Bankruptcy Judges Might Not Be Able to Remand Removed Cases!

This is a dangerous article to write but I am hoping the comments will be worth it.

So the Wellness case came out and the Supreme Court seems to have taken a pragmatic view by allowing parties to consent (implied or explicit) to the jurisdiction of bankruptcy courts. Fine. But is there more to this story?

The Court believed the central question that must be answered was “whether allowing bankruptcy courts to decide Stern claims by consent would ‘impermissibly threate[n] the institutional integrity of the Judicial Branch.’ Schor, 478 U. S., at 851.”

The court then concluded that allowing parties to consent to adjudication of Stern claims does not usurp the constitutional prerogatives of Article III courts for several reasons:

  1. Bankruptcy judges, like magistrate judges, “are appointed and subject to removal by Article III judges;”
  2. They “serve as judicial officers of the United States district court;” and
  3. collectively “constitute a unit of the district court” for that district.

But I wanted to quote this language in particular:

“Furthermore, like the CFTC in Schor, bankruptcy courts possess no free-floating authority to decide claims traditionally heard by Article III courts. Their ability to resolve such matters is limited to “a narrow class of common law claims as an incident to the [bankruptcy courts’] primary, and unchallenged, adjudicative function.” Id., at 854. “In such circumstances, the magnitude of any intrusion on the Judicial Branch can only be termed de minimis.” Id., at 856.”

It seems to indicate that since the magnitude of the intrusion is de minimis, waiver is okay.

But what if the Bankruptcy Court enters an order divesting the District Court of jurisdiction? Can it do that?

On June 8, 2015, in Flam v. Flam, the US Court of Appeals for the Ninth Circuit joined other sister circuits in holding that a motion to remand is a dispositive motion and that it is beyond the scope of a magistrate judge’s authority to issue a remand order under 28 U.S.C. § 1447(c) . You can find the case here.

In Flam, the Court focused on the fact that an order granting remand is final and not subject to review by the District Court. 28 U.S.C. § 1447(d). It conclusively takes away the litigant’s right to federal courts, as was previously held, the effect of a remand order is to end all federal proceedings.

A Bankruptcy Court’s order granting remand is also final and not subject to review by the District Court. 28 U.S.C. § 1334(d). It conclusively takes away the litigant’s right to federal courts. In effect, a Bankruptcy Court’s order has the effect of ending all federal proceedings. This is certainly not de minimis.

So why can a bankruptcy judge do it when a magistrate can’t?

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