Stern v. Marshall: Supreme Court Declares Part of the Bankruptcy Code’s Jurisdictional Provisions Unconstitutional

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In a significant decision that reinforced the U.S. Supreme Court’s prior plurality decision in Marathon, the Court determined that while bankruptcy courts have the statutory authority to hear state-law compulsory counterclaims to a creditor’s proof of claim under section 157(b)(2)(C) of Title 28, Article III of the U.S. Constitution requires such proceedings to be heard by Article III judges where they would not be resolved as part of the claims allowance process. The Court’s decision breathes new life into Article III in the bankruptcy context and ensures that its provisions are not “transformed from the guardian of individual liberty and separation of powers . . . into mere wishful thinking.”

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