The Constitution’s “Bankruptcies” Clause: Assumed but Not Discussed or Cited in U.S. Supreme Court Bankruptcy Opinions

By: Donald L Swanson

“It’s assumed.”

That’s the answer I heard, recently, to this question:

“Why does the U.S. Supreme Court fail to discuss, or even cite, the ‘Bankruptcies’ clause of the U.S. Constitution when it decides constitutional questions of bankruptcy law?” [Fn. 1]

Say what?!  Let’s get this straight:

The U.S. Constitution has a clause empowering Congress to create bankruptcy laws [Fn. 2]; yet

When the U.S. Supreme Court limits authority of the Bankruptcy Code on constitutional grounds, it fails to even mention, let alone discuss, the Constitution’s “Bankruptcies” clause—the Justices merely “assume” its existence?!

How can this be?

I’m irritated [not that anyone cares] by the “It’s assumed” answer.  That’s because the reality is more accurately described like this: “It’s ignored.”

How can this be?

• Have you ever heard of a U.S. Supreme Court opinion on a person’s right to refuse to testify on grounds of self incrimination that fails to discuss, or even cite, the Fifth Amendment — and merely assumes its existence?
• Have you ever heard of a U.S. Supreme Court opinion on the right of free speech that fails to discuss, or even cite, the First Amendment — and merely assumes its existence?
• Have you ever heard of a U.S. Supreme Court opinion on the judicial power of the United States that fails to discuss, or even cite, Article III — and merely assumes its existence?

The answer to all these questions is an emphatic, “Of course not! That would be absurd!!”

So . . . how does the U.S. Supreme Court get off limiting the authority of the Bankruptcy Code, on constitutional grounds, without discussing or even citing the Constitution’s “Bankruptcies” clause?!! That’s crazy, I must say (with all due respect and deference).

Bankruptcy debtors and creditors and attorneys and trustees—and all other bankruptcy constituencies—deserve better!

Results are Disastrous

And so . . . what we get, as a result, are disasters for our bankruptcy system like Northern Pipeline v. Marathon Pipe Line, and Granfinanciera and Stern v. Marshall—and the public rights doctrine upon which all are based.

Such opinions have been wreaking havoc on our bankruptcy system for decades.

Justifications are Baffling

Justifications for such disastrous rulings, in Supreme Court majority opinions, include concerns about a slippery slope — i.e., there is no viable stopping place in moving disputes out of Article III courts into specialized Article I courts.

Slippery slope and similar justifications are baffling. Here’s why:

• The primary remedy for a slippery slope concern, in bankruptcy, is none other than the “Bankruptcies” clause itself. That clause distinguishes bankruptcy cases from all other types of cases that do not have a clause of their own in the U.S. Constitution. If the Supreme Court would merely acknowledge the existence of the “Bankruptcies” clause, it could stop any slippery slope concern in its tracks.
• The U.S. Supreme Court uses public rights doctrine to remove huge swaths of cases from Article III courts into specialized Article I courts for Federal agencies acting in their areas of responsibility. If there were ever a slippery slope concern that’s genuine, it’s in this agency arena—but that is, apparently, not a concern of the U.S. Supreme Court.
• Another justification is that constitutional issues in bankruptcy must fit into a broader context of similar issues in other areas of the law. But, again, if the Court would simply acknowledge the existence of the “Bankruptcies” clause of the U.S. Constitution, it could distinguish bankruptcy cases from all other contexts. Why it refuses to do so is inexplicable.

Conclusion

Sorry for the rant.

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Footnote 1: Such refusal is a central proposition of Ronald J. Mann in his book, “Bankruptcy and the U.S. Supreme Court,” at 5.7 (Cambridge University Press, 2017).

Footnote 2: The “Bankruptcies” clause is in Article I, Section 8, parts 1 & 4, and reads: “Congress shall have Power . . . To establish . . . uniform Laws on the subject of Bankruptcies throughout the United States.”.

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