06/24/2011 08:35:00 AM EST
US Supreme Court's Bombshell Opinion in Stern v. Marshall Draws the Line Against Incremental Erosion of Article III Judicial Power
In
my last post, I posited whether the Court's decision in Stern v. Marshall would be a bombshell or a dud. It
certainly was no dud. And after reading the 5-4 opinion, I'd say that
it's a bombshell in several respects, both from a bankruptcy and constitutional
perspective. Here's four reasons why:
- First,
Justice Roberts' masterfully written majority opinion (joined by Justices
Scalia, Kennedy, Scalia, Thomas, and Alito) declared Pierce
Marshall's estate the final victor and blew poor Anna Nicole Smith's
estate completely out of the water. The fact that this litigation is
finally over is itself cause for celebration everywhere, except among Anna
Nicole's heirs.
- Second,
bankruptcy courts will no longer be able to enter final judgments "on
a common law cause of action, when the action neither derives from nor
depends upon any agency regulatory regime ... [and] is not resolved in the
process of ruling on a creditor's proof of claim." (Op. at 29,
38.) This holding will likely be applauded-at least in part-by
Bankruptcy Court judges, who already are severely overworked by a bloated
chapter 7 and 13 individual debtor docket. (One Chicago judge
recently commented at the end of a day's hearing that he was retiring to
his chambers to review the 546 motions in individual chapter 7 and 13
cases set for status the next day.) Being a nearly zero-sum game,
however, District Court judges are equally likely to be distraught by the
prospect of now having to hear innumerable counterclaims (and
corresponding creditor claims that should accompany them as a matter of
judicial economy) commenced by zealous debtors and trustees (who
themselves can't relish the prospect of losing their perceived "home-court"
advantage). Expect to see a flurry of motions filed in the coming
days, weeks, months, and years attempting to establish (perhaps through a
game of judicial "hot potato") the
appropriate timing, protocol, and venue for these newly minted
"non-core" proceedings.
- Third,
the Court's opinion at pages 33-34 makes pretty clear that Section
157(b)(2)(H)-which provides that fraudulent conveyance actions are
"core proceedings"-is also unconstitutional. ("We see
no reason to treat Vickie's counterclaim any differently from the
fraudulent conveyance action in Granfinanciera.")
This will mandate a sea-change in current litigation practice along the
lines discussed above, though I expect many Bankruptcy Judges will long
for the "good old days" when they could enter final judgments in
these more interesting proceedings.
The test used in Schor cannot sustain the result
in Northern Pipeline. In fact, the test seems identical to the
approach urged by Justice White in [the Northern Pipeline]
dissent. The Court in Schor said that in evaluating Article I
courts it looks to fairness to the litigants and the degree of intrusion into
separation of powers. However, there were no allegations before the Court
in Northern Pipeline that bankruptcy courts under the 1978 amendments
were unfair to litigants. Nor was there any indication that Congress used
Article I bankruptcy courts to gain any institutional advantage at the expense
of the judiciary. In short, in assessing the effects of Article I
bankruptcy courts, "the magnitude of any intrusion on the Judicial Branch can
only be termed de minimis."
Therefore, if Northern Pipeline were decided
today, there is every reason to believe that it would be resolved
differently. The approach endorsed in Schor indicates a strong
likelihood that Justice White's opinion might attract a majority of the
Court. Additionally, it should be noted that the Court's composition has
changed substantially since Northern Pipeline, and even since Schor.
It is unclear how Justices Scalia, Kennedy, and Souter will vote on these
questions.
Chemerinsky, Ending The Marathon: It Is Time to
Overrule Northern Pipeline, 65 Am. Bankr. L. J. 311, 320 (1991) [available to lexis.com subscribers].
Well, we now know that Justices Scalia and Kennedy would
have supported an impassioned defense-like that delivered in Justice Roberts'
majority opinion-against incremental encroachments of Article III judicial
power and the view that Thomas and Schor are
"controlling precedent" that require a "pragmatic ...
examination of relevant factors [in determining] whether [congressional]
delegation [of adjudicatory authority to a non-Article III judge]
constitutes a significant encroachment by the Legislative or Executive Branches
... upon the realm of authority that Article III reserves for exercise by
the Judicial Branch...." (Dissent at 9.) Expounding on this
position, Justice Roberts wrote:
What is plain here is that this case involves the most
prototypical exercise of judicial power: the entry of a final, binding judgment
by a court with broad substantive jurisdiction, on a common law cause of
action, when the action neither derives from nor depends upon any agency
regulatory regime. If such an exercise of judicial power may nonetheless
be taken from the Article III Judiciary simply by deeming it part of some
amorphous "public right," then Article III would be transformed from the
guardian of individual liberty and separation of powers we have long recognized
into mere wishful thinking....
We do not think the removal of counterclaims such as
Vickie's from core bankruptcy jurisdiction meaningfully changes the division of
labor in the current statute; we agree with the United States that the question
presented here is a "narrow" one. Brief
for the United States as Amicus Curiae 23. If our decision
today does not change all that much, then why the fuss? Is there really a
threat to the separation of powers where Congress has conferred the judicial
power outside Article III only over certain counterclaims in bankruptcy?
The short but emphatic answer is yes. A statute may no more lawfully chip
away at the authority of the Judicial Branch than it may eliminate it entirely.
"Slight encroachments create new boundaries from which legions of power can
seek new territory to capture." Reid v. Covert, 354
U.S. 1, 39 (1957) [an enhanced version of this opinion is available to lexis.com
subscribers] (plurality opinion). Although "[i]t may be that it
is the obnoxious thing in its mildest and least repulsive form," we cannot
overlook the intrusion: "illegitimate and unconstitutional practices get their
first footing in that way, namely, by silent approaches and slight deviations
from legal modes of procedure." Boyd v. United States, 116 U.S. 616 (1886)[lexis.com enhanced version] . We
cannot compromise the integrity of the system of separated powers and the role
of the Judiciary in that system, even with respect to challenges that may seem
innocuous at first blush.
(Op. at 29, 37-38.)
Much more will be written and discussed regarding the
meaning, implications, and fallout of the Court's decision, but hopefully this
provides some early grist for the mill.
For good summaries of the decision itself, read Steve
Sather's Texas
Bankruptcy Lawyers' Blog and Lyle Dennison's write-up on SCOTUSblog.
To read more items by Steve Jakubowski, visit the
Bankruptcy Litigation Blog
For more information about LexisNexis
products and solutions connect with us through our corporate site.