By Wanda Borges
Borges and Associates, LLC
Syosset, NY
In
Stern v. Marshall, the Supreme Court held that a Bankruptcy Court (an Article I Court)
did not have the power to enter a final judgment in a case involving a state
law counterclaim asserted by a debtor in bankruptcy. Since the Stern v.
Marshall decision, the courts have been split on the issue of whether or not
consent between the parties can permit the Bankruptcy Courts to hear a matter
which would normally be relegated only to Article III Courts (i.e. the U.S.
District Courts). The Fifth, Sixth and Seventh Circuits said that consent
was not enough to permit the Bankruptcy Court to finally decide issues reserved for the Article III Courts.
The Ninth Circuit ruled that consent was sufficient to enable the Bankruptcy
Court to issue a final ruling on any matter.
The Supreme Court itself had wrestled with this issue of consent in the past. In the matter of Commodity Futures Trading Comm’n v. Schor, the Court held that the right to have a matter heard before an Article III court was “personal” and “subject to waiver”. In the matter of Gomez v. United States, the Supreme Court held that a Magistrate Judge was not permitted to supervise voir dire in felony trials without the consent of the defendant. In the matter of Peretz v. United States, although, the Court held that “allowing a Magistrate Judge to supervise jury selection,” with consent “does not violate Article III”.
Wellness International Network Ltd. v. Sharif has now resolved the issue of consent with respect to matters which can only be decided by Article III Judges. The Bankruptcy Amendments and Federal Judgeship Act of 1984 gave Bankruptcy Judges authority to enter final judgments in bankruptcy cases, proceedings arising in bankruptcy cases and matters arising under the Bankruptcy Code. Congress granted to the Bankruptcy Courts more limited authority over “non-core” proceedings. In those matters, the Bankruptcy Court may “hear and determine” and may “enter appropriate orders” only with the consent of the parties. Without consent, the Bankruptcy Courts are limited to issuing proposed findings of fact and conclusions of law to the District Court which will then rule upon the issue. Justice Sotomayor, who wrote the majority opinion, said “the case presents the question whether Article III Judges allows bankruptcy judges to adjudicate such claims with the parties’ consent.” The Court upon reviewing the Stern, Schor, and Peretz decisions stated further that “we conclude that allowing bankruptcy litigants to waive the right to Article III adjudication of Stern claims does not usurp the constitutional prerogatives of Article III Courts.”
The Supreme Court itself had wrestled with this issue of consent in the past. In the matter of Commodity Futures Trading Comm’n v. Schor, the Court held that the right to have a matter heard before an Article III court was “personal” and “subject to waiver”. In the matter of Gomez v. United States, the Supreme Court held that a Magistrate Judge was not permitted to supervise voir dire in felony trials without the consent of the defendant. In the matter of Peretz v. United States, although, the Court held that “allowing a Magistrate Judge to supervise jury selection,” with consent “does not violate Article III”.
Wellness International Network Ltd. v. Sharif has now resolved the issue of consent with respect to matters which can only be decided by Article III Judges. The Bankruptcy Amendments and Federal Judgeship Act of 1984 gave Bankruptcy Judges authority to enter final judgments in bankruptcy cases, proceedings arising in bankruptcy cases and matters arising under the Bankruptcy Code. Congress granted to the Bankruptcy Courts more limited authority over “non-core” proceedings. In those matters, the Bankruptcy Court may “hear and determine” and may “enter appropriate orders” only with the consent of the parties. Without consent, the Bankruptcy Courts are limited to issuing proposed findings of fact and conclusions of law to the District Court which will then rule upon the issue. Justice Sotomayor, who wrote the majority opinion, said “the case presents the question whether Article III Judges allows bankruptcy judges to adjudicate such claims with the parties’ consent.” The Court upon reviewing the Stern, Schor, and Peretz decisions stated further that “we conclude that allowing bankruptcy litigants to waive the right to Article III adjudication of Stern claims does not usurp the constitutional prerogatives of Article III Courts.”
It is interesting to note that Justice Sotomayor recognized that if all bankruptcy cases were to be heard by District Court Judges, there would need to be a substantial increase in the number of Judges. A footnote tells us that between October 2013 and September 2014, 963,739 litigation cases were filed in the bankruptcy courts (with 349 judges), more than double those filed in the district and circuit courts (with a total of 856 judges).
In summary, the Wellness decision determined that Article III permits bankruptcy courts to hear state law claims provided that the parties consent. Further, nothing in 28 U.S.C. 157 requires “express” consent. It merely requires “consent of all parties to the proceeding”. Therefore, consent may be obtained by actions of the parties, which appears to be what happened in the Wellness case. The Court held that “Article III is not violated when the parties knowingly and voluntarily consent to adjudication by a bankruptcy judge”. And, in sum, the Court said “…the cases in which this Court has found a violation of a litigant’s right to an Article III decision maker have involved an objecting defendant forced to litigate involuntarily before a non-Article III court. The Court has never done what Chief Justice Roberts’ dissent would have us do – hold that a litigant who has the right to an Article III court may not waive that right through his consent.”
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