Newark, New Jersey – Since the first talc bankruptcy was filed in 2021, Judge Michael Kaplan has grappled with numerous disputes in the US Bankruptcy Court. These disagreements encompass a range of issues, including fights over discovery, disputes over the administration of individual claims, and conflicts over the total amount in controversy.
If Kaplan were a district court judge overseeing a mass tort action, the solution would be clear: appoint a special master to efficiently manage the increasingly contentious parties. However, as a bankruptcy judge, Kaplan is prohibited from appointing a special master according to the Rules of Bankruptcy Procedure.
Last month, Kaplan launched a challenge against this outdated rule.
In federal district courts, it is fairly common for judges to appoint special masters, also known as court-appointed neutrals. These positions are typically filled by retired judges, practicing attorneys, and law professors.
The authority to appoint special masters in district courts derives from Rule 53 of the Federal Rules of Civil Procedure. This rule allows a court to appoint a special master to perform duties consented to by the parties, make findings of fact on issues to be decided without a jury under exceptional conditions, or address pre-trial and post-trial matters that cannot be effectively addressed by a judge of the court.
Many state courts, including those in New York, have adopted their own versions of Rule 53. District courts have discretion to appoint special masters for various roles that would expedite litigation and achieve a just resolution. Examples of common uses for special masters include resolving disputes over privilege and e-discovery, managing discovery, resolving fee disputes, facilitating settlement discussions, and acting as monitors or receivers.
Once appointed, the judge defines the special master’s specific duties and determines the scope of their role in the litigation. The special master can issue orders and recommendations that the court can choose to adopt, reject, or modify. The parties involved can also contest the special master’s determinations.
In contrast to the Federal Rules of Civil Procedure, Rule 9031 of the Federal Rules of Bankruptcy Procedure explicitly prohibits the appointment of special masters in bankruptcy proceedings. Amendments to Rule 9031 were last considered in 1996, where the Advisory Committee on Bankruptcy Rules declined changes, citing the infringement on the bankruptcy judge’s authority and the perceived lack of necessity and efficiency of special masters.
Last month, Kaplan, a bankruptcy judge in New Jersey, called for an amendment to Rule 9031. In a letter to the Federal Committee on Rules of Practice and Procedure, Kaplan recommended changing the title of Bankruptcy Rule 9031 to “Masters Authorized” and striking the word “not” from the rule itself. He argued that allowing special masters in bankruptcy proceedings would alleviate the burden on bankruptcy courts.
Furthermore, last year, the ABA House of Delegates adopted a resolution urging the amendment of Rule 9031 to permit the use of court-appointed neutrals in bankruptcy proceedings. Advocates for the change, including Merril Hirsh, executive director of the Academy of Court-Appointed Neutrals, argue that Rule 9031 is outdated and no longer serves a legitimate purpose.
As bankruptcy cases become more intricate and expensive, and with the original justifications for Rule 9031 fading, supporters of special masters in bankruptcy proceedings believe they may finally succeed in amending the rule this time around.