By: Donald L Swanson
“Congress shall have Power”:
“To establish . . . uniform Laws on the subject of Bankruptcies throughout the United States”; and
“To make all Laws which shall be necessary and proper for carrying into Execution the foregoing Powers.”
U.S. Constitution, Art. I, Sec. 8, cls. 4 & 18 (emphasis added).
Any opinion from the U.S. Supreme Court on a bankruptcy jurisdiction subject would start with this Article I language from the U.S. Constitution as the basis for analysis.
–You’d think so. Wouldn’t you?
And you’d be wrong.
Shocking Realities
Get this:
–The U.S. Supreme Court’s bankruptcy jurisdiction cases, since enactment of the Bankruptcy Code in 1978, “fail to address . . . in any substantial way” the relationship between the Constitution’s “Bankruptcies” clause in Art. I and the Article III judicial power. [Fn. 1]
In fact, the Constitution’s “Bankruptcies” clause:
“was not mentioned, even in passing,” in Granfinanciera (except for Justice White’s dissent);
“appears only as an aside” and only “in the dissent” in Stern v. Marshall; and
appears only “in a brief passage near the end” of a “dissent” in Wellness.
–The Effect
All of this consigns the Constitution’s “Bankruptcies” clause “to a static historical view” that “gives Congress no authority” to “broaden the bankruptcy system to accommodate modern commerce.”
Such omissions and limited discussions “may seem like a small point,” but they are “obvious.”
–And, I’d add, they are shocking!
Northern Pipeline
Appellants in Northern Pipeline argued for the Bankruptcy Code’s constitutionality, based on Article I’s “Bankruptcies” clause. But Northern Pipeline’s 4-Justice plurality opinion dismissed that argument, giving no weight, whatsoever, to that clause. Here are their dismissive points:
“where Art. III does apply, all of the legislative powers specified in Art. I and elsewhere are subject to it”; and
the “flaw” of Appellants’ argument is that “it provides no limiting principle” and “threatens to supplant completely” our Art. III system with “specialized legislative courts.”
–Three Exceptions
Nevertheless, the 4-Justice plurality opinion in Northern Pipeline has no problem recognizing three exceptions to Article III supremacy. Each exception is based on a historical recognition of judicial authority for non-Article III bodies under a general grant of power in the Constitution.
The three exceptions are [Fn. 2]:
Territorial courts—based on Art. IV’s grant to Congress of “Power to . . . make all needful Rules and Regulations respecting” U.S. territories;
Courts martial—based on such provisions as Art. 1, Sec. 8, cls. 14, giving Congress “Power To . . . make Rules for the Government and Regulation of the land and naval Forces”; and
Cases involving “public rights”—based on sovereign immunity and separation of powers, under which government agencies exercise expansive judicial authority.
And the “public rights” exception is a whopper in agency contexts—speaking of “no limiting principle”! See, e.g., this linked article and this one too.
A Question and a Historical Answer
Question:
Why can’t “bankruptcy courts” be added, to make the three-exceptions list a list of four, based on the Constitution’s “Bankruptcies” clause?
Answer:
It’s a historical peculiarity. The 1978 Bankruptcy Code expanded the grant of judicial authority to bankruptcy courts—so there is no historical base for the expansion. Such lack-of-history proved nearly-fatal to bankruptcy court jurisdiction in Northern Pipeline and has been an impediment to bankruptcy courts ever since—never mind the Constitution’s “Bankruptcies” clause.
Conclusion
How can the Supreme Court possibly ignore the Constitution’s “Bankruptcies” clause, when providing a rationale for limiting the jurisdiction and authority of bankruptcy courts?
Footnote 1: Information and quotations in this “Shocking Realities” section are from this new book by Ronald J. Mann: Bankruptcy and the U.S. Supreme Court, at 5.7 (Cambridge University Press, 2017) (emphasis is added).
Footnote 2: This three exceptions information is from Justice White’s dissent in Northern Pipeline.
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