Public Rights Doctrine — A Useless Tool in Bankruptcy

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A useless tool

By Donald L. Swanson

The U.S. Supreme Court’s “public rights” doctrine has been around for a long time.

Yet, during the entire time of its existence, the Supreme Court, (i) has failed to explain the distinction between public rights and private rights, and (ii) has been inconsistent in applying that distinction.

Unfortunately, our bankruptcy world has borne the brunt of the Supreme Court’s uncertainty and inconsistency. Specifically:

–For three-and-a-half decades, the Supreme Court has been using “public rights” doctrine to limit bankruptcy court authority!

Trinco v. U.S.: The Issue

On Halloween Day (October 31) 2018, the U.S. Court of Federal Claims issued an opinion criticizing “public rights” as a basis for jurisdiction of Article I courts. The opinion is at Docket 149 in Trinco Investment Co. v. United States, Case No. 11-cv-857.

The question in Trinco v. U.S. is this:

–Whether Article III of the U.S. Constitution allows U.S. Court of Federal Claims to have jurisdiction over Fifth Amendment “taking” claims against the U.S. Government.

Plaintiffs contend that a “taking” claim is a private right requiring adjudication by an Article III court—not a public right that can be resolved by an Article I Court.

–The Constitution’s “Taking” Provision

The Fifth Amendment’s “taking” provision, in the U.S. Constitution, reads:

“nor shall private property be taken for public use, without just compensation.”

–Article I Courts

Like bankruptcy courts, the U.S. Court of Federal Claims is an Article I court (not an Article III Court) under the U.S. Constitution.

Trinco v. U.S.: “Public Rights” Doctrine Exposed

The Court of Federal Claims, in its Trinco v. U.S. opinion, says the public/private rights distinction cannot provide a basis for determining whether an Article III court is necessary. Here’s why:

–“the Supreme Court has no precise notion” of what the public/private rights distinction might be or how it is to be applied.

The Supreme Court actually admits, for example, that:

it “has not ‘definitively explained’ the distinction between public and private rights” (Northern Pipeline); and

its precedents on this distinction have “not been entirely consistent” (Stern v Marshall & Oil States Energy).

At best, the Court of Federal Claims observes, the public/private rights distinction is a “useful but inconclusive analytical tool.”

Trinco v. U.S.: Supreme Court Cases Analyzed

The Court of Federal Claims attempts to make sense of “public rights” doctrine by analyzing Supreme Court cases. Here is a summary of that attempt.

Northern Pipeline & Thomas

Despite its deficiencies, “public rights” doctrine figures prominently in the Supreme Court’s jurisprudence on requirements of Article III. In Northern Pipeline (1982), the Court’s plurality opinion firmly held that private rights demand an Article III court while public rights allow for an Article I tribunal. And it added these factors:

a matter of public rights must, at a minimum, arise “between the government and others”;

“the liability of one individual to another” is a matter of private rights; and

only controversies in the public rights category may be removed from Art. III courts and delegated to Article I courts or administrative agencies.

The Court of Federal Claims observed that the following “neat explanation” may seem logical under Northern Pipeline but “quickly breaks down under further examination”:

Public rights are ones between the government and others, and private rights are ones between one individual and another;

Fifth Amendment “taking” cases involve public rights, not private ones, because they arise between the government and others; and

Therefore, “taking” claims may be removed from Article III courts and delegated to the Court of Federal Claims (an Article I court).

Here’s how the “neat explanation” breaks down:

The Northern Pipeline reasoning is questioned in subsequent Supreme Court decisions—in Thomas v. Union Carbide (1985), for example, the Supreme Court said:
“we cannot agree” with the theory that “the public rights/private rights dichotomy . . . provides a bright-line test for determining the requirements of Article III.”

Thomas explains, further, that the public/private rights distinction is a “formalistic or abstract Article III inquiry” and that the resolution of Article III issues must be based on “practical attention to substance” instead of “doctrinaire reliance on formal categories.”

Northern Pipeline held, according to Thomas, only that Congress may not give an Article I bankruptcy court jurisdiction over a contract action under state law, without consent of the litigants and subject only to ordinary appellate review.”

Stern v. Marshall & Kohl

In Stern v. Marshall (2011), the Supreme Court used public/private rights to declare that the bankruptcy court “lacked constitutional authority over a state law counterclaim.” Yet, it admitted that its “public rights” discussions are not “entirely consistent” and that the doctrine “has been the subject of some debate.”

The Court of Federal Claims heaps scorn on Stern’s use of “public rights” doctrine, like this:

Stern yields no new insights;

Stern “fails to provide concrete guidance”;

Stern expresses reservations about the doctrine; but

Stern still searches “public rights” precedents “to shed light on the question before it” and relies upon “public rights” to require an Article III determination of the common law action before it.

To criticize Stern, the Court of Federal Claims cites the Supreme Court’s Kohl v. United States (1875). Kohl involves the right of eminent domain—which is, Kohl declares, “a right at common law.” But Kohl also declares that Congress could have allowed non-Article III courts to resolve such issues:

“Doubtless Congress might have provided a mode of taking the land, and determining the compensation to be made . . . by a commission.

“Thus,” the Court of Federal Claims reasons, “Kohl stands for the proposition that, although eminent domain proceedings were actions at common law, Congress may have provided a non-Article III forum to hear them.”

Independence of Article I Judges

The author of Trinco v. United States also scorns the idea that Article I judges on the Court of Federal Claims are dependent on one of the political branches.  They are, as a practical matter, he insists, independent!

Here’s how:

The Court of Federal Claims was established as an Article I court in 1982 and retained jurisdiction over claims against the federal government “founded upon the Constitution”;

Judges of the Court of Federal Claims are independent of the political branches, even though they are appointed by the President after confirmation by the Senate and have 15-year terms (instead of life tenure);

As a practical matter, once a judge’s 15-year term ends, “failing reappointment, they continue to serve as judges until death, disabled or voluntarily retired”—this is, in effect, “a life term”—and the compensation of these judges is pegged by statute to that of the district court judges;

“Thus, the judges of the Court of Federal Claims are as independent as Article I judges could be”; and

“In my 20 years on this Court—seven of them as Chief Judge—I have never heard that any judge was instructed by a government official to decide a case in a certain way.”

End Result

At the conclusions of the Trinco v. U.S. opinion, the Court of Federal Claims certified the following question to the United States Court of Appeals for the Federal Circuit:

“Whether it is a violation of Article III of the U.S. Constitution for Congress to provide that the U.S. Court of Federal Claims has jurisdiction to hear claims for just compensation pursuant to the Fifth Amendment.”

Conclusion

As shown by the Trinco v. U.S. opinion, “public rights” doctrine is a useless tool for determining the authority of bankruptcy courts and other Article I courts.

Here’s hoping the Court of Appeals for the Federal Circuit will take up the cause of declaring “public rights” doctrine to be useless in the Article I context.

And here’s hoping, further, that the U.S. Supreme Court, and its two new Justices, will veer away, permanently, from its focus on “public rights” for determining the authority of bankruptcy courts and other Article I courts.

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

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