Chapter 4, D. Stern Claims

• Jurisdiction: United States

D. Stern Claims

The Supreme Court decision of Stern v. Marshall⁵⁴ has led to a third category of jurisdictional claims dubbed "Stern claims." In Stern, a creditor filed a proof of claim based on the creditor's alleged defamation claims against the debtor. The debtor, in turn, objected to the claim and filed a counterclaim based on a tortious interference with expected inheritance gift claim. Despite the creditor's continuous protests to the bankruptcy court's jurisdiction, the bankruptcy court nonetheless ruled that it had jurisdiction over the matters and entered judgment in favor of the debtor. The matter ultimately reached the Supreme Court. No one disputed that the objection to the creditor's claim was a "core" matter. The issue concerned the bankruptcy court's ability to enter a final order on the counterclaim.

The Supreme Court began by examining 28 U.S.C. § 157(b)(2)(C), which designates "counterclaims by the estate against persons filing claims against the estate" as "core." Statutorily, the debtor's counterclaim was a "core" matter as designated by Congress. However, the Supreme Court continued and examined the counterclaim further. Unlike the counterclaims in Katchen and Langenkamp, discussed above, the counterclaim in Stern was not inherently intertwined with the resolution of the creditor's claims such that resolution of the claim objection resulted in nothing further remaining for adjudication on the counterclaim.⁵⁵ In other words, the bankruptcy court could rule on the "core" proof-of-claim objection without the need to decide anything impacting the counterclaim. Instead, the counterclaim was a "state tort action that exists without regard to any bankruptcy proceeding."⁵⁶

The Supreme Court found that but for § 157(b)(2)(C), the counterclaim would be no different than any "noncore" state law claim that was merely related to the bankruptcy case. Moreover, the Supreme Court found that Congress had infringed on the Constitution's separation of powers by designating matters that are "noncore," and thus outside the jurisdictional reach of the non-Article III bankruptcy courts, as "core" and within the reach of the bankruptcy court's jurisdictional powers.⁵⁷

The Supreme Court held that in this one limited instance, Congress exceeded its authority and the "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."⁵⁸...