Prof. Ralph Brubaker and Prof. Ken Klee spoke on "Not
Again! Will Bankruptcy Courts Survive the Supreme Court's Second Look At Stern
v. Marshall?" However, their panel could have been titled, "Does the Bankruptcy
World Need Yet Another Talk on Stern v. Marshall?" Fortunately the answer was
The History of Summary/Plenary
Prof. Brubaker discussed the history of bankruptcy adjudication
going back "before the beginning" to English bankruptcy practice. He said that
the summary/plenary distinction began with English bankruptcy commissioners.
Commissioners operating under the supervision of the Lord Chancellor could
administer bankruptcy estates and make certain determinations of law and fact,
such as adjudicating claims. Their power was by the concept of in rem so that
they could decide any question regarding property in the possession of the
assignee, who was the equivalent of a trustee. If the assignee had to sue
someone to recover property, that proceeding had to be brought in the
appropriate superior court.
In the Bankruptcy Act of 1800, Congress expressly allowed
non-Article III bankruptcy commissioners to adjudicate all summary proceedings
in a manner similar to English practice. This principle became even more firmly
in place in the Bankruptcy Act of 1898. The jurisdictional statute expressly
stated that there was no plenary jurisdiction except for some matters such as
preferences and fraudulent conveyances. The 1898 Act introduced non-Article III
officers similar to commissioners designated as Bankruptcy Referees. The full
extent of the referee's authority was not defined with perfect clarity
resulting in multiple Supreme Court decisions. The Supreme Court invoked the
summary/plenary distinction finding that plenary matters had to be brought
before an Article III judge, while bankruptcy referees could determine summary
matters and their decisions would be given the same effect as one from an
Article III judge.
When Congress reformed the bankruptcy laws in 1978, it
expanded the scope of bankruptcy jurisdiction. Jurisdiction was now extended to
any proceeding related to the Bankruptcy case. All of that very broad
jurisdiction was to be exercised by non-Article III bankruptcy judges subject
to appellate review. The Marathon decision struck down the 1978
jurisdictional scheme as unconstitutional. However, the Court in Marathon
never said where the constitutional line was. Indeed, there was not even a
majority opinion in the case. Nevertheless, he said that "the most obvious
explanation for why the court found the Code unconstitutional was that the Marathon
case would have been a plenary suit which should have been tried in an Article
Congress reacted to Marathon by enacting the
core/non-core distinction which Prof. Brubaker equated to a codification of the
summary/plenary distinction. He noted that in Granfinanciera, Justice
Brennan, who authored the Marathon plurality, equated the Seventh
Amendment right to trial by jury with plenary suits under the Bankruptcy Act of
1898 that could only be tried in an Article III court. He said that Congress
could not take away the right to jury trial by classifying a matter as a core
proceeding. Prof. Brubaker described this as constitutionalizing the
summary/plenary distinction. He noted that in Stern v. Marshall, Chief
Justice Roberts relied heavily on Seventh Amendment decisions to establish the
right to decision by an Article III judge.
Prof. Klee said that Stern v. Marshall was not a
politically decided case. Rather, it was about fundamental power, whether
non-Article III courts should be limited or whether their authority should be
based on pragmatism.
Prof. Klee had two good lines that don't otherwise fit
with this post. He said "Vicki was well endowed in her own right but not
financially." He also said that as a result of Pierce Marshall's attorneys
decision to file a proof of claim "history was made."
Power vs. Jurisdiction
Prof. Klee was quick to point out that Stern v.
Marshall was not about jurisdiction. Jurisdiction was vested in the
district court. The Bankruptcy Judge can decide matters if they are delegated
by the District Court and that delegation is constitutional. As a result, the
case was not about jurisdiction, but who could exercise that jurisdiction. He
said this distinction was important to the question of whether parties could
consent to decision by a Bankruptcy Judge. "If it's just lack of power, you can
consent. If it is lack of subject matter jurisdiction, you can't consent."
Chief Justice Roberts placed a lot of emphasis on the
early case of Murray's Lessee which held that if an action could have
been decided by the English courts of law, equity or admiralty, they could not
be assigned to non-Article III tribunals in the absence of a public rights
According to Prof. Klee, the public rights exception in
bankruptcy is probably limited to cases in which the United States is a party.
(Although not pointed out by the speakers, the Chrysler and GM cases would be
good examples of the public rights exception). However, he made the interesting
comment that Justice Scalia's concurrence showed that in his heart, he does not
want to overturn the bankruptcy system because it is a long-established system.
This was similar to his ruling in the BFP case in which he relied on the
long-established practice of state foreclosure laws. Thus, for Justice Scalia,
historical practice is a way to get to authority. Prof. Klee recommended
perusing Blackstone's Commentaries to look for historical practice.
Claims and Consent
Under Stern, Bankruptcy Courts can still decide
proofs of claim. Filing a claim establishes a claim to the bankruptcy res and
constitutes consent to adjudication of the claim itself. However, filing of a
proof of claim does not constitute consent to anything beyond that. In Stern,
Pierce Marshall's filing of a proof of claim was not consent to determination
of Vicki's counterclaim. As the Supreme Court pointed out, Pierce really had no
choice about filing a proof of claim, so he did not consent to anything beyond
determination of the claim.
Prof. Brubaker said that filing a claim is only consent
to determining the claim because that is a natural consequence of filing a
Prof. Klee argued that "The current court is re-writing
history. Under the Act, we had jurisdiction by ambush." In Gardener v. New
Jersey, the court held that the state's filing of a proof of claim waived
sovereign immunity. The Court also held that filing a proof of claim waived the
Seventh Amendment right to jury trial. Prof Brubaker rejected the notion of
jurisdiction by ambush as consent. "Jurisdiction by ambush means they are not
consenting to anything."
Prof. Brubaker would analyze Stern v. Marshall as
a case on supplemental jurisdiction. "The Stern majority never acknowledged
supplemental jurisdiction, but signed on to it." However, he said that the
nexus for supplemental jurisdiction is "tightly circumscribed." He said it is
only available to the extent necessary to dispose of independent matters
already before the court.
Things That Can Be Done or Not
Prof. Klee said that there are still many things
Bankruptcy Judges can do. They can employ counsel, approve compensation (which
drew applause from the audience) and administer the estate. However, he noted
that according to Blackstone, English commissioners could not enter the
discharge. They could certify the discharge to the Chancellor but could not
enter it. He added, "If bankruptcy judges cannot enter discharges, we are in a
The professors had a vigorous discussion on whether
bankruptcy judges could enter money judgments in nondischargeability cases.
Prof. Klee thought it was permissible so long as the debtor was the defendant.
On the other hand, Prof. Brubaker said that "historically courts have
considered nondischargeability as a separate claim." Prof. Klee responded that
the debtor was res to which Prof. Bubaker said "nah."
They also discussed whether Bankruptcy Courts could
follow the report and recommendation procedure in core proceedings where the
Bankruptcy Court lacked constitutional power to enter a final judgment. Prof.
Klee pointed out that there were now three categories of cases: core
proceedings where the Bankruptcy Court can constitutionally enter a final
judgment, noncore proceedings in which the Bankruptcy Court may submit proposed
findings of fact and conclusions of law and core proceedings in which the
Bankruptcy Court lacks power to enter a final judgment. Prof. Brubaker said
that if Congress had authorized courts to enter a final judgment, it implicitly
had authorized them to take the lesser action of submitting proposed findings
and conclusions. Prof. Klee, while initially taking the position that
submitting proposed findings and conclusions was not authorized noted that the
best retort to his own position was Stern v. Marshall in which the
Supreme Court "didn't bat an eye" when the District Court treated the
Bankruptcy Court's ruling as proposed findings and conclusions.
So What Are We Left With?
My question after listening to this discussion is whether
the Bankruptcy Court has any broader power now than it did under the Bankruptcy
Act of 1898 or than was possessed by English bankruptcy commissioners. I am
more sanguine than the professors. I think that will be too difficult to turn
back the clock on thirty years of expansive power exercised by Bankruptcy
Judges. To the extent that historical practice or specialized expertise are
grounds for vesting power in a non-Article III tribunal, there is a case for
vesting more power in the Bankruptcy Courts than they enjoyed prior to 1979.
Bankruptcy Courts have developed specialized expertise in dealing with the
consequences of financial failure. They have developed into our national courts
of commerce. While most historians would scoff at thirty years as a mere blip
in time, it is significant enough that it will be difficult to roll back the
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