« Payday Regulation and Financial Security | Main | Spin Offs, Environmental Claims, and Fraudulent Transfers »

Terrific New Paper on Arkison & Authority of Bankruptcy Court

posted by Melissa Jacoby

BlankPaperThe paper was just posted here. Its authors are Elizabeth Gibson and Jonathan Landers, and it was written for the National Bankruptcy Conference. A key sentence from the abstract: "The paper contends that the Court’s analysis in [Commodity Futures Trading Commission v.] Schor supports the constitutionality of bankruptcy court adjudication of private rights with the parties’ consent, notwithstanding the decision of three federal circuits to the contrary." The paper also discusses consequences for the bankruptcy system, magistrate system, and the workload of district courts in the event that the Supreme Court rejects the consent route. All in an efficient seventeen-page package.

Paper image courtesy of Shutterstock.


Expediency and workload issues cannot be enough to override article III limitation. If that becomes the case all exigencies shall requisitions fastening and loosening constitutional bolts.Playing with the ultimate norm on fancies shall reduce the constitutional principles very proteus and thus there will be left not one truth but many a truths. The answer lies in reverting back to 1898 system, as the present system is unconstitutional. Putting a new skin on a dead one does not bring back life...that is precisely what has happened with the 1978 model adopting the emergency rule and a phoney safety valve of withdrawal of reference.

I guess my problem with arguments that under Schor consent's alright is that there's all this language in Stern saying that the violation of Article III in Stern was a lot worse than the one in Schor, and not just because of consent. The Court distinguished Schor in three ways, only one of which was consent:

First, "Vickie's claimed right to relief . . . is not 'completely dependent upon' adjudication of a claim created by federal law, as in Schor." Second, consent: "And in contrast to the objecting party in Schor, Pierce did not truly consent to resolution of Vickie's claim in the bankruptcy court proceedings." Third, "the asserted authority to decide Vickie's claim is not limited to a 'particularized area of the law,' as in . . . Schor. We deal here not with an agency but with a court, with substantive jurisdiction reaching any area of the corpus juris. This is not a situation in which Congress devised an 'expert and inexpensive method for dealing with a class of questions of fact which are particularly suited to examination and determination by an administrative agency specially assigned to that task.' [S]ee Schor. The 'experts' in the federal system at resolving common law counterclaims such as Vickie's are the Article III courts, and it is with those courts that her claim must stay."

So all these arguments that I see in papers like these, and amicus briefs, that Article III-court-supervised bankruptcy judges deciding counterclaims and fraudulent transfer claims with consent offend Article III no more, or even less, than the CFTC's deciding counterclaims with consent did in Schor, seem to just be flatly contrary to the Court's already settled view that bankruptcy judges are somehow a lot worse, in a constitutionally significant way, than what was happening in Schor. Principally because the current Court is more troubled by adjudication by Article I courts than it is by Article II agencies.

The issue in Executive Benefits reduces to whether parties can implicitly consent when there is no provision or notice in the Code that consent need be voiced.

Executive Benefits demanded a jury trial early on, in its answer to the trustee’s complaint, to be conducted outside the bankruptcy court, and then sat on that demand as a valid expression of its lack of consent to final judgment by the bankruptcy court.

Although, at the time, 9th circuit precedent held that bankruptcy courts had summary judgment jurisdiction over non-core proceedings even if the trial needed to be conducted outside the bankruptcy court.

Whose fault is it that while on direct appeal of Executive Benefits in the 9th Circuit the Supreme Court decided Stern v Marshall, undermining summary judgment of non-core issues by the bankruptcy court.

The Conference poses the problem as:
“A decision that party consent—whether express or implied—never allows bankruptcy courts to determine Stern-type claims would have a large and negative impact on the operation of the bankruptcy system.”

It is not likely the Supreme Court will impose a structural separation of powers prohibition against expressed consent to waiver of Article III rights.

However the Supreme Court should prohibit imposition of implied consent where consent is not solicited by the Code.

Why, why, why grant cert. on THIS set of facts??? Footnote 12 at p. 58 of the Respondent's brief seems to reveal the whole appeal as a pointless exercise in futility. Since the order entered against EBIA was reviewed de novo by the Art. III District Judge (it was summary judgment, no fact issues involved, at least theoretically), EBIA has gotten all the Art. III review it could ever hope for, so this "functional mootness point entitles Arkison to prevail even if he loses on every other argument in this appeal." Why not grant cert. on Wellness Int'l, where the 7th Cir. took a MUCH more strident approach to Stern, etc. Might the Supremes dismiss this case as "cert improvidently granted?"

If de novo appellate review protects the same Article III right to withhold consent as the District Court’s “original adjudication” of the Bankruptcy Court’s findings and conclusions pursuant to 157(c)(1) then when should such “review” be final?

Not after appeal because the Bankruptcy Court’s judgment had to be final before the appeal, unless the appeal is interlocutory.

And if a Bankruptcy Court’s order is not “final” until appellate review provides all the Article III protections to withhold consent below then the Bankruptcy Court order is not final until decided on appeal.

The problem with 157 is that consent and finality are defined by the same statute held to be unconstitutional.

As consent goes so goes finality.

I think that Jonathan Landers is an exceptional bankruptcy lawyer. Nevertheless, I'm not satisfied by the comparison to Schor. As I recall Schor, the decision seemed to hinge on the fact that the CFTC's decision was only a recommendation and had no force until ratified by a reviewing body (the District Court?).

This is definitely NOT the relationship between Bankruptcy Courts and District Courts. Bankruptcy Courts are issuing final decisions that have the full force of law upon issuance.

Lander's article seems to rest very heavily on the convenience argument. It will be very disruptive if bankruptcy courts can only issue proposed findings of fact and law. Whether convenience alone is sufficient for the Court seems to depend on the circumstances. Compare Schecter Poultry with Morrison v. Olson.

I'll be interested to see if the Court meant what it said when it said that Stern was a narrow opinion or if it meant what it said when it called into question much of our administrative law and magistrate systems.

The comments to this entry are closed.


Current Guests

Follow Us On Twitter

Like Us on Facebook

  • Like Us on Facebook

    By "Liking" us on Facebook, you will receive excerpts of our posts in your Facebook news feed. (If you change your mind, you can undo it later.) Note that this is different than "Liking" our Facebook page, although a "Like" in either place will get you Credit Slips post on your Facebook news feed.



  • As a public service, the University of Illinois College of Law operates Bankr-L, an e-mail list on which bankruptcy professionals can exchange information. Bankr-L is administered by one of the Credit Slips bloggers, Professor Robert M. Lawless of the University of Illinois. Although Bankr-L is a free service, membership is limited only to persons with a professional connection to the bankruptcy field (e.g., lawyer, accountant, academic, judge). To request a subscription on Bankr-L, click here to visit the page for the list and then click on the link for "Subscribe." After completing the information there, please also send an e-mail to Professor Lawless ([email protected]) with a short description of your professional connection to bankruptcy. A link to a URL with a professional bio or other identifying information would be great.