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Bowles and Irving Analyze the United States Supreme Court’s Decision Bellingham in American Bankruptcy Institute’s Bankruptcy Brief

06.20.2014

Claude R. “Chip” Bowles and James R. Irving recently collaborated on one of the first analyses of the United States Supreme Court’s decision in Exec. Benefits Ins. Agency v. Arkinson (In re Bellingham Ins. Agency, Inc.), No. 12-1200, 2014 U.S. Lexis 3993, * 10-20 (June 9, 2014).  The 9-0 ruling on June 9, 2014, affirmed the decision by the United States Court of Appeals for the Ninth Circuit, but not on the grounds primarily used by the Court of Appeals.
 
According to Bowles and Irving, the Supreme Court’s decision effectively created a new class of bankruptcy jurisdiction, “Stern Claims,” and eliminated one of the major open questions left from the Supreme Court’s prior decision in Stern v. Marshall, 131 S. Ct. 2594 (2011).

About Bellingham

Bellingham Insurance Agency, Inc. had an arbitration award entered against them in 2005.  On February 6, 2006, the arbitrator finalized the award.  Three days later Bellingham ceased its operations and a new entity, Executive Benefit Insurance Agency, Inc., took over Bellingham’s assets and operations.  Later in 2006, Bellingham filed a voluntary chapter 7 bankruptcy petition with the United States Bankruptcy Court for the Western District of Washington.

A chapter 7 trustee was appointed, and in 2008 the trustee initiated an adversary proceeding seeking, among other things, to recover alleged fraudulent transfers made to Executive and other “insiders” of Bellingham.  The Bankruptcy Court entered an order for summary judgment in favor of the trustee.  Executive and certain other defendants appealed the order to the United States District Court for the Western District of Washington, however, that court affirmed the bankruptcy court’s decision.
 
Executive then appealed to the United States Court of Appeals for the Ninth Circuit.  As part of the appeal, Executive argued that the bankruptcy court lacked jurisdiction because the trustee’s claims fell within a jurisdictional gap cause by the Supreme Court’s decision in Stern.  Specifically, Executive argued that the although the trustee’s claims were statutorily “core” bankruptcy claims that the bankruptcy court had jurisdiction over, as a result of the Supreme Court’s decision in Stern the bankruptcy court did not have constitutional authority to enter final orders on the claims.  The Court of Appeals rejected this argument.  As an initial matter, it noted that even if the bankruptcy court lacked jurisdiction to enter a final order it had the power to submit proposed recommendations of findings of fact and conclusions of law to the district court.  However, the majority of the Court of Appeal’s decision concerned consent, ultimately finding that the bankruptcy court had jurisdiction because the parties consented to it.

Executive appealed again, and the Supreme Court granted its writ of certiorari.  The Supreme Court upheld the Court of Appeals decision, not on the grounds of consent, but solely on the ground that the “gap” claims created as a result of the Stern decision should be treated as “non-core” claims for which the bankruptcy court could submit proposed recommendations of findings of fact and conclusions of law to be reviewed de novo by the district court.

After multiple bankruptcy and lower court decisions and almost eight years later, Bowles and Irving concluded that the court’s decision does not resolve every issue raised by the Stern decision; however, the Supreme Court’s practical decision to treat Stern claims as de facto non-core claims eliminates a significant amount of jurisdictional uncertainty regarding “gap” claims.

To read the full analysis of the Bellingham case, please click here.

To learn more about James R.Irving and his practice, please visit his profile.

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