Bankruptcy Courts Empowered To Issue Proposed Findings of Fact and Conclusions of Law on Stern Claims

06.10.2014

On June 9, 2014, the United States Supreme Court issued Executive Benefits Insurance Agency v. Arkison, No. 12-1200 (Jun. 9, 2014), which expanded its holding in Stern v. Marshall, 131 S. Ct. 2594 (2011), and expressly permits Bankruptcy Courts to issue proposed findings of fact and conclusions of law on so-called “Stern claims.”  A “Stern claim” is a “claim designated for final adjudication in the bankruptcy court as a statutory matter, but prohibited from proceeding in that way as a constitutional matter.”  Exec. Benefits Ins. Agency, No. 12-1200, slip op. at 4.

Since the Stern decision in 2011, it was unclear whether a Bankruptcy Court had jurisdiction to determine core Stern claims.  Bankruptcy Courts are explicitly vested with the power to “hear and determine” and “enter appropriate orders and judgments” on core proceedings.  28 U.S.C. § 157(b)(1).  In contrast, with respect to non-core proceedings, unless the parties agree otherwise, Bankruptcy Courts are required to submit proposed findings of fact and conclusions of law for the district court’s de novo review.  Id. § 157(c)(1).  Thus, in the wake of Stern, because section 157(b) does not explicitly authorize the Bankruptcy Court to make proposed findings of fact and conclusions of law, it has been questioned whether the Bankruptcy Court has the power to act on Stern claims or whether the District Court must hear and determine them.

The Supreme Court’s holding yesterday provides that Stern claims may be heard and determined as non-core proceedings.  The Court found that the severability provision in section 157(c) allowed for any Stern claim to be treated as a non-core proceeding.  As such, the Bankruptcy Court “should hear the proceeding and submit proposed findings of fact and conclusions of law to the district court for de novo review and entry of judgment.”  Exec. Benefits Ins. Agency, No. 12-1200, slip op. at 10.

Takeaway:  Although this decision confirms that Bankruptcy Courts may issue proposed findings of fact and conclusions of law with respect to Stern claims, that does not significantly change practice, as many District and Bankruptcy Courts imposed similar procedures in response to the Stern decision.  Rather, more importantly, the Supreme Court declined to address whether parties may, expressly or impliedly, consent to a final judgment on a Stern claim by the Bankruptcy Court.  Id. at 4 n.4.  Thus, it remains unclear whether parties may, through explicit agreement or through silence, agree to allow the Bankruptcy Court to issue a final decision on a Stern claim.