Thanks to Anna Nicole Smith and the June 2011 landmark Supreme Court decision in Stern v. Marshall, there are seemingly more questions regarding a bankruptcy judge’s authority to enter final orders (or even proposed orders) than ever before. Those unanswered questions have created considerable uncertainty and, not surprisingly, lengthier and costlier litigation in bankruptcy. Thankfully, the Supremes decided on June 24, 2013 that they will address two of the many questions left unanswered by Stern. (This is separate of course from the question of who would have ever thought we’d be talking about Anna Nicole Smith and Supreme Court precedent in the same sentence.)
Specifically, the Supreme Court will hear an appeal from the Ninth Circuit Court of Appeals (the same Court that brought the Stern issue to the Supremes in the first place) to address whether a bankruptcy court has authority to (i) submit proposed findings of fact and conclusions of law to the district court in “core” matters; and (ii) enter a final order based upon the parties’ express or implied consent. The Ninth Circuit Court of Appeals ruled in the affirmative on both of these issues.
There is no question that bankruptcy courts have authority, expressly granted by statute, to submit proposed findings of fact and conclusions of law to the district court for review in “non-core” matters. However, the same express statutory authority does not exist for “core” matters. This is understandably so because there is statutory authority allowing bankruptcy courts to enter final orders in “core matters”. At least that is what we all thought until Stern came along and told us that the statutory “core” designation does not equate to constitutional authority to enter final orders. The Supremes will now close the statutory gap and address whether a bankruptcy court has authority to issue proposed orders to the district court in “core” matters. The Supreme Court will likely conclude that bankruptcy courts can issue proposed orders in “core” matters if the Court agrees with the Ninth Circuit’s interpretation of Stern and Chief Justice Roberts’ comment that the issue in Stern was “a ‘narrow’ one”, the resolution of which should not meaningfully change the division of labor between bankruptcy courts and district courts.
The other issue the Supremes will address, whether the parties can consent to the entry of a final order, could considerably narrow the impact of Stern. The bankruptcy rules already require parties to indicate whether they consent to the entry of final orders in “non-core” matters, and several jurisdictions are proposing to implement local rules that would require the same in “core” matters. Therefore, if the Supreme Court finds that consent works, then parties’ ability to challenge a bankruptcy court’s authority would significantly diminish, thereby reducing the amount of litigation that has been created by Stern. Another related issue to be addressed by the Court is whether consent can be implied by a party’s actions (or inactions). Although a ruling on this issue may not significantly reduce bankruptcy litigation (because parties may still argue about whether their action or inaction in fact resulted in implied consent), it will at least resolve another one of the many questions remaining after Stern.