Analysis
For 61 minutes on Tuesday, the Supreme Court and three lawyers pored over the intricacies of federal bankruptcy law — and potential curbs on it by the Constitution — and the name “Vickie” got mentioned but once; there was not a single mention of the late Vickie Lynn Marshall’s stage name as a topless performer, “Anna Nicole Smith.” The Court’s second round of review of the case, in Stern v. Marshall (No. 10-179), was mainly ignored by the media, but it carries the potential for making legal history.
Since the Court issued a widely fractured opinion in 1982, in Northern Pipeline Construction v. Marathon Pipeline, some constitutional uncertainty has hung over Congress’s authority to create a more efficient and less costly system for the federal courts to resolve the situations of citizens in deep financial distress.
That the specific mechanism it chose 27 years ago might well be in new constitutional trouble could be summed up in a question at the beginning of Tuesday’s hearing by Justice Sonia Sotomayor and a brusque comment later by Chief Justice John G. Roberts, Jr.
To put those remarks in context, a bit of background. Trying to ensure that what remained of a debtor’s assets did not get totally consumed in court costs, Congress in 1984 allowed federal District Courts handling bankruptcy cases to hand off the initial review of the competing claims to special bankruptcy judges, sitting in their own courts.
But the Court, in the Northern Pipeline case, had at least cautioned that judge-type officers who do not have guaranteed life tenure and independence — the way District Court judges do under Article III of the Constitution — should not be allowed to make final and binding decisions about at least some claims in bankruptcy. Congress in 1984 kept that authority for some claims, but made others subject to review by a District Court judge before any ruling could be final.
The new Marshall case is focused on an issue the Court left open in its first ruling on the dispute between Vickie Lynn Marshall and E. Pierce Marshall, now both deceased, over the estate of Vickie’s late husband, oil tycoon J. Howard Marshall II, who was Pierce’s father. The case specifically turns on a claim by Pierce against Vickie that she and her lawyers defamed him during the estate battle, and a claim by Vickie that Pierce had manipulated his father into depriving her of perhaps half of her husband’s estate.
Within minutes after Tuesday’s hearing began, Justice Sotomayor got right to the point, referring to Pierce’s claim: “What’s the authority at all for a bankruptcy court to adjudicate proof of claims, without violating Article III? I don’t think we have ever had a case that’s actually said that.” It would turn out to be the query that would linger throughout.
Later in the argument, with a federal government attorney at the podium defending bankruptcy courts’ powers, the Chief Justice questioned the argument that, because bankruptcy judges are supervised by District Court judges, that was enough to let the bankruptcy court make final decisions. “That just means,” the Chief commented, “that the District Court is acting in concert with Congress to take action that undermines the long-term institutional and constitutional basis of the judiciary…That doesn’t mean that all bets are off.”
The Sotomayor question was put to the lawyer representing Vickie’s estate, Kent L. Richland of Los Angeles. He was there to defend a bankruptcy court judge’s ruling in her favor. That was a final decision. But, if it should turn out not to have been final, because the bankruptcy judge had no constitutional authority to decide it, the outcome then switches to a ruling by a Texas state court declaring that the estate of Pierce Marshall gets virtually all of his father’s assets. If that is the outcome, the media will take notice: Vickie at one time had won more than $449 million; her estate in that event would wind up with none.
Richland was also trying, of course, to justify Congress’s 1984 solution. If bankruptcy cases have to go through District Courts to get binding decisions, he argued, that is going to defeat Congress’s purpose. “As we get an Article III court involved, that really does place some brakes on the efficiency,” the lawyer said. “It becomes much more costly.”
He also sought to convince the Court that, although it had never answered the question that Sotomayor had put, its precedents implied that Congress had acted within its constitutional authority. In fact, he went so far as to say that the answer to Justice Sotomayor’s question was “a very easy one.”
As the Justices waded through the linguistic thicket of the 1984 law, their skepticism grew over Richland’s argument that the plain language of the measure justified the bankruptcy judge in deciding in Vickie’s favor. The language was so clear, the lawyer boldly argued, it needed no interpretation. But that, of course, was precisely the task that the Court had assigned itself to do by granting the new review of the case.
When Richland sought to make the point that Pierce Marshall had waived any objection to the bankruptcy judge’s authority, Justice Antonin Scalia countered that parties in a case cannot make the exercise of a right — here, to go into bankruptcy court –  depend upon a waiver of constitutional protections.
Later, Deputy U.S. Solicitor General Malcolm L. Stewart would try to counter Scalia’s constitutional point, but without obvious success, especially with the Chief Justice and Justice Scalia.
Stewart did concede that the Court had not previously answered Justice Sotomayor’s basic question, but sought to answer it with a detailed discussion of the way that bankruptcy judges work in trying to parcel out what may be the limited assets that a debtor has for distribution to creditors.
Before Stewart finished, Justice Ruth Bader Ginsburg tested him on a point that is central to the opposing case on behalf of Pierce Marshall’s estate. That is an argument, pressed in the hearing by that estate’s lawyer, Roy T. Englert, Jr., of Washington, D.C., that the bankruptcy judge had no authority even to decide Pierce’s claim, and thus clearly no authority to decide Vickie’s counter-claim — and thus the bankruptcy judge’s ruling could in no way stand up, making Pierce’s Texas state court victory final.
As Stewart began answering Ginsburg’s question about Pierce’s claim, Justice Elena Kagan asked the government lawyer whether the Court should decide the constitutional issue “if there’s some significant possibility that it wouldn’t be necessary” because that claim would be beyond the bankruptcy judge’s authority — sealing the victory for Pierce’s estate.
That might have been a reason not even to grant review of the case, Stewart replied, but he went on to defend the bankruptcy judge’s authority to decide that issue.
Urging the Court to preserve Pierce’s victory, by upholding the Ninth Circuit Court ruling that would ensure that, attorney Englert used the Northern Pipeline precedent from 1982 at several points. While the Court had not explicitly ruled in a way that answered Justice Sotomayor’s opening question, he contended, the 1982 ruling and later decisions kept the constitutional issue very much alive. “It is terribly, terribly important,” he argued, “whether an Article III forum is available” for creditors to make their claims.
Englert obviously succeeded in heading off some pesky questions from Justice Stephen G. Breyer, who appeared to be defending the present bankruptcy system, asking “what is essential to the integrity of the judicial process” that required a District Court, not a bankruptcy judge, to make final decisions. The lawyer replied: “Well, those, with respect, Your Honor, I believe are the arguments that were rejected” in the Northern Pipeline case.
Justice Breyer came back with the tart comment that that ruling was not “a slam-dunk for you,” given the divisions among the Justices. Englert repeated that the precedent had rejected “many, if not all, of the premises of your question.”
Under intense questioning, often from Justice Sotomayor, Englert appeared to rely effectively upon his statutory argument, that Pierce’s claim was not validly before the bankruptcy judge, under the law, so neither was Vickie’s. That, he noted, would give the Court a way to decide the case without having to confront the constitutional doubt that he had sought to emphasize. That statutory issue, he asserted, “is easy. The constitutional question is hard.”
He made an effort, though, to suggest that the constitutional issue before the Court was not so momentous, after all. If a claim were within the power of a bankruptcy judge, he said, that judge could address it; the judge just could not resolve it finally. That made the question of bankruptcy court determination versus District Court determination simply a matter of what kind of review the District Court would undertake after the bankruptcy judge had acted.
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