Stern v Marshall: Analysis of SCOTUS Bankruptcy Courts Decision

For your reference, here’s what you need to know about the Supreme Court’s Stern v Marshall ruling that bankruptcy courts don’t have the constitutional authority to rule on state law counterclaims:  

A Shock to the Core: The Supreme Court Pries Jurisdiction Away From Bankruptcy Courts on Counterclaims to Proofs of Claim, And Possibly More (Sheppard Mullin Richter & Hampton LLP):

“For bankruptcy practitioners, it is yet another chapter in an even more epic saga – that of the back-and-forth between Congress and the Supreme Court over the jurisdictional limits of the nation’s bankruptcy courts. Instead of offering finality, the decision only raises more questions about how far the Court’s reasoning will extend, and what the implications will be for practice under the Bankruptcy Code.” Read more»

Stern v. Marshall: Narrow Holding, Broader Implications! (Morgan Lewis):

“While the narrow holding of the case would not likely cause substantial disruption to typical bankruptcy litigation since state law counterclaims to a claim are not frequent, a fair reading of the plurality and concurring opinions points to a future extension of the Stern holding, removing from the bankruptcy court its right to enter final judgments in typical fraudulent transfer and preference avoidance litigation. Because of the sheer volume of such litigation, such extension of the Court’s rationale could well have a major impact on the adjudication of these actions in both the bankruptcy and district courts by transferring most of the avoidance actions from the bankruptcy courts to the district courts.” Read more»

Stern v. Marshall: Supreme Court Declares Part of the Bankruptcy Code’s Jurisdictional Provisions Unconstitutional (Dechert LLP):

“In a significant decision that reinforced the U.S. Supreme Court’s prior plurality decision in Marathon, the Court determined that while bankruptcy courts have the statutory authority to hear state-law compulsory counterclaims to a creditor’s proof of claim under section 157(b)(2)(C) of Title 28, Article III of the U.S. Constitution requires such proceedings to be heard by Article III judges where they would not be resolved as part of the claims allowance process. The Court’s decision breathes new life into Article III in the bankruptcy context and ensures that its provisions are not ‘transformed from the guardian of individual liberty and separation of powers … into mere wishful thinking.’” Read more»

Supreme Court: Bankruptcy Courts Cannot Decide Debtors’ State Law Counterclaims (Mintz Levin):

“In a decision that may have significant practical implications to the practice of bankruptcy law, the U.S. Supreme Court recently declared, on constitutional grounds, that a bankruptcy court cannot exercise jurisdiction over a debtor’s state law counterclaims, thus considerably limiting the ability of the bankruptcy court to fully and finally adjudicate claims in a bankruptcy case. Stern v. Marshall, No. 10-179 (June 23, 2011).” Read more»

Court Restricts Bankruptcy Court Jurisdiction In Stern v. Marshall (Loeb & Loeb LLP):

“The Supreme Court’s 5-to-4 decision in Stern v. Marshall, 131 S. Ct. 2594, 2011 WL 2472792 (June 23, 2011), drew upon a tortured factual background filled with sensational accusations and revelations, to deliver an opinion that definitively upsets a quarter- century’s jurisdiction by bankruptcy courts over a large set of actions. It alters how trustees and debtors-in-possession can (and must) now seek many (if not most) recoveries on behalf of bankruptcy estates, even when the defendants in such suits have voluntarily submitted themselves to the bankruptcy process by filing a proof of claim.” Read more»

July 2011: Bankruptcy Litigation Update (Quinn Emanuel Urquhart & Sullivan, LLP):

“Supreme Court Limits Bankruptcy Court Authority to Render Final Orders on State Law Counterclaims: The Supreme Court recently issued a decision resolving ‘two issues: (1) whether the Bankruptcy Court had the statutory authority under 28 U.S.C. § 157(b) to issue a final judgment on [a debtor’s counterclaim against a creditor]; and (2) if so, whether conferring such authority on the Bankruptcy Court is constitutional.’ Stern v. Marshall, 131 S.C. 2594, 2600. Stern involves a dispute between Vickie Marshall (professionally known as Anna Nicole Smith) and Pierce Marshall regarding the disposition of the assets of J. Howard Marshall, Vickie’s husband and Pierce’s father.” Read more»

United States Supreme Court Defines Limits of Bankruptcy-Court Jurisdiction, Raises Additional Questions (Bryan Cave):

“Article III of the United States Constitution reserves the judicial power to federal courts whose judges enjoy life tenure during good behavior and no diminution of salary. Bankruptcy courts are not Article III courts; bankruptcy judges serve 14-year terms without salary protection. Nearly 30 years ago, in Northern Pipeline Construction Co. v. Marathon Pipe Line Co., 458 U.S. 50 (1982), the U.S. Supreme Court ruled that the Constitution forbids bankruptcy courts from exercising judicial power over state-law matters not directly and necessarily involving a bankruptcy case’s restructuring of debtor-creditor relations. In that decision, a plurality of the Court referred to debt restructuring as ‘the core of the federal bankruptcy power.’” Read more»

Stern v. Marshall: A Jurisdictional Game Changer? (Morrison & Foerster LLP):

“On June 23, 2011, the Court, in a 5-4 decision, held unconstitutional a provision of a bankruptcy jurisdiction statute that authorizes bankruptcy judges to hear and decide counterclaims by the estate against persons filing claims against the estate. Because bankruptcy judges, as judges created under Article I of the Constitution, do not have the protections of life tenure guaranteed by Article III of the Constitution, the Court affirmed the holding of the Ninth Circuit Court of Appeals and ruled that the bankruptcy court ‘lacked the constitutional authority to enter a final judgment on a state law counterclaim that is not resolved in the process of ruling on a creditor’s proof of claim.’” Read more»

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