SCOTUS Weighs in on Bankruptcy Law, II

Continuing yesterday's discussion of TRAVELERS INDEMNITY CO v. BAILEY (June 18, 2009).

Stevens wrote the dissenting opinion, for himself and Ginsburg.

"Because the 1986 injunction has never meant what the Court today assumes, respondents' challenge is not an impermissible collateral attack. The Court of Appeals correctly concluded that the Bankruptcy Court's 2004 order improperly enjoined the state-law claims at issue in this proceeding."

He cited a 1995 decision, CELOTEX v. EDWARDS, 514 US 300 (1995) for the proposition that "bankruptcy courts have no jurisdiction over proceedings that have ne effect on the debtor." My attention was piqued by that, because Stevens was actually citing to a footnote in the CELOTEX decision -- n. 6. CELOTEX too was a case in which the high court struggled with the jurisdictional language of the bankruptcy statutes. District courts are said to refer "any and all proceedings arising under title 11 or arising in or related to a case under title 11 ... to the bankruptcy judges for the district." How much is encompassed in that "related to"?

So, the bottom line here, the dissenters notwithstanding, is that (a) a bankruptcy court -- and a crucial one, that in the Southern District of New York -- has taken a very wide view of what is related to its proceedings, and that (b) the very wide view has survived challenge, even if on principles of res judicata rather than on any affirmation of its rightness.

This may, in a Machiavellian sense, be a necessary decision given the severity of asbestos liabilities outstanding and the systemic threat they may pose given the present economic climate. Still, hard cases make bad law, and I have to report a visceral reaction to the cutting off of Bailey's claims.

As the dissent pointed out, Bailey couldn't have objected and appealed the 1986 order because nothing in that order on its face spoke to her. Bailey appealed as soon as the order was "clarified" into a bar onher ability to litigate her claim -- if this was collateral, the fault for that was hardly hers.