Disputes in bankruptcy court cases have traditionally been a challenging terrain for judges. Particularly, post the Johnson & Johnson talc bankruptcy filing in 2021, US Bankruptcy Court Judge Michael Kaplan bore witness to numerous disagreements ranging from issues concerning discovery, the administration of tens of thousands of individual claims, to vehement conflict over the overall amount in contention. While in a district court, the appointment of a special master could have been an appropriate resolution, this could not be implemented due to Kaplan’s role as a bankruptcy judge, hence subject to the Rules of Bankruptcy Procedure.
Common in federal district courts, special masters— otherwise known as court-appointed neutrals— are typically retired judges, practicing attorneys, or law professors. Empowered by Rule 53 of the Federal Rules of Civil Procedure, these masters can take on several responsibilities under the court’s discretion. These responsibilities include addressing pre-trial and post-trial issues, performing consented duties by involved parties, and resolving difficult computations or damage calculations servers. Once appointed, special masters offer orders and recommendations that the court can reject, modify, or adopt, and the involved parties are allowed to contest the masters’ determinations.
However, Rule 9031 of the Federal Rules of Bankruptcy Procedure expressly prohibits the appointment of special masters in bankruptcy cases. This rule holds even though the power and utility of court-appointed neutrals have been widely acknowledged. Kaplan’s recent stance opposed the rule, laying the groundwork for future debates on this matter.
In his January letter to the Federal Committee on Rules of Practice and Procedure, he proposed a simple amendment that would allow Bankruptcy Rule 9031 to permit the appointment of masters in bankruptcy cases. He highlighted that this move would reduce the existing burden on bankruptcy courts.
Kaplan argued that the modern bankruptcy case burden has multiplied exponentially from previous years due to the increasing complexity of issues like cryptocurrency filings, mass torts, and corporate asset valuations. The existing tools available to bankruptcy courts have proven insufficient to cope with the influx of filings. Thus, he underlines the much-needed role of special masters in bankruptcy proceedings.
The proposed change is backed by distinguished entities in the legal sphere. For instance, last year, the ABA House of Delegates adopted a resolution in support of amending Rule 9031 to allow the use of court-appointed neutrals in bankruptcy cases. Moreover, Merril Hirsh, Executive Director of the Academy of Court-Appointed Neutrals, has consistently voiced support for updating Rule 9031.
As bankruptcy proceedings continue to evolve into more expensive and intricate cases, proponents of special masters’ roles in these cases are optimistic that the initial justifications for Rule 9031 have gradually diminished, setting the stage for a much-needed reform in the procedure.