9th Cir. Published - Court determined that BK Court can award money damages in objection to discharge proceeding

The panel adopted the BAP’s opinion as its own. The BAP held that, even after Stern v. Marshall, 131 S.Ct. 2594 (2011), the bankruptcy court had the constitutional authority to enter a final judgment determining both the amount of the Fords’ damage claims against the debtor Shawn Deitz, and determining that those claims were excepted from discharge. The BAP also held that the bankruptcy court did not err in concluding that the debt owed by Deitz to the Fords was nondischargeable under 11 U.S.C. §§ 523(a)(2)(A), (a)(4), and (a)(6).


The panel noted that dischargeability actions are central to federal bankruptcy proceedings and are necessarily resolved during the process of allowing or disallowing claims against the state, and that the dischargeability determination therefore constitutes a public rights dispute that the bankruptcy courts may decide.








In re Deitz (9th Cir. 2014)

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. 

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