Wellness Int’l Network, Ltd. v. Sharif

Sharif tried to discharge a debt to Wellness in his Chapter 7 bankruptcy. Wellness argued that a trust Sharif claimed to administer was actually Sharif’s alter ego, and that its assets were part of his bankruptcy estate. The Bankruptcy Court entered default judgment against Sharif. While appeal was pending, but before briefing concluded, the Supreme Court held (Stern v. Marshall) that Article III forbids bankruptcy courts to enter final judgment on claims that seek only to “augment” the bankruptcy estate and would otherwise “exis[t] without regard to any bankruptcy proceeding.” The district court denied Sharif permission to file a supplemental brief and affirmed. The Seventh Circuit determined that Sharif’s “Stern” objection could not be waived and reversed, holding that the Bankruptcy Court lacked constitutional authority to enter judgment on the alter ego claim. The Supreme Court reversed. Article III permits bankruptcy judges to adjudicate Stern claims with the parties’ knowing and voluntary consent. The right to adjudication before an Article III court is “personal” and “subject to waiver,” unless Article III’s structural interests as “an inseparable element of the constitutional system of checks and balances” are implicated; parties “cannot by consent cure the constitutional difficulty.” Allowing bankruptcy courts to decide Stern claims by consent does not usurp the constitutional prerogatives of Article III courts. Bankruptcy judges are appointed and may be removed by Article III judges, hear matters solely on a district court’s reference, and possess no free-floating authority to decide claims traditionally heard by Article III courts. Consent to adjudication by a bankruptcy court need not be express, but must be knowing and voluntary. The Seventh Circuit should decide on remand whether Sharif’s actions evinced the requisite knowing and voluntary consent and whether Sharif forfeited his Stern argument. View "Wellness Int’l Network, Ltd. v. Sharif" on Justia Law