Ortiz v. Aurora Health Care, Inc. (In re Ortiz)

• Decision Date: 03 February 2012
• Docket Number: 08–27374–svk,Bankruptcy Nos. 07–22466–svk,08–23680–svk.Adversary Nos. 09–2199,09–2469.,07–25336–svk,07–30280–svk
• Citation: 464 B.R. 807
• Parties: In re Rene R. ORTIZ, Douglas Lynn Lindsey and Betty Jane Lindsey, Valerie Jones, Kathy Bembenek, and Susan Marie Dandridge, Debtors.Rene R. Ortiz, et al., Plaintiffs v. Aurora Health Care, Inc., Defendant.Kathy Bembenek, et al., Plaintiffs, v. Aurora Health Care, Inc., Defendant.
• Court: U.S. Bankruptcy Court — Eastern District of Wisconsin

464 B.R. 807

In re Rene R. ORTIZ, Douglas Lynn Lindsey and Betty Jane Lindsey, Valerie Jones, Kathy Bembenek, and Susan Marie Dandridge, Debtors.Rene R. Ortiz, et al., Plaintiffs

v.Aurora Health Care, Inc., Defendant.Kathy Bembenek, et al., Plaintiffs,

v.Aurora Health Care, Inc., Defendant.

Bankruptcy Nos. 07–22466–svk

08–27374–svk

07–25336–svk

07–30280–svk

08–23680–svk.Adversary Nos. 09–2199

09–2469.

United States Bankruptcy Court, E.D. Wisconsin.

Feb. 3, 2012.

West Codenotes

Recognized as Unconstitutional

28 U.S.C.A. § 157(b)(2)(C)

Michael J. Watton, Milwaukee, WI, for Plaintiffs.

Bartholomew F. Reuter, Frank W. DiCastri, Foley & Lardner LLP, Milwaukee, WI, Claire Ann Resop, Eliza M. Reyes, Von Briesen & Roper, S.C., Madison, WI, for Defendant.

PROPOSED FINDINGS OF FACT AND CONCLUSIONS OF LAW ON DEFENDANT'S MOTION FOR SUMMARY JUDGMENT

SUSAN V. KELLEY, Bankruptcy Judge.

This is an important case involving allegations that a healthcare provider violated its patients' privacy rights by filing copies of confidential medical bills in the public bankruptcy docket. On June 10, 2010, this Court granted summary judgment to the healthcare provider, and a direct appeal to the Seventh Circuit followed. After briefing and argument, all concerned eagerly anticipated the Court of Appeals' decision. Then the Supreme Court handed down Stern v. Marshall, ––– U.S. ––––, 131 S.Ct. 2594, 180 L.Ed.2d 475 (2011), limiting the authority of bankruptcy judges to issue final orders in certain State-law-centered proceedings. On December 30, 2011, the Seventh Circuit Court of Appeals dismissed the appeal and remanded the adversary proceedings to this Court, holding that, under Stern, the Court of Appeals lacked appellate jurisdiction because the final judgment was not issued by an Article III judge. See Ortiz v. Aurora Health Care, Inc., 665 F.3d 906 (7th Cir.2011). In Stern, writing for the majority in the protracted dispute between now-deceased Vickie Lynn Marshall (a/k/a Anna Nicole Smith) and her now-deceased stepson, Pierce Marshall, Chief Justice Roberts invoked Charles Dickens' Bleak House. This Court has Great Expectations that these Proposed Findings and Conclusions will advance this protracted litigation to conclusion.

I. JURISDICTIONAL BASIS

A. Proposed Findings of Fact and Conclusions of Law

Section 157(b) of Title 28 defines “core proceedings” in which bankruptcy judges may issue final, appealable orders. Under 28 U.S.C. § 157(c)(1), a bankruptcy judge may hear a non-core proceeding that is otherwise related to a bankruptcy case and submit proposed findings of fact and conclusions of law to the district court. The Article III district judge enters the final order or judgment in such a proceeding after considering the bankruptcy court's proposed findings and conclusions and reviewing de novo those matters to which any party has timely and specifically objected. Id. Since the Court of Appeals indicated that only an Article III judge could issue a final order in this case, this Court could use the procedures in § 157(c)(1) to issue proposed findings of fact and conclusions of law for consideration and entry of a final order by the District Court.

An impediment to this methodology is the Seventh Circuit's finding that “the debtors' claims qualify as core proceedings and therefore do not fit under § 157(c)(1),” suggesting that entering proposed findings and conclusions may not be appropriate in a core proceeding. Ortiz, 665 F.3d at 915. However, the finding was made in the context of whether the direct appeal provision in 28 U.S.C. § 158(d)(2)(A) authorized the Court of Appeals to review a bankruptcy judge's proposed findings of fact and conclusions of law. The statutory scheme clearly does not contemplate a direct appeal of proposed findings and conclusions. See 28 U.S.C. § 158(a) (district court granted jurisdiction to hear appeals from final bankruptcy court orders); § 158(d) (court of appeals has jurisdiction over appeals from final orders). Rather, proposed findings and conclusions are considered by the district court de novo, and the district court enters the final order. The Court of Appeals did not expressly prohibit the entry of proposed findings and conclusions on remand; it merely observed that, like the bankruptcy court in Stern, this Court had not followed this procedure in a core proceeding. Additional considerations militate in favor of following the proposed findings procedure of § 157(c)(1).

Stern itself strongly suggests that adhering to this procedure is appropriate. In Stern, which involved a counterclaim to a proof of claim (expressly designated a core proceeding in 28 U.S.C. § 157(b)(2)(C)), the Supreme Court indicated that the bankruptcy court should have treated the matter before it as non-core and used the proposed findings procedure for non-core matters. Stern, 131 S.Ct. at 2620. The Court described the controversy as a matter of a “division of labor” between the bankruptcy court and district court:

[T]he current bankruptcy system also requires the district court to review de novo and enter final judgment on any matters that are “related to” the bankruptcy proceedings, § 157(c)(1), and permits the district court to withdraw from the bankruptcy court any referred case, proceeding, or part thereof, § 157(d). Pierce has not argued that the bankruptcy courts “are barred from ‘hearing’ all counterclaims” or proposing findings of fact and conclusions of law on those matters, but rather that it must be the district court that “finally decide[s]” them ... We do not think the removal of counterclaims such as Vickie's from core bankruptcy jurisdiction meaningfully changes the division of labor in the current statute; we agree with the United States that the question presented here is a “narrow” one.

Id. By describing the removal of Vickie's counterclaim from core bankruptcy jurisdiction in the context of the proposed findings procedure of § 157(c), the Supreme Court sanctioned the use of that procedure even for core matters.

District courts and bankruptcy courts around the country have relied on and applied this premise. See, e.g., RES–GA Four LLC v. Avalon Builders of GA LLC, 2012 WL 13544, at *8–9, 2012 U.S. Dist. LEXIS 485, at *28 (M.D.Ga. Jan. 4, 2012) (“Congress could not have intended to provide bankruptcy judges with the authority to hear non-core proceedings related to a title 11 case and submit proposed findings of fact and conclusions of law, but not extend the same power to core proceedings.”); JustMed, Inc. v. Byce (In re Byce), 2011 WL 6210938, at *5, 2011 U.S. Dist. LEXIS 144115, at *14–15 (D.Idaho Dec. 14, 2011) (“[T]he Supreme Court intended for unconstitutional core matters to default to the § 157(c)(1) procedure, rather than to be wholly removed from the bankruptcy court. Consequently, even assuming the bankruptcy court is faced with a [ Stern ]-type matter, the bankruptcy court may enter proposed findings of fact and conclusions of law and submit them to this Court for de novo review.”); Levey v. Hanson's Window & Constr., Inc. (In re Republic Windows & Doors, LLC), 460 B.R. 511, 518 (Bankr.N.D.Ill.2011) (“Nothing in [ Stern ] can be read to preclude this Court from submitting proposed findings of fact and conclusions of law to the district court.”); Heller Ehrman LLP v. Arnold & Porter, LLP (In re Heller Ehrman LLP), 2011 WL 4542512, at *3, 2011 Bankr.LEXIS 3764, at *9 (Bankr.N.D.Cal. Sept. 28, 2011) (“It is clear from [ Stern ] ... that the bankruptcy court there should have treated the matter before it as non-core and adhered to the proposed findings procedure in Section 157(c)(1) and Fed. R. Bankr.P. 9033.”). The one bankruptcy judge who initially determined that he could not submit proposed findings and conclusions in a core proceeding reversed his decision and held that Stern v. Marshall does not deprive bankruptcy courts of subject matter jurisdiction. See Samson v. Western Capital Partners LLC (In re Blixseth), 2011 WL 6217416, 2011 Bankr.LEXIS 4887 (Bankr.D.Mont. Dec. 14, 2011). ¹ And the United States District Court for the Southern District of New York issued an Amended Standing Order of Reference on January 31, 2012 to provide that the district court can treat any order of the bankruptcy court as proposed findings and conclusions of law in the event the district court concludes that the bankruptcy judge constitutionally could not have entered a final order or judgment. Amended Standing Order of Reference, 12–MISC–00032 (S.D.N.Y. Jan. 31, 2012), available at http:// www. nysd. uscourts. gov/ courtrules. php. The amended standing order recognizes the utility of the procedure for core and non-core proceedings alike.

Permitting a bankruptcy court to submit proposed findings of facts and conclusions of law in these circumstances also comports with Supreme Court precedent that a court should refrain from invalidating more of a statute than is necessary. See, e.g., Ayotte v. Planned Parenthood of Northern New England, 546 U.S. 320, 328–29, 126 S.Ct. 961, 163 L.Ed.2d 812 (2006); Alaska Airlines, Inc. v. Brock, 480 U.S. 678, 684, 107 S.Ct. 1476, 94 L.Ed.2d 661 (1987). If the bankruptcy court could not issue proposed findings to the district court in a matter that Congress has unconstitutionally designated as a core proceeding, additional provisions of the statutory scheme would become meaningless. More than a “division of labor” would be implicated, and Chief Justice Roberts' narrow holding would expand exponentially. This Court concludes that, notwithstanding the Seventh Circuit's comment in its remand decision, it is procedurally appropriate to submit the following proposed findings of fact and conclusions of law to the District Court for de novo review.

B. Motion to Withdraw the Reference

Alternatively, if the District Court is disinclined to follow this procedure, the Court respectfully requests that the District Court withdraw the reference of these cases pursuant to 28...