Bankruptcy Courts.

After extended and lengthy debate, Con- gress in 1978 revised the bankruptcy act and created a bankruptcy court as an “adjunct” of the district courts. The court was composed of judges vested with practically all the judicial power of the United States, serving for 14-year terms, subject to removal for cause by the judicial councils of the circuits, and with salaries subject to statutory change.110 The bankruptcy courts were given jurisdiction over not only civil proceedings arising under the bankruptcy code, but all other proceedings arising in or related to bankruptcy cases, with review in Article III courts under a clearly erroneous standard.

This broad grant of jurisdiction, however, brought into question what kinds of cases could be heard by an Article I court. In Northern Pipeline Constr. Co. v. Marathon Pipe Line Co., a case in which a company petitioning for reorganization made a claim against another company for breaches of contract and warranty—purely state law claims—the Court held that the conferral of jurisdiction upon Article I judges to hear state claims regarding traditional common law actions such as existed at the time of the drafting of the Constitution was unconstitutional.111 Although the holding was extremely narrow, a plurality of the Court sought to rationalize and limit the Court’s jurisprudence of Article I courts.

According to the plurality, a fundamental principle of separation of powers requires the judicial power of the United States to be exercised by courts having the attributes prescribed in Article III. Congress may not evade the constitutional order by allocating this judicial power to courts whose judges lack security of tenure and compensation. Only in three narrowly circumscribed instances may judicial power be distributed outside the Article III framework: in territories and the District of Columbia, that is, geographical areas in which no state operated as sovereign and Congress exercised the general powers of government; courts martial, that is, the establishment of courts under a constitutional grant of power historically understood as giving the political branches extraordinary control over the precise subject matter; and the adjudication of “public rights,” that is, the litigation of certain matters that historically were reserved to the political branches of government and that were between the government and the individual.112 In bankruptcy legislation and litigation not involving any of these exceptions, the plurality would have held, the judicial power to process bankruptcy cases could not be assigned to the tribunals created by the act.113

The dissent argued that, although on its face Article III provided that judicial power could only be assigned to Article III entities, the history since Canter belied that simplicity. Rather, the precedents clearly indicated that there is no difference in principle between the work that Congress may assign to an Article I court and that which must be given to an Article III court. Despite this, the dissent contended that Congress did not possess plenary discretion in choosing between the two systems; rather, in evaluating whether jurisdiction was properly reposed in an Article I court, the Supreme Court must balance the values of Article III against both the strength of the interest Congress sought to further by its Article I investiture and the extent to which Article III values were undermined by the congressional action. This balancing would afford the Court, the dissent believed, the power to prevent Congress, were it moved to do so, from transferring jurisdiction in order to emasculate the constitutional courts of the United States.114

No majority could be marshaled behind a principled discussion of the reasons for and the limitation upon the creation of legislative courts, not that a majority opinion, or even a unanimous one, would necessarily presage the settling of the law.115 But the breadth of the various opinions not only left unclear the degree of discretion left in Congress to restructure the bankruptcy courts, but also placed in issue the constitutionality of other legislative efforts to establish adjudicative systems outside a scheme involving the creation of life-tenured judges.116

Congress responded to Marathon by enactment of the Bankruptcy Amendments and Federal Judgeship Act of 1984.117 Bankruptcy courts were maintained as Article I entities, and overall their powers as courts were not notably diminished. However, Congress did establish a division between “core proceedings,” which could be heard and determined by bankruptcy courts, subject to lenient review, and other proceedings, which, though initially heard and decided by bankruptcy courts, could be reviewed de novo in the district court at the behest of any party, unless the parties had consented to bankruptcy-court jurisdiction in the same manner as core proceedings. A safety valve was included, permitting the district court to withdraw any proceeding from the bankruptcy court on cause shown.118

Notice, however, that in Granfinanciera, S.A. v. Nordberg119 the Court, evaluating the related issue of when a jury trial is required under the Seventh Amendment,120 found that a cause of action to avoid a fraudulent money transfer was founded on state law, and, although denominated a core proceeding by Congress, was actually a private right. Similarly, the Court in Stern v. Marshall121 held that a counterclaim of tortuous interference with a gift, although made during a bankruptcy proceeding and statutorily deemed a core proceeding, was a state common law claim that did not fall under any of the public rights exceptions.122 Nonetheless, as the Court later held in Wellness International v. Sharif,123 a bankruptcy court may adjudicate with finality a so-called Stern claim—that is, a core claim that does not fall within the public rights exception—if the parties have provided knowing and voluntary consent, arguably limiting the ultimate impact of Stern for federal bankruptcy law.124

Footnotes

110
Bankruptcy Act of 1978, Pub. L. 95–598, 92 Stat. 2549, codified in titles 11, 28. The bankruptcy courts were made “adjuncts” of the district courts by § 201(a), 28 U.S.C. § 151(a). For citation to the debate with respect to Article III versus Article I status for these courts, see Northern Pipeline Constr. Co. v. Marathon Pipe Line Co., 458 U.S. 50, 61 n.12 (1982) (plurality opinion). [Back to text]
111
The statement of the holding is that of the two concurring Justices, 458 U.S. at 89 (Justices Rehnquist and O’Connor), with which the plurality agreed “at the least,” while desiring to go further. Id. at 87 n.40. [Back to text]
112
458 U.S. at 63–76 (Justice Brennan, joined by Justices Marshall, Blackmun, and Stevens). [Back to text]
113
The plurality also rejected an alternative basis, a contention that as “adjuncts” of the district courts, the bankruptcy courts were like United States magistrates or like those agencies approved in Crowell v. Benson, 285 U.S. 22 (1932), to which could be assigned fact-finding functions subject to review in Article III courts, the fount of the administrative agency system. Northern Pipeline Constr. Co. v. Marathon Pipe Line Co., 458 U.S. 50, 76–86 (1982). According to the plurality, the act vested too much judicial power in the bankruptcy courts to treat them like agencies, and it limited the review of Article III courts too much. [Back to text]
114
458 U.S. at 92, 105–13, 113–16 (Justice White, joined by Chief Justice Burger and Justice Powell). [Back to text]
115
Ex parte Bakelite Corp., 279 U.S. 438 (1929), was, after all, a unanimous opinion and did not long survive. [Back to text]
116
In particular, the Federal Magistrates Act of 1968, under which judges may refer certain pretrial motions and the trial of certain matters to persons appointed to a specific term, was threatened. Pub. L. 90–578, 82 Stat. 1108, as amended, 28 U.S.C. §§ 631639. See United States v. Radios, 447 U.S. 667 (1980); Mathews v. Weber, 423 U.S. 261 (1976). [Back to text]
117
Pub. L. 98–353, 98 Stat. 333, judiciary provisions at 28 U.S.C. §§ 151et seq. [Back to text]
118
See 28 U.S.C. § 157. [Back to text]
119
492 U.S. 33 (1989). [Back to text]
120
See Seventh Amendment, Cases at Common law, infra. [Back to text]
121
564 U.S. ___, No. 10–179, slip op. (2011). [Back to text]
122
The Court noted that the claim “. . . is not a matter that can be pursued only by grace of the other branches . . . or one that ‘historically could have been determined exclusively by’ those branches . . . . It does not ‘depend[] on the will of Congress’s . . . ; Congress has nothing to do with it. [It] . . . does not flow from a federal statutory scheme . . . . [And it] is not ‘completely dependent upon’ adjudication of a claim created by federal law . . . . ” 564 U.S. ___, No. 10–179, slip op. at 27 (2011) (citations omitted). The Court also noted that filing of a claim in bankruptcy court (here, a defamation claim) did not constitute consent to a counter-claim, as the claimant had nowhere else to go to obtain recovery. Id. [Back to text]
123
575 U.S. ___, No. 13–935, slip op. (2015). [Back to text]
124
See id. at 20. [Back to text]