“Unfortunately, Stern v. Marshall has become the mantra of every litigant who, for strategic or tactical reasons, would rather litigate somewhere other than the bankruptcy court.”
Quite aptly, the United States Supreme Court borrowed the words of Charles Dickens to describe the life of the case that ultimately resulted in Stern v. Marshall : “This suit has, in the curse of time, become so complicated, that . . . no two . . . lawyers can talk about it for five minutes, without coming to a total disagreement as to all the premises.’” Ironically, even after the Court’s decision, the “curse” has continued and many, especially those of the bankruptcy bar, are in disagreement as to the ultimate outcome and unforeseen consequences of Stern.
The “big fuss” arose out of the Court’s holding that bankruptcy courts do not have constitutional authority to enter final judgment on a state law counterclaim “that is not resolved in the process of ruling on a creditor’s proof of claim.” The Court stated that common law claims, as well as suits in equity and admiralty, fall within the province of Article III courts, and Congress cannot “chip away at the authority of the judicial branch” by enacting statutes delegating such power to non-Article III judges. The Constitution grants judicial power to courts whose judges enjoy tenure during good behavior and salary protections.
Article III provisions are safeguards against intrusion by other branches of government and they ensure that judicial decisions are being made with “[c]lear heads . . . and honest hearts.” A different outcome would have been likely if the case involved a ‘public right’ because the Court has recognized that Congress has the authority to adjudicate in suits involving that exception. The public rights exception applies in cases where a “right is integrally related to particular federal government action.”
Other than the obvious limiting effect that Stern will have on bankruptcy courts with regards to adjudicating common law claims, the decision raises other concerns; specifically, the decision suggests that the Court may entertain other constitutional challenges to Congress’s grant of authority to bankruptcy judges. Such scrutiny of bankruptcy courts is not novel, however, given that Article III judges started questioning the legitimacy of bankruptcy judges as early as the 1970s. Some scholars have theorized that the “denial of Article III power and prestige to the bankruptcy court” is the result of an arbitrary hierarchy of power in the judicial system of the United States and a stigma that attached to bankruptcy early on in the practice.
Stern has created a buzz in the media, academic settings and at bar, leading Chief Justice Roberts to ask, “Why all the fuss?” There are a number of responses to the Chief Justice’s question. Among the criticisms and concerns, some believe Stern will result in: (1) a less efficient process in bankruptcy courts and increase in case overload in federal district courts; (2) forum shopping; (3) a prolongation of the tension between Article III judges and bankruptcy judges; (4) separation of powers issues; and (5) misunderstanding as to the role consent plays in bankruptcy proceedings.
This article takes a closer look at Stern in Part I, and highlights the key rationale for the Court’s holding. Part I also briefly examines applicable legislative history, as well as prior cases that led the majority to take the position it did in Stern. In Part II, the article addresses the concerns that are being voiced by judges and scholars regarding Stern’s outcome. This article explores these criticisms and ultimately concludes that these issues stem from the current structure of the American bifurcated, hybrid bankruptcy system, and are not unique by-products of the Stern decision.
Under the current system, Congress has granted jurisdiction over bankruptcy to the district courts. The district courts may refer cases to bankruptcy courts, which function as units of the district courts. Bankruptcy proceedings involve substantive entitlements and rules based on state laws. A bankruptcy judge must then decide whether the proceeding is a core or non-core proceeding. The practical effect of such a distinction is that a bankruptcy judge may enter final orders in core proceedings, but may only submit proposed findings of fact and conclusions of law in non-core proceedings. A lot of uncertainty revolves around the designation of core versus non-core proceedings. This hybrid system and the vagaries of the Bankruptcy Code (“the Code”), therefore, give rise to efficiency concerns, forum shopping problems, constitutional questions, and other issues.
Further, as one court stated, Stern may not be that big of a surprise, since the Supreme Court “had already expressed its constitutional concerns in Northern Pipeline.” Stern, therefore, only echoes the Supreme Court’s prior statement that the constitutional separation of powers must be revered. The decision only conjures up, and, to some extent, exacerbates the many unresolved problems plaguing the American bankruptcy system. Finally, in Part III, this article proposes a solution to the longstanding issue of bankruptcy courts’ authority in the United States. This section concludes that Congress should bestow the Bankruptcy Court with Article III status. Such a grant will cure further jurisdictional issues and also resolve many of the concerns being voiced in light of Stern – as well as those voiced decades before.
- constitutional law,
- Stern v. Marshall,
- Article I courts
Available at: http://works.bepress.com/latoya_brown/3/