Type: Amicus
Date: September 28, 2017
Description: Whether the Rooker-Feldman doctrine can divest a bankruptcy court of subject matter jurisdiction over causes of action that arise only under the Bankruptcy Code.
Result: Pending
No Jurisdiction over Appeal of District Court Vacation of Confirmation Order
“When a district court vacates a bankruptcy court order confirming a bankruptcy plan and remands for further proceedings, there is no final order sufficient to confer jurisdiction under 28 U.S.C. § 158(d).” Bank of New York Mellon v. Watt, No. 15-35484 (9th Cir. Aug. 16, 2017).
In their bankruptcy plan, Nicholas and Patricia Watt included a provision vesting title to their residence in the mortgagee, Bank of NY, and specifying that “vesting shall not merge or otherwise affect the extent, validity, or priority of any liens on the property.” Bank of NY opposed the mandatory vesting provision and objected to confirmation of the plan. The bankruptcy court confirmed the plan. [Read more…] about No Jurisdiction over Appeal of District Court Vacation of Confirmation Order
National Bankruptcy Conference Chimes in on Wellness and the Constitutional Validity of Consent
In Wellness International Network Ltd. V. Sharif, a creditor (WIN) sought a finding that a state court judgment against the debtor was non-dischargeable in the debtor’s Chapter 7 bankruptcy and that a trust for which the debtor was the trustee was, in fact, an alter ego of the debtor and therefore liable for his debts. In the bankruptcy court, the debtor failed to respond to discovery requests and court orders, and, as a result, the court ordered default judgment to WIN. The debtor appealed to the district court of Illinois and during the pendency of that appeal, the Supreme Court decided Stern v. Marshall. The district court dismissed the debtor’s Stern objection as untimely. At the Seventh Circuit, the court found that the dischargeability of the debt was a core matter properly decided by the bankruptcy court. The court remanded the alter ego issue to the district court for a determination of whether it was core or noncore and concluded that, if it was core, the bankruptcy court lacked constitutional authority to decide it and the parties could not waive objection to the lack of authority. Wellness International Network Ltd. v. Sharif, 727 F.3d 751, 774 (7th Cir. 2013), cert. Granted, 134 S. Ct. 2901 (July 1, 2014) (No. 13-935). [Read more…] about National Bankruptcy Conference Chimes in on Wellness and the Constitutional Validity of Consent
Trustee’s Abandonment of Property Does Not End Court’s Jurisdiction
The BAP for the First Circuit determined that the bankruptcy court erred when it found that it lacked jurisdiction over a motion to avoid a lien under section 522(f). In re Rosado-Ramos, No. 13-5 (Oct. 22, 2013). [Read more…] about Trustee’s Abandonment of Property Does Not End Court’s Jurisdiction
Constitutional Authority Objection Not Waivable
In Stern v. Marshall, 131 S. Ct. 2594 (2011), the Supreme Court established that a bankruptcy court lacks constitutional authority to enter a final judgment on a debtor’s state law counterclaim despite Congress’s grant of statutory authority to do so. In Wellness Int’l Network v. Sharif, No 12-1349 (7th Cir. Aug 21, 2013), the seventh circuit held that a constitutional objection based on Stern is not waivable. [Read more…] about Constitutional Authority Objection Not Waivable
Petition for Certiorari on Stern Issues Addresses “Gap” in Bankruptcy Jurisdiction
Two issues growing out of the Supreme Court’s controversial jurisdictional decision in Stern v. Marshall, 131 S. Ct. 2594 (2011), have found their way back to that Court in a petition for certiorari. Executive Benefits Insurance Agency (EBIA) v. Arkinson (In re Bellingham Insurance Agency), No. 12A831 (S.Ct. Apr. 3, 2013). The case involves an alleged fraudulent conveyance by a non-creditor and is squarely within the holding of Stern under which the Court found that Congress violated Article III when it vested in bankruptcy courts the authority to enter final judgments on certain state-law counterclaims designated as “core” bankruptcy proceedings under Section 157(b)(2) of Title 28.
The issues raised in the petition are: 1) whether the bankruptcy court had the power under 28 U.S.C. 157(b) to issue findings of fact and conclusions of law to the district court for final adjudication, and 2) whether, the bankruptcy court could finally adjudicate a motion for summary judgment on the fraudulent conveyance claim upon consent of the parties.
While the case was on appeal to the Ninth Circuit, the Supreme Court decided Stern v. Marshall, 131 S. Ct. 2594 (2011). Based on that case, the circuit court found that although the Constitution precluded a bankruptcy court from finally deciding the core issue of fraudulent conveyance involving a non-creditor, 28 U.S.C. 157(b)(1) should be interpreted to permit bankruptcy courts all the power that “the constitution will bear” and that the “more modest power” to issue proposed findings of fact and conclusions of law is within those confines. Additionally, citing Commodity Futures Trading Comm’n v. Schor, 478 U.S. 833, 850-51 (1986), the court distinguished between personal and structural protections under Article III finding that the issue of fraudulent conveyance implicated personal protections that could be waived by the parties. Where section 157(c) permits the parties to consent to final adjudication in non-core proceedings, the court found that it followed that they could likewise consent to such adjudication in core proceedings. Exec. Ben. Ins. Agency v. Arkinson, 702 F.3d 553 (9th Cir. 2012)
The petition identifies a split in the circuit courts with respect to both of these issues. In Waldman v. Stone, 698 F.3d 910, 917–918 (6th Cir. 2012), cert. denied, 2013 U.S. LEXIS 2333 (Mar. 18, 2013), the Sixth Circuit held that parties cannot consent to a bankruptcy court’s jurisdiction to adjudicate core issues on a private right of action subject to Article III, and in Ortiz v. Aurora Health Care (In re Ortiz), 665 F.3d 906 (7th Cir. 2011), the Seventh Circuit held that proposed findings of fact and conclusions of law were limited to non-core proceedings.
The case, if accepted by the Supreme Court, could guide the courts in dealing with the “gap” left by the decision in Stern.
Denial of Motion to Dismiss for Abuse Final Appealable Order
In McDow v. Dudley, No. 10-1732 (4th Cir. Nov. 30, 2011) the fourth circuit found that an order denying a trustee’s motion to dismiss a debtor’s chapter 7 case as abusive under section 707(b) is a final, appealable order under section 158(a). In the bankruptcy court, the trustee sought dismissal based on a means test calculation that the debtors had $2,000/month available to pay creditors. The bankruptcy court granted debtors’ motion for summary judgment finding that section 707(b) applies only to cases filed originally under chapter 7 and does not encompass cases converted from chapter 13, as debtors’ case was. The district court dismissed the trustee’s appeal as interlocutory.
The circuit court vacated and remanded. The court reasoned that when Congress enacted BAPCPA and added the means test it created a presumption of abuse when debtor’s income exceeded a statutory threshold. Because BAPCPA imposed a strict deadline for the trustee to raise the issue of bad faith the court found that resolution of that issue was essential to the continuation of the case and therefore constituted a conclusion of a discrete dispute which was an appealable order. The court further noted that pragmatic considerations, including the possible liquidation of assets and depletion of resources if the case goes forward, militated in favor of treating the denial of dismissal for abuse as a final appealable order.
California Appellate Court on Option ARMs
Yesterday in the case of Boschma, et al v. Home Loan Center, Inc., No. G043716, a California Appellate Court held that homeowners sufficiently stated a claim for a state UDAP violation based on the lender’s disclosure that suggested only the possibility of negative amortization and interest rate increases when both were certain. The interest rate was going to rise from the introductory teaser rate, and if the borrowers paid according to the payment schedule in the TIL disclosure negative amortization was also a certainty.