Supreme Court Clarifies Bankruptcy Court Jurisdiction (Somewhat)

by Perkins Coie
Contact

In 2011, the Supreme Court decided Stern v. Marshall, 564 U.S. ___, 131 S. Ct. 2594 (2011), which gave voice to the Court’s grave concerns about the constitutional limits of bankruptcy court jurisdiction and raised several questions that have confounded courts and lawyers for three years. Last week, the Supreme Court issued its first follow-up ruling, answering some of those questions and clarifying how bankruptcy courts are to handle so-called Stern claims. Despite that guidance, the opinion leaves several important questions unanswered.

Federal bankruptcy statutes distinguish between “core” matters (that can be heard and determined by a bankruptcy court) and “non-core” matters (where final judgment must be entered by a U.S. district court judge appointed for life—an “Article III judge”). Stern created a third category: matters that are statutorily designated as core but that can only be adjudicated by an Article III judge. Bankruptcy judges, who are not appointed by the President, are not confirmed by the Senate, and serve only 14-year terms, are not imbued with full constitutional authority.

Last week’s decision in Executive Benefits Insurance Agency v. Arkison, No. 12-1200, 2014 WL 2560461 (June 9, 2014), a case that originated in Washington State, again addressed what matters can be finally decided by bankruptcy judges and what matters must be decided by Article III judges. Immediately before filing for bankruptcy, the debtor transferred assets to Executive Benefits Insurance Agency (EBIA). The chapter 7 trustee sued EBIA, alleging a fraudulent transfer. EBIA lost in the bankruptcy court and appealed to the U.S. district court, which affirmed the bankruptcy court’s ruling. After EBIA appealed to the Ninth Circuit Court of Appeals but before the appellate court had ruled, the Supreme Court issued its ruling in Stern, and EBIA for the first time argued that the bankruptcy court had been constitutionally incapable of entering final judgment on the fraudulent transfer claims. The Ninth Circuit agreed that the trustee’s claims were Stern claims but concluded that EBIA had consented to final adjudication by the bankruptcy court. Id. at *1.

The Supreme Court affirmed the Ninth Circuit, but on very different grounds. In a unanimous opinion written by Justice Thomas, the Court acknowledged that Stern claims create a statutory gap: “By definition, a Stern claim may not be adjudicated to final judgment by the bankruptcy court, as in a typical core proceeding. But the alternative procedure, whereby the bankruptcy court submits proposed findings of fact and conclusions of law, applies only to non-core claims.” Id. at *7.

Whereas the Ninth Circuit upheld the bankruptcy court’s judgment based on consent, the Supreme Court expressly declined to decide whether parties can consent to bankruptcy court adjudication of Stern claims. Id. at 4 n.4. Instead, the Supreme Court noted that the 1984 law that created the core/non-core distinction contained a severability clause stating that if any provision was held invalid, “‘the remainder of this Act . . . is not affected thereby.’” Id. at *7 (citation omitted). Applying the severability clause, the Court determined that the trustee’s Stern claim against EBIA was entitled to the same treatment as non-core claims that are related to a bankruptcy case: i.e., the claim can be heard by a bankruptcy judge, who must submit proposed findings of fact and conclusions of law to an Article III judge, who then conducts a de novo review before entering a final judgment. In EBIA’s case, the Supreme Court concluded that the district court had already conducted a de novo review when it heard EBIA’s appeal. Despite the fact that the precise procedure was different than what the Supreme Court requires for Stern claims—the district court had technically heard an appeal rather than simply proposed findings and conclusions of the bankruptcy court—the result was the same, and therefore, the Supreme Court affirmed the Ninth Circuit’s ruling.

Executive Benefits Insurance Agency did not, however, address one of the central questions raised by Stern: whether parties can consent to the final adjudication of a Stern claim by a bankruptcy judge. The Fifth, Seventh and Ninth Circuit Courts of Appeal have already split on this issue. This not only is an important issue for parties in bankruptcy proceedings but also has potentially large ramifications for the magistrate judge system, where parties often consent to entry of a final judgment by magistrate judges, who are, like bankruptcy judges, not Article III judges.

bmcb

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.

© Perkins Coie | Attorney Advertising

Written by:

Perkins Coie
Contact
more
less

Perkins Coie on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.