Restructuring

Contributed by Doron P. Kenter.

“Marrying into money was not a good thing for me.” – Anna Nicole Smith

Stern v. Marshall is all the rage these days – first, the Ninth Circuit Court of Appeals created a circuit split, managing to convince the Supreme Court to provide further guidance regarding the extent to which Stern really upset the division of authority between bankruptcy courts and district courts.  Next, the Fifth and Seventh Circuit Courts of Appeals joined the Sixth Circuit in concluding that consent cannot cure constitutional deficiencies in bankruptcy courts’ authority.  (We’re waiting for appellate courts on the East Coast to weigh in, but we can only hope that we’ll have more clarity soon.)
In any event, litigants across the country have taken up the mantle of Anna Nicole Smith’s enduring legacy, challenging bankruptcy courts’ authority at every turn, notwithstanding the Stern Court’s admonition that its decision was a “narrow” one and that it did not “meaningfully change[] the division of labor” between bankruptcy courts and Article III courts.  From a skeptic’s perspective, some of these litigants may be forum shopping or otherwise engaged in strategic maneuvering.  Viewed through rose-colored glasses, those raising Stern challenges may be zealous advocates who merely wish to ensure finality or certainty in connection with matters pending before bankruptcy courts.
Regardless of the rationale for, or propriety of, Stern-based challenges to bankruptcy courts’ authority, litigants should be careful to articulate meaningful arguments and to raise sincere arguments (where warranted).  Recently, in Fireman’s Fund Insurance Co. v. Plant Insulation Co. (In re Plant Insulation Co.), appellants challenged the confirmability of a debtor’s plan of reorganization and section 524(g) channeling injunction, mentioning (without explanation) that there Stern v. Marshall may have deprived the bankruptcy court of constitutional authority to enter a final judgment on a section 524(g) injunction.
In response, the Ninth Circuit summarily rejected appellants’ constitutional argument, noting simply that:

To the extent the Non-Settling Insurers attempt a constitutional argument about the inherent power of Article I judges by dropping a single citation to Stern v. Marshall, . . . it is insufficiently developed and waived.  United States v. Dunkel, 927 F.2d 955, 956 (7^th Cir. 1991) (per [curiam]) (“[J]udges are not like pigs, hunting for truffles buried in briefs.”).

Incidentally, most truffle hunters now use dogs (the pigs were eating too many of the truffles).  (Also incidentally, we’re now in the midst of white truffle season in New York.)  But the message remains – Stern v. Marshall should not be invoked willy-nilly and without explanation, simply to provide an alternative basis for a court’s decision (or non-decision).  In particular, litigants who simply mention these arguments may actually fail to preserve any such arguments for appeal and also risk upsetting the court.
Notably, the Ninth Circuit’s admonition would be inapplicable in the Fifth, Sixth, and Seventh Circuit Courts of Appeals, which have concluded that the structural deficiencies in Article I courts’ authority raised by Stern cannot be waived and can be raised by appellate courts sua sponte, without a need to preserve the issue for appeal.  However, regardless of where a bankruptcy case is pending, Plant Insulation reminds us that in any case and in any court, clarity and conviction can never hurt.
Happy Halloween from the Bankruptcy Blog.  On this most hallowed of ‘eens, we advise you not to try to Trick the court.  Rather, Treat the court with respect.  Also, beware (or be wary) of seeing Ghosts that aren’t really there – in your brief writing and in life.