Stern Revisited: Big Questions Remain Unresolved

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In its recent decision, Executive Benefits Insurance Agency v. Arkison (In re Bellingham Insurance Agency, Inc.), the Supreme Court reiterated and expanded on the reasoning in Stern v. Marshall and made clear that a bankruptcy court may issue reports and recommendations in fraudulent conveyance litigation that by statute is classified as core but that is beyond the adjudicative power of an Article I court. By weighing in authoritatively in the robust ongoing debate about the proper way to apply Stern in practice, the long-awaited pronouncement of the Supreme Court is a helpful step in the direction of greater order and predictability, but the decision is not a giant step. To the disappointment of observers eager for greater clarity, the Court has determined that it does not need to decide whether parties may consent to the entry of final judgments by the bankruptcy court in fraudulent conveyance proceedings.

Under the reasoning of Stern as augmented by Bellingham, such claims can only be finally resolved by the district court, an Article III tribunal. Given the side-stepping of the consent issue in Bellingham, it remains to be seen whether the law will develop to enable parties to consent to the entry of final judgments by bankruptcy courts in core matters that are governed by Stern. This uncertainty is unfortunate. From a systemic perspective, it would be more efficient for the courts that are most directly responsible for the administration and application of the United States Bankruptcy Code to have the unquestioned ability to grant final relief in fraudulent conveyance litigation, disputes that so obviously are within the expertise of these courts.

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