Federal bankruptcy Judge Arthur Gonzalez spent 16 years presiding over a busy docket and huge reorganization cases like Enron and Chrysler, but he had one more big decision to make last year.
He wanted to retire from the U.S. District Court for the Southern District of New York, but he knew Congress would not allow his post to be filled, and that the court’s remaining judges would be faced with a slew of additional cases because of his departure.
“The word guilt certainly can describe some feelings,” said Gonzalez, who ultimately decided to leave.
As Congress weighs a bill to give the bankruptcy courts another temporary fix, judges around the country are facing the same sort of conflicted feelings. The courts stand to lose as many as 27 more bankruptcy judge positions because so-called “temporary” judgeships are expiring and cannot be filled when a judge leaves. In some cases, judges are putting off retirement plans, as chief judges and court administrators lean on senior judges to work more hours, bring in visiting judges and find other imperfect fixes.
At the same time, the number of pending bankruptcy cases has risen to its highest level since 2005.
Temporary judgeships, created by Congress in 2005, have become a vital part of effectively managing bankruptcy dockets swollen by the busted housing market, chronic high unemployment rates and financial woes among large corporations, court administrators say. But Congress only authorized the spots for five years, and congressional efforts to extend them have stalled because of the program’s estimated $16 million cost.
Courts with temporary bankruptcy judgeships now stand to lose a permanent position whenever a judge, permanent or temporary, leaves the bench for any reason. About one in 12 bankruptcy judgeships in the country are at risk, the Administrative Office of the United States Courts concludes. Many of the temporary judges are in the busiest districts, including five in Delaware, three in the Central District of California and one in Nevada.
Fewer bankruptcy judges in a district can mean job losses and closed businesses, because in reorganization cases, expenses like payroll and supplies must be approved through the court, said Richard Levin, a partner at Cravath, Swaine & Moore in New York and vice chair of the National Bankruptcy Conference.
“A decrease in judges will increase caseloads per judge, which will likely slow down decision-making,” Levin said. “That is likely to hurt the corporate reorganization system, because the judges are dealing with living, operating businesses that need timely decisions to survive.”
Two judgeships have already been lost because of the expiration of the temporary-judgeship law, including Gonzalez’s spot in New York in February. That’s left nine judges and one senior judge overseeing bankruptcy cases in Manhattan. And one of the two bankruptcy judges in New Hampshire retired in 2010, according to the Administrative Office. A judge in the Western District of Tennessee is set to leave the bench in July, meaning that district will go from five to four judges if Congress does not act before then.
In Delaware, four of the five bankruptcy judge positions are temporary, although none of those judges have plans to leave the bench, said David Bird, the clerk of that state’s bankruptcy court. “However, things can happen, people can become ill,” Bird said. “Conceivably, we could be down to one permanent judge.”
A ‘TEMPORARY’ PROBLEM
Until 1992, all bankruptcy judgeships were permanent, lifetime appointments. That meant that the position could be filled any time a judge left the bench, whether for death, removal for discipline, retirement or resignation. But that year, a drastic increase in bankruptcy case filings led Congress to create 10 temporary judgeships.
The judges appointed to those temporary positions serve just like permanent judges, including the option to serve more than one 14-year term. The only difference: In districts where the temporary judgeships exist, the first vacancy — from either a permanent or temporary judge — cannot be filled. The district is left with fewer judges to address its caseload.
Congress added another 28 temporary bankruptcy judgeships in 2005, at the same time it made sweeping changes with the Bankruptcy Abuse Prevention and Consumer Protection Act, which also calls on those judges to do more to prevent bankruptcy fraud. As of Oct. 31 of last year, there were 338 bankruptcy judges on the bench nationwide in 90 geographic districts to handle six types of bankruptcy filings, including consumer and business filings under Chapter 7, reorganization filings under Chapter 11 and debt repayment under Chapter 13.
The 2005 law allowed districts to fill a position if a judge left the bench fewer than five years after the temporary spot was filled — but that time has now run out. This is leading to some strange career wrangling.
Bankruptcy judges in the busy District of Nevada — where the chief judge says a visiting judge described the caseload as “putting a fire hose into a kitchen sink” — have been dealing with the strange situation since 2010. Former Judge Gregg Zive retired early that year so the district could replace him. Now, Judge Linda Riegle is trying to figure out her retirement plans when she turns 65 next year, Chief Bankruptcy Judge Mike Nakagawa said. If Congress does not act, and she retires, it would reduce the number of judges there from four to three.
That would leave Nakagawa depending more on visiting judges, a situation that makes court administration more hectic. And it would leave the district even more vulnerable, he said. “If anything else happens to any one of us, retirement or some illness, we can’t be replaced,” he said.
Bankruptcy petitions dropped 8 percent in 2011, with individuals and businesses filing 1.46 million petitions, a U.S. courts administration report states.
But overall, judges have been getting much busier in the past several years. The reduction in 2011 was the first since 2007. And last year the number of pending cases went to its highest level since 2005 — 1.6 million cases — fueled by a 50 percent increase in adversary proceedings, separate civil lawsuits that arise in bankruptcy cases such as actions for injunctive relief or determinations of the dischargability of debts.
The House unanimously passed a bill in December to extend 30 temporary judgeships for another five years. But the companion bill, which has bipartisan support, has been waiting for action on the Senate floor for months.
This month, the bill’s author, Sen. Chris Coons (D-Del.), called the issue a “potential crisis” for the courts and tried to attach the provisions onto a transportation bill, but it was rejected. He’s selling the bill with an economic argument.
“Talented bankruptcy judges can help turn a likely economic loss into a successful reorganization that protects jobs and creditors,” Coons said in a written statement. “If these judgeships are allowed to expire, our courts will become overwhelmed at the expense of jobs, creditors, and our nation’s economy.”
But Coons said other members of the Senate Judiciary Committee have raised concerns about the cost of extending the temporary judgeships amid overall efforts to reel in the national debt. Legislators see extending the judgeships as authorizing new spending, so Coons says he must also find a way to offset or cut those costs from somewhere else.
“We have been working with other senators to resolve a question around how to pay for the five-year extensions,” said Coons spokesman Ian Koski. “We’re hopeful that we’ll have a path forward soon.”
Republicans like sens. Chuck Grassley (R-Iowa) and Jeff Sessions (R-Ala.) have criticized the bankruptcy courts in the past for not being efficient enough to merit more judgeships — saying each one costs taxpayers roughly $1 million per year. The Congressional Budget Office said it could only estimate the effect of extending temporary judgeships on the federal budget, because vacancies are unpredictable. But the CBO said the bill would cost $5 million over the next five years if there were four vacancies, for support personnel, court operations and other administrative costs. That cost jumps to $16 million over the next 10 years, but more or fewer vacancies would change that estimate. The same financial pressures make the creation of new, permanent bankruptcy judges almost impossible.
A Grassley spokeswoman acknowledged that negotiations are ongoing, but would not comment on concerns the senator has with the bill to avoid the appearance of negotiating through the media.
A JUDICIAL CRUNCH
The Southern District of Florida has two temporary judgeships and would be down one judge next year, if it weren’t for 82-year-old bankruptcy Judge A. Jay Cristol, a former Navy aviator who still passes his flight physicals. He says he’s seeking to start another term on the bench next year because he still likes helping people and finds the workinteresting.
That avoids the fate of the Southern District of New York, where the retiring Gonzalez’s cases will have to be spread around nine judges and a senior judge. Gonzalez worked long hours during the week and sometimes wrote decisions on the weekend to get all his work done.
“To not have someone like him replaced is very difficult,” Cecelia Morris, the chief bankruptcy judge of the district, said. “His work ethic was just amazing.”
Gonzalez said he left because he didn’t know if Congress would act any time soon. He even considered asking New York University School of Law to put his professor position on hold for a year if it meant his colleagues in the Southern District of New York would get a reinforcement to handle his work. But there were no guarantees that waiting a year would help.
Gonzalez said he has no doubt his colleagues will put in the necessary time and effort in to address the caseload that’s grown because of his departure. But “just because they’ll do that,” he said, “[it] doesn’t justify pushing them to the brink.”
Todd Ruger can be contacted at email@example.com.