June 11, 2015 Practice Points

In Wellness International, SCOTUS Approves Consent

Article III of the U.S. Constitution is not violated when bankruptcy courts decide matters with the knowing and voluntary consent of the litigants.

By Landon S. Raiford

On May 26, 2015, the United States Supreme Court ruled in Wellness International Network, Ltd. v. Shariff (No. 13-935) that Article III of the U.S. Constitution is not violated when bankruptcy courts decide matters with the knowing and voluntary consent of the litigants. The Supreme Court’s ruling in Wellness is its third decision in four years addressing the powers of bankruptcy court judges. The Court’s first decision, Stern v. Marshall, held that there are certain claims—claims that neither “stem from the bankruptcy itself”  nor “would necessarily be resolved in the claims allowance process”—that a bankruptcy court cannot constitutionally enter a final order on. After Stern, there was widespread uncertainty regarding whether litigants could cure that constitutional deficiency through their consent to a bankruptcy court adjudication. The Seventh Circuit held that the bankruptcy court, as a non-Article III court, lacked the constitutional authority to enter a final order on state law claims, and that the bankruptcy court could not rule, even if the parties consented to proceed in bankruptcy court. A majority of the Court rejected the argument that parties may not consent to bankruptcy court adjudications, holding that “Article III is not violated when the parties knowingly and voluntarily consent to adjudication by a bankruptcy judge.”

The Court went on to hold that litigant consent need not be express but may be implied through a litigant’s conduct; the only test for consent is whether it “knowing and voluntary.” Wellness would appear to have significance far beyond just the bankruptcy context as it not only confirms the broad powers of the bankruptcy courts but also confirms the authority of magistrate judges, whose power to enter final orders is even more dependent on notions of consent than is the power of bankruptcy courts, to enter final orders with litigant consent as well.

Landon S. Raiford – June 11, 2015