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Picking a Judge to Preside over a Municipal Bankruptcy

posted by Melissa Jacoby

GavelLast week I introduced to Credit Slips readers my draft article on federal court oversight of Detroit's bankruptcy. An easily overlooked element of what I called The Detroit Blueprint is non-random judge selection, required by Congress for municipal bankruptcy cases.

Departing from the random assignment norm in the federal judiciary, section 921(b) of the Bankruptcy Code requires the chief judge of the applicable circuit court of appeals to select the judge who will preside over a municipal bankruptcy. In 1997, the National Bankruptcy Review Commission unanimously recommended eliminating section 921(b).  That Commission's Final Report observed that the fear prompting the provision - random draw of a judge unable to handle the case - was no longer salient. Congress did not take up this recommendation. What difference did section 921(b) make in Detroit?

More detailed than others of its kind, at least that I have found, the selection notice filed by the Sixth Circuit's Chief Judge not only provided substantive justifications for picking Judge Rhodes, but revealed that judges across the circuit, district and bankruptcy courts had to communicate with one another to finalize the appointment, particularly because Judge Rhodes would have to delay his retirement to take the case. The obligation created by section 921(b) enabled Judge Rhodes to condition his taking the case on Chief Judge Rosen serving as mediator; both judges have supported this origin story. And, whether or not coordinated in advance, Chief Judge Rosen's mediator role affected - in various ways delineated in the article - the viability of the appellate process for creditors weighing the costs and benefits of resisting pressure to settle. 

A lot of stars must align for that initial selection process to result in something like The Detroit Blueprint. But section 921(b) can serve as the first domino, knocking the others on a particular path. To be clear, nothing about section 921(b) leans in favor of The Detroit Blueprint in particular; a chief circuit judge just as readily could use the selection obligation to deter replication of Detroit, making clear to a bankruptcy judge that, among other things, it will readily accept direct appeals on major issues on an expedited basis and will rule quickly. A circuit judge could pick a name out of a hat and do or say no more. How much any of this matters depends in part on the nature and legal certainty of the claims against the municipality. Once one sees the possibilities embedded in section 921(b), though, a state's decision to allow its municipality to file chapter 9 becomes that much more complicated.

Image courtesy of Shutterstock.

Comments

But the most interesting part of Detroit bankruptcy is something else. What was amazing was not a bankruptcy judge overriding any state sovereign issues, impairing pension plans etc., it was the fact that an article III judge was pandering to the bankruptcy judge as a mediator.

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