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Kenneth Klee spent his early career as a congressional staffer, drafting the 1978 law that established the framework for the bankruptcy system. From 1992 to 2000 he served as legislative chairman of the National Bankruptcy Conference. A lifelong Republican who is now a professor at UCLA School of Law, Klee figured that legislators would want his input on the bankruptcy overhaul. He was wrong. “The Republican staff, at least during my years as chief of legislation, largely spurned the efforts of the conference to work out linguistic issues,” Klee says, “even when we showed them pages and pages of grammatical and typographical errors.” Instead, the lawmakers relied on the expertise of creditor lobbyists. The result, say Klee and Richard Levin, a partner at Skadden, Arps, Slate, Meagher & Flom who was Klee’s Democratic counterpart in drafting the 1978 bill, is a mess. Klee and Levin have decided to speak out about the new law, which they think will soon trigger an avalanche of disputes that will roar into the federal appellate courts. The Bankruptcy Abuse Prevention and Consumer Protection Act � which went into effect last October � makes problematic changes to the system, Klee and Levin say, using faulty language to do so. Among Klee’s examples: A cross-referencing error changes the apparent meaning of a provision about loan default penalties. A section aimed at curbing malpractice suits against bankruptcy practitioners doesn’t mention the statute under which most such suits are filed. Ambiguous language in a provision on trustee commissions leaves unclear whether compensation for a trustee is capped. Klee and Levin, along with other top bankruptcy lawyers, say the legislation is intellectually and linguistically insolvent. “The problem is the new law is so poorly crafted and so internally inconsistent that within a year or a year and a half, you’re going to see a lot of appeals,” says Klee. That’s a big concern for federal court judges, who are trying to figure out how to deal with the appeals that are bound to result. The changes to the law are likely to create more competition, and litigation, among creditors. And that litigation will be compounded by the cross-referencing and grammatical shortcomings that the appeals courts will have to resolve. “The bill was drafted without consultation with bankruptcy judges and courts,” says Mary Schroeder, chief judge of the U.S. Court of Appeals for the Ninth Circuit. “Since they didn’t consult with judges, they didn’t use terms of art.” The reason for that, say opponents and supporters of the bill, is that bankruptcy’s increasingly important role in the U.S. economy has raised the stakes for large creditors. These days, it’s the creditors’ lobbyists who hold sway with Congress, rather than the more independent lawyers and judges of the National Bankruptcy Conference. “Now they have to compete with a lot of other groups to influence the process, and frankly, bankruptcy has become such a big part of the economy,” says Philip Corwin, a Washington, D.C., lawyer who lobbied in support of the new law for the American Bankers Association. “Bankruptcy became too important to be left just to a group of self-appointed experts.” But there is widespread judicial concern over how the law, lacking the expertise of the conference’s judges and lawyers, will shake out. Schroeder says the chief bankruptcy judges from around the country are scheduled to meet in April to discuss provisions in the law that allow interlocutory appeals. Proponents and critics agree that the one unifying principle behind the law is that creditors with good lobbyists got what they wanted. That’s because during the eight years it sat around Congress, the legislation turned into a virtual sump for provisions suggested by business interests. Many of those provisions will work to the detriment of other, smaller creditors. This is true both of the little-publicized changes to business bankruptcies and the well-reported draconian changes to consumer insolvency. Stephen Case, a former partner at Davis Polk & Wardwell in New York and an adviser to the National Bankruptcy Review Commission, says the drafting process was largely a lobbyist free-for-all. “Suppose you let a bunch of school kids loose on an old car with a paintbrush,” he says, in describing the process. Case nevertheless says the approach, messy as it was, resulted in changes that will curb debtor abuse. He argues that critics should blame debtors who push the envelope � and judges who were unwilling to punish debtors sufficiently. The 1978 bankruptcy law, he says, was “the high-water mark in world history of a favorable-to-the-debtor statute.” The question now, he says, is whether the changes will strike a balance that protects the interests of debtors, creditors, and employees of insolvent companies. But Case also acknowledges drawbacks to the new law. He agrees that increased power for such creditors as utilities and landlords and the strict deadlines for debtor plans will probably create more competition among creditors � and more litigious bankruptcies. Whatever criticisms are leveled at the law, supporters contend it was not the product of partisan battle. “It passed the House by a vote of 302 to 126. It passed the Senate by a vote of 74 to 25,” wrote Terry Shawn, a spokesman for Republican representative F. James Sensenbrenner, Jr., a bill sponsor, in an e-mail. The bill’s critics are bipartisan as well: Democrats and Republicans throughout the National Bankruptcy Conference. In past years the conference has advocated for a balance between debtors’ and creditors’ needs, Klee and Levin say. But as the 2005 law was developed, the conference found itself marginalized. The only adversaries were creditors vying for favorable provisions. “One of our problems is there’s no future debtors of America association,” says Sally Neely, senior counsel at Sidley Austin Brown & Wood in Los Angeles and the bankruptcy conference’s current legislative chief. For example, Corwin says his client, the American Bankers Association, wanted to keep judges from indefinitely extending the time frame in which a debtor has the exclusive right to file a reorganization plan. “My client supported putting some limit on exclusivity because we’ve seen a lot of cases where the judge isn’t tough enough,” he says. The new provision gives creditors “a chance to take control.” But Corwin isn’t so sure about other changes, including the lease and reclamation provisions affecting retailers: “I think it’s going to make it more difficult for retailers to reorganize.” But with everyone � including his client � acting in his own self-interest, Corwin says he wasn’t about to challenge the issue of lease deadlines or other matters pushed by different creditors groups: “The banks felt like we couldn’t criticize someone [else] pushing for a firm deadline.” While letting competing lobbyists write legislation piecemeal is anathema to lawyers like Levin and Klee, Corwin says critics at the bankruptcy conference need to get used to it. “I can understand their point � they don’t like that bankruptcy law has become politicized,” he says. But that was inevitable, he says, and the conference is too attached to the laws it influenced: “They think the 1978 law was handed down to them from the mountain on stone tablets.” If the changes were inevitable, say Klee and Levin, legislators should have at least paid more attention to their packaging. “We lost, and we’re upset that we lost,” Levin says. “But at least write it in English.” A version of this article originally appeared in The Recorder.

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