Non-article Iii Adjudication: Bankruptcy and Nonbankruptcy, With and Without Litigant Consent

• Publication year: 2016

Non-Article III Adjudication: Bankruptcy and Nonbankruptcy, With and Without Litigant Consent

Ralph Brubaker

NON-ARTICLE III ADJUDICATION: BANKRUPTCY AND NONBANKRUPTCY, WITH AND WITHOUT LITIGANT CONSENT

Ralph Brubaker^*

Introduction................................................................................................ 13

I. The Constitutionality of Non-Article III Consent Adjudications—Bankruptcy and Nonbankruptcy................... 17

A. Article III, § l's Protection of Both Individual Rights and Structural Values......................................................................... 18

1. A Non-Waivable Structural Protection.................................. 18
2. A Waivable Individual Right ................................................. 19

B. Formalism or Functionalism?..................................................... 21

1. Marathon: Formalism............................................................ 22
2. Schor, Thomas, and Peretz: Functionalism........................... 22
3. Stern: Formalism................................................................... 23
4. Wellness: Functionalism ....................................................... 23
5. Formalism as a Protection of Individual Liberty Interests ................................................................................. 24
6. Functionalism as a Structural Evaluation of Non-Article III Consent Adjudications...................................................... 25
7. Consent Does Not Cure a Constitutional Violation, Consent Changes the Constitutional Analysis....................... 26

a. Divisibility of the Personal and Structural Interests .......................................................................... 28
b. Consent Changes the Constitutional Analysis ................ 31

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C. Consent Adjudications by Bankruptcy Courts Do Not Impermissibly Threaten the Institutional Integrity of the Judicial Branch ........................................................................... 31

1. The Article III Courts' Control of Bankruptcy Judges' Consent Adjudications ........................................................... 32
2. Bankruptcy Judges' Authority to Render Final and Proposed Judgments Without Litigant Consent .................... 33

II. The Constitutionality of Non-Article III Bankruptcy Adjudications—With and Without Litigant Consent..............36

A. In Search of the Constitutional Validity of Non-Article III Bankruptcy Adjudications Without Litigant Consent .................. 38

1. The "Public Rights" Theory.................................................. 41

a. A "Public Rights" Exception or Established Historical Practice? ....................................................... 43
b. Just What Is a "Public Right," Really?.......................... 50

2. The Supreme Court's Summary-Plenary Jurisprudence ....... 52

a. The Weidhorn v. Levy Decision ..................................... 53
b. The Supreme Court's Superintendence of the Common-Law Summary-Plenary Divide........................ 55

B. The Constitutional Significance of the Supreme Court's Summary-Plenary Jurisprudence ................................................ 58

1. Non-Article III Bankruptcy Adjudications With Litigant Consent.................................................................................. 59

a. The MacDonald v. Plymouth County Trust Co. Decision .......................................................................... 60
b. Limitation of Non-Article III Referees to Adjudication of Summary Matters Primarily Protected Personal Rather Than Structural Interests .................................... 62
c. Limitation of Non-Article III Referees to Adjudication of Summary Matters Was Independently Imposed by the Supreme Court (Not Congress)................................. 64

2. Non-Article III Bankruptcy Adjudications Without Litigant Consent .................................................................... 66

III. Using the Supreme Court's Summary-Plenary Jurisprudence to Resolve Core-Noncore Determinations......68

A. The Wellness Litigation as an Illustrative Example.................... 70

1. The Pre-Bankruptcy Federal Court Litigation...................... 70
2. The Bankruptcy Litigation ..................................................... 72

a. The Wellness Adversary Proceeding .............................. 73

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b. Ragda Sharifeh's Request to Intervene........................... 74

B. The Summary-Plenary Divide ..................................................... 75

1. Actual or Constructive Possession by the Debtor ................. 77
2. A Substantial Adverse Claim by a Third Party...................... 83
3. General Supplemental Summary/Core Jurisdiction .............. 87

Conclusion....................................................................................................90

Introduction

The Supreme Court's 2011 decision in Stern v. Marshall¹ —declaring a portion of bankruptcy judges' statutory "core" jurisdiction to be unconstitutionally over-broad under Article III—was akin to a jurisprudential earthquake that is still throwing off aftershocks.² With its more recent decisions in Executive Benefits Insurance Agency v. Arkison³ and Wellness International Network, Ltd. v. Sharif,⁴ though, the Supreme Court has now "fixed" the two most pressing and troubling potential problems raised by Stern: (1) the supposed "statutory gap" for so-called Stern claims—statutory core matters in which it would be unconstitutional for a non-Article III bankruptcy judge to enter final judgment as authorized in § 157(b)(1) of the Judicial Code,⁵ and in which, therefore, bankruptcy judges (according to a few courts) were given no statutory authorization to do anything at all (not even hear the matter for purposes of entering proposed findings and conclusions);⁶ and (2) whether it is constitutional for a non-Article III bankruptcy judge to enter final judgment with the consent of the litigants on non-core (and Stern) claims as authorized by Judicial Code § 157(c)(2).⁷

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In Arkison, the Court plugged the purported statutory gap for Stern claims, unanimously holding that the "statute permits Stern claims to proceed as non-core within the meaning of § 157(c)."⁸ In Wellness, a more divided 6-3 Court confirmed the constitutional validity of § 157(c)(2), holding "that Article III is not violated when the parties knowingly and voluntarily consent to adjudication by a bankruptcy judge."⁹

Wellness is highly instructive both as to issues which it did and which it did not expressly decide, and this article begins with an analysis of the larger constitutional significance of the Wellness decision. For example, Wellness clearly has implications beyond the context of non-Article III bankruptcy adjudications with consent of the litigants; it speaks directly to the validity of other non-Article III adjudications with litigant consent (e.g., by magistrate judges). Part I of this article, therefore, situates the Wellness decision within the Supreme Court's larger jurisprudence of non-Article III adjudications. In particular, Part I extracts from the Wellness decision helpful clues as to the Court's preferred methodological approach/es to determining the constitutionality of non-Article III adjudications. Wellness fits a distinctive pattern in the Supreme Court's case law regarding non-Article III adjudications, in which the Court uses formal categorical rules to determine the

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constitutionality of non-Article III adjudications without consent (e.g., over the objection of one) of the litigants. Thus, formalism appears to be the Court's favored methodology for defining the scope of litigants' constitutional right to final judgment from an Article III judge in "any matter which, from its nature, is the subject of a suit at the common law, or in equity, or admiralty."¹⁰ When the litigants have consented to the non-Article III adjudication at issue, however, the Court uses a functional mode of analysis that assesses whether the consent adjudication system at issue, as a practical matter, actually threatens the structural integrity of the Article III judicial branch. These dual modes of analysis, while seeming incoherent to many, are actually a logical corollary of the dual interests protected by Article III, § 1—both the waivable individual rights of litigants to an Article III adjudication, as well as non-waivable structural separation-of-powers values.

While Part I analyzes the significance of Wellness in the Supreme Court's general jurisprudence of non-Article III adjudications, Parts II and III assess Wellness's larger implications for the constitutionality of non-Article III bankruptcy adjudications. In particular, one of the most persistent puzzles left unresolved by Stern is determining the constitutional basis (if any) for bankruptcy judges to render final judgment without litigant consent, e.g., in those statutory core matters that have traditionally been finally adjudicated by non-Article III arbiters.¹¹ Justice Sotomayor's majority opinion in Wellness ducked the broader issue of articulating the constitutional theory that validates non-Article III bankruptcy adjudications without litigant consent. The three "dissenting" justices, though, expressly addressed that question,¹² and it now seems clear that a majority of the Court believes that the bulk of bankruptcy judges' core jurisdiction is indeed constitutionally valid. Moreover, the views of the Wellness dissenters, as well as the Wellness decision itself, are fully consistent with the Court's cumulative jurisprudence of non-Article III bankruptcy adjudications, which seems to have constitutionalized the longstanding historical distinction between "summary" matters of estate and

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case administration, as distinguished from "plenary" suits against "adverse claimants."

Part II traces the Supreme Court's longstanding...