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What to Expect From Justice-To-Be Gorsuch on Bankruptcy

posted by Jason Kilborn

When I heard that the President had nominated 10th Circuit Judge Neil Gorsuch for the Supreme Court, I wondered what his bankruptcy-related opinions might tell us about him. Bill Rochelle beat me to it, with his characteristically insightful analysis of a few salient Gorsuch opinions. But I found three more that I thought worth highlighting, as well. A simple takeaway from all of these cases is that Gorsuch is not at all what one might call “debtor-friendly.” In fact, I don’t think one of the dozen-or-so opinions I found ruled in favor of the debtor(s). But a more nuanced takeaway is that Gorsuch is a careful and serious jurist who will apply the letter of the law in tight and cleverly written opinions. At least he should be fairly predictable, a virtue that the person who nominated Judge Gorsuch does not share.

In the first case, In re Renewable Energy Devmt. Corp., from July 2015, Judge Gorsuch faithfully applies Stern, Wellness, and Arkison in an opinion that reveals both his care and sophistication in slogging through the bankruptcy jurisdictional labyrinth. The opinion reads very much like one authored by Scalia, opening with the entertaining line, “This case has but little to do with bankruptcy,” and offering animated, almost theatrical back-and-forth discussions of the appellant’s alternative “factually intertwined” test and other challenges.

In the second case, TW Telecom v. Carolina Internet, from 2011, Judge Gorsuch showed that he is not slavishly bound to precedent when that reliance is shown to be misplaced. In this opinion, Judge Gorsuch addressed the longstanding 10th Circuit precedent interpreting section 362(a) as NOT applying to the debtor-defendant who pursues an appeal from a prepetition judgment against it. Candidly acknowledging that nine other Courts of Appeals had ruled otherwise, and Collier had called out the 10th Circuit for this aberrant ruling (distinguishing post-petition litigation actions by a debtor-plaintiff, which are not stayed, from those by a debtor-defendant attacking a judgment against it, which are stayed), Judge Gorsuch curtly abandoned the 10th Circuit’s prior interpretation and ... got with the program.

Finally, in a third, unpublished opinion from 2008, In re Ardese, Judge Gorsuch affirmed the somewhat controversial position that failing to list a cause of action for labor law violations and employment discrimination on the debtor’s schedules estopped her from pursuing that claim against her employer post-petition. In addition to relying on recent, indistinguishable 10th Circuit precedent, Judge Gorsuch took a fairly hard line against Ms. Ardese's claim of lack of sophistication, as well as her attempt to reopen her bankruptcy case and have the claim administered by the trustee.

We should not expect a soft touch from Justice Gorsuch for pro-debtor arguments relying on rehabilitative policy. Expect Gorsuch to continue in most respects the line-toeing tendencies of his predecessor in bankruptcy matters. Not Scalia, but not far off.


So do you agree that 157(a), which delineates what district courts can and can't refer to bankruptcy courts, is non-jurisdictional, and that if a district court decides to use his bankruptcy judges like magistrates and refers them pure diversity claims or Social Security appeals or what have you, and the parties don't object until they appeal, they've forfeited their objections to that reference? Because that's precisely what Gorsuch holds in the last few paragraphs of Renewable Energy. He claims that Stern said that 157 wasn't jurisdictional, but Stern really only says that as to 157(b)(5), the personal-injury carveout, though that section of the opinion may be subject to parsing. I think that whether a bankruptcy court has jurisdiction to hear something completely outside 1334 jurisdiction, so long as it's within the district court's jurisdiction and the district court refers it there (and what if it doesn't - is at least the existence of a reference, however invalid, jurisdictional?), is a rather nice question that he glosses over in an unsatisfying way.

I also don't know that his discussion of Stern is either faithful or sophisticated or even useful to lower courts. He suggests - but doesn't hold - that whether a claim's a Stern claim comes down to old Act cases about summary/plenary, though you won't find that in Stern and it's hard to see how these old Act cases trace a constitutional boundary that you can tease out of Article III or public rights doctrine; indeed, when he defends summary-plenary, he says it would be a nice idea because it would help courts avoid public-rights doctrine, which is "pretty hard to get your hands around," even though it's, well, the governing doctrine. Other than that, his argument for summary-plenary, such as it is, is that there's a body of precedent courts could look to and it's historical, but why Article III would be interpreted by reference to early 20th-century precedent, as if that were the relevant history, I don't see.

The debtors would have won in Woolsey, 696 F.3d 1266, if counsel had made the correct arguments (much like the debtors in Caulkett), but they didn't push -- and in fact inexplicably ran away from -- the winning theory, and hence lost (the opinion does note that an amicus brief by NACBA "ably argued the point"). The debtors won and the trustee lost in Haberman, 516 F.3d 1207.

Let's face it bankruptcy legislation has as many holes in it as Obamacare had donuts. The overall 'sense of consequence' is sorely lacking and "fresh start" has been lost almost altogether with the trustee and its attorneys fee cranking legal greed.

How many homeowners sought refuge in bankruptcy only to find themselves represented by a bankruptcy mill dumping them into a Chapter 7 without full explanation of loss of their defensive claims and usually their home?

The way the system is set up only a good attorney (of which there are few - present company excepted) can figure out the forms and exactly what must be filed and many are too lazy to ask detailed questions or inform their clients. Many bankruptcy attorneys dump the job on inexperienced paralegals - yet, when there are missing documents, forms, bank accounts, etc. it falls back on the debtor who faces the charges and non-discharge-ability - rather than the attorney who actually created and filed the paperwork.

There are too many bankruptcy mills - just like foreclosure mills - and no penalties stiff enough to keep the crooks and slobs out of the business.

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