bankruptc-judge-hear-non-bankruptcy-matterArticle III of the United States Constitution establishes the U.S. Supreme Court and the lower court system for federal matters. Article III Judges have a lifetime appointment and have the authority to render final decisions on matters arising under the laws of the United States. The framers of the Constitution desired to create a legal system that was not beholden to whimsical political changes. The founding fathers feared that if the Judges did not have a lifetime appointment, then lawmakers could threaten to take away their pay in order to influence their decisions. Since the powers of Article III Judges are found in the U.S. Constitution, Congress can not take those powers way from them.

Article III of the constitution reads in part: “The judicial power of the United States shall be vested in one Supreme Court, and in such inferior courts as the Congress may from time to time ordain and establish. The judges, both of the supreme and inferior courts, shall hold their offices during good behaviour, and shall, at stated times, receive for their services, a compensation, which shall not be diminished during their continuance in office. . .  The judicial power shall extend to all cases, in law and equity, arising under this Constitution, the laws of the United States, and treaties made, or which shall be made, under their authority. . . [emphasis added]”

Congress has the authority to appoint non-Article III Judges, such as magistrates and bankruptcy Judges so long as they don’t strip any of the power away from Article III Judges granted to them in the Constitution. In order not to infringe on the constitutional powers of an Article III Judge, Bankruptcy Judges may only hear cases that are considered “core proceedings.”   Outside of “core proceedings,” bankruptcy courts may only enter a finding of fact and District Courts have a review de novo.

Most bankruptcy cases are fairly straight forward and the do not deal with issues that are not considered “core issues.” However, it is not uncommon for an unresolved Article III matter to appear before a bankruptcy Judge – typically when one litigant files for bankruptcy before the State Court or Article III judge can hear the matter. When a litigant files bankruptcy prior to a trial date, the trial date is postponed as the matter in controversy is moved to bankruptcy court. In many cases, the bankruptcy Judge needs the controversy reduced to a dollar amount before the bankruptcy can be properly administered. The bankruptcy Court has two options, either hear the matter themselves and determine the underlying issues and reduce the controversy to a judgment; or refer the matter back to the original court for adjudication. If the bankruptcy court chooses to hear the matter, and resolve the underlying issues on its own by hearing a non-core matter, then it may be infringing on the Article III court’s exclusive powers granted by the Constitution.

This issue arose again in the case Wellness International Network, LTD., ET AL. v. Sharif.  In Wellness, the Supreme Court ruled that a litigant in bankruptcy can consent to the bankruptcy court’s final adjudication of issues that the bankruptcy court would normally lack authority to decide. The litigant’s consent can be either express or implied. The litigant in bankruptcy may want to have all issues decided in bankruptcy court for expediency purposes; or may choose to have their case heard by an Article III Judge if they decide a jury trial in necessary or they prefer the procedural protections of an Article III court.

I agree with the High Court to the extent that a litigant should be permitted to have his Article III case heard before a bankruptcy court if all parties consent. Unlike the dissent, I don’t believe that litigants consenting to have their case heard by a bankruptcy judge, who is appointed by a panel Article III Judges, will unravel the U.S. Constitution and separation of powers. However, I agree with Judge Alito’s dissent in Wellness, where he opposes the “implied” consent. Justice Alito correctly points out that “the Federal Rules of Bankruptcy Procedure provide that ‘in non-core proceedings final orders and judgments shall not be entered on the bankruptcy judge’s order except with the express consent of the parties . . .’”