Friday, June 24, 2011

SCOTUS Decision in Stern v. Marshall

Yesterday the Supreme Court issued its decision in Stern v. Marshall (No. 10-179). Our earlier coverage of the case is here and here. Chief Justice Roberts writes the majority opinion, joined by Justices Scalia, Kennedy, Thomas and Alito. Justice Scalia also writes a separate concurring opinion. Justice Breyer writes a dissenting opinion, joined by Justices Ginsburg, Sotomayor, and Kagan. Chief Justice Roberts’ opinion opens in Dickensian fashion:

This “suit has, in course of time, become so complicated, that . . . no two . . . lawyers can talk about it for five minutes, without coming to a total disagreement as to all the premises. Innumerable children have been born into the cause: innumerable young people have married into it;” and, sadly, the original parties “have died out of it.” A “long procession of [judges] has come in and gone out” during that time, and still the suit “drags its weary length before the Court.”

Those words were not written about this case, see C. Dickens, Bleak House, in 1 Works of Charles Dickens 4–5 (1891), but they could have been. This is the second time we have had occasion to weigh in on this long-running dispute between Vickie Lynn Marshall and E. Pierce Marshall over the fortune of J. Howard Marshall II, a man believed to have been one of the richest people in Texas. The Marshalls’ litigation has worked its way through state and federal courts in Louisiana, Texas, and California, and two of those courts—a Texas state probate court and the Bankruptcy Court for the Central District of California—have reached contrary decisions on its merits. The Court of Appeals below held that the Texas state decision controlled, after concluding that the Bankruptcy Court lacked the authority to enter final judgment on a counterclaim that Vickie brought against Pierce in her bankruptcy proceeding. To determine whether the Court of Appeals was correct in that regard, we must resolve two issues: (1) whether the Bankruptcy Court had the statutory authority under 28 U. S. C. §157(b) to issue a final judgment on Vickie’s counterclaim; and (2) if so, whether conferring that authority on the Bankruptcy Court is constitutional.

Although the history of this litigation is complicated, its resolution ultimately turns on very basic principles. Article III, §1, of the Constitution commands that “[t]he judicial Power of the United States, shall be vested in one supreme Court, and in such inferior Courts as the Congress may from time to time ordain and establish.” That Article further provides that the judges of those courts shall hold their offices during good behavior, without diminution of salary. Ibid. Those requirements of Article III were not honored here. The Bankruptcy Court in this case exercised the judicial power of the United States by entering final judgment on a common law tort claim, even though the judges of such courts enjoy neither tenure during good behavior nor salary protection. We conclude that, although the Bankruptcy Court had the statutory authority to enter judgment on Vickie’s counterclaim, it lacked the constitutional authority to do so.

The majority’s analysis of the Article III issue is quite lengthy, prompting Justice Scalia to note in his concurrence: “The sheer surfeit of factors that the Court was required to consider in this case should arouse the suspicion that something is seriously amiss with our jurisprudence in this area.” The majority ultimately concludes that “[t]he Bankruptcy Court below lacked the constitutional authority to enter a final judgment on a state law counterclaim that is not resolved in the process of ruling on a creditor’s proof of claim.” [Slip Op. 38.] Particularly important to the majority were the decisions in Northern Pipeline, 458 U. S. 50 (1982), and Granfinanciera, 492 U. S. 33 (1989). From p.21:

It is clear that the Bankruptcy Court in this case exercised the “judicial Power of the United States” in purporting to resolve and enter final judgment on a state common law claim, just as the court did in Northern Pipeline. No “public right” exception excuses the failure to comply with Article III in doing so, any more than in Northern Pipeline. Vickie argues that this case is different because the defendant is a creditor in the bankruptcy. But the debtors’ claims in the cases on which she relies were themselves federal claims under bankruptcy law, which would be completely resolved in the bankruptcy process of allowing or disallowing claims. Here Vickie’s claim is a state law action independent of the federal bankruptcy law and not necessarily resolvable by a ruling on the creditor’s proof of claim in bankruptcy. Northern Pipeline and our subsequent decision in Granfinanciera rejected the application of the “public rights” exception in such cases.

In dissent, Justice Breyer argues that the majority “fails to follow the analysis that this Court more recently has held applicable to the evaluation of claims of a kind before us here, namely, claims that a congressional delegation of adjudicatory authority violates separation-of-powers principles derived from Article III. See Thomas v. Union Carbide Agricultural Products Co., 473 U. S. 568 (1985); Commodity Futures Trading Comm’n v. Schor, 478 U. S. 833 (1986).” [Dissenting Op. 2]. He explains at p.6:

In both [Thomas and Schor], the Court took a more pragmatic approach to the constitutional question. It sought to determine whether, in the particular instance, the challenged delegation of adjudicatory authority posed a genuine and serious threat that one branch of Government sought to aggrandize its own constitutionally delegated authority by encroaching upon a field of authority that the Constitution assigns exclusively to another branch.

All nine Justices agree on the statutory question, however. In examining that issue, the Court weighed in once again on the distinction between jurisdictional and nonjurisdictional requirements. Here, the subject of that inquiry was section 157(b)(5) of the bankruptcy code, which provides: “The district court shall order that personal injury tort and wrongful death claims shall be tried in the district court in which the bankruptcy case is pending, or in the district court in the district in which the claim arose.” As Chief Justice Roberts explained [Slip Op. 12], “Pierce asserts that his defamation claim is a ‘personal injury tort,’ that the Bankruptcy Court therefore had no jurisdiction over that claim, and that the court therefore necessarily lacked jurisdiction over Vickie’s counterclaim as well.” The Court rejected Pierce’s argument. From pp.13-14:

We need not determine what constitutes a “personal injury tort” in this case because we agree with Vickie that §157(b)(5) is not jurisdictional, and that Pierce consented to the Bankruptcy Court’s resolution of his defamation claim. Because “[b]randing a rule as going to a court’s subject-matter jurisdiction alters the normal operation of our adversarial system,” Henderson v. Shinseki, 562 U. S. ___, ___–___ (2011) (slip op., at 4–5), we are not inclined to interpret statutes as creating a jurisdictional bar when they are not framed as such. See generally Arbaugh v. Y & H Corp., 546 U. S. 500, 516 (2006) (“when Congress does not rank a statutory limitation on coverage as jurisdictional, courts should treat the restriction as nonjurisdictional in character”). Section 157(b)(5) does not have the hallmarks of a jurisdictional decree. To begin, the statutory text does not refer to either district court or bankruptcy court “jurisdiction,” instead addressing only where personal injury tort claims “shall be tried.”


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This precedent should mark the end to successor liability injuncitons within non-plan sale orders, for how can the bankruptcy court bar litigation over which it has no jurisdiction to hear.

Posted by: Robert White | Aug 29, 2011 9:43:34 PM

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