In the Beginning
In Stern v. Marshall,131 S. Ct. 2594 (2011), this Court held that Article III of the United States Constitution precludes Congress from assigning certain “core” bankruptcy proceedings involving private state law rights to adjudication by non-Article III bankruptcy judges. Applying Stern, the court of appeals for the Ninth Circuit held that a fraudulent conveyance action is subject to Article III. The court further held, in conflict with the Sixth Circuit, that the Article III problem had been waived by petitioner’s litigation conduct, which the court of appeals construed as implied consent to entry of final judgment by the bankruptcy court. The court of appeals also held, in conflict with the Seventh Circuit, that a bankruptcy court may issue proposed findings of fact and conclusions of law, subject to a district court’s de novo review, in “core” bankruptcy proceedings where Article III precludes the bankruptcy court from entering final judgment. The court of appeals’ decision presented the following questions, about which there is considerable confusion in the lower courts in the wake of Stern:
- Whether Article III permits the exercise of the judicial power of the United States by bankruptcy courts on the basis of litigant consent, and, if so, whether “implied consent” based on a litigant’s conduct, where the statutory scheme provides the litigant no notice that its consent is required, is sufficient to satisfy Article III.
- Whether a bankruptcy judge may submit proposed findings of fact and conclusions of law for de novo review by a district court in a “core” proceeding under 28 U.S.C. 157(b).
In The Middle
In Executive Benefits Insurance Agency v. Arkinson, 573 U.S. ___ (June, 2014) (In re Bellingham) the Court held, “[W]hen a bankruptcy court is presented with such a claim, the property court is to issue proposed findings of fact and conclusions of law. The district court will then review the claim de novo and enter judgment. This approach accords with the bankruptcy statute and does not implicate the constitutional defect identified by Stern.” Read more about the issues Here. The Court passed on the ‘consent’ issue because even if the Bankruptcy Court’s entry of judgment was invalid, the District Court’s de novo review and entry of its own final judgment cured any error, eliminating any issue on consent. Just call it ‘judicial efficiency.’
Our judges are taking these issues very seriously on the grounds that they could either clear or determine matters pending before their court. In federal court, Constitutional Article III judges receive lifetime tenure. The Constitution allows them to create inferior judicial officers, which gave us both Magistrate and Bankruptcy judges. The magnitude of these decisions with the fallout of Stern is nothing short of monumental in terms of potentially undermining the bankruptcy system as we know it. We have Article III federal judges needing additional courtroom space, so they stake their claim in the current bankruptcy courtrooms. At the foundation are federal budget concerns that loom and ultimately impact the federal judiciary with bankruptcy courts experiencing more severe cuts as the economy improves and bankruptcy filings shrink.
In the End
Next up, Wellness Int’l Net-Work, Ltd. v. Sharif, 727 F.ed 751 (7th Cir. 2013), which was decided while Bellingham was pending. “Wellness is Nutty,” said Prof. John Pottow at Central District Consumer Bankruptcy Attorney Association’s (CDCBAA) First Annual James T. King Bankruptcy Symposium entitled In re Bellingham: From the Insiders. Prof. John Pottow of University of Michigan School of Law presented along with Hon. Richard Paez, Ninth Cir. Court of Appeals; and Hon. Meridith Jury, U.S. Bankruptcy Court, Riverside Divsion and B.A.P. Panel Judge with Jon Hayes, President of CDCBAA and of the firm Simon Resnik Hayes, LLC.
The Court granted certiorari and will hear the issues of (1) Whether the Bankruptcy court has the statutory power, under Section 157, to enter final judgment where the plaintiff is seeking a ruling that the debtor is the alter ego of a trust, i.e., is it a cor matter?; and (2) Can the parties consent to entry of final judgment here, i.e., can the right to require an Article III court to hear the matter be waived?
The issues here look to be very narrow, if the Court were to opine solely as they relate to this case. This would leave us with the lower courts to continue to wind through varying interpretations as they arise. Where do you think these issues are headed?