Legal Alert - The U.S. Supreme Court Clarifies the Procedure for Unconstitutional "Core" Matters Under Stern v. Marshall in Executive Benefits Ins. Agency v. Arkinson (Bellingham)
By Bob L. Olson and Nathan G. Kanute
In 2011, the U.S. Supreme Court decided Stern v. Marshall, 131 S.Ct. 2594. In Stern, the Court was faced with the question of whether the Bankruptcy Court had statutory and Constitutional authority to decide a counterclaim that arose out of common law. Stern involved a defamation suit filed against Vickie Lynn Marshall (a k a Anna Nicole Smith) in her bankruptcy proceedings, and her counterclaim for tortious interference. Marshall won summary judgment on the defamation action and was awarded hundreds of millions of dollars on her counterclaim. The creditor challenged the damage award on the grounds that the Bankruptcy Court did not have jurisdiction to enter a final judgment. While the Supreme Court initially determined that the Bankruptcy Court had statutory authority to determine Marshall’s counterclaim because it was “core” within the meaning of 28 U.S.C. § 157(b), it later held that the Bankruptcy Court lacked Constitutional authority to adjudicate the tortious interference claim because it was a private claim at common law that was required to be decided by Article III judges in Article III Courts. Thus, the Bankruptcy Court was constitutionally prohibited from entering final judgment on this state law claim even though it had statutory authority to do so.