Supreme Court Permits Bankruptcy Court to Hear Adversary Proceeding; Bypasses Issues Regarding Party Consent

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On June 9, the Supreme Court held that a bankruptcy judge may submit proposed findings of fact and conclusions of law for review by a federal district court in otherwise “core” adversary proceedings where a non-debtor party has not consented to bankruptcy court jurisdiction. While a federal district court does not need to conduct the initial hearing, the district court must review the matter de novo prior to entering a final judgment. See Executive Benefits Insurance Agency v. Arkison (In re Bellingham Insurance Agency), ___ U.S. ___ (2014).

The Supreme Court, however, did not address whether a bankruptcy court may exercise the federal judicial power under Article III by entering a final judgment against a non-creditor based on its consent, and, if so, whether “implied consent” can also satisfy the requirements of Article III. Many commentators anticipated that the Supreme Court would resolve this issue.  Instead, the Supreme Court found that it was unnecessary to address the consent issue because the district court’s de novo review of the bankruptcy court’s order cured any potential error in the bankruptcy court’s judgment. As a result, litigants will face continued uncertainty regarding their ability to waive their right to have a final judgment entered by an Article III court to avoid increased expense and delay.

 


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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