May, 1998

Gerald K. Smith is the immediate past-chairman of the Board of Directors of the American College of Bankruptcy Professionals, and Susan M. Freeman is a member of the Board. Mr. Smith also has been a member of the National Bankruptcy Conference since 1969. In 1972-73, he served as deputy director of the Commission on the Bankruptcy Laws of the United States, which produced the first draft submitted to Congress of the current Bankruptcy Code. He has been a member of the Advisory Committee on Rules of Bankruptcy of the Judicial Conference of the United States since 1993.

The American College of Bankruptcy is an organization of the pre-eminent bankruptcy lawyers, judges and professionals in the United States. Seventy four members of the American College of Bankruptcy are based within the Ninth Circuit Court of Appeals. While the American College has not been asked to take a position on possible division of the Ninth Circuit, Mr. Smith and Ms. Freeman contacted the Ninth Circuit College Members, and within a few days received responses from thirty members. All but two voted to advise the Commission that they are opposed to dividing the current Ninth Circuit. One member abstained because of concerns over the length of time he has experienced for appeals to be decided, a problem that may well stem from the Ninth Circuit judicial vacancy rate. He very much favored unimpeded continuation of the Bankruptcy Appellate Panels. Only one member was not convinced the Ninth Circuit should not be divided.

The reasons for opposing any division of the Ninth Circuit, on the part of leading bankruptcy lawyers and judges in this circuit, are as follows:

• The Ninth Circuit’s Bankruptcy Appellate Panels ("BAP") work. Their decisions are highly regarded, and bankruptcy practitioners tend to choose the BAP over the District Court when complex intricacies of bankruptcy law are at stake. Studies of the Ninth Circuit BAP have shown markedly fewer appeals to the Circuit than from District Court appellate decisions. The success of the Ninth Circuit BAP was recognized by Congress when it amended 28 U.S.C. § 158 in 1994 to require the judicial councils of all circuits to establish BAPs, unless they could find insufficient judicial resources or that a BAP would result in undue delay or increased cost to the appealing parties.

  Pursuant to 28 U.S.C. § 158(b)(5), a judge serving on a BAP cannot hear appeals originating in his or her own district. The vast majority of Ninth Circuit BAP appeals originate in the Central District of California. Those appeals can be heard on a timely basis by the judges from all the other Ninth Circuit districts. Functioning of the Ninth Circuit BAP would be impaired if the number of other judges to hear Central District appeals was dramatically reduced. Likewise, appealing parties from Arizona and other Ninth Circuit districts need the Central District judges to consider their appeals. The ability of a BAP to function for parties across the rest of the current Ninth Circuit would likely be impaired without the California judges.

• Bankruptcy is an area of federal law in which there are already many differences of interpretation among the circuits. Bankruptcies are often interstate matters, with creditors, debtors and other parties in interest spread across several states. Indeed, in many cases, even affiliated debtors are located in multiple states. The expectations of these parties when they structure their transactions, and when they litigate, should be uniform to the extent possible.

  The more circuit courts there are, the more differences in Bankruptcy Code interpretation are likely to result. The current problem of non-uniformity would be exacerbated by the creation of an additional circuit. From the perspective of those who negotiate work-outs and litigate in bankruptcy court, an additional circuit and additional variety in interpretations of Code provisions, would be harmful to clients.

• An additional circuit, with likely inconsistent interpretations of key Bankruptcy Code provisions, will encourage more forum-shopping in bankruptcy cases.
• Most interstate commercial transactions involving parties in the second-largest state in the Ninth Circuit, Arizona, are with parties in the largest state, California. It is important for business people in those states to negotiate with the same legal expectations, to the extent possible. Uniform interpretation of the Bankruptcy Code for such parties is particularly important.
• One alternative under consideration by this Commission is dividing California between two circuits. Business transactions within that state frequently cross the proposed north-south boundary. If Bankruptcy Code interpretations differ from one part of California to another, business transactions and work-outs would be significantly impaired, and forum-shopping magnified.

• Bankruptcy practitioners and their clients, like other lawyers and parties in the Ninth Circuit, are concerned about the increased administrative costs of two circuits, with duplicative clerks’ offices, circuit executive offices, courtrooms, automation and other support systems, and the waste of the recently-remodeled building in San Francisco.