NEW - Published - United States Supreme Court Case - Revisiting the Stern/Marshall Decision

EXECUTIVE BENEFITS INSURANCE AGENCY v. ARKISON, CHAPTER 7 TRUSTEE OF ESTATE OF BELLINGHAM  INSURANCE AGENCY, INC.


(A quick restatement of the holding - cut and paste)

Under the Bankruptcy Amendments and Federal Judgeship Act

of 1984, federal district courts have original jurisdiction in bankruptcy cases and may refer to bankruptcy judges two statutory categories of proceedings: "core" proceedings and "non-core" proceedings. See generally 28 U. S. C. §157. In core proceedings, a bankruptcy judge "may hear and determine . . . and enter appropriate orders and judgments," subject to the district court’s traditional appellate review. §157(b)(1). In non-core proceedings—those that are "not . . . core" but are "otherwise related to a case under title 11," §157(c)(1)—final judgment must be entered by the district court after

de novo review of the bankruptcy judge’s proposed findings of fact and conclusions of law, ibid., except that the bankruptcy judge may enter final judgment if the parties consent,§157(c)(2).

In Stern, the Court confronted an underlying conflict between the1984 Act and the requirements of Article III. The Court held that Article III prohibits Congress from vesting a bankruptcy court with the authority to finally adjudicate the "core" claim of tortious interference. The Court did not, however, address how courts should proceed when they encounter a Stern claim. Pp. 4–8.

1. Stern claims may proceed as non-core within the meaning of §157(c). Lower courts have described Stern claims as creating a statutory "gap," since bankruptcy judges are not explicitly authorized to propose findings of fact and conclusions of law in a core proceeding. However, this so-called gap is closed by the Act’s severabilityprovision, which instructs that where a "provision of the Act or [its]application . . . is held invalid, the remainder of th[e] Act . . . is notaffected thereby." 98 Stat. 344. As applicable here, when a court identifies a Stern claim, it has "held invalid" the "application" of §157(b), and the "remainder" not affected includes §157(c), whichgoverns non-core proceedings. Accordingly, where a claim otherwisesatisfies §157(c)(1), the bankruptcy court should simply treat the Stern claim as non-core. This conclusion accords with the Court’s general approach to severability, which is to give effect to the validportion of a statute so long as it "remains ‘fully operative as a law,’ " Free Enterprise Fund v. Public Company Accounting Oversight Bd., 561 U. S. 477, 509, and so long as the statutory text and context donot suggest that Congress would have preferred no statute at all, ibid. Pp. 8–10.

Stern claims may proceed as non-core within the meaning of §157(c). Lower courts have described Stern claims as creating a statutory "gap," since bankruptcy judges are not explicitly authorized to propose findings of fact and conclusions of law in a core proceeding. However, this so-called gap is closed by the Act’s severabilityprovision, which instructs that where a "provision of the Act or [its]application . . . is held invalid, the remainder of th[e] Act . . . is notaffected thereby." 98 Stat. 344. As applicable here, when a court identifies a Stern claim, it has "held invalid" the "application" of §157(b), and the "remainder" not affected includes §157(c), whichgoverns non-core proceedings. Accordingly, where a claim otherwisesatisfies §157(c)(1), the bankruptcy court should simply treat the Stern claim as non-core. This conclusion accords with the Court’s general approach to severability, which is to give effect to the validportion of a statute so long as it "remains ‘fully operative as a law,’ " Free Enterprise Fund v. Public Company Accounting Oversight Bd., 561 U. S. 477, 509, and so long as the statutory text and context donot suggest that Congress would have preferred no statute at all, ibid. Pp. 8–10.

3. Section 157(c)(1)’s procedures apply to the fraudulent conveyance claims here. This Court assumes without deciding that these claims are Stern claims, which Article III does not permit to betreated as "core" claims under §157(b). But because the claims assert that property of the bankruptcy estate was improperly removed, theyare self-evidently "related to a case under title 11." Accordingly, they

fit comfortably within the category of claims governed by §157(c)(1).The Bankruptcy Court would have been permitted to follow that provision’s procedures, i.e., to submit proposed findings of fact andconclusions of law to the District Court for de novo review. Pp. 11–

12.

4. Here, the District Court’s de novo review of the Bankruptcy Court’s order and entry of its own valid final judgment cured anypotential error in the Bankruptcy Court’s entry of judgment. EBIA contends that it was constitutionally entitled to review by an Article III court regardless of whether the parties consented to bankruptcy court adjudication. In the alternative, EBIA asserts that even if such consent were constitutionally permissible, it did not in fact consent.Neither contention need be addressed here, because EBIA received the same review from the District Court that it would have received had the Bankruptcy Court treated the claims as non-core proceedingsunder §157(c)(1). Pp. 12–13.

EXECUTIVE BENEFITS INSURANCE AGENCY