cbaReport-May14 - page 9

May 2014CBAREPORT
l
9
feature article
III adjudication. Section636(c)(1)’s broad
grant of authority tomagistrates, pursu-
ant to litigant consent,wouldbedirectly
threatenedby aholding that consent is
constitutionally insufficient for bank-
ruptcy court jurisdiction. Indeed, the
MagistrateAct has essentially the same
structural protections as thebankruptcy
statute, includingoversight by anArticle
III judge. If the SupremeCourt holds that
it is unconstitutional for litigants to con-
sent to adjudicationbeforebankruptcy
judges, there is little reason to think that
magistrate judges shouldbe seen any
differently.
These concerns have led to anover-
whelming amicus response asking the
SupremeCourt to avoidfinding that
bankruptcy courts violateArticle III and
topreserve the current system, includ-
ingbriefs by theUnitedStates, various
States, and theAmericanBarAssocia-
tion.Due to the structural and systemic
issues at stake, theAmericanCollegeof
Bankruptcyfiled its first-ever amicus
brief, forwhichour firmwas lead coun-
sel.Thebrief focuses primarilyon the
historyof SupremeCourt jurisprudence
concerningArticle III adjudication in
bankruptcy,well-recognizedprinciples
of litigant consent tonon-Article III ad-
judicationof otherwise constitutionally
mandatedArticle IIImatters, and the
practical implications on thebankruptcy
system andothernon-Article III tribu-
nals (such as theBankruptcyAppellate
Panel andU.S.Magistrates) if litigant
consent isnot upheld.
On
Bellingham
,
all parties interested in an efficient and
meaningful bankruptcy system are
encouraging the SupremeCourt to fol-
low existing constitutional principles to
preserve litigant consent in this context.
(Indeed, theonlyparties to support the
petitioner are those that, as theydisclose
in their amicus briefs, arenow litigating
large fraudulent transfer claims inbank-
ruptcy court andwould like a changeof
scenery.)
The Justices arewell awareof the
potential consequences, but havebeen
hard-pressed tofigureoutwhat todo.
The SupremeCourt heldoral argument
in
Bellingham
on January14, 2014, and
it looks like thedecisionwill be a close
one. Chief JusticeRoberts, the author of
Stern v.Marshall
,was clear that par-
ties cannot “comeoff the street” and
decide that their casewill not beheard
by anArticle III judge. Justice Scaliawas
likewiseunwilling tobendArticle III to
escape thepractical consequences of such
adecision, explaining that theproblem
was createdbyCongress and thatCon-
gresswouldhave tofix it. (Unfortunately,
recent history shows thatCongress
maybeunable toprovide ameaningful
fix anytime soon, let alone a logical or
comprehensive solution.) JusticeBreyer,
for his part, noted that the Supreme
Court has a long lineof cases emphasiz-
ing the importanceof consent.Other
judges seemed comfortablewith the
distinctionbetween abankruptcy court
entering judgment itself and submitting
findings of fact and conclusions of law to
thedistrict court.Anumber of justices
specifically commented that anydecision
on the jurisdictionof bankruptcy judges
wouldhave implications formagistrate
judges aswell.
Webelieve that the SupremeCourt
will find away to avoidmaking an
unnecessarymess of the lower courts,
whether through consent or apractical
interpretationofArticle III. Regardless,
Bellingham
’s impact is alreadybeing felt.
Defendants in fraudulent transfer actions
andother preference claims have ahope
that even if they lose in thebankruptcy
courts,
Bellingham
will give them ado-
over in thedistrict courts. Prospective
plaintiffs should also considerwhether
tofile their claims in thedistrict court in
thefirst instance, rather thanfilebefore
thebankruptcy courtwith the attendant
risks.All attorneys that are involved
inbankruptcyproceedings in anyway
shouldbe aware andprepared for this
important decision,which is expected as
early asMayof this year.
StephenLerner is chairof theSquireSanders
Restructuring& InsolvencyPracticeGroup, andhas
anextensivenationalandcross-border restructuring
practice. ColterPaulson isamemberof theSquire
SandersAppellate&USSupremeCourtPractice
Group. SquireSanders servedas leadcounsel to the
AmericanCollegeofBankruptcyon itsSupremeCourt
amicusbrief in theBellingham InsuranceAgencycase.
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