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Bankruptcy Courts and Jurisdiction: The Case of Executive Benefits Ins. Agency v. Arkison

Published June 20, 2014 by Sasser Law Firm

The question of a bankruptcy court’s jurisdictional authority–whether a court has the authority to hear and render final decisions on particular claims–at first glance probably means precious little to most individuals or businesses considering whether to file a bankruptcy case in the Eastern District of North Carolina. However, in some cases there are practical implications to the jurisdictional question that can mean more time and money to reach a resolution in a case. The Supreme Court of the United States opened a jurisdictional can of worms for bankruptcy courts with its opinion in 2011 in the case Stern v. Marshall, 564 U.S. ___ (2011). The Stern case generated lots of questions about the authority of United States Bankruptcy Courts to render final decisions and judgments in certain types of claims. The Stern opinion analyzed the constitutional and statutory structure of bankruptcy courts and the difference between “core” proceedings and “non-core” proceedings in bankruptcy cases. In Stern, the Court held that Article III of the United States Constitution prohibits Congress from vesting a bankruptcy court with the authority to finally adjudicate the “core” claim of tortious interference. In the recent Executive Benefits case, the claim at issue in bankruptcy court related to fraudulent conveyances.

The litigants in Executive Benefits recognized that the claim was a statutory “core” proceeding in bankruptcy court but that the claim involved adjudicating a state-created private right that could only be finally decided by an Article III (U.S. federal district court) judge. The question the Court had to decide was whether a bankruptcy court could hear all the evidence and arguments and propose findings of fact and conclusions of law in the proceeding and then hand those over to a federal district court judge for final determination on a de novo or brand new review. The Court determined that the bankruptcy court could follow such a procedure. Accordingly, when a Stern type claim in bankruptcy court otherwise satisfies the statutory jurisdiction as a “core” claim under 11 USC § 157(c), the bankruptcy court can simply treat the Stern type claim as “non-core” and make proposed findings of fact and conclusions of law in the proceeding and then hand those over to a federal district court judge for final determination on a de novo review. The analysis of what is “core” versus “non-core,” or what is a Stern type claim, becomes rather complicated, rather quickly.

Sasser Law Firm has litigated in cases involving these issues and has preserved the rights of clients for jury trials and final determinations of claims in the federal district court. If you think you need guidance on these types of complicated jurisdictional questions, please give us a call and we can discuss your options, including whether it may take more time and money to reach a resolution of a Stern type claim through the bankruptcy process.

A copy of the Court’s recent Executive Benefits Ins. Agency v. Arkison opinion can be found here for further mind-numbing review and consideration.

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