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Wellness Int'l Network, Ltd. v. Sharif - 135 S. Ct. 1932 (2015)

Rule:

When a district court refers a case to a bankruptcy judge, that judge’s statutory authority depends on whether Congress has classified the matter as a core proceeding or a non-core proceeding, 28 U.S.C.S. § 157(b)(2)(4)—much as the authority of bankruptcy referees, before the 1978 Act, depended on whether the proceeding was summary or plenary. Congress identified as core a nonexclusive list of 16 types of proceedings, § 157(b)(2), in which it thought bankruptcy courts could constitutionally enter judgment. Congress gave bankruptcy courts the power to hear and determine core proceedings and to enter appropriate orders and judgments, subject to appellate review by the district court. 28 U.S.C.S. §§ 157(b)(1)158. But it gave bankruptcy courts more limited authority in non-core proceedings: They may hear and determine such proceedings, and enter appropriate orders and judgments, only with the consent of all the parties to the proceeding. 28 U.S.C.S. § 157(c)(2). Absent consent, bankruptcy courts in non-core proceedings may only submit proposed findings of fact and conclusions of law, which the district courts review de novo. 28 U.S.C.S. § 157(c)(1).

Facts:

Richard Sharif tried to discharge a debt he owed Wellness International Network, Ltd. and its owners (collectively Wellness), in his Chapter 7 bankruptcy. Wellness sought a declaratory judgment from the Bankruptcy Court, contending that a trust Sharif claimed to administer was in fact Sharif's alter-ego, and that its assets were his personal property and part of his bankruptcy estate. The Bankruptcy Court eventually entered a default judgment against Sharif. While Sharif's appeal was pending in District Court, but before briefing concluded, the Supreme Court held in Stern v. Marshall that Article III of the Constitution forbade bankruptcy courts to enter a final judgment on claims that seek only to augment the bankruptcy estate and would otherwise exist without regard to any bankruptcy proceeding.  After briefing closed, Sharif sought permission to file a supplemental brief raising a Stern objection. The District Court denied the motion, finding it untimely, and affirmed the Bankruptcy Court's judgment. On appeal, the U.S. Court of Appeals for the Seventh Circuit determined that Sharif's Stern objection could not be waived because it implicated structural interests and reversed on the alter-ego claim, holding that the Bankruptcy Court lacked constitutional authority to enter final judgment on that claim.

Issue:

Did the Seventh Circuit err in its determination that Sharif's Stern objection could not be waived because the Bankruptcy Court lacked constitutional authority to enter final judgment on that claim?

Answer:

Yes.

Conclusion:

Granting certiorari, the Supreme Court of the United States held that the Seventh Circuit erred in its determination that Sharif's Stern objection could not be waived because the Bankruptcy Court lacked constitutional authority to enter final judgment on that claim. The Court ruled that Article III allows bankruptcy judges to decide Stern claims with the parties' consent. According to the Court, consent to adjudication by a bankruptcy court did not need to be express, but had to be knowing and voluntary. Accordingly, the Court reversed the judgment of the Seventh Circuit. The Court explained that the cases in which it has found a violation of a litigant’s right to an Article III decisionmaker have involved an objecting defendant forced to litigate involuntarily before a non-Article III court. 

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