In 2011, the U.S. Supreme Court sent tremors through the bankruptcy world by holding in Stern v. Marshall, 131 S. Ct. 2594 (2011), that bankruptcy courts lacked the constitutional authority to enter final judgment on a debtor’s state law counterclaim against a creditor. Although the case’s facts were unusual and the Court described its decision as "narrow," the decision’s reasoning suggested that bankruptcy courts could not enter final judgments in many disputes that typically occur in bankruptcy cases. Bankruptcy and district courts have since wrestled with the proper breadth of Stern. This issue is now making its way up to the Circuit Courts of Appeals and so far, a fairly broad view of Stern is prevailing.
The Stern decision stems from Article III, Section 1 of the U.S. Constitution, which provides that federal "judicial Power" may only be exercised by judges with lifetime tenure and whose compensation may not be reduced. Only Article III judges may adjudicate parties’ private rights; that is, their liability to one another under law. Bankruptcy judges are not Article III judges because they serve for 14-year terms and their salaries are subject to diminution. However, non-Article III judges may adjudicate "public rights." Although the concept is amorphous, "public rights" have been described as those "arising ‘between the Government and persons subject to its authority in connection with the performance of the constitutional functions of the executive or legislative departments’ . . . ." Stern, 131 S. Ct. at 2612 (quoting Crowell v. Benson, 285 U.S. 22, 50, 51 (1932)). This apparently includes the restructuring of debts central to the Bankruptcy Code. See Northern Pipeline Construction Co. v. Marathon Pipe Line Co., 458 U.S. 50, 71 (1982).
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