While EBIA's appeal was pending, the Court issued its decision in Stern. Based on Stern, EBIA moved to dismiss its appeal in the Ninth Circuit for lack of jurisdiction, arguing that Article III did not permit Congress to vest authority in the Bankruptcy Court to finally decide Arkison's fraudulent conveyance claims. The Ninth Circuit denied EBIA's motion and affirmed the District Court. The Ninth Circuit reasoned that Article III does not permit a bankruptcy court to enter final judgment on a Stern claim unless the parties consent, but that EBIA had impliedly consented to the Bankruptcy Court's jurisdiction, allowing the Bankruptcy Court to enter final judgment on the fraudulent conveyance claims. In the alternative, the Ninth Circuit also observed that the Bankruptcy Court's judgment could be treated as proposed findings of fact and conclusions of law, subject to de novo review by the District Court.
Justice Thomas began his decision by providing a brief history of the jurisdiction of bankruptcy courts, examining the periods prior to and following the enactment of the Bankruptcy Code in 1978. Eventually, Justice Thomas reached section 157 of title 28 of the United States Code, the current statute governing the jurisdiction of the bankruptcy courts, and the distinction between "core" and "non-core" claim that the statute creates. Justice Thomas explained the distinction as follows:
If a matter is core, the statute empowers the bankruptcy judge to enter final judgment on the claim, subject to appellate review by the district court. If a matter is non-core, and the parties have not consented to final adjudication by the bankruptcy court, the bankruptcy judge must propose findings of fact and conclusions of law. Then, the district court must review the proceeding de novo and enter final judgment.
The Court rejected the notion that Stern created a gap in the jurisdiction of the bankruptcy courts, one that "renders the bankruptcy courts powerless to act on Stern claims." Rather, the Court determined that "[t]he statute permits Stern claims to proceed as non-core within the meaning of §157(c)," finding that the severability provision of section 151 of title 28 closed the gap, if any, created by Stern claims. Importantly, the Court also found that the procedural posture of this case cured any constitutional deficiencies, as the District Court indeed reviewed the Bankruptcy Court's decision de novo and entered final judgment, affording EBIA the Article III protections that the Court's decision makes clear it was entitled to receive.
Unfortunately, the Court declined to address the arguably more interesting of whether litigants can consent to bankruptcy courts entering final judgments on Stern claims. In a footnote, the Court admits that its decision in this case will likely not be the final word in the Stern saga:
Because we conclude that EBIA received the de novo review and entry of judgment to which it claims constitutional entitlement, this case does not require us to address whether EBIA in fact consented to the Bankruptcy Court's adjudication of a Stern claim and whether Article III permits a bankruptcy court, with the consent of the parties, to enter final judgment on a Stern claim. We reserve that question for another day.