Testimony of the

Honorable Frank W. Koger

President, National Conference

of Bankruptcy Judges

Before the Subcommittee on Commercial and Administrative Law

of the Committee on the Judiciary

U.S. House of Representatives

On

H.R. 1596

The Bankruptcy Judgeship Act of 1997

June 19, 1997

MR. CHAIRMAN, MEMBERS OF THE SUBCOMMITTEE, THANK YOU FOR ALLOWING ME TO APPEAR AND TO TESTIFY TODAY ON BEHALF OF THE NATIONAL CONFERENCE OF BANKRUPTCY JUDGES. MY NAME IS FRANK KOGER, AND I AM THE PRESIDENT OF THE NATIONAL CONFERENCE OF BANKRUPTCY JUDGES, BUT MORE IMPORTANTLY I AM AN ELEVEN YEAR VETERAN OF THE BANKRUPTCY BENCH AND A FORTY YEAR VETERAN OF BANKRUPTCY PRACTICE.

AS SUCH I HAVE SEEN THE EVOLUTION OF BANKRUPTCY FROM A FORM OF THE LAW BUSINESS THAT WAS LESS RESPECTABLE THAN CHASING AMBULANCES, TO WHERE EVERY MAJOR LAW FIRM IN THIS COUNTRY HAS WHAT THEY CALL AN "INSOLVENCY DEPARTMENT." NATURALLY, THAT HAS LED TO AN INCREASINGLY COMPLEX AND MASSIVE SYSTEM OF LITIGATION. SIMPLY TO ILLUSTRATE, I MENTION THAT IN JANUARY AND FEBRUARY OF THIS YEAR, I TRIED AN EIGHTEEN DAY TRIAL WHERE A LEVERAGED BUYOUT FAILURE WAS SUING SAFEWAY FOR $700,000,000 AND SAFEWAY WAS COUNTERSUING ITS FORMER DIVISION FOR $130,000,000.

THIRTY-FIVE DAYS AGO, A CORPORATION IN THE EGG PRODUCTION BUSINESS, WHOSE ASSETS INCLUDED TWO AND ONE-HALF MILLION LAYING HENS IN TWO RURAL FACILITIES FILED CHAPTER 11 AND I HAVE HAD FIVE EMERGENCY HEARINGS TO ADJUDICATE A CASH COLLATERAL ORDER FOR $570,000 PER MONTH TO INSURE THE CARE OF THE FLOCK, AN ENVIRONMENTAL PROBLEM FOR THE STATE AS TO WASTE DISPOSAL, THE RESALE OF 140,000 PULLETS COMING INTO EGG PRODUCTION FOR WHICH DEBTOR HAD NO ABILITY TO PAY, APPROVAL OF A SALE PROCESS OF THE OPERATION, AND SADLY DISPOSITION OF 120,000 INCUBATING EGGS FOR CHICKS THAT WOULD SOON HATCH BUT WITHOUT ANY HOME OR USER.

DURING THOSE SAME TIMES, I HAVE HEARD LITERALLY HUNDREDS OF INDIVIDUALS WHO HAVE SOUGHT RELIEF FROM DEBTS MOST FREQUENTLY CAUSED BY ILLNESS, JOB FAILURE, DIVORCE OR SOME OTHER PERSONAL CATASTROPHE. LAST WEEK ALONE I HAD FOUR TRIALS SCHEDULED FOR CREDIT CARD CASES WHERE THE ISSUERS FELT THAT THERE HAD BEEN ABUSE BY THE DEBTOR AND THUS THE DEBT SHOULD NOT BE DISCHARGEABLE. TWO OF THOSE SETTLED LITERALLY ON THE COURTHOUSE STEPS, ONE I FOUND WITHOUT MERIT, AND ONE DEBTOR I DECLINED TO DISCHARGE.

I MENTION THIS ONLY TO ILLUSTRATE THE PROLIFERATION AND WIDE VARIETY OF BUSINESS THAT HAS ENGULFED BANKRUPTCY COURTS EVERYWHERE AND THE INCREASING DIVERSITY OF ISSUES BEING PRESENTED TO BANKRUPTCY JUDGES. I AM THE CHIEF JUDGE IN THE WESTERN DISTRICT OF MISSOURI - A THREE JUDGE DISTRICT - AND WE HAVE JUST MADE THE SECOND ASSIGNMENT ADJUSTMENT WITHIN THE LAST SIX MONTHS. I SUSPECT YOU MAY HAVE HEARD OF BRANSON, MISSOURI, WHICH FIVE YEARS AGO WAS NOT REALLY A WIDE PLACE IN THE ROAD, AND LAST YEAR SAW 6,000,000 TOURISTS COME TO WHAT IS BILLED AS THE "NEW COUNTRY AND WESTERN CAPITAL." UNFORTUNATELY, THE PROLIFERATION OF OPERY HOUSES, THEATRES, AMUSEMENT CENTERS, MOTELS AND EATING ESTABLISHMENTS HAS CREATED A MASSIVE INFLUX OF CHAPTER 11 REORGANIZATIONS AS THE AREA HAS OVERBUILT AND OVERFINANCED AND OVER ESTIMATED THE FUTURE, REQUIRING OUR JUDGES TO REALLOCATE ASSIGNMENTS WITHIN OUR DISTRICT.

IN MISSOURI WE LIKE TO THINK THAT WE REPRESENT THE HEARTLAND, A FINANCIALLY CONSERVATIVE SECTION OF THE COUNTRY, AND PERHAPS FOR THAT REASON WE HAVE NOT HAD THE UNPRECEDENTED EXPLOSION OF CASES COMPARABLE TO THE DISTRICTS SEEKING ADDITIONAL JUDGES. EVEN THOUGH WE FILED ONLY FOUR CASES PER THOUSAND CITIZENS IN 1996, BELOW THE NATIONAL AVERAGE ACCORDING TO USA TODAY, NEVERTHELESS, LAST YEAR WE HAD A 35% INCREASE IN CASE FILINGS AND IT APPEARS THAT WE WILL EXPERIENCE A FURTHER 20% INCREASE THIS YEAR.

THUS BANKRUPTCY JUDGES FACE TWO PROBLEMS. WE ARE GETTING A DELUGE OF CASES AND WE ARE GETTING MORE AND MORE COMPLEX ISSUES THAT REQUIRE QUALITY TIME BY A JUDGE TO HEAR, CONSIDER, AND HOPEFULLY RULE CORRECTLY. JUST AS IMPORTANT IS MAKING THE INDIVIDUALS WHO COME TO OUR COURTS FEEL THAT THEY HAVE HAD A CONSIDERED AND ADEQUATE AND COURTEOUS OPPORTUNITY TO PRESENT THEIR PROBLEM AND HAVE IT CONSIDERED BY AN ARBITER OF JUSTICE RATHER THAN AN OVERWORKED AND HARRIED PERSON WHO LACKS THE TIME TO BE ANYTHING OTHER THAN AN ORDER SIGNER.

THE EIGHTEEN JUDGESHIPS THAT THIS BILL PROPOSES ARE TRULY NEEDED. HONESTLY, MORE ARE NEEDED BUT MANY REQUESTS FOR ADDITIONAL JUDGES WERE TURNED DOWN BECAUSE IT WAS FELT THAT THE SITTING JUDGES COULD AT LEAST FOR NOW ACCOMMODATE THE INCREASES IN CASE LOADS. EVEN TODAY WHERE THE INCREASE IS NOT OVERWHELMING, MY CIRCUIT, THE EIGHTH, HAS NOT FILLED A VACANCY CREATED BY RETIREMENT AND DOES NOT INTEND TO DO SO. OTHER CIRCUITS HAVE DONE THE SAME. EVERYWHERE, JUDGES WHO HAVE LESS LOAD, ARE VOLUNTEERING TO HELP IN DISTRICTS WITH OVERLOAD PROBLEMS. I SAT IN IOWA WHEN THEY HAD A PROBLEM. I HAVE SAT IN KANSAS TO ASSIST. I HAVE VOLUNTEERED TO SIT IN NEW MEXICO TO HELP OUT WHERE JUDGE ROSE IS HOSPITALIZED, THAT IDENTICAL THING IS OCCURRING ALL OVER THE COUNTRY.

I WISH THAT WOULD SOLVE THE PROBLEM, BUT IT DOESN'T. IT IS LIKE PUTTING A BAND-AID ON A SORE AND WAITING FOR INFECTION TO SET IN. THAT IS THE REASON THE 18 JUDGES ARE SOUGHT. TRULY I BELIEVE BANKRUPTCY JUDGES ARE DOING A SUPERB JOB. THE BANKRUPTCY JUDGES OF THIS COUNTRY ARE BEING REQUIRED TO ADJUDICATE AN EVER-INCREASING CASELOAD WITHOUT THE BENEFIT OF A COMPARABLE INCREASE IN JUDICIAL RESOURCES. IN 1984 (THE YEAR CONGRESS REESTABLISHED THE BANKRUPTCY COURT FOLLOWING THE DECISION OF THE SUPREME COURT IN THE MARATHON CASE), THERE WERE 232 BANKRUPTCY JUDGES WHO PROCESSED A TOTAL NATIONAL CASELOAD OF 348,521 CASES. THIS WORKED OUT TO 1,502 CASES PER JUDGE. IN 1996 THERE WERE 326 AUTHORIZED JUDGES WHO FACED A DAUNTING TOTAL CASELOAD OF 1,178,555 CASES OR 3,615 CASES PER JUDGE. THUS, WHILE THE CASELOAD INCREASED 238.5%, THE NUMBER OF BANKRUPTCY JUDGESHIPS INCREASED ONLY 40.5%. MR. CHAIRMAN, THE BANKRUPTCY SYSTEM BADLY NEEDS THESE POSITIONS IF WE ARE TO CONTINUE TO PROVIDE THE RELIEF TO DEBTORS AND CREDITORS ENVISIONED BY THE CONGRESS. THERE SEEM TO BE TWO REASONS WHY THE JUDGES HAVE BEEN ABLE TO HANDLE THIS TREMENDOUS INCREASE WITHOUT ASKING FOR LITERALLY HUNDREDS OF NEW JUDGES. FIRST, AUTOMATION HAS INCREASED OUR EFFICIENCY, AND SECOND, WE ARE WORKING HARDER AND LONGER. UNFORTUNATELY, THOSE MEASURES ARE STRETCHED THIN AND CAN ONLY CARRY THE SYSTEM SO FAR.

LAST YEAR OVER 1,100,000 INDIVIDUALS, FAMILY FARMERS, PARTNERSHIPS, SMALL BUSINESSES, PUBLIC ENTITIES, AND BIG AND SMALL CORPORATIONS FILED PETITIONS IN BANKRUPTCY COURT. THIS WAS WITH A ROBUST ECONOMY, AN EXTREMELY LOW UNEMPLOYMENT RATE, AND A IRRATIONALLY EXUBERANT STOCK MARKET. HISTORY TEACHES US THAT BANKRUPTCY FILINGS, LIKE OUR ECONOMY, SUFFER CYCLICAL PERIODS NOT NECESSARILY IN SYNC WITH OUR ECONOMY. LAST MONTH I READ AN ESTIMATE THAT A RECESSION COMPARABLE TO THE 1990-91 ERA WOULD PRODUCE OVER 2,000,000 CASES. I SUGGEST THAT IS A SERIOUS UNDERESTIMATE.

THE BANKRUPTCY COURT HAS BECOME THE COMMERCIAL COURT OF THE UNITED STATES. I PREDICT THAT IT WILL NEVER AGAIN SEE LESS THAN 1,000,000 CASES PER YEAR AND I FEAR THAT THE NEXT RECESSION MAY PRODUCE THREE MILLION FILINGS PER YEAR. THE 18 JUDGES PROPOSED BY THIS BILL ARE NOT JUST NECESSARY, THEY ARE ESSENTIAL. THE ASSISTANCE YOU HAVE GIVEN TO THE BANKRUPTCY JUDICIARY MANY TIMES IN THE PAST IS DESPERATELY NEEDED AGAIN. IN ASKING FOR YOUR HELP, I ASSURE YOU THAT THIS REQUEST FOR NEW BANKRUPTCY POSITIONS IS MADE ONLY AFTER THE JUDICIARY HAS TAKEN EARNEST AND SINCERE STEPS TO MAXIMIZE ALL OTHER PROGRAMS TO MEET THE DISTRICTS' JUDGESHIP NEEDS BEFORE ASKING FOR YOUR ASSISTANCE.

FOR ALL THESE REASONS, I WISH TO THANK YOU, MR. CHAIRMAN, FOR INTRODUCING THIS BILL AND THE COMMITTEE MEMBERS FOR SCHEDULING THIS HEARING. I WOULD BE HAPPY TO TRY AND ANSWER ANY QUESTIONS.

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