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Supreme Court Grants Cert in Two Slips-Worthy Cases

posted by Bob Lawless

The Supreme Court granted cert this morning in two cases of note to Credit Slips readers, one on the CFPB and one on bankruptcy court jurisdiction. First, in NLRB v. Noel Canning, the Court agreed to decide whether the president properly exercised his power to make recess appointments to the National Labor Relations Board. Because the current director of the CFPB, Richard Cordray, was appointed at the same time as the NLRB members, the case would seem to have implications for the CFPB as Adam Levitin outlined when the case was in the lower courts. In addition to the questions raised in the cert petition, the Court asked the parties also to brief the issue of the president making recess appointments during pro-forma 3-day sessions of the Senate, suggesting the Court may be looking for narrow grounds on which to reach a decision.

The second case is a bankruptcy case named Executive Benefits Ins. Agency v. Arkison about the scope of the bankruptcy court's powers in the wake of the Court's ruling in Stern v. Marshall. In a Ninth Circuit case that drew a good bit of attention after Stern was decided, a fraudulent transfer defendant argued the bankruptcy court lacked jurisdiction to enter judgment against it. The Ninth Circuit agreed that the bankruptcy court could not enter a final judgment in a fraudulent transfer action but held the defendant had consented to the bankruptcy court's jurisdiction through its litigation conduct. The Supreme Court will decide whether parties can consent to bankruptcy court jurisdiction as well have to decide a statutory issue about a gap Stern created in the jurisdictional framework. A potential outcome is that bankruptcy courts will lose the power to hear any fraudulent transfer actions.

Coming on the heels of the cert grant in Law about bankruptcy court's general equitable powers in section 105, Executive Benefits could be a signal that the Supreme Court wants to substantially trim the powers of the bankruptcy courts. The October 2013 Term could prove to be a momentous one for bankruptcy judges and practitioners.

UPDATE (6/24): I neglected to mention that John Pottow posted an analysis of the lower court decision here.


Such a gloomy outlook. Although I, too, am inclined to pessimism about most things, isn't it equally possible that the Court granted cert. in Executive Benefits to declare: "When we said the holding in Stern was limited, we really meant it, broad rationale notwithstanding?"

Inclinations toward pessimism tend to run among bankruptcy specialists. I'm the same way.

Don't get me wrong. I remain a strong critic of Stern (see http://www.creditslips.org/creditslips/2011/06/anna-nicole-smith-may-be-more-than-just-the-only-loser-on-this-one.html). As a matter of good policy, I think it would be great if the Court trimmed back its holding in Stern.

As I wrote in that blog post, however, "The majority builds an elaborate federal courts castle in the sky, treating grand theories of federal court jurisdiction almost as if they were preordained by some universal moral theory." My sense is that there is a large group of lawyers, mainly on the political right, who have seized upon the holdings in Stern as necessary to protect life, liberty, and property. Given the current ideological makeup of the Court, my concern is a majority of the court feels the same way. I would be happy to be wrong.

“Such a gloomy outlook?”

Maybe the dissenting minority in Stern (four votes, which is all that is necessary to grant certiorari) elected to grant the Executive petition.

Maybe the majority doesn’t want to “narrow” its holding any further by a new decision.

Maybe the minority thinks it can swing Justice Kennedy back to the standard set in Katchen, Schor, and Thomas.

Maybe, maybe, MAYBE NOT.

I’ve read the petition and reply and think the question is an important one.

Do litigants get to consent to the structural separation of powers established in 28 USC 157(b).

Waldman v Stone (6th Cir.) said “no”, but the High Court did not grant certiorari in that case. (Maybe the High Court agreed with the outcome in Waldman - maybe not).

Since “related to” proceedings are not core, then consent pursuant to 28 USC 157(c) does not implicate Stern or structural separation of powers issues, nor are 157(c) issues implicated in Executive Benefits except by virtue of comparison to what constitutes a private vs structural right.

There are still rocks to overturn here.

Maybe 28 USC 157 needs amending by Congress.

My take of the majority opinion in Stern is that it stands astride a fault line in conservative legal thought.
One one side is a strong feeling that the New Deal is unconstitutional: stock and root. This invalidates any federal tribunal other than an Article III court, a court martial, and the Senate in impeachment. I would associate this with the more categorical justices, especially Thomas probably Scalia, and maybe Alito.

On the other side is a concern for administrability: a practical realization that Article III judges can't do it all. This is Roberts and Kennedy; I'm not sure about Alito.

My take on this is that there will be a five-justice majority for trimming the authority of bankruptcy judges on the margin. There won't be much collective appetite for slashing their power to a nubbin.

Until the issue of bogus it is that BK Judges are "handpicked" by the very Circuit's that are to rule upon them in the future - is addressed;

then all this banter is vanity in the wind!

Until we routinely restore jury trials to bankruptcy then the collusion between the bench and bar to turn every proceeding into a summary judgment negotiated in the hall will prevail over the higher standard for establishing the facts and law inherent in a jury trial.

Since bankruptcy potentially entails every civil action known under law, including the summary power of contempt and incarceration of parties, the seemingly harmless result of a judge categorizing every proceeding as an equitable dispute not qualifying for a jury trial serves one bald faced purpose, which is to expand the power of the bankruptcy bench and bar beyond constitutional boundaries.

Chief Justice Roberts said it nicer than that in his next to the last paragraph in Stern v Marshall.

The Chief Justice admonished practitioners to stop encroaching on the constitutional powers of Article III, which is one of our Founding Fathers’ safeguards against tyranny.

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