On June 23, 2011, the Supreme Court issued a ruling that has sent waves through bankruptcy courts across the nation. Stern v. Marshall, 131 S.Ct. 2594 (2011), is the latest opinion in a long running dispute between the estate of Vickie Lynn Marshall, better known as Anna Nicole Smith, and the estate of her late husband’s son, Pierce Marshall.
There have been numerous reviews and analyses of this opinion, so this blog post won’t focus on the specifics of the Stern decision. Rather, this post will attempt to illustrate the effects of the decision on the Delaware Bankruptcy Courts. One review of the Stern decision that I would recommend was written by Brett Axelrod of Fox Rothschild, and is available here: Axelrod Discussion of Stern v. Marshall.
I do not doubt that the Delaware Judiciary has asked counsel in numerous hearings if Stern v. Marshall affects its ability to rule on the requested relief (I have personally witnessed this). And since the Stern decision was published, three of the sixteen published decisions of the Delaware Bankruptcy Court have explicitly mentioned it.
On page 14 of an opinion published July 22, available here, Judge Walsh stated:
I am not entering an order at this time because I am concerned that this Court’s jurisdiction may be in question in light of the Supreme Court decision in Stern v. Marshall, 131 S.Ct. 2594 (2011). Before proceeding further with this matter, I am inviting the parties to file written submissions on whether Stern v. Marshall permits me to issue an order.
On pages 5-6 of an opinion published July 28, available here, Judge Walrath stated:
The Supreme Court recently held, however, that bankruptcy courts lack the constitutional authority as Article I courts to enter final judgments on state law counterclaims even if they are core proceedings. Stern v. Marshall, 131 S. Ct. 2594 (2011). In Stern, the Court held that its decision is a “narrow one” which focuses on “whether the action at issue stems from the bankruptcy itself.” Id. at 2618. Here, the claims before this Court arose after ABFS filed bankruptcy and relate entirely to matters integral to the bankruptcy case. If not for the bankruptcy, these claims would never exist. Therefore, this Court concludes that it has jurisdiction to hear this adversary proceeding as it directly stems from the bankruptcy case. See In re Salander O’Reilly Galleries, No. 07-30005, 2011 WL 2837494, at *7 (Bankr. S.D.N.Y. July 18, 2011) (“Nowhere in . . . Stern does the Supreme Court rule that the bankruptcy court may not rule with respect to state law . . . when deciding a matter directly and conclusively related to the bankruptcy.”).
Lastly, on page 7 of an opinion published July 29, available here, Judge Sontchi stated:
As an aside, the Supreme Court's recent opinion in Stern v. Marshall is inapplicable here. Stern v. Marshall, 131 S.Ct. 2594 (2011). The issue in Stern v. Marshall was when, under the United States Constitution, the bankruptcy court could enter a final judgment as opposed to proposed findings of fact and conclusions of law in a case where subject matter jurisdiction existed under 28 U.S.C. § 1334(a). Id. at 2608. As such, Stern v. Marshall is not a case about subject matter jurisdiction. Rather it addresses the power of the bankruptcy court to enter final orders, assuming that subject matter jurisdiction exists. This case is about whether subject matter jurisdiction exists. Thus, this court's power to enter a final order is not implicated.
Roughly 20% of Delaware Bankruptcy decisions in the last 10 weeks have discussed the Stern decision. While it seems that Courts have been quick to determine the boundaries of the decision, it reminds us all that the ultimate legal document is the Constitution, and regardless of how helpful a statute might be, if it violates the Constitution, it cannot be upheld.