The United States Supreme Court will hand down its decision in the next few weeks in the case of Wellness Int’l Network, Ltd. v. Sharif (“Wellness”), 727 F.3d 751 (7th Cir. 2013) regarding bankruptcy courts’ jurisdiction. The jurisdictional quagmire is a major and growing virus in the bankruptcy courts, increasing exponentially the costs of bankruptcy litigation. Hopefully the Wellness decision will eventually provide a belated prescription on bankruptcy courts’ jurisdiction, and make us all feel just peachy.
A little background:
In Stern v. Marshall (“Stern”) 131 S.Ct. 2594 (2011), the Supreme Court granted certiorari to resolve whether a bankruptcy court had authority to enter a final judgment on a debtor’s counterclaim for tortious interference. Chief Justice Roberts held that 28 U.S.C. § 157, which gives bankruptcy judges core authority to determine counterclaims that are not necessary to the allowance of claims (so-called “Stern type claims”), unconstitutionally delegated the judicial power of the United States to non-Article III bankruptcy judges. The Court looked at earlier decisions for its holding that only decisions regarding “public rights” can be delegated to a non-Article III judge, while decisions involving private rights “subject to suit at common law, or in equity or admiralty” require Article III jurisdiction. The Court held that actions which “augment” the bankruptcy estate may not be within the “public rights” exception and thus a bankruptcy judge does not have the authority to make a final decision, whereas actions to determine a creditor’s right to receive “a pro rata share in the bankruptcy estate” are matters over which the bankruptcy judge does have the authority to finally decide.
In Stern, the Supreme Court analyzed the constitutionality of 28 U.S.C. § 157, which in relevant part defines certain matters as “core” or “non-core” and authorizes bankruptcy courts to finally adjudicate “core” matters but only to issue findings and conclusions subject to de novo review by Article III district courts in “non-core” matters. The Court in Stern held that bankruptcy judges did not have the authority to issue final judgments on claims that had been designated as core under 28 U.S.C. § 157 and that Congress actually exceeded its authority in designating such claims to a non-Article III court. The Court however did not address how bankruptcy courts should proceed in such cases.
As a result of the Stern decision, different circuit courts have come to different conclusions about bankruptcy courts’ jurisdiction. In particular, courts have struggled with whether the Article III right identified in Stern is waivable and whether that waiver can occur...
