On June 9, 2014, in Executive Benefits Insurance Agency v. Arkison (In re Bellingham Insurance Agency, Inc.),1 a much-anticipated decision, the Supreme Court addressed how bankruptcy courts should adjudicate so-called Stern claims. Stern claims are “core” claims over which bankruptcy courts have statutory authority to enter orders and judgments,2 but which authority the Supreme Court previously held in Stern v. Marshall3 was not permitted (at least with respect to certain issues) under Article III of the United States Constitution.

In Executive Benefits Insurance Agency v. Arkison, Chapter 7 Trustee of Estate of Bellingham Insurance Agency, Inc., — U.S. — (June 9, 2014) (Bellingham), the Supreme Court shed light on how bankruptcy judges must proceed when confronted with claims that they cannot finally adjudicate as non-Article III judges.  

The health of the healthcare industry can be summarized as follows: as go federal reimbursement rates, so goes the financial viability of healthcare providers, whether hospitals, nursing homes or medical practices.

The First Circuit held in a recent decision that bankruptcy courts have wide discretion to apply a flexible approach when valuing (and potentially re-valuing) collateral for purposes of determining whether a secured creditor is oversecured and therefore entitled to receive postpetition interest pursuant to section 506(b) of the Bankruptcy Code.   

Absolute Priority has regularly covered the impact of the Supreme Court’s decision in Stern v. Marshall on the world of bankruptcy litigation.  In Stern, the Supreme Court held that Article III of the United States Constitution prohibits bankruptcy courts from finally adjudicating certain “core” causes of action (often called “Stern claims”), notwithstanding Congress’s explicit grant of such power to the bankruptcy court.

The U.S. Supreme Court resolved a split among the circuits, holding that assets in non-spousal inherited individual retirement accounts are not exempt or protected from claims of the heir’s creditors. Clark v. Rameker, 573 U.S. ___ (2014) (No. 13-299; June 12, 2014).

“Inherited” IRAs hold funds from persons who established Individual Retirement Accounts for their own use and died before depleting the funds in those accounts. The U.S. Supreme Court affirmed the judgment by the Seventh Circuit Court of Appeals {In re Clark, 714 F.3d 559 (7th Cir. 2013)}.

Readers may recall that, according to at least one bankruptcy court, chapter 9 debtors are not required to obtain bankruptcy court approval of compromises and settlements.

On June 12, 2014, the U.S. Supreme Court issued its decision in Clark v. Rameker, 537 U.S. __ (2014), resolving a difference between federal circuit courts on the issue of whether an inherited IRA is excluded from the bankruptcy estate under section 522(b)(3)(C) of the federal Bankruptcy Code, which exempts retirement funds from the bankruptcy estate. Recall that an inherited IRA is one that has come to a beneficiary by reason of surviving the participant whose retirement funds had been amassed during their lifetime for their own retirement.

On June 12, 2014, the Supreme Court held that assets of an “inherited IRA” are not exempt from the IRA holder’s bankruptcy estate and are subject to the claims of creditors in bankruptcy. (Clark v. Rameker, Sup. Ct. Slip Op. No. 13-299, affirming In re Clark, 714 F.3d 559 (7th Cir. 2013). In Clark, the petitioner, Heidi Heffron-Clark, inherited an IRA worth approximately $450,000. The IRA was originally established by the petitioner’s mother as a traditional IRA and became an inherited IRA upon her death in 2001.

As bankruptcy practitioners will recall, the Supreme Court held in Stern v. Marshall, 564 U.S., 131 S.Ct. 2594, 2620 (2011) that bankruptcy courts, as non-Article III courts, “lack[] the constitutional authority to enter a final judgment on a state law counterclaim that is not resolved in the process of ruling on a creditor’s proof of claim,” even though Congress had classified these types of proceedings as core – and thus authorized federal bankruptcy courts to hear and decide them.