In the wake of the recent Stern v. Marshall decision by the Supreme Court, which limits the ability of bankruptcy judges to enter final judgments on claims based on state law (among other claims), commentators questioned whether the ruling might be applied outside the bankruptcy context. You may ask why we are discussing “bankruptcy issues” on a product liability blog. Well, recent developments make clear that the outcome in Stern has the real potential to change the manner in which civil actions move through the federal district courts.
Last month, in Technical Automation Servs. Corp. v. Liberty Surplus Ins. Corp., No. 10-20640, the Fifth Circuit sua sponte directed the parties to brief the question whether “a magistrate judge can enter final judgment in a case tried to a magistrate judge by consent under 28 U.S.C. § 636(c) where jurisdiction is based on diversity of citizenship and state law provides the rule of decision.” In ordering the parties to brief the issue, the Fifth Circuit noted its “obligation to raise substantial jurisdictional issues sua sponte if they have not been noticed by the parties” and specifically cited the Supreme Court’s decision in Stern.
While we cannot predict how the Fifth Circuit will decide this issue, it appears the court is entertaining the possibility that Stern could be applied beyond the confines of a bankruptcy dispute. This possibility is particularly significant given that magistrates play an integral role in the day-to-day process of administering civil cases in the federal district courts. And as a practical matter, if the Fifth Circuit applied Stern to magistrate judges, it would narrow the scope of issues that magistrates can decide, thereby shifting additional issues onto the plate of district judges.
It is no secret that the federal district courts are very busy. It also is no secret that magistrate judges can help to manage the heavy caseload that many district judges face. The recent actions by the Fifth Circuit in Technical Automation Servs. Corp. appear to create the potential for a conflict between practical solutions (i.e., the delegation of resolution of certain issues to magistrate judges by mutual agreement of the parties), and Constitutional doctrine (i.e., magistrates are not Article III judges). We will continue to follow these developments and report on any significant decisions.