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Anna Nicole Smith, Equity, and Article III

By Troy McKenzie

As John Pottow previewed in this post, the Supreme Court heard oral argument last week in Stern v. Marshall, better known as "The Anna Nicole Smith Case II." Justice Sotomayor put the first question to Kent Richland, lawyer for Vickie Lynn Marshall (aka Anna Nicole Smith), and it was a doozy:

JUSTICE SOTOMAYOR: What?s the authority at all for a bankruptcy court to adjudicate proof[s] of claims, without violating Article III? I don?t think we have ever had a case that?s actually said that.

MR. RICHLAND: This Court has never approached that issue directly. . . .

Despite that opening, by the end of the argument the Court seemed sufficiently receptive to Anna Nicole Smith's side (albeit with serious skepticism by the Chief Justice and Justice Scalia) that I wouldn't be surprised if they reverse the Ninth Circuit. What is very surprising, though, is that the questions presented in this case are still undecided in 2011. Northern Pipeline is a 1982 case, and Congress created the current system of bankruptcy courts in 1984. What's taken the Supreme Court so long?

The oral argument turned into an interesting discussion of topics that haven't gotten much attention at the Court recently. There was lively give-and-take about the equitable nature of bankruptcy and the "right" to a federal adjudicator protected by Article III of the Constitution. Justices Ginsburg and Sotomayor seemed persuaded by the argument that, as a matter of equity, a creditor who pursues a claim in bankruptcy could be subjected to a compulsory counterclaim by the debtor. Justices Breyer and Kagan pressed Roy Englert--counsel for the creditor--on the point that Article III is one area where the basic rule is that there is no hard-and-fast rule. So long as there's no suggestion that the integrity of the federal judiciary has been undermined by allowing bankruptcy judges to hear and decide a compulsory counterclaim, subject to appellate review in the Article III courts, then there's no Article III concern. Chief Justice Roberts and Justice Scalia, on the other hand, expressed serious discomfort with the idea that a creditor who seeks relief before a bankruptcy judge waives the right to an Article III adjudicator on the debtor's counterclaim.  

Thrilling stuff for the fed courts junkies out there. But shouldn't all of this be well settled by now? Are questions about Article III just too touchy and difficult for the Court to decide definitively? Maybe that's why the Court's Article III cases are "landmarks on a judicial 'darkling plain' where ignorant armies have clashed by night," as then-Justice Rehnquist, writing separately in Northern Pipeline, suggested. A little studied ambiguity keeps the system operating without letting matters get out of hand. 

The other possibility is that the Court doesn't really understand bankruptcy very well and knows it. Yes, the limits on a bankruptcy judge's power have been incompletely defined by the Court.  But maybe the Court has followed the hypocratic oath of judging--"First, do no harm"--rather than risk royally screwing up an important part of the business of the federal courts for which the Justices do not have a firm grasp. In fact, just two Terms ago the Court dodged a broad ruling on the reach of "related to" jurisdiction in Travelers Indemnity Co. v. Bailey.

I find the first explanation to be the stronger one, mostly because the Court seems completely oblivious to the criticism directed at its bankruptcy jurisprudence. But it does tend to stay away from definitive Article III decisions unless it absolutely has to. 

 

Full post as published by Credit Slips on January 24, 2011 (boomark / email).