This is Part 2 of our coverage of Judge Neil Gorsuch’s bankruptcy opinions. As everyone knows, Judge Gorsuch is President Trump’s nominee for the U.S. Supreme Court. As we observed in Part 1, there’s an overwhelming amount of coverage of Judge Gorsuch’s “Big Cases” but very little about his bankruptcy opinions. Thus, we’re covering all of Judge Gorsuch’s bankruptcy opinions in two parts, but with an emphasis on his style and tone.

Our take: Judge Gorsuch’s nomination in no way signals a seismic shift for bankruptcy on the Court. As we’ve noted before when covering the Supreme Court, the Justices might use bankruptcy as a way to frame issues of statutory interpretation, but they generally agree on bankruptcy substance. Further, Judge Gorsuch’s bankruptcy opinions are, with maybe 2 exceptions, not particularly notable. Therefore, we’re taking a break from substance and inventorying the best snippets from his opinions.

Part 1 covered cases 10 through 6. We’ll now cover cases 5 through 1.

5. In re Dawes (2011) 

Dawes is a Chapter 12 case that pits the “Daweses” against the IRS on the issue of post-petition taxes.

First, it’s one of Judge Gorsuch’s more substantive bankruptcy opinions. It’s also an opinion, notes Bill Rochelle, where “Judge Gorsuch correctly guessed how the Supreme Court would resolve a split of circuits regarding the priority status of capital gains taxes incurred when a chapter 12 debtor sells property after filing.” You should read Bill’s post if you haven’t already.

[As an exception to our observation that the Justices typically agree on bankruptcy, Rochelle points out that the resulting Supreme Court opinion was a 5-4 opinion, with the dissent asserting that the the decision was, in light of the 2005 Bankruptcy Code amendments, “very opposite of what Congress intended.”]

Second, Dawes is one of Judge Gorsuch’s more condescending opinions. His bedside manner is still reassuring, but it’s blunt, too:

Starting, like all tax decisions should, with the “IRS as Grim Reaper” trope:

Can a taxpayer avoid income taxes by selling farm assets after declaring Chapter 12 bankruptcy? In at least this respect, the tax collector bears resemblance to the grim reaper: always hovering, never avoidable…So it is that the Daweses must pay the tax collector his due and we must reverse.

Continuing with some snippets:

  • “And that brings us to the latest installment of this epic…”
  • “For the most part, of course, a bankruptcy filing offers scarce relief from the tax man. Other creditors may be neglected, but rarely the IRS.”
  • “Other structural features confirm the Daweses’ wrong turn.”
  • “Who does not mean when”

Giving “effect” to each provision of a statute:

If post-petition taxes are automatically included in the bankruptcy plan as taxes “incurred by the estate,” then § 1305(a)(1)’s optional inclusion of these same claims is left loitering around the U.S. Code with no apparent purpose…[A] “statute should be construed so that effect is given to all its provisions, so that no part will be inoperative or superfluous, void or insignificant.”

On Gorsuch’s and, for that matter, Scalia’s skepticism about legislative history:

On the back foot, the Daweses leap forward two decades and point to a senator’s floor statement made…We suppose it’s possible for a senator’s remarks to linger in the hearts and minds of his colleagues and influence their work years later, but to assume as much would take us well beyond ordinary legislative history analysis and require us to engage in the sort of “psychoanalysis of Congress” the Supreme Court has repeatedly warned against.

Finally, Judge Gorsuch ties it all together:

With the plain language and larger statutory structure pointing in the same direction, and without any convincing counter-indication in the legislative history, we hold that post-petition federal income taxes are not “incurred” by a Chapter 12 “estate” for purposes of § 503(b)(1)(B)(i). They are, instead, incurred by the Daweses personally and outside the bankruptcy.

4. In re C and M Properties, L.L.C. (2009)

In C and M, Judge Gorsuch is equal part Charles Dickens, Charles Alan Wright, and juggler. Okay, maybe that’s a bit much. But as someone who is accustomed to being mired impossibly for years in the “gnarled bramble” of contemporaneous state, federal, bankruptcy, and appellate litigation for the same case, C and M speaks to me.

At its heart, C and M is a routine judicial estoppel case that took on an incredible life of its own as its parties “bloodied each other in round after round of motions and arguments through year after year.” The parties asked the 10th Circuit to “sort out their dispute,” but Judge Gorsuch, polite and eloquent as usual, declines:

But an order issued in December 2004 remanded this case to state court. That order divested the federal courts of subject matter jurisdiction over the parties’ dispute. There is nothing left of this case in federal court—and hasn’t been for [over 4] years. Long ago the parties should have taken their fight to state court. They must now.

What follows is 20+ pages of Judge Gorsuch juggling ridiculously confusing procedural history and complex jurisdictional and federal-state comity principles. Judge Gorsuch covers it all: the limits of federal jurisdiction; interlocutory and collateral orders; the related issue of finality; partial remands to state court; the hazards of advisory decisions; writ of mandamus; issue preclusion; and the like. Therefore, what began as a bankruptcy case ended-up being consumed by procedure–a common occurrence in Judge Gorsuch’s cases.

With that, we’ll leave you with the “good parts,” which speak for themselves:

  • “It all began nearly a decade ago…”
  • “Not only is the district court’s order not final, it borders on the spectral” (!)

Hearing a case lacking in jurisdiction is not unlike playing an “air guitar“:

C & M’s malpractice claim resides in state court and any further litigation by the parties in federal court is beside the point, something like playing “air guitar” rather than the real thing, a sort of mimesis of litigation rather than an actual case or controversy.

Or, as Judge Gorsuch puts it differently:

…the parties can do no more than shadowbox in federal court; the main event actually resides in state court. Any district court order putatively deciding any aspect of a claim remanded to state court is but an advisory opinion, the expression of stray sentiments by a court powerless to decide anything, or, as one circuit has put it, “so much hot air.”

Putting an end to the pointless:

The parties have spent years, enormous energy, and no doubt heaps of money trying to hash out the potentially dispositive estoppel question in a federal court that is powerless to decide it. Meanwhile, the state court that actually possesses jurisdiction over their case understandably halted progress on the matter in deference to the district court’s claim of authority over the case, waiting patiently for years for some (purely advisory) signal from the federal system whether it thinks the matter should be dismissed on estoppel grounds or proceed to its merits. So it is that any real progress in this case ground to a halt long ago.

And, let’s end pointless cases sooner, rather than later:

Indeed we wish to emphasize that future litigants need not, as here, wait years for the ultra vires district court proceedings to culminate in what they consider to be a “final” order for us to make clear that the district court’s proceedings are ineffectual.

Finally, parting words from Dickens:

This is a case whose duration and complexity might induce a faint feeling of familiarity in the wards of Jarndyce and Jarndyce…One might hope, if perhaps against hope, that the parties will see their way to ending voluntarily this tortuous, nearly decade-long dispute. But whatever the parties do, one thing is certain: they cannot do it in federal court.

3. In re Renewable Energy Development Corp. (2015)

Renewable Energy is the Judge Gorsuch opinion that you want to cover–and even study–if you want to dig into bankruptcy substance. After all, it’s a Stern case–the hallmark 2011 Supreme Court case that gives bankruptcy attorneys a seat at the big kids table, but also confuses bankruptcy attorneys and even frightens some bankruptcy judges.

And for that reason, alone, Renewable Energy has to crack our Top 3, even if it’s less stylish or witty than the others.

In short, the Chapter 7 trustee had sued certain defendants in the bankruptcy court on various core bankruptcy claims. The defendants countered in that suit with state law claims against the trustee for legal malpractice and breaches of fiduciary duties. They also sought to withdraw the reference. The district court denied the motion, concluding that the bankruptcy court could decide the state law claims. Hence, a Stern claim was made or, as Judge Gorsuch puts it, a claim whereby “unfortunate but hardly uncommon (and still unproven and only alleged) facts yield a dispute of constitutional magnitude.”

As much as we’d like to take a walk with Judge Gorsuch as he traces the likes of Marathon, Granfinanciera, Stern, Arkison, and Wellness, we’ll leave the substance to others, such as Stephen Sather of A Texas Bankruptcy Lawyer’s Blog who discussed in detail on Wednesday the extent to which Renewable Energy is faithful to Stern. 

Stephen also gets this post back on track:

Stephen Sather writes that “Judge Gorsuch is a lively writer. He authored a 22-page opinion without any headings or subheadings which flowed naturally without these guideposts…He has the ability to distill the essence of a case very quickly. His writing is entertaining to read because he can turn a phrase as well as any jurist…”

(from A Texas Bankruptcy Lawyer’s Blog, 02/01/17. See also his follow-up post from Thursday, observing the procedural strictness that we discussed in Part 1).

Therefore, back to Judge Gorsuch’s style, starting with another catchy introduction:

This case has but little to do with bankruptcy. Neither the debtor nor the creditors, not even the bankruptcy trustee, are parties to it. True, the plaintiffs claim they once enjoyed an attorney-client relationship with a former bankruptcy trustee. True, they now allege the former trustee breached professional duties due them because of conflicting obligations he owed the bankruptcy estate. But the plaintiffs seek recovery only under state law and none of their claims will be necessarily resolved in the bankruptcy claims allowance process. And to know that much is to know this case cannot be resolved in bankruptcy court…So the district court’s ruling otherwise…violates the Constitution’s commands and must be corrected.

And the snippets that don’t warrant big block quotes: a “rat’s nest of conflicts” and the “potluck quality” of the public rights doctrine.

Judge Gorsuch might even have previewed his upcoming Senate testimony on President Trump’s immigration order:

To this day, one of the surest proofs any nation enjoys an independent judiciary must be that the government can and does lose in litigation before its “own” courts like anyone else.

Judge Gorsuch then uses colorful examples to defeat the “factually intertwined” argument for letting bankruptcy courts hear certain state law disputes:

What if a trustee and creditor came to blows in the courthouse parking lot over the terms of a proposed reorganization plan? What if a trustee stole from a third person and gave the money to the bankruptcy estate? Couldn’t someone plausibly describe disputes like these as at least as “factually intertwined” with bankruptcy as our own?

Naturally, Judge Gorsuch chooses to salute to the Supreme Court, explaining that the arguments made were inconsistent with Stern, such that he and his colleagues were “skittish of following where [the arguments] would have us go.” Similarly, he prefers to steer clear of other courts who stray, stating that another Circuit’s “well-reasoned confession [that its] ruling runs afoul of Supreme Court precedent is enough to send us packing in the other direction.”

Judge Gorsuch also made it very clear that he was in no way interested in “entertaining an argument for drawing a new doctrinal boundary between Article I and Article III in the bankruptcy context” on the flimsy basis of inadequate briefing:

[W]e are naturally reluctant to venture farther into this dark wood without more help from counsel…After all, what looks a promising possibility from afar often reveals scraggly particulars on closer encounter. So in the end we think the prudent course is to leave Mr. Hofmann’s allusion where we find it…

Finally, Judge Gorsuch brings his fireside chat to an end as gently as he started:

Many other questions remain for tomorrow. But resolving this much is enough work for today.

2. TW Telecom Holdings, Inc. v. Carolina Internet Ltd. (2011)

TW Telecom is not so much a stylish or witty case. Rather, it’s interesting because of how it raises the Collier on Bankruptcy treatise to the status of an unofficial fourth judge.

The holding is a rather routine one dealing with the impact on a pending appeal of the bankruptcy automatic stay under Section 362 of the Bankruptcy Code.

It’s how Judge Gorsuch reached the holding that’s fascinating, at least for bankruptcy practitioners who understand the spoken and unspoken role that the Collier treatise plays in bankruptcy jurisprudence. For example, just recently at a hearing, these very words came out of my mouth: “Well, respectfully judge, this is what Collier says on that point…”

Collier is ever-present in almost every single serious bankruptcy-related practice or government office and in bankruptcy chambers all across the country but, in jurisprudence, we pretend that it’s just a useful secondary aid.

Not Judge Gorsuch, though. His candor about Collier is as refreshing as it is remarkable.

His acknowledgment:

We recently reiterated this Circuit’s interpretation of § 362(a)(1), explaining that “the automatic stay does not prevent a Chapter 11 debtor in possession,” like Carolina Internet, “from pursuing an appeal even if it is an appeal from a creditor’s judgment against the debtor.”…In earlier decisions reaching this conclusion, we relied on Fed. R. Bankr.P. 6009 and Collier on Bankruptcy.

His mea culpa:

…Collier on Bankruptcy has explicitly rejected our reliance on it to support our minority position. 10 Collier on Bankruptcy ¶ 6009.04 n. 5 (Alan N. Resnick & Henry J. Sommer eds., 16th ed. 2011) (“Both [In re Lyngholm and Autoskill Inc.] relied upon an earlier edition of this treatise to support this minority position…Because the reference was not to appeals of cases in which the debtor was a defendant, the Tenth Circuit’s reliance on this treatise was inappropriate.”).

And the correction:

Accordingly, we overrule this circuit’s prior interpretation of § 362(a)(1)…From this date forward, this Circuit will read…section 362…to stay all appeals in proceedings that were originally brought against the debtor, regardless of whether the debtor is the appellant or appellee.

Jason Kilborn, of the Credit Slips blog, sums it up: “Judge Gorsuch showed that he is not slavishly bound to precedent when that reliance is shown to be misplaced.”

1. In re Haberman (2008)

Admittedly, we had Haberman in the #1 spot late Tuesday night when we were on the fence about whether to drill down on substance or style. Today, Haberman will retain the #1 spot via a mixture of the two, but we’re particularly fond of it because Judge Gorsuch’s introduction captures his effortless ability to combine relaxed humor with serious legal ideas:

At one level, this is a dispute over loan payments secured by a nearly 30 year old Pontiac Trans Am. At another level, this case tests the limits of a bankruptcy trustee’s statutory power to displace existing lienholders.

That simple juxtaposition not only captures Judge Gorsuch’s essence (at least from our limited sampling), but it might also provide some inspiration for practitioners and judges alike.

It captures Judge Gorsuch’s essence because it demonstrates a common attitude in his bankruptcy opinions: low stakes don’t justify minimal effort or sloppy work. Without calling it such, Judge Gorsuch adopts for legal construction, in the least formal sense, a sort of “capable of repetition, but evading review” justification for doing the work:

To be sure the amount at stake isn’t huge—$1,237.50 representing the difference [between the Trans Am loan and Trans Am’s value]. But the Trustee submits that the issue recurs frequently, and is one that merits clarification because it goes to the core of his statutory rights and duties. Indeed, “he has pursued several different theories in other bankruptcy cases in support of his mission to recover all postpetition payments in lien avoidance and preference actions.”. . . As the BAP has put it, and we agree, “though unsuccessful to date,” the Trustee’s efforts on behalf of the estates he represents are “certainly admirable.”

Therefore, Judge Grosuch spends 12 more pages doing just that: the work. Just as the the Supreme Court in Till was not deterred by a mere $4,895 Chapter 13 truck loan, Judge Gorsuch is committed to making sure that competing interests in a $2,000 1980 Pontiac Trans Am receive all of the deliberation that he and his panel can muster.

And, thus, Haberman might also inspire bankruptcy practitioners and judges who take their clients and their litigants as they find them. That is, it’s heartening to survey a judge of Gorsuch’s stature–one who will in all likelihood assume a position on the world’s (still) most important Court–seek the right answer in a manner commiserate with the highest of stakes.

To be sure, that approach is already a truism for most bankruptcy judges–some of the best legal minds in the country are guarding the cracks for their consumer and small business debtors.

By the way, Judge Gorsuch also reached a decision in Haberman (after a rather lengthy explanation of why Dewsnup didn’t apply). Specifically, he resolved the issue of whether the avoidance of the Trans Am lien entitled the trustee to the full value of the loan that the Trans Am secured or just the value of lien itself (i.e., the Trans Am’s $2,000 petition date value):

Congress empowered the Trustee to avoid the Bank’s security interest in the Habermans’ Trans Am, and to take for the bankruptcy estate the value of that unperfected “transfer.” But Congress did not afford the Trustee the additional power to assume all of the Bank’s rights and interests with respect to the Habermans, including those that cannot fairly be described as “transfers of property interests.” For this reason, the judgment of the Bankruptcy Appellate Panel is…Affirmed.

As Judge Gorsuch observed earlier in the decision:

If the Trustee wishes greater authority, it seems to us his petition must be directed to those who make the law, not those who apply it.

Conclusion

We positioned ourselves in this 2-part post to better understand Judge Gorsuch’s bankruptcy style than bankruptcy substance.

On the one hand, we were surprised how much we enjoyed reading his decisions. As Bill Rochelle described Judge Gorsuch, he will “will bring uncommonly fine writing talents to the high court, assuming he survives opposition from Democrats.” “Where many judicial opinions tend to be dry and sleep-inducing, Judge Gorsuch writes opinions that are lively, engaging and erudite.”

On the other hand, we’re inclined to weigh in on the substance in one limited respect. Credit Slips’ Jason Kilborn observed, initially at least, that a “simple takeaway from all of these cases is that Gorsuch is not at all what one might call ‘debtor-friendly.’ In fact, I don’t think one of the dozen-or-so opinions I found ruled in favor of the debtor(s).” In fairness, Jason also suggests that a “more nuanced takeaway is that Gorsuch is a careful and serious jurist who will apply the letter of the law in tight and cleverly written opinions.” Our review bears out the latter.

However, our review of Judge Gorsuch’s bankruptcy decisions also suggests a certain hazard in labeling a bankruptcy judge as a “debtor-friendly” judge or entertaining labels at all.

First, Jason’s, Bill’s, and our reviews are each limited to bankruptcy opinions that Judge Gorsuch wrote. He also participated on at least 30 other bankruptcy panels. Therefore, the sample size is very limited. Judge Gorsuch’s preferences, if any, about debtors, creditors, businesses, etc. very well might be lurking in the opinions that he joined but didn’t write.

Second, Judge Gorsuch, like many judges, has had his share of bad debtors and litigants. Indeed, nearly half of them were thrown out for procedural or jurisdictional reasons. And half of the others were dishonest and deemed by 3 layers of courts not to be worthy of bankruptcy’s protections.

In our experience, so-called “debtor-friendly” judges can be dishonest debtors’ harshest and most unforgiving critics.

Finally, as we gear-up for what should be the most-watched confirmation hearing since Justice Thomas’ 1991 confirmation hearing, we humbly urge those following at home to pause and, better yet, read before attributing a political or ideological viewpoint to any judge, much less a Supreme Court nominee, especially any viewpoint that is broader than the judge’s interpretive ideology.

With respect to Judge Gorsuch’s subset of bankruptcy opinions, in particular, we didn’t detect a disqualifying results- or politically-oriented approach. And we like him, too.

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