Wellness International Network v. Sharif: Minimizing the Jurisdictional Impact of Stern through Consent of Bankruptcy Litigants

• Author: Ishaq Kundawala
• Position: Professor of Law, Shepard Broad College of Law, Nova Southeastern University, Fort Lauderdale, Florida. J.D., Tulane Law School; B.A., Austin College. I thank my research assistant, Joseph Kadis, for his invaluable assistance. I also thank the editors of the Capital University Law Review for their good work and professionalism. Last but not...
• Pages: 67-101

WELLNESS INTERNATIONAL NETWORK V. SHARIF:

MINIMIZING THE JURISDICTIONAL IMPACT OF STERN

THROUGH CONSENT OF BANKRUPTCY LITIGANTS

ISHAQ KUNDAWALA*

I. INTRODUCTION

Without conducting an official poll, it can safely be said that a majority

of lawyers, judges, and scholars agree the nature and scope of bankruptcy

jurisdiction is quite confusing and at times uncertain.1 There has always

been—and perhaps always will be—a tug-of-war between the legislative

and judicial branches of government over the proper scope of bankruptcy

jurisdiction,2 with one side expanding the reach of bankruptcy jurisdiction

legislatively and the other side limiting that reach judicially.3 This poses a

classic separation of powers struggle between the two branches, which has

certainly played out in recent bankruptcy jurisprudence.4

When Congress created the bankruptcy court system, it gave

bankruptcy judges (formerly called referees) many of the powers of Article

III courts, but without the Article III protections such as life tenure and

protection against salary diminution.5 The scope of bankruptcy

jurisdiction has seen several iterations, from the first bankruptcy laws

enacted in 1800 to the current jurisdictional scheme established by the

1984 Amendments but further limited by jurisprudence.6 Regardless of

Copyright © 2016, Ishaq Kundawala

* Professor of Law, Shepard Broad College of Law, Nova Southeastern University, Fort

Lauderdale, Florida. J.D., Tulane Law School; B.A., Austin College. I thank my research

assistant, Joseph Kadis, for his invalu able assistance. I also thank the editors of the Capital

University Law Review for their good work and professionalism. Last but not least, I thank

my wife, Joy, for her support and encouragement.

1 See Ralph Brubaker, On the Nature of Federal Bankruptcy Jurisdiction: A General

Statutory and Constitutional Theory, 41 WM. & MARY L. REV. 743, 941 (2000).

2 Id. at 773.

3 Id. at 900.

4 See, e.g., Wellness Int’l Network, Ltd. v. Sharif, 135 S. Ct. 1932 (2015); Exec.

Benefits Ins. Agency v. Arkison, 134 S. Ct. 2165 (2014); Stern v. Marshall, 131 S. Ct.

2594, 2601 (2011).

5 See Bankruptcy Act of 1800, 6 Cong. Ch. 19, April 4, 1800, 2 Stat. 19.

6 See FEDERAL JUDICIAL CENTE R, THE EVO LUTION OF U.S. BANKRUPTCY LAW : A

TIMELINE, http://www.rib.uscourts.gov/newhome/docs/the_evelution_of_bankruptcy_law.

pdf (last visited Aug. 18, 2015) (In 1984, Congress passed the Bankruptcy Amendments

(continued)

68 CAPITAL UNIVERSITY LAW REVIEW [44:67

these various iterations, the legislature’s broad conferral of power to

bankruptcy judges, without providing corresponding Article III safeguards,

has raised and continues to raise serious constitutional questions regarding

the proper scope of bankruptcy jurisdiction.7

The United States Supreme Court’s most recent decision in Wellness

International Network, Ltd. v. Sharif 8 continues the judicial inquiry into

the constitutionality of the bankruptcy court’s jurisdictional scheme.9 The

Wellness decision10 substantially limits the jurisdictional impact of the

Court’s earlier 2011 landmark decision in Stern v. Marshall.11 In Stern,

the Court held that Article III prohibited Congress from vesting a

bankruptcy court with the authority to finally adjudicate certain claims,

even when the bankruptcy court had statutory authority to do so.12

Wellness, however, limits Stern by allowing bankruptcy litigants to consent

to bankruptcy court adjudication on these types of claims despite the lack

of constitutional authority.13

To fully appreciate the significance of Wellness, one must first

understand how bankruptcy courts were vested with jurisdiction

historically and how that authority has since expanded and contracted.

This Article examines and explores the history and current status of the

bankruptcy court’s jurisdictional reach, the Wellness opinion and its

significance, and the open questions and issues that remain in the wake of

Wellness.14

and Federal Judgeship Act, which created the current jurisdictional scheme of the

bankruptcy courts found in Title 28 of the United States Code. As will be discussed below,

the United States Supreme Court has limited the effect of the 1984 Amendments by finding

parts of it to be unconstitutional).

7 See Brett A. Axelrod, U.S. Supreme Court Dramatically Curtails Bankruptcy Courts’

Powers (Sept. 2011), http://www.foxrothschild.com/content/uploads/2015/05/alert_axelrod

_stern-v-marshall_sept2011.pdf.

8 135 S. Ct. 1932 (2015).

9 See id. at 1939.

10 Id. at 1949.

11 131 S. Ct. 2594 (2011).

12 See id at 2601.

13 See Wellness, 135 S. Ct. at 1954.

14 See infra Part IV.

2016] WELLNESS INTERNATIONAL NETWORK V. SHARIF 69

II. THE APPLICABLE JURISDICTIONAL STANDARDS FOR BANKRUPTCY

COURTS BEFORE AND AFTER STERN AND EXECUTIVE BENEFITS

The history of bankruptcy law can be traced back to the ratification of

the U.S. Constitution in 1798.15 The Constitution grants Congress the

power to make uniform bankruptcy laws.16 Congress used this authority

numerous times between 1800 and 2005.17 However, while Congress tried

to expand the bankruptcy court’s reach, the judiciary fought to limit it, thus

beginning a classic separation of powers tug-of-war between the two

branches.18

It is not necessary for the purposes of this Article to turn the clock

back to the early 1800s. However, as a starting point, the Bankruptcy Act

of 1898 (1898 Act) vested jurisdiction over bankruptcy matters in the

federal district courts.19 Before 1978, the district courts referred

bankruptcy matters to specially appointed bankruptcy referees.20 The

referees (who were designated as judges in 1973) were vested with

summary jurisdiction, which covered “controversies involving property in

the actual or constructive possession of the court.”21 The referees did not

have jurisdiction over plenary matters, such as disputes involving property

in the possession of someone else, unless the litigants consented.22 Thus,

where plenary matters were concerned, the district courts retained

jurisdiction unless the parties consented to have their dispute adjudicated

by a bankruptcy referee.23

15 U.S. CONST. art. I, § 8, cl. 4.

16 Id.

17 See FEDERAL JUDICIAL CENTER, supra note 6 and accompanying text.

18 See Brubaker, supra note 1, at 941.

19 See Bankruptcy Act of 1898, ch. 541, § 2, 30 Stat. 544–46.

20 See Wellness Int’l Network, Ltd. v. Sharif, 135 S. Ct. 1932, 1939 (2015). See also

Exec. Benefits Ins. Agency v. Arkison, 134 S. Ct. 2165, 2170 (2014).

21 See N. Pipeline Constr. Co. v. Marathon Pipe Line Co., 458 U.S. 50, 53 (1982)

(plurality opinion), superseded by statute, Bankruptcy Amendments and Federal Judgeship

Act of 1984, Pub. L. No. 98-353, 98 Stat. 333 (1984), as recognized in Wellness, 135 S. Ct.

at 1939.

22 Id.

23 See Exec. Benefits, 134 S. Ct. at 2170.