By: J. Ellsworth Summers and Scott St. Amand
Not even Nostradamus could have predicted the profound effect that former Playmate Vickie Lynn Marshall (a/k/a Anna Nicole Smith) would have on the landscape of U.S. bankruptcy court jurisdiction. Nevertheless, two and a half years after the Supreme Court issued its opinion in Stern v. Marshall , questions remained as to what role a bankruptcy court had to hear or adjudicate a claim that was both designated for final adjudication within the Bankruptcy Code and prohibited from such adjudication by the U.S Constitution.
Unlike federal courts, which are creatures of Article III of the Constitution, bankruptcy courts were created by Congress. As such, their jurisdiction – the ability to hear and decide cases and controversies – is limited by statute. Specifically, §157 of the Bankruptcy Code limits the bankruptcy court’s jurisdiction to enter a final judgment on particular claims. These claims, which are specifically listed in the statute, are referred to as “core” proceedings. Other proceedings that are not “core” but are otherwise related to a bankruptcy proceeding are referred to as “non-core” proceedings. For “non-core” proceedings, a bankruptcy court may only submit proposed findings of fact and conclusions of law to a federal district court that possesses ultimate jurisdiction to issue a final judgment and order, except that the bankruptcy court can enter final judgment if both parties consent.
As we discussed in previous posts, Stern raised a troublesome conflict of laws between the Article III federal courts and the Article I legislatively created bankruptcy courts. In Stern , the son of Anna Nicole Smith’s deceased husband filed a claim for fraudulent conveyance against Smith, and she fired back by filing a common law claim for tortious interference. Under §157, counterclaims by the estate are specifically listed as “core” proceedings. In this case, the statute would have permitted the bankruptcy court to enter a final judgment on a purely state law claim.