bankruptcy System ("Bankruptcy Committee"), and Peter G. McCabe, Secretary to the Standing
Committee and Assistant Director of the Administrative Office of the United States Courts
("Administrative Office"), also attended the meeting. Bankruptcy Judge James D. Walker, Jr.,
and Howard L. Adelman, Esquire, appointed to the Committee for terms beginning October 1,
1999, also attended the meeting.
The following additional persons attended the meeting: Joseph G. Patchan, Esquire,
Director of the Executive Office for United States Trustees; Richard G. Heltzel, Clerk, United
States Bankruptcy Court for the Eastern District of California; Professor Jeffrey W. Morris,
University of Dayton Law School, Consultant to the Committee; Patricia S. Ketchum,
Bankruptcy Judges Division, Administrative Office; Mark D. Shapiro, Rules Committee Support
Office, Administrative Office; and Robert Niemic, Research Division, Federal Judicial Center
("FJC"). In addition, David M. Poitras, Esquire, a member of the American Bar Association's
General Practice, Solo and Small Firm Section, attended part of the meeting.
The following summary of matters discussed at the meeting should be read in conjunction
with the various memoranda and other written materials referred to, all of which are on file in the
office of the Secretary to the Standing Committee. Votes and other action taken by the
Committee and assignments by the Chairman appear in bold.
Introductory Items
The Committee approved the minutes of the March 1999 meeting.
The Chairman welcomed Judge Walker and Mr. Adelman, newly appointed members,
the guests present, and noted with thanks the service of the members whose terms were expiring:
Judge Robreno, Judge Small, Mr.Smith, and Mr.Batson. He also informed the Committee that
Professor Resnick, the Committee's Reporter, would be retiring as Reporter and joining the
Committee as a member. He announced that Professor Morris, a consultant to the Committee for
the past year, would be the new Reporter.
The Chairman and Professor Resnick reported on the actions taken at the June 1999
meeting of the Standing Committee. The proposed amendments submitted by the Committee
were approved for transmittal to the Judicial Conference. The draft amendments which the
Committee requested permission to publish for comment also were approved for that purpose.
Amendments to Rule 5 of the Federal Rules of Civil Procedure (Civil Rules) to permit service of
papers after the initial complaint by electronic means, which the Committee had discussed at the
March 1999 meeting, also were approved for publication. If adopted, they would permit similar
electronic service in adversary proceedings. There was a division of opinion among the advisory
committees over whether to afford parties who receive service electronically the additional three
days for response currently available when service is made by mail. Accordingly, the proposed
amendments to Civil Rule 6(a) and Bankruptcy Rule 9006, as published, are not consistent.
The Standing Committee also approved and forwarded to the Judicial Conference
proposed amendments to the Civil Rules on discovery. Under the proposed amendments, a
mandatory disclosure requirement narrower than the scope of the present Rule 26(a) would
become the national rule, although a court could order otherwise in a particular case. The
current provision allowing a district to opt out of mandatory disclosure by local rule would be
deleted. The Reporter noted that Rule 9014 makes Rule 26 applicable in contested matters
unless the court orders otherwise and suggested that the Committee may want to address Rule
9014 in connection with this issue. The amendments to the Civil Rules were approved by the
Judicial Conference in mid-September, with the exception of a proposed amendment to Rule
26(b)(2) which would have allowed "burdensome" discovery at the expense of the requesting
party.
Judge Kressel said the Committee should consider promptly the matter of mandatory
disclosure, both as an amendment to Rule 9014 and in adversary proceedings, because of the
time issues that pervade bankruptcy cases. Professor Resnick noted that Bankruptcy Judge
Louise DeCarl Adler had written a letter stating that mandatory disclosure should not apply in
adversary proceedings involving less than a certain dollar amount.
The Chairman reported that the Standing Committee had approved a resolution of
appreciation for Professor Resnick and his extraordinary contributions to the rules and the work
of the rules committees over his 12 years as Reporter. Judge Duplantier presented Professor
Resnick with an illuminated rendering of the resolution. Professor Resnick expressed thanks for
the opportunity to work with four chairmen of the Committee and with the more than 40
Committee members during his service as Reporter. He said he also was grateful to the chairs
and members of the Standing Committee, to its Reporter, Professor Coquillette, and to the
reporters for the other advisory committees whom he had gotten to know. He also thanked the
Administrative Office staff for their support and congratulated Professor Morris on having
accepted a rewarding post.
The Chairman said the Standing Committee had asked the various advisory committees
to study the issue of judicial conflicts of interest and divestiture/recusal requirements, a subject
which had received extensive press coverage over the prior year. He said that public interest
groups had paid to obtain the financial disclosure statements of many district judges. Rule 26.1
of the Federal Rules of Appellate Procedure (Appellate Rules) requires any nongovernmental
corporate party to an appeal to list all its parent corporations and any publicly held company that
owns ten percent or more of the party's stock. The Standing Committee had asked the advisory
committees to consider specifically whether a similar rule should be in all the federal rules, he
said. Professor Resnick said the reporters already are scheduled to meet at the January 2000
Standing Committee meeting to prepare a common draft.
Professor Klee said the difficulty in bankruptcy will be similar to that in a civil class
action: too many parties all making disclosures that must be checked. Judge Duplantier said that
is part of judging, and the judge must read them all. Professor Resnick said that the bankruptcy
rule probably could limit the duty to disclose to parties involved in adversary proceedings and
contested matters. The proof of claim form could be modified to require the disclosures, but this
approach might not be effective, as judges normally do not see the proofs of claim. Judge
Cordova said the filing of a proof of claim generally is too broad a test, that conflict-checking
should await the filing of an objection to a claim. Professor Klee said Rule 3001 also should be
amended to require a claims purchaser to disclose its corporate parents, because claims
purchasing can be used strategically to disqualify a judge.
Judge Cristol said there should be carve-outs for holdings of entities like Blue Cross and
public utilities, but Judge Duplantier said the rule could not change the statute, which disqualifies
a judge from sitting in a case if the judge holds a single share of stock in a party. Judge Kressel
said that Appellate Rule 26.1 would not pick up partnerships and other important connections.
Judge Duplantier said he believed any new rule would be broader than the current one. Professor
Klee said Rule 26.1 would not create a problem because it is very narrow; his concern, rather,
would be with a broader sweep. Judge Gettleman said the simple solution for a judge is to sell
the stock in question when a conflict is discovered. He noted that the frequency of conflicts is
increasing with corporate fluctuations and that partnerships which include corporate partners are
particularly difficult to monitor for conflicts. He said he would like to see a conflict-checking
software program combined with electronic filing.
Judge Tashima said that judges need software similar to that used by law firms to perform
conflicts checks and an entity should become a party to which the disclosure requirement would
apply only when the party makes an appearance or takes action in the bankruptcy case. Mr.
McCabe described a judicial conflict-checking software program originally developed by the
district court in Maine and now being distributed by the Administrative Office to any court that
requests it. The program runs overnight to check against new filings, but depends ultimately on
up-to-date information from judges about their holdings to be fully effective. A conflict-checking function will be included in the Case Management/Electronic Case Files systems now
being developed for the federal courts.
Judge Duplantier said that disclosure is all that is being discussed, and it is very simple.
What happens after the disclosures are filed is not a concern of the rules, he said. Mr. Smith and
Professor Klee pointed out that in a chapter 11 case scheduled claims are allowed and that, if any
rule were too broadly stated, the debtor might be required to make the disclosures but not have
the information.
The Chairman said he would inform the Standing Committee that the Committee
approves in principle the adoption of a general rule to require disclosure of corporate parents and
partnership members. He said any bankruptcy problems seem to resemble the ones in civil class
action cases and are not insurmountable. He said the Committee should plan on responding to a
proposed common draft at its next meeting and could include any special bankruptcy
considerations at that time.
Mr. Smith reported on the activities of the Ad Hoc Committee on Attorney Conduct of
the Standing Committee. He said the group is still considering whether to propose any federal
rule or rules governing attorney conduct, but appears to be moving toward a rule that would
expressly make applicable the rules of the state in which the trial court is located, subject to some
exceptions. He said the group appeared ready to allow the Committee some leeway in
determining the exceptions that would apply in bankruptcy representation. He said it is
important for the Committee to continue grappling with the core issues: defining what is an
adverse interest in the bankruptcy context, and establishing when a chapter 11 debtor's counsel
may become adverse. The Ad Hoc Committee had a meeting scheduled for the day after the
Committee meeting, he said, and there would be further developments to report at the March
2000 meeting.
Judge Kressel reported on his attendance at the June 1999 meeting of the Bankruptcy
Committee. He said the Bankruptcy Committee members were impressed that the Committee
had been willing to change its mind about the effort to nationalize motion practice. The
Bankruptcy Committee discussed a proposal to amend the bankruptcy judge recall service
regulations to permit recalled judges who serve on bankruptcy appellate panels (BAPs) to hear
cases from the districts in which they formerly served, he said. The Bankruptcy Committee,
however, determined that considering appeals from a district the recalled judge formerly served
in would be inappropriate, even though the statute (28 U.S.C. § 155(b)) seems not to prohibit it.
The Bankruptcy Committee also approved changing the bankruptcy appellate structure to add a
method for direct appeal to the circuit, bypassing the district court or BAP, at the option of the
circuit and on certification from the district court or BAP that the matter presents an important
question of law. At its September 1999 session, the Judicial Conference also had approved the
proposal to add the direct appeal option, he said.
The Reporter discussed the pending bankruptcy reform legislation, which could be
enacted either before this session of Congress ends or early in the next session. Both the House
and the Senate bills contain provisions requiring new official forms in small business chapter 11
cases, including monthly operating reports, disclosure statements, and plans, he said. Mr.
Patchan had offered to assist in developing these, and three United States trustees had met with
Professor Resnick in New York in anticipation of the enactment of legislation. The trustees had
provided Professor Resnick with copies of existing disclosure statement forms used, or proposed
to be used, in five United States trustee regions. Mr. Patchan's office also has copies of
operating report forms currently in use, he said, and all of these can be used as the basis for any
statutorily-mandated forms. Mr. Patchan said his office had prepared a draft set of proposed
national forms derived from various local forms, that copies had been sent to the meeting, and
that he would welcome any reactions and comments from Committee members.
Action Items
Rules 9013 and 9014. The Reporter introduced the proposed amendments to Rule 9013 and
reviewed their history. The Committee's intent in publishing a draft amendment in 1998 had
been to provide guidance to the courts and the bar on matters that usually are routine and
uncontested but require a court order and to specify a procedure by which the court could
consider and act on such matters ex parte. This proposal had been generally well received, but
did not go forward because it was part of a larger package of amendments which the Committee
had withdrawn for further study.
Professor Resnick said that Mr. Rosen, who could not attend the meeting, had made a
style suggestion concerning line 3 of the draft that would change the first two words from "when
an application is authorized" to "made in an application authorized." The Reporter's suggested
changes to the existing Rule 9013(a), he said, are all stylistic except in line 6 where the Reporter
had inserted "and a hearing" so that a motion generally would be considered "after notice and a
hearing" as that phrase is defined in § 102 of the Bankruptcy Code. Proposed Rule 9013(b), he
said, contains a list of matters that could be decided with no prior notice to other parties, matters
that would be relatively easy for a court to undo in the event a party were to file a motion to
reconsider or vacate.
Concerning the proposed amendments to Rule 9014, the Reporter explained that the
purpose of referring to Civil Rule 5 rather than Bankruptcy Rule 7005 is to make it clear that the
methods of service authorized, including the proposed authorization of electronic service, apply
only to the serving of papers filed after the initiating motion. Rule 9014(d) addresses the use of
affidavits, and Rule 9014(e) requires the court to provide notice procedures concerning whether
to bring witnesses to a hearing, he said.
A member asked whether the Committee should eliminate the word "application" from
the rules, so that every request for court action would be a motion. Another member observed
that once "and a hearing" is added to Rule 9013, there really is no difference between Rule 9013
and Rule 9014. The Reporter acknowledged that the terminology is inconsistent and agreed that
the inconsistencies make distinguishing between the two rules more difficult. Judge Duplantier
suggested changing the phrase to "an opportunity for a hearing" as in Rule 9014. The Reporter
said "notice and a hearing" is defined in § 102 of the Code to mean an opportunity for a hearing.
Judge Kressel said the phrase should be deleted from Rule 9014 . Professor Klee said the use of
the word "service" also is used inconsistently in Rules 9013(a) and (b) and 9014. In addition, he
said, the list of matters in Rule 9013(b) is non-exclusive, and judges might be encouraged to
determine more and more matters ex parte. The Reporter said the Committee could simply leave
Rule 9013 as it is, so that whether a matter could be determined ex parte would be in each court's
discretion. He noted that Rule 9013 as published did not have a list of ex parte matters, that the
list was an idea that had come up at the March 1999 meeting, and that perhaps the Committee
was again falling into the trap of trying to micro-manage procedure. A motion not to amend
Rule 9013, but leave it as it presently is, passed by a vote of 9 to 3.
Judge Tashima said that proposed Rule 9014(d) should state explicitly that direct
testimony of a witness can be in an affidavit so long as the witness is available for cross
examination, but if the Committee disagrees, that the Committee Note should mention that direct
testimony by affidavit is permitted in some circuits, citing In re Adair, 965 F.2d 777 (9th Cir.
1992). Judge Duplantier said he opposed the suggestion, and that affidavits should not be
admitted as testimony at trial. With respect to proposed Rule 9014(e), Professor Klee said the
bracketed language on line 26 should be included so that any notice of an evidentiary hearing
would go to the witnesses as well as the attorneys. Judge Cristol suggested simply stating that
any notice of a hearing must inform the recipients whether the hearing will be an evidentiary one.
A motion to accept Rule 9014 as drafted, including subdivisions (d) and (e) but
without the bracketed language in line 26, passed with no opposition.
Mr. Frank observed that there remains a gap in the rule concerning who must be served
and asked whether that is intentional. The Reporter said the draft is deliberately silent in
response to public comment criticizing the service list in the previously published draft. There
was no consensus to delete the phrase "opportunity for hearing" from subdivision (a). A member
suggested that a sentence be added at the end of subdivision (a) permitting the movant to request
a response to a motion. Judge Duplantier suggested deleting "under this rule" from line 4 as a
matter of style. Professor Klee questioned the phrase "the court directs" rather than "the court
orders," and the Reporter said he had used "directs" so that a court could use a local rule to
require a response to a motion, rather than having to order a response in every instance.
Rule 1006. The proposed amendments had been approved for publication previously and
were published in 1998, although they were unrelated to the amendments to Rules 9013 and
9014. A member questioned the provision in the rule that forbids paying an attorney until the
filing fee has been paid in full and said the provision appears to be substantive. The Reporter
agreed that the provision is substantive, although it has been in the rule for a long time. He
added that Henry Sommer, a former member of the Committee, often had said a debtor should
not have to apply to the court, as the right to pay in installments is granted by statute in 28 U.S.C.
§ 1930. After discussion, the Committee determined not to forward the proposed
amendments to the Standing Committee and requested the Reporter to prepare a
memorandum concerning the rule generally. The memorandum would cover the following
points: whether the provision forbidding payment to an attorney is substantive and, therefore,
violative of the Rules Enabling Act, whether the present rule actually favors petition preparers
and encourages debtors to use them, the regulation of petition preparers under § 110 of the Code,
and ways to safeguard debtors against being punished for using a petition preparer. Mr. Patchan
suggested amending the form to require disclosure of the amount paid to a petition preparer and
added that the United States trustee program is preparing to issue guidelines on petition preparer
fees.
Rule 2004. The amendment to Rule 2004(c), previously approved by the Committee and
published for comment, makes it clear that an examination under the rule can be held outside the
district where the case is pending. Mr. Kohn suggested that it would be useful to add to the
Committee Note the language concerning the issuance of a subpoena by an attorney admitted pro
hac vice from the Committee Note to the 1991 amendments to Civil Rule 45. A motion to
include the suggested language in the Committee Note to Rule 2004 carried unopposed.
Rules 1004 and 1004.1. Professor Morris had prepared draft amendments and a
memorandum on the capacity of infants, incompetent persons, and corporate and partnership
entities to file bankruptcy for the March 1999 meeting. The Committee considered these briefly
at that meeting and postponed further consideration. The Committee also had requested
Professor Morris to consider the question of making Civil Rule 17 applicable throughout the
Bankruptcy Rules, rather than only in adversary proceedings as it currently is under Rule 7017.
He said it is important in working with Civil Rule 17 to avoid drafting a substantive rule that
could be construed as conferring a right or capacity to file a bankruptcy petition by an entity -- a
corporation, for example.
Professor Resnick said that if the bankruptcy rules were to make Civil Rule 17(b)
applicable beyond adversary proceedings, some states likely would pass laws making
corporations bankruptcy-proof, and there is no evidence before the Committee that corporations
are encountering challenges to their right to file bankruptcy petitions. Professor Klee said
various problems, such as deadlocked boards of directors and bankruptcy-remote state laws, do
not currently raise rules questions but would do so under the draft amendments concerning
corporations. He also said it does not make sense for the rules to treat partnerships without also
treating corporations, limited liability corporations, and limited liability partnerships. The
Committee determined not to go forward with a rule on filing by a corporation and asked
the Reporter to study whether to delete existing Rule 1004(a), filing by a partnership, with
a Committee Note stating that the question is left to substantive law (which could be either
the Bankruptcy Code or state law).
The Committee discussed redrafting proposed Rule 1004.1, concerning filing a petition
for an infant or incompetent person, to track the language of Civil Rule 17(c) more closely,
keeping the changes only to those necessary to replace the word "sue" in Rule 17(c) by "file a
voluntary petition," and stating in the Committee Note that the bankruptcy rule merely tracks the
existing civil rule. A motion to alter the draft as discussed was not opposed. On the second
day of the meeting, the Committee agreed to add the words "not otherwise represented" at
the end of the draft rule.
Rule 2014. Mr. Smith introduced the proposed amendments recommended by the Subcommittee
on Attorney Conduct, including Rule 2014 Disclosure Requirements. He noted that the
amendments specify that a professional seeking approval of employment must disclose any
interest, representation, or relationship that bears on whether the applicant has an interest adverse
to the estate or on whether the applicant is disinterested. The proposed amendments also
substitute "interest or relationship relevant" to determining disinterestedness for the existing
"connections." The proposed amendments, however, still fail to provided guidance concerning
what is a disqualifying interest or relationship, he said. Mr. Smith said there is no definition of
"adverse interest" in the Bankruptcy Code or the Bankruptcy Rules and the unmodified word
"connections" is too broad. The bar needs guidance on what to disclose, he said. Mr. Smith said
he would like the rule to provide this kind of guidance, but that it probably would take several
more years to develop a workable rule.
Professor Resnick said the proposals to amend Rule 2014 began after In re Leslie Fay
Companies, Inc. , 175 B.R. 525 (Bankr. S.D.N.Y. 1994). Several courts have indicated that
lawyers must disclose all connections without screening out those that the lawyers believe are
irrelevant, he said. Thus, it is not the lawyer but the judge who determines what is disqualifying.
The new draft would change "setting forth the person's connections" with no limitations to
"relevant to a determination that the person is disinterested," which would allow the lawyer to
screen out connections that are obviously irrelevant. The judge could still disagree and rule that
a particular connection is relevant, but the initial disclosure decisions would be made by the
lawyer, he said.
Mr. Adelman commented that as the word "connection" is used in § 101(14) of the
Bankruptcy Code, it is only connections with the debtor or an investment banker of the debtor
that taint prospective counsel. In his view, he said, it also is important to know that counsel had
been retained by a prior board of directors or had brought in the same accounting firm in prior
cases, yet such disclosures are not required now. Mr. Smith said there might be ways to avoid an
adverse interest problem if debtor's counsel and the debtor were to agree to engage special
counsel to determine whether to sue the creditor that debtor's counsel's firm represents in
unrelated matters. In response to questions concerning the reason for requiring in the rule a
broader range of disclosures than seems to be required by the Bankruptcy Code, Mr. Smith
agreed that an admirable principle can be impossible to carry out in practice. As examples, he
said a debtor's law firm must conflict-check more than every creditor; it must also check every
ongoing contractor of the debtor, relationships anyone in the firm may have with attorneys and
accountants for every creditor, and relationships anyone in the firm may have with any landlord
of any of a retail debtor's 400 stores. Mr. Patchan said that at the time the rule originally was
drafted there were major ethical problems in bankruptcy practice. Also, at that time, he said the
bankruptcy practice mostly was confined to small, boutique firms, rather than the large, full
service firms that are active in bankruptcy now.
The Chairman noted that Mr. Smith's term on the Committee would be ending and
thanked him for his thoughtful work as subcommittee chairman. The Chairman said the
subcommittee should continue its work under a new chairman to be appointed.
Rule 2002(h). Professor Resnick said the proposed amendment had been suggested by
Bankruptcy Judge Arthur J. Spector and he reviewed the Reporter's memorandum in which he
pointed out that adopting the suggestion to automatically discontinue notices to creditors who
miss the claims filing deadline could be ill-advised. The memorandum notes that creditors
entitled to priority under § 507 can be paid regardless of whether they file their claims before the
deadline, and in certain circumstances general unsecured creditors can be paid if they file a claim
before distribution begins. The Reporter suggested that if the Committee wants to amend the
rule to save noticing costs, a better approach would be to amend Rule 2002(h) to automatically
cut off notices to creditors who miss the deadline, unless the court orders otherwise. By
consensus, the Committee decided to take no action.
Judge Gettleman noted a second issue contained in Judge Spector's letter, that of
restricting the time periods in the rules to 7, 14, and 21 days, so that the time for taking action
always would expire on the same day of the week as the filing or ruling to which the party would
be responding. The Reporter said the Committee had discussed the idea previously, so he had
not written a memorandum on it for this meeting. Judge Gettleman said many courts' local rules
are using the uniform one-week, two-week, approach and that he would like to revisit the matter.
The Chairman asked the Reporter to prepare a report on what the time limits are now in
the various rules, although the Committee has no immediate plans to amend Rule 9006.
Rule 9027. Bankruptcy Judge Christopher M. Klein had suggested that the rule should
provide for notifying the nonbankruptcy court from which an action was removed of the entry of
a remand order. In addition, Judge Klein had pointed out that the rules do not establish any time
limit for removal of an action that may be filed after a bankruptcy case is closed. The Reporter
had drafted an amendment to Rule 9027 that would direct the clerk, after the ten-day period to
appeal had expired, to mail a certified copy of the order of remand to the clerk of the court from
which the claim or cause of action was removed. The proposed amendment also included a
sentence stating that the action then could proceed in the court from which it was removed except
as otherwise directed by the court issuing the order of remand. Judge Kressel said that if the
debtor is a party to the removed action, the sentence authorizing the court from which the matter
was removed to resume the proceeding would violate the automatic stay. The Reporter
suggested deleting the final sentence to remove any idea that an order of remand acts to lift the
automatic stay. Judge Kressel also said he did not think the ten-day stay was necessary. The
Reporter said it serves to recognize the participation of the Article III district court in the process,
and that 28 U.S.C. § 1452 provides that an order of remand by a bankruptcy judge is subject to
district court review. A motion to delete the ten-day stay was not acted upon. After a discussion
about whether to specify or leave ambiguous which clerk -- bankruptcy court clerk or district
court clerk -- should notify the court from which the action was removed, a motion to leave the
word "clerk" unmodified also was not acted upon. A motion to adopt the Reporter's draft
except the final sentence passed on a voice vote.
On the matter of removal after a case is closed, the Reporter said there appeared to be
various options for amending Rule 9027(a)(3) to insert phrases such as "or is closed," "is or was
pending," or "is pending or has been dismissed or closed." Professor Klee said a case might also
be suspended if the bankruptcy judge has abstained under § 305 of the Bankruptcy Code. The
Reporter said there might be additional considerations, such as whether the case must be
reopened to address the removed action. Mr. Heltzel said that although reopening is not
necessary for jurisdiction, a court probably would want to reopen the case for practical reasons
such as researching the file in connection with the issues in the removed matter. Judge Kressel
suggested deleting from Rule 9027(a)(3) the entire first clause, so that the rule would begin with
the words "a notice of removal." This would remove both the existing "is pending" and avoid
substituting other words that might not include all the possibilities. The consensus, however,
was to substitute for the existing initial clause the following: "If a claim or cause of action is
asserted in another court after commencement of the case,". On the second day of the meeting
the Reporter offered a proposed Committee Note which, after changes suggested by the
Committee, would read:
Subdivision (a)(3) is amended to delete the words "is pending" to make it
applicable when a claim or cause of action is removed under 28 U.S.C. § 1452(a)
after the commencement of the bankruptcy case, whether the bankruptcy case is
pending, suspended, dismissed, or closed.
The proposed amendment and committee note will be brought back to the Committee for
final approval at the March 2000 meeting.
Rule 4004. Professor Morris introduced the amendment proposed by the Executive
Office for United States Trustees (EOUST) to provide for delaying the debtor's discharge
whenever a motion to dismiss is made under § 707, rather than only when the motion is made
under § 707(b), as in the current rule. Judge Small said he supported the change, because it is
difficult, procedurally, to revoke a discharge, and the only detriment to the debtor would be a
delayed discharge. Judge Kressel agreed. The Committee approved the amendment without
opposition. The Reporter commented that line 3 of the Committee Note should read "present"
rather than "prior."
Rule 2015(a)(5). The EOUST also had proposed amending Rule 2015(a)(5) to require
the filing of quarterly reports by a chapter 11 trustee or debtor in possession as long as the case is
pending. Professor Morris noted that the pending bankruptcy reform legislation contained a
provision that would amend 28 U.S.C. § 1930(a)(6) to provide that quarterly fees to the United
States Trustee System Fund are no longer payable after confirmation of a plan or conversion of a
case. The amount of any quarterly fee is based on information in the quarterly report. If the
amending legislation is enacted, it would be unnecessary to file the reports after confirmation of
a plan. The Committee deferred consideration of the proposed amendment until the
March 2000 meeting and instructed Professor Morris to add to the draft to be discussed the
closing of the case as one of the events that would end the obligation to file reports.
Rule 2010(b). The EOUST had proposed amending the rule to cover bonds other than the
trustee's bond. The Committee declined to amend the rule to expand its scope.
Rule 9019. The Reporter introduced the problem, raised initially by Bankruptcy Judge L.
Edward Friend, that it is unclear whether the Bankruptcy Rules continue to apply when a
bankruptcy matter has been appealed to the court of appeals. Rule 1001 states that the rules
apply to all cases under title 11 of the United States Code, and it is well understood that they
govern in both the bankruptcy court and the district court. Rule 9019 requires that any settlement
be approved by the bankruptcy judge after notice to all creditors. A settlement between the
debtor and one creditor, or between two creditors, may adversely affect other creditors of the
bankruptcy estate who are entitled to equality of treatment. The purpose of the Rule 9019 is to
permit any creditor that may be affected to object and be heard by the bankruptcy judge before
the settlement takes effect. If a matter is appealed to a court of appeals and a settlement reached
at that point, however, the applicability of Rule 9019 is less clear, and at least one circuit has a
local rule that permits a mediator "upon agreement of the parties, [to] dispose of the case."
Accordingly, Judge Friend had suggested that the Appellate Rules should be amended to assure
that the notice and approval procedures required under Rule 9019 are observed when a matter is
settled at that point.
The Committee discussed what the procedure should be when a settlement is reached at
the court of appeals level and how the two courts should coordinate. Judge Duplantier said the
party benefitting is going to want to know that the settlement will be approved before the court of
appeals dismisses the appeal or otherwise terminates its role. He said that minors and
incompetent persons also require delay procedures, so that a state court can approve, when a
settlement is involved, and the settlement is not binding on the minor or incompetent person if
the approval is not obtained. Judge Walker said many lawyers seem unaware of Rule 9019's
continued applicability in an appeal situation, even at the district court level. He recalled one
matter in which it was the district judge who brought the attorneys' attention to the rule. A
motion to recommend to the Advisory Committee on Appellate Rules that Appellate Rule 6
be amended to add Rules 9019 and 7041 to the list of bankruptcy rules that apply in the
court of appeals passed with one member objecting.
Official Forms. The Reporter presented several letters commenting on various forms and
suggesting amendments to them. Bankruptcy Judge Susan Pierson Sonderby wrote that Official
Form 20B seems to require a party to whose claim an objection has been filed both to file a
written response and appear in court. Judge Sonderby stated that either a response or an
appearance should be sufficient. Members discussed whether the form actually requires both a
written response and an appearance or, rather, is ambiguous. The Reporter said the flexibility
Judge Sonderby supports should be written in to the form.
A. Thomas DeWoskin, Esquire, a chapter 7 trustee, had written to suggest that Form 9,
the Notice of Commencement of Case, etc. (§ 341 Notice) be amended to clarify that the trustee
does not represent the debtor. The Reporter noted that the sample notice attached to Mr.
DeWoskin's letter is not consistent with the official form. Joel L. Tabas, also a bankruptcy
trustee, had written a letter commenting that Form 10, the Proof of Claim, is confusing for
unsecured nonpriority creditors, who often mistakenly check the box labeled "Unsecured Priority
Claim." This mistake results in the filing by the trustee of many otherwise unnecessary
objections to claims. The consensus was that, as the form was amended in 1997, it is too soon to
amend it again. Bankruptcy Judge Paul Mannes had forwarded several suggestions to improve
the grammar and style of the new Reaffirmation Agreement form, which was adopted in 1999 as
a "Director's Form," but is intended to be published for comment and adopted as an Official
Form after Congress acts on the pending bankruptcy legislation. The Committee referred all of
these suggestions to the Forms Subcommittee.
Mr. Patchan said that the copies of the proposed forms package for reporting by small
businesses the EOUST had drafted to implement the pending bankruptcy reform legislation had
arrived and were available for review by the Committee members. He said his office is prepared
to assist the Committee with any official forms that may be required once the legislation is
enacted. Professor Klee asked whether the draft forms had been reviewed by an accountant, and
Mr. Patchan replied that his staff includes analysts who are certified public accountants. The
Reporter mentioned that the Committee also could request that a consultant be engaged to
provide any expert review of proposed official forms that might be needed, and Mr. Smith
suggested that help also might be available from other private sources, such as from an ad hoc
group that could be formed by the Insolvency Institute.
Official Form 7. Judge Kressel reported that the Forms Subcommittee had considered the
suggestions referred to it at the March 1999 meeting: 1) to separate the business-related questions
from those to be answered by all debtors, and 2) to make it clear that individual consumer
debtors can skip the business-related questions entirely. He said the subcommittee had decided
not to make two separate forms, despite the extra paper that is generated in cases filed by
individual consumer debtors, at least as long as the courts still use paper. Mr. Heltzel reiterated
his observations about the file space required for the blank pages of the form and the disk space
occupied when the documents are scanned, but added that a solution to the storage problem may
have to await the next major revision of the forms. Judge Kressel commented that most
individual consumer debtors also file several blank schedules, as well. Judge Gettleman asked
whether a court could be permitted to dispose of unneeded items after ascertaining that the filing
was complete. Professor Resnick suggested that the business questions could become an exhibit
to Form 7, similar to Exhibit "A" to Form 1, the Voluntary Petition, with directions to attach the
exhibit if the debtor is in business. Professor Morris said that the environmental authorities
might not be satisfied with the transfer to an exhibit of the environmental question now Question
25 in the business section. It would be too easy for a debtor to evade answering the question by
saying, "I didn't notice the exhibit," he said. Professor Klee observed that the new sentence that
had been inserted at the beginning of the business questions starts with the phrase "An individual
or joint debtor" rather than "A debtor" as in the current form; he questioned whether an
individual debtor should be exempted from answering the environmental question. Professor
Resnick suggested that the Committee could move Question 25 forward to the part of the form to
be answered by all debtors. Mr. Kohn said he is concerned that Form 7 not be further delayed
and noted that the substance of the changes, the new questions, already had been published for
comment. The consensus was to approve the new instructional sentence, move Question 25
to make it answerable by all debtors, and issue the form without republication.
Rule 2002(f)(7). This rule requires that notice of the entry of an order confirming a plan
in a chapter 9, 11, or 12 case be mailed to all creditors, but does not require that any notice be
sent when a chapter 13 plan is confirmed. Bankruptcy Judge Paul Mannes had suggested that the
Committee consider amending the rule to include sending notice when a chapter 13 plan is
confirmed. Judge Mannes had noted the 1994 increase in the debt limit for eligibility for chapter
13 to more than $1 million and suggested that the higher limit should entitle creditors to notice.
Mr. Frank said he did not think the increased debt limit justified requiring notice. He added that
many unsecured creditors do not begin receiving payments immediately in chapter 13. He said it
is uncertain whether notice would be helpful or would simply lead to unrealistic expectations of
prompt payment. Professor Klee noted that, unlike chapter 11, most plans in chapter 13 cases are
confirmed. He suggested that any need for notice could be satisfied by including in the notice of
the confirmation hearing a sentence that directs creditors to assume confirmation unless they
receive notice otherwise.
Judge Walker said that formerly, when notice was given, it included other information
that was useful to the parties. Judge Small said that chapter 13 plans change before confirmation
and that bare notice may not be useful. Professor Wiggins said the Committee needs more
empirical information before deciding what to do. Judge Cordova said that in Colorado the
chapter 13 trustee sends every creditor a copy of the order confirming the plan, even though not
required by the rules. The court has found that a copy of the order gives creditors the
information they need and stops phone calls to the court and the trustee. The Reporter noted that
the Committee had a chapter 13 subcommittee in the early 1990s which had found that every
court handles chapter 13 cases differently. Professor Morris said that in the Southern District of
Ohio, each division has separate local rules governing chapter 13 procedure.
There was no support for a bare notice of confirmation. The Committee preferred either a
rule specifying that certain information must be provided upon confirmation or leaving the
matter to the local legal culture. Mr. Patchan said the EOUST has general policies on the
subject, but that chapter 13 administration is the most local of operations. He said the EOUST
could encourage trustees to provide information upon confirmation but that a statement in the
national rules would be helpful. Judge Walker suggested asking a sample of chapter 13 trustees
what information they can conveniently generate from their existing software and include in a
confirmation report to creditors. He said the bankruptcy system faces an integrity issue, because
the world at large does not know what the courts and trustees are doing. This lack of
information, he said, may be part of what is driving the bankruptcy reform legislation. Mr.
Patchan said the EOUST can conduct a survey of current practices and report at the next meeting.
Rule 7004. Bankruptcy Judge David H. Adams had suggested that it would be
appropriate to state in one location in the rules that service on a corporation, partnership, or
unincorporated association must comply with Rule 7004(b)(3). Judge Kressel said the rule
appears to be ambiguous, because people address service to "ABC Corp., Attention: officer,
managing or general agent." The Reporter pointed out that Rule 7004 tracks the language of
Civil Rule 4, and that if the Committee were to change Rule 7004 -- perhaps to require that a
name be used -- the Standing Committee would want the Committee to coordinate the proposed
amendment with the Advisory Committee on Civil Rules. Judge Walker said he has seen a name
challenged on the basis there was no proof that the person named had the capacity to receive
service on behalf of the corporation. He said the rule is sufficient as it is, and Judge Gettleman
agreed. Judge Donald said requiring parties to name an officer, director, or managing agent
would create more problems than it would solve. The Committee determined to take no
action on the rule.
Civil Rule 4.1. Scott William Dales, Esquire, had recommended that the Bankruptcy
Rules be amended to incorporate Civil Rule 4.1(a) or to include a similar rule to provide
bankruptcy judges with express authority to direct the United States marshal, or some other
person specially appointed, to serve writs of execution and process other than a summons or
subpoena. Committee members, however, said bankruptcy judges use United States marshals to
dispossess debtors from property of the estate, to apprehend debtors who fail to appear, and to
aid the trustee in taking possession of bankruptcy estate property, and that there does not appear
to be a problem. The Committee determined to take no action.
Attorney Fees in Chapter 13 Cases. Wayne R. Bodow, Esquire, had recommended that
the Bankruptcy Rules be amended so that attorneys for chapter 13 debtors would receive higher
fees, thereby increasing the incentive for attorneys to channel consumer debtors into chapter 13
instead of chapter 7. The consensus was that the suggestion is substantive and not a matter that
can be addressed in the Bankruptcy Rules. A motion to take no action in the Bankruptcy
Rules but to inform Mr. Bodow that he should direct his letter to Congress passed without
opposition.
Rule 2003. A proposal to amend the rule was withdrawn, because a similar amendment
had been prescribed by the Supreme Court and was due to take effect December 1, 1999.
Subcommittees
Technology Subcommittee. Judge Duplantier reported that Judge Cristol and Mr.
Heltzel had attended all the meetings of the Standing Committee's Technology Subcommittee
and had represented the Committee very ably. Mr. McCabe said the major new technology-related issue arises from the posting of documents on the Internet by the courts that are the
prototypes for the electronic filing system. Other courts, he said, are imaging paper documents
and posting them on the Internet. Section 107 of the Bankruptcy Code also states that every
document filed in a bankruptcy case is a public record, he said, and the clerks have traditionally
thought that they have no right to restrict access to documents filed with the court. Many judges
agree with this view, he said. Others, including some judges, are concerned that unrestricted
Internet access to court files may be an unwarranted invasion of the privacy of the parties. This
tension between the right of public access and the right of privacy can be resolved only by a
combination of statutory and policy actions, he said. The consensus is that the Judicial
Conference should provide national guidance in this area, and that it is not for individual courts
to decide, he said.
Among the possibilities for regulation of electronic access, he said, are both rules
amendments and the granting of statutory authority to the Judicial Conference. Judge Duplantier
asked if courts can image documents without putting them on the Internet. Mr. Heltzel said a
court can do that but that practitioners eagerly await the easy access from their offices to the
court's files. In addition, Mr. Heltzel said, anyone can visit the courthouse, obtain documents,
and put them on the Internet, so that it is impossible to keep the material from reaching the
Internet. Judge Small said the three years that would be required to achieve a rules solution is
too slow, that the problem needs an immediate solution. Professor Resnick noted that the
unrestricted access offered by the Internet negates many of the protections that other statutes
such as the Fair Consumer Credit Reporting Act provide. Of course, he added, stringers go to the
courthouse to obtain the information, which they then sell to their clients. Mr. Patchan said he
was disturbed to learn recently that one of the trustee organizations has set up a corporation for
the purpose of selling information collected by trustees in the course of their duties. Mr. McCabe
said the Committee on Court Administration and Case Management has been given the lead on
the privacy issue and had set up a subcommittee to develop policy recommendations for the
Judicial Conference. He said that liaisons had been appointed from various other interested
committees, and that Gene Lafitte, Esquire, chairman of the Standing Committee's Technology
Subcommittee, had been appointed as liaison from the Standing Committee.
Respectfully Submitted,
Patricia S. Ketchum