WASHINGTON, D.C. - (Mealey's) The U.S. Supreme Court on
June 24 granted certiorari in a case dealing with the questions of
whether Article III of the U.S. Constitution permits the exercise of the
judicial power of the United States by bankruptcy courts on the basis of
litigant consent and whether a bankruptcy court 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. Code Section 157(b) (Executive Benefits
Insurance Agency v. Arkinson, No. 12-1200, U.S. Sup.) (lexis.com
subscribers may access Supreme Court briefs for this case).
In 2006, Bellingham Insurance Agency Inc. filed for
Chapter 7 bankruptcy in the U.S. Bankruptcy Court for the Western District of
Peter H. Arkinson was appointed trustee of Bellingham's bankruptcy
estate. He filed an adversary proceeding against Executive Benefits Insurance
Agency (EBIA) in the Bankruptcy Court, contending that EBIA had received
fraudulent transfers and was liable for Bellingham's
debts as a successor corporation.
The Bankruptcy Court entered summary judgment against
EBIA demanded a jury trial and expressly indicated that
it did not consent to a jury trial before a bankruptcy judge. The Bankruptcy
Court referred the issue to the U.S. District Court for the Western District of
Washington, which considered it a withdrawal to the District Court.
The District Court refused EBIA's motion to withdraw the
case for the sole reason that the Bankruptcy Court had already entered summary
judgment against EBIA.
After the District Court refused to accept the case based
on EBIA's removal request, EBIA appealed the Bankruptcy Court's final judgment
to the District Court. The District Court indicated that the Bankruptcy Court's
grant of summary judgment was subject to de novo review, but at the same
time invoked a "substantial evidence" standard in reviewing the Bankruptcy
The District Court concluded that EBIA failed to show any
error on the part of the Bankruptcy Court and, on that basis, dismissed EBIA's
appeal and affirmed the Bankruptcy Court's entry of judgment. EBIA appealed to
the Ninth Circuit.
28 U.S. Code Section 157
The Ninth Circuit held that 28 U.S. Code Section
157(c)(1) [an annotated version of this statute is available to lexis.com
subscribers] grants bankruptcy judges the authority to issue proposed
findings of fact and conclusions of law only in a proceeding that is "'not a
core proceeding'" and further that a fraudulent conveyance proceeding does not
fall within 28 U.S. Code Section 157(c)(1) because it is "core" under the
The Ninth Circuit determined that the gap should be
filled by reading "the power to 'hear and determine' a proceeding" under 28
U.S. Code Section 157(b)(1) to encompass the "more modest power to submit
findings of fact and recommendations of law to the district courts." The
panel added that Congress intended to vest bankruptcy judges with "as much
adjudicatory power as the Constitution will bear."
Moreover, the Ninth Circuit said EBIA, through its
litigation conduct, had "impliedly consented" to adjudication by a bankruptcy
Judicial Power Question
EBIA appealed to the U.S. Supreme Court, arguing that the
high court should resolve whether and under what circumstances litigant consent
can confer on non-Article III judges authority to exercise the judicial power
of the United States.
Furthermore, EBIA maintained that the Supreme Court
should resolve the conflict among lower courts on whether bankruptcy judges are
statutorily authorized to submit proposed findings of fact and conclusions of
law in "core" proceedings.
EBIA is represented by Douglas Hallward-Driemeier of
Ropes & Gray in Washington. Arkinson is represented by John A. Pottow of
the University of Michigan Law School in Ann
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