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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.