Stern – Washington we have a problem

Historic Building Courtroom

The Fifth Circuit was looking forward to the Executive Benefits decision to know how to move forward with a Stern case, that is, a state court case contained within a bankruptcy case, which a bankruptcy court has no authority to do under Stern.

But Executive Benefits was decided on the narrowest possible grounds, and the Fifth Circuit did not get a clear answer to their question on the effect of consent:

consent may be part of the multifactor balancing test to determine whether there is an Article III problem in the first instance …

In the Matter of: BP RE, L.P., 735 F.3d 279 (5th Cir. 2013).

Judge Higginson’s dissent outlines the real Stern problem (for both the District Courts and the bankruptcy Courts):

          I will not belabor the importance of a case that, in effect, strikes down a federal statute and whose     result may disrupt the way our district and bankruptcy courts handle a large volume of routine bankruptcy business.

In the Matter of: BP RE, L.P., 735 F.3d 279 (5th Cir. 2013).

Any federal practitioner knows the reality of the press of business in the District Courts. Superimpose on that the slivers and slices of otherwise proper bankruptcy business carved out by Stern, and our judges will need their lifetime appointments.

Fortunately, we may get “well” from our Stern infirmity: the Supreme Court has granted certiorari on a case raising that issue. Wellness Int’l Network Ltd. v. Sharif, 727 F.3d 751 (7th Cir. 2013), cert. granted in part, 134 S. Ct. 2901, 82 U.S.L.W. 3496 (2014). Let’s hope that the amicus briefs pile up supporting the proposition that the District Courts are too busy, and lack the bankruptcy code expertise to do this work, especially when the parties consent otherwise.

I know they taught us in law school that you can’t consent your way into subject matter jurisdiction. But maybe the Supreme Court or Congress (or both) should find a way for us to do just that.


Definition of  bankruptcy