Supreme Court Observations: Stern v. Marshall

Guest Commentary

Mark W. DeLaquil, Baker & Hostetler LLP*

 The Supreme Court issued its decision today in Stern v. Marshall, No. 10-179, holding that bankruptcy courts may not constitutionally adjudicate state law counterclaims that are not integrally related to a particular Federal Government action.  Following on last week’s decision in Bond v. United States, Stern reflects the Roberts Court’s commitment to enforcing a rigorous structural separation of powers in the face of Congressional concerns of innocuousness and expedience. 

Stern is the current iteration of the longstanding dispute between the estate of Vickie Lynn Marshall, better known as Anna Nicole Smith, and that of Pierce Marshall, the son of her former husband, Texas businessman J. Howard Marshall.  Stern has a tortured procedural history—it began fifteen years ago as a bankruptcy case following Ms. Marshall’s inability to satisfy a sexual harassment judgment—and this decision marked its second trip to the Supreme Court, which in 2006 held that the probate exception to federal jurisdiction did not bar Ms. Marshall’s claims against Pierce Marshall, specifically that he tortiously interfered with an agreement for her to be included in J. Howard Marshall’s will. 

The current dispute centered on two issues:  was Ms. Marshall’s counterclaim for tortious interference with an expected gift a “core proceeding” under the Bankruptcy Code on which the bankruptcy court could issue a final judgment?, and if so, did Article III of the Constitution prohibit the bankruptcy court from deciding it?  While all nine justices agreed that the counterclaim was a “core proceeding,” Chief Justice Roberts, writing for a five-justice majority, held that it was not a “public rights” claim that could constitutionally be adjudicated in a non-Article III tribunal, such as a bankruptcy court.  In so doing, the Court reaffirmed that public rights cases are limited to those that are integrally related to particular Federal Government action—which a tortuous interference with an expected gift claim most assuredly is not. 

Justice Scalia concurred to reiterate his longstanding view that an Article III judge must decide all federal adjudications, unless there is a contrary historical practice that is firmly established.  Justice Breyer dissented, arguing that the Court should have taken a more pragmatic approach, focusing on whether the adjudication threatened to aggrandize Congress’ authority at the Judiciary’s expense.

It is questionable whether the Supreme Court’s decision will have significant practical effects on bankruptcy litigation; the majority thinks it will not, while the dissent believes it will. 

It is beyond question, however, that Stern reinforces the Roberts Court’s commitment to a robust separation of powers doctrine.  The Court unquestionably understands that Article III independence and separation of powers are not matters of constitutional bookkeeping:  “If [] an exercise of judicial power may nonetheless be taken from the Article III Judiciary simply by deeming it part of some amorphous ‘public right,’ then Article III would be transformed from the guardian of individual liberty and separation of powers we have long recognized into mere wishful thinking.”  And even if this were a small intrusion, the majority was simply unable to “compromise the integrity of the system of separated powers and the role of the Judiciary in that system, even with respect to challenges that may seem innocuous at first blush.” 

Indeed, Stern and Bond, which the Supreme Court decided last week, are fitting companions.  Stern marks the resurgence of Chadha-style textual fidelity in separation of powers jurisprudence; Bond ensures that individual litigants have the right to separation of powers claims.  A telling passage appears in both Bond and Stern: “The structural principles secured by the separation of powers protect the individual.”  These decisions signal that the Roberts Court is committed to restoring that structure for the sake of individual freedom, an auspicious omen for the controversies expected in the Court’s coming terms. 

*Mr. DeLaquil is an associate at Baker & Hostetler LLP.  He was co-counsel for amici curiae in support of the Respondent in Stern v. Marshall.  His firm was counsel for amici curiae in support of the Petitioner in Bond v. United States.

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