__ U.S. __ (2015), 13-935, Wellness International Network, Ltd. v. Sharif

Docket Nº:13-935
Citation:__ U.S. __, 135 S.Ct. 1932, 191 L.Ed.2d 911, 83 U.S.L.W. 4337
Opinion Judge:SOTOMAYOR, JUSTICE
Party Name:WELLNESS INTERNATIONAL NETWORK, LIMITED, ET AL, PETITIONERS v. RICHARD SHARIF
Attorney:Catherine Steege argued the cause for petitioner. Curtis E. Gannon argued the cause for the United States, as amicus curiae. Jonathan D. Hacker argued the cause for respondent.
Judge Panel:SOTOMAYOR, J., delivered the opinion of the Court, in which KENNEDY, GINSBURG, BREYER, and KAGAN, JJ., joined, and in which ALITO, J., joined in part. ALITO, J., filed an opinion concurring in part and concurring in the judgment. ROBERTS, C. J., filed a dissenting opinion, in which SCALIA, J., jo...
Case Date:May 26, 2015
Court:United States Supreme Court
SUMMARY

Sharif tried to discharge a debt to Wellness in his Chapter 7 bankruptcy. Wellness argued that a trust Sharif claimed to administer was actually Sharif’s alter ego, and that its assets were part of his bankruptcy estate. The Bankruptcy Court entered default judgment against Sharif. While appeal was pending, but before briefing concluded, the Supreme Court held (Stern v. Marshall) that Article III forbids... (see full summary)

 
FREE EXCERPT

Page __

__ U.S. __ (2015)

135 S.Ct. 1932, 191 L.Ed.2d 911, 83 U.S.L.W. 4337, 25 Fla.L.Weekly Fed. S 263

WELLNESS INTERNATIONAL NETWORK, LIMITED, ET AL, PETITIONERS

v.

RICHARD SHARIF

No. 13-935

United States Supreme Court

May 26, 2015

         [135 S.Ct. 1935] Argued January 14, 2015

         Editorial Note:

         This opinion is uncorrected and subject to revision before publication in the printed official reporter.

          ON WRIT OF CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE SEVENTH CIRCUIT

          SYLLABUS

         [135 S.Ct. 1936] [191 L.Ed.2d 915] Respondent Richard Sharif tried to discharge a debt he owed petitioners, Wellness International Network, Ltd., and its owners (collectively Wellness), in his Chapter 7 bankruptcy. Wellness sought, inter alia, a declaratory judgment from the Bankruptcy Court, contending that a trust Sharif claimed to administer was in fact Sharif's alter-ego, and that its assets were his personal property and part of his bankruptcy estate. The Bankruptcy Court eventually entered a default judgment against Sharif. While Sharif's appeal was pending in District Court, but before briefing concluded, this Court held that Article III forbids bankruptcy courts to enter a final judgment on claims that seek only to " augment" the bankruptcy estate and would otherwise " exis[t] without regard to any bankruptcy proceeding." Stern v. Marshall, 564 U.S. __, __, 131 S.Ct. 2594, 180 L.Ed.2d 475, 484, 504. After briefing closed, Sharif sought permission to file a supplemental brief raising a Stern objection. The District Court denied the motion, finding it untimely, and affirmed the Bankruptcy Court's judgment. As relevant here, the Seventh Circuit determined that Sharif's Stern objection could not be waived because it implicated structural interests and reversed on the alter-ego claim, holding that the Bankruptcy Court lacked constitutional authority to enter final judgment on that claim.

          Held :

         1. Article III permits bankruptcy judges to adjudicate Stern claims with the parties' knowing and voluntary consent. Pp. 8-17.

         (a) The foundational case supporting the adjudication of legal disputes by non-Article III judges with the consent of the parties is Commodity Futures Trading Comm'n v. Schor, 478 U.S. 833, 106 S.Ct. 3245, 92 L.Ed.2d 675. There, the Court held that the right to adjudication before an Article III court is " personal" and therefore " subject to waiver." Id., at 848, 106 S.Ct. 3245, 92 L.Ed.2d 675. The Court also recognized that if Article III's structural interests as " 'an inseparable element of the constitutional system of checks and balances'" are implicated, " the parties cannot by consent cure the constitutional difficulty." Id., at 850-851, 106 S.Ct. 3245, 92 L.Ed.2d 675. The importance of consent was reiterated in two later cases involving the Federal Magistrates Act's assignment of non-Article III magistrate judges to supervise voir dire in felony trials. In Gomez v. United States, 490 U.S. 858, [135 S.Ct. 1937] 109 S.Ct. [191 L.Ed.2d 916] 2237, 104 L.Ed.2d 923, the Court held that a magistrate judge was not permitted to select a jury without the defendant's consent, id., at 864, 109 S.Ct. 2237, 104 L.Ed.2d 923. But in Peretz v. United States, 501 U.S. 923, 111 S.Ct. 2661, 115 L.Ed.2d 808, the Court stated that " the defendant's consent significantly changes the constitutional analysis," id., at 932, 111 S.Ct. 2661, 115 L.Ed.2d 808. Because an Article III court retained supervisory authority over the process, the Court found " no structural protections . . . implicated" and upheld the Magistrate Judge's action. Id., at 937, 111 S.Ct. 2661, 115 L.Ed.2d 808. Pp. 8-12.

         (b) The question whether allowing bankruptcy courts to decide Stern claims by consent would " impermissibly threate[n] the institutional integrity of the Judicial Branch," Schor, 478 U.S. at 851, 106 S.Ct. 3245, 92 L.Ed.2d 675, must be decided " with an eye to the practical effect that the" practice " will have on the constitutionally assigned role of the federal judiciary," ibid. For several reasons, this practice does not usurp the constitutional prerogatives of Article III courts. Bankruptcy judges are appointed and may be removed by Article III judges, see 28 U.S.C. § § 152(a)(1) (e); " serve as judicial officers of the United States district court," § 151; and collectively " constitute a unit of the district court" for the district in which they serve, § 152(a)(1). Bankruptcy courts hear matters solely on a district court's reference, § 157(a), and possess no free-floating authority to decide claims traditionally heard by Article III courts, see Schor, 478 U.S. at 854, 856, 106 S.Ct. 3245, 92 L.Ed.2d 675. " [T]he decision to invoke" the bankruptcy court's authority " is left entirely to the parties," id., at 855, 106 S.Ct. 3245, 92 L.Ed.2d 675, and " the power of the federal judiciary to take jurisdiction" remains in place, ibid. Finally, there is no indication that Congress gave bankruptcy courts the ability to decide Stern claims in an effort to aggrandize itself or humble the Judiciary. See, e.g., Peretz, 501 U.S. at 937, 111 S.Ct. 2661, 115 L.Ed.2d 808. Pp. 12-15.

         (c) Stern does not compel a different result. It turned on the fact that the litigant " did not truly consent to" resolution of the claim against it in a non-Article III forum, 564 U.S. at __, 131 S.Ct. 2594, 180 L.Ed.2d 475, 500, 507, and thus, does not govern the question whether litigants may validly consent to adjudication by a bankruptcy court. Moreover, expanding Stern to hold that a litigant may not waive the right to an Article III court through consent would be inconsistent with that opinion's own description of its holding as " a 'narrow' one" that did " not change all that much" about the division of labor between district and bankruptcy courts. Id., at __, 131 S.Ct. 2594, 180 L.Ed.2d 475, 517. Pp. 15-17.

         2. Consent to adjudication by a bankruptcy court need not be express, but must be knowing and voluntary. Neither the Constitution nor the relevant statute--which requires " the consent of all parties to the proceeding" to hear a Stern claim, § 157(c)(2)--mandates express consent. Such a requirement would be in great tension with this Court's holding that substantially similar language in § 636(c)--which authorizes magistrate judges to conduct proceedings " [u]pon consent of the parties" -- [191 L.Ed.2d 917] permits waiver based on " actions rather than words," Roell v. Withrow, 538 U.S. 580, 589, 123 S.Ct. 1696, 155 L.Ed.2d 775. Roell 's implied consent standard supplies the appropriate rule for bankruptcy court adjudications and makes clear that a litigant's consent--whether express or implied--must be knowing and voluntary. Pp. 18-19.

         3. The Seventh Circuit should decide on remand whether Sharif's actions evinced the requisite knowing and voluntary consent and whether Sharif forfeited his Stern argument below. P. 20.

         727 F.3d 751, reversed and remanded.

         Catherine Steege argued the cause for petitioner.

         Curtis E. Gannon argued the cause for the United States, as amicus curiae.

         Jonathan D. Hacker argued the cause for respondent.

         SOTOMAYOR, J., delivered the opinion of the Court, in which KENNEDY, GINSBURG, BREYER, and KAGAN, JJ., joined, and in which ALITO, J., joined in part. ALITO, J., filed an opinion concurring in part and concurring in the judgment. ROBERTS, C. J., filed a dissenting opinion, in which SCALIA, J., joined, and in which THOMAS, J., joined as to Part I. THOMAS, J., filed a dissenting opinion.

          OPINION

         [135 S.Ct. 1938]  SOTOMAYOR, JUSTICE

          Article III, § 1, of the Constitution provides that " [t]he judicial Power of the United States, shall be vested in one supreme Court, and in such inferior Courts as the Congress may from time to time ordain and establish." Congress has in turn established 94 District Courts and 13 Courts of Appeals, composed of judges who enjoy the protections of Article III: life tenure and pay that cannot be diminished. Because these protections help to ensure the integrity and independence of the Judiciary, " we have long recognized that, in general, Congress may not withdraw from" the Article III courts " any matter which, from its nature, is the subject of a suit at the common law, or in equity, or in admiralty." Stern v. Marshall, 564 U.S. __, __, 131 S.Ct. 2594, 180 L.Ed.2d 475, 494 (2011) (internal quotation marks omitted).

         Congress has also authorized the appointment of bankruptcy and magistrate judges, who do not enjoy the protections of Article III, to assist Article III courts in their work. The number of magistrate and bankruptcy judgeships exceeds the number of circuit and district judgeships. 1 And it is no exaggeration to say that without [135 S.Ct. 1939] the distinguished service of these judicial colleagues, the work of the federal court system would grind nearly to a halt. 2

         Congress' efforts to align the responsibilities of non-Article III judges [191 L.Ed.2d 918] with the boundaries set by the Constitution have not always been successful. In Northern Pipeline Constr. Co. v. Marathon Pipe Line Co., 458 U.S. 50, 102 S.Ct. 2858, 73 L.Ed.2d 598 (1982) (plurality opinion), and more recently in Stern, this Court held that Congress violated Article III by authorizing bankruptcy judges to decide certain claims for which litigants are constitutionally entitled to an Article III adjudication. This case presents the question whether Article III allows bankruptcy judges to adjudicate such claims with the parties' consent. We hold that Article III is not violated when the parties knowingly and voluntarily consent...

To continue reading

FREE SIGN UP