US Supreme Court Resolves Executive Benefits On Narrow Grounds, Leaving Unresolved Many Important Questions About Bankruptcy Court Authority

The US Supreme Court earlier today issued its much anticipated decision in Executive Benefits Insurance Agency v. Arkison, No. 12-1200 (June 9, 2014), a follow-on case to the Court's landmark decision in Stern v. Marshall, 131 S. Ct. 2594 (2011), regarding the scope of bankruptcy courts' authority under Article III of the Constitution. Executive Benefits decides an important statutory question that has divided lower courts in the wake of Stern, holding that, when addressing claims like the one at issue in Stern, bankruptcy courts may issue findings of fact and conclusions of law for de novo review by district courts. But it leaves unresolved a circuit split on the constitutional question of whether, and under what circumstances, parties may consent to bankruptcy courts' entry of final judgment in non-core matters.

The Legal Background. The 1978 Bankruptcy Code gave bankruptcy courts expansive jurisdiction, including the authority to enter final judgment on all claims that could affect a bankruptcy estate. In 1982, the Supreme Court held that regime unconstitutional, concluding that it violated Article III to permit bankruptcy courts to enter final judgment on matters of "private right," including state-law causes of action by the estate against non-creditors. Northern Pipeline Constr. Co. v. Marathon Pipe Line Co., 458 U.S. 50 (1982). In 1984, in response to Marathon, Congress amended the bankruptcy jurisdiction provisions, dividing claims that may be brought in bankruptcy into "core matters" (which are matters of public right that can be heard and determined by bankruptcy courts) and "non-core" matters (which are matters of private right, as to which bankruptcy courts may essentially exercise the power of a magistrate judge).

In Stern, the Supreme Court held that Congress had drawn that line improperly. Specifically, Congress had incorrectly included as statutory "core" matters a number of claims (in Stern itself, a state-law tort claim raised by the debtor as a counterclaim to a proof of claim) that are in fact matters of private right. Despite being statutorily designated as "core," such claims cannot be heard and determined in bankruptcy court (at least absent the parties' consent).

Proceedings Below. The dispute in Executive Benefits arose in the aftermath of Stern. The suit at issue was a fraudulent transfer action. Like counterclaims to proofs of claim, fraudulent transfer actions are statutorily designated as core matters. However, the Supreme Court had previously...