Bankruptcy Issues are Non-Partisan and A-Political — A Flip-Flopping Exception at U.S. Supreme Court

img_0953
Flip-Flopping

By: Donald L. Swanson

Bankruptcy issues tend to be non-partisan and a-political. Political partisans find it hard to pick-a-side, let alone get worked-up, over such issues as adequate protection, executory contracts and absolute priority.

That’s because no one likes bankruptcy, even though it’s a necessity.

An Exception

A historical exception, however, has been over the question of how much jurisdiction and authority a bankruptcy court should have.

Think about it. Pretend, for a moment, you are a partisan in one of these three partisan camps: conservative, liberal or moderate. Now . . . where would you fall, from such camp, on the question of how much authority a bankruptcy court should have?

–You’ll have a hard time coming up with an off-the-cuff answer.

Positions on this question at the U.S. Supreme Court have flip-flopped between “conservative” and “liberal” judges over the last half-century [Fn. 1]:

In the 1960s, conservative and moderate justices on the U.S. Supreme Court favored expansive jurisdiction and authority for bankruptcy courts, with the most-liberal justices dissenting;

In the 1980s, conservative justices began moving toward a restrictive position, with liberal justices moving the other direction;

By 2011, positions had switched—conservative justices on the Supreme Court wanted to restrict the jurisdiction and authority of bankruptcy courts, with liberal justices dissenting; and

Today, it appears that Supreme Court justices of all stripes may be edging toward support for the jurisdiction and authority of bankruptcy courts that Congress has defined.

I’ll try to explain.

Conservative-to-Liberal Ranking

Here is a list of Supreme Court Justices serving on the U.S. Supreme Court since the Bankruptcy Code’s enactment in 1978 to the time of Justice Scalia’s death in 2016. This listing ranks the Justices from most-conservative to most-liberal as follows [Fn. 2]:

Most-Conservative

Rehnquist
Thomas
Burger
Scalia
Alito
O’Connor
Powell
Kennedy
Roberts
White
Blackmun
Souter
Breyer
Stevens
Ginsburg
Kagan
Sotomayor
Brennan
Marshall

Most-Liberal

To put this listing in context:

“only two Justices (White and Blackmun) are within ten percentage points of the mean,” and the “outliers . . . are far from the mean”;

on the conservative end, “Chief Justice Rehnquist voted in a conservative direction in 85% of his cases and Justice Thomas in 82%”; and

on the liberal end, “Justice Marshall voted in a conservative direction in only 18% of his cases, Justice Brennan in 23%.”

Flip-Flopping on Bankruptcy Court Authority

What follows shows a progression of flip-flopping at the U.S. Supreme Court on bankruptcy court authority.

–1966: Conservatives Take an Expansive Position, and Liberals Dissent

In 1966, a seven-Justice majority opinion in Katchen v. Landy, 382 U.S. 323 (1966), affirms an expansive role for bankruptcy—giving the Constitution’s Bankruptcy Clause primacy over its Seventh Amendment right to a jury trial [Fn. 3]:

Justice White wrote the opinion—he is a centrist Justice on the listing above (nine Justices are listed as more-conservative than he, and nine are listed as more-liberal);

All conservative and centrist Justices joined the majority opinion; and

The two dissenting Justices (Black and Douglas–both predated the listing above) are acknowledged as firmly on the liberal edge.

–1982: An Edging Away from the Conservative/Liberal Positions

The Supreme Court got its first action on the Bankruptcy Code (enacted in 1978) in its 1982 Northern Pipeline v. Marathon Pipe Line case.

Consistent with the 1960s liberals, a four-Justice plurality (all on the liberal side) in Northern Pipeline came within one vote of declaring unconstitutional the entire grant of jurisdiction to bankruptcy courts. These four Justices are Brennan, Marshall, Stevens and Blackmun.  In doing so, they utilized, for the first time, the “public rights” doctrine that conservatives would later adopt as their own.

The dissent is penned by Justice White (centrist) and joined by Justices Burger and Powell (conservatives), with Justice Burger also writing a separate dissent emphasizing how the ultimate ruling in the case is “limited.”

The end result of the case is an edging away from an expansive role for bankruptcy jurisdiction. This came about as two concurring Justices (conservatives) tipped the ultimate result against bankruptcy, while expressing “considerable reluctance” in doing so. These two conservatives are Justices Rehnquist and O’Connor.

–1989: The Flip-Flop is Developing

Between the Supreme Court’s 1982 Northern Pipeline opinion and its 1989 Granfinanciera opinion, Justices Burger and Powell (conservatives) retired.  Both had dissented in Northern Pipeline.

These two were replaced by Justices Scalia and Kennedy (both on the conservative side).

In Granfinanciera, both Justice Scalia and Justice Kennedy abandon the previously-conservative position on bankruptcy. Kennedy joins the five-Justices majority, and Scalia concurs, in giving primacy to the Seventh Amendment right to jury trial over the Bankruptcy Clause.

The Granfinanciera ruling achieves an opposite result from the 1966 Katchen v. Landy opinion. And Granfinanciera does so with an odd combination of conservative and liberal Justices in the majority:

Brennan (liberal)
Rehnquist (conservative)
Marshall (liberal)
Stevens (liberal)
Kennedy (conservative)
Scalia (conservative).

The three dissenters in Granfinanciera are all near the middle: Justices White, O’Connor and Blackmun.

–2011: The Flip-Flop is Complete—Conservatives Take a Restrictive Position, and Liberals Dissent

The Supreme Court’s Stern v. Marshall opinion of 2011 continues to place constitutional restrictions on bankruptcy. But it does so on a slim majority vote of 5 to 4.

The majority opinion consists of five Justices on the conservative side (Roberts, Scalia, Kennedy, Thomas and Alito). The dissenting Justices are all on the liberal side (Breyer, Ginsburg, Sotomayor and Kagan).

Accordingly, the conservative and liberal positions of 1966 and 1982 are now swapped—conservatives are restricting bankruptcy authority using “public rights” doctrine, and liberals are expanding it on other grounds.

–2015: Flipping Back a Bit

The 2015 opinion in Wellness International v. Sharif expands the role of bankruptcy courts by allowing them to decide disputes “related to” bankruptcy, by consent of the parties.

Noteworthy in this case is that, (i) Justice Kennedy (conservative side) joins Justices Sotomayor, Ginsburg, Breyer and Kagan (liberals) in the majority opinion, and (ii) Justice Alito (conservative) concurs in the result.

Justices Roberts, Scalia and Thomas (conservatives) dissent, wanting to limit the role of bankruptcy courts based on “public rights” doctrine.

–Today: ?????

Today, Justices Scalia and Kennedy are gone, and both were part of the slim-majority in Stern v. Marshall. It will be interesting to see what their replacements do with bankruptcy issues.

Justice Gorsuch (Scalia’s replacement) is projected to be conservative.  Yet he clerked for Justice White and has little-good to say about the “public rights” doctrine that’s championed by conservative justices. Perhaps he will help flip the conservative position back to an expansive view of bankruptcy’s role?

Conclusion

Conservative and centrist Justices on the U.S. Supreme Court, in decades past, held an expansive view of bankruptcy’s role under the Bankruptcy Clause of the U.S. Constitution. Only the most-liberal Justices had a contrary view.

Between 1978 and 2011, however, the conservative and liberal positions flip-flopped.  In 2011, conservatives want to limit, and liberals want to expand, the role and authority of bankruptcy courts.

However, it appears that all Justices—of every stripe—may be turning to a common position that gives the Constitution’s Bankruptcy Clause a primacy it deserves. Hopefully, such bankruptcy issues are returning to the non-partisan and a-political positions that they naturally hold.

We can always hope . . .

Footnote 1: I am indebted for much of the information and analysis in this article to Ronald J. Mann’s book, Bankruptcy and the U.S. Supreme Court (Cambridge University Press, 2017); quotations in this article are from Mann’s book, unless otherwise noted.

Footnote 2: This conservative-to-liberal listing and related information are taken from Robert J. Mann’s book, who relied upon the “traditional Segal-Spaeth coding” for this list (see Chapter 4 of Mann’s book).

** If you find this article of value, please feel free to share. If you’d like to discuss, let me know.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

Blog at WordPress.com.

Up ↑

%d bloggers like this: