On June 23, 2011, the US Supreme Court issued a narrowly-divided decision in Stern v. Marshall, limiting Bankruptcy Court jurisdiction over certain types of claims. The Court found that while the Bankruptcy Court was statutorily authorized to enter final judgment on a tortious interference counterclaim (as a core proceeding under 28 U.S.C. § 157(b)(2)(C)), it was not constitutionally authorized to do so.
The United States Supreme Court recently ruled in Stern v. Marshall1 that a bankruptcy court lacks constitutional authority to render a final judgment on a bankruptcy estate’s counterclaim against a creditor based on state common law, despite an express statutory grant of jurisdiction. This ruling is the most significant decision regarding bankruptcy court jurisdiction since the Court’s 1982 decision in Northern Pipeline v. Marathon2 and it could significantly affect the administration of bankruptcy cases.
Root of the Constitutional Problem
The United States District Court for the Central District of California has granted motions by eight directors and officers liability insurers to withdraw the reference to the bankruptcy court of two coverage actions involving coverage for claims against former directors and officers of a bank holding company. In re IndyMac Bancorp, Inc., Nos. CV11-02600; CV11-02605; CV11-02950; CV11-02988 (C.D. Cal. May 17, 2011). Wiley Rein LLP represents an excess insurer and the primary Side A insurer in the litigation.
On December 17, 2010, in In re Settlement Facility Dow Corning Trust (6th Cir., Case Nos. 09-1827/1830, Dec.
“How was I supposed to know that something wasn’t right here … Show me how you want it to be. Tell me baby ‘cause I need to know now…” – Britney Spears
Earlier this year, the United States Court of Appeals for the Eleventh Circuit decided in In re Lett that objections to a bankruptcy court’s approval of a cram-down chapter 11 plan on the basis of noncompliance with the “absolute priority rule” may be raised for the first time on appeal. The Eleventh Circuit ruled that “[a] bankruptcy court has an independent obligation to ensure that a proposed plan complies with [the] absolute priority rule before ‘cramming’ that plan down upon dissenting creditor classes,” whether or not stakeholders “formally” object on that basis.
The United States District Court for the Central District of California has granted motions by eight directors and officers liability insurers to withdraw the reference to the bankruptcy court of two coverage actions involving coverage for claims against former directors and officers of a bank holding company. In re IndyMac Bancorp, Inc., Nos. CV11-02600; CV11-02605; CV11-02950; CV11-02988 (C.D. Cal. May 17, 2011). Wiley Rein LLP represents an excess insurer and the primary Side A insurer in the litigation.
REDMOND v. FIFTH THIRD BANK (October 20, 2010)
IN RE: AIRADIGM COMMUNICATIONS, INC. (August 4, 2010)
On June 23, 2011, the US Supreme Court issued a narrowly-divided decision in Stern v. Marshall, limiting Bankruptcy Court jurisdiction over certain types of claims. The Court found that while the Bankruptcy Court was statutorily authorized to enter final judgment on a tortious interference counterclaim (as a core proceeding under 28 U.S.C. § 157(b)(2)(C)), it was not constitutionally authorized to do so.