Bankruptcy

Prof. Markell discussed whether a bankruptcy court is a court of equity breaking it down to whether it is a court and whether it has equity powers.  He said that judges collectively constitute a court.  They also have inherent powers to do such things as setting court hours to more weighty concerns of how do they handle lawyers misbehaving.  He suggested giving bankruptcy judges the same criminal contempt powers which magistrates have.   He found three distinctions applicable to courts of equity and found some evidence that bankruptcy courts exercise them.   First, a court of equity applies principles exercised by chancery.  Section 541 tells courts that equitable interests are property of the estate.   In determining claims, bankruptcy courts may consider equitable defenses such as estoppel and undue influence. The second distinction is that courts of equity may generally decide matters fairly.  Sections 510(c) and 552(b) grant the power to reach a just and equitable result in certain specific circumstances.  Finally, courts of equity are empowered to make an exception to a general rule.  Bankruptcy courts have the power to correct ministerial mistakes and have the discretion to implement remedies not specified.

Prof. Coordes said that we lack a clear understanding of the role of equity in bankruptcy.   The concepts of equity and discretion become muddled and intertwined.   Some academics want bankruptcy courts to have broad equity powers, while others say there is no such power.   What does equity mean?  Is it a mandate to do justice or reach the right result under the Code?   Proponents of bankruptcy courts exercising equity powers argue that a bankruptcy court must have equitable powers because bankruptcy is statutory and a statute can?t address every situation.   A court?s equitable powers are a means to account for means and purpose of bankruptcy code.  Section 105(a) allows the court to issue orders that are necessary or appropriate.  There are quitable powers to issue a necessary order.   However, those powers must be limited to service of the Bankruptcy Code. She also argued that we should distinguish equitable powers from discretion.   Discretion is the right to make a choice.   Equity is less limited.   Bankruptcy equity is not about doing justice but fulfilling provisions of the Bankruptcy Code in specific situations.    Judges should interpret the Code in a manner consistent with its purpose.  

Prof. Jay Westbrook argued that equity should serve the public interest in bankruptcy and that this should be expressly stated in the Code.  He argued that equity is a vehicle for applying considerations of public interest, particularly in chapter 11 cases although this is subject to debate.  Prof.  Baird believes that chapter 11 is an invitation to negotiate.  He asked whether bankruptcy is merely that.  The values that bankruptcy serves include orderly resolution of cases and maximization of value, but beyond that, we don?t agree.   Should bankruptcy serve some kind of public interest?  Yes.  However, public interests should not overrule specific provisions of the code.  He said that the Code should specify when the public interest applies.   For example, section 552(b) expressly allows the court to make an exception to the general rule based on equitable reasons.  He said we should put on the table those elements of decisions that have to include public interests. 

Prof Coordes asked who speaks for the values that bankruptcy code balances?  How are the threads to be incorporated?  The Code has numerous values that it is trying to serve. 

Prof. Westbrook was asked how a judge could have the necessary information to evaluate public concern?   What do you do about fact that a judge is not administrative agency?   How would you encourage further implementation?   He answered that equity is underutilized because there is a view that there must be specific authorization in the Code.  He said that we should authorize judges to exercise judgment and break away from idea that the Code answers all by its plain meaning.  He suggested that judges be expressly told that they are authorized to consider the public interest, especially where we have given you broad direction.  When choosing among competing confirmable plans, the Code gives judges unlimited discretion.   The same is true when there are closely balanced bids.   If it is a close call, judges should consider factors such as the effects on employment.   

Prof Dick said that her survey dispels the rumor of the freewheeling bankruptcy judge. The judges used terms such as cautious, caution, and careful to describe their use of equity.   In response, "Senator" Klee asked how valid this was given that only 14% of the judges responded.  She said that her results were typical for an online survey but that her respondents may have been the judges with the greatest interest in the topic.

Prof. Coordes said that equity should be used interstitially and to correct mistakes. She said that   inherent powers are different from equitable powers.  Filling in the gaps in the statutory scheme is equity but it must be limited to serve the statute.  She also described section 105(a) as an  extension of the All Writs Act and affirmed that bankruptcy courts having gapfilling power.  

Prof Markell was asked about a footnote in his article which said that equity can?t create substantive rights or be a roving commission to do equity.  He quoted Aristotle who said that equity is "a rectification of law when law falls short by reason of its universality."   He said that equity allows judges to modify remedies to achieve the powers of the Code such as granting relief nunc pro tunc.  He said that there are ways that courts have found means to accomplish purposes of Code.    However, he said that does not guarantee that decision will be correct, such as in the Jevic case.  

"Senator" Levin asked Prof. Westbook what should the goals of chapter 11 be?   Should Congress put something in the Code to recognize public interest?  Prof. Westbrook answered that every judicial decision can incorporate the public interest. The public interest is set out in other federal statutes, such as those on labor, environmental and securities regulation.  He said that the core goal of bankruptcy is to maximize value and make distributions in an orderly fashion.  Beyond that, bankruptcy judges should take account of how bankruptcy intersects with other areas of the law.  

"Senator" Klee noted that the judicial power is granted to life tenured judges and asked, what attributes of judicial power cannot be delegated to a bankruptcy judge?   Prof. Markell said to start with Stern and beyond that, the question is whether or not the law allows judges to consider equity.  For example, if a bankruptcy court is to decide an issue in the same manner as a non-bankruptcy court, such as considering equitable defenses to a proof of claim, then the Court may consider equitable matters to same extent.