Summary:
Not quite half-way through this exhaustive opinion, the bankruptcy court, in discussing Stern v. Marshall, states that "[t]he facts of Stern are interesting but not particularly helpful to the task before this Court." Similarly, the facts here are interesting but not particularly helpful to the task of summarizing and digesting this case, largely because the opinion addresses so many variations that a complete, item by item summary would be no shorter than the actual case.
The generally holding by the bankruptcy court is that Stern provides for a two-prong test: "the question is whether the action at issue stems from the bankruptcy itself or would necessarily be resolved in the claims allowance process." Stern, 131 S.Ct. at 2618. If either the action stems from the bankruptcy itself or would be resolved in the claims process, then the bankruptcy court has constitutional authority to enter a final order. Conversely, neither prong applies, the bankruptcy court lacks constitutional authority to enter final judgment and may only submit proposed findings of fact and conclusions of law to the district court.
In the present case, the bankruptcy court in some of the claims/causes of action found that even though the question of whether the Debtor was in default is a state law claim and di
d not stem from the bankruptcy itself, because the creditor had filed a Proof of Claim in the case, it was necessary to resolve such questions in determining whether to allow or disallow the claim. Accordingly, the second prong of the Stern test was met and the bankruptcy court could enter final judgment. (This authority to enter final judgment was strengthened by the consent of all parties.)
Other claims/causes of action asserted in this case, however, were against third parties, for example related to personal guaranties. Even though those third parties had filed claims in the bankruptcy, those filed claims were unrelated to the asserted guaranty and failed both prongs of the Stern test. That notwithstanding, the bankruptcy court found that it still had authority to issue proposed findings of fact and conclusions of law regarding such claims/causes of action.
For a copy of the opinion, please see:
Freeway Foods- Application of Stern v. Marshall.PDF
Blog comments