IS IT U.S. FEDERAL JUDGE TEX LEX, OR U.S. FEDERAL JUDGE LEX REX?: IS THE LAW KING, OR ARE JUDICIAL BANKRUPTCY "KINGS" NOW "THE LAW"?

IS IT U.S. FEDERAL JUDGE TEX LEX, OR U.S. FEDERAL JUDGE LEX REX?: IS THE LAW KING, OR ARE JUDICIAL BANKRUPTCY "KINGS" NOW "THE LAW"?

Submitted by Lana Shadwick on Jul 30, 2013 Bankruptcy Law Review

Is the Law King, or is the King Law in the courts in the United States? Stern v. Marshall made clear that bankruptcy courts cannot abuse their limited authority. In the Southern District of New York’s bankruptcy courts, Judge Robert Gerber has refused to rule on motions to dismiss filed in clawback actions against shareholders, and he has done so for three years. “Not to decide is to decide." Gerber's refusal to rule is either passive-aggressive judicial activism, or at the very least, a lack of diligence under basic standards of judicial conduct.

John Locke wrote of Lex Rex and posited that the Law is king. He also stated that government cannot "dispose of the estates of the subjects arbitrarily." [1] Aristotle had been concerned about those who thought they had a "divine right" to rule. In Lex, Rex, Samuel Rutherford condemned royal absolutism and advocated the rule of law.

[2](Lex, Rex was part of the last official book-burning in England.)

Stern v. Marshall made clear that bankruptcy courts cannot abuse their limited authority. Judge Robert E. Gerber, bankruptcy judge of the Southern District of New York, has refused to rule on motions to dismiss filed in clawback suits, and he has refused to rule on them for three years. Gerber's refusal to rule is either passive-aggressive judicial activism, or at the very least, a lack of diligence in the performance of his duties. "Not to decide is to decide."

Black's Law Dictionary defines judicial activism as a "philosophy of judicial decision-making whereby judges allow their personal views about public policy, among other factors, to guide their decisions." Judicial activism has been a hot topic during the last thirty years and there are many different opinions on the subject. Some believe that all judges are activists. [3]

Basic to the operation of our system of government in the United States is the separation of powers doctrine. Under this doctrine, the government is divided into three branches - legislative, executive, and judicial. The purpose of setting up three independent branches is that the branches serve as a check and balance upon the other. As it relates to judges, the idea is that legislators legislate, and judges adjudicate.

Judges also swear under oath to faithfully and impartially discharge the duties of their office. The American Bar Association Model Code of Judicial Conduct states that "a judge shall be faithful to the law and maintain professional competence in it." 1 The Code of Conduct for United States Judges contains the same provision. 2

The ABA Model Code also contains commentary that "although each judge comes to the bench with a unique background and personal philosophy, a judge must interpret and apply the law without regard to whether the judge approves or disapproves of the law in question." 3 The Code of Conduct for United States Judges provides that a judge "should comply with the law, as well as the provisions of this Code. Public confidence in the impartiality of the judiciary is maintained by the adherence of each judge to this responsibility. Conversely, violation of this Code diminishes public confidence in the judiciary and thereby does injury to the system of government under law." 4 According to Jeffrey M. Shaman [4], a leading scholar of judicial ethics, " [i]ntentional refusals to follow the law are . . . [a] manifestation of unfitness for judicial office." 5

And while a judge may have private reasons for wanting to deviate from the law in order to benefit a relative or friend, procedural rules and codes of judicial conduct require a judge to recuse themselves where such is the case. A judge must recuse themselves if there is in fact bias or prejudice, and they must recuse themselves if their impartiality could reasonably be questioned. [5]

A judge must follow the law even if they deplore the result but they are free to criticize it when they do so. 6 It was said of Justice Learned Hand [6] who served on the United States District Court for the Southern District of New York, that "bowing to precedent did not prevent [Hand] from expressing sharp and thoughtful criticism of the prevailing law, or from suggesting a better approach." 7

Keenan Kmiec [7], former U.S. ambassador and Chair and Professor of Constitutional Law at Pepperdine, has identified five core meanings of judicial activism [8]. These are: (1) invalidation of the arguably constitutional actions of other branches; (2) failure to adhere to precedent; (3) judicial "legislation"; (4) departures from accepted interpretive methodology; and (5) result-oriented judging. He defines the third factor as occurring when judges change legal standards without legal authorization. According to Kmiec, courts have a duty to follow a presumption of constitutionality and invalidate an action only where the law is not even arguably constitutional

While a judge may in good faith make an error in a legal ruling, the very least he must do is be diligent in the performance of his duties. The Code of Conduct for federal judges states that "a judge should perform the duties of the office . . . diligently." 8 Canon 3 also provides that "[t]he judicial duties of a judge take precedence over all other activities." 9

As noted by Dr. Jeffrey Brand, Professor at George Washington University [9], "[j]udges have various professional duties while they remain on the bench. These include duties to oversee court proceedings, to maintain decorum, to study the law, to rule on motions, to examine evidence presented, to answer questions from jurors, to decide cases, et cetera." 10 Dr. Brand recognizes that "[a]t one time or another, every judge has an incentive to shirk his duty in order to avoid hard work. Some judges dislike their work and would prefer less of it. Even judges who enjoy the job also enjoy leisure time and would like more of it. Some judges would prefer playing golf to appearing in court." Although I do not agree with Dr. Brand on every one of his legal theorems, I do agree that the failure to fulfill the duties of the office constitutes misconduct which can be sanctioned. 11

Bankruptcy Law Review has highlighted the plight of former shareholders, officers and directors of Lyondell and LyondellBasell who are being sued by aggressive plaintiff attorneys in clawback actions [10]. These innocent shareholders and other defendants are accused of engaging in fraudulent transfers that should be confiscated for distribution to unsecured creditors. These individuals were exonerated from such claims by the Delaware Supreme Court. [11] 12 These individuals are being sued by belligerent plaintiffs lawyers because they purchased stock, there was later a leveraged buyout, and a subsequent Chapter 11 bankruptcy. Judicial Hellholes [12] has documented that New York City and Albany are two of the cities that are most heavily under the tyranny of an aggressive plaintiffs' Bar.

Two of these clawback actions against these former shareholders are pending before bankruptcy Judge Robert Gerber of the Southern District of New York. The second state court action is pending in the Supreme Court for the State of New York, New York County. Copies of the complaints, and the motions to dismiss of the shareholders and former officers and directors, and the trustee's opposition to the motions to dismiss, are linked to this website. [13]

Safe harbor laws were designed to protect shareholders and officers and directors after a leveraged buyout. [14] These laws are designed to make it "safe" for arms-length investors to buy stock. This principle is what allows this country's financial system to work. Aggressive and abusive New York plaintiff lawyers have brought state claims to try to get around these protections in an effort to unjustly profit and avoid the law.

The application of safe harbor laws to leveraged buyouts and the Lyondell bankruptcy was a hot topic during the American Bankruptcy Institute ("ABI") Winter Leadership Conference. The panel of judges discussed the clawback actions against these former shareholders and officers and directors calling them "creative" claims brought by "creative" lawyers. While these claims are broadly recognized as "creative," Judge Gerber has refused to rule on the motions to dismiss these frivolous claims. Judge Gerber has refused to rule on these motions and has let the motions sit in a file growing cobwebs FOR THREE YEARS. The author of The Peter Principle [15], Laurence J. Peter [16], quoted Harvey G. Cox of the Harvard Divinity School [17] that "not to decide is to decide." 13

At this juncture, it is hard to believe that this nonfeasance is unintentional. Judges have a clear duty to be diligent in the performance of their duties, and they are to put bias or prejudice aside or recuse themselves. HOW CAN A JUDGE WAIT THREE YEARS TO RULE ON MOTIONS TO DISMISS? At this point, we must ask if is it really an issue of diligence; it would not seem so, so WHAT IS THE ISSUE?

It is an understatement to say that this refusal to perform provides for a further erosion of public confidence in the judicial system. The refusal to rule on these motions to dismiss is a further crime perpetrated on these innocent shareholders. What if a criminal judge refused to move criminal cases forward? How would the victims of murder, rape, and robbery feel and how would they view the justice system? These former shareholders, officers and directors are being re-victimized by Judge Gerber's refusal to rule.

As previously discussed, judges have a duty to "diligently" perform their duties, and this diligence is specifically defined as ruling on motions. Judges are to rule on the matters brought before them and they must do so regardless of whether or not they approve or disapprove of the law. The question has been posed by many - is Gerber refusing to rule on the motions because he knows his decision would be reversed pursuant to existing case law by the U.S. Court of Appeals for the Second Circuit [18], or under the United States Supreme Court decision of Stern v. Marshall [19]? By not ruling, there is no order to appeal, and he cannot be reversed. When judges refuse to fulfill their legal duty to rule on the motions that are filed in their courts, lawyers have the time to harass and intimidate innocent former shareholders, officers, and directors until they settle.

In Stern v. Marshall, the U.S. Supreme Court placed limits on the power of non-Article III courts to enter final decisions in cases or causes of action that traditionally are heard and decided by Article III courts [20]. The Supreme Court made it clear that judges who are not protected from political pressures from the President or by Congress or powerful others (reduction in pay, et cetera, because they are not protected by lifetime appointment), are indeed limited in what they can decide. This is especially true in Chapter 11 bankruptcy proceedings.

Bankruptcy or "restructuring" attorneys and firms, especially those in the Southern District of New York, have decried the decision as creating havoc, delay, and confusion in Chapter 11 proceedings. A plain reading of the Stern case holds that bankruptcy courts have limited authority and cannot exploit their power by going beyond that limited authority. Non-Article III courts cannot extend their power by finally deciding claims, or refusing to decide such claims, including fraudulent transfer claims, against former stockholders and officers and directors, against citizens who would otherwise have a right to have the case against them decided by an Article III federal judge. This appears to be a deliberate step by the Supreme Court to protect the right and obligation of the federal judiciary to decide the politically and financially motivated attacks on private citizens that now characterize Chapter 11 bankruptcy proceedings.

The widespread practice of judges employing Federal Rule of Civil Procedure 16 to effectively implement summary judgment merits review sua sponte has been the source of commentary. 14 Wholesale refusal to rule on a motion to dismiss is quite another issue. AN INTENTIONAL REFUSAL FOR THREE YEARS TO RULE ON MOTIONS TO DISMISS by Judge Gerber in the Lyondell bankruptcy case should be a prima facie case of passive-aggressive judicial activism as well as unfitness for judicial office. The least of his deficiencies would be a lack of diligence in the performance of his duties. Judge Gerber should perform his duty to rule on these motions and let the justice system run its course through the appellate system.

Although Congress has impeached thirteen judges between 1789 and 1991 15 , no state judge has been impeached, convicted, and removed from office based on political or policy disagreements with the judge's decision. 16 Congress has removed judges for official and personal misconduct but it has not, in 200 years, done so because it disagreed with the outcome of cases. 17 Since 2001, however, there have been several state legislatures that have threatened to impeach a judge based on a decision. 18 In the case of Judge Gerber, he has not made a decision because he has not ruled on the motions to dismiss. Bankruptcy judges are not Article III judges, so they are removed by their circuit judicial council, not by Congress via impeachment. [21] Circuit judicial councils are the governing body in each federal circuit. Each council has an equal number of circuit and district court judges and the Chief Judge of the circuit is the presiding officer. These judicial councils are "created by Congress to ensure the effective and expeditious administration of justice in that circuit." [21] The council in Gerber's federal circuit should look into Judge Gerber's three-year refusal to rule on motions before his court.

The Law must govern and no "Ruler" is above the law. Judges have a duty to rule, and a duty to dismiss frivolous causes of action that have been deemed impermissible under the law. Detachment from the very real injustice of letting these motions to dismiss sit without judicial action is worse than any declaration of "let them eat cake." Further injustice is done to citizens when a judge refuses to perform his duty - innocent defendants are re-victimized. Many of these innocent defendants are retirees who invested in the stock market in good faith. These individuals must now spend retirement dollars to defend against these trumped-up suits, and they sit at home worried that their retirement funds will be ceased. BLR will continue to follow injustices in the bankruptcy courts.

1 Model Code of Judicial Conduct, American Bar Association, Canon 3(B)(2).

2 Code of Conduct for United States Judges, Canon 3A(1).

3 Id., Comment on Rule 2.2.

4 Id., Commentary to Canon 1.

5 Jeffrey M. Shaman, "Judicial Ethics," 2 Georgetown Journal of Legal Ethics 9 (1988).

6 Charles Fried, "Scholars and Judges: Reason and Power," 23 Harvard Journal of Law and Public Policy 807, 811 (2000).

7 Gerald Gunther, Learned Hand: The Man and the Judge (Cambridge, Mass. Harvard University Press, 1998) at 149.

8 Code of Conduct for United States Judges, Canon 3.

9 Id.

10 Jeffrey Brand, Ph.D., Limits of Legality: The Ethics of Lawless Judging (Oxford University Press, 2010) at 56.

11 Id. (citing Code of Conduct of United States Judges, Canon 3).

12 Revlon Inc. v. MacAndrews and Forbes Holdings, Inc., 506 A.2d 173 (Del. 1986).

13 Laurence J. Peter, Peter's Quotations, p. 297 (1977).

14 Miller, "The Pretrial Rush to Judgment: Are the 'Litigation Explosion,' 'Liability Crisis,' and Efficiency Cliches Eroding Our Day in Court and Jury Trial Commitments?", 78 New York University Law Review 1006, 1052, 1055-56.

15 Warren S. Grimes, "Hundred-Ton-Gun Control: Preserving Impeachment as the Exclusive Removal Mechanism for Federal Judges," 38 UCLA Law Review 1209, 1214 n. 32 (1991).

16 Brand, Limits of Legality: The Ethics of Lawless Judging at 56.

17 Id. (citing Report of the National Commission on Judicial Discipline and Removal, 152 F.R.D. 265, 282 (Aug. 1993)).

18 Brand, Limits of Legality: The Ethics of Lawless Judging at 68.