Fundamentals of Bankruptcy Court Litigation - AdversariesGARY F. SEITZGSEITZ@GSBBLAW.COM

Bankruptcy Court Jurisdiction

Bankruptcy law is designed to provide relief to financially troubled entities or persons and ensure fair and equitable treatment for creditors and other parties holding claims or interests against those entities or persons. The bankruptcy laws are established pursuant to federal statute. Thus, individual states do not have authority to enact their own bankruptcy laws or statutes. The federal bankruptcy statute currently in effect is known as the “Bankruptcy Code.”

The United States District Courts have jurisdiction over all bankruptcy cases and related litigation. The district courts referred jurisdiction over bankruptcy matters to bankruptcy judges. To facilitate the application and the administration of the bankruptcy laws, Congress has created a system of federal bankruptcy courts. Typically, there is several bankruptcy judges located within a single district. The Eastern District of Pennsylvania is currently blessed with six excellent bankruptcy court judges.

Each bankruptcy proceeding commenced within the district will be assigned to one of the six bankruptcy judges sitting in this district. That judge will then generally be responsible for presiding over all matters arising in that bankruptcy case.

Bankruptcy Rules

In addition to the Bankruptcy Code, bankruptcy proceedings are also governed by the Federal Rules of Bankruptcy Procedure—or, as they are more commonly known, the “Bankruptcy Rules.” The Bankruptcy Rules address various procedural matters arising in a bankruptcy proceeding and are generally intended to supplement the Bankruptcy Code. To the extent that the provisions of the Bankruptcy Code and those of the Bankruptcy Rules conflict, the provisions of the Bankruptcy Code are considered controlling.

The bankruptcy judges operate autonomously from the district courts subject only to rules for withdrawing the automatic reference and appeals of matters that Congress and the courts have determined are to be tried first in bankruptcy court and then reviewed de novo in district court.

Categories of cases

Parent Case Contested Matters Adversaries An "adversary proceeding" is an ordinary lawsuit that is tried in the

federal bankruptcy court under essentially the same rules of procedure as a "civil action" in a federal district court. All seventy-seven of the rules imported from the Federal Civil Rules apply in adversary proceedings. Each adversary proceeding has a separate docket number, features a summons and complaint, an answer, pretrial procedure, discovery, and formal trial, and ends with judgment or with dismissal. Since the deviations from the Civil Rules are relatively minor, there is little reason for federal civil litigators to shy away from handling these.

Fundamentals of Bankruptcy Court Litigation

Similar to litigating similar case in any court – Complaint, Answer, Discovery, Trial

Special rules apply Sometimes hundreds of cases filed at once in a single bankruptcy Adversary proceedings run on a very tight schedule

Don’t’ expect a leisurely course to the litigation

Be prepared to litigate as soon as you file Mediation is available Be prepared to settle The vast majority of cases settle Each judge has his or her own procedures which are available on the court’s

web site

Types of Adversary Proceedings

Unique to the Bankruptcy Code Preferences Code Fraudulent transfer Objection to a discharge or a discharge ability of a debt

Other litigation tried in the Bankruptcy Court Professional liability Contract Actions to collect receivables or other property.

Rules for Adversary Proceedings

Federal Rules of Bankruptcy Procedure (“BR”)

Part VII of the Bankruptcy Rules ("Adversary Proceedings;" Rules 7001-7087) specifically apply to adversary proceedings and incorporates fifty of the seventy Civil Rules that apply. Most of the remainder of the applicable Bankruptcy Rules are located in Part IX ("General Provisions;" Rules 9001-9033), including such trial procedure rules as Federal Civil Rules 43 and 45, as well as Federal Civil Rules 58-60 relating to judgments.

Rule 7001 deems certain matters to be treated as adversary proceedings with these same rules applying to the resolution of those disputes.

Federal Rules of Civil Procedure (“CR”)

Rule 81(a) (1) does provide that the Civil Rules "do not apply in proceedings in bankruptcy . . . except insofar as they may be made applicable thereto by rules promulgated by the Supreme Court. The "except" clause is huge: it turns out that seventy-seven of the eighty-nine Civil Rules are imported, in whole or part, into the Bankruptcy Rules --sixty-seven by way of express incorporation and another ten by restatement in essentially identical language. The exception has largely swallowed the rule. Unless additional rules have specifically been incorporated, 47 imported Civil

Rules apply to contested matters including: Discovery rules Rules for providing for taking of evidence Subpoena Findings of fact and conclusions of law Entry and relief from judgments

Federal Rules of Evidence

The Federal Rules of Evidence will apply in all hearings and trials but the proceedings may be less formal than in federal district court – particularly for jury trials.

Because many routine proceedings in bankruptcy court are informal, fewer objections to evidence seem to be made than in district court.

Beware of the trap of who has the burden of proof. In many kinds of bankruptcy litigation, the moving party does not bear the burden of proof on the ultimate issue. As in many other types of litigation, the allocation of the burden of proof may determine the outcome of a matter.

Local Rules of Bankruptcy Procedure

Local rules of the bankruptcy court supplement the federal bankruptcy rules.

The rules are numbered consistently with the Bankruptcy Rules. The local rules are available in various formats on the court’s

website

Chambers Procedures

The bankruptcy judges also make their Chamber’s Procedures available on the bankruptcy court’s website

Many of these procedures specifically deal with adversaries including pretrial filing requirements and conduct of trial

Conclusion

The idiosyncratic structure and the sheer volume of the Bankruptcy Rules frustrate even able civil practitioners.

Counsel often despair of making their way through the Bankruptcy Rules labyrinth, scorn the rules.

There is no general recognition that bankruptcy practice, especially bankruptcy litigation, is governed in large measure by the same rules of procedure that apply in general federal civil practice.

Infrequently, lawyers and courts draw upon the rich lore of federal procedure when facing basic procedural questions and, instead, restrict themselves to citing only bankruptcy precedents.

With a bit of study, patience and practice, any litigator can become a skilled bankruptcy practitioner.