On June 24, 2013, the US Supreme Court granted certiorari to consider an appeal of the decision of the Ninth Circuit Court of Appeals in Executive Benefits Insurance Agency v. Peter H. Arkison, Trustee, solely in his capacity as Chapter 7 Trustee of the Estate of Bellingham Insurance Agency, Inc. (Bellingham). In Bellingham, interpreting Stern v. Marshall, the Ninth Circuit held that, notwithstanding a constitutional limitation against entry of a final judgment by a bankruptcy judge in a fraudulent conveyance action against a non-creditor, a defendant may nonetheless consent to entry of a final judgment by a bankruptcy judge. The defendant, Executive Benefits Insurance Agency, was found to have consented by waiving its “personal right” to Article III adjudication. This implied consent resulted from the failure of EBIA to raise the necessary constitutional objection before the Ninth Circuit. The Bellingham decision is in direct conflict with the 2012 decision of the Sixth Circuit Court of Appeals in Waldman v. Stone, which held that a defendant cannot waive the constitutional right to Article III adjudication.
Reversal of the Ninth Circuit decision in Bellingham would cause severe adverse ramifications to the bankruptcy system and likely also render the Bankruptcy Appellate Panel (BAP) system, used in five Circuits, unconstitutional. In collaboration with Professor Ralph Brubaker of the University of Illinois College of Law and Latham & Watkins, Squire Sanders is representing The American College of Bankruptcy (College) in its first-ever amicus brief in which it supports affirmance of the Bellingham decision. The College brief focuses primarily on the history of Supreme Court jurisprudence concerning Article III adjudication of summary and plenary matters in bankruptcy, well-recognized and time honored principles of litigant consent to non-Article III adjudication of otherwise constitutionally mandated Article III matters and the practical implications on the bankruptcy system and other non-Article III tribunals (such as the BAP and US Magistrates) if litigant consent is not upheld.