By: Donald L Swanson
This is the first in a series of four articles on why Fed.R.Bankr.P. 9031, titled “Masters Not Authorized,” needs to be amended to authorize the utilization of special masters in complex bankruptcy cases.
The focus of this first article is on how special masters are already utilized, effectively, by federal district courts under Fed.R.Civ.P. 53 (titled, “Masters”).[Fn. 1]
Special Masters in Federal Courts
–A Brief History
Appointing special masters to assist courts is a long and well-established practice.
The practice begins in early Roman law through the “judex”: a private person appointed by a praetor, with consent of the parties, to hear and decide a case.
Special masters are used in England as early as the 1600s and continue in America as early as the 1700s.
After independence, the federal judiciary in these United States begins using special masters regularly to handle discrete parts of cases, such as taking and reporting testimony, identifying issues where facts and evidence are complex and voluminous, and auditing and stating accounts.
Early on, the U.S. federal courts find their authority to appoint special masters, even over objections of the parties, in their “inherent power to provide themselves with appropriate instruments required for the performance of their duties.”
Then, however, the federal courts begin imposing limits on special master appointments, because of the U.S. Constitution’s Article III:
- i.e., courts cannot refer matters that determine a “fundamental issue of liability”; and
- so, absent consent of all parties, the U.S. district courts begin referring only narrow, well-defined, and specific matters to special masters.
–Use of Special Masters, Generally
Beginning in 1938, the Federal Rules of Civil Procedure specifically address special masters—in Rule 53.
Rule 53 explicitly authorizes the appointment of special masters. And, in 1938, it provides details on the use and role of special masters, based on the basic practices and guidelines in existence at that time, with some updates and clarifications.
Today, Rule 53 provides a specific and well-defined role for special masters. Here are some clear-cut and uncontroversial duties of a special master:
- accounting and computation;
- determining relevant issues under circumstances where the evidence is voluminous; and
- advising the court on severable issues that are highly technical in nature.
The appointment of special masters to perform such duties is seldom questioned by the parties, courts or commentators, because such duties are viewed as invaluable aids to the federal courts.
Additionally, in mass tort litigation involving hundreds or thousands of claims in a single case, special masters are often appointed to assist the court in:
- summarizing and evaluating claims; and
- developing and implementing case management and evaluation plans.
Two Examples—Highly Complex Cases
Two oft-cited and complex cases with special master management plans are an Alabama DDT case and an Ohio asbestos case[fn. 2].
In these cases, special masters are credited with developing innovative plans and data collection systems that greatly aid the courts in streamlining the cases and bringing about their resolution.
But such cases involve extraordinary volumes of evidence and claims—so, they might be viewed as outliers.
More Commonplace Cases
There are many other complex litigation cases, with lesser volumes of evidence and claims, where special masters are used effectively.
Special masters are appointed in more commonplace—but still complex—cases to perform such duties as:
- supervise discovery depositions;
- evaluate services;
- conduct surveys;
- receive confidential and privileged documents; and
- review highly technical documents.
More recently, judges and lawyers focus on an active case management role for special masters, including such tasks as:
- pretrial scheduling, and settlement conferences;
- discovery limits and deadlines;
- innovative methods of hearing and disposing of motions; and
- case monitoring.
Such case management devices reduce the duration and expense of litigation, by refining issues (which reduces motions and discovery) and causing settlements at an earlier stage (which reduces litigation costs).
The result is this:
- special masters are an important case management tool in the overall effort to bring complex cases to just and acceptable ends as quickly as possible.
Mediator-Like Role
Special masters also serve a mediator-like role for settlement discussions.
Courts frequently appoint special settlement masters at the pretrial stage to facilitate settlement discussions and minimize direct judicial involvement in those efforts. Doing so, early on:
- increases early-settlement odds; and
- avoids any appearance of judicial bias or prejudgment.
Flexibility
Effective and efficient case management requires flexibility.
And complexity creates the need for special case management practices.
So, special master appointments are frequently utilized by the courts to provide that flexibility in complex cases—toward the end of enhancing efficiency and effectiveness.
Special Masters are Needed in Bankruptcy
–Asbestos & Other Mass Tort Examples
Outside bankruptcy, special masters are commonly used in asbestos litigation cases. And bankruptcy courts are specifically authorized by statute (11 U.S.C. § 524(g)) to reorganize asbestos defendants in bankruptcy.
So . . . bankruptcy courts have the same need for utilizing special masters in asbestos bankruptcy cases that district courts have historically utilized for the very same types of cases.
The same is true for other mass-tort cases that find their way into bankruptcy: like the diocese cases, opioid cases, etc.
Special masters could be useful in them all.
–Valuation & Feasibility
The need to determine value of debtor’s property frequently arises in bankruptcy cases: e.g., in contexts like relief from the automatic stay and plan confirmation. In such contexts:
- the creditor and the debtor often present appraisals of the property—some of which can vary dramatically; and
- the court must reach an independent decision on actual value of the property.
Also, feasibility issues often arise, particularly in plan confirmation contexts. Feasibility depends on financial information—e.g., on whether debtor’s financial capacity is adequate to support the proposed plan terms. Objecting creditors present data disputing debtor’s projections, and the court must analyze all the information and make an independent determination.
In both the valuation and feasibility contexts for complex cases, a special master could provide valuable assistance in analyzing the appraisals and financial data.
And such services are what special masters have historically performed.
Conclusion
Special masters are utilized by federal district courts to provide an essential case-management function in complex cases.
That same special master role could be helpful in complex bankruptcy cases as well.
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Footnote 1. Each of the articles in this series summarizes of a portion of this fascinating article by Paulette J. Delk: Special Masters in Bankruptcy The Case against Bankruptcy Rule 9031, 67 Mo. L. Rev., at 29-58 (2002).
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