Wellness Int'l Network, Ltd. v. Sharif, No. 13–935.

• Court: United States Supreme Court
• Writing for the Court: Justice SOTOMAYOR delivered the opinion of the Court.
• Citation: 575 U.S. 665,135 S.Ct. 1932,191 L.Ed.2d 911
• Parties: WELLNESS INTERNATIONAL NETWORK, LTD., et al., Petitioners v. Richard SHARIF.
• Docket Number: No. 13–935.
• Decision Date: 26 May 2015

575 U.S. 665
135 S.Ct. 1932
191 L.Ed.2d 911

WELLNESS INTERNATIONAL NETWORK, LTD., et al., Petitioners
v.
Richard SHARIF.

No. 13–935.

Supreme Court of the United States

Argued Jan. 14, 2015.
Decided May 26, 2015.

Catherine Steege, Chicago, IL, for Petitioners.

Jonathan D. Hacker, Washington, D.C., for Respondent.

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

Matthew S. Hellman, Ishan K. Bhabha, Jenner & Block LLP, Washington, D.C., Catherine Steege, Counsel of Record, Barry Levenstam, Melissa M. Hinds, Landon Raiford, Jenner & Block LLP, Chicago, IL, G. Michael Gruber, Michael J. Lang, Gruber Hurst, Johansen Hail Shank, Dallas, TX, John A.E. Pottow, Ann Arbor, MI, for Petitioners.

Ben H. Logan, O'Melveny & Myers LLP, Los Angeles, CA, Anton Metlitsky, O'Melveny & Myers LLP, New York, NY, Jonathan D. Hacker, Counsel of Record, Peter Friedman, Deanna M. Rice, Rakesh Kilaru, O'Melveny & Myers LLP, Washington, D.C., for Respondent.

Justice SOTOMAYOR delivered the opinion of the Court.

575 U.S. 668

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, 2609, 180 L.Ed.2d 475 (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

575 U.S. 669

Congress' efforts to align the responsibilities of non- Article III judges 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 adjudication by a bankruptcy judge.

I

A

Before 1978, district courts typically delegated bankruptcy proceedings to "referees." Executive Benefits Ins. Agency v. Arkison, 573 U.S. ––––, ––––, 134 S.Ct. 2165, 2170, 189 L.Ed.2d 83 (2014). Under the Bankruptcy Act of 1898, bankruptcy referees had "[s]ummary jurisdiction" over "claims involving ‘property in the actual or constructive possession of the bankruptcy court’ "—that is, over the apportionment of the bankruptcy estate among creditors. Ibid. (alteration omitted). They could preside over other proceedings—matters implicating the court's "plenary jurisdiction"—by consent. Id., at ––––, 134 S.Ct., at 2170 ; see also MacDonald v. Plymouth County Trust Co., 286 U.S. 263, 266–267, 52 S.Ct. 505, 76 L.Ed. 1093 (1932).

In 1978, Congress enacted the Bankruptcy Reform Act, which repealed the 1898 Act and gave the newly created bankruptcy courts power "much broader than that exercised under the former referee system." Northern Pipeline, 458 U.S., at 54, 102 S.Ct. 2858. The Act "[e]liminat[ed] the distinction between ‘summary’ and ‘plenary’ jurisdiction" and enabled bankruptcy

575 U.S. 670

courts to decide " all ‘civil proceedings arising under title 11 [the Bankruptcy title] or arising in or related to cases under title 11.’ " Ibid. (emphasis deleted). Congress thus vested bankruptcy judges with most of the " ‘powers of a court of equity, law, and admiralty,’ " id., at 55, 102 S.Ct. 2858 without affording them the benefits of Article III. This Court therefore held parts of the system unconstitutional in Northern Pipeline .

Congress responded by enacting the Bankruptcy Amendments and Federal Judgeship Act of 1984. Under that Act, district courts have original jurisdiction over bankruptcy cases and related proceedings. 28 U.S.C. §§ 1334(a), (b). But "[e]ach district court may provide that any or all" bankruptcy cases and related proceedings "shall be referred to the bankruptcy judges for the district." § 157(a). Bankruptcy judges are "judicial officers of the United States district court," appointed to 14–year terms by the courts of appeals, and subject to removal for cause. §§ 152(a)(1), (e). "The district court may withdraw" a reference to the bankruptcy court "on its own motion or on timely motion of any party, for cause shown." § 157(d).

135 S.Ct. 1940

When a district court refers a case to a bankruptcy judge, that judge's statutory authority depends on whether Congress has classified the matter as a "[c]ore proceedin[g]" or a "[n]on-core proceedin [g]," §§ 157(b)(2), (4) —much as the authority of bankruptcy referees, before the 1978 Act, depended on whether the proceeding was "summary" or "plenary." Congress identified as "[c]ore" a nonexclusive list of 16 types of proceedings, § 157(b)(2), in which it thought bankruptcy courts could constitutionally enter judgment.³ Congress gave bankruptcy courts the power to "hear and determine" core proceedings and to "enter appropriate orders and judgments," subject to appellate review by the district court.

575 U.S. 671

§ 157(b)(1) ; see § 158. But it gave bankruptcy courts more limited authority in non-core proceedings: They may "hear and determine" such proceedings, and "enter appropriate orders and judgments," only "with the consent of all the parties to the proceeding." § 157(c)(2). Absent consent, bankruptcy courts in non-core proceedings may only "submit proposed findings of fact and conclusions of law," which the district courts review de novo . § 157(c)(1).

B

Petitioner Wellness International Network is a manufacturer of health and nutrition products.⁴ Wellness and respondent Sharif entered into a contract under which Sharif would distribute Wellness' products. The relationship quickly soured, and in 2005, Sharif sued Wellness in the United States District Court for the Northern District of Texas. Sharif repeatedly ignored Wellness' discovery requests and other litigation obligations, resulting in an entry of default judgment for Wellness. The District Court eventually sanctioned Sharif by awarding Wellness over $650,000 in attorney's fees. This case arises from Wellness' long-running—and so far unsuccessful—efforts to collect on that judgment.

In February 2009, Sharif filed for Chapter 7 bankruptcy in the Northern District of Illinois. The bankruptcy petition listed Wellness as a creditor. Wellness requested documents concerning Sharif's assets, which Sharif did not provide. Wellness later obtained a loan application Sharif had filed in 2002, listing more than $5 million in assets. When confronted, Sharif informed Wellness and the Chapter 7 trustee that he had lied on the loan application. The listed assets, Sharif claimed, were actually owned by the Soad Wattar Living Trust (Trust), an entity Sharif said he administered on behalf of his mother, and for the benefit of his sister.

575 U.S. 672

Wellness pressed Sharif for information on the Trust, but Sharif again failed to respond.

Wellness filed a five-count adversary complaint against Sharif in the Bankruptcy Court. See App. 5–22. Counts I–IV of the complaint objected to the discharge of Sharif's debts because, among other reasons, Sharif had concealed property by claiming that it was owned by the Trust. Count V of the complaint sought a declaratory judgment that the Trust was Sharif's alter ego and that its assets should therefore be treated as part of Sharif's bankruptcy estate. Id ., at 21. In his answer,

135 S.Ct. 1941

Sharif admitted that the adversary proceeding was a "core proceeding" under 28 U.S.C. § 157(b) —i.e., a proceeding in which the Bankruptcy Court could enter final judgment subject to appeal. See §§ 157(b)(1), (2)(J) ; App. 24. Indeed, Sharif requested judgment in his favor on all counts of Wellness' complaint and urged the Bankruptcy...