In re BP RE, LP, 735 F.3d 279 (5th Cir. 2013)
In re BP RE, LP, 735 F.3d 279 (5th Cir. 2013): 5th Circuit rules parties CANNOT consent to jurisdiction in bankruptcy court, where there is no jurisdiciton in bankruptcy court. Chapter 11 Debtor’s Consent to Jurisdiction Cannot Cure Bankruptcy Court’s Lack of Jurisdiction to Enter Final Judgment. [In re BP RE, LP (5th Cir. 2013).] The Fifth Circuit has held that a Chapter 11 debtor’s consent to the jurisdiction of a bankruptcy court cannot cure the court’s lack of jurisdiction to enter a final judgment under Article III of the Constitution.
Facts: A Chapter 11 debtor asserted common-law claims against a non-debtor defendant. Following a bench trial in the bankruptcy court, a final judgment was entered against the debtor. The debtor appealed, and the district court affirmed. The debtor then appealed to the Fifth Circuit, arguing that the bankruptcy court lacked constitutional authority to enter a final judgment.
Reasoning: On appeal, the prevailing defendant argued that the debtor had consented to the bankruptcy court’s jurisdiction. But the circuit court vacated and remanded the case, holding that since the bankruptcy court lacked jurisdiction under Article III of the Constitution, the parties’ consent was insufficient to cure that defect. The court noted a split of authority among the circuits on this issue.
Comment: The conflict is not only among the circuits – it is even within one of the circuits (the Seventh). Compare Peterson v. Somers Dublin Ltd., 729 F.3d 741 (7th Cir. 2013) (holding that consent can cure the jurisdictional problem) with Wellness Intern. Network, Ltd. v. Sharif, 727 F.3d 751 (7th Cir. 2013) (holding to the contrary). The Supreme Court will soon clear this up for us, since certiorari was granted in In re Bellingham Ins. Agency, Inc., 702 F.3d 553 (9th Cir. 2012), cert. granted sub nom. Executive Benefits Ins. Agency v. Arkison, 133 S.Ct. 2880 (2013).
Even though I believe that this entire jurisdictional charade is a complete waste of time (since the bankruptcy courts will simply issue their “reports,” to be rubberstamped by the district courts), I predict that the Supreme Court’s opinion in Bellingham will spell the end of “Article III jurisdiction by consent.” Note that in Stern v. Marshall, 131 S. Ct. 2594, 180 L. Ed. 2d 475 (2011), the non-bankrupt litigant filed a claim in the bankruptcy, certainly consenting to the adjudication of that claim. Nevertheless, the Supreme Court held that this consent did not extend to a claim asserted by the estate against him.
For a discussion of Peterson, see 2013-38 Comm. Fin. News. NL 78, Parties’ Express Consent Confers Jurisdiction Upon Bankruptcy Court, Despite Contrary Ruling By Another Panel of Same Circuit.
For a discussion of Wellness, see 2013-33 Comm. Fin. News. NL 69, Debtor’s Objection to Bankruptcy Court’s Constitutional Authority to Enter Final Judgment Cannot Be Waived.
For a discussion of Bellingham, see 2012 Comm. Fin. News. 100, Although Bankruptcy Courts Lack Jurisdiction to Hear and Determine Fraudulent Transfer Claims, They May Issue Reports and Recommendations, and Defendant May Waive Objection to Lack of Jurisdiction.
For a discussion of Stern, see 2011 Comm. Fin. News. 51, Statutory Power of Bankruptcy Courts to Hear and Determine Compulsory State-Law Counterclaims Against Non-Bankrupt Claimants is Unconstitutional.
This analysis was published by the California State Bar Business Law Section’s INSOLVENCY LAW COMMITTEE 12/13