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
SUMMARY

An examinitation and exploration of 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.

 
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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
beenand 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. 54446.
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.

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