"Stern v. Marshall – Supreme Court Limits the Power of Bankruptcy Courts to Enter Final Judgment on a Debtor’s Common Law Counterclaims"

Article III of the Constitution defines the judicial power of the United States, and preserves the independence of the federal judiciary through its guarantees of lifetime tenure and salary protection.  Nearly thirty years ago, the United States Supreme Court, in Northern Pipeline Construction Co. v. Marathon Pipe Line Co., 458 U.S. 50 (1982), held that the 1978 Bankruptcy Code's jurisdictional scheme was unconstitutional, because it vested bankruptcy judges (who are not Article III judges and do not enjoy lifetime tenure) with certain powers reserved for Article III judges.  In 1984 Congress enacted a revised bankruptcy jurisdiction statute (the "1984 Act") to address these constitutional shortcomings. 

This Stroock Special Bulletin examines the Supreme Court's June 23, 2011 decision in Stern v. Marshall, in which the Supreme Court struck down one aspect of the 1984 Act, holding that a bankruptcy court does not have constitutional authority to issue a final judgment on a debtor's counterclaim, arising solely under state common law, the resolution of which is not necessary to the resolution of the creditor's claim.