ArtIII.S1.1.3.1.1 Congressional Power to Establish Non-Article III Courts: Current Doctrine

Article III, Section 1:

The judicial Power of the United States, shall be vested in one supreme Court, and in such inferior Courts as the Congress may from time to time ordain and establish. The Judges, both of the supreme and inferior Courts, shall hold their Offices during good Behaviour, and shall, at stated Times, receive for their Services, a Compensation, which shall not be diminished during their Continuance in Office.

Legislative courts, so-called because they are created by Congress pursuant to its general legislative powers, have comprised a significant part of the federal judiciary.¹ The distinction between constitutional courts and legislative courts was first made in American Ins. Co. v. Canter,² which involved the question of the admiralty jurisdiction of the territorial court of Florida, the judges of which were limited to a four-year term in office. Chief Justice Marshall wrote for the Court: These courts, then, are not constitutional courts, in which the judicial power conferred by the constitution on the general government, can be deposited. They are incapable of receiving it. They are legislative courts, created in virtue of the general right of sovereignty which exists in the government, or in virtue of that clause which enables Congress to make all needful rules and regulations, respecting the territory belonging to the United States. The jurisdiction with which they are invested, is not a part of that judicial power which is defined in the 3d article of the constitution, but is conferred by congress, in the execution of those general powers which that body possesses over the territories of the United States.³ The Court went on to hold that admiralty jurisdiction can be exercised in the states only in those courts that are established pursuant to Article III, but that the same limitation does not apply to the territorial courts, for in legislating for them Congress exercises the combined powers of the general, and of a state government.⁴

Canter postulated a simple proposition: Constitutional courts exercise the judicial power described in Art. III of the Constitution; legislative courts do not and cannot.⁵ A two-fold difficulty attended this proposition, however. Admiralty jurisdiction is included within the judicial power of the United States specifically in Article III, requiring an explanation how this territorial court could receive and exercise it. Second, if territorial courts could not exercise Article III power, how might their decisions be subjected to appellate review in the Supreme Court, or indeed in other Article III courts, which could exercise only Article III judicial power?⁶ Moreover, if in fact some judicial power may be devolved upon courts not having the constitutional security of tenure and salary, what prevents Congress from undermining those values intended to be protected by Article III's guarantees by giving jurisdiction to unprotected entities that, being subjected to influence, would be bent to the popular will?

Attempts to explain or to rationalize the predicament or to provide a principled limiting point have resulted from Canter to the present in frequently arcane distinctions and confusing precedents spelled out in cases comprising landmarks on a judicial ‘darkling plain’ where ignorant armies have clashed by night, as Justice White apparently believes them to be.⁷ Nonetheless, Article I courts are quite common entities in our judicial system.⁸

Power of Congress Over Legislative Courts

In creating legislative courts, Congress is not limited by the restrictions imposed in Article III concerning tenure during good behavior and the prohibition against diminution of salaries. Congress may limit tenure to a term of years, as it has done in acts creating territorial courts and the Tax Court; it may subject the judges of legislative courts to removal by the President;⁹ and it may reduce their salaries during their terms.¹⁰ Similarly, it follows that Congress can vest in legislative courts nonjudicial functions of a legislative or advisory nature and deprive their judgments of finality. Thus, in Gordon v. United States,¹¹ there was no objection to the power of the Secretary of the Treasury and Congress to revise or suspend the early judgments of the Court of Claims. Likewise, in United States v. Ferreira,¹² the Court sustained the act conferring powers on the Florida territorial court to examine claims rising under the Spanish treaty and to report its decisions and the evidence on which they were based to the Secretary of the Treasury for subsequent action. A power of this description, the Court said, may constitutionally be conferred on a Secretary as well as on a commissioner. But [it] is not judicial in either case, in the sense in which judicial power is granted by the Constitution to the courts of the United States.¹³

Review of Legislative Courts by Supreme Court

Chief Justice Taney's view, which would have been expressed in Gordon,¹⁴ that the judgments of legislative courts could never be reviewed by the Supreme Court, was tacitly rejected in De Groot v. United States,¹⁵ in which the Court took jurisdiction from a final judgment of the Court of Claims. Since the decision in this case, the authority of the Court to exercise appellate jurisdiction over legislative courts has turned not upon the nature or status of such courts but rather upon the nature of the proceeding before the lower court and the finality of its judgment. The Supreme Court will neither review the administrative proceedings of legislative courts nor entertain appeals from the advisory or interlocutory decrees of such a body.¹⁶ But, in proceedings before a legislative court that are judicial in nature, admit of a final judgment, and involve the performance of judicial functions and therefore the exercise of judicial power, the Court may be vested with appellate jurisdiction.¹⁷

The Public Rights Distinction

A major delineation of the distinction between Article I courts and Article III courts appears in Murray's Lessee v. Hoboken Land & Improvement Co.¹⁸ At issue was a summary procedure, without benefit of the courts, for the collection by the United States of moneys claimed to be due from one of its own customs collectors. It was argued that the assessment and collection was a judicial act carried out by nonjudicial officers and was thus invalid under Article III. Accepting that the acts complained of were judicial, the Court nonetheless sustained the act by distinguishing between any act, which, from its nature, is the subject of a suit at the common law, or in equity, or admiralty, which, in other words, is inherently judicial, and other acts that Congress may vest in courts or in other agencies. [T]here are matters, involving public rights, which may be presented in such form that the judicial power is capable of acting on them, and which are susceptible of judicial determination, but which Congress may or may not bring within the cognizance of the courts of the United States, as it may deem proper.¹⁹

In essence, the Court distinguished between those acts that historically had been determined by courts and those that had both been historically resolved by executive or legislative acts and comprehended matters that arose between the government and others. Thus, Article I courts may be created as special tribunals to examine and determine various matters, arising between the government and others, which from their nature do not require judicial determination and yet are susceptible of it. The mode of determining matters of this class is completely within congressional control.²⁰ Among the matters susceptible of judicial determination, but not requiring it, are claims against the United States,²¹ the disposal of public lands and claims arising therefrom,²² questions concerning membership in Indian tribes,²³ and questions arising out of the administration of the customs and internal revenue laws.²⁴ Other courts similar to territorial courts, such as consular courts and military courts martial, may be justified on like grounds.²⁵

The impact of the public rights distinction, however, has varied dramatically over time. In Crowell v. Benson,²⁶ the Court approved an administrative scheme for determining, subject to judicial review, maritime employee compensation claims, although it acknowledged that the case involved one of private right, that is, of the liability of one individual to another under the law as defined.²⁷ This scheme was permissible, the Court said, because in cases arising out of congressional statutes, an administrative tribunal could make findings of fact and render an initial decision on legal and constitutional questions, as long as there is adequate review in a constitutional court.²⁸ The essential attributes of decisions must remain in an Article III court, but so long as it does, Congress may use administrative decisionmakers in those private rights cases that arise in the context of a comprehensive federal statutory scheme.²⁹ In Northern Pipeline Constr. Co. v. Marathon Pipe Line Co., discussed infra, the Court reasserted that the distinction between public rights and private rights was still important in determining which matters could be assigned to legislative courts and administrative agencies and those that could not be, but there was much the Court plurality did not explain.³⁰

The Court continued to waver with respect to the importance of the public rights/private rights distinction. In two cases following Marathon, it rejected the distinction as a bright line test, and instead focused on substance—i.e., on the extent to which the particular grant of jurisdiction to an Article I court threatened judicial integrity and separation of powers principles.³¹ Nonetheless, the Court indicated that the distinction may be an appropriate starting point for analysis. Thus, the fact that private rights traditionally at the core of Article III jurisdiction are at stake leads the Court to a searching inquiry as to whether Congress is encroaching inordinately on judicial functions, whereas the concern is not so great where public rights are involved.³²

However, in a subsequent case, Granfinanciera, S.A. v. Nordberg, the distinction was pronounced determinative not only of the issue whether a matter could be referred to a non-Article III tribunal, but whether Congress could dispense with civil jury trials.³³ In so doing, however, the Court vitiated much of the core content of private rights as a concept and left resolution of the central issue to a balancing test. That is, public rights are, strictly speaking, those in which the cause of action inheres in or lies against the Federal Government in its sovereign capacity, the understanding since Murray's Lessee. However, to accommodate Crowell v. Benson, Atlas Roofing, and similar cases, seemingly private causes of action between private parties will also be deemed public rights when Congress, acting for a valid legislative purpose pursuant to its Article I powers, fashions a cause of action that is analogous to a common-law claim and integrates it so closely into a public regulatory scheme that it becomes a matter appropriate for agency resolution with limited involvement by the Article III judiciary.³⁴

In Stern v. Marshall,³⁵ the Court shifted away from the functionalism of previous cases and back towards the formalism of Northern Pipeline. Specifically, the Stern Court held that Article III prohibited a bankruptcy court from exercising jurisdiction over a common law claim concerning fraudulent interference with a gift because it did not fall under the public rights exception.³⁶ The Court limited the public rights exception to claims deriving from a federal regulatory scheme or claims in which an expert Government agency is deemed essential to a limited regulatory objective.³⁷ In rejecting the application of the public rights exception to the fraudulent interference claim, the Court observed that the claim was not one that could be pursued only by grace of the other branches or could have been determined exclusively by the executive or legislative branches.³⁸ Additionally, the underlying claim did not flow from a federal regulatory scheme and was not limited to a particularized area of law.³⁹ Because the claim involved the most prototypical exercise of judicial power, adjudication of a common law cause of action not created by federal law, the Court rejected the bankruptcy courts' exercise of jurisdiction over the claim as violating Article III.⁴⁰

Nonetheless, in Oil States Energy Services, LLC v. Greene's Energy Group, LLC, the Court noted that it has not 'definitively explained' the distinction between public and private rights, and its precedents applying the public-rights doctrine have 'not been entirely consistent.'⁴¹ The Court observed, however, that these precedents have given Congress significant latitude to assign adjudication of public rights to entities other than Article III courts.⁴² In Oil States, the Court addressed whether inter partes review, a type of patent validity proceeding conducted by the U.S. Patent and Trademark Office (PTO), violates Article III.⁴³ The Court held that such proceedings fall[] squarely within the public-rights doctrine, and therefore could constitutionally be conducted by a non-Article III tribunal.⁴⁴ In so holding, the Court noted that the case d[id] not require us to add to the 'various formulations' of the public-rights doctrine.⁴⁵ Instead, the Court described the public-rights doctrine as cover[ing] matters 'which arise between the Government and persons subject to its authority in connection with the performance of the constitutional functions of the executive or legislative departments.'⁴⁶ The Court then held that the decision to grant a patent is a matter involving public rights—specifically, the grant of a public franchise that need not be adjudicated in Article III court.⁴⁷ Further, because [i]nter partes review involves the same basic matter as the grant of a patent, the Court concluded that it, too, falls on the public-rights side of the line.⁴⁸ Accordingly, having held that inter partes review falls within the public-rights doctrine, the Court determined that such review did not involve an exercise of Article III judicial power, so Congress constitutionally assigned these proceedings to the PTO.⁴⁹

Status of Courts of the District of Columbia

Through a long course of decisions, the courts of the District of Columbia were regarded as legislative courts upon which Congress could impose nonjudicial functions. In Butterworth v. United States ex rel. Hoe,⁵⁰ the Court sustained an act of Congress which conferred revisory powers upon the Supreme Court of the District in patent appeals and made its decisions binding only upon the Commissioner of Patents. Similarly, the Court later sustained the authority of Congress to vest revisory powers in the same court over rates fixed by a public utilities commission.⁵¹ Not long after this the same rule was applied to the revisory powers of the District Supreme Court over orders of the Federal Radio Commission.⁵² These rulings were based on the assumption, express or implied, that the courts of the District were legislative courts, created by Congress pursuant to its plenary power to govern the District of Columbia. In dictum in Ex parte Bakelite Corp.,⁵³ while reviewing the history and analyzing the nature of the legislative courts, the Court stated that the courts of the District were legislative courts.

In 1933, nevertheless, the Court abandoned all previous dicta on the subject and found the courts of the District of Columbia to be constitutional courts exercising the judicial power of the United States,⁵⁴ with the result that it assumed the task of reconciling the performance of nonjudicial functions by such courts with the rule that constitutional courts can exercise only the judicial power of the United States. This task was accomplished by the argument that, in establishing courts for the District, Congress performs dual functions pursuant to two distinct powers: the power to constitute tribunals inferior to the Supreme Court, and its plenary and exclusive power to legislate for the District of Columbia. However, Article III, § 1, limits this latter power with respect to tenure and compensation, but not with respect to vesting legislative and administrative powers in such courts. Subject to the guarantees of personal liberty in the Constitution, Congress has as much power to vest courts of the District with a variety of jurisdiction and powers as a state legislature has in conferring jurisdiction on its courts.⁵⁵

In 1970, Congress formally recognized two sets of courts in the District: federal courts (the United States District Court for the District of Columbia and the United States Court of Appeals for the District of Columbia, created pursuant to Article III), and courts equivalent to state and territorial courts (including the District of Columbia Court of Appeals), created pursuant to Article I.⁵⁶ Congress’s action was sustained in Palmore v. United States.⁵⁷ When legislating for the District, the Court held, Congress has the power of a local legislature and may, pursuant to Article I, § 8, cl. 17, vest jurisdiction to hear matters of local law and local concerns in courts not having Article III characteristics. The defendant's claim that he was denied his constitutional right to be tried before an Article III judge was denied on the basis that it was not absolutely necessary that every proceeding in which a charge, claim, or defense based on an act of Congress or a law made under its authority need be conducted in an Article III court. State courts, after all, could hear cases involving federal law as could territorial and military courts. [T]he requirements of Art. III, which are applicable where laws of national applicability and affairs of national concern are at stake, must in proper circumstances give way to accommodate plenary grants of power to Congress to legislate with respect to specialized areas having particularized needs and warranting distinctive treatment.⁵⁸

Bankruptcy Courts

After extended and lengthy debate, Congress in 1978 revised the bankruptcy act and created a bankruptcy court as an adjunct of the district courts. The court was composed of judges vested with practically all the judicial power of the United States, serving for 14-year terms, subject to removal for cause by the judicial councils of the circuits, and with salaries subject to statutory change.⁵⁹ The bankruptcy courts were given jurisdiction over not only civil proceedings arising under the bankruptcy code, but all other proceedings arising in or related to bankruptcy cases, with review in Article III courts under a clearly erroneous standard.

This broad grant of jurisdiction, however, brought into question what kinds of cases could be heard by an Article I court. In Northern Pipeline Constr. Co. v. Marathon Pipe Line Co., a case in which a company petitioning for reorganization made a claim against another company for breaches of contract and warranty – purely state law claims—the Court held that the conferral of jurisdiction upon Article I judges to hear state claims regarding traditional common law actions such as existed at the time of the drafting of the Constitution was unconstitutional.⁶⁰ Although the holding was extremely narrow, a plurality of the Court sought to rationalize and limit the Court's jurisprudence of Article I courts.

According to the plurality, a fundamental principle of separation of powers requires the judicial power of the United States to be exercised by courts having the attributes prescribed in Article III. Congress may not evade the constitutional order by allocating this judicial power to courts whose judges lack security of tenure and compensation. Only in three narrowly circumscribed instances may judicial power be distributed outside the Article III framework: in territories and the District of Columbia, that is, geographical areas in which no state operated as sovereign and Congress exercised the general powers of government; courts martial, that is, the establishment of courts under a constitutional grant of power historically understood as giving the political branches extraordinary control over the precise subject matter; and the adjudication of public rights, that is, the litigation of certain matters that historically were reserved to the political branches of government and that were between the government and the individual.⁶¹ In bankruptcy legislation and litigation not involving any of these exceptions, the plurality would have held, the judicial power to process bankruptcy cases could not be assigned to the tribunals created by the act.⁶²

The dissent argued that, although on its face Article III provided that judicial power could only be assigned to Article III entities, the history since Canter belied that simplicity. Rather, the precedents clearly indicated that there is no difference in principle between the work that Congress may assign to an Article I court and that which must be given to an Article III court. Despite this, the dissent contended that Congress did not possess plenary discretion in choosing between the two systems; rather, in evaluating whether jurisdiction was properly reposed in an Article I court, the Supreme Court must balance the values of Article III against both the strength of the interest Congress sought to further by its Article I investiture and the extent to which Article III values were undermined by the congressional action. This balancing would afford the Court, the dissent believed, the power to prevent Congress, were it moved to do so, from transferring jurisdiction in order to emasculate the constitutional courts of the United States.⁶³

No majority could be marshaled behind a principled discussion of the reasons for and the limitation upon the creation of legislative courts, not that a majority opinion, or even a unanimous one, would necessarily presage the settling of the law.⁶⁴ But the breadth of the various opinions not only left unclear the degree of discretion left in Congress to restructure the bankruptcy courts, but also placed in issue the constitutionality of other legislative efforts to establish adjudicative systems outside a scheme involving the creation of life-tenured judges.⁶⁵

Congress responded to Marathon by enactment of the Bankruptcy Amendments and Federal Judgeship Act of 1984.⁶⁶ Bankruptcy courts were maintained as Article I entities, and overall their powers as courts were not notably diminished. However, Congress did establish a division between core proceedings, which could be heard and determined by bankruptcy courts, subject to lenient review, and other proceedings, which, though initially heard and decided by bankruptcy courts, could be reviewed de novo in the district court at the behest of any party, unless the parties had consented to bankruptcy-court jurisdiction in the same manner as core proceedings. A safety valve was included, permitting the district court to withdraw any proceeding from the bankruptcy court on cause shown.⁶⁷

Notice, however, that in Granfinanciera, S.A. v. Nordberg⁶⁸ the Court, evaluating the related issue of when a jury trial is required under the Seventh Amendment,⁶⁹ found that a cause of action to avoid a fraudulent money transfer was founded on state law, and, although denominated a core proceeding by Congress, was actually a private right. Similarly, the Court in Stern v. Marshall⁷⁰ held that a counterclaim of tortuous interference with a gift, although made during a bankruptcy proceeding and statutorily deemed a core proceeding, was a state common law claim that did not fall under any of the public rights exceptions.⁷¹ Nonetheless, as the Court later held in Wellness International v. Sharif,⁷² a bankruptcy court may adjudicate with finality a so-called Stern claim—that is, a core claim that does not fall within the public rights exception—if the parties have provided knowing and voluntary consent, arguably limiting the ultimate impact of Stern for federal bankruptcy law.⁷³

Agency Adjudication

In two decisions subsequent to Marathon involving legislative courts, Thomas v. Union Carbide Agric. Products Co.⁷⁴and CFTC v. Schor,⁷⁵ the Court clearly suggested that the majority was now closer to the balancing approach of the Marathon dissenters than to the Marathon plurality's position that Congress may confer judicial power on legislative courts only in very limited circumstances. Subsequently, however, Granfinanciera, S.A. v. Nordberg,⁷⁶ a reversion to the fundamentality of Marathon, with an opinion by the same author, Justice Brennan, cast some doubt on this proposition.

In Union Carbide, the Court upheld a provision of a pesticide law which required binding arbitration, with limited judicial review, of compensation due one registrant by another for mandatory sharing of registration information pursuant to federal statutory law. And in Schor, the Court upheld conferral on the agency of authority, in a reparations adjudication under the Act, to also adjudicate counterclaims arising out of the same transaction, including those arising under state common law. Neither the fact that the pesticide case involved a dispute between two private parties nor the fact that the CFTC was empowered to decide claims traditionally adjudicated under state law proved decisive to the Court's analysis.

In rejecting a formalistic approach and analyzing the substance of the provision at issue in Union Carbide, Justice O’Connor`s opinion for the Court pointed to several considerations.⁷⁷ The right to compensation was not a purely private right, but bears many of the characteristics of a ‘public’ right, because Congress was authoriz[ing] an agency administering a complex regulatory scheme to allocate costs and benefits among voluntary participants in the program. . . .⁷⁸ Also deemed important was not unduly constrict[ing] Congress’s ability to take needed and innovative action pursuant to its Article I powers;⁷⁹ arbitration seen as a pragmatic solution to [a] difficult problem.⁸⁰ The limited nature of judicial review was seen as a plus in the sense that no unwilling defendant is subjected to judicial enforcement power. On the other hand, availability of limited judicial review of the arbitrator's findings and determination for fraud, misconduct, or misrepresentation, and for due process violations, preserved the ‘appropriate exercise of the judicial function.’⁸¹ Thus, the Court concluded, Congress in exercise of Article I powers may create a seemingly ‘private’ right that is so closely integrated into a public regulatory scheme as to be a matter appropriate for agency resolution with limited involvement by the Article III judiciary.⁸²

In Schor, the Court described Art. III, § 1 as serving a dual purpose: to protect the role of an independent judiciary and to safeguard the right of litigants to have claims decided by judges free from potential domination by the other branches of government. A litigant's Article III right is not absolute, the Court determined, but may be waived. This the litigant had done by submitting to the administrative law judge's jurisdiction rather than independently seeking relief as he was entitled to and then objecting only after adverse rulings on the merits. But the institutional integrity claim, not being personal, could not be waived, and the Court reached the merits. The threat to institutional independence was weighed by reference to a number of factors. The conferral on the CFTC of pendent jurisdiction over common law counterclaims was seen as more narrowly confined than was the grant to bankruptcy courts at issue in Marathon, and as more closely resembling the model approved in Crowell v. Benson. The CFTC's jurisdiction, unlike that of bankruptcy courts, was said to be confined to a particularized area of the law; the agency's orders were enforceable only by order of a district court,⁸³ and reviewable under a less deferential standard, with legal rulings being subject to de novo review; and the agency was not empowered, as had been the bankruptcy courts, to exercise all ordinary powers of district courts.⁸⁴

Granfinanciera followed analysis different from that in Schor, although it preserved Union Carbide through its concept of public rights. State law and other legal claims founded on private rights could not be remitted to non-Article III tribunals for adjudication unless Congress, in creating an integrated public regulatory scheme, has so taken up the right as to transform it. It may not simply relabel a private right and place it into the regulatory scheme. The Court is hazy with respect to whether the right itself must be a creature of federal statutory action. The general descriptive language suggests that, but the Court seemingly goes beyond this point in its determination whether the right at issue in the case, the recovery of preferential or fraudulent transfers in the context of a bankruptcy proceeding, is a private right that carries with it a right to jury trial. Though a statutory interest, the actions were identical to state-law contract claims brought by a bankrupt corporation to augment the estate.⁸⁵ Schor was distinguished solely on the waiver part of the decision, relating to the individual interest, without considering the part of the opinion deciding the institutional interest on the merits and utilizing a balancing test.⁸⁶ Thus, although the Court has made some progress in reconciling its growing line of disparate cases, doctrinal harmony has not yet been achieved.