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Still Stern

posted by Stephen Lubben

The good news is that it's a nice (relatively) short opinion with no dissents or concurrences that require a map to understand.  The bad news is that it dodges all the interesting issues.

The Supreme Court's opinion in Executive Benefits Insurance Agency v. Arkison.


The statutory gap question wasn't nearly as interesting as the consent questions, but it's still pretty darn significant.

Agree completely with Mr. Wonk. Yes, the Court dodged the fun constitutional issue, but the opinion solved the "gap" problem that really had the knickers of bankruptcy judges in a twist.

Oh yes -- the bankruptcy system was left standing. That's something, too.

Most importantly, Executive Benefits closes the “ Gap” with “stern type” claims which shall now be treated as non-core proceedings and enjoy Article III & Seventh Amendment protection.
So, presumably, anti-successor liability injunctions issued against unsecured creditors against their consent, and in conjunction with a 363 sale are non-core injunctions.
That is, there is no other authority under the Bankruptcy Code to issue such injunctions except section 105, which must not be expanded beyond the Code’s core provisions.
The death knell tolls!

To build on the previous two comments, are the "interesting issues" still genuine issues (from a practical perspective)? Since the Bankruptcy Court has, in the alternative, issued proposed findings of fact and conclusions of law in each case to dodge the Stern issue, does it even matter whether or not they can issue final judgments?

Just a quick note for clarity: there is no "injunction" in the GM or any other 363 order regarding successor liability. The question is simply whether such claims are interests in property that are subject to 363(f).

Bankruptcy Student: It matters a great deal. If the bankruptcy court can only issue proposed findings of fact and conclusions of law, the district court always has work to do because it always has to review the proposed findings and conclusions and then enter judgment. In essence, the same work has to be done twice by two different judges. If the bankruptcy court can enter judgment itself, on the other hand, it's possible (even likely, in consumer cases) that the loser won't appeal, and the district court won't be bothered. It only takes a little experience with the actual workings of actual trial courts to discover that judicial economy is important.

A separate point. Note that academics like Prof. Lubben find Arkison a disappointment because the Court avoided the sexy constitutional issue, whereas those of us who labor in the bankruptcy vineyards are pleased with the decision because the Court solved an actual problem affecting the work of bankruptcy courts. That's in no way a criticism of law professors. It is interesting, though, to observe the understandably different reactions to Arkison from different constituencies in the legal community.

If successor liability claims against the buyer are interests subject to 363(f) then don't those claims deserve/require adequate protection (or consent otherwise) once enjoined by the bankruptcy court?

Bankruptcy Judge: It is not clear how the Court "solved an actual problem" when the actual problem is impermissible transfer of article III business [fraudulent conveyance disputes] to non-article III auxiliary officers and that issue has been postponed for some other day. In this case, the Supreme Court acted as the biggest fact finder: they wanted de-novo review and they got it! This case did not deal with the actual problem, it dealt and concluded with the complaining party for a right of denovo review. Unfortunately, they could have pressed for both to start with--right to an article III adjudication and a denovo trial and NOT a denovo review as in Crowell v. Benson.

The opinion solves the problem of what to do in so-called "gap" cases. In some circuits, notably the Seventh, bankruptcy courts had been told they could do nothing with a statutorily core but constitutionally non-core claim, not even issue proposed findings and conclusions. That problem, at least, has disappeared with the Arkison decision: the gap has been filled. So the reference no longer has to be withdrawn in every "gap" situation.

You may conceive of the problem as something else, and there are certainly plenty of problems left where bankruptcy jurisdiction is concerned. One of them, the problem that Arkison didn't address, involves consent, specifically whether consent to a bankruptcy court's entry of final judgment is sufficient for purposes of Stern. But for now, at least one genuine problem is out of the way.

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