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Supreme Court to Consider Bankruptcy Court Jurisdiction Issues in Fall 2014

July 8, 2014


As has been widely publicized, the United States Supreme Court recently provided guidance on a bankruptcy court’s  jurisdiction to address certain types of claims, but left open issues of whether parties may consent to bankruptcy court jurisdiction (or waive a lack of jurisdiction argument if not raised early enough) to enter final judgments on certain types of matters.  See Executive Benefits Agency v. Arkison (In re Bellingham Ins. Agency, Inc.), 573 U.S. ___ (June 9, 2014).   Under the Bankruptcy Code, Bankruptcy Courts may enter final judgments on “core” matters (those that the Congress has authorized the Bankruptcy Court to enter final judgment upon).  Bankruptcy Courts may not enter final judgments on “non-core” matters (those that Bankruptcy Courts must issue findings of facts and conclusions of law for District Court review).  The Supreme Court has also previously held that Article III of the U.S. Constitution may preclude a Bankruptcy Court from entering final judgment on certain types of matters, previously considered to be core matters.  See Stern v. Marshall, 131 S. Ct. 2594 (2011).  Under the reasoning set forth in Stern, these types of matters did not fall into either category and it was not clear how the Bankruptcy Courts should address them (Stern dealt with a state law counterclaim for tortious interference against a creditor that consented to Bankruptcy Court jurisdiction by filing a proof of claim). The Bellingham decision gave guidance as to the proper means – the Bankruptcy Court was to follow the same procedure as non-core claims and issue proposed findings of fact and conclusions of law for the District Court’s review. What was not addressed in Bellingham or Stern was whether the Bankruptcy Court may enter a final judgment in a non-core matter (or a matter containing a Stern type of claim, for example, one involving a state law claim or property right) if the parties consented to the Bankruptcy Court’s jurisdiction.  Before the Stern decision, this was common practice.  Since the Stern ruling, it has been a source of confusion for courts and practitioners alike.  The Supreme Court has recently granted certiorari in a Seventh Circuit case to perhaps clarify some of these issues in Wellness International Network, Limited v. Sharif (Docket No. 13-935), according to Scotusblog.com.

The issues raised in the Wellness International case are first, whether the presence of a subsidiary state property law issue in an action brought against a debtor to determine whether property in the debtor’s possession is property of the bankruptcy estate means that such action does not “stem[] from the bankruptcy itself” and therefore, that a Bankruptcy Court does not have the constitutional authority to enter a final order deciding that action and second, whether Article III permits the exercise of the judicial power of the United States by the Bankruptcy Courts on the basis of litigant consent, and if so, whether implied consent based on a litigant’s conduct is sufficient to satisfy Article III.  Accordingly, there may be some further guidance in the near future on the Bankruptcy Courts’ abilities to rule on Stern type matters, including the appropriateness of a litigant’s consent to Bankruptcy Court jurisdiction.