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fraudulent transfers

Executive Benefits Insurance Agency v. Arkison

Issues

Does Article III of the Constitution permit bankruptcy courts to enter final judgments in “core” proceedings as defined in 28 U.S.C. § 157(b)? If not, can bankruptcy courts exercise jurisdiction over litigants through their “implied consent”?

In 2011, the Supreme Court held in Stern v. Marshall that bankruptcy courts are constitutionally barred from granting final judgments on certain “core” state law claims. Since then, lower courts have tried to determine the scope of the holding, which addresses bankruptcy courts’ ability, as non-Article III courts, to preside over issues traditionally considered to be core bankruptcy issues. Petitioner, Executive Benefits Insurance Agency, (“EBIA”) was a third party to a bankruptcy proceeding. The bankruptcy court found that the debtor in the proceeding had fraudulently transferred $373,291.28 to EBIA before filing for Chapter 7 bankruptcy. The bankruptcy trustee, Arkison, sued EBIA to recover those funds, and the bankruptcy court granted a judgment against EBIA. EBIA appealed and invoked Stern v. Marshall, claiming that the bankruptcy court could not enter a final judgment on a fraudulent transfer claim. The district court and Ninth Circuit affirmed the bankruptcy court, reasoning that EBIA had impliedly consented to the bankruptcy court’s jurisdiction. The Supreme Court’s ruling in this case will clarify the limits of Stern v. Marshall and define “core” bankruptcy proceeding. The Court will also determine what kind of consent is necessary for bankruptcy courts to have jurisdiction over claims requiring adjudication by Article III judges. 

Questions as Framed for the Court by the Parties

In Stern v. Marshall, 131 S. Ct. 2594 (2011), this Court held that Article III of the United States Constitution precludes Congress from assigning certain “core” bankruptcy proceedings involving private state law rights to adjudication by non-Article III bankruptcy judges. Applying Stern, the court of appeals for the Ninth Circuit held that a fraudulent conveyance action is subject to Article III. The court further held, in conflict with the Sixth Circuit, that the Article III problem had been waived by petitioner’s litigation conduct, which the court of appeals construed as implied consent to entry of final judgment by the bankruptcy court. The court of appeals also held, in conflict with the Seventh Circuit, that a bankruptcy court may issue proposed findings of fact and conclusions of law, subject to a district court’s de novo review, in “core” bankruptcy proceedings where Article III precludes the bankruptcy court from entering final judgment. The court of appeals’ decision presents the following questions, about which there is considerable confusion in the lower courts in the wake of Stern: 

  1. Whether Article III permits the exercise of the judicial power of the United States by bankruptcy courts on the basis of litigant consent, and, if so, whether “implied consent” based on a litigant’s conduct, where the statutory scheme provides the litigant no notice that its consent is required, is sufficient to satisfy Article III.
  2. Whether a bankruptcy judge may 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). 

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Facts

Nicholas Paleveda and Marjorie Ewing, a married couple, operated a series of companies, including Aegis Retirement Income Services, Inc. (“ARIS”) and the Bellingham Insurance Agency, Inc. (“BIA”). See Exec. Benefits Ins. Agency v. Arkison (“EBIA”), 702 F.3d 553, 556 (9th Cir.

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United States v. Miller

Issues

Does 11 U.S.C. § 544(b) allow a trustee to avoid a transfer to the government, even when the government could not have been directly sued under nonbankruptcy law?

This case asks the Supreme Court to decide whether § 544(b) of the Bankruptcy Code allows a trustee to avoid a transfer to the government when the government could not have been directly sued under nonbankruptcy law. Section 106 abrogates sovereign immunity in certain bankruptcy claims, including § 544(b). Section 544 states that a trustee “may avoid any transfer of an interest of the debtor… that is voidable under applicable law,” which typically invokes state laws that fall outside of the purview of bankruptcy law. The Government argues that § 106 should be read narrowly, and that sovereign immunity is not waived when the actual creditor could not pursue an avoidance claim under the applicable state law due to sovereign immunity. Miller counters that the waiver of sovereign immunity in § 106 extends to the applicable law referenced in § 544. The outcome of this case has serious implications for the powers of trustees in bankruptcy cases and the power of the United States to waive sovereign immunity.  

Questions as Framed for the Court by the Parties

Whether a bankruptcy trustee may avoid a debtor’s tax payment to the United States under 11 U.S.C. § 544(b) when no actual creditor could have obtained relief under the applicable state fraudulent-transfer law outside of bankruptcy.

Chapter 7 bankruptcy proceedings allow for the liquidation of assets to pay off a debtor’s creditors. 11 U.S.C.

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