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Hi, I am Judge Elaine Hammond, and I am here today to take an oral history of, two judges within the Northern District of California. Specifically we're going to talk about the differences in procedures under the Bankruptcy Act as opposed to the bankruptcy code and

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this came about as I took an oral history of Judge Montali, and then we concluded that and went to lunch, and that's when all the good interesting information started coming out and, I and Judge Montali's law clerk learned a lot of

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information that we had never come across in in terms of bankruptcy. And so, these two. Gentlemen, agreed to talk with me today about what it was like, practicing under the act and in particular a lot of it is how the processes were different

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and procedure so that is the background for this oral history and I am certain it'll be engaging. So, so let me start with Judge Montali, to my right, and to his right is Judge Jellen, both of whom practiced under the Act,

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and they have a wealth of knowledge as to that, So When we so let me just start this off by saying when we were talking previously at lunch, one of the things that came across was how informal a lot of things were, how

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how there was more connection between trustees and other parties and how that happened which is very different from what we do obviously now under the code so would one of you care to start us off and. Well, I guess I'm practice started before you

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did that, so maybe I would, I would think to me it it slightly off that subject, but related to it is the role of the judge then called the referee in bankruptcy and the interaction of That judicial officer with the bar and the public, the people

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in bankruptcy, and how involved they were so differently from today, which is more of the traditional judge and court and and litigant, and specifically and most specifically, what we now call the 341 meeting of creditors used to be called the 21A exam, and it

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it took place in the courtroom with the judge presiding. And the debtor examined under oath, and some bankruptcy referees were very proactive and would engage in. Discussions at great detail with what the debtor was up to and I can remember one instance when the the

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debtor confessed to having, brought his car to court that day, and the judge said hand over the keys and so we had the active role of the judge who took possession of the car. Do you remember when that's the way I remember sometimes judges or

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referees then took possession of credit cards. May I please have your credit cards? And the referee would snip them right in front of the debtor. And one of the other things I remember is the informality of the court. I remember one time, I was a

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practicing attorney and the referee I keep wanna say judge was friends with my client named Barney. So at the end of the hearing where he ruled in our favor, he said, hey, Barney, wanna have lunch in front of the whole courtroom Barney says, Sure, can

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I bring my lawyer? He goes, Oh yeah, bring him along. So I was very nervous having lunch with the judge, but apparently that was not something unusual. Well, a variation on that is, I used to appear before the bankruptcy referee before we had a court

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in Santa Rosa. The judge would referee would come down to San Rafael. And San Rafael, where the civic center to this day, there was a chambers, not a courtroom, but a kind of a supervisor's chamber, and that's where the bankruptcy court sat. And

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what was striking then by today's standards is frequently the judge and the trustee and the trustee's lawyer would all come into the courtroom together through the same chambers where they might have been shooting the breeze about this and that and the other thing. And then again,

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getting back to the role of the lawyer, that the judge who sat then used to have a calendar, everything would be on the calendar together, but the last thing of every calendar were these 21A exams of the debtors. So the debtors would be there, sometimes with

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counsel, sometimes on their own. And after a long morning of God knows how many matters, we'd come to the 21A exams and the judge who was very impatient at the time, would say, OK, let's get on with the 21A exams. So in with the, the I,

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the lawyer representing the the debtor or the trustee would have to question this poor terrified debtor and the judge would say, well, how long are you gonna be? You know, I want to get out of here. We gotta be done. And sometimes the judge would stand

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up and if he was even wearing a robe, take it off, sometimes light a cigarette and and pace. Well, I'm terrified as the lawyer thinking the judge is gonna bite my head off if I take more than 2 more minutes on this question, but I, it's

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a very informal process, yeah, what I've seen more than once is, after oral argument, judge or referee, I keep wanna say judge, would come down and say, Mr. So and so, you mentioned this. What I don't understand is this now this is totally off the

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record, but dealing. With the case that the judge had just heard, so that, so, so, so the issue it wasn't that they wanted, well, they wanted to discuss it, but they didn't do it while they were effectively on the bench. They waited till it was everyone

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else kind of mingling about. Yeah, and they just hop down and Mr. Jellen, you mentioned this and what I don't understand is this, and I'd explained this is totally off the record, often not in the presence of opposing counsel. I don't, I can't recall anything like

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that happening, but I would tell one thing some of you would remember my, my former partner, Judge Lloyd King, and Judge Lloyd King really was a young judge at one point and he had kind of a baby face about him. And I can remember taking

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clients to court for the 21A exams, and they'd be terrified at the thought that they'd go in front of a judge and they'd end up with this judge that looked like somebody's son, blue-eyed baby face, gentle person, and Judge King was indeed all of that. So

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contrast that to the more traditional judges kind of cranky and grumbly. Judge King would put people at ease because he was so accessible. But the point is that Ed and I are both mentioning is this informality just existed, and whether it's right or wrong, I don't

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know, but when Congress changed the law, of course, it said the judge cannot preside at the meeting of creditors, and that changed that huge dynamic. In that process, that's one of the major changes on the on the law and also eliminating ex parte contacts. That's right.

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There's one little minor thing, by the way, I mentioned the 21A exam. One of the weird things about the Bankruptcy Act was the code number sections didn't match the code sections. So what we know as the Section 341 meeting is because Title 11, Section 341,

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is it, but the numbers were off schedule, off by about 20 counts, remember? So the, the, the preference action. Was one section, but the code section from that 11 was off by about 20 digits, so it was cuckoo to have to keep these different numbers involved.

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so, so one of the other changes I think that happened under the act was the stay and how that was treated differently. Is that correct? There was no. There was no stay until the bankruptcy rules went into effect, but before the rules were in

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effect, we had a code with no rules. And there was no automatic stay, so one of the things you had to do if you were representing a chapter Roman 11 debtor was go to see the referee and try and get him to issue an injunction

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to stop foreclosures and all the things that the automatic stays stops and also you had under the old act. There was no specific authority for the debtor to operate the business. There's a section now in the bankruptcy code that says the debtor may operate the

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debtor's business, and that's there because there was no authorization in the act, so you had to run in and try and get an appointment with the referee when you file the chapter Roman 11. to get what was called an operating order giving the debtor permission to

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operate and asking for the stay. So how many referees were there? I mean, it was a one per case obviously, but was there a broad range of referees about the same as now San Francisco at the time. There was 1. There were 2 in Oakland, as

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I recall there were 2 in San Jose. It was pretty much the same, but I wanna, I wanna go back to what Ed explained. Let's, let's tell you a real, a real example. Let's say Ed in his prior life, which is true, he worked for

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the Bank of America. Let's say the Bank of America was threatening to foreclose on my client's home or or business. Well, here's the way it used to work in the old days. First of all, the. The law firm that I was in, where Judge King

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started, I might add also we were trained always to call ahead of time to ask if the judge was available if we wanted to see the judge and talk about a new filing. So there was a judge in San Francisco named Judge Lynn Gillard, and I

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remember being trained to call out to Judge Gillard's chambers and say, I have a new filing. Is the judge available? And so then I would go out there, of course. To go in and this is in off the record in chambers. Good afternoon, Judge

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Gillard. Nice to see you. I'm here today because my poor hapless client is being beaten to death by the Bank of America who wants to foreclose on his house and he and I would. Tell 5 minutes' worth of story about the mean old bank and the

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mean old bank's lawyer and say, would you please issue an order to show cause why the bank shouldn't be restrained or maybe, maybe better yet, you judge the bank is threatening to foreclose tomorrow. Would you please issue this TRO that I have presented for you. This

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is why my good friend Mr. Jellen had no clue that this was even going on, right? So then I would get my order, my temporary restraining order, and I'd come back to my office and I'd call my good friend Ed and say, you're restrained, buddy,

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but that's the way it works. Let me give you the reciprocal of that. My friend Dennis Montali files a Chapter 11 and my then client Bank of America has a lien on all the accounts receivable. And when we learned about the filing if we were lucky

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enough to learn about it, the fear was that the debtor was gonna spend all of our collateral before we even knew there was a bankruptcy filing. So once we did know there was a bankruptcy filing, I would dial up and see if Judge Gillard was available

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and ask him to restrain the debtor from spending our collateral. Until we had the chance to work something out, so I don't know if we ever met in the hallway. Well, we're both trying to get Judge Gillard to do something for our respective clients, but I

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remember from the secured party standpoint we wanted to see the judge as well, but the point of this is that we're both making and and I suppose we both. Fudged a little bit on making up the facts, but that's, that's the way it went, and you

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didn't have this thing that was part of our system now where except in the most extreme circumstance you gave notice and gave the other side an alert that I'm going to go do something. I mean, there, there are to this day, there are instances when you

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can get complete ex parte relief, but it's just rare, right? And but I think what's troublesome when I reflect back on it. Was having access to the judge and telling the story. It's one thing to file a paper that says I own the property and there's

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gonna be a foreclosure. It's another thing to start to tell the judge the story about the bad acts and the personalities and and that's just the way it was. And, and, whether it's right or wrong, it doesn't matter, that's the way the system was operated.

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This was pre-rules, but you know, under the act. I remember one day my client got an order to show cause, giving 3 days' notice from a court in Detroit, we're in San Francisco of showing cause why you should not be ordered to surrender the preference you got

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on X date and X amount. No adversary proceedings, you know, before the rules went into effect, so everybody had to drop everything, make plane reservations, and go to Detroit. To respond to the order to show cause why we should not have to surrender the preference, it

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was just amazing and obviously the debtor's lawyer or trustee's lawyer had gone in to see the judge saying, you know, all these people got preferences. Can you help me do something about this and issue an order to show cause and the judge signed it and we

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had to drop everything on 3 days' notice and go and show cause why we shouldn't have to surrender the preference. You know, there was another variation on that, and you'll remember this too that again when I reflect back on it is how, how we were able

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to do this. Here this is again based upon real stories, right? Suppose I represented a company that is owed money by my good friend, Mr. Jellen. And so using Rule 21A I subpoena Mr. Jellen to come and be examined under oath, and I say,

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Mr. Jellen, is it true that you owe my client $1000? Yes, and I would say, well, do you consent to an order directing you to pay? And of course, half the time the responder would say, Well, yes, well, guess what? Money judgment then issued consent conceded

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because otherwise there could have been this resistance to consent. What we think about this was summary jurisdiction. We had a we had a distinction between summary and plenary jurisdiction and and what do you mean by that? Well, when he Consents to an order he is agreeing

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to be bound by the court without any procedural protections like we would have today in an adversary proceedings, service and process and so on. It the summary plenary distinction is much broader. Much like what we now know to be related or unrelated and core or

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non-core type thing, but it was the notion that the Bankruptcy Code or Bankruptcy Act rather gave the bankruptcy court jurisdiction over certain things like claims objections, but not things that what we would now call an noncore type. Adversary. So if Mr. Jellen has a legitimate objection

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to a defense to a defense to a claim against him, that would require a separate plan of reaction, right? But if he consents to the jurisdiction by by trick. Then I got a judgment. So I, I mean, that's just the way it was, and again

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I, I, I don't defend it. I just explain. The way it happened one other difference that might be of interest to practitioners today is that there was no such thing under the act as interim compensation for professionals, so trustee lawyer, debtor in possession lawyer, creditors committee

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lawyer, no money Until the end of the case now sometimes the debtor's lawyer was lucky enough to get a retainer, and if he or she did, that was the only money they saw until the case closes and it was failed and converted to Chapter 7. What's

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now Chapter 7, they'd have to wait till the chapter 7 to get their money, so that kept a lot of people away from practicing bankruptcy law since the rules about compensation were really very stingy and strict. Well, since he's mentioning chapter 7, I think it's

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worth mentioning there were no numbered chapters. I mean there were, there were numbered chapters, but nobody called them by. By the numbers, so there was no there was no chapter 7 so they call them they were straight bankruptcy talk about straight bankruptcy now well politically incorrect

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perhaps, but it was governed by parts of Chapter 7 of the Bankruptcy Act, but it was called straight bankruptcy, and then we had the, the Roman numerals of chapters 10. 10, which was a corporate reorganization of a public company, 11, which was Roman XI, which would

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alter unsecured debt. A 12, which was XII, which was non-corporate real estate cases, a 13, which is much XIII, which is very similar to our chapter 13 today, and And then we didn't, we didn't have a chapter 15 equivalent that was a. And don't forget

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77B. 77B was the railroad railroad reorganization, right? And was there anything akin to Chapter nine at that point or not? Yes, there was, there was an IX that was rare. I had one occasion to be in one chapter IX. They were extremely uncommon and, but,

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interestingly enough, it wasn't cities or Or school districts like Ed had, it was odd ball things like irrigation districts which were vehicles that were largely used to commit fraud on people. So, so if you, if you get control of an irrigation district, you use

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it as a vehicle to raise money exempt from various securities laws. And so there were instances of great big Ponzi type schemes of people that are fleecing public investors. You know, but hiding under the chapter 9. By the way, here is my copy, which I still

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have of the Bankruptcy Act. Excellent. Yeah, well, remember the Bankruptcy Act of 1938 was derived from the Bankruptcy Act of 1898, so the bankruptcy laws got changed every 40 years because the bankruptcy code of 1978 was 40 years after that. But you're right, the Bankruptcy Act

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was essentially a variation on laws that were substantially modified in 1938, and again, what and why the Congress didn't match up the code numbers, I don't know, but they didn't. Another change, by the way, that only came into existence. As we were practicing under the Act,

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was before 1970, I think 1970 was the year. Dischargeability was not determined in the bankruptcy court. So you had terrible abuses. I won't generalize except to say they were largely in the south. Of people who had filed bankruptcy, straight bankruptcy, and gotten their discharge, but discharge

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had to be pled as an affirmative defense. So individuals, and it probably happened in California and in New York and in You know, every other state, but it seemed to happen more in the South. Individuals were then sued by collection agencies or or whatever entities and

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didn't know enough to raise as an affirmative defense that their debt had been discharged in bankruptcy. So you ended up with with predatory practices of judgments against people who really had discharged their debt in bankruptcy but failed to plead it as a defense. So Congress

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changed the law, and as I say, I believe it was 1970, and all of a sudden, the bankruptcy world, the referees, the lawyers, the litigants learned about this new creature in the bankruptcy code, or bankruptcy court called non-dischargeability, and it was a major change and The

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way the law was practiced at that time, just for the I'm sorry, just for the record, the bankruptcy code became effective October 1st, 1979 just to put things in historical context here. Well, and along those lines where. Were most debtors represented by counsel at

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that point? obviously the secured creditors had counsel, but I mean, were there as many pro-sees or were people didn't come to bankruptcy for, that were pro se, any. Well, what do you think, and I, I, I think they were largely represented, but not. I

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would say so. I think it basically hasn't changed that much from the act and the code in terms of what percentage of debtors were represented. I, I don't know if that was a major change. Elaine, one of the things that was really dramatic, and I

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can take a moment to talk about was, was how, how we as bankruptcy practitioners got, got business and and got to represent trustees. So, again, speaking from my own experience, but I think many of the lawyers, at least in this area, but perhaps in

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other parts of the country, I'm pretty sure it probably was the case in in New York in the garment industry and others, is here in San Francisco in my law firm, we, we made it a practice of monitoring filings by reading the paper, and

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every day the San Francisco Reporter would list the filings from the day before and if a business like a restaurant or a bar or a supplier or a retail store filed bankruptcy, it would be in the news the next day in the legal news and

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at least for certain industries, the trade industries were organized in San Francisco, for example. There was the San Francisco Board of Trade, and the San Francisco Board of Trade was an organization, non-profit organization of suppliers, typical for example would be food and beverage

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suppliers to restaurants and retail stores, right? So if I, if I, and I, my Judge King and I, we were lawyers, we were trained in our firm to watch the filings, and if a filing for Jellen Inc was filed and and Jellen Inc. was a

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local retail business, we would contact the board of Trade and say, do you have any claims against Jellen Inc? And typically they would say, yes, we've been monitoring Jellen inc and he's fallen behind on his debt, and so, The practice is we would get the board

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of Trade to assign to us a power of attorney to represent them in in the bankruptcy of Jellen inc, and then when the meeting of creditors, which was the 21A exam showed up, was the election of the trustee. So, armed with a power of attorney from

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a creditor, I had a vote, and I would go before Judge Gillard and say I vote for John M. England, for example. Most lawyers who learned the bankruptcy law learned about Bank of Marin versus England, a very famous Supreme Court case. And England John England was the son

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of John O. England and Mr. England Senior and Mr. England Junior were professional trustees and so if I had one vote to vote for Mr. England as trustee and nobody else had a vote, Mr. England was the trustee and not surprisingly, Mr. England would hire my

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law firm as his counsel. And then to make it even worse, I'd say worse, it was the practice. It was lawful, but we would then pay a referral fee for whatever fee we earned a portion of our fee would go to the San Francisco Board of

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Trade because it was legal. It was not impermissible. There was no duty to disclose. There was no requirement to You know, to qualify as lawyers and show that you were sharing your fee with someone else, and that's the way a lot of business ran. Now

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once in a while you get there and maybe somebody else would be say, well, I'm voting for so and so and so is trustee, and the community would kind of scratch each other's backs, you know, if Elaine, if you showed up saying I'm voting for someone

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else's trustee, I'd say, OK, you take this one, I'll take the next one. I remember guys used to stroll the hall outside the meeting of creditors saying Have you, I'd like to be the trustee, you know, hey, my introduce, you know, my name is

00:26:14.260 - 00:26:31.619

such and such would you vote for me in there? And the creditors said, Oh, sure. And sometimes that's the way trustees got elected. Now, under the code, trustees can still be elected, but there's a voting threshold, just one vote can't elect somebody as a

00:26:31.619 - 00:26:47.349

trustee in bankruptcy, but I do remember those guys strolling the halls outside the meeting. Saying the creditors, you know, I can do a great job as trustee if you vote for me. And, and were they good attorneys? they weren't attorneys necessarily but they were

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good trustees, you know, I mean they were the regulars, everybody knew who they were, but there wasn't a panel of trustees like there is now where you had to qualify and show your qualified qualifications, etc. bonded then it was just the wild west. Well, I

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first got to know Ed Jellen when I was doing a lot of representation of Mr. England and other trustees, and I had the good sense to sue the Bank of America every now and then for reference or some other theory that I could make them

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owe some money to our bankruptcy estate. I want to tell you another thing that I hadn't even thought about anticipating this, this session, and that is a practice under Chapter 11 of the old law compared to today. So think of today when you get, when you

00:27:34.170 - 00:27:53.510

want to get a plan confirmed, you get, you go hustle votes, right? And you only count the votes that you get, and if you get the requisite majorities, you've got your acceptance. Under the act, A proof of claim was essentially a vote in favor a vote

00:27:53.880 - 00:28:12.430

against the plan. It was a negative vote. So let's try, let me rephrase that differently. A proof of claim on file was the equivalent of a no vote. And so if you had a case that had 10 proofs of claim on file, you started with 10

00:28:12.430 - 00:28:28.949

no votes, and you had to overcome, you either had to get the claims to change their vote in favor of a plan, or you had to get new votes. So it was, it was a huge burden to to deal with a large case that had a

00:28:28.949 - 00:28:44.339

lot of claims on file to get your acceptances. Now we have this thing where If there's no claim on file, you don't worry about it, right? You only count the claims, but it was an amazingly different dynamic at the time. Now that being said, there weren't

00:28:44.339 - 00:29:02.619

many chapter 11s either. So but once you got past the threshold of getting the requisite number of votes, the other big block to getting, your chapter 11 in effect was, what was called the confirmation deposit where you had, yeah, yeah, you hadn't heard that

00:29:02.619 - 00:29:24.739

phrase. You had to figure out all the expense of administration and Put money in to cover those expenses it's called the confirmation deposit so even though you had the votes and they've been counted, things could be in limbo for months after month after month for the

00:29:24.739 - 00:29:38.380

debtor to raise the funds to get that deposit that the debtor had to make in order for the plan to go into effect. You know, another thing that was so different at the time, of course there was no BAP, but there was no BAP in half

00:29:38.380 - 00:29:54.739

the country to this day, but, but it was the role of the district judges. The district judges were the appointing authorities. A lot of bankruptcy referees were appointed because they had some connection with the district judge. There was no more nothing like the practice now

00:29:54.739 - 00:30:14.930

that that goes through the circuit level to select bankruptcy, Judges, but it was the review process. There was, it was just de novo review completely. There were, there were no rules like we have under appellate practice of clearly erroneous for factual and

00:30:14.930 - 00:30:35.609

discretionary for, you know, for abuse of discretion standard or the the de novo when it's a question of law. It was largely what the district judge decided period end of story. I remember arguing a case in front of a very, very experienced Judge one

00:30:35.609 - 00:30:55.170

time and I knew exactly that it was that I had, I shouldn't have to worry about a factual determination, and I argued to the judge that, Your Honor, you are bound by the finding of the trial court unless it was clearly erroneous, and you know

00:30:55.170 - 00:31:12.199

what the district judge said to me? It was clearly erroneous. So, but there's no standard. In other words, today we today the the judges know the they know the practice of determining what standard. So here certainly in the northern district it seems like there's been

00:31:12.199 - 00:31:29.819

a good relationship between the district court and the bankruptcy court, at least at this period. I, I don't know was that different at that time? Well, back then I got the impression that People who weren't in the bankruptcy practice thought of it as the bankruptcy

00:31:29.819 - 00:31:50.770

ring. In other words, a select group of insiders, who would not let anybody into their club and they knew the law, they knew the referees and outsiders were not welcome and I heard the term bankruptcy ring for a long time and I think one

00:31:50.770 - 00:32:06.160

of the goals of the bankruptcy code was to do away with that feeling and open up the practice to more practitioners and I know a lot of the bigger firms in San Francisco all of a sudden started opening bankruptcy departments and even trying to absorb

00:32:06.160 - 00:32:22.520

some of the bankruptcy boutiques, so that they could have some bankruptcy expertise. But I think some of the district judges kind of looked down at the bankruptcy practice and the bankruptcy lawyers. Well, I, I, I, I agree with what Ed what Ed said. I

00:32:22.520 - 00:32:39.890

think that in the northern district we probably were a lot better and the bankruptcy community probably was treated more. Fairly or evenly than in some of the other parts of the country, but I would say even even here there was some politics involved. I, I, I

00:32:39.890 - 00:33:00.719

can give you just a very one story that perhaps is unfair, but it's still a story. Judge King was the only bankruptcy judge in the here in San Francisco for a long time, and we had a very famous case involving Patricia Hearst, who was a famous

00:33:01.050 - 00:33:20.619

kidnapping and then defendant, and when Patricia Hearst was on trial in the federal building the senior Hurst wanted to attend their daughter's trial, and, the chief district judge took away the bankruptcy referee's parking lot, parking spot in the federal building, and so

00:33:20.839 - 00:33:40.680

the Hurst family got to park in Judge King's parking space for the duration of the trial, but I would say, so, and I had heard stories in other parts of the countries where, where the bankruptcy referees or later on bankruptcy judges were treated much

00:33:40.680 - 00:34:03.380

less favorably or equally as judicial officers than than we are now. well, so go back to the role of the district court though. The, the issue, the issue, we didn't, we didn't have this withdrawal, the reference concept, but we certainly had an attitude

00:34:03.380 - 00:34:22.689

of the district judges that that the referees were subordinate of people who did what they were told to do by the, The district judges and that's again consistent with the appointment process and there have been a lot of stories which I'm not gonna repeat

00:34:22.689 - 00:34:41.719

about how various people became referees in bankruptcy. There is one good one you must include. Well, I, I went to Notre Dame and one of the Notre Dame famous four horsemen was a man named named, Don Miller, and, he was a member of

00:34:41.719 - 00:34:54.729

the Four Horsemen of Notre Dame, but he grew up in Cleveland and he probably took a few extra hits on the football field because he became a referee in bankruptcy in Cleveland and had a long career. No, there was a. Well, let's let Judge Jellen tell the

00:34:54.729 - 00:35:23.669

story. Well, it's not my story. Go ahead you go ahead of you. I know one of the referees was a motorcycle, highway patrol, highway patrolman, and, I forget what happened after there was some kind of. A connection between the motorcycle, patrolman and someone

00:35:23.669 - 00:35:38.580

who had had a problem on the freeway. I believe the driver of the car was a young woman who had some sort of car problem, and the highway patrolman came to her aid and and. Brought her to safety or did whatever he did. And then she

00:35:38.580 - 00:35:56.379

suggested a career change. She told her father about the nice policeman. Her father happened to be the chief district judge in the Northern District of California who then met this young police officer, highway patrolman, and learned that he was in law school at the time, and

00:35:56.379 - 00:36:15.629

so he then indicated that perhaps this would be an opportunity for. Bankruptcy referee appointment and so that individual became a referee in bankruptcy. And oddly enough, his daughter married into the Getty family and became the mother of the Getty son who was kidnapped in Rome by

00:36:15.629 - 00:36:29.820

some terrorist way back when and had his ear cut off, and it was the subject of a of a movie, but I mean, talk about a connection with the bankruptcy referee all the way back. So, so that was we, we were talking about just one

00:36:29.820 - 00:36:48.229

story about the district judge's attitude toward the bankruptcy judges. I remember I was, early in my career as a bankruptcy judge and I had made a correct ruling on a particular matter. But went against common sense if you didn't understand bankruptcy law, you know,

00:36:48.389 - 00:37:02.820

someone might look at it and said no that can't be it. So anyway, the losing party appealed. The district judge got the thing, looked at it and said this can't be right, overruled, signed his name, and of course the matter went up to the 9th Circuit,

00:37:02.830 - 00:37:18.040

which reversed the district judge because I was absolutely right in my ruling. But the district judge didn't even have to take the time to study the briefs and learn the law. I said, No, this can't be, you know, it was kind of insulting, but it

00:37:18.040 - 00:37:33.520

happened. Well, that, I mean, there have been obviously we could come up with more war stories, but that you can see how it was a much different environment, and I must say that when when they changed the law and made the judges more judge-like and

00:37:33.520 - 00:37:51.280

took the judge out of the administrative role, it seemed to make elevate the the the Office and the role and the separation more traditional. I mean, again, something again, not a criticism of the old days, but just something that was one of the unusual things

00:37:51.280 - 00:38:11.469

using Judge Gillard as an example and I as a young lawyer representing a trustee, if it was time to close a case, the judge had to sign the checks to make the payments, and and Judge Gillard had this signing machine. And I, representing the trustee, remember

00:38:11.469 - 00:38:29.909

going out to court and handing over to the judge's clerk a bunch of checks, and he would then sign them. Now maybe he personally didn't sign them by his hand, but he signed them in a check signing machine, and then, at a time earlier

00:38:29.909 - 00:38:49.449

in before I was practicing law. The, the referee's salaries themselves were paid out of a fund called the referee's salary and expense fund, and what we now call the US trustees' fees, money was taxed from a bankruptcy case and it went to the referee's salary and

00:38:49.449 - 00:39:09.439

expense fund. And that was the way the referees were paid. Now. I believe in the, in the, in the really old days, maybe before the war, if not maybe until some time later, they actually had their compensation depend upon the amount of money that was administered.

00:39:09.449 - 00:39:27.810

I think in time later on their their their compensation was fixed in a firm amount and the salary and expense fund was the funding source. For the most part, but it would think about the name of the thing, the referee's salary and expense fund is funding

00:39:27.810 - 00:39:42.459

the salary of the referee in bankruptcy, kind of gives you a clue, doesn't it? Yeah. One other thing about the stature that Act, it's different under the act and the code with the term of the referee compared to the term of the bankruptcy judge.

00:39:42.709 - 00:40:01.550

Bankruptcy judges, as we all know, served for 14 years are eligible for a subsequent reappointment or two for the another 14 or another 14 even, whereas the referees. Had a 6-year term and had to go back to the district judge to have their 6-year appointment renewed.

00:40:02.080 - 00:40:22.500

So, well, when the code, when the code went into effect, what Congress envisioned. After debating it as politicians do, is the bankruptcy judges were to be nominated by the president but appointed not not for life tenure but appointed for terms and there never was a nomination

00:40:22.500 - 00:40:43.820

by the president before 1982, when the Supreme Court in the marathon case struck down the broad authority given to bankruptcy, judges, and so there never was an appointment under that process, and what we have today was the law that was ultimately changed. In 1984,

00:40:44.090 - 00:41:01.770

you'll remember Lane, you and I talked about the emergency rule previously that helped with the transition between the Northern Pipeline case and the new law, but it was only in the 1994 that the current statutory scheme came to be the way, and there were some judges.

00:41:01.854 - 00:41:18.794

Who who were able to sort of rolled into the new process, but some who were not for various reasons and doesn't matter what the reasons were, but that was the the way it happened so, so we never got the presidential appointment for any

00:41:18.794 - 00:41:38.840

bankruptcy judge. Because the Supreme Court struck it down and was there any thought to the differences of being appointed by the district court as opposed to the Court of Appeals, which of course is what we are appointed under was that much of a An issue or not really

00:41:38.840 - 00:41:54.270

something that changed I don't, I don't recall in terms of the just the debates that went on. I can't, I can't speak to that. I can say that certainly in a circuit as large as ours, what you end up with is is appointments by

00:41:54.959 - 00:42:11.439

panels of circuit judges who maybe never have lay eyes on. The candidates and think about if you're a circuit judge from Alaska or Idaho or Arizona selecting a bankruptcy judge for in Oregon or California or vice versa and and I think that was an

00:42:11.439 - 00:42:34.000

intentional design so the system was less. local, whereas to this day magistrate judges are selected by the district judges in their district. There was talk at one time about giving life tenure to bankruptcy judges, and that was too political a thing giving one president the

00:42:34.000 - 00:42:53.145

right to appoint 300+ life tenured positions and. So the fact that they ended up being a judges ended up being appointed by the Court of Appeals was a political compromise to so that the president didn't get all these appointments. Well, the very specific politics where President

00:42:53.145 - 00:43:09.870

Carter was president when this law was being hammered out and the Republicans were not interested in giving President Carter a 300 life tenure appointment, so that's what. Came out of it and and so the Republican interests did away with the life tenure for that reason. Again,

00:43:09.989 - 00:43:27.929

without debating the pros and cons about it, everyone, every bankruptcy judge I know, including I myself, didn't take the job or get turned off by the job because we didn't have life tenure. We all took it with the 14 year terms and most of us have Enjoyed

00:43:27.929 - 00:43:43.139

those terms and stayed with them. So some of us have taken a few terms on that. That's for sure, but it was a different time, a different way we did things, but was it right or wrong? I don't know. You can speculate about it. You late?

00:43:44.389 - 00:44:06.020

Any comments or questions? I, I, I find it just very interesting how, well, my question, let me put it that way how did people adapt to the changes between the act and code, particularly the procedures, were they, were they generally Pleased with the

00:44:06.020 - 00:44:23.060

changes, or was there a lot of grumbling things were things were working just fine? Why do we need to make these changes? There was a long gap period between the time that the Bankruptcy Reform Act of 1978 as it was called, and the Act and the

00:44:23.060 - 00:44:41.899

code going into effect in October '79. So there was actually plenty of time if you were industrious to learn about the new code and there were panels instructional things and the more industrious among us would be studying the code so that we were ready to

00:44:41.899 - 00:45:04.800

go when the time came. As a matter of fact, I had one client who was a, a good candidate this under the act for chapter. 13 and I knew the differences between chapter Roman 13 Act and chapter numeral 13 Arabic under the code. And I said,

00:45:04.870 - 00:45:19.729

can you hang in there for 5 months because it'll be a lot better for you to file under the code than the act. And so he hung in there and kept his creditors at bay and then we filed the first chapter 13, Roman, I mean

00:45:19.729 - 00:45:36.274

numeral 13 on the first day of the code. So it was didn't come as a shock and a surprise. And was that one of the first chapter 13 cases? Well, I can tell you a variation on that story. you know, we have under the code

00:45:36.274 - 00:45:53.754

we have the, the BFP test for unprotected, unprotected liens and and the trustee has all the powers of a BFP under the code. Under the act, that was not the case and I represented, I was hired to represent a family owned business here in San

00:45:53.754 - 00:46:16.790

Francisco and and determined. That their interests were best served by filing under the old law, and I filed The last corporate chapter XI case in the Northern District about a half an hour before the court closed and I did it and I did it

00:46:16.790 - 00:46:35.229

on my client's instruction with my advice because it, it protected an unperfected lien of an insider and I was soundly criticized by at least one local community lawyer in the bankruptcy community about. I never should have filed in that case, I should have waited until the

00:46:35.229 - 00:46:52.929

law changed, so it would have been adverse to to the insiders of my corporate clients. So, you know, this are the the the reverse. I'd say one other thing that's funny that that That that law went into effect, as I mentioned in October, it

00:46:52.929 - 00:47:11.489

happened to be Yom Kippur. On the day of the new law went into effect in the in the United States and quite a number of practitioners in the bankruptcy world were busy attending their religious activities that day, and one of the well. Well

00:47:11.489 - 00:47:26.489

known bankruptcy lawyers in town, who was a friend of mine was a man named Pat Murphy, and of course I was raised in the Catholic Church and Pat Murphy and I both laughed because we said we were the only two bankruptcy lawyers practicing

00:47:26.489 - 00:47:44.159

that day when the law went into effect, because, as I recall, Pat and his firm did file some other big, XI 1, 11 on the first day, for the same reason for, for similar to your, I read one other difference new topic, the

00:47:44.159 - 00:48:01.409

preference game. The big change under preference beside the clawback period, you know, it used to be 4 months under the act and now it's 90 days under the code, but the other big difference was for the trustee or debtor possession to prevail or preference

00:48:01.409 - 00:48:19.070

action under the old act, you had to prove that the recipient of the alleged preference had quote reasonable cause to believe that the debtor was insolvent. Yeah they that's been removed as a thing. So of course you know if someone got sued for a preference I

00:48:19.070 - 00:48:35.989

had no idea what they were insolvent and I never saw their balance sheet, you know, how can you accuse me of having known that? And so that made a big change in the preference game. I remember I was representing, a client who had been sued

00:48:35.989 - 00:48:53.479

for a preference, and we of course had had prepped him before his deposition. And so the first question, you know, after the preliminaries, he said, now on this date, did you receive this amount from this person? And he goes, yes I did, but at that time

00:48:53.479 - 00:49:10.510

I did not have reasonable cause to believe that the debtor was insolvent. And the other lawyer too to me he says, did you prep this guy or what before this deposition? Yeah, I still laugh about that. So anyway, the law changed dramatically. The Reform Act and

00:49:10.510 - 00:49:26.100

gratefully enough they did away with the Roman numerals and and they also adjusted the numbers, so the code numbers match up with the statute numbers, but it was quite a change. Yeah, how are we doing on time? I think we're right at about an hour,

00:49:26.229 - 00:49:46.610

right? So I can't say that. Well, thank you very much for asking us to share these for sharing this information and stories. Do you have anything, anything you still need to still would like to talk about? I got him for the preference section though. Did you

00:49:46.610 - 00:50:04.840

make him fly somewhere? Dennis and I were friendly opponents in a particular preference action. He was representing the trustee. I was representing the bank at the time and so we both, we knew it was gonna settle. I mean all preference actions got settled. That was just

00:50:04.840 - 00:50:18.409

the way things were done. And so I said Dennis, I know what it's gonna settle for, but I'm not gonna tell you now because we're not negotiating yet. Dennis said he was too, so we both agreed to write down our numbers and put it in a

00:50:18.409 - 00:50:33.719

book, and Dennis has this special case in one of the casebooks. We don't talk about that case. Where I trusted him not to look and so we put the things in the book with each of our numbers and we had this friendly little competition to see

00:50:33.719 - 00:50:48.629

who came close and then eventually we negotiated the deal out we had this big ceremony to open the book and see who was closer to the what the settlement was gonna be. You won that one, I think I, I don't remember. No, we just did that

00:50:48.629 - 00:51:05.199

one time we did that. OK, well, all right then, anything further? All right, thank you so much for doing this with me today. I have enjoyed it. We actually have an audience on this one that seems to have enjoyed it as well, so thank you very

00:51:05.199 - 00:51:07.229

much. Thank you, Elaine. That's a lot of fun. Thank you.