Professor Kenneth N. Klee Analyzes Supreme Court's Stern v. Marshall Ruling

In this Emerging Issues Analysis, Professor Kenneth N. Klee examines the Supreme Court's decision in Stern v. Marshall, 564 U.S. _____, 131 S. Ct. _____, 2011 U.S. LEXIS 4791 (2011), in which the Court struck down as unconstitutional 28 U.S.C. § 157(b)(2)(C) because it gave non-Article III bankruptcy judges the power to render final judgments on common law compulsory counterclaims.

The Lesson To Be Learned:

Although generally the Court will avoid interpreting statutes in a manner that renders them unconstitutional and will likewise look for ways to dispose of cases without confronting constitutional issues, when the Court confronts a statute that is unconstitutional as applied to the facts of the case, it will unflinchingly defend the exclusive right of Article III judges to exercise the judicial power of the United States. In this significant case, the Court strikes down as unconstitutional 28 U.S.C. § 157(b)(2)(C) because it gives non-Article III bankruptcy judges the power to render final judgments on common law compulsory counterclaims.

Background:

Article III, § 1 of the Constitution vests "[t]he judicial power of the United States" in life-tenured and salary-protected judges, who are nominated by the President and confirmed by the Senate. Non-Article III bankruptcy judges may not exercise the general judicial power of the United States and therefore may not finally resolve controversies that are not within the core Article I bankruptcy power Congress relied upon in creating the current system of bankruptcy jurisdiction. In Northern Pipeline Co. v. Marathon Pipe Line Co., 458 U.S. 50 (1982), a fractured plurality of the Court held that Article I bankruptcy courts could not constitutionally hear a state law breach of contract claim when the debtor was the plaintiff. The main question presented in Stern v. Marshall was whether a bankruptcy court could constitutionally enter a final judgment on an otherwise non-core tort cause of action asserted as a compulsory counterclaim to a creditor's nondischargeability complaint and proof of claim against the debtor.

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