In what some are describing as the most important decision effecting bankruptcy judges in twenty-five years, the Supreme Court ruled that the bankruptcy judge who resolved a common-law tort claim in favor of Anna Nicole Smile (now deceased) acted outside of his authority.
The five-justice majority led by Chief Justice John Roberts said that while the Bankruptcy Court had the statutory power to resolve Smith's tortious-interference claim against her late husband's son, it lacked the constitutional authority to do so.
Chief Justice Roberts said only a court created by Article III of the U.S. Constitution had the authority to preside over the tort claim. Bankruptcy courts, which were established by Congress under Article I, had no power to decide the claim, the majority held.
The majority found that Congress empowered the bankruptcy judge to enter a final judgment on Smith's counterclaim when it enacted Section 157(b)(2)(C). That section provides that counterclaims by a bankruptcy estate against those making claims against it are "core proceedings" over which bankruptcy judges have authority.
However, the majority held that bankruptcy judges were barred from entering such decisions by Article III of the Constitution.
Article III of the Constitution provides for a judiciary independent from the executive and legislative branches by allowing the appointment of judges to serve without term limits and mandating that those judges receive tenure for good behavior and protection from pay decreases. However, bankruptcy judges have neither tenure nor salary protection. Their service to the bankruptcy court is dependent upon the circuit courts of appeal that appoint them.
The decision of the Supreme Court could cause a rise in litigation challenging bankruptcy court decisions based on their constitutionality. We may also see some current cases being appealed based on the Supreme Court ruling which could further clog the bankruptcy system with an enormous amount of litigation
(source: Newsandinsight.ThomsonReuters.com )