Brown v. Outlaw (In re Outlaw)
| Decision Date | 15 September 2020 |
| Docket Number | Bankruptcy No. 19 BK 03645,Adversary No. 19 AP 00713 |
| Parties | In re: SHANDRA Y. OUTLAW, Debtor. JAMES BROWN, Plaintiff. v. SHANDRA Y. OUTLAW, Defendant. |
| Court | U.S. Bankruptcy Court — Northern District of Illinois |
MEMORANDUM DECISION
Debtor-Defendant Shandra Y. Outlaw ("Defendant") filed for bankruptcy relief under chapter 13 on February 12, 2019. Creditor-Plaintiff James Brown ("Plaintiff") objected to confirmation of the proposed chapter 13 plan on the basis that it fails to take into account his claim. Alongside the objection, Plaintiff filed the present adversary complaint seeking a declaration that his debt is excepted from discharge under 11 U.S.C. § 523(a)(2)(A) and (a)(4). In turn, Defendant objected to Plaintiff's unliquidated claim. The matters were consolidated for trial.
Trial was held over three afternoons. Following the trial, the parties were ordered to file proposed findings of fact and conclusions of law, with proposed judgment order, and to present arguments in writing. The Court, having heard the testimony of the witnesses and considered the documentary evidence presented by the parties, now makes and enters the following findings of fact and conclusions of law.
Subject matter jurisdiction lies under 28 U.S.C. § 1334. The district court may refer bankruptcy proceedings to a bankruptcy judge under 28 U.S.C. § 157 and 28 U.S.C. § 1334, and this proceeding was thereby referred here by the District Court for the Northern District of Illinois. N.D, Ill. Internal Operating Procedure 15(a). Venue lies under 28 U.S.C. § 1409.
Congress specifically delineated proceedings that the bankruptcy judges may hear and determine. 28 U.S.C. § 157(b). As to core proceeding, bankruptcy judges have statutory authority to hear and determine such matters. 28 U.S.C. § 157(b)(1). For non-core proceedings that are otherwise related to a case under the Bankruptcy Code, a bankruptcy judge may hear the matter but must submit proposed findings of fact and conclusions of law to the district court to review and enter. 28 U.S.C. § 157(c)(1). But, even if a matter is non-core, "[i]f all parties 'consent,' the statute permits the bankruptcy judge 'to hear and determine and to enter appropriate orders and judgments' as if the proceeding were core." Exec. Benefits Ins. Agency v. Arkison, 573 U.S. 25, 34 (2014).
Furthermore, a bankruptcy court must also have constitutional authority to enter a final judgment. See Stern v. Marshall, 564 U.S. 462 (2011). "[T]he question [of constitutional authority] is whether the action at issue stems from the bankruptcy itself or would necessarily be resolved in the claims allowance process." Id. at 499. Consent, whether express or implied, to a bankruptcy judge's hearing and determination of a matter is sufficient for constitutional authority to exist. See Wellness Int'l Network, Ltd. v. Sharif, 575 U.S. 665 (2015); Richer v. Morehead, 798 F.3d 487, 490 (7th Cir. 2015). Without constitutional authority, the bankruptcy judge may not enter a final judgment, but must instead submit proposed findings of fact and conclusions of law to the district court to review and enter. Arkison, 573 U.S. at 35.
Here, in her Answer to the Complaint, Defendant argues that this proceeding is not a core proceeding and "denies this court has the jurisdiction over the underlying liability sought by the plaintiff in this action." [Dkt. No. 25, at 1]. Yet, throughout the adversary, Defendant never sought to pursue that argument. Instead, Defendant has proceeded through trial and has submitted proposed findings of fact and conclusions of law which do not raise any arguments about the supposed lack of subject matter jurisdiction.
Nonetheless, bankruptcy jurisdiction is limited, and bankruptcy courts have an affirmative duty to establish that subject matter jurisdiction exists, even where the parties fail to do so. In re A.G. Fin. Serv. Ctr., Inc., 395 F.3d 410, 412 (7th Cir. 2005); Smith v. American Gen. Life & Accident Ins. Co., 337 F.3d 888, 892 (7th Cir. 2003). As such, the Court will analyze, sua sponte, whether subject matter jurisdiction exists. Furthermore, erring on the side of caution, despite Defendant's willingness to continue with this proceeding, it will be assumed that implied consenthas not been given in this case and a Stern challenge has been made as to whether a final judgment can be entered by this Court.
The first question is whether a bankruptcy court has subject matter jurisdiction over the claims allowance and liquidation process and over a proceeding for a determination of nondischargeability. The answer is undoubtedly yes. Section 1334 grants the district courts jurisdiction of "all civil proceedings arising under title 11, or arising in or related to cases under title 11." 28 U.S.C. § 1334(b). As matters of nondischargeability directly rises from title 11, they are therefore squarely within the subject matter jurisdiction of the district courts. See 11 U.S.C. § 523(a); In re Blumberg, 112 B.R. 236, 239 (Bankr. N.D. Ill. 1990). So is the claims allowance and liquidation process. See 11 U.S.C. § 502. This subject matter jurisdiction also exists with the bankruptcy courts, which exercise powers delegated to them by the district courts (and which has indeed been referred here by the District Court). 28 U.S.C. § 157(a), (b); N.D. Ill. Internal Operating Procedure 15(a). Accordingly, subject matter jurisdiction exists by this Court to hear these matters.
Next, the analysis turns to whether these matters are "core" within the meaning of the Section 157. See 28 USC § 157(a), (b). They indisputably are so. Section 157 denotes sixteen category of proceedings that are core matters. 28 USC § 157(b)(2). The claims allowance and liquidation process, and determinations of dischargeability of specific debts, are specifically listed as core proceedings. 28 USC § 157(b)(2)(B), (I). As such, these matters are core.
Finally, it is clear that constitutional authority exists to enter final judgments as to claim determinations and nondischargeability. There is no question that a resolution of a claim against a bankruptcy estate is necessarily "resolved in the claims allowance process." Stern, 564 U.S. at 499. Therefore, bankruptcy courts have constitutional authority to adjudicate and liquidate claims against the estate. See In re Neely, 608 B.R. 806, 810 (Bankr. N.D. Ill. 2019) (Lynch, J.) (); see also Katchen v. Landy, 382 U.S. 323, 329-30 (1966) () (internal citations omitted). Likewise, as matters of nondischargeability also arise directly from bankruptcy, "[t]he bankruptcy court has constitutional authority to decide matters ofnondischargeability, as the debtor's discharge and the dischargeability of a particular debt necessarily stem from the bankruptcy itself." In re Davis, 608 B.R. 693, 698 (Bankr. N.D. Ill. 2019) (Barnes, T.). Accordingly, constitutional authority exists for this Court to liquidate Plaintiff's claim against the bankruptcy estate and determine its dischargeability thereof.
Rule 8 of the Federal Rules of Civil Procedure () states that "[i]n responding to a pleading, a party must . . . admit or deny the allegations asserted against it by an opposing party." Fed. R. Civ. P. 8(b)(1)(B). "An allegation - other than one relating to the amount of damages - is admitted if a responsive pleading is required and the allegation is not denied." Fed. R. Civ. P. 8(b)(6).
Defendant's late Answer, [Dkt. No. 25], filed on December 12, 2019, failed to file answers to all of Plaintiff's allegations in the Complaint, which included the amended state court complaint incorporated by prior order [Bankr. No. 19-03645, Dkt. No. 71]. Counsel for Defendant was advised at multiple hearings that the state court allegations that became part of the Complaint would have to be answered, to which he stated that it would be done. However, despite his numerous reassurances, no answers were ever filed to the state court complaint. Accordingly, ail of the unanswered allegations are deemed admitted. See Fed. R. Civ. P. 8(b)(6).
Furthermore, in accordance with the Final Pre-Trial Order, since no objections were filed by Defendant, all well pleaded facts admitted in the pleadings are admitted into evidence. [See Dkt. No. 21].
In addition, because Defendant also failed to file any proposed findings of fact and conclusions of law as ordered, all legal issues not presented are waived and all fact findings proposed by the other side are not disputed. [See Dkt. No. 21].
Therefore, on these foregoing grounds alone, the following facts are taken from the state court complaint and incorporated as part of the Findings of Fact herein. See Fed. R. Civ. P. 8(b)(6). Even if disregarding Defendant's failure to deny the facts alleged, Plaintiff's extensive evidence presented at trial, all of which were received into evidence without objection by Defendant, also conclusively establishes the following Findings of Fact:
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