September 17, 2014 Articles

The High Court Closes the Statutory Gap in Bankruptcy Procedure

The Court's ruling reaches the result that lower courts consistently arrived at prior to Stern v. Marshall.

By Catherine Steege and Melissa Root

On June 9, 2014, in its opinion in Executive Benefits Insurance Agency v. Arkison, the Supreme Court answered one of the most important questions left unanswered by its decision in Stern v. Marshall, 131 S. Ct. 2594 (2011): whether bankruptcy courts can recommend proposed findings of fact and conclusions of law in matters that were denominated as core under 28 U.S.C. § 157(b)(2) while, following Stern, the bankruptcy court lacked the constitutional authority to enter a final judgment order.

The argument that bankruptcy courts could not do so went as follows: (1) 28 U.S.C. § 157(c)(1), which authorizes bankruptcy courts to recommend findings and conclusions, applies only to “a proceeding that is not a core proceeding, but is otherwise related to a case under title 11” (emphasis added); (2) a matter that is statutorily defined as core (even if outside the bankruptcy court’s constitutional authority to decide) cannot be a non-core related matter; and (3) therefore, there is no basis in the statute for a bankruptcy court to recommend a ruling. Thus, proponents of the argument contended that there was a “statutory gap” or “dead zone” in the statute where the bankruptcy court lacked the statutory authority to do anything.

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