Exec. Benefits Ins. Agency v. Arkison

• Court: United States Supreme Court
• Citation: 134 S.Ct. 2165,573 U.S. 25,189 L.Ed.2d 83
• Docket Number: No. 12–1200.,12–1200.
• Parties: EXECUTIVE BENEFITS INSURANCE AGENCY, Petitioner v. Peter H. ARKISON, chapter 7 trustee of the Estate of Bellingham Insurance Agency, Inc.
• Decision Date: 09 June 2014

573 U.S. 25
134 S.Ct. 2165
189 L.Ed.2d 83

EXECUTIVE BENEFITS INSURANCE AGENCY, Petitioner
v.
Peter H. ARKISON, chapter 7 trustee of the Estate of Bellingham Insurance Agency, Inc.

No. 12–1200.

Supreme Court of the United States

Argued Jan. 14, 2014.
Decided June 9, 2014.

Douglas Hallward–Driemeier, Washington, DC, for Petitioner.

John Pottow, Ann Arbor, MI, for Respondent.

Curtis E. Gannon, for the United States as amicus curiae, by special leave of the Court, supporting the respondent.

D. Ross Martin, Elizabeth N. Dewar, David J. Derusha, Ryan McManus, Ropes & Gray LLP, Boston, MA, Keith H. Wofford, Ropes & Gray LLP, New York, NY, Douglas Hallward–Driemeier, Counsel of Record, Nicholas C. Perros, Ropes & Gray LLP, Washington, DC, for Petitioner.

G. Eric Brunstad, Jr., Kate M. O'Keeffe, Dechert LLP, Hartford, CT, John A.E. Pottow, Counsel of Record, Ann Arbor, MI, Peter H. Arkison, Bellingham, WA, Denice E. Moewes, Settle, WA, for Respondent.

Justice THOMAS delivered the opinion of the Court.

573 U.S. 28

In Stern v. Marshall, 564 U.S. ––––, 131 S.Ct. 2594, 180 L.Ed.2d 475 (2011), this Court held that even though bankruptcy courts are statutorily authorized to enter final judgment on a class of bankruptcy-related claims, Article III of the Constitution prohibits bankruptcy courts from finally adjudicating certain of those claims. Stern did not, however, decide how bankruptcy or district courts should proceed when a "Stern claim" is identified. We hold today that when, under Stern 's reasoning, the Constitution does not permit a bankruptcy court to enter final judgment on a bankruptcy-related claim, the relevant statute nevertheless permits a bankruptcy court to issue proposed findings of fact and conclusions of law to be reviewed de novo by the district court. Because the District Court in this case conducted the de novo review that petitioner demands, we affirm the judgment of the Court of Appeals upholding the District Court's decision.

I

Nicolas Paleveda and his wife owned and operated two companies—Aegis Retirement Income Services, Inc. (ARIS), and Bellingham Insurance Agency, Inc. (BIA). By early 2006, BIA had become

134 S.Ct. 2169

insolvent, and on January 31, 2006, the company ceased operation. The next day, Paleveda used BIA funds to incorporate Executive Benefits Insurance Agency, Inc. (EBIA), petitioner in this case. Paleveda and

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others initiated a scheme to transfer assets from BIA to EBIA. The assets were deposited into an account held jointly by ARIS and EBIA and ultimately credited to EBIA at the end of the year.

On June 1, 2006, BIA filed a voluntary Chapter 7 bankruptcy petition in the United States Bankruptcy Court for the Western District of Washington. Peter Arkison, the bankruptcy trustee and respondent in this case, filed a complaint in the same Bankruptcy Court against EBIA and others. As relevant here, the complaint alleged that Paleveda used various methods to fraudulently convey BIA assets to EBIA.¹ EBIA filed an answer and denied many of the trustee's allegations.

After some disagreement as to whether the trustee's claims should continue in the Bankruptcy Court or instead proceed before a jury in Federal District Court, the trustee filed a motion for summary judgment against EBIA in the Bankruptcy Court. The Bankruptcy Court granted summary judgment for the trustee on all claims, including the fraudulent conveyance claims. EBIA then appealed that determination to the District Court. The District Court conducted de novo review, affirmed the Bankruptcy Court's decision, and entered judgment for the trustee.

EBIA appealed to the United States Court of Appeals for the Ninth Circuit. After EBIA filed its opening brief, this Court decided Stern, supra . In Stern , we held that Article III of the Constitution did not permit a bankruptcy court to enter final judgment on a counterclaim for tortious interference, id., at ––––, 131 S.Ct., at ––––, even though final adjudication of that claim by the Bankruptcy Court was authorized by statute, see Part II–B, infra .² In light of Stern , EBIA moved to dismiss

573 U.S. 30

its appeal in the Ninth Circuit for lack of jurisdiction, contending that Article III did not permit Congress to vest authority in a bankruptcy court to finally decide the trustee's fraudulent conveyance claims.

The Ninth Circuit rejected EBIA's motion and affirmed the District Court. In re Bellingham Ins. Agency, Inc., 702 F.3d 553 (2012). As relevant here, the court held that Stern, supra, and Granfinanciera, S.A. v. Nordberg, 492 U.S. 33, 109 S.Ct. 2782, 106 L.Ed.2d 26 (1989),³ taken together, lead to the conclusion that Article III does not permit a bankruptcy court to enter final judgment on a fraudulent conveyance claim against a noncreditor unless the parties consent. 702 F.3d, at 565. The Ninth Circuit concluded that EBIA had impliedly consented to the Bankruptcy Court's jurisdiction, and that the Bankruptcy Court's adjudication of the fraudulent conveyance claim was therefore permissible. Id., at 566, 568. The Court

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of Appeals also observed that the Bankruptcy Court's judgment could instead be treated as proposed findings of fact and conclusions of law, subject to de novo review by the District Court. Id., at 565–566.

We granted certiorari, 570 U.S. ––––, 133 S.Ct. 2880, 186 L.Ed.2d 908 (2013).

II

In Stern , we held that Article III prohibits Congress from vesting a bankruptcy court with the authority to finally adjudicate certain claims. 564 U.S., at ––––, 131 S.Ct., at ––––. But we did not address how courts should proceed when they encounter one of these "Stern claims"—a claim designated for final adjudication in the bankruptcy court as a statutory matter, but

573 U.S. 31

prohibited from proceeding in that way as a constitutional matter.⁴

As we explain in greater detail below, when a bankruptcy court is presented with such a claim, the proper course is to issue proposed findings of fact and conclusions of law. The district court will then review the claim de novo and enter judgment. This approach accords with the bankruptcy statute and does not implicate the constitutional defect identified by Stern .

A

We begin with an overview of modern bankruptcy legislation. Prior to 1978, federal district courts could refer matters within the traditional "summary jurisdiction" of bankruptcy courts to specialized bankruptcy referees.⁵ See Northern Pipeline Constr. Co. v. Marathon Pipe Line Co., 458 U.S. 50, 53, 102 S.Ct. 2858, 73 L.Ed.2d 598 (1982) (plurality opinion). Summary jurisdiction covered claims involving "property in the actual or constructive possession of the [bankruptcy] court," ibid., i.e., claims regarding the apportionment of the existing bankruptcy estate among creditors. See Brubaker, A "Summary" Statutory and Constitutional Theory of Bankruptcy Judges' Core Jurisdiction After Stern v. Marshall, 86 Am. Bankr. L.J. 121, 124 (2012). Proceedings to augment the bankruptcy estate, on the other hand, implicated the district court's plenary jurisdiction and were not referred to the bankruptcy courts absent both parties' consent. See MacDonald

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v. Plymouth County Trust Co., 286 U.S. 263, 266, 52 S.Ct. 505, 76 L.Ed. 1093 (1932) ; see also Brubaker, supra, at 128.

In 1978, Congress enacted sweeping changes to the federal bankruptcy laws. See 92 Stat. 2549. The Bankruptcy Reform Act eliminated the historical distinction between " ‘summary’ " jurisdiction belonging to bankruptcy courts and " ‘plenary’ " jurisdiction belonging to either a district court or an appropriate state court. Northern Pipeline, supra, at 54, 102 S.Ct. 2858 (plurality opinion); see also 1 W. Norton & W. Norton Bankruptcy Law and Practice § 4:12, p. 4–44 (3d ed. 2013). Instead, the 1978 Act mandated that bankruptcy judges "shall exercise" jurisdiction over "all civil proceedings arising under title 11 or arising in or related to cases under title 11."

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28 U.S.C. § 1471(b)-(c) (1976 ed., Supp. IV). Under the 1978 Act, bankruptcy judges were "vested with all of the ‘powers of a court of equity, law, and admiralty,’ " with only a few limited exceptions. Northern Pipeline, 458 U.S., at 55, 102 S.Ct. 2858 (plurality opinion) (quoting § 1481). Notwithstanding their expanded jurisdiction and authority, these bankruptcy judges were not afforded the protections of Article III—namely, life tenure and a salary that may not be diminished. Id., at 53, 102 S.Ct. 2858.

In Northern Pipeline, this Court addressed whether bankruptcy judges under the 1978 Act could "constitutionally be vested with jurisdiction to decide [a] state-law contract claim" against an entity not otherwise a party to the proceeding. Id., at 53, 87, n. 40, 102 S.Ct. 2858. The Court concluded that assignment of that claim for resolution by the bankruptcy judge "violates Art. III of...