High Court Backs Power|of Bankruptcy Judges

WASHINGTON (CN) - Though bankruptcy courts cannot resolve fraudulent conveyance claims, the findings of one such judge were properly upheld, the Supreme Court ruled Monday.

The case at hand involves the Chapter 7 bankruptcy in 2006 of Bellingham Insurance Agency.

Bellingham's trustee, Peter Arkison, in turn claimed that Bellingham's owners had fraudulently conveyed corporate assets to the successor corporation, Executive Benefits Insurance Agency.

A bankruptcy judge in Seattle ultimately slapped Executive Benefits with a $373,000 final judgment, and a federal judge affirmed after a de novo review, meaning that he checked for legal error.

Executive Benefits challenged the finding by asking whether the U.S. Constitution actually barred the bankruptcy judge entering final judgment on the trustee's claims.

As Executive Benefits appealed, the Supreme Court was considering bankruptcy issues involved in the estate of Vicki Lynn Marshall, the late Playboy model more popularly known as Anna Nicole Smith. The court's 2011 decision in Stern v. Marshall said that Article III of the U.S. Constitution prohibits bankruptcy courts from finally adjudicating certain bankruptcy-related claims.

Executive Benefits contended that the fraudulent conveyance claim against it was so prohibited, but a three-judge panel of the 9th Circuit affirmed in 2012.

The appellate panel said Executive Benefits had consented to the bankruptcy court's jurisdiction by failing to timely object. Furthermore the bankruptcy court's judgment could be treated as proposed findings of fact, which the District Court properly assessed via de novo review, the court found.

The Supreme Court granted Executive Benefits a writ of certiorari last year and unanimously affirmed Monday.

"At bottom, EBIA argues that it was enti­tled to have an Article III court review de novo and enter judgment on the fraudulent conveyance claims asserted by the trustee," Justice Clarence Thomas wrote for the court, abbreviating the name of Executive Benefits. "In effect, EBIA received exactly that. The District Court conducted de novo review of the summary judgment claims, concluding in a written opinion that there were no disputed issues of material fact and that the trustee was entitled to judgment as a matter of law. In accordance with its statutory authority over matters related to the bankruptcy, the District Court then separately entered judgment in favor of the trustee. EBIA thus received the same review from the District Court that it would have received if the bankruptcy court had treated the fraudulent conveyance claims as non-core proceedings under §157(c)(1). In short, even if EBIA is correct that the bankruptcy court's entry of judgment was invalid, the District Court's de novo review and entry of its own valid final judgment cured any error."

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