Ninth Circuit Prohibits Bankruptcy Courts from Entering Judgments on Fraudulent Conveyance Claims Against Non-Claimants

The Ninth Circuit recently held that: bankruptcy courts lack the constitutional authority to enter a final judgment on all fraudulent transfer claims against non-claimants, whether brought under state or federal law, and a defendant can waive such an argument by not asserting the applicability of Stern v. Marshall1 at the trial level. Further, in dicta, the court noted that bankruptcy courts may issue proposed findings of fact and conclusions of law in matters in which the bankruptcy court cannot issue final orders. The Ninth Circuit thus becomes the first circuit court to apply Stern to fraudulent transfer claims brought under federal law, not just state law. By extending this application, it could be argued that bankruptcy courts lack the authority to enter final judgments in all avoidance actions brought against a non-claimant.

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