Supreme Courts Ruling in Stern v. Marshall Complicates Bankruptcy Process According to ABI Journal Article
Supreme Courts Ruling in Stern v. Marshall Complicates Bankruptcy Process According to ABI Journal Article
Contact: John Hartgen
703-894-5935
[email protected]
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 [email protected].
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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.