Sequestration Hits the Law as Courts Keep Bankers’ Hours

Photographer: Pete Marovich/Bloomberg

The Peace Monument in front of the U.S. Capitol in Washington. Close

The Peace Monument in front of the U.S. Capitol in Washington.

Close
Open
Photographer: Pete Marovich/Bloomberg

The Peace Monument in front of the U.S. Capitol in Washington.

U.S. Bankruptcy Judge Martin Glenn will no longer be holding his usual hearings after hours in his Manhattan courtroom because of the billions of dollars in congressionally mandated federal spending cuts that took effect this month.

“As long as sequestration lasts, 5 p.m. will be the stop time,” Glenn told lawyers for Residential Capital LLC (ALLY), the bankrupt mortgage company, the afternoon of Feb. 28.

Companies in bankruptcy often keep courts open late seeking approval to continue operating, pay employees or settle creditor disputes. Debtors and creditors may have to wait longer, now that Glenn and his colleagues are facing their own financial squeeze. Alongside the courts, law enforcement agencies and other components of the U.S. justice system are anticipating shortages of staff, security, and even paper.

Congress mandated $1.2 trillion in across-the-board cuts over nine years, including $85 billion over the next seven months, as part of a 2011 deal to increase the U.S. debt limit. For the federal judiciary this year, sequestration will require cutting $332 million, about 5 percent of its current $6.97 billion budget.

The courts are scheduled to learn today how much money they can expect for local court personnel and operations through Sept. 30, the end of the fiscal year, if sequestration lasts.

‘Impact Everything’

A four-page directive by the Administrative Office of the U.S. Courts that took effect March 1 put in place so-called emergency measures throughout the federal court system. They include possible suspension of civil jury trials during September, deferring payments to court-appointed lawyers for two weeks and reducing court security 25 hours to 1,933 hours per officer.

“The immediate effects of sequestration will impact everything from the security at courthouses to the supervision of offenders,” U.S. District Judge Thomas Hogan, director of the administrative office, said in a statement. “Work that will allow the courts to operate more smoothly, and in most cases, save money, will either be delayed or worse -- canceled.”

The cuts were intended to be so onerous that Congress and the president wouldn’t let them occur and would come up with a plan to replace them. Democrats and Republicans now disagree over whether a substitute plan should include new tax revenue.

President Barack Obama and congressional Democrats say they want a “balanced” approach including higher tax revenue as well as spending cuts. Republicans say they won’t agree to higher tax revenue after Congress voted Jan. 1 to raise tax rates on top incomes.

New Jersey

New Jersey residents saw the unintended consequences of a similar political dispute in December 2011, when Republican Governor Chris Christie refused to fill judicial vacancies during a standoff with Democratic legislators over his appointments to various boards and commissions. Citing a growing list of vacancies on the bench, Patricia Costello, the assigning judge in Essex County, which includes Newark and Montclair, suspended contested divorce trials for nine months.

About 1,500 couples had to wait to resolve their differences during the suspension, Winnie Comfort, a spokeswoman for the court, said in an e-mail this week. Some turned to arbitrators who charged as much with $400 an hour, said Sandy Durst, who heads the family law department at Lynch, Osborne, Gilmore & Durst LLC in Princeton, New Jersey, and practices in Essex.

When trials resumed in September 2012, pending cases had grown to 2,121, Comfort said. The county still has vacancies for 17 judges. The last new judge in Essex was sworn in in January 2010, she said.

Justice Department

With sequestration, it isn’t just the courts that will feel the pinch. The U.S. Justice Department will also have to make changes, officials have said.

Attorney General Eric Holder in a March 4 letter to department employees said about $1.6 billion would be cut from the budget of the agency, which includes the Federal Bureau of Investigation, the Federal Bureau of Prisons and the U.S. Marshals Service. Notices warning of possible furloughs were sent to 94 U.S. attorneys’ offices.

“Federal prosecutors will have to close cases and let criminals go,” Obama told reporters at the White House last month.

Furlough Notices

Last week, the Justice Department sent preliminary furlough notices to about 115,000 employees, White House press secretary Jay Carney told reporters March 4 in Washington. Those notices didn’t outline the details of reductions in work hours and overtime.

U.S. Attorney Paul Fishman in New Jersey said on March 5 that his office already has 10 vacancies and that some investigations will be slowed and fewer cases will be brought as a result of the cuts.

“There are lots of investigations that we have to prioritize,” said Fishman, an Obama appointee. “The most significant ones will always get priority. There’s always some in the next year that might not move as fast, and might not move at all for a period of time because we don’t have the horses to do it.”

Nationwide, about $100 million will be cut from federal prosecutors’ offices, which would lead to about 1,600 fewer civil cases and 1,000 fewer criminal cases being handled, Holder said in a Feb. 1 letter Congress.

David Patton, head of Federal Defenders of New York, called sequestration a “potentially devastating blow” to his organization, which provides legal help to people charged with federal crimes who can’t afford to hire lawyers.

20% Cut

“We’re being asked to essentially take a 10 percent cut of our overall budget in six months, which is essentially a 20 percent cut,” he said in an interview.

The office, which covers New York City and Long Island, has 39 lawyers and about the same number of staff, he said.

“We’re going to have to engage in massive furloughs,” he said. “We’ve never faced cuts like this before, not even close.”

The nonprofit service has assisted defendants including Anna Chapman, accused of taking part in a Russian spy ring, and Faisal Shahzad, who was convicted of a foiled attempt to bomb Times Square. It will learn the full extent of its budget cuts in the coming weeks, Patton said.

Speedy Trial

The most immediate impact of sequestration will be to slow the resolution of civil cases, which will increase costs for individuals and businesses, said Lise Bang-Jensen, a director of public affairs for the New York State Bar Association in Albany. That’s partly because criminal defendants, who are guaranteed speedy trials under the U.S. Constitution, have first dibs on court resources, she said.

“One of our fears is that there’s going to be a big backlog of civil cases,” Bang-Jensen said. “It could be anything from a personal bankruptcy to a big corporate dispute.”

The burden on civil cases will be especially heavy in the southwestern U.S., where dockets are already clogged with illegal-entry cases and other prosecutions involving border crossings, according to Russell Wheeler, a visiting scholar at the Washington-based Brookings Institution.

“There are judges who say, ‘If you want a civil trial, don’t come to this district,’” said Wheeler, who studies the federal judiciary.

Outside the Southwest, Wheeler said, the effect will vary by district, with larger jurisdictions better able to absorb shortfalls than smaller ones by juggling funding and staff.

‘Basically People’

“The judiciary is heavily personnel-dependent. It’s not like they hand out grants,” Wheeler said. “It’s basically people.”

The court system’s largest account is salaries and expenses. It was funded at about $5 billion for fiscal 2012. Sequestration cut that by $239 million, according to David Sellers, a spokesman for the Administrative Office of the U.S. Courts.

About $405 million of the federal courts’ budget is immune from cuts thanks in part to constitutional prohibitions against cutting judges’ salaries. While compensation for magistrates and bankruptcy court judges isn’t exempt, those people will be paid in full, Sellers said in an e-mail.

Reusing Paper

To avoid furloughs or layoffs, bankruptcy courts in the Southern District of New York, which includes Manhattan, are using money set aside for office supplies and technology to cover wages, said Una O’Boyle, chief deputy clerk for the district. That has meant reusing the blank side of legal briefs submitted by lawyers, O’Boyle said. The old briefs are used as copier paper, she said.

“I heard one judge telling another to just put a line through the original page,” O’Boyle said.

The court must shut down at 5 p.m. because there’s no money to pay the security officers after that, she said.

Douglas C. Palmer, clerk of court for the Brooklyn-based Eastern District of New York, which employs about 330 people, including judges and staff, said they’re waiting for more information from its policy making body in Washington.

“For now, we’re cutting down all of our expenses,” he said. Depending on funding, there could be furloughs and even layoffs, he said.

“What will guide that is what fiscal year 2014 will be,” he said.

‘Seriously Impacted’

In California’s Eastern District, the court is going to be “seriously impacted” with layoffs and furloughs, according to Victoria Minor, the court clerk. Cases will grind to a halt if, for example, marshals aren’t able to transport defendants from prison to the courtroom, she said.

Lawsuits in this heavily agricultural region, which stretches from the Oregon border to Nevada, address critical water and land questions, she said. The jurisdiction also includes 19 of California’s 33 prisons.

“The case load in this district would bring an elephant to its knees,” Minor said.

Hogan, in his Feb. 27 letter to federal court judges and employees, said congressional budget planning deadlines at the end of the month will guide whether deeper spending cuts outlined in the emergency plan must be imposed.

He urged courts to coordinate with other components of the justice system, such as marshals and prison officials, to ensure that adequate security is maintained.

Every employee of every U.S. attorney’s office in the country has received a notice that they could be furloughed for as long as 14 days between the middle of April and the end of September, said Fishman, the New Jersey federal prosecutor.

Cut Back

He discussed the spending cuts while announcing a guilty plea by Par Pharmaceutical Cos. for marketing an AIDS drug illegally. Par agreed to pay $45 million to resolve criminal and civil probes. Fishman suggested that such cases may not be pursued as prosecutors look for ways to cut back.

“This case, which is bringing back $45 million for the United States government, is more than the budget of my office for a year,” he told reporters in Newark on March 5. “If I were intent on trying to keep the government solvent, this is not the place that I would cut first.”

Last year, with a budget of about $31 million, Fishman said, his office recovered $140 million. Nationwide, U.S. attorneys’ offices, with a total budget of $2 billion, took in $14 billion, according to Fishman.

“Some of that is for victims, and some of it is shared forfeiture, and some of it is fines, but that’s a net positive cash flow,” he said.

To contact the reporters on this story: Tom Schoenberg in Washington at tschoenberg@bloomberg.net; Andrew Zajac in Washington at azajac@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net.

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.