Statement on Signing the Bankruptcy Amendments and Federal Judgeship Act of 1984

July 10, 1984

I am pleased to sign today H.R. 5174, the Bankruptcy Amendments and Federal Judgeship Act of 1984. This legislation carries out a number of critically needed reforms. The bill is the product of long and arduous negotiations among many interested parties. It represents a compromise that may not be satisfactory to all concerned in each of its respects. I am satisfied, however, that the bill adequately addresses the major problems that resulted from enactment of the Bankruptcy Reform Act in 1978.

The bill restructures the bankruptcy courts system in order to comply with a 1982 decision of the Supreme Court regarding the authority of bankruptcy court judges under the 1978 act. It also remedies abuses by both debtors and creditors in consumer bankruptcy proceedings and protects farmers and commercial fisheries from unfair losses that are sometimes incurred when grain elevator operators and fish processors go bankrupt.

I note with special pleasure a provision of H.R. 5174 that would prohibit a debt incurred as a result of drunk driving -- where a drunk driver is successfully sued for causing an automobile accident, for example -- from being discharged in bankruptcy. This proposal is one of many made last year by the Presidential Commission on Drunk Driving and complements a number of other initiatives that my administration has undertaken in this important area. I am hopeful that it will act as an additional incentive in keeping drunk drivers off our nation's roads.

H.R. 5174 also resolves a troublesome problem concerning the status of labor contracts in bankruptcy proceedings. In my view, an unfettered collective bargaining system is essential to cooperative and effective relations between labor and management. The way in which collective bargaining agreements are treated in bankruptcy is critical. This legislation meets the interests of labor by prohibiting unilateral rejection of labor agreements without court review of whether rejection is necessary. The bill also meets the interests of both labor and business by providing debtors with the flexibility they need to reorganize successfully and preserve jobs for workers. In these cases, bankruptcy courts are required to recognize the great importance that matters of this nature hold for workers and management alike by resolving questions related to collective bargaining agreements in a timely manner.

There are two provisions of H.R. 5174 that I find particularly objectionable.

First, the provisions of the bill that authorize the creation of 85 new Federal judgeships present a potential constitutional problem. Section 201 of the bill creates 24 new court of appeals judgeships but states that I may not appoint more than 11 judges before January 21, 1985. Similarly, section 202 creates 61 new district court judgeships, but prohibits me from appointing more than 29 judges before January 21, 1985. I believe that these provisions clearly violate my constitutional authority under the appointments clause of the Constitution to submit nominations to the Senate and to make appointments after receiving the Senate's advice and consent. As a practical matter, I do not consider it likely that I will appoint more than 40 new judges before the date set forth in H.R. 5174. Consequently, although my actions will be consistent with these provisions, the purported restrictions of my appointments authority will have no actual effect. My acquiescence in these provisions should in no way be considered as a precedent for future congressional limitations on the constitutional appointments authority of the President.

Second, section 382 of the bill places limitations on the fees that a handful of bankrupt estates currently owe the referees salary and expense fund. As I emphasized in 1981 when I withheld my approval of H.R. 4353, a similar proposal that was presented to me as a separate bill, I strongly object to attempts of this nature to confer private relief on a few to the direct detriment of others who are similarly situated and who have met their legal obligations. This is especially true in this case, which I understand involves a giveaway in excess of $20 million. I would have vetoed this section of H.R. 5174 had it passed the Congress as ``stand alone'' legislation.

I sign this bill with the following additional reservations. I have been informed by the Department of Justice that the provisions in the bill seeking to continue in office all existing bankruptcy judges are inconsistent with the appointments clause of the Constitution. I am also advised that the Administrative Office of the U.S. Courts has reached the same conclusion. Therefore, I sign this bill after having received assurances from the Administrative Office that bankruptcy cases may be handled in the courts without reliance on those invalid provisions. At the same time, however, I urge Congress immediately to repeal the unconstitutional provisions in order to eliminate any confusion that might remain with respect to the operation of the new bankruptcy system.

Note: As enacted, H.R. 5174 is Public Law 98 - 353, approved July 10.