10 June 2014

Nip 'n Tuck By SCOTUS

Followers of the Supreme Court's bankruptcy jurisprudence probably already know about yesterday's decision in Executive Benefits Insurance Agency v. Peter H. Arkison. (Disclosure: I was one of the amici who submitted a brief to the Court.)

Neatly side-stepping the fraught constitutional issues created by the Court three years ago in Stern v. Marshall, the Court unanimously preserved a decision by a District Court in a fraudulent conveyance action over which bankruptcy court jurisdiction is unclear. The procedural history is more murky than I care to explain but the most important portion of the Court's opinion is to close a gap in the statutory jurisdiction of the bankruptcy courts. Thus, even though Congress has said the bankruptcy courts have jurisdiction in fraudulent conveyance actions and that jurisdiction extends to entry of a final judgment; and even thought SCOTUS has held that grant of jurisdiction to be unconstitutional; it is constitutional for the bankruptcy court to hear a fraudulent conveyance matter and submit proposed findings and conclusions to the District Court for de novo review and entry of judgment. This should save some time and money given the cursory review district court judges generally afford bankruptcy court recommendations.

That the Court failed to address the important issue of bankruptcy jurisdiction by consent may be the price of unanimity. Thus, the constitutional jurisdictional powers of bankruptcy judges (and their magistrate judge counterparts) remains unresolved.

The Court's decision will solve most practical problems but won't put to rest the constitutional issue that will inevitably work its way back to the high court.

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