UNITED STATES v. KRAS
Legal provision: Equal Protection
Argument of Edward R. Korman
Chief Justice Warren E. Burger: We'll hear arguments next in Number 71-749, United States against Kras.
Mr. Korman you may precede whenever you are ready.
Mr. Edward R. Korman: Mr. Chief Justice, may it please the Court.
The United States appeals from the judgment of the district court for the Eastern District of New York, striking down as unconstitutional, an act of Congress, which required the payment of a $50.00 filing fee as a condition to a grant of a discharge in bankruptcy.
The district court held that the statute and the orders in bankruptcy promulgated by this Court, which provide that the filing fee may be paid out over a period of nine months -- up to nine months in installments after the filing of the petition were unconstitutional as applied to an asset-less debtor who alleged that due to his poverty he was unable to promise to pay the filing fee, even in installments.
Although the district court ordered that the discharge be granted, he indicated that he -- that the obligation to pay the $50.00 filing fee should survive the discharge and be paid when and if the petitioner of bankruptcy was able to afford it.
The district court also held that the federal in forma pauperis statute, 28, United States Code 1915 (a) was inapplicable here since Congress plainly manifested its intent to abolish in forma pauperis proceedings of bankruptcy and substitute in its place a system of installment payments.
The United States intervened in the district court to defend the constitutionality of the statute and the district court granted a stay of the order of discharge pending the resolution of this appeal.
Briefs and the opinions below understandably dwell on what it is that this petitioner of bankruptcy has been deprived of as a result of his inability to pay the $50.00 filing fee.
But I think it is important that the issues, and I think that the issues raised here can be seen in their proper perspective only by first examining what it is that Congress has given, an indigent asset-less petitioner of bankruptcy despite his inability to pay this $50.00 filing fee.
Initially, it must be observed that it is no long as far as an indigent debtor is concerned, this is no longer a filing fee that we are talking about.
Under the statute the petitioner of bankruptcy may file his petition without paying any fee at all, provided that he indicates on how he proposes to pay that filing fee in installments for up to six months, and the period may be extended for yet an additional three months.
Now, that filing of the bankruptcy petition carries significant legal consequences.
He is automatically adjudged to be a bankrupt, and as a result all of his earnings following the filing of the petition are exempt from his creditors.
And so what Congress has in effect said to an asset-less debtor, said, if you feel that you have earnings that you want to immunize from the reach of your creditors, you can file your petition.
You will have up to nine months to pay and as those earnings which you expect and anticipate come in, you will pay us out this $50.00 filing fee over a period of up to nine months, and I should point out that in actuality the filing fee as far as asset-less debtors go is really $40.00, $10.00 goes to the trustee, and since it is an asset-less debtor, there is no need for a trustee.
On the other hand, if as this petitioner alleges, he does not anticipate any income, he does not anticipate sufficient income to pay off his $50.00 or $40.00 at a sum of about a dollar a week, then Congress may rightly inquire why it is that he needs this discharge to begin with.
That is, the discharge becomes meaningful only when the possibility of additional assets and income becomes a reality, and when those additional assets become a reality then the $50.00 filing fee does not present any impediment at all to such an asset-less debtor.
Justice Thurgood Marshall: This man was on welfare, right?
Mr. Edward R. Korman: That's correct.
Justice Thurgood Marshall: And if I understand welfare correctly, you get enough money to live on, do you?
Mr. Edward R. Korman: That is correct.
Justice Thurgood Marshall: But why does he not get the $60.00?
Mr. Edward R. Korman: Well, if he doesn't -- what I am saying Justice Marshall, if he doesn't as he says, expect to get any income, his welfare benefits are exempt from his creditors, so that what he is saying is, I want the discharge, the reason a person wants a discharge is so that any future earnings, nonexempt earnings --
Justice Thurgood Marshall: Sometime after six months?
Mr. Edward R. Korman: Well, what in effect Congress is saying is that when you need it, come and we will let you file your petition, and when those earnings that you expect and you want to immunize become a reality, as those earnings come in, you can pay us out this $40.00 over a period of six to nine months.
On the other hand, if he appears on January 1 and he says, I don't expect to have any income for the next six months, why is it that the Congress can may rightly ask, why it is that this gentleman needs a discharge to begin with?
Justice Thurgood Marshall: Well, why is -- why not look the other way, why is the reasoning can't get?
Mr. Edward R. Korman: Well, because Congress has decided --
Justice Thurgood Marshall: Because he doesn't have $50.00?
Mr. Edward R. Korman: That's correct.
Justice Thurgood Marshall: That's the only reason.
Mr. Edward R. Korman: That's correct.
Justice Thurgood Marshall: That's the only reason.
Mr. Edward R. Korman: That's correct.
Because Congress has just decided that those who benefit from the operation of the bankruptcy system or to contribute a small portion of the cost of operating it, as a matter of fact, while the Congress initially intended that bankruptcy system be self-sufficient and self-supporting, because of the increased cost and the failure of the Congress to increase the fee, the bankruptcy system is now running at a deficit, but nevertheless Congress has a legitimate interest.
Justice Thurgood Marshall: The deficit is around a million dollars a year, that's a great big deficit, isn't it?
Mr. Edward R. Korman: That's correct.
Justice Thurgood Marshall: It's a big one.
Mr. Edward R. Korman: It is.
Justice Harry A. Blackmun: But for many years it did --
Mr. Edward R. Korman: It did operate up until I believe 1968, it operated at a substantial surplus.
At the moment it's operating at a deficit and Congress is in fact considering now that it is operating on a deficit perhaps repealing, but this decision to abandon in forma pauperis petitions in bankruptcy, which was made in 1948, was based on a Congressional finding of what happened during the years when in forma pauperis applications were available.
What happened was in those years while you could file a -- get in forma pauperis treatment in bankruptcy, the referees were paid and received their salary only out of the fees that they actually collected.
The referees then would allow the petitioner to file his petition, but simply refused to grant them the discharge until they were paid.
And what Congress found is, is that, in almost every case, given a period of time in which to pay out the filing fees, they were almost invariably paid.
So Congress said, that seems to us to be a much better procedure for handling these in forma pauperis petitions.
Let the petitioner of bankruptcy file his petition, we will give him up to nine months to pay, and then he can obtain his discharge.
In essence, this was really a reasonable substitute for the in forma pauperis proceedings and in practice it does not operate harshly, in practice the only test of whether you get a discharge or not is need.
That is, if you need the discharge because you expect the income, you can file your petition without paying anything, and as that income which you anticipate comes in, you can pay out this filing fee.
On the other hand, if you as this petitioner do not expect to have any income to pay it -- pay this $50.00, then you really do not need the discharge, and in fact, Congress is really saying, our bankruptcy courts are overburdened as it is, when you need the discharge, we will give it to you.
Now, I think this legislative program is a perfectly reasonable effort on the part of Congress to compromise between on the one hand the indigent debtor and on the other hand its desire to see that those who benefit from a particular legislative program contribute to its costs.
I think clearly there is a rational basis for this classification and certainly no basis to strike it down on equal protection grounds as the district court apparently did.
And as a matter of fact --
Justice Potter Stewart: Did you say that the district court, and I just reread it, sorry, glanced over its decision again, I can't find it in here, that the district court held that the $50.00 fee was not itself dis-chargeable in bankruptcy and will remain liability of the debtor?
Mr. Edward R. Korman: That's correct, that's correct.
Justice Potter Stewart: I just didn't see that in its opinion.
Mr. Edward R. Korman: I think it's near the last page or two in this opinion in which the district court said that.
I think that is an implicit recognition of the reasonableness of the statute and indeed I do not think that it is clear that the district court did not find that the statute in this classification was unreasonable and I do not understand -- my advisory here to argue that.
Justice Byron R. White: Well, it's just a question then of when the discharge occurs, before or after the payment?
Mr. Edward R. Korman: That's correct.
Justice Byron R. White: But sooner or later he is going to have to pay?
Mr. Edward R. Korman: That's correct, although I don't know where the district court thought he had the power to so provide.
Justice Potter Stewart: I wonder since you've now been interrupted, since Congress has left it up to this Court in this general order in bankruptcy to deal with the problem of the installment payments, whether or not an amended general order, it's the new general order that has to deal with the problems in this case or at least go far toward it?
Mr. Edward R. Korman: I don't think that's the case, because I believe the statute provides that you don't get the discharge until you actually pay the fees out in installments.
Justice Potter Stewart: I thought the -- we are talking about the statute enacted in what year?
Mr. Edward R. Korman: The 1946 statute, which I believe appears at Page 30 of our brief, which provides that the court shall grant a discharge unless satisfied that the bankrupt has failed to pay the filing fees required to be paid by this time in full.
Justice Potter Stewart: Provided however that in cases of voluntary bankruptcy?
Mr. Edward R. Korman: No, I was -- provided then the fees may be paid in installments, but first --
Justice Potter Stewart: If so authorized by general orders by the Supreme Court of the United States?
Mr. Edward R. Korman: That's correct.
What I think the Court can do is extend the period of time, make it a year for the installments, but I do not think that the Court --
Justice Potter Stewart: Could make it $00.10 a year I suppose?
Mr. Edward R. Korman: Well, I suppose that's so.
There is no limitations as I see in the statute on the time allotted for the petitioner to make the payments.
Justice Potter Stewart: But you don't think the power -- that the Court would have power under the statute by general order to say that there is going to be discharged prior to the payment of the whole $50.00?M
Mr. Edward R. Korman: No, I wouldn't think so, and the particular portion of the statute that I referred to is Section 14 (c) (8), which appears right at the top of Page 30.
Justice Byron R. White: Well, if you string out the time for paying the installments and keep the injunction in force you really in effect have a discharge?
Mr. Edward R. Korman: That's correct, in effect what Congress, as I tried to point out earlier, in effect, Congress is giving the indigent asset-less debtor the benefits of the discharge while he pays out the money that's involved here, rather small sum.
Justice Byron R. White: In this case, (Inaudible)?
Mr. Edward R. Korman: Well, I think there is -- it's different --
Justice Byron R. White: I mean, you can collect the fees sometime, or if you can extend the time and in effect get a discharge, you will give him two years at $00.10 a week before he gets the discharge?
Mr. Edward R. Korman: Well, I think what we're arguing about here is whether or not the Congress is going to be struck down as unconstitutional.
I think that's a serious question.
I realize that conceivably under the orders of this Court the period of time in which a person has to pay it out to be extended for quite a lengthy period, but nevertheless, there may be a purpose on the part of Congress as a matter of social policy, merely to say, that before you get this particular benefit, you must contribute to the costs of the operation of the bankruptcy system.
And of course there is an incentive where the petitioner is getting income to get his discharge ultimately, and I do not think that if he actually has the money and income is coming in, he is not going to deliberately stall the payments of the monies, and of course the Court has discretion under this to put a stop to any efforts on the part of the debtor where it fears that he is deliberately stalling and delaying the payment of the --
Chief Justice Warren E. Burger: Well, as practical matter, laying aside these constitutional questions, when and if, as Justice White has suggested, the creditors are offered this man’s bag, is it economically feasible to pursue $50.00 item on behalf of the government?
Mr. Edward R. Korman: Well, I think at the moment that's precisely what Congress is studying, whether that is economically feasible.
It's not economically feasible in the sense that we can go out and check each and every case to determine whether the petitions that are filed requesting in forma pauperis treatment are true, and in effect, in almost every case we have to accept all of these allegations as true.
Chief Justice Warren E. Burger: If you know, would you refresh my recollection on either policies or regulations of the Department of Justice with respect to claims under certain amounts.
In times past, has the Department not had a cutoff and said we will not concern ourselves with claims under $100.00 or under $200.00 or under some fixed amount?
Mr. Edward R. Korman: That may be, but I am just uncertain.
Now, the district court held -- did not hold, nor does my friend here argue that this classification is unreasonable or that it involves invidious discrimination.
What the district court held is that the government was required to meet a compelling interest standard, relying on cases such as Shapiro versus Thompson, and we submit that those cases are holy and applicable here.
Those cases employ the compelling interest standard where a particular classification infringed upon a fundamental constitutional right.
We are not dealing here with any fundamental constitutional right. Congress could repeal the entire bankruptcy statute tomorrow or the discharge provisions tomorrow without raising so much as a constitutional ripple.
What we have here is simply a benefit that's provided by Congress and it's clearly improper to hold that Congress must meet a compelling interest standard.
Justice Potter Stewart: No state has constitutionally required to have statutes permitting divorce I suppose?
Mr. Edward R. Korman: Well, I would qualify that by saying that at the Boddie and perhaps Griswold versus Connecticut, a state might not be able to wholly arbitrarily deny a divorce.
I would think that they --
Justice Potter Stewart: I don't think there is anything, I don't remember anything in Boddie offhand that says that the state has to have provision for dissolution of marriage.
I believe that one state I think it was Mississippi, for years didn't have any divorce, you have maybe in South Carolina, one of those states had to get a special act of the state legislature to have a divorce, and I don't know that anybody ever attacked that situation from a constitutional point of view, and of course it was good many years ago.
Mr. Edward R. Korman: I think that's true.
I think it in Boddie there is rather a lengthy discussion of what is involved in a divorce, Mr. Justice Harlan pointed out --
Justice Potter Stewart: Yes, (Voice Overlap)
Mr. Edward R. Korman: -- it involves the dissolution of a rather fundamental human relationship.
Justice Potter Stewart: It does indeed, and the state might determine that it's not going to permit the dissolution of that fundamental human relationship.
Chief Justice Warren E. Burger: The present is not central to Boddie that this was a relationship which could not be dissolved in any other way except by judicial action?
Mr. Edward R. Korman: That's correct.
I think there were two aspects to the Boddie holding, as there must be since Boddie was a due process, was decided under the Due Process Clause of the Fourteenth Amendment, which of course provides that no person shall be deprived of life, liberty, or property without due process of law. Due process required a court, a hearing in court, as Mr. Justice Harlan held for the Court, that it must have been because he decided that the dissolution of this fundamental human relationship was of liberty within the meaning of the Fourteenth Amendment's Due Process Clause, and we have a liberty within the meaning of the Due Process Clause and the state saying that the only way you can get this essential liberty is to come into the courts.
You can't write your spouse a letter and say, we're divorced and you can't agree to it.
So in effect, what the state was saying in divorce cases is that, in order to get this fundamental interest, this liberty under the Fourteenth Amendment, you must come into our courts said Justice Harlan, under those circumstances the state could not condition the right to dissolve this fundamental human relationship.
Chief Justice Warren E. Burger: But a debtor and creditor can (Voice Overlap)
Mr. Edward R. Korman: That's correct.
A debtor and creditor can, they can get together and compromise the debt.
The debt can be simply discharged by operation of the statute of limitations, where there is no action taken to enforce it, and that's not a wholly unlikely situation.
Nobody is going to go after an asset-less debtor.
They are not going to waste as much as a nickel to attempt to enforce their claim against him, and as I read the petition in bankruptcy, he doesn't really allege that anyone has threatened suit against him, that he is being harassed.
But, he does say he is being harassed by his creditors, but the harassment that he speaks of is simply in way of references with respect to his character rather than any legal proceedings against him.
So that no one --
Justice Thurgood Marshall: Would you assume that people on welfare aren't harassed by creditors?
Mr. Edward R. Korman: No, I am not assuming that people on welfare are not -- I am assuming that people who are asset-less and who have as little as this petitioner claims that he has, it would be somewhat foolish of a creditor to waste his money in an attempt to invoke the judicial process to obtain funds.
Justice Thurgood Marshall: I didn't say judicial process, I said harassment, telephone calls?
Mr. Edward R. Korman: That maybe true, but I don't think --
Justice Thurgood Marshall: Lawyers letters, everything you can name.
Welfare people are always harassed by creditors, you recognize that or not?
Mr. Edward R. Korman: Yes.
Well, the harassment that I was speaking of was in the real situation, whether it would be likely that a debtor -- a creditor would bother in effect to go after him in a judicial proceeding in attempt to get any money from him, since he is not working and he obviously has no assets.
And as a matter of fact, I think one of the major debts about which this petitioner complains is thousand dollar debt to the Metropolitan Life Insurance Company, which he claims they say he stole from them, and therefore they have an action converging against him.
Now, the New York Statute of Limitations for an action in conversion is three years.
According to the petition, the the conversion, act of conversion alleged, that took place in May of 1969, probably he has been discharged already by operation of the Statute of Limitations.
So that unlike Boddie, and I think there were two essential distinctions here, both crucial points of Boddie.
In the first place the state has not monopolized the means of dissolving this debtor-creditor -- this particular relationship.
It can be dissolved by the parties themselves, the debt can be compromised, and indeed it could be discharged simply by inaction of the creditor over a period of time until the statute of limitations runs out, and in the second place, as far as an asset-less debtor goes, certainly, the right that's involved here hardly approaches an importance and significance, the right of an individual to decide whether he is going to live with another person in the institution of marriage and indeed the right to remarry again.
And so that on those two essential grounds we feel that Boddie is inapplicable here and indeed I would point out that the district court, although he cited Boddie a good deal, did not really rely on the language in Justice Harlan's opinion, but relied instead on the concurring opinions and on Justice Black’s dissent from the denial of certiorari on the Garland case, which was a case in which the First Circuit upheld the $50.00 filing fee, and this court denied cert almost immediately after the decision in Boddie.
And this opinion of Mr. Justice Black that the district court I believe cited in effect unequivocally stated that it rejected the reasoning of the majority opinion in Boddie.
And I think that it's quite clear that there is very little in Boddie when it's out in the context of this case that supports petitioner’s contention -- petitioner of bankruptcy's contention here.
Justice William H. Rehnquist: Mr. Korman, on Page 5 of the appendix is, as I read the respondent's affidavit, he does state that one of the reason he wants to be able to file a petition is to relieve creditor harassment.
So I suppose you would have to concede that there is harassment in fact and to contend that it may be a diminishing factor and at any rate it could be settled in some other ways?
Mr. Edward R. Korman: I think it's a diminishing factor, I think when read in context, when you look at the next sentence that follows that.
The kind of harassment he was talking about was in fact that Metropolitan Life Insurance Company, whenever he gives that company as a reference, seek employment, says to the prospective employer that this fellow was a thief.
Now, how a discharge of bankruptcy is going to help him, I don't know, but if you look at Page 13 of the brief, what he says is, that since Metropolitan -- now, if he gets the discharge says he, it's true that Metropolitan would still continue to tell prospective employers that he is a thief, but says he, since Metropolitan did not appear before the referee to contest the debt, appellee’s discharge in bankruptcy will not only erase this debt, but will hopefully remove the unwarranted stigma that operates as an albatross around his neck, because he says Metropolitan will have to explain why it is they didn't appear in the bankruptcy court to contest the discharge.
Justice Thurgood Marshall: Mr. Korman, on that point you said about, when he gets the money, that's when he could pay the $50.00, and he shouldn't file bankruptcy until he gets the money.
Mr. Edward R. Korman: Until he anticipates getting it.
Justice Thurgood Marshall: Now, on this Metropolitan thing, assume it's not bought by the statute and assuming Metropolitan next year reduces that good judgment, what can he do about that 20 years later when he gets enough money to go into bankruptcy?
Mr. Edward R. Korman: Well, as soon as he gets a job or he is offered a job, he can come in and file his bankruptcy petition and that will in effect immunize his earnings after the petition is filed.
Justice Thurgood Marshall: How can he get a job with a thousand dollar judgment on him?
Mr. Edward R. Korman: Well, I assume that -- I am thinking about as a practical matter, if an employer was offering him a job and said, well, you have this thousand dollar judgment against you, I am not going to hire you.
He can say, well, if that's the only impediment, I will file a bankruptcy petition tomorrow and that will resolve the problem.
Justice Thurgood Marshall: I see.
Justice Lewis F. Powell: Mr. Korman, the petition states that the petitioner was falsely discharged by the insurance company.
Does the record show whether or not he brought any action against the insurance company for a false discharge?
Mr. Edward R. Korman: No, it doesn't.
Justice Lewis F. Powell: Contingent assets, list of assets in bankruptcy?
Mr. Edward R. Korman: Well, it was listed as a debt that he wanted to have discharged, that is --
Justice Lewis F. Powell: It could have cut both ways, couldn't it?
Couldn't it have been an asset in terms of a damage suit against the employer, alleged falsely to have discharged him?
Mr. Edward R. Korman: Well, I don't know Justice Powell that New York allows such course of action.
Justice Lewis F. Powell: I don't know either.
Mr. Edward R. Korman: And I am not familiar enough, quite frankly, with whether under the bankruptcy law such a contingency would be considered an asset.
Justice Lewis F. Powell: There is nothing in the record on it I guess?
Mr. Edward R. Korman: No, there isn't.
Justice Potter Stewart: And how he couldn't pay the filing fee is to bring some law suit --
Mr. Edward R. Korman: Well, there is what we call is -- there is a general in forma pauperis statute.
We are dealing here with an exception to that statute, which is based on a Congressional finding that there is simply another and a better way to deal with the problem of in forma pauperis applicants in bankruptcy proceedings, and that better way is simply you have the asset-less debtor file his petition and pay it out in installments, that filing of the petition is based and a need for the discharge is based on his assumed expectations of earnings, and for these reasons we would ask that the judgment of the district court be reversed.
Justice Byron R. White: Was the issue here whether the district court could require a prepayment?
Mr. Edward R. Korman: The district court -- I am sorry, the district court said that the general in forma pauperis statute is --
Justice Byron R. White: You said in the argument that (Inaudible) was there a demand that he prepaid the fee?
Mr. Edward R. Korman: Yes.
You can't get the discharge in bankruptcy until you pay the fee in each challenge.
Justice Byron R. White: I know, but I thought the question was how could simply when he file it?
Mr. Edward R. Korman: No, when he filed -- right, and he said that --
Justice Byron R. White: So they had -- does the practice in the district court require prepayment to take the petition?
Mr. Edward R. Korman: That's correct.
Either prepayment or a statement of indigency with a proposed plan to pay the --
Justice Byron R. White: He filed the petition saying he was an indigent?
Mr. Edward R. Korman: That's correct.
Justice Byron R. White: And the district court demand -- would have demanded that, except for its owing one constitutionality would have demanded prepayment, wouldn't have taken the petition at all?
Mr. Edward R. Korman: No, it would have demanded prepayment or a statement of how he proposed to pay in installments, and he said that he could make no promise to pay in installments.
Justice Byron R. White: So the actual rule is, you may file and if you propose installments, you may file and the process will go forward (Voice Overlap)
Mr. Edward R. Korman: That's correct, that's correct, and you get all the advantages of the adjudication.
Justice Byron R. White: So you have the injunction?
Mr. Edward R. Korman: That's correct.
Justice Potter Stewart: Mr. Korman, you haven't, unless I missed it, dealt with the argument under the statute, 28 U.S.C. 1915 (a)?
Mr. Edward R. Korman: The reason I hadn't Mr. Justice Stewart is because I don't believe that the holding of the district court is contested.
The legislative history is rather clear on the issue.
It clearly indicates the intent of Congress to abolish in forma pauperis proceedings of bankruptcy.
Every court --
Justice Potter Stewart: And that law was enacted when?
Mr. Edward R. Korman: 1946 I believe.
Justice Potter Stewart: And when was 1915 (a) last addressed by Congress, do you know?
Mr. Edward R. Korman: I don't know.
I know that there was a general in forma pauperis statute in effect in 1898 when Congress initially provided for in forma pauperis treatment of bankruptcy, and I think probably the fact that Congress felt that it needed a special statute for the Bankruptcy Act, initially, would indicate that the Congress was not of the view that the in forma pauperis statute applied to bankruptcy proceedings.
But as a general matter, it's quite clear from the legislative history and every court Mr. Justice Stewart, even the courts that have struck the statute down, has held that the general in forma pauperis statute has --
Justice Potter Stewart: I know that has been the holding, but wouldn't you agree that the plain language of 1915 (a) covers this?
Mr. Edward R. Korman: Yes, I will have to agree that the plain language does seem to cover it, if you don't consider the particular legislative history involved here.
Justice Potter Stewart: Now generally or at least the old-fashioned way of statutory construction was that if the plain language was clear, that was the end of it, you didn't look at the legislative history?
Mr. Edward R. Korman: Well, but there is --
Justice Potter Stewart: I grant you, that's a little bit out of style?
Mr. Edward R. Korman: Well, but the language of the statute clearly indicates that Congress did not want the discharge to be granted till the filing fees were paid in the the legislative history.
And the rules of this Court, I would add, the orders of bankruptcy which were based on the statute so read it.
It said, no discharge until the filing fees are paid and the legislative history clearly assumes --
Justice Potter Stewart: And assumes the ability to pay?
Mr. Edward R. Korman: Well, it assumes that --
Justice Potter Stewart: And the 1915 (a) assumes the existence of a pauper who is not able to pay?
Mr. Edward R. Korman: The rules did not assume an ability to pay initially, that is on the show that you are a pauper in order to get this benefit of installment payments, and I think Congress clearly -- it would be somewhat silly for Congress to say you have to show you are a pauper before you could get --
Justice Potter Stewart: It's not a first time that Congress has done a silly thing, would it?
Mr. Edward R. Korman: No, it wouldn't, but it would in any event seem somewhat silly for Congress to say that you have to file a -- you have to make a statement of indigency before you can get benefit of an installment payment, and then on the other hand contemplate that a general in forma pauperis statute would apply, you wouldn't have to do anything except file the petition and the affidavit of indigency.
Justice Potter Stewart: How broadly has 1915 (a) been applied in the district courts, do you know?
I don’t really -- we see it in criminal cases, I wondered if in bringing or defending civil cases --
Mr. Edward R. Korman: I think it has been applied broadly except in this area where the -- all of the lower courts, almost -- I don't know the decision the other way, have held that the general in forma pauperis statute is inapplicable here.
Justice Potter Stewart: Thank you.
Chief Justice Warren E. Burger: Mr. Finkel.
Argument of Kalman Finkel
Mr. Kalman Finkel: Mr. Chief Justice, may it please the Court.
It is ironic considering the broad purposes of the Bankruptcy Act that appellant would argue that Mr. Kras is just a little too poor to be entitled to a bankruptcy discharge.
I would like to briefly focus, since appellant has not, Mr. Kras' financial plight and its relationship to the Bankruptcy Act.
Mr. Kras can be characterized as a man who is down on his luck.
He was last steadily employed in 1969 for an insurance company.
Premiums that he had collected were stolen from his home.
Basically, he was discharged from his job and he was basically accused of stealing the premiums.
Each time he went to apply for employment, bad references of the insurance company followed him.
Meanwhile, his debts began to accumulate, he was harassed by creditors.
He found himself on public assistance and his wife is home taking care of a handicapped child.
This is a man who can be characterized as completely frustrated and a failure.
He sees no way other than a discharge in bankruptcy to extricate himself from his present plight.
This man is a natural candidate for a bankruptcy discharge.
Congress in enacting the Bankruptcy Act understood that one of the most fundamental liberties an individual has is his right to earn a livelihood, and they recognized that on some occasions a man becomes so overwhelmed by debt, so harassed by creditors that he becomes immobilized, that he has nowhere to turn, and Congress enacted the Bankruptcy Act, not in the narrow reading of what appellant says, not merely as economic relief, the interest of society at large was at stake.
They wanted not only to relieve the man of his debts, free him from creditor harassment, they were interested in emancipating him from his debts and giving him an opportunity to start afresh.
Chief Justice Warren E. Burger: Well, isn’t he emancipated when the injunction has entered, at the filing of the petition?
Mr. Kalman Finkel: But, Your Honor --
Chief Justice Warren E. Burger: For all on the pragmatic aspect that you’re now sending to us?
Mr. Kalman Finkel: Well, as a practical manner perhaps, but I would like to point out at the outset that this individual would not have been allowed to file his petition, but for the district court declaring it unconstitutional, because there was no way for Mr. Kras to promise that he would be able to pay in six months, $40.00 or $50.00.
That petition would have been dismissed immediately.
There would have been no stay.
The only reason there is a stay in this case is that the United States District Court declared the fee unconstitutional.
Chief Justice Warren E. Burger: Would you assume or do you know whether some bankruptcy petitioners file their petition and file a statement that they will pay $1.00 a week or some such thing, and then in fact not be able to live up to that?
Mr. Kalman Finkel: Yeah, there are situations where perhaps that has happened, but in this particular case and many other cases that we represent clients, they cannot make that promise, and there is an initial fees of $10.00 that they also do not have, that has to be paid immediately.
Justice William H. Rehnquist: But more accurately, I suppose what you mean is they can’t make the promise with any reasonable expectation of performing?
Mr. Kalman Finkel: Well, they don’t know.
These are people who are, you know, have lived with debts and creditor harassment and they need something dramatic to give them a chance, and that dramatic gesture is what the purposes of the Bankruptcy Act is, to tell him that he is discharged.
The man is -- personally, he has another chance, and the United States government makes a laughing matter of it, but he has a chance to somehow be personally vindicated.
He has been accused of being a thief.
If, and as happened, the insurance company does not come into the bankruptcy court, that debt would be discharged.
Personally he will feel vindicated.
Now, in fact, he may still receive bad references from Metropolitan, but that personal vindication will have huge psychological implications to that individual; his ability to earn a living, to become rehabilitated and perhaps a productive member of society, and the mere stay just doesn’t accomplish that result.
Justice Potter Stewart: And the discharge won’t decide whether or not he was a thief or has any bearing on it?
Mr. Kalman Finkel: Well, it will in one sense, because if the insurance company had any evidence whatsoever that he committed a fraud, that debt would survive the discharge and bankruptcy, and therefore had they come into the bankruptcy court and prove their claim, that debt would have survived.
The fact that it does not survive now gives him a sort of personal vindication.
Chief Justice Warren E. Burger: How much was involved in the lost premiums?
Mr. Kalman Finkel: $1016.00.
Chief Justice Warren E. Burger: And you suppose the Metropolitan Life is going to pursue a man after the injunction and treat him as an ordinary debtor in these circumstances?
Mr. Kalman Finkel: Well, I have no way of knowing what Metropolitan will do, but it wouldn’t be surprising --
Chief Justice Warren E. Burger: Well, the generality of creditors don’t waste their time on such claims with people of that kind, isn't that true?
Mr. Kalman Finkel: I would say no Your Honor, it's not because the majority of bankruptcies that we have today are individuals and that's the reason there is a huge financial deficit in the system, are individuals with income with less than $4,000.00 who are subjected to creditor harassment and creditors do go after them and to judgments.
Some of them by the way are default judgments, that today the reason that the system is not any longer self-sufficient -- self-sufficient since 1969 is that, if not a majority, many petitioners are people with gross income of less than $4,000.00.
Consumers, the bankruptcy court is now become what was hopefully designed to be a court for consumers also, not only for business people, and these consumers have less than $4,000.00 in gross assets.
And they are harassed, there are judgments against them, even though the creditor should know that these people do not have huge sums of money.
In fact, I should also point out that Congress never intended, there is no evidence at all that Congress intended that an individual such as Mr. Kras should be denied a bankruptcy discharge, or that he was too poor.
What happened under the forma pauperis provisions basically, the referees were extorting money from the indigents.
They were making these people pay because that went into their fees, where they got -- some couldn’t pay and they didn’t get the discharge of this pay, and Congress in order to eliminate this inconsistent and unjust result setup a system of installment payments.
But there is no legislative finding or Congressional finding that an individual who is too poor for a discharge is not entitled to a statutory right to a discharge.
There is no such finding in Congress.
In fact, today, there are many people that we have to turn away, because they do not have the filing fee and legal aid does not have any funds for it, and they cannot promise.
And prior to this case, we turned away many people at our trial office before this suit was brought, because we just -- there is no funds available and there was no way that they could promise to pay within six months, and then you have to get another extension for three months, so it was not quite nine months.
But this individual is caught in a vicious cycle, and because he is so overwhelmed and so harassed, he has no where to turn, it's difficult for him to even seek employment.
He is defeated and exactly what the bankruptcy law was designed to do was to say, forget the debts, forget the creditor harassment, now we’re giving you an opportunity to start over, to rehabilitate yourself, feel free, and maybe then, not only will the debts be forgiven, but they’ll be forgotten.
If we get to all the, you know, the hardships that he had, then he will be able to uplift himself and try for a job.
Justice Potter Stewart: What was the nature of his employment?
Mr. Kalman Finkel: He was a salesman for the insurance company, and after that he was only able to find odd jobs, equaling about $600.00.
Justice Harry A. Blackmun: Except for this psychiatric overlay or his psychological overlay, is he able bodied?
Mr. Kalman Finkel: Yes.
Justice Harry A. Blackmun: Does the record show whether he has tried to get employment?
Mr. Kalman Finkel: Yes, the record indicates the petitioner -- that he has applied not only within New York City, but he has gone outside the city to seek employment, and the bad references of Metropolitan he claims has followed him outside New York City.
Justice Harry A. Blackmun: That's going to follow him after bankruptcy anyway, isn't it?
Mr. Kalman Finkel: Yes, it probably will follow him, but once discharged, then I think he has a better chance of bringing a civil action against them and he has a better chance of explaining it to an employer that Metropolitan didn’t see fit to come into court and protect that interest and really prove their case that maybe it's a false accusation, I don't know.
Justice Harry A. Blackmun: Do you feel that an employer will be impressed with that approach?
Mr. Kalman Finkel: I think it may, I just don’t know, but I think it has -- I think personally his personal sense of vindication, that's very important, will have an impact on his ability to proceed and obtain employment.
Justice Harry A. Blackmun: What you are arguing is psychology, isn't it?
Mr. Kalman Finkel: No, Your Honor, I am arguing that the individual is -- there is a procedural bar in an individual statutory discharge, and that procedural bar violates his constitutional right to be heard and has to be struck down.
Congress setup a Bankruptcy Act.
A man cannot get -- can’t even get into court unless he pays his fee.
That fee has applied to indigents is unconstitutional.
It doesn’t matter how reasonable the filing fees.
In Boddie versus Connecticut, the filing fee was very reasonable, but not as applied to indigents.
Here too, the bankruptcy installment fee may be a very reasonable thing, but not as applied to Mr. Kras.
Justice Harry A. Blackmun: As I recall, the fee in Boddie was higher than the fee here?
Mr. Kalman Finkel: It was a little higher.
The fee here Your Honor is higher than --
Justice Harry A. Blackmun: You say if it’s reasonable in Boddie, then it is reasonable here?
Mr. Kalman Finkel: No, it’s not.
The fee maybe -- a state may setup a filing fee system that is reasonable, but if it works to preclude an indigent's access to court, on bounds, it becomes unconstitutional and unreasonable as applied to that indigent.
That's what happened in Boddie, it wasn’t the amount in controversy.
The fee here is much larger than the forma pauperis application in both the trial or the appellate court under 1915; there the fees are only $15.00 and $25.00 for pauperis.
And here we have a much greater check on the man’s actual poverty on the formal pauperis 1915, there is hardly a check to determine whether the man is truly an indigent.
Justice Potter Stewart: Have you given any though to whether or not this Court in a general order could solve this situation as authorized by Congress?
Mr. Kalman Finkel: I gave it a thought about 20 minutes ago, Your Honor, when you asked that question.[Attempt to Laughter]
I would say that regardless of how small the fee is, which is the only power this Court can really have, because I think the statute mandates a certain fee prior to discharge, and regardless of how long the period will be, it will still be insufficient, it would be contrarily to the real purposes of the Bankruptcy Act.
The man should have his discharge if he cannot pay it without any payment because he is being denied his opportunity to be heard.
Now, in Boddie, I just address myself --
Justice Potter Stewart: While I interrupted you, I am curious.
Are you in formal pauperis in this court?
Mr. Kalman Finkel: Yes.
Justice Potter Stewart: I was just curious, you have a very nicely credit brief here and I wondered --
Mr. Kalman Finkel: Yes.
Justice Potter Stewart: -- where the money came to print that?
Mr. Kalman Finkel: It comes with the United States Supreme Court.
We are forma pauperis in the United States Supreme Court.
Justice Potter Stewart: Alright.[Attempt to Laughter]
Justice Byron R. White: Do you attack the District Judge's indication that the fee may be collected later?
Mr. Kalman Finkel: No, Your Honor, we don’t know where his authority is, but we have no trouble with it, because as long as the --
Justice Byron R. White: So he comes out of bankruptcy with this debt?
Mr. Kalman Finkel: He comes out with this debt and he comes out with the debt to the Federal Government of $150.00 in taxes and a few other debts, but he comes out with a complete discharge.
Justice Byron R. White: Whatever a discharge covers his debt?
Mr. Kalman Finkel: Right.
Justice Byron R. White: But it doesn’t cover this debt?
Mr. Kalman Finkel: We didn’t object to that part of the order that was inserted, and we have no -- we didn’t object to it upon consideration, we might in the future, but as of now we have accepted that.
He would survive as long as he has the discharge.
Justice Harry A. Blackmun: Mr. Finkel, one another question, does your argument to carry us logically to the conclusion that there should be no fees, maybe no fees constitutionally imposed in every or any asset-less estate?
Mr. Kalman Finkel: Your Honor, I would say that taking Boddie, this case can be distinguished from all filing fee cases and come within Boddie, because this individual although it’s not an absolute monopoly, the state has interposed a statutory scheme and there are no realistic alternatives for Mr. Kras.
He cannot offer anything in settlement for his claim.
With respect to the broader question, Your Honor, I would answer yes, unequivocally, that I feel that all filing fees that bar an indigent's access to court in the first instance should be struck down as relative depressive.
I don't say that can be found in the narrow reading of Boddie, but I do say it is found in the substance of due process on the right to be heard, and that that individual's right goes back thousands of years.
Under the Roman law there was a waiver of filing fees.
Almost 500 years ago in the statute of Henry XII, there were provisions for waiver of filing fees for indigent plaintiffs in civil cases.
There were also provisions for counsel.
On the criminal side, we have given much more than bare access.
We've allowed them in and we've given all the instrumentalities necessary to vindicate their legal rights.
Counsel, free transcript of the minutes.
On the civil side, what we're basically talking about is, get access to court, which I feel and I think the constitution mandates is part of the substance of due process, and even though under the common law they never lived up, there was disparity between the ideals and reality of the system of justice as Professor McGuire pointed out in his classic article, almost 50 years ago, most of the problems were administrative.
The courts had no way to ferret out the meritorious from the frivolous claims.
No way to determine who was really an indigent, who was more affluent.
Today, we don’t have that problem administratively.
Many courts already have waiver of filing fees.
Administratively, there can be a provision perhaps, an affidavit of merit.
If the indigent is represented by counsel that affidavit can be more thorough and more extensive.
There are provisions for recoupment in case of recovery.
There are provisions that the debt can survive.
There are penalties for perjury, that the cost would not be that high.
But Your Honors regardless of what the court does, I ask Your Honors to consider the other side of the claim, the cost and lost of personal freedom for an individual that doesn’t has his day in court is immeasurable.
The social cost to a society where there is no lack of respect to the judicial system is staggering.
It is the civil courts of the United States that an individual has the right to defend all things that dear to him, his life, his liberty and property.
And part of our Anglo American Heritage offense and equal justice on the law that it should be a meaningful concept and not a mockery.
I think the time is right for this Court to declare that a man’s right to be heard should not be dependent upon the size of his pocketbook.
And I would ask that the court consider going beyond a narrow reading of body and a broader reading of the Due Process Clause for initial access to the court to strike down all filing fees that is stand in the way of an indigent's right at least to get into court at the first instance.
Chief Justice Warren E. Burger: Mr. Finkel, you have emphasized now in this last -- the recent observation, at least three or four times, the initial access, the barrier to initial access.
There is no barrier to initial access in bankruptcy, is there?
Mr. Kalman Finkel: Yes, there is.
There is this barrier that a man will have to sign an affidavit that he will promise to pay $50 in six months that he may not be able to pay.
Chief Justice Warren E. Burger: But, he is in court, he is in court and has access when he signs that affidavit, isn’t he?
Mr. Kalman Finkel: He is in court, when he signs that affidavit, that will be totally meaningless on the empty promise --
Chief Justice Warren E. Burger: Now, that's meaningless, but you really haven’t denied in access.
You have furnished him away, just as in the Boddie the access was conditioned on an affidavit in all the courts, an affidavit of the proper posture?
Mr. Kalman Finkel: Well, Your Honor I define access to mean that the individual is in court and the relief he seeks he can obtain without any financial barriers.
That is the way I would define initial access to court.
The fact that he is in and he cannot receive any relief is to me meaningless.
First, he is not really in, the petition will not be considered at all unless he makes that promise and I am not sure, the very few debtors that will be willing to sign a sworn affidavit that within six months, they know they’re going to have $50 to pay.
Chief Justice Warren E. Burger: Well, isn’t a history of it in fact though that most indigent applications petitioners in bankruptcy do sign the affidavit now, the overwhelming majority of them?
Mr. Kalman Finkel: No, Your Honor, we don’t know and I checked with our law offices.
The thousands and thousands of people that were turned away.
You can only see the petitions before the court, the once that the people promise, but the thousands of poor people who are turned away by legal services offices because they don’t know that they will have a job and refused to sign that and there is no other way to be paid and they just don’t receive their discharge.
Once you’re in court, that is only a minored amount that the people who need a bankruptcy discharge.
There are thousands of other people who need this discharge, but do not receive it.
Chief Justice Warren E. Burger: Well, isn’t there a fact that the deficit that has being incurred or resulted the non-payment about people who have promised to pay?
Mr. Kalman Finkel: I would say no Your Honor.
I think it is just the added expenses.
It's $4.5 million, 1971, $2.5 million a few years ago.
I don’t think it has anything to do, not that much.
Chief Justice Warren E. Burger: You do not think that factor contributes to that deficit?
Mr. Kalman Finkel: Contributes, but negligible and not to override the individual's right to be there.
There is no statistics at all from the government showing in anyway what the loss would be.
There are none whatsoever.
We have waited for those statics in everyone of the briefs to show us in documentation.
What they have argued is that everybody who pays an installment will now come under forma pauperis, that may not be so.
In fact, in one of the companion case in the Southern District that we brought after we lost, the referee decided against us, the individual obtained the employment and now he promised to pay the fee.
Justice William H. Rehnquist: Mr. Finkel?
Mr. Kalman Finkel: Yes sir.
Justice William H. Rehnquist: Would you agree that your client probably cannot force Metropolitan to come in and defend the merits of its acquisitions against him in a bankruptcy court.
If Metropolitan doesn’t present evidence of fraud, that debt would be discharged along with all the others, but Metropolitan's failure to appear at all, for example, the res judicata against it in an action by your client, say for slander or some action of that sort?
Mr. Kalman Finkel: Absolutely not.
In fact that is one of the factors you would be looking for if Metropolitan has not come in, we did have a meeting of creditors and the creditor did not show up.
The only thing that now what stands in the way of the discharge is the fee.
We’ve gone through the entire period and the individual is unable to pay the fee.
Either he gets discharged or his petition gets dismissed.
That’s the state we're in right now, is this law suit.
And therefore, when he -- when in fact the Metropolitan did not come in and this debt is discharged, will give Mr. Kras an opportunity to possibly turn around and possibly sue them and use this as part of his proof.
Justice William H. Rehnquist: But, it is not an adjudication on the merits?
Mr. Kalman Finkel: No, it’s not an adjudication on merits, except that it has been discharged and they didn’t come into prove fraud.
That's the most, I think we can say about it.
Justice Potter Stewart: At least in your brief, there is any reliance at all of the statute.
Mr. Kalman Finkel: Well, in the lower court, we did Your Honor.
It was rejected.
Justice Potter Stewart: And they turn the -- the lower court turned it out.
Mr. Kalman Finkel: We feel that 1915 is very broadly construed.
There is -- where there is a specific statute versus the general statute of specific one covers and we do acknowledge that they did specifically overrule abolish forma pauperis --
Justice Potter Stewart: The statute came earlier, I know that forma pauperis statute goes away back, but -- there was a bankruptcy law back in the early 18th or 19th Century?
Mr. Kalman Finkel: But at the time they abolished forma pauperis for bankruptcy in 1946 or 1948, there already was 1915 on the books and they past what would the installing fees which all lower courts have considered it and we thought they were right, held that that covered the point and therefore bankruptcy is not within 1915.
Justice Potter Stewart: You are in a better position and I know this.
Has 1915 you have been given a very generous application --
Mr. Kalman Finkel: Yes, other than the bankruptcy discharge, I know of no other federal filing fee that doesn’t come within 1915.
Justice Potter Stewart: Both as a plaintiff as defendant?
Mr. Kalman Finkel: Both as plaintiff as defendant on appeal, both civil and criminally.
Justice Potter Stewart: In any kind of proceeding?
Mr. Kalman Finkel: Any kins of --
Justice Potter Stewart: And attainable in the federal court?
Mr. Kalman Finkel: Yes.
We’ve perceived at many times in various cases in social security to constitutional attacks and the whole spectrum of cases, we perceive 4% from 1915.
Chief Justice Warren E. Burger: Have you referred in your brief Mr. Finkel to any of the studies made, comparative studies made of filing fees, generally tracing the development from the time when the filling fee was – and the filing fees and aggregate were really important of the support of the court system down to the present date where it's negligible chiefly because the fees have remained static in a period of rising costs.
Do you have any of that in here?
Mr. Kalman Finkel: No, we don't have any of that in the brief.
The only thing that I refer to is the amicus curiae brief of the NLADA in Boddie versus Connecticut in which they have the breakdown of filing fee costs of all the states.
I mean which states have way over filing fees.
They have no -- they have been unable to find the classic articles, 50 years old the McGuire's and since then, the updating articles, I have been unable to find the real statistical breakdown.
But the amicus brief that we cite to in Boddie details what every state has done with respect to waiver of the filling fees and many states have given that relief either by constitutional law, common law, or statute or their own discretionary powers.
Chief Justice Warren E. Burger: I suppose as a matter of common knowledge, a $50.00 filing fee might have supported a particular clerk’s office 50 or 100 years ago and wouldn’t pay for the lights under present conditions?
Mr. Kalman Finkel: Today, the bankruptcy deficit is so enormous, I would say that it was negligible the relationship to the $50 fee.
It is $4.5 million, and 1969, it was self sufficient.
So you determine that in the last four years that has been increased deficit than the filling fee, I don’t think the responsibility because people have been paying the $50 for getting in.
So they have collected their fee and those who haven’t paid just didn’t get into the court until few District Courts declared the statute unconstitutional.
Chief Justice Warren E. Burger: Thank Mr. Finkel, thank you Mr. Korman.
The case is submitted.