As Shawn Riley and I previewed here last summer, the Supreme Court is in the process of deciding an important case regarding the scope of a bankruptcy court’s jurisdiction. Right now, you may be asking yourself “why should anyone but a bankruptcy or constitutional scholar care about this?” In a word: efficiency. Executive Benefits v. Arkison will directly effect how efficiently a debtor can traverse the bankruptcy process.
As a brief refresher, the Bankruptcy Code provides a set list of disputes that a bankruptcy court may resolve with a final order. These matters are commonly referred to as “core” bankruptcy matters. However, in Stern v. Marshall, the Supreme Court held that the Bankruptcy Code’s list of “core” matters was too broad, in at least one respect. The supposedly “core” matter was one “which, from [its] nature, [is] the subject of a suit at the common law, or in equity, or admiralty.” Such cases and controversies may only be adjudicated with finality by a judge who was appointed under Article III of the United States Constitution. Bankruptcy court judges are appointed through an alternate process.
When a bankruptcy court is prevented from entering a final order, the matter must be “bifurcated,” which means one of two things: (a) the bankruptcy court will enter “proposed findings of fact and law” which a federal district court judge will have to approve; or (b) the entire matter will be removed from the bankruptcy court to be heard in front of the district court. Either scenario involves the additional time and effort of informing a second jurist on the issues, though the former is akin to the federal magistrate judge system and is more efficient than the latter.
Arkison is a sequel to Stern and has the possibility to make bankruptcy courts more or less efficient than they currently are in the post-Stern world. The Supreme Court heard oral arguments this past January, and their decision is expected to be released in May or June. As reported by Lyle Denniston, of SCOTUSblog.com, the decision may turn on the potentially increased burden placed on federal district court judges rather than the efficiency of the bankruptcy process. Many of the arguments that would strip bankruptcy courts of additional authority would arguably strip federal magistrate judges of their power as well. This would significantly increase the work load of federal district court judges, who are already handling overwhelming dockets.
McDonald Hopkins has been monitoring the case, and will provide an update as soon as the Supreme Court announces its decision.