Presiding Over Municipal Bankruptcies: Then, Now, and Puerto Rico
91 American Bankruptcy Law Journal 375 2017
20 Pages Posted: 25 Apr 2017 Last revised: 3 Aug 2017
Date Written: May 5, 2017
Federal district judges have not been directly responsible for municipal bankruptcy cases since the 1970s. Between then and now, federal bankruptcy judges have accumulated hard-won lessons about how to preside over cases involving governments. Indeed, the merit-selected bankruptcy bench has been groomed to handle restructuring cases of all kinds and of ever-growing size and complexity. Some proposals for the use of bankruptcy by systemically important financial institutions anticipate the use of bankruptcy judges. In 2016, Congress made a jarring break from this trajectory by requiring that a district judge preside over what is likely to be the biggest government bankruptcy case in American history: the Commonwealth of Puerto Rico. Title III of PROMESA, the law that would apply to a Puerto Rico debt restructuring case, incorporates and builds substantially on the existing U.S. bankruptcy system, but omits a central institutional actor - namely, the experienced judge.
This article reviews the judicial selection requirement in PROMESA in a historical context, looking at municipal bankruptcy's judicial selection rules from its inception in the 1930s. Although the Ford Administration, speaking through then-Assistant-Attorney General Antonin Scalia, perceived advantages of district judges presiding over major city bankruptcies, my research unearthed no legislative discussion suggesting that Article III judges are constitutionally required for government bankruptcies, relative to other kinds of cases. One can only hope that the benefits of PROMESA's departure from the arc of bankruptcy court history will outweigh its considerable costs.
Keywords: Municipal Bankruptcy, Chapter 9, Bankruptcy Judges, Constitutional Authority, Puerto Rico, PROMESA, Justice Scalia
JEL Classification: H12, H74, K12, K22
Suggested Citation: Suggested Citation