The Bankruptcy Administrator Program and the U.S. Trustee Program

Submitted by Commissioners Jeffery J. Hartley and John A. Gose

As part of the Commission's overall review of the bankruptcy system, the Service to the Estate and Ethics Working Group considered various practical aspects of the administration of bankruptcy cases. The Working Group focused its attention on the two administrative programs presently in place, the United States Trustee Program ("UST") and the Bankruptcy Administrator Program ("BA"). In a plenary voting session held on August 11-12, 1997, the Commission rejected the Working Group's two alternative proposals designed to eliminate the Judiciary's highly successful Bankruptcy Administrator Program by incorporating it into the UST system. On the first proposal, the vote was three in favor and five opposed; on the second proposal, the vote was two in favor and six opposed.

The Congress established the BA Program in 1986.⁽²⁵⁸³⁾ Designed and developed in response to complaints and dissatisfaction with the UST Program, the BA Program was instituted in the six federal judicial districts in the states of Alabama and North Caroline. In fact, the Northern District of Alabama was one of the eighteen (18) pilot UST districts from 1978 to 1986, and it rejected the UST Program when it was expanded nationwide in 1986. The BA Program is housed in the Judicial Branch, while the UST Program is in the Executive Branch's Department of Justice. The BA Program is presently due to "sunset" on October 1, 2002.⁽²⁵⁸⁴⁾

At its regional meeting in Chicago on July 17, 1997, the Commissioners present heard and considered the comments of a panel of speakers concerning the existence of two separate administrative programs, housed in different branches of government, performing nearly identical functions. The panel included a BA, several present or former UST's, the Deputy Director of the Executive Office for U.S. Trustees, several sitting district and bankruptcy court judges, a practicing lawyer, and several academicians, including Prof. David Epstein, a well-known bankruptcy lawyer and former law school dean. The comments of the panelists centered on two major issues - the constitutionality and the desirability of maintaining two administrative systems.

CONSTITUTIONALITY:

At the Commission's regional meeting in Chicago, several panelists, notably those employed by the UST Program, favored the elimination of the BA Program, either by recommending to Congress that the BA's sunset date "remain unchanged" or by requiring the immediate conversion of BA districts into the UST Program. Those in favor of the proposals relied heavily on the decision in St. Angelo v. Victoria Farms⁽²⁵⁸⁵⁾, a 1994 decision from the Court of Appeals for the Ninth Circuit, which held that the BA Program is unconstitutional, as being violative of the uniformity clause of the Constitution.

Professor Epstein spoke convincingly in defense of having dual programs, and noted his discussions with several constitutional experts who, he said, believe that the existence of two systems does not rise to the level of a constitutional infirmity. Moreover, Prof. Epstein echoed the comments of District Judge David Coar, by pointing out the fact that the alleged lack of uniformity complained of in St. Angelo concerns the collection of user fees in UST districts, pursuant to 28 U.S.C. §1930(6), which are not collected in BA districts. The lack of uniformity, if any, is to be found in the collection of user fees, rather than in the mere existence of two program. Moreover, Francis Szczebak, Chief of the Bankruptcy Judges Division of the Administrative Office of the U.S. Courts, stated that legislation in the form of a housekeeping bill will easily solve the user fee problem. Mr. Szczebak indicated that legislation has been introduced to accomplish this as reflected in H.R. 2294 of the 105th Congress.

During the plenary voting session in Washington, D.C., several Commissioners argued that the Ninth Circuit's finding concerning the BA Program was contained in dicta to the St. Angelo opinion, for no functional purpose germaine to that case. In fact, one Commissioner called the ruling "gratuitous."

DESIRABILITY OF TWO PROGRAMS:

At the Commission's regional meeting in Chicago, Prof. Epstein and others addressed the desirability of having two programs, asking "Why have two programs? Why not have two programs? Prof. Epstein told the Commissioners that the BA Program is highly successful, and that it serves as a laboratory for developing more efficient and effective methods of administering cases. The Commissioners were reminded that the full Commission had voted 8-1 to accept several Chapter 11 proposals based on models developed in BA districts (commonly known as the "Small Business proposal), which had been discussed by two BA's formerly invited to speak at the Commission's meeting in San Diego in August 1996 and on many other occasions on an informal basis. In fact, the "Small Business" proposal was widely praised by debtor and creditor alike at the June 1997 Regional Meeting in Orange Beach, Alabama.

The Commissioners learned that the BA Program is decentralized, that decisions are made in the field by BA's who are actually practicing in the courts, and that because of the structure of the program, BA's are able to respond to local initiatives and the judicial philosophy of the courts in which they practice. The Commissioners also learned that the last empirical study of the cost of the two programs was done by the General Accounting Office, which found that the BA Program operates at an average cost which is twenty-two (22%) percent lower than the UST Program.

Honorable Thomas Bennett, a bankruptcy judge from the Northern District of Alabama, offered the opinion that neither system is fully mature, as evidenced by the complaints leveled against the UST Program. Other panelists reminded the Commissioners that the UST Program is and has been heavily criticized for its unresponsiveness and seeming unwillingness to permit change. The UST Program is described, according to the panelists, as a top-heavy bureaucracy which perpetuates its own existence, and which is prone at times to institutional paralysis due to its sheer size. Further, Judge Bennett suggested to the Commissioners that the UST's as employees of the Executive Branch, have direct conflicts of interest in cases involving other Executive Branch agencies, like the Internal Revenue Service.

THE COMMISSION'S PLENARY VOTE:

At its August 11-12, 1997 meeting, the Commission was asked to vote on two proposals to eliminate the BA Program. Immediately prior to those votes, however, the Commission considered three proposals designed to correct shortcomings in the UST Program, voting on two of the proposals (in favor, by majority, on both) and tabling the third. Comments and complaints about the UST Program had been heard by the Commission at four working group sessions devoted to the operation of the UST Prgoram and the Commission responded by recommending that Congress make necessary changes to the UST Program.

Subsequently, the Commission was asked to vote on Proposal No. 10 which contained two alternative measures designed to eleiminate the BA Program. The first alternative⁽²⁵⁸⁶⁾, to recommend to Congress that the BA's sunset date "remain unchanged," was challenged by several Commissioners regarding the proposal's intent and potential ramifications. The first alternative elicited comments from the Commissioners touching on all of the issues raised at the Chicago meeting and the Commission rejected the first alternative on a 3-5 vote.

The second alternative⁽²⁵⁸⁷⁾ called for the immediate conversion of all BA districts into the UST Program. The Commissioners rejected the second alternative as well on a 2-6 vote.

CONCLUSION:

This is not the last time the bankruptcy community or Congress will consider this issue. At some point, we expect Congress will have to make a decision, the current statute notwithstanding, as to whether two administrative programs are appropriate. When this time comes, we are confident that Congress will realize that both the BA and UST programs are largely responsive, efficient and cost effective and should be left undisturbed.

Notes:

²⁵⁸³  Bankruptcy Judges, United States Trustees, and Family Farmer Bankruptcy Act of 1986, Pub.L.No.99-554, 100 Stat. 3119, 3123, § 302(d)(3)(I). Return to text

²⁵⁸⁴  Federal Courts Study Committee Implementation Act of 1990, Pub.L.No. 101-650, 104 Stat. 5104, 5115, § 317(a). Return to text

²⁵⁸⁵  38 F.3d 1525 (9th Cir. 1994). Return to text

²⁵⁸⁶  "The current statutory schedule providing for the incorporation of the Bankruptcy Administrator system into the U.S. Trustee system on October 1, 2002should remain unchanged[.]" Return to text

²⁵⁸⁷  "The Bankruptcy Administrator system should be incorporated into the U.S. Trustee system earlier than the current statutory schedule." Return to text