U.S. Supreme Court

Bankruptcy judges may decide related issues with parties' consent, SCOTUS rules

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U.S. Supreme Court

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Federal bankruptcy judges may decide related state law claims outside their constitutional authority if the parties consent, the U.S. Supreme Court has ruled in a 6-3 decision.

The decision (PDF) on Tuesday limits the reach of the 2011 decision Stern v. Marshall, which held that bankruptcy judges, who have no Article III protections, have no constitutional authority to decide a related common law tort claim that does not stem from the bankruptcy itself. That case involved the late Anna Nicole Smith, whose real name was Vickie Lynn Marshall.

In the new case, Wellness International Network v. Sharif, the majority said Article III is not violated when the parties “knowingly and voluntarily consent” to handling of the related claim by a bankruptcy judge. That consent, the majority said, need not be express.

The related claim in Wellness International alleged Richard Sharif had concealed about $5 million in assets from creditors by claiming they were in a trust.

Justice Sonia Sotomayor wrote the majority opinion, joined in full by Justices Anthony M. Kennedy, Ruth Bader Ginsburg, Stephen G. Breyer and Elena Kagan. Justice Samuel A. Alito Jr. concurred in part, saying he would not have decided whether the consent may be implied.

An ABA amicus brief (PDF) had argued there is no separation of powers concerns when bankruptcy courts decide Article III claims with the consent of the parties.

A dissent by Chief Justice John G. Roberts Jr. said there was no need to reach the constitutional question because the trust issue stemmed from the bankruptcy itself and could be resolved by the bankruptcy court. Instead, the court decided the constitutional question—wrongly, in Roberts’ view.

“The impact of today’s decision may seem limited,” Roberts said, “but the court’s acceptance of an Article III violation is not likely to go unnoticed. The next time Congress takes judicial power from Article III courts, the encroachment may not be so modest—and we will no longer hold the high ground of principle. The majority’s acquiescence in the erosion of our constitutional power sets a precedent that I fear we will regret.”

Sotomayor’s decision criticized the tone of Roberts’ decision. “To hear the principal dissent tell it, the world will end not in fire, or ice, but in a bankruptcy court,” she wrote. She quoted a dissent by the late Justice William Brennan that said the result would be different if Congress “created a phalanx of non-Article III tribunals” to hear Article III cases with the consent of the parties.

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