Omission of Mediators and Other “Masters” from Federal Bankruptcy Rules is the Result of Haste and Error?!

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By: Donald L. Swanson

Mediators and Other Special Masters in District Courts — Rule 53

“Special Masters” can be appointed by U.S. District Courts to handle special circumstances, under Fed.R.Civ.P. 53. One type of special master under Rule 53 is a “Settlement Master” (aka “Mediator”).

Special masters are used by District Courts, typically, in large and complex cases. And they are given a broad range of authority and power. Examples of settlement masters (aka mediators) are in the Argentina debt crisis cases in the Southern District of New York and the currently-pending Syngenta lawsuit in the District of Kansas.

Additionally, the mediator team in the City of Detroit bankruptcy conducted themselves like settlement masters, with their grant of extensive authority and their proactive approach to mediation.

Current Bankruptcy Rule 9031

From its inception in 1983 to the present time, Fed.R.Bankr.P. 9031 says that appointments of special masters in bankruptcy are not authorized.  This Rule 9013 consists of a caption and a single sentence, with a short “Note of Advisory Committee.”  That’s the entire rule.

A photo of the Rule 53 appears above, which reads:

Rule 9031. Masters Not Authorized. Rule 53 F.R.Civ.P. does not apply in cases under the Code.

Advisory Committee Notes. This rule precludes the appointment of masters in cases and proceedings under the Code.”

So . . . why does this Rule 9031 exist? Why are special masters (including settlement masters, aka mediators) “not authorized” in bankruptcy?  The answer is, apparently, this:

No one knows for sure!

The 1983 Omission — Without Explanation

Prior to 1983, the Federal Rules of Bankruptcy Procedure provide exactly the opposite. Rule 513 of the Federal Bankruptcy Rules says, prior to 1983 [drumroll]:

“If a reference is made in a bankruptcy case by a judge to a special master, the Federal Rules of Civil Procedure applicable to masters apply.”

This pre-1983 bankruptcy Rule explicitly authorizes the appointment of special masters in bankruptcy, including settlement masters (aka mediators).

But this bankruptcy rule is revoked and replaced in 1983 by the special-master-rejecting Rule 9031 quoted above.  The 15th Edition of the Collier on Bankruptcy treatise describes the “Derivation of Rule 9031” as follows:

“Rule 9031 has no antecedent in the former Bankruptcy Rules.”

Say what?!! There may be no “antecedent” rejecting settlement masters; but there is, most certainly, an exactly-opposite-rule antecedent. Shouldn’t the exactly-opposite rule get at least an honorable mention?

For an about-face like this (from Rule 513 to Rule 9031), shouldn’t there be some type of explanation . . . somewhere . . . on why this is happening? The answer, of course, is “Yes.” But the reality is exactly the opposite: there is no meaningful explanation . . . except for the following.

A Scholarly Article — With History and a “Haste and Confusion” Explanation

A 2002 Missouri Law Review Article by Paulette J. Delk [fn.1] is titled “Special Masters in Bankruptcy: The Case against Bankruptcy Rule 9031.“ In this article, Ms. Delk provides the following historical information:

“In its discussion of proposed Rule 9031, the Advisory Committee . . . explained:

‘There does not appear to be any need for the appointment of special masters in bankruptcy cases by bankruptcy judges. The Advisory Committee, therefore, has decided that former Rule 513 not be continued in the rules and that Rule 53 F. R. Civ. P. not be made applicable.'”

And Ms. Delk adds this problematic point:

“The Advisory Committee has given no further explanation for its decision. . . . This kind of prohibition did not extend to district court judges under the Bankruptcy Act. It is difficult to believe that this was the intended result of the rule, but it is the necessary result when the clear and unambiguous language of the rule is applied as written.”

Ms. Delk then suggests that the current Rule 9031 is a mistake.  It is the result of haste and confusion following the Supreme Court’s jurisdiction-limiting bankruptcy decision in Northern Pipeline [fn. 2]:

“The first permanent rules were being drafted for the new Bankruptcy Code at the same time as amendments were being made to the Code to address the Northern Pipeline jurisdiction issues. . . . It may have been the haste and confusion of the day that led to the unexplained conclusion that special masters could not be appointed in bankruptcy cases. Whatever the reason, what resulted was Rule 9031 with its inadequately explained prohibition against the appointment of special masters in bankruptcy cases.”

She concludes:

“A court’s inability to use as important a case management device as special masters hinges on Rule 9031, a rule with virtually no explanation or justification–and one that appears to have been drafted in haste, without significant consideration given to its significant impact.”

Conclusion

So . . . there we have it. The omission and exclusion of special masters (including settlement masters, aka mediators) from bankruptcy courts, back in 1983, is likely the result of haste and error: a mistake.

And, as usual, the mistake has far-reaching effects that continue to the present day!

Can anyone add any further information on this?

 

Footnotes:

 1.  Paulette J. Delk now serves as Bankruptcy Judge in the U.S. Bankruptcy Court for the Western District of Tennessee.

 2.    A four-Justice plurality opinion in Northern Pipeline makes this far-reaching declaration:

“We conclude that . . . the Bankruptcy [Code] has impermissibly [vested] . . . “the essential attributes of the judicial power” from the Art. III district court . . . in a non-Art. III adjunct. [This] . . . cannot be sustained as an exercise of Congress’ power to create adjuncts to Art. III courts.”

 

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