The Federal Government Shutdown Strikes In Bankruptcy Court

Yesterday, in my e-filing inbox, in connection with cases where I represent a party in a bankruptcy,* was an "Order On United States Trustee's Motion for Omnibus Order and Extending Certain Deadlines in Light of Lapse of Appropriations" (United States Bankruptcy Court for the District of Colorado, October 2, 2013, Administrative Order of the Chief Judge 2013-3).

I am advised in the order (in the pertinent part, citations omitted) that:

At the end of the day on September 30, 3013, appropriations to the Department of Justice lapsed. The UST [United States Trustee] is a Justice Department Official. The UST and his staff are compensated for the performance of their duties from appropriations. . . . The entry of an omnibus order will alleviate the use of Court resources that would otherwise occur were the UST to file a separate motion in each pertinent bankruptcy case and adversary matter and separate orders were to enter on each motion. . . . the deadline of the UST to respond to the applications or motions on the list of matters identified below shall be extended in all bankruptcy cases pending or filed during the cessation of ordinary operations during the lapse in appropriations until seven (7) calendar days after UST's staff attorneys are permitted to resume their usual litigation functions.

The order then provides a list of sixteen kinds of U.S. Trustee filings in Chapter 7 and 11 cases (which is quite comprehensive although not all kinds of U.S. Trustee filing deadlines are included).

One suspects that if the shutdown continues long enough that the seven day post-shutdown grace period will have to be extended even further. If there is a three week shutdown as there was just after I started practicing law, it will take the U.S. Trustee more than a week to catch up with a three week backlog in addition to handling all the new deadlines that continue to come due.

From a practical perspective, the order means that new bankruptcies can be started and that a few kinds of urgent matters can be addressed, but that bankruptcy cases can't be closed for a period that is indefinite. This isn't a huge deal in a no asset Chapter 7 bankruptcy. But, in cases where a Chapter 11 bankruptcy reorganization is on the verge of approval pending U.S. Trustee action, the economic harm to the nation could be material.

To be clear, I believe that this order, in fact, is an elegant, appropriate, and clearly correct solution to this institution-wide issue (since the U.S. Trustee is a party to nearly every bankruptcy case currently pending), even though the precedent and statutory and procedural rule guidance for this is thin.

Still, there is just a little part of me that wishes that I could file a Motion staying all of my deadlines in all of my cases simultaneously at times when my clients weren't paying their bills and I had to dip into my personal funds to make payroll and cover overhead. (Private parties have received no extension of their deadlines, by the way (not that they should), except to the extent that they are calculated from prior U.S. Trustee deadlines.)

This is particularly true because, while the U.S. Trustee's office is paid out of appropriations, the office also receives substantial payments that support the office from user's fees collected as a priority administrative expense claim in bankruptcy cases (behind only family support payments in priority), especially in Chapter 11 cases, even though this payments often come only after most of the work is done and the bankruptcy estates in question generate some cash, which can be hard on cash flow. All of this is mitigated, somewhat, however, because, as the Order explains:

Absent an appropriation, Department of Justice attorneys and staff, including the UST's staff, are prohibited from working, even on a voluntary basis, "except for emergencies involving the safety of human life or the protection of property."

There is a big difference between merely not getting paid, and not being allowed to work even voluntarily (although the latter does come up in private practice when a client orders you to take no further action so as not to cause the client to incur additional fees, but a court has not granted you permission to withdraw from the representation).

While in theory, almost everything the U.S. Trustee's office does is to protect property for the benefit of unsecured creditors, in a government shutdown, unlike, in Authorization for Use of Military Force resolution drone strikes, words like "emergency" are given an ordinary rather than an expensive reading. (Incidentally, while active duty military personnel are at their posts, many civilian DOD and intelligence agency employees, about 70% in intelligence agencies, are actually furloughed like everyone else.)

Also, it is worth noting that while in this case the U.S. Trustee (a litigant) was defunded, but the Court is still in business, that the federal courts will run out of money in a week or so and will themselves have to restrict themselves to emergency operations only at that point (it isn't clear to me how this works in light of constitutional mandates to pay judges, although not judicial staff and overhead, and in light of the problems involved when the executive and legislative branches claim the power to shut down another branch of government in a separation of powers context).

This also illustrates that even though the federal courts may be open for civil litigants for another week or so, that in criminal cases, where one of the litigants ("The People") is always represented by the Justice Department, that the entire criminal docket comes to a standstill.  Add civil cases involving federal government parties which are a substantial part of the federal docket (e.g. civil deportation cases, civil tax fraud cases, securities fraud cases, FDIC enforcement actions, etc.) and much of the federal docket will come to a halt much sooner than the point at which the federal government runs out of money.

I have not yet heard how pending or imminent jury trials with federal government parties are being treated.

Federal government shutdowns call attention to the residual desirability to delegating as much responsibility for essential government functions as possible to state and local governments, or to self-funded independent agencies respectively.  For example, if the national parks were part of a government sponsored non-profit that was supported with a combination of user's fees that it could retain and an endowment of Treasury bonds that provided a default baseline of funding, rather than mostly through annual appropriations (a bit like the corporation for public broadcasting), a government shutdown wouldn't stop these low cost, high visibility government activities from screeching to a stop every time one party in control of one house of Congress wanted to force the President to give in to its demands.

* I generally don't represent parties filing voluntary bankruptcy petitions, but do represent parties impacted by someone else's bankruptcy, something almost every business client of any consequence will be on the receiving end sooner or later.  I'm usually an attorney of record in at least one or two bankruptcies at any given time for one client or another, even if the representation is often low key.