Consent to Jurisdiction for Non-Core Issues Allowed in Bankruptcy Proceedings

In a case decided on May 26, 2015 the United States Supreme Court decided that parties can consent to Bankruptcy Court jurisdiction on non-core issues. This is a key decision affecting the rights of parties in bankruptcy proceedings. The case is Wellness International Network, Ltd., et al. vs Sharif, 575 U.S. ____ (2015).

Here are the circumstances that led to this decision.

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Sharif filed for chapter 7 in the Northern District of Illinois. Prior to the filing, Sharif and Wellness International were engaged in contentious litigation in which Wellness sought to collect on a judgment against Sharif. Subsequent to the entry of a judgment against Sharif in the District Court, Sharif filed for chapter 7 bankruptcy protection. Wellness filed an adversary proceeding containing in part an objection to Sharif’s discharge. In his answer to this adversary proceeding, Sharif conceded that the matter was a core proceeding. The contentious litigation continued in the bankruptcy court forum and the bankruptcy court subsequently issued a ruling denying Sharif a discharge. Sharif appealed to the District Court, which affirmed the bankruptcy court’s findings. Before the District Court issued its decision, but after briefing was concluded, the Supreme Court issued its decision inStern vs. Marshall, 564 U.S. 2 (2011). Sharif sought permission of the District Court to file a supplemental brief. This was denied as untimely by the District Court and affirmed the Bankruptcy Court’s decision. Sharif then appealed to the 7th Circuit Court of Appeals which affirmed the District Court in part and reversed in part on the basis of division of authority between the district courts and the bankruptcy courts. In short, the 7th Circuit determined that Sharif’s Stern objection could not be waived and that the non-core proceeding could not be heard by the bankruptcy court.

The Supreme Court granted certiorari and arguments were presented in January, 2015.

In a split opinion, the Supreme Court held that bankruptcy courts are not prohibited from hearing and making determinations regarding non-core proceedings if the parties consent or waive objection. Article III of the United States Constitution does not prohibit bankruptcy judges from determining non-core proceedings if the parties agree or waive consent. Parties may waive their objection to the bankruptcy court hearing non-core proceedings such as in Stern. However, such consent must be knowing and voluntary but does not need to be express. Consent can be implied as well. The key question for courts to review is whether the litigant’s consent, whether it is express or implied, is knowing and voluntary. The Majority Opinion points out that Bankruptcy Judges are appointed by Article III judges and may be removed by them and hear matters by reference by the District Courts. Therefore it was apparent that the District Courts intended for bankruptcy courts to hear matters as delegated. The Court then remanded the case to the 7th Circuit for a decision on whether Sharif knowingly and voluntarily consented to the bankruptcy court’s jurisdiction.

This document is intended for informational purposes only and is not legal advice or a substitute for consultation with a licensed legal professional in a particular case or circumstance.