Northern Pipeline Co. v. Marathon Pipe Line Co.

Petitioner
Northern Pipeline Co.
Respondent
Marathon Pipe Line Co.
Petitioner's Claim
That an appellate court ruling that non-Article III bankruptcy courts are unconstitutional should be dismissed.
Chief Lawyer for Petitioner
John L. Devney
Chief Lawyer for Respondent
Melvin I. Orenstein
Justices for the Court
Harry A. Blackmun, William J. Brennan, Jr. (writing for the Court), ThurgoodMarshall, Sandra Day O'Connor, William H. Rehnquist, John Paul Stevens
Justices Dissenting
Warren E. Burger, Lewis F. Powell, Jr., Byron R. White
Place
Washington, D.C.
Date of Decision
28 June 1982
Decision
That Article I federal bankruptcy courts were unconstitutional.
Significance
Forced Congress to abandon its relatively new method of adjudicating bankruptcy matters and reemphasized the Article III principles of an independent federal judiciary, but a greatly divided opinion by the Court failed to significantly clear up what was already a muddy issue considering jurisdiction betweenArticle I and Article III courts.
The Northern Pipeline Co. v. Marathon Pipe Line Co case settled an issue in which the two interested parties had only a minor role in the debate itself. The case was a spin-off of a fairly routine corporate bankruptcy case,in which Northern Pipeline Co. had filed for reorganization in Minnesota. Aspart of the proceeding that company filed a suit for breach of contract against the Marathon Pipe Line Co. Marathon asked for dismissal of that suit on the grounds that the system of bankruptcy courts which Congress had created in1978 was unconstitutional because its judges lacked the protections in Article III of the U.S. Constitution, which guaranteed a judiciary free from congressional or public meddling. Judges were supposed to be appointed for life andguaranteed that their salaries could not be lowered.
When the framers of the Constitution put together their vision of how the U.S. government would work, they felt that separation of powers between the executive, legislative and judicial branches, as well as a system of checks and balances among the three, was necessary to avoid a possible slip into tyranny.One of the factors which led to the Revolutionary War was that the King of Great Britain held control over the colonial judges' tenure and salary, and could cut their pay or recall them if he was not satisfied with their performance, effectively negating the judges' autonomy. One of the principles set forth under Article III of the Constitution was that federal judges would serve for life, if they so chose, and their salaries could not be diminished duringtheir tenure. This was designed to insulate judges against unfavorable reactions to their rulings from Congress or the electorate, thus guaranteeing theirindependence. The Constitution did permit Congress, however, to create courts of lower order, as it saw the need, and previous court decisions had decided that non-Article III courts could exist for certain circumstances.
In 1978, Congress revamped the federal method of hearing bankruptcy cases. Since 1938, bankruptcy cases had been heard either by a federal district judgeor a referee, and bankruptcy referees had been in existence even earlier thanthat. Under the Bankruptcy Act of 1978, a special category of bankruptcy courts and judges was created, whose judges would serve 14-year terms and whosesalaries would be subject to adjustment under the Federal Salary Act. Those judges also had slightly expanded powers compared to the old referees concerning what aspects of bankruptcy proceedings they would be permitted to oversee.The regular Article III district courts did have oversight powers over the bankruptcy courts, and appeals from bankruptcy court decisions could be heardby district courts or appeals courts.
The bankruptcy court rejected Marathon's appeal to dismiss the case, but thedistrict court overturned that decision, holding that bankruptcy matters mustbe heard by a proper Article III court. The Supreme Court upheld the appealscourt verdict, but by a plurality rather than a majority, meaning there wassome limited dissent even within that portion of the Court that agreed on thedecision. The official decision of the Court was that Northern's suit against Marathon could not be heard by a non-Article III court, that Article I bankruptcy courts were not constitutionally acceptable, and that Article I courtswere only acceptable in certain circumstances. A dissent within the plurality, however, held that the only part of the decision which was proper was thatthe suit in question could not be heard by an Article I court, and that theCourt decided more than it needed to by decreeing that the bankruptcy court system was unconstitutional. Two separate dissents further confused the situation.
Three Acceptable Categories
The plurality opinion, written by Justice Brennan, decided that the only acceptable uses of Article I, also called legislative, courts were those which had already been approved of by the Court. These fell into three categories. The first was courts in territories of the United States not within the countryitself. The second exception was military court martials. The third exception, and the only one which needed to be considered for the case at hand, was public rights cases, or cases in which the government and an individual or private interest were interested parties. The plurality held that while Congressdid have an interest in regulating bankruptcy matters, it was not an interested party in proceedings between two private interests, and therefore those proceedings must be heard by an Article III judge. The decision killed the 1978 bankruptcy reform plan, but the Court made its judgment non-retroactive, ruling that to overturn previous decisions rendered by the bankruptcy courts would impose unjust hardship on parties affected by those decisions. Justices Rehnquist and O'Connor concurred in the decision, but felt it was too broad. They felt the constitutionality of the courts themselves was not at issue in the case, only the appropriateness of them hearing the case in question.
Justice White wrote a dissent, joined by Chief Justice Burger and Justice Powell, which said it was not necessary to assume the three examples of legislative courts cited by the plurality were the only ones which could be allowed merely because they were the only ones which had been thus far explicitly approved. Indeed, the dissent claimed that close examination showed that there was no distinction between jurisdiction of Article III and Article I courts, that both varieties heard all types of cases on a regular basis throughout thecountry. It also claimed that the oversight Article III courts held over thebankruptcy courts made those courts acceptable under Article III. Justice White wrote that Article III need not be taken as an absolute ban on legislativecourts for any category of cases, but should be viewed as a principle to beweighed in the acceptability of such courts, along with other pragmatic concerns such as seeing that specialized cases were heard by specialized judges, expediting the legal process, and allowing Congress to maintain some flexibility in its maintenance of the court system.
While the decision was viewed at the time as an attempt to clear up what thedissent admitted "has been characterized as one of the most confusing and controversial areas of constitutional law," it was generally regarded as a failure in that respect. As Maryellen Fullerton, assistant professor of law at Brooklyn Law School, wrote in the Brooklyn Law Review:

Unfortunately, Marathon did little to resolve this confusion. The Supreme Court produced four separate opinions . . . so contradictory that no one can safely predict the Court's ruling on future cases involving Article I federal courts.

Related Cases

• Ex parte Bakelite Corp., 279 U.S. 438 (1929).
  
• Toth v. Quarles, 350 U.S. 11 (1955).
  
• Baker v. Carr, 369 U.S. 186 (1962).
  
• Glidden Co. v. Zdanok, 370 U.S. 530 (1962).
  
• Buckley v. Valeo, 42 U.S. 1 (1976).
  
• Fullilove v. Klutznick, 448 U.S. 448 (1980).

Bankruptcy
Bankruptcy is a process whereby an individual or corporation deeply in debt gains relief from that debt, in exchange for a marred credit record that willtake years to correct. Under the most common form of bankruptcy as applied toindividuals, the debtor, under orders from a judge, liquidates (sells off) all but a few exempt assets such as a car and house; then a court-appointed trustee repays creditors. Repayment may be only a percentage of the debt. For instance, the debtor may offer a creditor 64 cents in repayment for every dollar owed. This type of bankruptcy proceeding, called liquidation, is governedby chapter 7 of the U.S. bankruptcy code. Under another common type, rehabilitative bankruptcy, the debtor is allowed to keep assets in addition to the exempt assets, and a judge establishes a reorganization plan for repayment of debt. Rehabilitation, under chapter 11 of the code, is typically applied to persons with income great enough to facilitate repayment.
Sources
West's Encyclopedia of American Law St. Paul, MN: West Group, 1998.