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May 2014CBAREPORT
feature article
withusing consent andwaiver to avoid
constitutional issues?
Theother circuits to look at this
questionhave answered that “struc-
tural separationof powers”means that
bankruptcy judgesmaynot decide
non-corematters evenwhere theparties
consent.The SixthCircuit explained that
Article III is a “non-waivable structural
principle” that “serves as an inseparable
element of the constitutional systemof
checks andbalances.”
Waldman v. Stone
,
698F.3d910, 917-18 (2012). It disap-
provedofCongress’ decision to allow
bankruptcy judges todecidenon-core
issues, explaining that, “to the extent that
Congress can shift the judicial Power
to judgeswithout thoseprotections, the
Judicial Branch isweaker and less inde-
pendent than it is supposed tobe.”
See
also
InBPRE, LP v. RMLWaxahachise
Dodge, LLC
, 735F.3d279 (5thCir. 2013)
(applying this reasoning to some core
bankruptcy issues aswell);
Wellness Int’l
Network, Ltd. v. Sharif
, 727F.3d751 (7th
Cir. 2013).
If the SupremeCourt agreeswith the
Fifth, Sixth, andSeventhCircuits, the
consequences of thesenuances ofArticle
III couldbe far-reaching—andnot just
onbankruptcy courts. Placing fraudu-
lent transfer andother avoidance claims
beyond the jurisdictionof bankruptcy
courtswould requiremost bankruptcies
tobe litigated in two courts.Thiswould
not be amere inconvenience for com-
panies inChapter 11. Bankruptcy cases
often require approvals ofmatters such
as debtor-in-possessionfinancingor use
of cash collateralwithindays because a
viablebusinessmayhave to shut down if
it cannot quicklyobtain court approval
to fund its operations during thebank-
ruptcy. Similarly, the saleof substantially
all assets andother transactions often
require immediate attentionby the court
if anongoingbusiness is tobepreserved.
Burdenedby aheavy criminal docket
that requires constant attention, district
court judges areonlyused to relatively
quick (and rare)motions for temporary
restrainingorders.The farmore focused
docket of bankruptcy judges allows
them to address financing, business and
transactionalmotions in amatter of
days—not tomention their decades of
experiencewithboth.Thedelayneces-
sitatedbywithdrawing the claims to the
district court, and thenwaiting for an
openhearingday, could threaten the vi-
abilityof businesses, their employees and
creditors.
This problemwouldnot be rare—
district courtswouldbe facedwith
a significant overall increase in their
caseload.At the endof 2012,more than
70,000 adversaryproceedingswere
pending inbankruptcy courts across the
country—manyofwhichwouldhave
tobe shifted to thedistrict courts if the
SupremeCourt reverses theNinthCir-
cuit in
Bellingham
.District court judges
wouldbe facedwith thousands of addi-
tional fraudulent transfer and avoidance
actions thatwere traditionallydecidedby
bankruptcy judges.Theymight alsohave
to takeon theburdens of theBankruptcy
AppellatePanels, three-judgepanels of
bankruptcy judges that,with consent of
all parties, hear bankruptcy appeals in
theFirst, Sixth, Eighth,Ninth, andTenth
Circuits.A reversal in
Bellingham
would
undermine the constitutional foundation
of these courts aswell.
Perhaps evenmoreworryingly,
magistrate judges alsooperateon a
systemwhereparties opt out ofArticle
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