- Case No. 11-35162 (9th Cir. December 4, 2012)
- Ninth Circuit held that a bankruptcy judge lacks constitutional authority to enter a final judgment in a fraudulent conveyance action against a nonclaimant to the bankruptcy estate, but that the nonclaimant defendant in this case waived its right to an Article III hearing.
- Procedural context:
- Ninth Circuit affirmed the district court's affirmance of the bankruptcy court's summary judgment.
- Executive Benefits Insurance Agency (EBIA) suffered an adverse final judgment in a fraudulent conveyance at the hands of a bankruptcy judge. The bankruptcy court granted summary judgment in favor of the Chapter 7 Trustee for the estate of Bellingham Insurance Agency, Inc. (BIA), and entered a final judgment in the amount of $373,291.28. EBIA appealed to federal district court. The district court affirmed the summary judgment. EBIA further appealed the decision to the Ninth Circuit. In a motion to dismiss submitted prior to oral argument, EBIA objected for the first time to the bankruptcy judge's entry of final judgment on the Trustee's fraudulent conveyance claims, claiming that the bankruptcy court was constitutionally proscribed from entering final judgment on the Trustee's claims. EBIA relied upon the U.S. Supreme Court's decision in Stern v. Marshall. The Ninth Circuit determined that EBIA was a noncreditor to BIA's bankruptcy estate, and it was therefore not subject to the bankruptcy court's equitable jurisdiction, but instead the trustee could only recover monies fraudulently conveyed to EBIA only by initiating a legal action. Thus, the fraudulent conveyance claim belonged to an Article III judge, not a bankruptcy judge. The Ninth Circuit then clarified that 28 U.S.C. § 157(b)(1) provides bankruptcy courts the power to hear fraudulent conveyance cases and to submit reports and recommendations to the district courts. Such cases remain "core", and the 157(b)(1) power to "hear and determine" them authorizes the bankruptcy courts to issue proposed findings of fact and conclusions of law. It noted that only the power to enter final judgment is abrogated. The court ultimately decided against EBIA, however, because it held that EBIA had waived its right to an Article III hearing because it failed to timely object to the bankruptcy court's exercise of jurisdiction over the fraudulent conveyance claim.
- Kozinski, Paez and Collins
In re Edwin Earl Elliott
Summarizing by Bradley Pearce
In re Donald and Jane Nichols
Summarizing by Lars Fuller
3123 in the system
2 Being Processed