Right on the heels of the Frazin case, the Fifth Circuit has entered another opinion discussing Stern and whether parties can consent to the authority of the bankruptcy court to enter a final judgment.
The case is In re BP RE, L.P., 2013 WL 5975030 (Nov. 11, 2013). The case involved BP RE, L.P. (“BPRE”) which filed Chapter 11 in the Bankruptcy Court for the Western District of Texas, Waco Division. BPRE filed state-court tort and contract claims in the bankruptcy case against certain defendants related to the sale and lease of a car dealership. All parties agreed that the claims were non-core matters. Initially BPRE explicitly consented to jurisdiction of the bankruptcy court and demanded a jury trial. The defendants did not explicitly consent to jurisdiction, but throughout the litigation they did not dispute that they consented to jurisdiction. BPRE’s request for a jury trial was denied as untimely. This caused BPRE to change its tune on consent and argued that the district court should withdraw the reference. The district court denied the motion on the grounds of judicial economy. BPRE lost in the bankruptcy court and the district court affirmed. BPRE appealed to the Fifth Circuit on the merits, but also argued that the bankruptcy court had lacked constitutional authority to enter a final judgment as per Stern.
The Fifth Circuit held that the bankruptcy court had statutory authority to enter a final judgment on the non-core matter where the parties had consented (as per 28 U.S.C. s 157(c)(2)). But, the court went on to hold that the bankruptcy court lacked constitutional authority and that consent did not cure that issue. The court sided with the 6th Circuit decision Waldman v. Stone, 698 F.3d 910 (6th Cir. 2012) and disagreed with the 9th Circuit decisionExecutive Benefits Insurance Agency v. Arkison (In re Bellingham Insurance Agency, Inc.), 702 F.3d 553 (9th Cir. 2012). Recall that the Bellingham case is currently up before the Supreme Court this term.
The BPRE case is interesting because the court makes it clear that Stern was a “sweeping” decision, despite the Supreme Court’s statement that it was a “narrow” decision. The Fifth Circuit stated that constitutional rights can be waived in certain circumstances, but that these issues can’t be because the issue at stake is the attempted diminution of the judicial branch by the legislative branch, which makes the judicial branch “weaker and less independent that it is supposed to be.”
The Fifth Circuit did state that in non-core matters where the parties consent, the bankruptcy court can enter findings of fact and conclusions of law. The Fifth Circuit has not addressed the “statutory gap” issue which is whether a bankruptcy court can enter findings of fact and conclusions of law in a core matter where the court otherwise lacks constitutional authority (since 28 U.S.C. s 157(c)(2) only addresses non-core matters). That issue is also before the Supreme Court in Bellingham.