December 7, 2021

Volume XI, Number 341

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December 07, 2021

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December 06, 2021

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Judges Lobbying the Supreme Court on Jurisdiction?

While the bankruptcy world is waiting for the Supreme Court’s next pronouncement on the constitutionality of bankruptcy court jurisdiction, several federal circuit court judges do not appear to be waiting.  Instead we’ve seen a spate of recent decisions addressing whether parties can consent to the entry of final judgments by bankruptcy courts, the very question that is pending before the Supreme Court in Executive Benefits Insurance Agency (EBIA) v. Arkinson (In re Bellingham Insurance Agency), 702 F.3d 553 (9th Cir. 2012), cert. granted 133 S.Ct. 2880 (2013).  Why are these appellate judges busy writing opinions they know will be rendered moot in a few months?

The issue before the Court is whether Stern v. Marshall, 131 S. Ct. 2594 (2011), was based on the “structural” separation of powers aspect of Article III or the “personal” Article III right to have a judge with tenure and salary protections decide the case.  If structural, then the Stern problem cannot be waived or consented to by the parties.  If personal, then presumably it can be. 

The Ninth Circuit adopted the personal rights waiver view in the decision that is on appeal to the Supreme Court.  The Ninth Circuit actively solicited amicus briefs and took more than a year to write a very thorough opinion designed to shape the post-Stern debate.  However the Sixth Circuit beat them to the punch by seven weeks when it adopted the contrary structural approach in Waldman v. Stone, 698 F.3d 910 (6th Cir. 2012), cert. denied133 S.Ct. 1604 (2013).  Thus, until recently there was a one to one circuit court split with the advantage favoring the personal rights view.

The Seventh Circuit started the recent trend with a very forceful anti-consent decision inWellness Int’l Network, Ltd. v. Sharif, 727 F.3d 751 (7th Cir. Aug. 21, 2013).  Wellnessarticulated a strong argument that Stern was structural because allowing non-Article III judges to decide even cases involving consent weakens the judicial branch by diluting its authority (a point that finds support in some of the Stern language).  The plot thickened when an intra-circuit squabble erupted only two weeks later in Peterson v. Somers Dublin Ltd., 2013 WL 4767495 (7th Cir. Sept. 6, 2013).  Clearly unhappy with the Wellness opinion, but also bound under circuit rules to follow the earlier panel’s opinion, Chief Judge Easterbrook drew a distinction between forfeiture and waiver by consent and limitedWellness to cases where the objection to jurisdiction was forfeited by failure to timely raise it.  In contrast, where the parties expressly waived the right to an Article III judge, it was constitutional for the bankruptcy court to enter a final order.  One need not think very hard to realize that this is directly contrary to the “structural” reasoning of Wellness.

Then the Fifth Circuit weighed in on the Wellness side of the debate stating, “‘When Article III limitations are at issue, notions of consent and waiver cannot be dispositive because the limitations serve institutional interests that the parties cannot be expected to protect.’  [Citation omitted.]  … Stern makes clear that the practice of bankruptcy courts entering final judgments in certain state-law counterclaims ‘compromise[s] the integrity of the system of separated powers and the role of the Judiciary in that system.’ [CitingStern.]” Frazin v. Haynes and Boone, L.L.P. (In re Frazin), 2013 WL 5495920 *4 n.3 (5th Cir. Oct. 1, 2013).  Two weeks ago, the Fifth Circuit upped the ante by holding that even the exercise of consent jurisdiction in non-core matters was unconstitutional. BP RE, L.P. v. RML Waxahachie Dodge, L.L.C. (In re BP RE, L.P.), No. 12-51270 (5th Cir. Nov. 11, 2013).

Thus, only weeks before the January 14th oral arguments in Bellingham, the circuit split has shifted to one and a half for bankruptcy court jurisdiction and two and a half against.  Could it be that the Article III judges feel very strongly about the issue and are writing opinions designed to lobby the Supreme Court?

©2021 Greenberg Traurig, LLP. All rights reserved. National Law Review, Volume III, Number 339
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Businesses faced with changes in the competitive global economy and within their own industries increasingly turn to financial restructuring as an option to reorganize and de-leverage core businesses, shed excess assets for underperforming divisions, and reformulate long-term objectives. Greenberg Traurig's internationally recognized Restructuring & Bankruptcy Practice has broad advisory and litigation experience with the often-complex issues that arise in reorganizations, restructurings, workouts, liquidations, and distressed acquisitions and sales, in both domestic...

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