Northern Pipeline Co. V. Marathon Pipe Line Co. - Background

Background

The Bankruptcy Act of 1978 completely altered bankruptcy law in the United States. It created the Bankruptcy Code (Title 11 of the United States Code), and created bankruptcy courts, which served as adjuncts to the United States District Courts for each federal judicial district of the United States. Under the previous law, the Bankruptcy Act of 1898, the federal district courts served as bankruptcy courts and appointed “referees” to conduct proceedings, so long as the district court chose not to withdraw a case from the referee. The new law eliminated the “referee” system and allowed the President to appoint bankruptcy judges for terms of fourteen years (as opposed to the life tenure given to Article III judges), with the advice and consent of the Senate. The judges’ salaries were set by statute and subject to adjustment, and they could be removed by the judicial council of the circuit on grounds of incompetence, misconduct, neglect of duty, or physical or mental disability (as compared with Article III judges, who may only be impeached by Congress and are constitutionally forbidden from having their pay decreased while in office).

The new Bankruptcy Act granted the bankruptcy courts jurisdiction over all “civil proceedings arising under Title 11 or arising in or related to cases under Title 11”. Furthermore, the law endowed the bankruptcy courts with all of the “powers of a court of law or equity”, except for issuing injunctions against other courts and punishing criminal contempt outside of court (or otherwise punishable by imprisonment). The law also created a Bankruptcy Appellate Panel for each judicial circuit, which would hear appeals from final orders and judgments of the bankruptcy courts. If no appeals panel was designated, then the district court itself would hear the appeals.

In January 1980, the plaintiff/appellant in this matter, Northern Pipeline Construction Co. (Northern), filed a petition for reorganization under Chapter 11 of the bankruptcy code in the U.S. Bankruptcy Court for the District of Minnesota. Two months later, in March 1980, Northern brought suit in the bankruptcy court against defendant/appellee Marathon Pipe Line Co. (Marathon) for breach of contract and warranty, misrepresentation, coercion, and duress. Marathon moved to dismiss the suit on the grounds that the Bankruptcy Act of 1978 unconstitutionally conferred Article III powers on judges who lacked the career protections and political independence of Article III judges. The United States intervened to protect its own interests.

The bankruptcy judge denied Marathon’s motion, but on appeal, the United States District Court for the District of Minnesota reversed, agreeing with Marathon’s argument that the law was unconstitutional.