Oregon Bankruptcy Court: From 1978 to the Present

by Stephen Raher

The Fall 1999 issue of Oregon Benchmarks featured an informative overview of Oregon’s bankruptcy system through 1978, a year of unprecedented structural change in the bankruptcy world.  With this summer’s USDCHS picnic honoring bankruptcy practitioners, it’s time to catch up on developments since the enactment of the Bankruptcy Code in 1978.

Although the first lasting bankruptcy legislation was passed in 1898, specialized bankruptcy judges or adjudicators were not recognized on a national scale until the Chandler Act of 1938.  Under the Chandler Act, district court judges were able to appoint bankruptcy “referees” to oversee both administrative and adjudicative aspects of bankruptcy cases.  In 1973, when the Federal Rules of Bankruptcy Procedure were promulgated, the title referee was abandoned in favor of “bankruptcy judge.”

Spurred by an explosion in consumer bankruptcies, Congress began debating a bankruptcy overhaul in 1968.  Two years later, Congress created a commission to study and recommend changes in administrative and substantive bankruptcy law.  The commission, which included University of Oregon law professor Frank Lacy, conducted numerous research projects and held hearings around the country.  In 1973, the commission issued a two-part report that recommended sweeping changes to the Bankruptcy Act of 1898.  Several years of Congressional debate followed, culminating in the passage of the Bankruptcy Reform Act of 1978.

Much of the debate focused on the status of the new bankruptcy judges.  Some advocated for using staff “commissioners” (who would report to district judges), while others thought a new tier of bankruptcy judges should be created.  Alternatively, some in Congress thought district judges should handle all bankruptcy matters, while still others advocated for bankruptcy judges with Article III status (i.e., lifetime tenure and salary protections).  Debates also arose over who should appoint bankruptcy judges (Circuit courts? District courts? The president?).  The legislation that passed Congress created new bankruptcy courts which were to act “as an adjunct to the district court for such district.”  Northern Pipeline Constr. Co. v. Marathon Pipe Line Co. 458 U.S. 50, 53 (1982).  The judges of the new bankruptcy courts were to be appointed by the president for 14-year terms, removable (by the circuit judicial counsel) only for cause.

In Oregon, four former bankruptcy referees were appointed as new bankruptcy judges under the 1978 Act: Folger Johnson, Henry Hess, and Donal Sullivan, in Portland, and C.E. Luckey in Eugene.  Judge Michael Hogan also served double-duty as a part time magistrate and part-time bankruptcy judge in Eugene.

Only a few years after the passage of the 1978 Act, the Supreme Court threw a wrench into the new court structure.  In the Marathon case, the court held that Congress’s delegation of judicial power to bankruptcy judges without Article III protections violated the Constitution.  Rather than immediately toss the bankruptcy system into chaos, the court issued a stay of its decision so that Congress could amend the law.  Unsurprisingly, Congress did not complete its work on time and requested several extensions from the Supreme Court.  Ultimately, the Court’s patience was exhausted and it declined to further stay the decision.  As a result, for a few weeks in 1984 (after the expiration of the stay, but before the enactment of the Bankruptcy Amendments and Federal Judgeship Act), all bankruptcy judges were laid off and rehired as “consultants.”  According to Judge Elizabeth Perris’s oral history, “We gave up wearing our robes.  We would ask the parties who showed up for their trials if they wanted the consultant to make finding and recommendations on their trial.  And they would say, most of them, ‘Yes’ . . . . We couldn’t sign any orders because we had no judicial authority.  All the orders had to go to the district court for signature.  It was an interesting period.”

Since the jurisdictional wrinkles were sorted out in 1984, Oregon’s bankruptcy court has functioned consistently and largely without drama.  Although it lacks the high-profile cases that East Coast bankruptcy courts are used to, our court has had some moments in the spotlight, including the nation’s first-ever Catholic church bankruptcy, In re Roman Catholic Archbishop of Portland in Oregon, Case No. 04-37154-elp11.  Other notable Oregon cases include the 1985 liquidation of the holding company owned by the Rajneesh Neo-Sannyas International Commune in Central Oregon, the 2004 reorganization of the Oregon Arena Corporation (owner of the Rose Garden), and the 2016 bankruptcy of Seaport Airlines.

All told, thirteen judges have sat on the U.S. Bankruptcy Court for the District of Oregon since 1978, with tenure as follows: