Federal Bankruptcy Judge: Running a Second Chance Court

Kyle McEntee:

We're joined today by the Honorable Elizabeth Stong, a bankruptcy judge for the Eastern District of New York, sitting in Brooklyn. Was becoming a judge on your radar when you began law school?

Judge Elizabeth Stong:

Absolutely not. I'd never met a lawyer. I'd never met a judge. I'm sure I knew they worked in courtrooms and wore black robes and did good, but never ever in any stretch of my fairly good imagination could I have seen myself in that role when I started law school.

Kyle McEntee:

So, before you became a judge, you, in addition to clerking, you went on to be a litigator and even became partner at your firm. How did you hear about the judicial opening that you ended up getting?

Judge Elizabeth Stong:

There was an announcement, I think, in the New York Law Journal that the circuit, the Second Circuit Court of Appeals, which is the appointing authority for federal bankruptcy judges in the circuit, you know, judges appointed by judges, that this circuit is seeking qualified applicants for an opening in the Eastern District of New York. And actually at the time, I think the seat was in our Long Island Courthouse, Central Islip. We live in Brooklyn. Did then, do now. And so that's how I learned about the particular opening for which I was crazy enough to apply and lucky enough to be selected.

Kyle McEntee:

Were you like looking?

Judge Elizabeth Stong:

No, no, no, no, no. I was a very happy partner. I really enjoyed my work. I had wonderful clients, great opportunities to represent not only big entities with big problems that needed big solutions, but also poor people who needed a lawyer. And that was our pro bono work. I was active with bar associations to some extent and did volunteer work with courts, helping them set up mediation programs, serving as appointed pro bono counsel that, again, it hadn't really changed. I never imagined myself as having any pathway to being a federal judge, much as I so loved the institution of the federal courts from maybe the end of my first week as a law clerk. I just couldn't, didn't yet at that point, look in the mirror and see a future judge.

Kyle McEntee:

So you're not looking for a judgeship. You've got a very high paying job. You have the pro bono work on the side. What made you say, I actually am interested in this opportunity? This blurb in the paper that caught my eye.

Judge Elizabeth Stong:

In some of my bar association work, I'd been active with a committee at the New York City Bar that promoted people understanding pathways to the bench. So I'd helped organize our biennial program on how to become a judge and slipped into the back of the room for the afternoon breakout session on the federal bench, where I heard from a federal bankruptcy judge who was a neighbor and became a good friend. He's now long since retired. He described the work of this court. We help companies with problems stay in business. We get their creditors paid. We help families save their home. This is now a bit my own version of this. And we're judges appointed by judges, no politics, no senator, no Senate, no life tenure. But I thought, well, what an interesting idea. The idea that there are judges appointed by judges to do things that I've been doing in my practice for years, which is address the problems of corporations and enterprises and also help families get back on their feet. And so I guess I filed it away. And when I saw that announcement, I got the application, I thought about it, and I submitted it.

Kyle McEntee:

What's it like to be interviewed by judges for a job?

Judge Elizabeth Stong:

I still remember mine. It was some years ago, it was across the street at the district court here in the Eastern District of New York with district judges and appellate judges. There were three of them.

And they asked me big questions, questions about me, questions about how I think about courts, how I think about the justice system, how I think about the role of a judge, a role which, of course, I had never had, but I thought about because for about 20 years, I'd been a lawyer. And conspicuously, they did not ask me any questions about bankruptcy law. Thank goodness. I didn't know much bankruptcy law. I read a little bit, but it was not an area of practice. Remember this, they were not bankruptcy judges themselves. We are not. We, the bankruptcy judges, may be consulted, but the appointing authority is the circuit. And so the questions that we spoke about were big and broad and deep and probing about thinking about the role of courts and justice. I remember one of them, one of the questions had to do with how I would handle a pro se or self-represented person, of which we do see many, in an appellate setting. Now, I don't have appellate jurisdiction. So I remember thinking, why are they asking me that?

Because that's jurisdiction I would never exercise. I knew enough to know that. And of course, I didn't say, why are you asking me that? I did my best to answer the question. And I think it shows that what the process is attempting to discern is what kind of judge would you be? And another question that I remember very distinctly, what would you do if there was controlling precedent that pointed in a direction that you were convinced was the wrong direction? What would you do? And I still remember thinking, ah, this is the question where if you get the answer wrong, they say, it's been nice to meet you. And they usher you out, or they push a button and your chair falls through the floor.

But I recall my answer, which was, in substance, my life experience then as a lawyer, still now, is that the law tends to make sense. It tends to make sense. So if the application of the rule does not make sense, then either I don't understand the situation yet, or I don't understand the rule yet. And that way of thinking about things helped me a lot as a lawyer. My answer was, I would be sure I understood the situation, the facts, I would be sure I understood the law. And then, of course, you're required as a judge to apply the controlling precedent. And the response from this brilliant and wise, and even then very senior, probably in his early 80s, district judge was, you know, sometimes the circuit needs to hear from us. In other words, part of the job of a judge is always to be thinking independently. And that's part of the job of a lawyer, is always to be thinking independently. You're not there only to absolutely do everything your client tells you they want you to do. You need to function independently as a professional. And so that was part of the process as well.

It was a fascinating interview. I felt like it was hours, it was probably half an hour. And I remember leaving, taking out my cell phone, which was as big as a shoe, this was a few years ago, calling a friend and saying, oh my goodness, what an experience this has been. It's not going to happen, and I'm okay with that. I've learned so much. I've thought about things in a way that's so helpful to me. And then, of course, it did happen, and here I am.

Kyle McEntee:

So I don't know that many people are familiar with the structure of the federal judiciary. Certainly you weren't when you were applying to law school and really early in law school. And neither was I, by the way. Can you give us a top-level primer on Article I and Article III courts? We can skip Article II for today.

Judge Elizabeth Stong:

In the federal judiciary, there's about 1,000 federal judges, maybe a little more. And most judges, district court judges, federal trial court judges, court of appeals judges, certainly Supreme Court justices, are appointed by the president and confirmed by the Senate. But there's also two categories, at least, of federal judges, the magistrate judges who work with a lower level of jurisdiction in the district courts, the trial courts, and the bankruptcy judges.

We are a unit. The bankruptcy court exists to hear all of the matters, all of the bankruptcy cases and all of the matters related to the bankruptcy cases, including lawsuits or adversary proceedings that come up here. The bankruptcy cases are referred to the bankruptcy judges for all purposes, and there may be an appeal, but we do the work in our cases.

And we don't have criminal jurisdiction. We're a second-chance court. We are a court that has roots in the Constitution of the United States, in a way, because Article I, Section 8 of the Constitution provides that the Congress will adopt a uniform law of bankruptcy.

The more general answer is that the federal court system has trial judges. Those are district judges. Magistrate judges, they work with and for the district judges. Bankruptcy judges, also at a trial level. And then appellate-level judges, courts of appeal, and then, of course, the Supreme Court on top. So three layers. Bankruptcy at the first instance or trial level.

Kyle McEntee:

Can you just explain the range of cases you hear in your courtroom as a bankruptcy judge?

Judge Elizabeth Stong:

I hear everything from Pro Se, Chapter 7, no assets, and a good bit of debt cases that may actually not even present an issue a judge needs to decide, to the biggest restructurings of the biggest companies, public, venture capital, private equity, that you can imagine and everything in between. The common denominator in the caseloads that I hear is somebody or something is seeking a second chance. That's what we do.

It's a second chance court. It doesn't happen without working, without complying with a huge number of requirements in the bankruptcy code, the bankruptcy process. It requires nearly always very productive engagement by the company or the individual, the family, the debtor, we say. It benefits enormously from lawyers and an entity has to have a lawyer, a company or an LLC can't appear in court without a lawyer.

But the thing that has really struck me most and struck me initially about the mix of cases, the mix of situations, the mix of debtors that come to our court is that they are wildly different. They are endlessly fascinating. Companies with problems are very interesting typically, but there are some common themes and they include in the case management that we're always looking ahead. We're thinking about what happened next, especially in a restructuring case, thinking about the chapter 11 cases. How do you get the employees paid next week? How do you make sure your taxes are being appropriately addressed for the family? How do you get your mortgage payment made? Do you pay the rent? Where are the opportunities? This is a big tent, this courthouse. It has columns and things like that, but it's a big tent in that everything that touches or concerns the situation of the debtor will come into the bankruptcy case. The creditors, the tax collectors, the workers, if it's a company, everything you can imagine, all those kinds of things. So there's some common denominators.

And then I'd like to think that every case is my most important case, of course. Every case is a set of facts and circumstances and things that have happened in the past that we can't change, but where there's going to be a prospect of a next step or a future that hopefully is only as bad as it needs to be, where the rising tide can raise all the boats, where creditors get paid what they can be paid, if there's going concern value and there often is, it gets preserved, that's for everyone's benefit, things like that. And this is a common denominator as well, where no matter what has happened up to this point, I have high expectations for the parties, but they deserve to have high expectations of the process and me, that they'll be given a fair shake, a fair chance, a fair hearing and be treated with the utmost respect.

Kyle McEntee:

So when you're saying second chance, just to make sure I'm understanding and clarifying here, you mean that someone or some entity can't pay all of its debts. And so you're trying to figure out, along with all of the parties, how do you move forward so that way, as many people or entities benefit as possible, it's very utilitarian in that sense. Is that about right?

Judge Elizabeth Stong:

That is about right. Imagine if in a situation of financial distress, which is a reasonable assumption here in the bankruptcy system, the bankruptcy court, there was an opportunity to pause, people talk about a breathing spell, get everyone under that big tent and see what value there is, see what arrangements can be worked out. A lot of things get worked out consensually in a bankruptcy case.

I can't order people to agree, but I can backstop a direction to confer with, of course, the fact that I can make a decision on a motion or confirm or not confirm a plan of reorganization. And so it's that second chance to come out of the financial distress with, again, maybe not your plan A, but everybody's plan B, where no one really wins until everyone wins at least a little bit.

Kyle McEntee:

So it's not that it's completely not adversarial, but there's a little bit more collaboration at play.

Judge Elizabeth Stong:

Well, I'd say a good restructuring is a team sport. I make lots of decisions. I probably enter more than 50 orders a week, maybe more than 100. And that's a big part of the job, too. But it is the case that a consensual confirmation is more likely to succeed. It is the case, you hear this when you first learn about this area of practice, that in effect, the bankruptcy code creates lots of incentives, thinking about it from an incentive and a forward-looking standpoint, lots of incentives for the parties to participate in the process, which they need to, it's a court process, but also to engage in the process in a way that may lead to a resolution that everyone agrees to. It's not to say that there aren't lots of decisions that need to be made. And I make lots of decisions on a daily basis. But there's an opportunity when you have everyone in the same room, and when that room is a courtroom, sometimes to get things done as well.

Kyle McEntee:

So you're in the courtroom a lot, whether it's with people who have personal debt, or it's the restructuring situation. What does it actually look like to be in your courtroom? How do they engage with you?

Judge Elizabeth Stong:

I have a beautiful courtroom.

Kyle McEntee:

You're really taking that literally.

Judge Elizabeth Stong:

I have a big bench. I have a law clerk on my left, I have my courtroom deputy on my right. I have, these days, lawyers on a screen. I also have lawyers in person as much as possible, including in the Chapter 11 cases. We call the matters, the parties update, we have case management, pretrial conferences, and arguments on motions, conferences on motions, sometimes settlement conferences, sometimes in cases referred to me by my colleagues in mediation, where I'm the mediator, not the judge. I hear about how the case is going. I may ask a question as open-ended as, tell me more about that. What do you see happening in this case in the next 30 to 60 days? How are you moving toward filing a confirmable plan, and when do you think that will happen? I'd like to set a deadline. You tell me when that deadline should be. And then we see what the plan looks like, and that also moves parties forward. I spend much more time in case management and hearing lawyers argue motions than I do in evidentiary hearings and trials, just as a practical matter. Often the facts are not disputed, but it looks like that, feels like that. The public is always welcome to attend as well. These are public proceedings.

Kyle McEntee:

How has the courtroom experience changed since COVID? Is it a more casual atmosphere and does that affect how the lawyers treat you or what?

Judge Elizabeth Stong:

I don't think it's any less formal, but I also think that courtroom formality does not mean stuffy, does not mean scary, does not mean intimidating. We're on the record literally and figuratively, but the more that the lawyers can engage or the self-represented, the pro se folks can engage, the more that I can have a conversation and understand what the situation is, what the facts are, how the law's going to fit in, where the opportunities may be the better. Now, many, many, many more people appear remotely, pretty much everybody appeared remotely for a time after March of 2020. That has continued for the convenience of the council. Parties know, because I say it regularly, they are always welcome to appear in person and there's a different nature and a different quality. I don't know if it's higher or lawyer, it's different to an in-person proceeding than a remote proceeding.

The most challenging from a judge's standpoint sometimes seems to be the hybrid proceedings. Some people are on a screen and others are standing in the courtroom. When I want to encourage people to confer on something, that was easier when everyone was in person. I don't think, I hope earnestly, and this is my job, that the quality of the process is any less when it's remote. Certainly the respect that I show to the process and to the parties is no different. It is sometimes the case that someone will join a hearing from their car. If they're driving, we actually ask them not to do that and we have a second caller and adjournment. Maybe that's where their phone works. I've had pro se parties join from the only quiet place in their home, which may be a closet. It's something we're still navigating, trying to get as good, as right as we can, because hearings need to both be and feel like they are respectful.

At the end, when I say, here's what I think, that's a ruling, not a comment. There's a risk that you can lose some of that sense when people have just zoomed into another Zoom meeting. Maybe once a month or less, I will feel the need to make an observation along the lines of, now remember, this is a hearing and I'll be making a ruling one at a time. Direct your comments to me. Things like that.

Kyle McEntee:

And it is serious. People's livelihoods are on the line, whether it's one person or 10,000 people. That's the range of livelihoods you're affecting.

Judge Elizabeth Stong:

Oh, that's it. And their homes. I know that. I appreciate that the consequence of many of my decisions will affect whether someone has a place to live and that an opportunity that I have in my role is to help parties look ahead. If everyone gets a result they can live with, and again, it's not their plan A, but maybe it's plan B and somebody listened to them and knew that they're trying hard. That's part of my job too.

Kyle McEntee:

I want to go through a little bit of a lightning round here on some of the terms that you've used throughout this conversation so far. Just to make sure people know what you mean when you say these things. So you've mentioned motions and orders and rulings and hearings. Can you kind of give me a high-level overview and put these words in context?

Judge Elizabeth Stong:

In the courtroom, we hold hearings. We hold status conferences. We hold pretrial conferences from time to time, regularly actually, during those hearings on motions, I'll make a ruling. A ruling can be a spoken thing. It typically ends up, has to end up actually, to be enforced or final as an order. An order can be a so-ordered docket entry, meaning you can look up the record of the case. There it is. More typically, it is a document with a caption, a title, and a signature of the judge, an order. That's a familiar kind of thing. That's the destination typically for a motion. A ruling is necessary in order to have an order on a motion. So I've just used three of your four words, and the fourth would be a hearing. A hearing is maybe a broader category. I think of hearings as anything I do in the courtroom on the record. If I hold a settlement conference, that's not a hearing. That's not on the record.

Kyle McEntee:

I think the motions people are probably most familiar with from, you know, watching TV would be like a motion to dismiss or a motion to suppress evidence. What are the types of motions that you most regularly are ruling on?

Judge Elizabeth Stong:

Oh, I hear motions to dismiss. I hear them all the time. A motion to dismiss a case. A motion to dismiss a lawsuit. Those come up all the time. I hear motions that are very specific to the requirements of a company reorganizing to confirm a plan. A motion to permit adequate protection. This is now really in the details of a Chapter 11. Lots and lots of motions. If you want to ask the court to do something, you make a motion. That's how you ask us to do something.

Kyle McEntee:

There's got to be just a ton of preparation that you do. And I know you have clerks to help you with that preparation. Can you talk about your preparation process and how you manage so many cases at once with a not huge team, especially not relative to the size of, you know, a big law firm that might be representing one of the parties in a bankruptcy?

Judge Elizabeth Stong:

Yes. Federal judges have law clerks and often also have interns. And this is how we get our work done. And so in our preparation, a law clerk, perhaps with the help of an intern, will look at a motion. What are they asking the court to do? What are the legal grounds? What's the record? What's my recommendation? And so we'll run through all of that for every motion a day or two before that's scheduled to come before me. Law clerks also help with preparation in case management. This court, perhaps more than some others, and me, perhaps more than some of my colleagues, though I think this is a common denominator in bankruptcy courts with big Chapter 11 reorganization practices, which includes our court, I prepare for my Chapter 11 case management conferences by seeing what's happened recently in the case. I review their monthly operating reports. I look at any pending matters, pending motions, questions that are coming up. Is there a disagreement with the creditor as to how much is owed? Are creditors disagreeing with each other, which is a new phenomenon, a bit of a trend in some bankruptcy cases, sometimes referred to as creditor-on-creditor violence, not a happy phrase. And so we'll look at those issues.

My goal in the courtroom is to help move matters forward as best as can occur in the process. I have many, many cases. I think I have more than 300 active Chapter 11 cases right now. But when we call the next case, that case is my most important case. I have to think of it as my only case. And then we do the work we can there and move to the next.

Kyle McEntee:

It's so process-driven, and you have to have so much legal and business knowledge to do the job. Where did you develop that?

Judge Elizabeth Stong:

Well, I think all of that is underscored by you also need a certain amount of common sense. Common sense has a role to play. Process is important. The process in every court is somewhat similar. And you learn about that in your first-year class civil procedure process. I think you pick up as you work in the profession, and you get a grounding for it in law school in terms of businesses, enterprises, even family situations.

Common sense has a role, being comfortable with numbers, which I am. I like math. I'm good at math. That's always helped, I think, representing companies that were not perfect. That's why they needed to hire counsel. Something had happened. It probably helps. I think everything you do in life, everything that informs you in life, every experience you have probably helps you in your work as a lawyer and certainly would help you as a judge in this court. It's a very practical court.

At the end of the day, I've written decisions on the constitutionality of statutes. But at the end of the day, most of what I do comes down to the practical situation today, the facts, the law, and the decisions I need to make.

Kyle McEntee:

Sometimes those decisions are probably not the right ones. Probably not often, but probably sometimes. Who holds you accountable?

Judge Elizabeth Stong:

Appeals are part of the process, and it's important that's there. I actually take comfort, and trial judges should take comfort in the fact that if I get it wrong, you can appeal me. It doesn't happen often, so it doesn't relieve a lot of the pressure to do your best to get it right.

The judge I clerked for, a district judge, said when I was first going on the bench, said, you know, you're going to get reversed, and it's going to make you crazy. You're going to hate it, but you're not a real judge until you've been reversed. I don't think any judge likes being reversed.

The first time I was reversed in a very straightforward decision by the district court, it was hard. It was especially hard because I could see where, in my view, the judge who disagreed with my decision, as far as I understood the law, had actually misinterpreted something. I wanted to learn from it, and instead I was accepting of it, and I thought, okay, I'm a real judge. I'll do my best to learn from this. Then he was reversed by the Second Circuit. So I got to be a real judge, and at the same time, I got the relief of knowing that I had correctly analyzed a fairly complicated issue of federal and state law and how they came together in that particular case.

Kyle McEntee:

So I think this whole conversation has been an interesting dichotomy. On the one hand, you talk about the justice system at a very high, lofty level. On the other hand, it's extremely practical, what you're doing. Is this what you expected when you entered chambers that first day?

Judge Elizabeth Stong:

I don't think I had any idea what to expect realistically. When I'm asked about things like that, sometimes I compare it to being a parent. Everyone knows what being a parent is. You have parents. You see parents. Your life is filled with relationships between parents and children, but nobody really knows until they're there. In our court, we have an unusually frequent opportunity to change the course of things or have an impact on the course of things next week, next month, next year. That is not an attribute of many kinds of civil litigated matters. You do it, of course, in the confines and with the restrictions, but also with the depth and breadth of the opportunity of being a federal court.

Yes, it's not either or, it's both and. This is a pretty lofty place. We all take a pretty lofty oath, but we're also looking at how the numbers work and how are you going to make this payment and what happens next and what happens after that. Those two things work together in a very practical way, but I don't think those are either or. I think they are both and. I think justice exists in the real world and with real facts and real people, real companies who are going to be still in business long after they're here, still going to work. The kid's going to school, whatever it is, long after they're here, and so hopefully you never lose too much sight of that. Imagine if your work as a lawyer, your work as a judge, let you work on both those things at the same time.