This morning, the Supreme Court issued its decision in the much-anticipated Wellness International Network, Ltd. v. Sharif.  And finally, the various opinions of the Court have offered some meaningful guidance on some of the key issues raised in the wake of Stern v. Marshall.  Although the majority opinion did not directly address the first question before the Court – that of whether actions implicating state law property matters under the ambit of section 541 of the Bankruptcy Code are “Stern-type” claims or ordinary “core” claims – it did resolve the current circuit split regarding whether bankruptcy courts’ constitutional deficiencies pursuant to Stern can be cured with the parties’ consent. (Short answer: yes). 

A more complete analysis will follow tomorrow, but given the breaking news, we wanted to bring the decision to your attention ASAP.  For complete coverage of Stern, Arkison, Wellness, and their progeny, please visit the Stern Files, available here.

So What Do I Need to Know?

  • A majority of the Court held that bankruptcy courts may enter final judgments on Stern claims with the parties’ knowing and voluntary consent. That consent need not be express, but may be inferred from the parties’ conduct.
  • Justice Alito joined on the first part – namely, that bankruptcy judges may enter final judgments on Stern claims with the parties’ consent – but declined to agree with the majority that such consent may be inferred by the parties’ conduct, and that it must instead be express.
  • Chief Justice Roberts, joined by Justice Scalia (and Justice Thomas, in part), wrote a lengthy dissent, in which he noted that he would have said that the matters at issue in Wellness were not Stern claims, but were instead core claims within the bankruptcy courts’ final adjudicatory authority. However, he wrote a vigorous decision in favor of separation of powers, arguing that litigants’ consent cannot cure constitutional deficiencies or otherwise alter the balance of powers among the branches of the federal government.
  • Justice Thomas, taking a step back, wrote that the other eight justices had ignored a critical question – whether the Constitution is actually violated by the adjudication of Stern claims in bankruptcy courts with the parties’ consent. Rather than examine whether consent can cure such a constitutional violation, Justice Thomas would have the Court and the litigants devote more meaningful analysis to whether the parties’ consent can prevent a prima facie violation of the Constitution where bankruptcy courts enter a final judgment on Stern.

Tune in tomorrow for our complete coverage!