The Scope and Implications of Stern v. Marshall, 131 S. Ct. (2011)

Abstract

This paper discusses the possible meaning and effect of the Supreme Court’s recent decision in Stern v. Marshall, in which the Court held that the bankruptcy courts’ statutory authority to enter final judgments on certain counterclaims against creditors violates Article III of the Constitution. It was prepared by the authors as a report to the fall 2011 annual meeting of the National Bankruptcy Conference.

The Stern decision is enigmatic. While stressing the narrowness of the issue decided, the Court’s opinion rests on a rationale that, carried to its logical conclusion, could have broad implications for the exercise of bankruptcy jurisdiction specifically and more generally for the authority of other non-Article III decision makers.

This paper addresses the three major uncertainties raised by the decision: its scope (does it apply to more than just bankruptcy court’s authority over state law counterclaims?); the significance of consent (does party consent to bankruptcy court adjudication eliminate all constitutional concerns?); and resulting procedural issues (what authority do bankruptcy courts now have over matters statutorily designated as “core” that constitutionally require determination by an Article III court?). While addressing the arguments for a broad reading of Stern, the paper provides reasons for a more cautious and limited application of the decision.