Two New Justices on U.S. Supreme Court: Here’s Hoping for a Reset on Bankruptcy Court Authority

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A fresh perspective

By: Donald L. Swanson

Justices Scalia and Kennedy are gone from the U.S. Supreme Court and replaced by Justices Gorsuch and Kavanaugh.  Hopefully, this change provides a fresh perspective on bankruptcy law and a reset on bankruptcy court authority issues.

Justices Scalia and Kennedy

A reset is needed because Justices Scalia and Kennedy voted together to limit the role and authority of bankruptcy courts.  Here are three notable cases:

Granfinanciera, S.A. v. Nordberg, 492 U.S. 33 (1989), limited bankruptcy court authority and upheld a defendant’s right to jury trial for a fraudulent transfer case in bankruptcy court—Scalia and Kennedy joined the six-Justice majority;

Central Virginia Community College v. Katz, 546 U.S. 356 (2006), held that Congress’s bankruptcy power under the U.S. Constitution prevailed over Eleventh Amendment sovereign immunity protections in a preference action—Scalia and Kennedy joined a four-Justice dissent; and

Stern v. Marshall, 564 U.S. 462 (2011), declared a portion of Congress’s grant of bankruptcy court jurisdiction to be unconstitutional—Scalia and Kennedy joined the five-Justice majority.

In each of these three cases, Justices Scalia and Kennedy voted together to restrict bankruptcy court authority.

An Attitude Change

Moreover, Justices Scalia and Kennedy were instrumental in changing the Supreme Court’s attitude toward bankruptcy:

Scalia joined the Supreme Court in 1986, and Justice Kennedy did the same in 1988—both appointments occurred after the 1982 Northern Pipeline case but before the 1989 Granfinanciera case;

Scalia and Kennedy replaced Justices Warren Burger and Sandra Day O’Connor, both of whom supported the Bankruptcy Code and its grant of authority to bankruptcy courts—and both opposed the rationale of the four-Justice plurality opinion in Northern Pipeline v. Marathon Pipe Line, 458 U.S. 50 (1982); but

From and after Granfinanciera, Justices Scalia and Kennedy worked together to expand the effect of the Northern Pipeline plurality opinion and to limit the role and power of bankruptcy courts under the Bankruptcy Code.

A Parting of Ways

It wasn’t until 2015 that Justices Scalia and Kennedy parted ways on bankruptcy court authority. In Wellness International Network, Ltd. V. Sharif, Case No. 13-935 (2015), Kennedy joined a five-Justice majority allowing bankruptcy court jurisdiction over Stern claims by consent of the parties—Scalia dissented.

The End and a Beginning

Justice Scalia died on February 13, 2016. He is replaced on the Supreme Court by Justice Gorsuch.

Justice Kennedy retired from the Supreme Court in 2018. He is replaced by Justice Kavanaugh.

Conclusion

What is the upshot for bankruptcy law of the departures of Justices Scalia and Kennedy and the additions of Justices Gorsuch and Kavanaugh?

No one knows, of course.  But here’s hoping:

For a reset of the Scalia/Kennedy approach to restricting bankruptcy court authority (which they pursued together from Granfianciera in 1989 through Stern v. Marshall in 2011); and

For a refreshed perspective and a refocus on the U.S. Constitution’s “Bankruptcies” clause and the power it grants to Congress over bankruptcy law.

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