Paragon Litig. Trust v. Noble Corp. (In re PLC)

598 B.R. 761
United States Bankruptcy Court, D. Delaware·Decided March 11, 2019·No. Case No.: 16-10386 (CSS); Adv. Proc. No.: 17-51882(CSS)·Published·Cited by 6 cases

Opinion

Sontchi, CJ.

INTRODUCTION

The Bankruptcy Code has its origins in the Constitution itself. Article I authorizes Congress to pass "uniform laws on the subject of bankruptcies."2 As Madison observed, "[t]he power of establishing uniform laws of bankruptcy is so intimately connected with the regulation of commerce...that the expediency of it seems not likely to be drawn into question."3 The uniform laws of bankruptcy remain, though, subordinate to the Constitution, and in enacting such laws, Congress must abide by another of the Constitution's clear directives:

The judicial power of the United States shall be vested in one supreme court and in such inferior courts as the Congress may from time to time ordain and establish. The judges shall hold their offices during good behavior....
[...]
The judicial power shall extend to all cases, in law and equity, arising under *764...the laws of the United States....4

Bankruptcy judges only hold office for fourteen years, no matter how good their behavior may be. And because bankruptcy judges do not have life tenure, they may not wield the judicial power of the United States.5 These facts necessarily limit the ability of Congress to entrust adjudicative authority to bankruptcy courts. As a result, certain claims-commonly referred to as Stern claims- "may not be adjudicated to final judgment by [a] bankruptcy court" even though the Bankruptcy Code directs otherwise.6 Instead, the Supreme Court instructs a bankruptcy court that is faced with a Stern claim to "hear the proceeding and submit proposed findings of fact and conclusions of law to the district court for de novo review and entry of judgment."7

Determining which claims may not be finally adjudicated by this Court without running afoul of Article III is no simple task. The constitutional limits that Article III places on Congress' ability to grant authority to bankruptcy judges have been described-if not completely demarcated-in a handful of important opinions. In Northern Pipeline Construction Co. v. Marathon Pipe Line Co. ,8 a plurality of that Court deemed the Bankruptcy Act of 1978 to have impermissibly vested "most, if not all, of the 'essential attributes of the judicial power' " in the bankruptcy courts.9 The general principle to emerge from that plurality was that "Art. III bars Congress from establishing legislative courts to exercise jurisdiction over all matters related to those arising under the bankruptcy laws."10

In response to Northern Pipeline , Congress passed the Bankruptcy Amendments and Federal Judgeship Act of 1984 (commonly referred to as "the 1984 Amendments ").11 That act created the familiar statutory distinction between "core" and "non-core" matters, allowing bankruptcy courts to continue to enter final orders in "core" matters and to submit findings of fact and conclusions of law in "non-core" matters. (Bankruptcy practitioners are, undoubtedly, already aware that the 1984 Amendments were codified in part at 28 U.S.C. §§ 157 and 158.)

The Supreme Court would go on to address the Article III issues raised by the 1984 Amendments in two important opinions, issued twenty-two years apart. In 1989, with Granfinanciera, S.A. v. Nordberg ,12 the Supreme Court-although ruling on a 7th Amendment issue-addressed the judicial power question at some length, setting the stage for Stern v. Marshall .13 That 2011 opinion discussed Granfinanciera at length (and gave us " Stern claims.") After considering what Justice Scalia *765called a "sheer surfeit of factors,"14 Chief Justice Roberts ultimately concluded that by the 1984 Amendments Congress had exceeded its authority in "one isolated respect."15 For, while those Amendments permit the Bankruptcy Court to "enter a final judgment on [ ] state law counterclaim[s] that [are] not resolved in the process of ruling on a creditor's proof of claim," Article III of the Constitution does not.16

* * *

Granfinanciera and Stern are, of course, binding on this Court, but determining the exact scope and proper application of those opinions is not easy work. In his Northern Pipeline concurrence, then-Justice Rehnquist observed that "[t]he cases dealing with the authority of Congress to create courts other than by use of its power under Art. III do not admit of easy synthesis."17 That observation rings true today. As aptly summarized by Hart & Weschler's, "[f]ew observers would view the Supreme Court's shifting decisions in this area as having provided a coherent approach to the general question of the constitutionality of non-Article III adjudication."18 Nevertheless, this Court must approach this issue, while taking into account both the dictates of Congress and the guidance provided by the Supreme Court: Are bankruptcy courts in violation of Article III of the United States Constitution when they enter final judgment on core fraudulent transfer claims brought against non-claimant defendants? The best answer that this Court can provide to that question is "no." Bankruptcy courts, having been granted the authority to do so by Congress, may enter final judgments in all core fraudulent transfer claims.

JURISDICTIONAL STATEMENT

This Court has jurisdiction to consider this motion under 28 U.S.C. §§ 157 and 1334. Venue is proper in this district pursuant to 28 U.S.C. §§ 1408 and 1409.

PROCEDURAL HISTORY

A. The Original Bankruptcy

On February 14, 2016, Paragon Offshore plc and certain of its affiliates (hereinafter "Debtors " or "Paragon

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Paragon Litig. Trust v. Noble Corp. (In re PLC), 598 B.R. 761 (Del. 2019).

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