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Stern Warnings from the Ninth Circuit

posted by John Pottow

The Ninth Circuit handed down Executive Benefits Insurance v. Arkinson today. [I want to call it "Bellingham Insurance," or "EBIA," but I leave to the Blogosphere to decide.]  It jumped in as a circuit court opining that bankruptcy judges lack the constitutional authority to enter final judgments in fraudulent conveyance actions (yes, federal ones under section 548 of the Code) -- at least as pled against "strangers" to the estate -- and at least if those strangers' claims are not "inextricably intertwined" with the claims resolution process (or whatever test was gleaned from Stern).

But before the Article I Haters Club celebrates too heartily, I should point out that the entire disquisition, illuminating as it is, is obiter dictum.  This is because the court also held the appellant waived its constitutional argument, and because a "Stern" claim is not a subject-matter jurisdiction issue, it is fully waivable (technically, "consentable" through implied consent through conduct).  Thus, the appellant waived the very objection on which the court superfluously opined.

I don't mind dictum here and there, but it's odd that the Ninth Circuit didn't acknowledge its ruminations were such, especially when in the course of the opinion it dropped a FN to the Seventh Circuit's Ortiz opinion (with which it rightly disagreed) and reminded that that court's Stern discussion was dictum.

Still, dictum from a circuit court will surely make others take notice, especially those under its -- yes -- jurisdiction.  But I do feel compelled to play the role of party-pooper and call out the court for having fun by wandering into a constitutinal quagmire and playing around as a pure academic daliance.  (Isn't that what professors are supposed to do?!)


Mentions Waldman in a footnote, but doesn't discuss its waiver holding - which directly contradicts the Bellingham holding on waiver.

And Waldman doesn't talk about the earlier Stern case in the same circuit, Teleservices.

I think we've gotten so many Stern cases decided that the courts can't find the time to read all the opinions.

Agree with AMC, that there seems to be a clear conflict with Waldman and maybe this should go up on cert, or at least it makes an en banc request more worthy of being granted.

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