Bernard Bo Bollinger, Daniel Bussel, the Honorable James E. Massey, Stern v. Marshall Panel

CitationVol. 28 No. 2
Publication year2011


Bernard Bo Bollinger* Daniel Bussel**

The Honorable James E. Massey***

MR. ZISHOLTZ: Welcome back. We’re going to go ahead and get started again with our second panel. We have our exclusive Stern v. Marshall panel, and I’m sure we’re going to learn a lot from our panel here today. I’d like to introduce our moderator, Mr. Bo Bollinger. Bo is a shareholder at Buchalter Nemer and is joining us all the way from Los Angeles, California. Bo is Chair of Buchalter Nemer’s Insolvency and Financial Solutions Practice Group and a member of the firm’s Board of Directors. He is also Co-Chair of the firm’s Continuing Legal Education Committee. Bo regularly represents creditors and acquirers in real estate-related bankruptcy cases, including multiple engagements for one of the largest real estate development companies in southern California. Bo earned his J.D. at Loyola Law School and received his

B.A. from the University of Southern California. Thank you, Bo, for joining

us, and we’re excited for this panel.

MR. BOLLINGER: Thank you, Jeremy. Good morning, everybody. Let me take a second to introduce the rest of the esteemed panel here. To my far right is the Honorable James E. Massey. Judge Massey graduated from Emory here in 1965 for undergrad, went to Columbia Law School in 1968, practiced law for about 25 years, and then became a judge in 1993. He tried to retire a few years ago and was asked to come back. He was recalled and is still sitting on the bench here in Atlanta, so I know a number of you are probably familiar with Judge Massey.

We also have on the panel, to my immediate right, Daniel Bussel. Dan is a member of Klee, Tuchin, Bogdanoff & Stern, a graduate of the University of Pennsylvania and Stanford Law School. He clerked for the Honorable Sandra Day O’Connor and the Honorable Stephen Breyer. He is currently a professor at U.C.L.A. Law School teaching bankruptcy, commercial law, and contracts. He’s been an expert consultant and witness in numerous bankruptcy-related

* Shareholder, Buchalter Nemer.

** Professor, University of California Los Angeles School of Law.

*** U.S. Bankruptcy Judge for the Northern District of Georgia.

matters, participated in the preparation of amicus curiae briefs, and he also submitted briefs on behalf of the Marshall estate in the Supreme Court case in Stern, so he’s pretty intimately familiar with these issues, as you might imagine.

I should also start—because each of us is still involved in issues and the impact of Stern—I need to give you a disclaimer that we’re all involved in these types of matters. We have partners at our firms who are involved in all sides of these issues, so while we’ll talk today about these issues, we are just talking about them for discussion purposes. Nothing of what we say is really for affirmation—

MR. BUSSEL: Or should be held against us.

MR. BOLLINGER: Or should be held against us. So we’re happy to talk about these issues, but particularly Judge Massey is not giving an advisory opinion from this panel this morning.

The way I thought we’d organize this is to have Dan talk for a few minutes about Stern, its procedural history, and background. Then we’ll go through a discussion of some of the cases that we have in the materials. If you have those materials handy, it might be a little bit helpful for you because we’re going to go through them in the order that they’re presented in the materials. We’re not going to talk about all of them, but we are going to go through those, and it might help you to have that synopsis in front of you. Then after we finish the discussion of six or eight of those cases, Judge Massey will talk about some of the practical implications—how Stern might impact practitioners. I think some of the law students here have Stern as one of their moot court issues, and so we might have questions about that. We should have about ten minutes at the end to address questions. When we do those questions, I’ve been asked to have people who are interested in asking questions to walk up to the microphone and ask the questions from the microphone. So when we get to that point, please prepare yourself to get up and walk to those microphones.

I also have one additional disclaimer. If you think that we’re going to solve this issue for you today, you are sorely mistaken. We are glad to talk about it, but as you’re going to find out, it’s really a mess, and it’s something that is going to take a long time before these issues are truly resolved. As a practitioner, I’m sure you have a lot of questions that we’re just not going to be able to answer for you, although we can give you the different sides of these particular issues.

So with that said, Dan, why don’t you go ahead and give us the background about Stern?

MR. BUSSEL: Thank you, Bo. First, I want to thank the Emory people for putting on this panel. It’s a great pleasure for me personally to be on the panel, and particularly to talk about Stern v. Marshall1 in a law school setting because I remember thirty years ago when the Marathon2 case came down, I was in law school, and the same sort of confusion, distress, and panic on the part of much of the bankruptcy community descended on us all. It really motivated my

interest in bankruptcy at the very beginning because I remember how high profile the issues were back then.

As Bo says, I think the takeaway lessons are that, one, for the immediate future, the Supreme Court clearly has created a litigation nightmare for everybody in the bankruptcy community, and it’s something that we’re going to be dealing with for at least several years—probably more than several years going forward. The second point is that we’re starting to get some pretty clear idea of how the issues are settling out at the bankruptcy court and the district court level, and Bo is going to talk some more about that after I finish my background talk. But nobody knows where the courts of appeal and ultimately the Supreme Court are going to come out on the host of issues that have been raised in the wake of the Supreme Court’s decision in Stern v. Marshall, and so there’s just a lot of uncertainty and speculation about how it’s all going to settle out.

I guess the final point is, Stern v. Marshall illustrates how sorely we miss Justice Sandra Day O’Connor because it’s pretty clear, based on her jurisprudence in the late 1980s and early 1990s, that the 5-4 would’ve gone the other way if you substitute O’Connor for Alito.

Okay, with that being said, let’s talk for a minute on how we got to where we are. You really have to go back, unfortunately, to the Bankruptcy Act of 18983 to have any real understanding of these issues. The jurisdictional underpinnings of the Bankruptcy Act of 1898, there was a fundamental division in the statutes (statutory, not constitutional) between so-called

summary and plenary jurisdiction, and so the basic framework was that, to the extent that there were proceedings dealing with the property of the estate, there

  1. Stern v. Marshall, 131 S. Ct. 2594 (2011).

  2. N. Pipeline Constr. Co. v. Marathon Pipe Line Co., 458 U.S. 50 (1982).

  3. Bankruptcy Act of 1898, Pub. L. No. 696, 30 Stat. 544 (repealed 1978).

    was a kind of in rem jurisdiction that the then-bankruptcy referees had over the property. They could dispose of the property and deal with the property and deal with distribution of the property and settle claims against the property, but pretty much everything else that involved certainly third parties, that didn’t involve creditors and that couldn’t be characterized in one way or another as dealing with the res, with the property that was in the bankruptcy estate and indeed augmenting the estate was, to the extent that there was jurisdiction to do it, the jurisdiction was so-called plenary jurisdiction. That meant that the suit had to proceed before the federal district judge or even the state court, but not in front of the referee.

    The system struggled with this distinction between summary and plenary jurisdiction for eighty years. It was a very difficult issue at the margins to determine whether any particular proceeding would be characterized as summary or plenary. One of the great advances in the 1978 Code4—one of the crown jewels of the Code—was the complete reworking and repair of the

    jurisdictional underpinnings of the bankruptcy system—the creation of a freestanding bankruptcy court and the vesting of this very broad jurisdiction to handle all the matters before the bankruptcy judge.

    There was thought given during that reform effort about whether we need to worry about Article III. The decision was made not to appoint the bankruptcy judges as Article III judges, but rather use Congress’s inherent power under Article I to constitute the courts with non-Article III judges. And so the new jurisdictional provisions were tested in litigation all over the country, and in 1982 or 1983, the Supreme Court finally was faced with the

    issue in the Marathon5 case of whether or not the jurisdictional provisions of

    the Bankruptcy Reform Act of 1978 were constitutional. In a stunning but confusing plurality decision in Marathon, the Court said no, that the vesting of the full breadth of the bankruptcy jurisdiction constituted a vesting of the judicial power of the United States in these new bankruptcy courts, and the judicial power of the United States under Article III of the Constitution had to be vested in judges nominated by the President, confirmed by the Senate, and appointed for life.

    And so there was panic. The Supreme Court actually stayed its judgment in Marathon—it stayed it twice in order to give the system an opportunity to adjust. The hope was that Congress would reconstitute the jurisdictional

  4. Bankruptcy Reform Act of 1978, Pub. L. No. 95-598, 92 Stat. 2549.

  5. Marathon Pipe Line Co., 458 U.S. 50.

    underpinnings of the court in a way that was consistent with the ruling in Marathon during the period of the stay. Congress didn’t act, and so eventually the stay lapsed and the...

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