The Supreme Court recently addressed again the power of bankruptcy courts to adjudicate certain disputes that arise in debtors’ bankruptcy cases. Stern v. Marshall, 131 S. Ct. 2594 (2011). The Court’s opinion, announced by a 5-4 majority, is perhaps better described as a continuation, rather than a resolution, of the uncertainty that has blurred the limits of a bankruptcy court’s authority under the Constitution since the enactment of the Bankruptcy Code in 1978.
In Stern, the Courtheld that a bankruptcy court “lacked the constitutional authority to enter a final judgment on a state law counterclaim that is not resolved in the process of ruling on a creditor’s proof of claim.” This holding creates doubt about the constitutional authority of bankruptcy courts to hear and decide the numerous adversary proceedings that are routinely brought by trustees and debtors-in-possession seeking to avoid preferential or fraudulent transfers under Sections 547 and 548 of the code.
