Plenty of ink has been spilled about how to apply the U.S. Supreme Court’s decision in Stern v. Marshall and the line of cases in which it sits. It is a challenging body of law for many reasons, but perhaps the most difficult reason is that the Court indicated that the scope of power that bankruptcy courts may be given today must be defined by reference to beliefs about the scope of judicial and other governmental powers at the time of the country’s founding, when divisions of governmental power were embedded in the U.S. Constitution. The Court said, “we have long recognized that, in general, Congress may not ‘withdraw from judicial cognizance any matter which, from its nature, is the subject of a suit at the common law, or in equity, or admiralty.’” Such a fundamental commitment to founding principles when it comes to exercising—and limiting—governmental powers is beneficial for obvious reasons. A harder question though, for practitioners and courts alike, is how to apply a historical approach in modern practice.
There are two very significant challenges to discovering original practice and applying it in a later time. First, finding original practice requires genuine historical research. This means finding original sources—typically judicial decisions—from a time when there was no mass-communication system and case reporting was not comprehensive. These sources are difficult to find in electronic formats, and even where available, typically do not purport to be complete. Moreover, some practices, might not be described in judicial decisions. Generally, litigants and courts do not go to such lengths to understand the boundaries of a court’s jurisdiction, however, and rarely is it practical for them to do so.
Second, even if historical practice can be discovered without writing a PhD thesis, it will be part of an ever-evolving body of law, and courts will still have to grapple with how to peg a set of beliefs, practices, policies, and rules at a single point in time. Take, as an example, fraudulent conveyance law—a body of law has caused a major share of the consternation over how to apply Stern because fraudulent transfer litigation is so prevalent and such an integral part of bankruptcy.
Fraudulent conveyance doctrine is often traced to a “Statute of Elizabeth” introduced in England in 1571, and some researchers indicate that colonial laws in the United States are based upon it. One notes that even at that early time there were “divergencies among the States . . . traceable to the different lines of thought that were charted by the English courts themselves.” Commentators focus on the myriad ways that fraudulent conveyance was ill-suited as a creditor remedy, including rules that provided for escheatment of half of the funds recovered to the crown. In fact, at the beginning, it is argued that the statute was a revenue measure, designed to provide a source of funds for the crown, and not conceived as having anything to do with bankruptcy at all. This argument is reinforced by the separate consideration of a bankruptcy act in the same parliament, as though the two bodies of law were not connected. There is a body of writing on how the concepts of fraudulent conveyance law evolved out of these poor beginnings, both in England and the U.S., and how bankruptcy trustee’s acquired their rights to pursue these claims.
A rigorous look at who had the power to bring, hear, and determine fraudulent transfer claims would call for unpacking the understanding of this claim at the time of the founding, with all its variants in England and throughout the colonies and states, as well as the available insolvency remedies. It would also require consideration of the extent of the powers of bankruptcy trustees, referees and judges in relation to fraudulent transfer claims. There may be enough existing academic research to reach confident conclusions in the case of fraudulent conveyance, but the process is laborious. Even where research is productive, old practices may not serve the same ends that our bankruptcy system seeks to achieve today. In the case of other areas of bankruptcy law, however, the process may not be as easy, and some historical doctrine may not be accessible at all. As a result, application of Stern may yield additional surprises if deep research reveals a new understanding of old law and practice.