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Stephen Sather's Thoughts On The 'Constitutional Bombshell' High Court Dropped In Stern v. Marshall


Since the Supreme Court dropped its constitutional bombshell on the bankruptcy system last week in Stern v. Marshall, 2011 U.S. LEXIS 4791 (2011) (aka Anna Nicole Smith II), [enhanced version available to lexis.comsubscribers/ unenhanced version available from lexisONEFreeCaseLaw]  lots of people are scratching their heads and wondering what this all means. While Chief Justice Roberts suggested that the decision had only a "narrow" impact, many others, including myself, are not so sure. In this post, I am going to focus on the practical and theoretical impact of the decision.

The Practical Side 

On the practical side, we are going to spend a whole lot more time fighting turf wars about whether a particular action belongs in bankruptcy court or somewhere else. That means even more motions to withdraw reference and motions to abstain. While Stern v. Marshall focused on the distinction between an Article III federal court and an Article I federal court, the more likely choice will be between an Article I federal court and a state court. While the Supreme Court was troubled by final decision making by judges who lacked life tenure and salary protection, the opinion may lead more cases to be decided by state court judges who lack these protections. One of the chief virtues that Chief Justice Roberts attributed to Article III judges was their freedom from outside influences. However, elected state court judges who must seek campaign contributions from the lawyers who appear in front of them and who are placed in office by an electorate that knows little more than their party affiliation seem to be the polar opposite. Thus, the theoretical and practical underpinnings of the opinion appear to be in tension.  

A second practical effect will be delay. Bankruptcy Courts have proven to be efficient engines for deciding cases. In the Bankruptcy Court for the Western District of Texas, it is common for an adversary proceeding to go to trial within six months. In the U.S. District Court for the Western District of Texas, a civil action will take closer to two years to make it to trial. Bankruptcy Courts can proceed faster because they do not have a criminal docket which can trump civil actions and because they are not allowed to conduct jury trials.

The third practical effect will be that we will be fighting endless battles about finality. If the Bankruptcy Court rendered a final decision based on now-infirm core jurisdiction, can that decision be set aside under Rule 60? If an action is currently pending in Bankruptcy Court and the other party mistakenly admitted core jurisdiction, can they go back and change their mind? Can they file an untimely jury demand and move to withdraw the reference? I think the answer is likely no, but we will spend a lot of time arguing about it. 

Theoretical Impact 

On the intellectual side, we are going to spend more time thinking about what makes the bankruptcy system unique.

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