JURISDICTION & PROCEDURE WORKING GROUP ALTERNATIVE
PROPOSALS REGARDING ARTICLE I/III STATUS
Professor King recounted that at the Commissions prior meeting in October, the
Commission decided that the staff should prepare a memorandum reviewing the various
alternatives regarding Article I/III status. In response, a memorandum, dated November 14, 1996,
was prepared. It addressed three alternatives. The first would accord Article III status to the
bankruptcy court system. The second would continue the present Article I system, but address
those provisions of Title 28 that could be revised so that the system and case administration were
more expeditious. The third would contemplate leaving the present Article I system in tact with
some modifications of Title 28, but less than those proposed by the second alternative. His
personal recommendation, as reflected in a separate memorandum distributed to the
Commissioners, was to accord Article III status to the bankruptcy court system.
To provide some perspective with regard to this proposal, Professor King provided a
historical overview. He said that the 1973 Commission recognized that there was one "very,
very important" and "over-arching" change that had to be made to the system,
namely, bankruptcy courts had to be able to adjudicate any matter that arose in the context of a
bankruptcy case and that costly and "completely inefficient" dichotomy between
summary and plenary jurisdiction had to be eliminated. Although the 1973 Commission
recommended this change, it did not recommend converting the bankruptcy court to an Article III
court because there appeared to be no constitutional impediment to giving such jurisdiction to the
bankruptcy court. The basis for this conclusion was that Congress, under the Constitution, had
the express power to enact uniform laws regarding bankruptcy and the Commission concluded
that this included the power to create a judicial system that would administer any bankruptcy
As the proposed legislation for the Bankruptcy Reform Act of 1978 wended its way through
Congress, the constitutional issue arose, Professor King noted. "[S]ome fear
developed" about giving such jurisdiction to a non-Article III court would be
unconstitutional, he said. Although the Bankruptcy Reform Act of 1978 broadened the
bankruptcy courts jurisdiction, it did not restructure the bankruptcy court as an Article III
court. He recalled that everyone who studied this issue was "very nervous" about the
constitutional ramifications of the law. Then the Supreme Court in 1982 ultimately held that it
was unconstitutional. This, in turn, led to the enactment of the 1984 amendments, which, in turn,
has led to the various comments heard at this meeting about the constitutional uncertainty that
exists to this day about the jurisdictional provisions of the present bankruptcy laws. Professor
King suggested that this Commission could address the issue in order to make the system more
viable and to eliminate the uncertainty.
Commissioner Ginsberg, speaking in his personal capacity, strongly supported according
Article III status to bankruptcy judges. He noted, however, that a majority of his colleagues
would probably recommend leaving the system as is based on "job security" concerns.
In support of his position, he cited Professor Block-Liebs prior statements with regard to
constitutional uncertainty and the present systems inefficiencies. Absent the problem being
addressed by the Commission, he predicted that there would be a second Northern
Pipeline decision where the Supreme Court will have to determine the systems
Agreeing with Commissioner Ginsbergs analysis, Commissioner Butler supported
according Article III status to bankruptcy judges as the present system was under a
"constitutional cloud." He said that he had "lived with this issue for 20
years," dating to when he was a Congressman. At that time, he recalled that the House
concluded that Article III status had to apply if the bankruptcy courts were to be given pervasive
jurisdiction. He did not think that the current Congress would be unreceptive to this proposal as it
was dedicated to improving the efficiency of government and reducing its cost. Characterizing it
as the "most important" issue that the Commission will consider, Commissioner
Butler urged his fellow Commissioners to support this proposal. He recommended that if the
proposal was adopted, then the Working Group should be instructed to develop transition details
with regard to its implementation.
Commissioner Ceccotti suggested that more thought should be given to the proposal. The
problem involved more than just simply giving bankruptcy judges Article III status, she advised.
Before this is done, she said that everyone should be comfortable with the way the Bankruptcy
Codeaddressed significant non-bankruptcy issues. She noted, however, that she was not
"entirely comfortable" how the Code functioned in this regard, particularly as to
issues not involving commercial debtor/creditor matters. As examples, she mentioned the
discussions of the prior day on future claims and the articulated public health and safety concerns
of governmental interests. She said that the goal of having one court decide everything
expeditiously was not necessarily involved in a system intended to promote reorganization and
ensure a fresh start. Specifically with regard to the issue of jury trials, Commissioner Ceccotti
recommended that the Commission could provide assistance as the delay related to notions of
procedure and to who should hear a dispute. She concluded her comments by reminding the
Commissioners that they had approved streamlining the appellate process and that the opportunity
to review the kinds of issues that she mentioned would be limited under the present proposal.
Speaking in opposition to the Article III proposal, Commissioner Jones said that her principal
objection was that there was no institutional advantage to being an Article III judge. She noted
that the Judicial Conference of the United States Courts was on record as opposing Article III
status for bankruptcy judges as well as to creating more Article III judges unless "patently
necessary to the operation of our constitutional system." She noted that no one who has
addressed the Commission on this issue has suggested that the entire jurisdictional system as
executed by bankruptcy judges was unconstitutional. While questions have evolved about the
appropriate scope of magistrate judges jurisdiction, these have been resolved without
threatening the overall soundness of the magistrate judge system, she said. Although there may be
"friction" generated by the "related to" jurisdictional provisions because it
involved a "federalist conflict between federal bankruptcy courts and state courts,"
this friction will always be present, she asserted. Article III courts are confronted with the friction
on a daily basis as reflected in questions pertaining to removal, preemption, and the conflict
between state and federal law, she said.
Other concerns that Commissioner Jones cited in support of her opposition to the proposal
were that it would expand the number of Article III trial courts by 30 percent and that there
would be a great reluctance to giving life tenure to even more federal judges. She also noted that
there had never been a specialist Article III court before and that this would create an
"inevitable conflict in jurisdiction." She predicted that there would be arguments that
bankruptcy judges "take on their fair share" of criminal cases while federal district
court judges would be asked to hear mass tort cases because of the less constitutional doubt of
their authority to handle them under Federal Rule of Civil Procedure 23.
Commissioner Jones concluded her observations by noting that she did not perceive the
margins of bankruptcy court jurisdiction to be "constitutionally compelling" Article
III status for bankruptcy courts. She also questioned why the Commission had "to speak
with one voice on this issue."
Sharing Commissioner Ceccottis concerns regarding the present bankruptcy
systems capacity to deal with non-bankruptcy issues, Commissioner Shepard noted that he
was not satisfied how provisions of the Bankruptcy Code were being used to override state and
local laws. He also expressed concern about how it would impact on treatment of personal injury
and wrongful death claims.
Commissioner Alix sought clarification as to whether the proposal would result in according
life tenure to bankruptcy judges and salary parity with district judges. Although Commissioner
Jones noted that the compensation of bankruptcy judges would be increased to that of district
judges as a result of this proposal, Professor King was not sure if that was a constitutional
requirement. Life tenure, on the other, was constitutionally required, Professor King explained.
Commenting on the present compensation and pension provisions for bankruptcy judges,
Commissioner Butler noted that it was "very good" and that may be one of the
reasons why the bankruptcy judges were reluctant to support Article III status. Commissioner
Butler then noted that there were Article III courts with specialized jurisdiction and that it was
possible for Congress to carve out this jurisdiction. Again citing the "constitutional
cloud" that was hanging over the present system, he strongly supported the Proposal.
In response to Commissioner Alixs query, Commissioner Butler said that it would
also address the lack of stare decisis and thereby bring more certainty to the system.
Professor King agreed and noted that there would be a "great deal more expedition"
in reorganization cases. Addressing Commissioner Ceccottis concerns regarding
non-bankruptcy issues, Professor King observed that the jurisdiction authority accorded an Article
III bankruptcy court would make it much easier for such court to deal with these issues. He said
her concerns actually supported the Proposal.
Commissioner Ceccotti explained that she favored the current system because it enabled
generalists to deal with the "novel issues" that she previously described.
Although Commissioner Jones agreed with Commissioner Butler in that there were Article
III courts with limited jurisdiction, she maintained that there would be no practical way to confine
the jurisdiction of an Article III bankruptcy court. Addressing Commissioner Alixs
concerns, Commissioner Jones noted that "Marathon II" would not hold all
bankruptcy courts to be unconstitutional. She said that the cure that was being proposed would be
"much, much bigger than the remedy" as it involved the fundamental legal stru