A Third Way: Examiners As Inquisitors

By Daniel J. Bussel, UCLA School of Law

BusselThere is a buzz concerning bankruptcy examiners. Recently in such cases as ResCap, Dynegy and Tribune, and perhaps now in Caesars, examiners have played a decisive role in resolving major Chapter 11 cases involving avoiding power claims.

“Litigate or settle” is the dispute resolution choice generally available in US bankruptcy courts. But there is another way: An inquisitorial model of justice in which an active and informed neutral investigates the facts and then assesses and applies the law to resolve a legal dispute. Chapter 11 examiners are peculiarly suited to introduce this inquisitorial process into a Chapter 11 case. In particular, Ken Klee, serving as examiner in the Tribune case, and a series of post-Tribune investigations show that inquisitorial methods make sense in certain large bankruptcy cases involving complex legal disputes (rather than financial or operational problems). Indeed Tribune and its progeny suggest that the inquisitorial experiment has already begun.

A Third Way: Examiners As Inquisitors looks at examiner methodologies in Tribune and the few post-Tribune examiner cases. It assesses the method’s comparative advantages (fact-finding accuracy, nonpartisan experts, freedom from artificial evidentiary constraints, transparency and legitimacy) and disadvantages (lack of finality, expense, delay, risks to reorganization efforts, risk of overzealousness, due process concerns) and suggests that in the absence of a countervailing business exigency demanding exclusive focus on reorganization, the Tribune model may offer a superior alternative for resolving contested avoidance claims. Indeed, large Chapter 11 cases may be an ideal proving ground for inquisitorial methods more broadly.

For more see A Third Way: Examiners As Inquisitors, 90 Am. Bankr. L. J. __ (forthcoming 2016), available here.