By: Donald L Swanson
When parties contract for arbitration of their disputes:
- they are “forgoing the . . . appellate review of the courts in order to realize the benefits of private dispute resolution”;
- California’s state law in question “coerces parties to opt for a judicial forum” instead of the arbitration for which they contracted; and
- “This result is incompatible with the [Federal Arbitration Act].”
–From U.S. Supreme Court opinion, Viking River Cruises, Inc. v. Moriana, Case No. 20-1573, at 20 (decided June 15, 2022)(emphasis added).
“Forgoing Appellate Review” of Bankruptcy Laws
“Forgoing appellate review” is a problem, when bankruptcy laws are at stake.
–A Constitutional Problem
The problem is not just a minor one—it’s a problem of constitutional proportions. It’s a problem under the uniformity provision of Article I, Section 8, Clause 4 of the U.S. U.S. Constitution, which says (emphasis added):
- “The Congress shall have Power . . . To establish . . . uniform Laws on the subject of Bankruptcies throughout the United States.”
The problem with “forgoing appellate review” of decisions applying bankruptcy laws is this:
- uniformity of bankruptcy laws cannot be maintained throughout the United States; and
- nonconformity is the result.
–A Constitutional Exception
The Bankruptcy Code is nearly unique among all federal laws, because of the U.S. Constitution’s demand for bankruptcy law uniformity.
Accordingly, a bankruptcy laws exception to the Federal Arbitration Act must exist, on this constitutional basis:
- rulings on important bankruptcy issues must be subject to meaningful appellate review—all the way to the U.S. Supreme Court—to assure uniformity
Nelson v. Carland—The Exception Explained
The bankruptcy laws exception is first explained in the U.S. Supreme Court, by Justice John Catron, in the case of Nelson v. Carland, 42 U.S. 265 (1843).
The question before the U.S. Supreme Court, in Nelson v. Carland, is this: “[W]hether the act of 1841, establishing a uniform system of bankruptcy, was constitutional, or otherwise.” Id., at 266.
Justice Catron is concerned about uniformity implications of the limitations on appeal rights under the Bankruptcy Act of 1841. Here’s how he expresses these concerns:
- The 1841 act is administered by more than thirty judges, acting separately;
- A debtor may not appeal to the circuit court (save in the single case of a refusal to finally discharge the bankrupt from his debts), and no debtor appeal is allowed to the Supreme Court;
- A creditor may not appeal anything in any bankruptcy case, either from the district court to the circuit court or to the Supreme Court; and
- It follows that the Supreme Court has no power to make uniform the conflicting constructions of the bankruptcy law.
Here are Justice Catron’s elaborations on uniformity concerns:
- Many discharges are involved in this appeal—some twelve hundred discharge requests will be dismissed unless the decrees are reversed;
- “No law that Congress ever passed has in it to a greater degree the elements of various construction and confusion than the bankrupt law of 1841”—thirty judges act separately, and all are exempt from the revising power of the Supreme Court, which exists to produce “uniformity of decision and construction”;
- Unless the Supreme Court has jurisdiction over bankruptcy disputes, it will have no revising power over bankruptcy laws; and
- Instead of providing a uniform system of bankruptcy, the 1841 bankruptcy act has become, by the conflicting constructions put upon it, little more uniform than the conflicting state insolvent laws.
“Forgoing appellate review” through arbitration is a problem when bankruptcy laws are at stake.
It’s a problem of constitutional proportions, based upon the U.S. Constitution’s requirement that bankruptcy laws be “uniform . . . throughout the United States.”
And Justice Catron explains, in Nelson v. Carland, how the absence of meaningful appellate review violates the Constitution’s uniformity requirement for bankruptcy laws.
An exception to the Federal Arbitration Act, therefore, must exist when bankruptcy laws are at stake—based upon the uniformity requirement of the U.S. Constitution.
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