Category Archives: Stern v. Marshall Updates

Stern v. Marshall Update – Ninth Circuit Holds That Bankruptcy Courts Lack Constitutional Authority To Finally Determine Fraudulent Transfer Claims Against Non-Claimants

On December 4, 2012, the United States Court of Appeals for the Ninth Circuit added to the growing body of case law delineating the extent of bankruptcy courts’ jurisdiction in the wake the Supreme Court’s decision in Stern v. Marshall. In In re Bellingham Insurance Agency, Inc., the Ninth Circuit held that (i) non-Article III courts lack the Constitutional authority to enter final judgments in fraudulent transfer actions against non-claimants, (ii) bankruptcy courts may hear and enter findings of fact and conclusions of law in fraudulent transfer actions, and (iii) a defendant may waive its Constitutional right to be heard before an Article III court. Continue reading

Stern v. Marshall Updates – DC Bankruptcy Court Has Jurisdiction to Hear State Law Counterclaims

In GB Herndon, the District of Columbia Bankruptcy Court determined that it had constitutional authority to determine state common law counterclaims and state law claims against nondebtor codefendants. Adams Nat’l Bank v. GB Herndon & Assocs., Inc. (In re GB Herndon & Assocs., Inc.), 459 B.R. 148 (Bankr. D.D.C. 2011). The case involved a routine contract dispute. Adams National Bank lent money to the debtor to finance the construction of a housing complex. The debtor and its guarantors failed to meet their obligations, first under the original loan agreement, then under a forbearance agreement, and the bank sued in state court for breach of contract. Continue reading

SDNY Bankruptcy Court Tackles Jurisdiction of Federal Maritime Commission

On February 10, 2012, Judge Sean Lane of the United States Bankruptcy Court for the Southern District of New York denied the motion of 22 defendants in adversary proceedings filed by the Debtor, The Containership Company, seeking to lift the automatic stay to file complaints before the Federal Maritime Commission (“FMC”). In re The Containership Company, Case No. 11-12622 (Bankr. S.D.N.Y. Feb. 10, 2012). Continue reading

Amended Standing Order of Reference, 12 Misc. 00032 (S.D.N.Y. Jan. 31, 2012).

On January 31, 2012, Southern District of New York Chief Judge Loretta A. Preska issued an Amended Standing Order of Reference, providing that (i) bankruptcy judges may submit proposed findings of fact and conclusions of law with respect to “core” matters over which bankruptcy courts do not have constitutional authority to enter final judgments and (ii) the district court may treat any order of the bankruptcy court as proposed findings of fact and conclusions of law in the event that the district court determines that entry of a final order by the bankruptcy court would be inconsistent with Article III of the United States Constitution. Continue reading

Ortiz v. Aurora Health Care, Inc. (In re Ortiz), No. 10-3465 (7th Cir. Dec. 30, 2011)

The Seventh Circuit Court of Appeals dismissed the debtors’ appeal of the bankruptcy court’s dismissal of the debtors’ state law counterclaims because the bankruptcy court lacked authority to enter a final judgment on the debtors’ counterclaims, and without a final judgment, there was no basis for appellate jurisdiction. Continue reading

Coudert Brothers Trust v. Baker & McKenzie, et al., No. 11-2785, 2011 U.S. Dist. LEXIS 110425 (S.D.N.Y. Sept. 23, 2011)

In Coudert Brothers, the Southern District of New York considered whether the parties impliedly consented to the bankruptcy court’s entry of a final order determining non-core claims it otherwise lacked constitutional authority to adjudicate under Stern v. Marshall.[i] Because the parties did not consent, the district court treated the bankruptcy court’s opinion as proposed findings of fact and conclusions of law, which the district court would review de novo. Continue reading

Development Specialists, Inc. v. Akin Gump Strauss Hauer & Feld LLP, No. 11 Civ 5994, 2011 WL 5244463 (S.D.N.Y Nov. 2, 2011)

The plan administrator for the estate of Coudert Brothers, LLP filed with the bankruptcy court thirteen separate adversary proceedings against ten law firms alleging that the law firms were liable to Coudert for “unfinished business” that several of Coudert’s former partners took with them to their new firms. After the Supreme Court issued its decision in Stern v. Marshall, the law firms moved the Southern District of New York to withdraw the bankruptcy reference and abstain from hearing the claims in favor of New York state courts or review the merits of the bankruptcy court’s denial of the firms’ motion to dismiss de novo. The court granted the motion to withdraw the reference, but denied the motion to abstain. Continue reading

In re Canopy Financial, Inc., Case No. 11-A-581, 2011 WL 3911082 (N.D. Ill. Sept. 1, 2011)

Fraudulent transfer claims were under review again in Paloian v. American Express Co., (In re Canopy Financial, Inc.), where the Northern District of Illinois held that the bankruptcy court is authorized to hear fraudulent conveyance claims and propose findings of fact and conclusions of law to the district court.

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Special Features – Stern v. Marshall

On June 23, 2011, the Supreme Court issued an opinion in Stern v. Marshall, the well-known case involving the estate of former model Vickie Lynn Marshall (more famously known as Anna Nicole Smith) and the estate of her late husband, wealthy oil magnate J. Howard Marshall. The decision, which was written by Chief Justice Roberts, held that a bankruptcy court, as a non-Article III court, lacked constitutional authority to issue a final judgment on state law counterclaims by a debtor against a claimant notwithstanding that the Bankruptcy Code specified that all counterclaims of a debtor were within the “core” jurisdiction of the bankruptcy court. For an in depth analysis of the decision, please refer to Cadwalader, Wickersham & Taft LLP’s Client & Friends Memo “Stern v. Marshall: How Big Is It?” published July 14, 2011.

Although the decision may have wide-ranging implications on bankruptcy jurisdiction, the nature and extent of its impact are not yet clear. Chief Justice Roberts’ opinion notes that the question it addresses is “a ‘narrow’ one,” and it will be interesting to see how lower courts apply the ruling to the facts of various cases as they arise. As a service to our readers, Cadwalader’s Restructuring Review Blog will examine how courts interpret and apply Stern v. Marshall and the resulting impact on the jurisdiction of bankruptcy courts across the country.

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Stern v. Marshall: How Big Is It?

On June 23, 2011, the Supreme Court ruled 5-4, in an opinion by Chief Justice Roberts, that a Bankruptcy Judge lacked constitutional authority to issue a final ruling on state law counterclaims by a debtor against a claimant. Continue reading