With some frequency, magistrate judges issue reports and recommendations on bankruptcy appeals.

The Third Circuit is primed to decide whether the parties may consent to have a magistrate judge issue a final order disposing of a bankruptcy appeal. In other words, may the parties agree that the first review by an Article III judge in a bankruptcy appeal will occur in the court of appeals?

This writer does not believe that the outcome in the Third Circuit will question the constitutionality of Bankruptcy Appellate Panels.

Consent for a Final Decision by a Magistrate Judge

The bankruptcy court presided over an adversary proceeding between two nondebtors regarding royalties arising from the production of oil and gas. On cross motions for summary judgment, the bankruptcy court found “related to” jurisdiction and ruled in favor of the party who would become the appellee in the district and circuit courts.

The loser appealed to the district court, where both parties consented to the entry of final judgment on the appeal by a magistrate judge.

In her decision on the appeal, the magistrate judge raised the question of her jurisdiction. She noted that the Fifth and Seventh Circuits have both held that a magistrate judge, even on the parties’ consent, may not enter a final judgment in a bankruptcy appeal.

The magistrate judge found no binding authority from the Third Circuit prohibiting her from issuing a final judgment on the appeal under 28 U.S.C. § 636(c). If the Third Circuit were to decide that she could not enter a final judgment, the magistrate judge said that her decision should be read as a report and recommendation.

On the merits, the magistrate judge affirmed the bankruptcy court. The loser took a second appeal to the Third Circuit.

In briefing to the Court of Appeals, the appellant-loser focused on the merits without attacking the authority of the magistrate judge. The appellee, however, argued affirmatively that the magistrate judge had the authority rending a final order on the appeal.                                 

Whether or not the parties raise jurisdiction, federal courts must be satisfied about their jurisdiction before proceeding to the merits. The Third Circuit evidently was unsure whether the magistrate judge had statutory or constitutional authority to issue a final order on the bankruptcy appeal.

After briefing closed, the Third Circuit sua sponte appointed Prof. David R. Kuney as amicus curiae “for the limited purpose of briefing and arguing the position that 28 U.S.C. § 158 strips a magistrate judge of jurisdiction to issue a final judgment [in] a bankruptcy appeal despite any language in 28 U.S.C. § 636(c) to the contrary.”

Prof. Kuney is an Adjunct Professor at the Georgetown University Law School. Prof. Kuney regularly files amicus briefs on important bankruptcy appeals in appellate courts throughout the U.S., including the U.S. Supreme Court.

The jurisdiction of magistrate judges over bankruptcy appeals is less than clear. Originally, Section 1334(c) prohibited district courts from referring appeals to magistrate judges or special masters. The referral prohibition was in place in 1979 when Congress enacted the Federal Magistrate Act, or FMA.

On consent of the parties, Section 636(c)(1) of the FMA provides that a magistrate judge “may conduct any or all proceedings in a jury or nonjury civil matter and order the entry of judgment in the case.” Read alone, Section 636(c)(1) could be understood to mean that the magistrate judge properly entered final judgment on the bankruptcy appeal.

But there’s more.

When Section 636(c) was enacted, Section 1334(c) specifically prohibited magistrate judges from making final decisions in bankruptcy appeals. With the broad language in Section 636(c), did Congress intend to repeal Section 1334(c), albeit silently?

Later, the appellate scheme for bankruptcy appeals was amended. In the Bankruptcy Amendments and Judgeship Act of 1984, Congress adopted 28 U.S.C. § 158(a)(1), giving district courts jurisdiction to hear appeals from final orders. Section 158(b) allowed the circuits to establish bankruptcy appellate panels to hear bankruptcy appeals on the parties’ consent.

Further complicating the picture, the Supreme Court decided in Wellness Int’l Network, Ltd. v. Sharif, 575 U.S. 665 (2015), that bankruptcy courts on the parties’ consent may issue final decisions in noncore matters. Does Wellness mean that magistrate judges can issue final orders on bankruptcy appeals, if the parties consent?

The appeal in the Third Circuit may be argued in December.