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Supreme Courts Ruling in Stern v. Marshall Complicates Bankruptcy Process According to ABI Journal Article

Contact: John Hartgen
             703-894-5935
             jhartgen@abiworld.org

SUPREME COURT’S RULING IN STERN V. MARSHALL COMPLICATES BANKRUPTCY PROCESS, ACCORDING TO ABI JOURNAL ARTICLE

October 3, 2011, Alexandria, Va. — An article in the October edition of the ABI Journal finds that the Supreme Court’s ruling in Stern v. Marshall could cause considerable consternation in the administration of bankruptcies going forward. Author David P. Leibowitz of Lakeland Law (Chicago) provides potential implications of the Court’s ruling in Stern as well as the historical precedent used by the Court in determining that a state law counterclaim to a proof of claim is not within the constitutional jurisdiction of the bankruptcy court, and that such a counterclaim must rather be heard by an Article III judge or a state court judge. “The Court will not tolerate anything that in any way tends to limit or usurp the judicial power of Article III courts,” Leibowitz writes.
 
The constitutional foundation centers primarily on the jurisdiction of Article I courts, including bankruptcy courts, and Article III courts, including federal district courts. While both were authorized by Constitution, Article III, or judicial courts are the only courts with judicial power whose judges serve a lifetime tenure. Bankruptcy courts, or legislative courts, created by Congress under Article I function as units of the district courts and have subject-matter jurisdiction over bankruptcy cases. While Leibowitz explores previous Supreme Court cases that have dealt with jurisdictional issues in bankruptcy cases, he highlights the Supreme Court’s 1982 ruling in Northern Pipeline Constr. Co. v. Marathon Pipeline Co. In that case, the Court focused on the importance of separation of powers, especially the importance of lifetime tenure of Article III judges, which bankruptcy judges do not have. The Court in Marathon ruled that matters that are “inherently judicial” were to be decided exclusively by Article III courts in the federal system.
 
In Stern v. Marshall, “the Supreme Court asserted its zealous protection of Article III courts’ prerogatives even more emphatically than it did in Marathon,” according to Leibowitz. Though Justice Roberts minimized the practical consequences of Stern in speaking for the Court, Leibowtiz wrote that a number of subsequent adversary proceedings involving proofs of claim, which were formerly heard by the bankruptcy courts prior to the Stern decision, must now be heard in district court. “Matters that had been heard in bankruptcy court will now be subject to forum-shopping in the district and state courts,” Leibowtiz wrote. “Stern will cause considerable consternation in bankruptcy circles for some time,” according to Leibowitz, and bankruptcy judges might “feel a lot more like erstwhile bankruptcy referees.” 
 
To obtain a copy of “Stern v. Marshall: A Constitutional Conundrum,” published in the October edition of the ABI Journal, please contact John Hartgen at 703-894-5935 or via email at jhartgen@abiworld.org

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ABI is the largest multi-disciplinary, nonpartisan organization dedicated to research and education on matters related to insolvency. ABI was founded in 1982 to provide Congress and the public with unbiased analysis of bankruptcy issues. The ABI membership includes nearly 13,000 attorneys, accountants, bankers, judges, professors, lenders, turnaround specialists and other bankruptcy professionals, providing a forum for the exchange of ideas and information. For additional information on ABI, visit www.abiworld.org. For additional conference information, visit http://www.abiworld.org/conferences.html.