Exec. Benefits Ins. Agency v. Arkison

June 9, 2014 by Justia

BIA filed a voluntary chapter 7 bankruptcy petition. The bankruptcy trustee filed a complaint alleging fraudulent conveyance of assets. The bankruptcy court granted the trustee summary judgment. The district court affirmed. While appeal was pending, the Supreme Court held, in Stern v. Marshall, that Article III did not permit a bankruptcy court to enter final judgment on a counterclaim for tortious interference, even though final adjudication of that claim by the bankruptcy court was authorized by statute. The Ninth Circuit affirmed, acknowledging the trustee’s claims as “Stern claims,” i.e., claims designated for final adjudication in the bankruptcy court as a statutory matter, but prohibited from proceeding in that way under Article III, but concluding that defendants had impliedly consented to jurisdiction. The court stated that the bankruptcy court’s judgment could be treated as proposed findings of fact and conclusions of law, subject to de novo review by the district court. A unanimous Supreme Court affirmed. Under 28 U.S.C. 157, federal district courts have original jurisdiction in bankruptcy cases and may refer to bankruptcy judges “core” proceedings and “non-core” proceedings. In core proceedings, a bankruptcy judge “may hear and determine . . . and enter appropriate orders and judgments,” subject to the district court’s traditional appellate review. In non-core proceedings—those that are “otherwise related to a case under title 11,” final judgment must be entered by the district court after de novo review of the bankruptcy judge’s proposed findings of fact and conclusions of law, except that the bankruptcy judge may enter final judgment if the parties consent. Lower courts have described Stern claims as creating a statutory gap, since bankruptcy judges are not explicitly authorized to propose findings of fact and conclusions of law in a core proceeding. However, the gap is closed by the Act’s severability provision; when a court identifies a Stern claim, the bankruptcy court should simply treat that claim as non-core. The fraudulent conveyance claims, which Article III does not permit to be treated as “core” claims are “related to a case under title 11” and fit comfortably within the category of claims governed by section 157(c)(1). View "Exec. Benefits Ins. Agency v. Arkison" on Justia Law