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- Title
STERN, SERIOUSLY: THE ARTICLE I JUDICIAL POWER, FRAUDULENT TRANSFERS, AND LEVERAGED BUYOUTS.
- Authors
LIPSON, JONATHAN C.; VANDERMEUSE, JENNIFER L.
- Abstract
This paper offers a new way to understand the causes and cures of problems created by Stern v. Marshall, the Supreme Court's 2011 opinion constricting bankruptcy court power. Stern held that a bankruptcy court, created under Article I of the Constitution, may not adjudicate a "tortious interference with gift" claim. Although the Stern majority said its holding was "narrow," it has resulted in a significant spike in litigation over its meaning and scope. Why would such a seemingly arcane and technical opinion produce hundreds of disputes in such a short time? We argue that litigation over Stern derives from indeterminacy in the rhetoric of the majority opinion, which is rooted in broad claims about the separation of powers that have little to do with bankruptcy. Because it is not possible to resolve Stern's indeterminacy definitively, we look instead to its methodology, which centers on (1) the structural effects, and (2) the historical character of suits before bankruptcy courts. We infer from the Court's muted response to Chrysler's bankruptcy that it worries little about bankruptcy courts' structural capacity to interfere with separation-of-powers values. Instead, the Court has focused on (what we call) "historical formalism" to define the scope of bankruptcy court power. The Court's historical formalism, in turn, looks to the "public" character of causes of action as they would have appeared in the framing era. While the boundary between public and private will sometimes be unclear, this suggests that we should consider the public qualities of bankruptcy disputes to decide whether bankruptcy courts have the power to adjudicate them. We use the example of fraudulent transfer suits. Until Stern, bankruptcy courts regularly decided this important class of lawsuit under the Bankruptcy Code, especially as a way to redress harms caused by failed leveraged buyouts. Stern has left courts and observers uncertain whether bankruptcy courts may still do so. We show that before, during, and after the framing era, fraudulent transfer suits commenced in bankruptcy had important public qualities that should, today, give bankruptcy courts the power to adjudicate them in most cases. We make this argument because we worry about other proposals to solve the Stern problem that depend on defining bankruptcy court power through party "consent," a question the Court has agreed to consider in the 2013-14 term in In re Bellingham Insurance Agency. While we acknowledge that parties may be able to choose fora--including bankruptcy courts--to resolve their disputes, we fear that "consent" leaves too many degrees of freedom, and thus too many temptations to engage in costly litigation rather than to settle bankruptcy disputes. Recognizing the historically public character of fraudulent transfer suits, by contrast, should reduce needless litigation costs in a system ill-suited to absorb them.
- Subjects
BANKRUPTCY; ACTIONS &; defenses (Law); DELEGATION of powers; FRAUDULENT conveyances; BANKRUPTCY courts
- Publication
Wisconsin Law Review, 2013, Vol 2013, Issue 6, p1161
- ISSN
0043-650X
- Publication type
Article