16 January 2015

Bankruptcy Jurisdiction Follow-Up

A few days ago I posted here about the latest case before the Supreme Court (Wellness International Network v. Sharif) addressing the jurisdiction of bankruptcy courts.A non-lawyer reader responded with essentially, "huh?" 

A little more explanation seems in order.

Article III of the United States Constitution provides that all "judicial power" of the United States shall be vested in courts whose judges have lifetime tenure, among other things. The drafters remembered their English history in which the Stuart kings fired judges whose decision they didn't like. (For some discussion of this period of English legal history see my article The Puritan Revolution and the Law of Contracts download here.)

Bankruptcy judges, however, have only 14-years renewable terms. Thus, they may not exercise the "judicial power" of the United States. But what can they do? In short, they may exercise whatever power is appropriate to the "public right" of bankruptcy. Just as military tribunals may try courts martial, so bankruptcy judges may try bankruptcy cases.

Clear? I didn't think so. (For more detail on the scope of bankruptcy as a "public right" see my article whose publication by the Campbell Law Review I expect at any day, Who Bears the Burden? The Place for Participation of Municipal Residents in Chapter 9. You can download a working draft here.) 

In any event, the Supreme Court doesn't want to eviscerate the powers of bankruptcy judges. After all, who would handle the 1+ million bankruptcy cases every year? Not the nine folks on the Court, I'm sure.

Yet the Court wants to pay attention to the Constitution. (It really does.) So what's to be done?

The idea of getting Congress to fix the problem is laughable so, as I predicted a few days ago, the Court will find the narrowest "fix" to keep the system going until the next problem comes down the pike.

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