Bankruptcy Court Rules DOMA Unconstitutional
Most of the recent high profile bankruptcy cases relate to colossal reorganizations such as Borders, General Motors, and the Los Angeles Dodgers. Rarely do bankruptcy courts elicit national attention for non-financial cases. However, in the recent Balas case entered on June 13, the U.S. Bankruptcy Court for the Central District of California ruled that the Defense of Marriage Act (DOMA), the act defining marriage as between a man and a woman, is unconstitutional. In re Balas, 2011 Bankr. LEXIS 2157 (Bankr. C.D. Cal. June 13, 2011).
This is the first ruling on DOMA's constitutionality since the U.S. attorney general announced that the Obama administration would no longer defend it. While, at first blush, it may seem odd that this ruling is from a bankruptcy court, it turns out that DOMA is so pervasive that the question of its constitutionality was integral to the Bankruptcy Court's proceeding.
The Balas court held that "no legally married couple should be entitled to fewer bankruptcy rights than any other legally married couple." The debtors, a gay married couple, filed a "joint" bankruptcy petition under Bankruptcy Code Section 302, which provides that "an individual debtor…and such individual's spouse" may file a bankruptcy petition. DOMA defines a "spouse" as "a person of the opposite sex who is a husband or a wife." (1 U.S.C. Section 7). Therefore, the U.S. trustee sought to dismiss the joint petition arguing that the debtors failed to qualify for a joint filing under DOMA because they were not an "opposite sex" couple.
In an unusually strong demonstration of support, 20 judges on the 24-member court signed the Balas opinion, which held that "DOMA violates the equal protection rights of the Debtors as recognized under the due process clause of the Fifth Amendment," because there is no valid, defensible governmental interest advanced by granting the Trustee's motion to dismiss. The court went even further asserting that the justifications cited by DOMA proponents are not even rationally related to a legitimate government interest.
Despite not being courts of general jurisdiction, bankruptcy courts have jurisdiction to hear a wide range of issues. Bankruptcy courts are Article I, as opposed to Article III, federal courts. Article III courts (i.e., District Courts) are courts of general jurisdiction and have the authority to hear bankruptcy matters. However, virtually all judicial districts have adopted judicial code provisions allowing Article III courts to enter local orders referring all bankruptcy matters to bankruptcy courts. In turn, Article III courts have appellate jurisdiction to review decisions of the bankruptcy courts. The District Court's standards of this review process may depend on whether the matter decided was "core" or "non-core" to the bankruptcy proceeding.
Although the distinctions between "core" and "non-core" proceedings are not always clear, one court defines a "core" proceeding as "one that ‘invokes a substantive right provided by title 11 or…a proceeding that, by its nature, could arise only in the context of a bankruptcy case.'" (Gruntz v. County of Los Angeles, 202 F.3d 1074, 1081 (9th Cir. Cal. 2000)).
When bankruptcy judges rule on matters "core" to the bankruptcy proceedings, the standard for Article III courts reviewing those decisions are "considerably more deferential than the one applicable to decisions in "non-core" proceedings." (Estancias La Ponderosa Dev. Corp. v. Harrington, 195 B.R. 210, 214 (D.P.R. 1996)). On the other hand, in "non-core" proceedings, bankruptcy courts may only "submit proposed findings of fact and conclusions of law to the district court," and the district court will then review the issues de novo.
The Balas court, in ruling that DOMA was unconstitutional, found that the interpretation and application of DOMA was so essential to the court's decision that it was a "core" proceeding. In other words, determining the constitutionality of DOMA was a necessary step before the court could resolve issues under Title 11. Therefore, not only did the bankruptcy court have "core" jurisdiction, on appeal, reviewing courts must give the bankruptcy court's decision deference.
Although DOMA is not thought of as a traditional bankruptcy "issue," the effects of DOMA appear to have infiltrated many areas of our national jurisprudence allowing a California bankruptcy court to initially determine its constitutionality.
As expected, on June 27, 2011, the U.S. Trustee appealed the Bankruptcy Court's decision to the District Court of the Central District of California. On June 30, 2011, attorneys for the same-sex couple at the center of this bankruptcy dispute asked the U.S. Court of Appeals for the Ninth Circuit to directly take this case.
Allan H. Ickowitz is a partner at Nossaman LLP and co-chair of the firm's Financial Services and Bankruptcy Practice Group. He specializes in the bankruptcy, creditors rights, and workout areas including commercial, real estate, and related litigation. He can be reached at email@example.com and (213) 612-7849.