Source: https://mediatbankry.com/2018/08/30/renewing-the-constitutions-bankruptcies-clause-for-bankruptcy-court-authority/?share=google-plus-1
Timestamp: 2019-04-19 03:03:26+00:00

Document:
Back in 1966, when the Bankruptcy Act of 1898 was newly-eligible (in human years) for Social Security, the U.S. Supreme Court issued a 7 to 2 majority opinion in Katchen v. Landy, 382 U.S. 323 (1966).
The Katchen opinion is founded in the U.S. Constitution’s “Bankruptcies” clause and authorizes bankruptcy courts to resolve claim objections and related preference claims without a jury trial.
(3) There “is no Seventh Amendment right to a jury trial” for determination of objections to claims, including a related preference claim.
Since then, the Constitution’s “Bankruptcies” clause has been abandoned as a basis for Bankruptcy Court jurisdiction [Fn. 2]. And it needs to be renewed!
Powers granted to Congress under the Constitution’s “Bankruptcies” clause are the foundation for bankruptcy court jurisdiction. Katchen confirms this point.
—Who can argue with that? And who would ever think otherwise?
Never again, since Katchen v. Landy, has a U.S. Supreme Court majority relied on the Constitution’s “Bankruptcies” clause to decide the jurisdiction of bankruptcy courts [id.]. Most notably, the “Bankruptcies” clause is not even mentioned in majority opinions on such issues (see, e.g., this linked article).
The Katchen v. Landy opinion makes sense. Here is a summary.
Do bankruptcy courts have jurisdiction to rule on a preference claim against a creditor who files a proof of claim?
Katchen guaranteed loans to his corporation totaling $50,000 and made sure these loans were paid with corporate funds. Then, the corporation filed bankruptcy. Katchen filed two claims in the bankruptcy: one for unpaid rents and one for reimbursement of his payment on another guaranty.
Then, the bankruptcy Trustee sued Katchen, as guarantor, to recover the corporate loan payoffs as preferences. The Trustee obtained a judgment against Katchen, over his jurisdiction objection.
On appeal, the District Court affirmed, as did a divided Court of Appeals.
Congress adopted the Bankruptcy Code in 1978 and amended it in 1984 — all under “Bankruptcies” clause authority. The amendment clarifies jurisdiction of bankruptcy courts by distinguishing between “core” and “related to” matters, with final order / proposed findings effects [28 U.S.C. Sec. 157].
The 1984 amendment, in reliance on Katchen v. Landy, identifies “counterclaims by the estate against persons filing claims against the estate” as “core” proceedings on which the Bankruptcy Court can issue a final ruling [28 U.S.C. Sec. 157(b)(2)(C)].
You’d think Katchen v Landy (with its focus on the Constitution’s “Bankruptcies” clause) would continue to prevail under the Bankruptcy Code and the 1984 amendment. But it doesn’t.
The following are Supreme Court opinions, since 1984, showing how the “Bankruptcies” clause has been ignored on jurisdiction issues — but with some recent progress in the right direction.
The Supreme Court’s first crack at the 1984 amendment came in 1989—in Granfinanciera v. Nordberg.
Granfinanciera filed an fraudulent transfer case in Bankruptcy Court against Nordberg under Sec. 548 of the Bankruptcy Code.
Justice Blackmun had it right. But ignoring the “Bankruptcies” clause for bankruptcy court jurisdiction continued in cases that followed.
In Stern v. Marshall, the Debtor’s step-son filed a defamation proof of claim in Debtor’s bankruptcy. The bankruptcy estate objected to that claim and filed compulsory counterclaims against the step-son for common-law torts.
Stern’s 5-Justice majority relies on “public rights” doctrine under Article III and distinguishes Katchen v. Landy on technical grounds. But it refuses to even mention, let alone discuss, the role of the Constitution’s “Bankruptcies” clause in the matter.
The bankruptcy estate filed a five-count adversary complaint against Sharif in Bankruptcy Court. Four counts objected to Sharif ’s discharge. The fifth asserted an “alter ego” claim against assets of a trust.
The Supreme Court’s 6-Justice majority said the Bankruptcy Court had jurisdiction over the “alter ego” claim, based on consent of the parties.
The Wellness Dissent Signals a Change?
—They contend the “alter ego” claim is a “core” matter—and not a Stern claim at all.
The dissent, to be sure, distinguishes its Wellness position from fraudulent conveyance disputes (i.e., Granfinanciera) and contract disputes (i.e., Northern Pipeline) and tort disputes (i.e., Stern v. Marshall).
But the dissent focuses on Katchen, and its jurisdiction-over-the-res rationale that’s based on the Constitution’s “Bankruptcies” clause. That is new. And it’s a welcome return to the real source of bankruptcy court jurisdiction and authority.
To a 3-Justice Wellness dissent harkening back to Katchen, with its reliance on the Constitution’s “Bankruptcies” clause for defining bankruptcy court jurisdiction.
That, I suggest, is progress in the right direction—toward renewal.
Hopefully, one day, a solid majority of Justices on the U.S. Supreme Court will return to their Katchen roots and renew the Constitution’s “Bankruptcies” clause as a basis for upholding Congress’s designations of bankruptcy court jurisdiction.
It appears that the Supreme Court may be getting close to doing so.
Footnote 2: The nearest thing to an exception is the “Bankruptcies” clause versus 11th Amendment sovereign immunity rights case: Central Virginia Community College v. Katz, 546 U.S. 356 (2006)). But Katz proves the point: if the “Bankruptcies” clause prevails against 11th Amendment rights, why isn’t it even mentioned in majority opinions on Article III and 7th Amendment rights?

References: v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v.