Stern v. Marshall: The Earthquake That Hit the Bankruptcy Courts and the Aftershocks That Followed

Stern v. Marshall is arguably the biggest decision to affect the bankruptcy courts in almost thirty years and has ramifications well beyond what the U.S. Supreme Court likely considered. Anna Nicole Smith, the appellant in the case, will be remembered not only for the imprint that she left on pop culture, but also for rattling an entire legal institution. This case wound its way through both state and federal judiciaries and twice reached our country’s highest court. The second time that it heard the case, the Court held that although bankruptcy courts, as Article I courts, could enter final judgments on certain state-law counterclaims under 28 U.S.C. § 157(b), they could not constitutionally enter final judgments under Article III of the Constitution.

While bankruptcy judges have created ways to temporarily address the conundrum that Stern created, potential long-term effects of the ruling could be devastating to the way that bankruptcy courts operate. It may take years, or perhaps decades, to fully comprehend Stern’s impact on the federal judiciary.