Professor Kenneth Klee analyzes the Supreme Court holding in Executive Benefits Insurance Agency v. Arkison that while Article III of the Constitution prohibits a bankruptcy court from entering final judgment on a bankruptcy-related claim, the relevant statute nevertheless permits a bankruptcy court to issue proposed findings of fact and conclusions of law to the district court for de novo review.
I. The Lesson To Be Learned:
The Court may go to great lengths to avoid deciding a question of constitutional law, on which it may have substantial internal differences of opinion, particularly when resolution of the issue might cause a crisis in the federal court system. Rather than deciding an important issue left open by Stern v. Marshall on which it granted certiorari–whether litigants may consent to have a bankruptcy court enter a final judgment on a Stern cause of action–the Court questionably applies an uncodified statutory severability clause to duck the issue. II. Summary of Holding: In a unanimous opinion authored by Justice Thomas, the Court held that when Article III of the Constitution prohibits a bankruptcy court from entering final judgment on a claim that is statutorily designated as "core" under 28 U.S.C. § 157(b) [an annotated version of this statute is available to lexis.com subscribers], the bankruptcy court may nevertheless issue proposed findings of fact and conclusions of law to the district court for de novo review pursuant to 28 U.S.C. § 157(c). Exec. Benefits Ins. Agency v. Arkison, 573 U.S. __, 134 S. Ct. 2165, 2170, 2014 U.S. LEXIS 3993 (2014) (hereinafter "EBIA") [an enhanced version of this opinion is available to lexis.com subscribers]. The Court thus closed what some lower courts have described as a statutory "gap" left open by the Court's decision in Stern v. Marshall, 564 U.S. __, 131 S. Ct. 2594 (2011) ("Stern") [enhanced version]. The Court relied primarily on an uncodified severability provision in an annotation to the Bankruptcy Amendments and Federal Judgeship Act of 1984, 28 U.S.C. §§ 151 et seq [annotated version]. See EBIA, 134 S. Ct. at 2173. The Court further held that when, as in EBIA, a bankruptcy court erroneously enters judgment on claims over which it lacks constitutional authority to finally adjudicate, the district court can "cure" the bankruptcy court's error by reviewing the bankruptcy court's judgment de novo and separately entering judgment, even if the district court is reviewing the judgment through an appeal rather than through the report and recommendation process. Id. at 2174-75. Notably, the Court disposed of the case on the narrowest possible grounds, expressly declining to decide whether the right to an Article III tribunal identified in Stern is waivable by express or implied litigant consent and assuming, without deciding, that fraudulent transfer claims implicate the Article III right. III. Legal Background: Congress granted bankruptcy courts the authority to "hear and determine . . . all core proceedings arising under title 11, or arising in a case under title 11 . . . [referred to them by the district courts] and [to] enter appropriate orders and judgments." 28 U.S.C. § 157(b)(1). A non-exhaustive list of "core proceedings" is set forth in 28 U.S.C. § 157(b)(2). "Core proceedings" include "counterclaims by the estate against persons filing claims against the estate" and "proceedings to determine, avoid or recover fraudulent conveyances." 28 U.S.C. § 157(b)(2)(C) & (H). In Stern,the Supreme Court held that the bankruptcy court lacked constitutional authority to enter a final judgment on a debtor's counterclaim for tortious interference. Writing for a 5-4 majority, Chief Justice Roberts held that 28 U.S.C. § 157(b)(2)(C), in giving bankruptcy judges statutory core authority to finally determine counterclaims not necessary to the allowance of claims, unconstitutionally delegates the judicial power of the United States to non-Article III bankruptcy judges. The counterclaim at issue in Stern was a tort claim at common law, the adjudication of which could not be withdrawn from the Article III judiciary. Accordingly, the Court held that "[t]he Bankruptcy Court below lacked the constitutional authority to enter a final judgment on a state law counterclaim that is not resolved in the process of ruling on a creditor's proof of claim." Stern,131 S. Ct. at 2620.
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