Judge Gargotta Writes Sweeping Opinion on Jurisdiction, Reverse Veil-piercing and Cayman Islands Law

In law school, students cope with concepts of subject matter jurisdiction, personal jurisdiction and stating a cause of action in civil procedure class. When they move on to bankruptcy class, they must try to make sense of the constitutionality of delegating jurisdiction to an Article I court when considering the Marathon Pipeline case. These are not easy issues to get your head around. Judge Craig Gargotta must have felt like he was writing a law school exam when faced with motions to dismiss in an adversary proceeding. Roberts, Trustee v. J. Howard Bass & Associates, Inc., et al, Adv. No. 10-1101 (Bankr. W.D. Tex. 2/15/11). You can find the opinion here.


James H. Bass filed chapter 7 bankruptcy on June 3, 2009. The creditors included two judgment creditors holding claims of $5.5 million (including one that had been found to be non-dischargeable in a prior filing). Filing bankruptcy proved to be a mistake, since the court denied the debtor's discharge and the trustee launched an adversary proceeding against nine Bass-related defendants seeking to recover assets. The defendants sought to make the adversary proceeding go away with motions to dismiss for failure to state a cause of action and for lack of jurisdiction. Among their more creative arguments was that the bankruptcy court lacked jurisdiction to hear the case because the bankruptcy jurisdiction scheme was unconstitutional.

Have We Been Working Under a Constitutionally Defective System?

In 1982, the Supreme Court found that Congress had "impermissibly removed most, if not all, of the 'essential attributes of the judicial power' from the Article III district court, and has vested those attributes in a non-Art. III adjunct." Northern Pipeline Construction Co. v. Marathon Pipeline Co., 458 U.S. 50, 87 (1982) [enhanced version available to subscribers / unenhanced version available from lexisONE Free Case Law]. However, the defendants cited other language not actually found in the opinion for the proposition that "Congress could not vest in a non-Article III court the power to adjudicate, render final judgment, and issue binding orders in a traditional contract action arising under state law, without consent of the litigants, and subject only to ordinary appellate review." Citing non-existent quotes from the Supreme Court is not a good way to impress the Bankruptcy Court. The defendants also argued that 28 U.S. C. §157, which referred bankruptcy matters to the bankruptcy courts was unconstitutional for the reason that it was an impermissible delegation of power to an Article I court.

The Court noted that the argument would have had some merit-if it had been made in 1982.

Read the entire article at A Texas Bankruptcy Lawyer's Blog

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