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Debt’s Dominion: A History of Bankruptcy Law in America, an excerpt from a new book by Prof. David A. Skeel, Jr.

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Debt's Dominion by Prof. David A. Skeel, Jr. 1 - 2 - 3 - 4 - 5 - 6 - 7 - 8 - 9

On the East Coast, two of the most prominent bankruptcy professionals were Randolph Montgomery and Jacob Weinstein. Montgomery was located in New York and served for many years as counsel for the National Association of Credit Men, the principal lobbying group for unsecured creditors, and wrote regularly for the NACM publication Credit Monthly. Weinstein was located in Philadelphia and figured prominently in the same bankruptcy organizations as Hunt. Weinstein’s prominence also reflects an important demographic characteristic of the early bankruptcy bar. In the Northeast especially, many bankruptcy lawyers were Jewish. Shut out of the most high-profile firms in New York, Philadelphia, Boston, Jewish lawyers were forced to carve out niches outside of elite firm practice, in areas as general bankruptcy practice.

With James McLaughlin, another early stalwart, came powerful evidence of the rapid maturation of the bankruptcy bar. McLaughlin was one of the first in a series of full-time law professors to champion bankruptcy law. Like several of his successors, McLaughlin taught at Harvard Law School, and he wrote more frequently in the pages of the Harvard Law Review than in practitioner periodicals such as the Commercial Law Journal. More even than Hunt, Montgomery, or Weinstein, it was McLaughlin who assumed Remington’s mantle as the Judiciary Committee’s de facto bankruptcy expert from the late 1930s through the 1950s. (In a revealing gesture, the conservative, sometimes prickly McLaughlin later changed his last name to MacLachlan after learning this was the original Scottish spelling.)

If Hunt, Montgomery, Weinstein, and McLaughlin personified the strength of the early bankruptcy bar, its festering sore was the perception that bankruptcy practice was grimy and, far worse, operated as a low-level racket. Bankruptcy lawyers handled the cases of individuals and small businesses, so the practice was not inherently lucrative. Debtors could not pay substantial fees; creditors often did not have enough at stake to justify hiring a lawyer. For many bankruptcy lawyers, serving as trustee was a more dependable source of income, though trustee fees were relatively small. Even better was serving as counsel for the trustee – particularly if one could obtain this appointment on a regular basis. Unlike the trustee, the trustee’s counsel was not paid a set fee; he could charge an hourly wage for as many hours as it took to administer the estate. In theory, a debtor’s creditors could select the trustee, and the trustee then hired the attorney of his choice. But in some areas bankruptcy lawyers quickly developed a device for commandeering the appointment process. Knowing that most creditors had little interest in getting actively involved, bankruptcy lawyers would obtain their proxies to vote for a trustee of the lawyer’s choice. The trustee could then be expected to hire the lawyer of one of his friends as counsel.

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