Justice Antonin Scalia’s opinions most anathema to the bankruptcy community dealt with the limited power of bankruptcy courts as creatures of Article I of the Constitution. Contrary to common belief, his antipathy toward the bankruptcy courts ultimately would have proven beneficial to the bench and bar had his opinions commanded a majority on the high court.
With few exceptions, he said in Stern v. Marshall in 2011 that a district judge is constitutionally required for all “federal adjudications.” He even speculated that bankruptcy judges may not have constitutional power to rule on the allowance or disallowance of claims.
He wasn’t finished. Four years later, at oral argument in Wellness International v. Sharif, he asked whether a bankruptcy court has power to resolve contested ownership of property. He even suggested that district courts cannot confer power on bankruptcy courts absent statutory authority.
Consider what it would have meant had Justice Scalia been in the majority, and bankruptcy courts could not make decisions based on state law or determine the validity of claims. But it doesn’t stop there. Magistrate judges would have been out of business, and the Federal Arbitration Act, which allows courts to enforce arbitration awards, would have been unconstitutional. Arbitration agreements, compelling people to forfeit rights to an Article III adjudication, also might have fallen by the wayside.
The burden on district judges would have increased exponentially. Bankruptcy and magistrate judges would have become nothing more than higher-paid law clerks, with virtually no adjudicatory authority.
Ever since the powers of bankruptcy courts were first found unconstitutional in Northern Pipeline in 1982, it has been the dream of the bankruptcy bar that our brothers and sisters on the bankruptcy bench would become Article III judges. That dream will never come true during the lifetimes of even the youngest among us. Why? The politically divided Senate will never agree on giving life tenure to 350 bankruptcy judges when senators cannot even fill vacancies on the district and circuit courts.
Shutting down the bankruptcy courts, as Justice Scalia evidently favored, would have precipitated a crisis far beyond Northern Pipeline, where the district courts were able to cobble together a stopgap by local rule. As it stands today, bankruptcy courts are hobbled, but we have yet to see the full impact of Stern v. Marshall and Wellness International.
Calling for the extinction of bankruptcy courts, I submit, would have lit a fire under Congress. There is no way some 680 district judges could handle their own dockets alongside those of the bankruptcy courts. By extinguishing the bankruptcy courts, Justice Scalia would have given Congress no choice but to elevate bankruptcy judges to Article III status to avoid a breakdown in the federal judiciary.
In fairness, Justice Scalia was not alone. At oral argument in both Stern and Wellness, it was painfully obvious how all the justices were bent on protecting the prerogatives of the judiciary from encroachment by the executive. On the other hand, none of the justices recognized that nothing in the Constitution commits bankruptcy power exclusively to the judiciary. Our system of bankruptcy courts is a matter of tradition, because at one time debt-adjustment could have been an agency process under the executive branch.
Justice Scalia called the balls and strikes as he saw them. That’s a good thing, so long as he did not misapprehend the intention of the drafters of the Bankruptcy Code. Disabusing bankruptcy judges of the notion that they sit as courts of equity is perhaps a step too far in the direction of elevating Congress above the supposedly co-equal powers of the judiciary. By causing the extinction of bankruptcy courts as we know them, Justice Scalia would have put the powers of evolution in motion, giving us a better system than what we have today.
[The foregoing represents the opinions of the writer and does not reflect the opinions of the ABI.]