U.S. District Judge Miles W. Lord has ruled unconstitutional the key section of the 1978 Bankruptcy Reform Act that gave bankruptcy judges broad jurisdiction over matters relating to bankruptcy proceedings.
Lord said he believed the order, which was filed yesterday, was the first of its kind and would certainly be appealed to the Supreme Court.
Lord's one-page order asserted that the sweeping 1978 reform act conferred on bankruptcy court judges on unconstitutional delegation of authority by empowering them to handle all types of cases related to or resulting from bankruptcy proceedings. That includes antitrust suits, patent infringement cases and even civil rights cases.
Lord's order said that the act permitted bankruptcy judges to try cases that are otherwise "relegated under the Constitution to Article III judges," a reference to judges who, like himself, are appointed for life by the president subject to Senate confirmation.
Bankruptcy judges, who used to be called bankruptcy referees, are currently appointed by U.S. District Courts to six-year terms. Beginning in 1984, they will be appointed by the president to 14-year terms, but will still occupy a status in the judicial branch below that of judges with lifetime tenure. Technically, they are called "Article I" judges because they are created by Congress under that part of the Constitution.
If Lord's position stands on appeal, lawyers said, bankruptcy judges would be restricted to their narrow pre-1978 jurisdiction -- unless Congress gives them lifetime tenure, which seems unlikely.
Lord's ruling stemmed from a lawsuit brought by Northern Pipeline Construction Co. of Minneapolis against Marathon Pipeline Co. of Kentucky over a construction project dispute in Kentucky. Marathon contended that the bankruptcy judge lacked the jurisdiction to hear the dispute as an offshoot of a voluntary bankruptcy case. Lord, agreeing, dismissed the Northern claim.
In accordance with federal law, the U.S. attorney general was notified of this challenge to the constitutionality of the Bankrkuptcy Reform Act.