Stern v. Marshall--Digging for Gold and Shaking the Foundation of Bankruptcy Courts (or Not)

Author:Katie Drell Grissel
Position:Associate in the Restructuring & Reorganization Practice Group of Vinson & Elkins L.L.P. in Dallas, Texas
Pages:647-728
SUMMARY

I. Bankruptcy Court Authority - A. Pre-Bankruptcy Code - B. The Bankruptcy Code - C. Marathon - D. The Bankruptcy Amendments and Federal Judgeship Act of 1984 - II. Stern v. Marshall - A. Majority Opinion - 1. Categorical Bases for Allowing Bankruptcy Court to Resolve State Common Law Claims Are Inapplicable - 2. Distinguishing Katchen and Langenkamp - 3. Bankruptcy Courts Are Not... (see full summary)

 
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Stern v. Marshall––Digging for Gold and Shaking the
Foundation of Bankruptcy Courts (or Not)
Katie Drell Grissel*
TABLE OF CONTENTS
I. Bankruptcy Court Authority ................................................649
A. Pre-Bankruptcy Code .....................................................649
B. The Bankruptcy Code ....................................................650
C. Marathon ........................................................................652
D. The Bankruptcy Amendments and Federal
Judgeship Act of 1984 ...................................................653
II. Stern v. Marshall ..................................................................654
A. Majority Opinion ...........................................................654
1. Categorical Bases for Allowing Bankruptcy
Court to Resolve State Common Law Claims
Are Inapplicable .......................................................658
2. Distinguishing Katchen and Langenkamp ...............661
3. Bankruptcy Courts Are Not Adjuncts of
Article III Courts ......................................................662
4. That the Majority Opinion Restricts a
Bankruptcy Court’s Ability to Enter Final
Judgments on Certain State Law Counterclaims
May Be Administratively Burdensome Does
Not Change the Result .............................................663
B. Scalia Concurrence ........................................................663
C. Dissent (Breyer, joined by Ginsburg, Sotomayor,
and Kagan) .....................................................................664
Copyright 2012, by KATIE DRELL GRISSEL.
* The author is an associate in the Restructuring & Reorganization Practice
Group of Vinson & Elkins L.L.P. in Dallas, Texas. Bill Wallander, a Partner and
the Practice Group Leader of the Restructuring & Reorganization Practice Group
of Vinson & Elkins L.L.P., and Omar Alaniz, a Senior Associate in the
Bankruptcy and Workout Group of Baker Botts L.L.P. in Dallas, Texas, both
provided helpful comments and contributions to this article. The author would also
like to note that Mr. Alaniz was the primary drafter of the section in this article on
the authority of magistrate judges. The author, Mr. Wallander, and Mr. Alaniz
presented a panel presentation to the Dallas Bar Association Bankruptcy and
Creditor’s Rights Section based on this paper on September 7, 2011.
648 LOUISIANA LAW REVIEW [Vol. 72
III. Issues and Implications ........................................................666
A. Are We Facing Marathon Problems Again? ..................666
B. Cases Applying Stern .....................................................669
1. On Counterclaims ....................................................669
2. On State Law Issues .................................................672
3. On Avoidance Actions .............................................684
4. On Federal Bankruptcy Issues .................................688
5. On Jurisdictional Determinations ............................700
6. Minor Citations to Stern ...........................................702
C. Consent Analysis ...........................................................704
D. Rerouting and Increasing Court Traffic .........................706
E. Basis of “Core” Determination ......................................707
F. Settlements and Compromises .......................................708
G. Filing Proofs of Claim ...................................................708
H. Bankruptcy Appellate Panels .........................................708
I. Certification ...................................................................708
J. Are Magistrate Judges Subject to the Same
Problems? .......................................................................709
IV. Conclusion ...........................................................................711
On June 23, 2011, the United States Supreme Court handed
down Stern v. Marshall,1 which has quickly become the hottest
topic in bankruptcy law in quite some time. This Article (1) briefly
describes the historical authority of bankruptcy courts; (2)
discusses the Supreme Court’s ruling and rationale in Stern; and
(3) discusses the ramifications of Stern through the lens of recent
case law discussing Stern, as well as other issues that have not yet
been addressed by the courts. As will be shown in this Article, the
majority’s pronouncements in Stern have led lower courts to
widely disparate conclusions about the breadth of the Stern
decision, and those pronouncements have also dealt a significant
blow to the foundational authority of bankruptcy courts, the full
effects of which have not yet come to fruition. At least for now, the
United States bankruptcy system is still running, despite an unclear
foundation for doing so.
1. 131 S. Ct. 2594 (2011).
2012] BANKRUPTCY COURTS AFTER STERN 649
I. BANKRUPTCY COURT AUTHORITY
A. Pre-Bankruptcy Code
In the beginning, there was debtors’ prison. As a vestige of
British practice (which itself derived from ancient and medieval
practices), as late as the early 19th Century in the United States,
debtors were often imprisoned for unpaid debts. However, because
the U.S. Constitution, enacted in 1789, provided for Congressional
authority to create laws on the subject of bankruptcies,2 Congress
made attempts at creating a federal bankruptcy law in response to
the increasing unpopularity of debtors’ prison.3 Prior to 1898,
Congress passed three Bankruptcy Acts: one in 1800 (set in motion
by a depression beginning in 1793), which was repealed three
years later; one in 1841 (set in motion by the Panic of 1837), which
was repealed two years later; and one in 1867 (set in motion by the
Panic of 1857), which was amended in 1874 and finally repealed in
1878.4 In the meantime, most states had insolvency laws, which
operated in the absence of federal bankruptcy law.5 After those
three failed attempts, Congress then enacted the Bankruptcy Act of
1898.6
Under the Bankruptcy Act of 1898, bankruptcy jurisdiction
was conferred on “courts of bankruptcy,” “court” was
defined to mean “the judge or referee of the court of
bankruptcy,” and “courts of bankruptcy” to “include” the
district judges. That Act gave the referees jurisdiction,
subject to review by a district judge, to perform all duties
conferred on “courts of bankruptcy” as distinguished from
those conferred on “judges,” which were to be performed
only by district judges. Rules of Bankruptcy Procedure
promulgated by the Supreme Court in 1973 redesignated
the referees as “bankruptcy judges.”7
Under the 1898 Act, “referees” were appointed by district
courts for six year terms; were removable for “incompetence,
2. See Article I, § 8 of the United States Constitution, which authorizes
Congress to establish “uniform Laws on the subject of Bankruptcies throughout
the United States.” U.S. CONST. art. I, § 8.
3. See DAVID A. SKEEL, JR., DEBTS DOMINION, A HISTORY OF
BANKRUPTCY LAW IN AMERICA 25 (2001).
4. Id.
5. Id.
6. Id.
7. Vern Countryman, The Bankruptcy Judges: Jurisdiction by Neglect, 92
COM. L.J. 1, n. 1 (1987).

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