Wellness International Network v. Sharif
Issues
1. Do bankruptcy courts have constitutional authority to make a final judgment on state law claims?
2. May a bankruptcy court resolve claims otherwise outside its jurisdiction so long as the litigants consent expressly or impliedly?
This case presents the Supreme Court with an opportunity to clarify the constitutionality of the allocation of power between federal district courts and bankruptcy courts, as well as an opportunity to clarify the role of the Stern v. Sullivan decision in this power struggle. The parties first dispute the extent of a bankruptcy court’s authority to decide a state law issue, namely one based on an alter ego theory. On the one hand, Wellness contends that an alter ego claim should not be distinguished from the necessary process in any bankruptcy filing of determining which of the debtor’s assets are available to the creditor. Sharif disagrees and believes that adjudicating an alter ego claim is a common law claim, i.e., not a core bankruptcy proceeding, and therefore is exclusively within the jurisdiction of an Article III court. The parties also dispute whether, notwithstanding the outcome of the preceding issue, a party can consent to the bankruptcy court adjudicating an alter ego claim. Wellness believes the right to Article III adjudication here protects personal interests and is therefore subject to waiver by litigants. By contrast, Sharif characterizes this as a separation of powers (i.e., structural) issue that may not be waived.
Questions as Framed for the Court by the Parties
1. Whether the presence of a subsidiary state property law issue in a 11 U.S.C. § 541 action brought against a debtor to determine whether property in the debtor's possession is property of the bankruptcy estate means that such action does not “stem[] from the bankruptcy itself” and therefore, that a bankruptcy court does not have the constitutional authority to enter a final order deciding that action.
2. Whether Article III permits the bankruptcy courts to exercise the judicial power of the United States over claims against a debtor where the debtor has consented to the exercise of such judicial power by voluntarily filing for bankruptcy relief.
In addition, this case also presents the two questions currently before the Court in Executive Benefits Insurance Agency v. Arkison, 133 S. Ct. 2880 (2013) (No. 12-1200). Because of the procedural posture of Executive Benefits-there the district court reviewed the bankruptcy court's summary judgment order de novo-it is possible that the Court may conclude that no constitutional violation occurred and thus, not reach the issues on which certiorari was granted. In such event, this case presents the opportunity to address those questions, about which there is also a split among the circuits:
3. Whether Article III permits the exercise of the judicial power of the United States by the bankruptcy courts on the basis of litigant consent, and if so, whether implied consent based on a litigant’s conduct is sufficient to satisfy Article III.
4. Whether bankruptcy courts have the statutory authority to submit proposed findings of fact and conclusions of law for de novo review by a district court in a “core” proceeding under 28 U.S.C. § 157(b).
The facts of this case stem from a “decade-long saga” involving Richard Sharif, the debtor, and Wellness International Network, Ltd., (“Wellness”), the creditor. See Wellness Int’l Network, Ltd. v. Sharif, 727 F.3d 751, 754 (7th Cir. 2013).
Edited by
Additional Resources
• Supreme Court to Reconsider Authority of Bankruptcy Judges, The Knowledge Effect (July 22, 2014).
• Jeff Elkin: Wellness International Network v. Sharif: A Return to a Formalist Reading of Article III?, The Legislation & Policy Blog (Oct. 29, 2014).