Avoiding Consent - a Brief Commentary on the U.S. Supreme Court Follow Up Decision to Stern v. Marshall - Executive Benefits Insurance (2014)

Why decide when you can avoid or why avoid when there is nothing to decide? In a unanimous decision, the United States Supreme Court held that a non-core proceeding requires the District Court to hold a de novo review of the Bankruptcy Court’s findings of fact and conclusions of law.  In particular, the Court found that the Appellant was given a de novo review because it appealed the granting of a motion for summary judgment.  See generally, Bagdadi v. Nazar, 84 F.3d 1194, 1197 (9th Cir. 1994).   Accordingly, the Ninth Circuit’s decision was affirmed. 

 

In light of the narrow holding, a number of scholars will likely analyze the decision based upon what was not determined.  First, the Court avoided the issue of whether the fraudulent transfer action was a core proceeding.  Why did they avoid it?  The Court avoided the issue because no one appealed such determination.  The Court stated, “[t]he Court of Appeals held, and we assume without deciding, that the fraudulent conveyance claims in this case are Stern claims.”  Second, the Court avoided the issue of consent.  Why did they avoid it?  The Court stated in a footnote that “this case does not require us to address whether EBIA in fact consented to the Bankruptcy Court’s adjudication of a Stern claim and whether Article III permits a bankruptcy court, with the consent of the parties, to enter final judgment on a Stern claim. We reserve that question for another day.”  Despite such evasive maneuvering, the Court did emphasize “[i]f the claim satisfies the criteria of §157(c)(1), the bankruptcy court simply treats the claims as non-core:  The bankruptcy court should hear the proceeding and submit proposed findings of fact and conclusions of law to the district court for de novo review and entry of judgment.” 

 

The bigger question still remains, can a party consent to entry of a final judgment on a non-core proceeding?  Perhaps the Court in footnote 8 gave us a hint in discussing Appellant’s argument that “nothing in the statute’s text or his­torical context” that makes it “evident” that Congress would prefer to suspend Stern claims in limbo.”  The Court stated, “[t]o the contrary, we noted in Stern that removal of claims from core bankruptcy jurisdiction does not “meaningfully chang[e] the division of labor in the current statute.” 564 U. S., at ___ (slip op., at 37).  Accept­ing EBIA’s contention that district courts are required to hear all Stern claims in the first instance, see Brief for Petitioner 46–48, would dramatically alter the division of responsibility set by Congress.”  If the Court does not believe that Congress wanted to dramatically alter the division of responsibility, then one could argue that it is not a large leap to believe that a party could consent to entry of a final judgment. 

 

However, why would a party consent?  A party gets a “free” bite at the apple if they do not consent (i.e. a free appeal).  The Bankruptcy Court would then be required to “submit proposed findings of fact and conclusions of law to the District Court to be reviewed de novo.”  The only “problem” with such determination is that after the District Court reviews the matter de novo, the remaining appeal you have is to the Court of Appeals.

 

So why did the Supreme Court take this appeal?  My initial reaction is that the Court took this appeal based upon what it perceived as an open issue on consent but after fully analyzing the case there was nothing for the Court to truly decide.  If one demands a de novo review and received it, then there is nothing to decide and the matter is moot.  The Court clearly avoided giving us an insight to consent, maybe the Court couldn’t get a majority or they determined that holding would be dicta?  Only the Court and its law clerks know the answer, but for now, as Justice Thomas stated, the answer to the question of consent awaits for another day.