“Public Rights” Doctrine for Bankruptcy Court Jurisdiction, While Always Tenuous, Is Now Dead and Buried

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RIP: “Public Rights” doctrine for bankruptcy court jurisdiction  (Photo by Marilyn Swanson)

By Donald L. Swanson

“Public rights” doctrine enters the bankruptcy scene thirty five years ago in the four-Justice plurality opinion of Northern Pipeline v. Marathon Pipe Line, 458 U.S. 50 (1982). Three Justices in that case write an vigorous dissent to such a use of public rights doctrine, while two other Justices concur with the plurality on only a narrow result.

Northern Pipeline Facts

Congress adopts a new Bankruptcy Code in 1978.

Northern Pipeline files Chapter 11 in January of 1980 under the new Bankruptcy Code and then sues Marathon Pipe Line in bankruptcy court for breaches of contract and warranty and for misrepresentation, coercion, and duress. Marathon has no other connection to the bankruptcy case.

Northern Pipeline Ruling

The U.S. Supreme Court, in its 1982 Northern Pipeline ruling, appears to adopt public rights doctrine as the basis for bankruptcy court jurisdiction, and a four-Justice plurality declares the new Bankruptcy Code unconstitutional in its entirety.  The combination of concurring and dissenting opinions, however, limits the extent of unconstitutionality to a narrow issue of jurisdiction.

A Dissenting View that Foreshadows Today’s Law

Chief Justice Burger foreshadows, in a separate dissenting opinion, what has become the actual state of today’s bankruptcy jurisdiction law. The Northern Pipeline plurality ruling is limited, says the Chief Justice back then, to these propositions:

–A “‘traditional’ state common law action” may be heard by a bankruptcy court upon “the consent of the litigants”;

–There is nothing “inherently unconstitutional about the new bankruptcy courts”;

–Bankruptcy courts may adjudicate all “claims ‘arising under’ or ‘arising in or related to cases under'” the Bankruptcy Code — with only limited exception; and

–The problems of the Northern Pipeline case can be resolved by “providing that ancillary common law actions . . . be routed to the United States district court of which the bankruptcy court is an adjunct.”

Basis for Public Rights Doctrine

The basis for the four-Justice plurality decision in Northern Pipeline, in its focus on “public rights,” is summarized by those Justices like this:

There are “three narrow situations” in which “the congressional assertion of a power to create legislative courts was consistent with” constitutional mandates of “separation of powers.” These three situations are, territorial courts, courts-martial, and cases involving “public rights.” And since bankruptcy courts are nothing like territorial courts or courts-martial, that leaves public rights as the only available basis for bankruptcy court jurisdiction.

Subsequent Developments

–Stern v. Marshall in 2011

In 2011, the Supreme Court, in Stern v. Marshall, issues a five-Justice majority opinion on bankruptcy court jurisdiction.  And the majority opinion is purportedly based on public rights doctrine.

Four Justices dissent in Stern v. Marshall, rejecting public rights doctrine and saying that the majority in Stern v. Marshall “overemphasizes the precedential effect of the plurality opinion in Northern Pipeline.”

Although Justice Scalia is part of the majority, he writes a concurring opinion expressing his belief that the majority opinion is not, truly, a public rights decision.  He stands alone in denouncing the majority opinion on these grounds:

“I count at least seven different reasons given in the Court’s opinion for concluding that an Article III judge was required to adjudicate this lawsuit,” all of which “have nothing to do with the text or tradition of Article III.”

–Wellness International v. Sharif in 2015

Fast-forward to the Supreme Court’s 2015 Wellness International v. Sharif opinion, in which three dissenting justices (including the now-deceased Justice Scalia) are holding on to the public rights doctrine.  They provide this public rights basis for their dissenting view:

–Congress may “confer power to decide federal cases and controversies” upon non-Article III judges in only “three narrow exceptions: territorial courts, courts martial, and disputes over ‘public rights'” (citing, “Northern Pipeline, 458 U. S., at 64–70 (plurality opinion)”).

Public rights doctrine receives no support or reliance from any other justice in Wellness International. The majority opinion, in fact, doesn’t even mention “public rights.” Accordingly, such doctrine is held (in Wellness International) by only three Justices as a basis for bankruptcy court jurisdiction.

Problems with Public Rights Doctrine

Problems with public rights doctrine are that it, (i) has never been well defined, and (ii) leads to confusion. These problems existed in 1982 and still exist today. Here are illustrations:

–“The distinction between public rights and private rights has not been definitively explained in our precedents. Nor is it necessary to do so in the present cases.” [From the 1982 four-Justice plurality opinion in Northern Pipeline.]

–The “contours of the ‘public rights’ doctrine have been the source of much confusion and controversy.” [From the 2015 dissent in Wellness International.]

Public Rights Doctrine is Dead and Buried

Public rights doctrine, as a basis for bankruptcy court jurisdiction, is now dead and buried. Here’s why.

1. The Chief Justice’s description-in-dissent, back in 1982, of bankruptcy court jurisdiction foreshadows where today’s Supreme Court majority lands in Wellness International v. Sharif, including constitutional authority for bankruptcy court adjudication by consent of the parties.

2. The majority opinion in Wellness International does not discuss public rights doctrine — doesn’t even mention it.

3. The three dissenting Justices in Wellness International:

a. Were all part of the five-Justice majority in Stern v. Marshall, and
b. Include the now-deceased Justice Scalia, who previously championed public rights doctrine for bankruptcy court jurisdiction — so they are now down to two and without the former champion.

[Note:  For a review of Justice Scalia’s position, over the years, as champion of public rights doctrine for bankruptcy court jurisdiction, see this article.]

4.  I doubt that Justice Scalia’s replacement, Justice Gorsuch, will champion (or even support) public rights doctrine. Here are two reasons why.

i)  On the U.S. Circuit Court of Appeals, Judge Gorsuch wrote this about public rights doctrine as a basis for bankruptcy court jurisdiction (from In re Renewable Energy Development Corp.):

–Public rights doctrine “has something of ‘a potluck quality’ to it.”
–The “boundary between private and public rights has proven anything but easy to draw and some say it’s become only more misshapen in recent years thanks to seesawing battles between competing structuralist and functionalist schools of thought.”
–The Supreme Court has acknowledged that its treatment of public rights doctrine “has not been entirely consistent.”
–“Bankruptcy courts bear the misfortune of possessing ideal terrain for testing the limits of public rights doctrine and they have provided the site for many such battles. . . . Even today, it’s pretty hard to say what the upshot is.”

ii)  In his early career, Neil Gorsuch clerked for Justice Byron White who, as a Supreme Court Judge, wrote a dissenting opinion in Northern Pipeline v. Marathon and fought pitched battles against using public rights doctrine as a basis for deciding bankruptcy issues.

Conclusion

Public rights doctrine for bankruptcy court jurisdiction had a less-than-majority beginning.  And it is now surpassed by the dissenting opinion of the Chief Justice back then that foreshadows today’s post-Wellness reality.

And public rights doctrine has the support, today, of only two Justices.

In other words, public rights doctrine as a basis for bankruptcy court jurisdiction is dead and buried. RIP.

2 thoughts on ““Public Rights” Doctrine for Bankruptcy Court Jurisdiction, While Always Tenuous, Is Now Dead and Buried

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    1. A complicated story made short is this: Congress described the types of disputes that can be referred to bankruptcy courts. The Supreme Court then limited (on Constitutional grounds) some of those disputes Congress described. But then the Supreme Court said bankruptcy courts could decide the Constitutionally-limited disputes upon consent of the parties.

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