In a ruling that could shed some light (but not very
much) on the authority of bankruptcy judges, the Fifth Circuit has ruled that a
magistrate's ruling in an insurance coverage dispute did not run afoul of the
Supreme Court ruling in Stern v. Marshall, ___ U.S. ___, 131 S.Ct. 2594 (2011).
Technical Automation Services Corp. v. Liberty Surplus Insurance Corporation,
No. 10-20640 (5th Cir. 3/5/12), which you can find here
[an enhanced version of this opinion is available to lexis.com subscribers].
Technical Automation Services Corp. involved whether an insurance
company had a duty to defend an insured in an underlying lawsuit. The parties
consented to trial before a U.S. Magistrate. The magistrate granted summary
judgment in favor of the insured. On appeal, the Fifth Circuit requested
briefing on the application of Stern v. Marshall to a magistrate. See
"Fifth Circuit to Consider Impact of Stern v. Marshall on U.S.
In response to the question "whether Article III of the Constitution
permits a federal magistrate judge, with the consent of the parties, to enter
final judgment on a party's state law counterclaim," (opinion, p. 7), the
Court answered "yes."
By way of prelude, the Court noted that a prior panel of the Fifth Circuit had
ruled in favor of the ability of a magistrate to proceed with consent. Puryear
v. Ede's Ltd., 731 F.2d 1153, 1154 (5th Cir. 1984) [enhanced version]. Thus, the court was bound to
follow the prior precedent "absent an intervening change in the law, such
as by a statutory amendment, or the Supreme Court or by our en banc court."
Opinion, p. 9. This framed the question of whether Stern v. Marshall overruled
prior decisions about the power of magistrates.
While noting the many similarities between bankruptcy judges and magistrates,
the Court chose to base its ruling on the Supreme Court's insistence that Stern
was a narrow decision.
Accordingly, the Court reaffirmed that Congress may not
withdraw "from judicial cognizance any matter which, from its nature, is the
subject of a suit at the common law, or in equity, or admiralty." (citation
omitted). The Supreme Court emphasized that even the slightest "chipping" away
of Article III can lead to "illegitimate and unconstitutional practices," and
accordingly held that the jurisdiction of the bankruptcy courts did not extend
to most counterclaims based on common law. (citation omitted).
This holding can be translated to the many similarities of the statutory powers
of federal magistrate judges. Whereas Article III judges "hold their offices
during good behavior, without diminution of salary," bankruptcy judges and
federal magistrate judges are Article I judges who lack tenure and salary
protection. (citation omitted). Moreover, the text of 18 U.S.C. § 157(b) [an annotated version of this statute is available to lexis.com
subscribers] (the statute addressed in Stern) and the text of the
Magistrates Act, 28 U.S.C. § 636(c) [annotated version], allow Article I judges to enter final
judgments, allow for judges' final judgment to be binding without further
action from an Article III judge, entitle the decisions to deference on appeal,
and permit the courts to exercise "substantive jurisdiction reaching any area
of the corpus juris." (citation omitted).
Although the similarities between bankruptcy judges and magistrate judges
suggest that the Court's analysis in Stern could be extended to this case, the
plain fact is that our precedent in Puryear is there, and the authority upon
which it was based has not been overruled. Moreover, we are unwilling to say
that Stern does that job sub silentio, especially when the Supreme Court
repeatedly emphasized that Stern had very limited application. Id. at 2620.
(emphasizing the limited scope of the decision, saying that the issue addressed
was a "narrow one" that related only to "certain counterclaims in bankruptcy")
(internal quotation omitted) see also id. ("Article III of the Constitution
provides that the judicial power of the United States may be vested only in
courts whose judges enjoy the protection set forth in that Article. We conclude
today that Congress, in one isolated respect, exceeded that limitation in the
Bankruptcy Act of 1984.") (emphasis added). Article III jurisprudence is
complex, requiring the court to do an examination of every delegation of
judicial authority. (citation omitted). Notwithstanding that this
constitutional question may be seen in a different light post Stern, we will
follow our precedent and continue to hold, until such time as the Supreme Court
or our court en banc overrules our precedent, that federal magistrate judges
have the constitutional authority to enter final judgments on state-law
counterclaims. (emphasis added).
Opinion, pp. 11-12.
What It Means
On the most basic level, Technical Automation Services says very little
about the authority of bankruptcy judges. It simply holds that Stern
does not upset prior Fifth Circuit precedent governing the authority of magistrate
judges. However, it provides advocates of bankruptcy court authority with two
1. The Fifth Circuit is willing to take Chief Justice Roberts at his word when
he says that Stern is a narrow decision. While many were concerned that Stern
could be another Marathon Pipeline and could signal a return to the old
summary/plenary distinction under the Bankruptcy Act, the Fifth Circuit is
willing to take it slow. If the other circuits slow play the decision and the
Supreme Court strategically declines to grant cert, it could be decades before
the issue reaches the Supreme Court again.
2. Since a central feature of magistrate jurisdiction is consent, Technical
Automation provides a powerful rebuttal to parties who want to consent to
bankruptcy court decision making and then cry "Stern" when they don't
like the result.
If nothing else, Technical Automation is significant because it didn't
change anything significant.
Post-Script: Although I edited it from the quote above for purposes of brevity,
the opinion contains a wonderful quote from Chief Justice Rehnquist's
concurrence in Northern Pipeline where he referred to Article III cases
as "but landmarks on a judicial 'darkling plain' where ignorant armies
have clashed by night." Northern Pipeline Construction Company v. Marathon Pipe Line
Company, 458 U.S. 50, 91 (1982) (Rehnquist, J. concurring). I know that
I will be looking for ways to include this language in future Stern
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