The Return of Stern v. Marshall

Circuit Court Rulings

In Waldman v. Stone (In re Stone), 698 F.3d 910 (6th Cir. 2012), the Sixth Circuit ruled that the structural principles advanced by Article III could not be waived and, as such, consent can no longer cure bankruptcy courts' Article III infirmity, thereby decreasing bankruptcy judges' authority to a point where it is weaker than that of pre Code referees. Further weakening the bankruptcy court's authority, the Sixth Circuit questioned and failed to resolve whether bankruptcy courts could issue proposed findings of facts and conclusions of law (“Proposed Findings”) in the new category created by Stern of “core” but unconstitutional. Prior to Stone, consent and the ability to treat bankruptcy courts' final orders as Proposed Findings was viewed as a panacea to the Article III concerns raised by Stern. This severely limits bankruptcy courts' ability to address claims under 11 U.S.C ” 5 44, 547 and 548, which until Stone comprised a significant portion of bankruptcy courts' workload.

Adding to the uncertainty, in Technical Automation Services Corp. v. Liberty Surplus Ins. Corp., 673 F.3d 399, 401 (5th Cir. 2012), the Fifth Circuit determined that Stern does not prevent magistrates from entering final orders on common law causes of action with consent, but avoided making this determination regarding bankruptcy judges. Stone and Technical create uncertainty in other circuits that have not addressed Stern. These holdings have engendered the attitude of “If the bankruptcy courts can't decide claims we should close up shop and go home.” http://blogs.abi.org/node/10258 (quoting Professor Klee).'

In contrast, in In re Bellingham Ins. Agency, 702 F.3d 553 (9th Cir. 2012), the Ninth Circuit reassured practitioners that consent is alive and well. See In re Quigley Co., Inc., 676 F.3d 45 (2nd. Cir. 2012) emphasizing Stern's limited application and bankruptcy courts' historical jurisdiction and, as such, supporting bankruptcy courts' authority to issue a final order with consent. See also In re Oldco M Corp., 484 B.R. 598, 609 (Bankr.S.D.N.Y., 2012). Stone does not accurately reflect the law in the Second Circuit and Stern does not overrule the binding Second Circuit precedent of In re Men's Sportswear, Inc., 834 F. 2d 1134 (2d Cir. 1987), which states that express or implied consent allows entry of final judgment by a bankruptcy judge.

Waldman v. Stone

In this case, Waldman fraudulently acquired the business assets of Stone and a secured claim against him. Stone, as an individual Chapter 11 debtor, brought an adversary proceeding seeking disallowance of Waldman's secured claim (the Disallowance Claims), and sought' affirmative relief enforcing promises that Waldman made to' obtain his assets (the Affirmative Claims). The bankruptcy court ruled in Stone's favor with respect to both the Disallowance and Affirmative Claims.

On appeal, Waldman argued that the bankruptcy judge [as an Article I judge] lacked Constitutional authority to enter a final judgment on the Affirmative and Disallowance Claims. Stone and the United States, as amicus curiae, argued that Waldman implicitly consented to the bankruptcy court's jurisdiction by failing to object in the lower courts. The Sixth Circuit ruled that Waldman's Constitutional objection implicates not only his personal rights, but also the structural principle advanced by Article III, “which is not Waldman's to waive.” Stone, 698 F.3d 910, at 920. “To the extent that Congress can shift the judicial Power to judges without [Article III] protections, the Judicial Branch is weaker and less independent than it is supposed to be.” Id.'

The Sixth Circuit observed that the Affirmative Claims arose exclusively under state law and existed without regard to any bankruptcy proceeding and, as such, did not implicate public rights, which if present, would have provided a Constitutional basis for an Article I court to enter a final order. Thus, the Sixth Circuit found that the bankruptcy court's entry of a final order on the Affirmative Claims violated Article III.

However, the Sixth Circuit affirmed the bankruptcy court's final order on the Disallowance Claim, finding that it was consistent with Article III. Waldman was not required to, and did not, file a proof of claim for his secured claim. See, e.g., Katchen v. Landy, 382 U.S. 323 (1966); Langenkamp v. Culp, 498 U.S. 42 (1990) (filing a proof of claim provides bankruptcy courts authority over creditors' claims). Even absent a proof of claim, the Sixth Circuit found that the determination of the Disallowance Claim was integral to the claims resolution process and intimated that the determination of claims is a public right. Id. at 920. Further, the Sixth Circuit concluded that “Stern ' [does] not require the bankruptcy courts to abandon this power, which they have exercised for more than two centuries.” Id. at 921. Thus, Stone prevents secured claimants who did not file a proof of claim from arguing that Stern prevents the bankruptcy courts from entering final judgments on their claims.

As the final coup de grace, the Sixth Court raised and failed to resolve whether the bankruptcy courts have the jurisdiction to issue Proposed Findings in core proceeding. “In core proceedings, however, ' 157(b)(1) authorizes the bankruptcy court to 'enter appropriate orders and judgments,' not to propose them ' one might argue that ' Congress's grant of the greater power to enter final judgments implies a lesser authority to propose them.” Id. Prior to Stone, the overwhelming sentiment was that “it would be absurd to conclude that the bankruptcy courts are deprived of jurisdiction over matters designated by Congress as core when ' Congress gave jurisdiction ' in noncore matters.” Refco, 461 B.R. 181, 193 (Bankr. 2011). Avoiding this issue, the Sixth Circuit determined that the parties' stipulation that the matter was core could not strip the bankruptcy court's jurisdiction, and the Affirmative Claims “are just ordinary [non-core] state-law claims for fraud” for which ' 157(c) explicitly authorizes Proposed Findings. Id. at 922.

Under Stone, bankruptcy courts can no longer enter final orders and may not even be able to issue Proposed Findings for core but unconstitutional matters (including many actions to enlarge the bankruptcy estate under ” 544, 547 and 548). Even under the Bankruptcy Act of 1898, bankruptcy referees (pre-Code bankruptcy judges) could adjudicate certain matters with “consent of the defendant when the bankrupt could have brought them in another forum in the absence of the bankruptcy proceedings” In re Marshall, 600 F.3d 1037, 1050 (9th Cir. 2010). Thus, Stone shrinks bankruptcy judges' authority/jurisdiction to less than that enjoyed by referees.

Stone and its progeny render impotent the proposed Bankruptcy Rules and adopted amended standing orders, which rely on consent and jurisdiction. The proposed Bankruptcy Rules 7008 and 7012 include “whether [the party] consents to entry of final orders or judgment by the bankruptcy court.” This will do little to overcome the “structural principle advanced by Article III [approach]” championed by Stone. In the same vein, the amended orders of reference adopted to address the uncertainty generated by Stern include the stipulation that “the district court may treat any order of the bankruptcy court as proposed findings of facts and conclusions of law if entry of that order was not consistent with Article III.” Amended Standing Order of Reference for the Southern District of New York dated Jan. 31, 2012 (Preska C.J.). This will accomplish little if bankruptcy courts lack the jurisdiction to enter Proposed Findings.

In re Bellingham Ins. Agency

In Bellingham, the Chapter 7 trustee filed a complaint to recover a fraudulent conveyance from Executive Benefits Insurance Agency (EBIA), a non-creditor. The bankruptcy court granted summary judgment in favor of the Trustee. While EBIA's appeal was pending before the Ninth Circuit, Stern was decided. EBIA opportunistically invoked Stern, arguing that the Bankruptcy Court's entry of the final order on the fraudulent conveyance action violated Article III.

The Ninth Circuit ruled that the “[f]raudulent conveyance claim at issue ' does not fall within any of the varied formulations of the public rights exception.” Bellingham, 702 F.3d 553, 562. However, the Ninth Circuit also readily concluded that “' 157(c)(2) expressly provides that bankruptcy courts may enter final judgments in non-core proceedings with the consent … it surely permits the same judge to decide a core proceeding in which he would, absent consent, be disentitled to enter final judgment.” Id. Furthermore, the Ninth Circuit reasoned that consent permits magistrates, whose authority is similarly derived from Article I, to enter final judgments.

The Ninth Circuit ruled that EBIA consented to the bankruptcy court's jurisdiction because it waited so long to object and because of the litigation tactics it employed, EBIA abandoned its motion to withdraw the reference.

Thus, Bellingham reinforces the efficacy of consent and that fraudulent conveyance actions do not fall within the public rights exception.

Consent Revisited?

Consent plays a critical role in bankruptcy jurisprudence. Scholars have often criticized the bankruptcy system for manufacturing consent and condoning consent by ambush. Bankruptcy Judge Francis Conrad colorfully stated, “someone who goes into the burrow of a skunk looking for something ' and they get sprayed, ' it's the same equivalent of filing a proof of claim. Well, once you get sprayed by the skunk the only way you can get rid of it is usually with tomato juice.” In re Seatrain Lines, Inc., 198 B.R. 45, 48-49 (S.D.N.Y. 1996).

In contrast, Stern noted that “the notion of “consent” does not apply in bankruptcy proceedings as it might in other contexts” and appeared to supply some tomato juice. Stern 131 S.Ct. at 2615. “Pierce did not truly consent to resolution of Vickie's [Anna Nicole Smith's] claim in the bankruptcy court proceedings. He had nowhere else to go if he wished to recover from Vickie's estate.” Id. at 2614. “[Stern] erodes the viability of the practice of imposing bankruptcy court jurisdiction by ambush.” Professor Kenneth N. Klee on the Supreme Court's Holding in Stern v. Marshall, 2011 U.S. LEXIS 4791 (2011).

The Ninth Circuit maintained the pre-Stern notion of consent in finding that EBIA consented to the bankruptcy court's authority. While Stern was not decided until EBIA's appeal was pending, the Ninth Circuit found that its decision in Stern, which was ultimately overturned, alerted EBIA to bankruptcy courts' infirmity regarding resolution of fraudulent conveyance actions. Furthermore, EBIA's motion to withdraw the reference demonstrated familiarity with Granfinanciera, SA v. Nordberg, 492 US 33, 50, 109 S.Ct. 2782, 106 L.Ed.2d 26 (1989), which foreshadowed Stern. While neither of these cases explicitly addressed fraudulent conveyance actions, the Bankruptcy Code unequivocally authorizes bankruptcy courts to enter final orders.

Technical Automation Services

The Fifth Circuit addressed whether Stern affected its en banc precedent authorizing a magistrate to enter a final judgment with consent on common law causes of action in Technical Automation Services Corp. v. Liberty Surplus Ins. Corp., 673 F.3d 399 (5th Cir. 2012). The Fifth Circuit noted that “the similarities between bankruptcy judges and magistrate judges suggest that the Court's analysis in Stern could be extended.” Id. at 407. Rather than decide whether Stern permits all Article I judges to enter final orders with consent, the Fifth Circuit addressed the limited question regarding its en banc precedent. Technical Automation found that Stern does not expressly overrule the precedent and neither does it overrule that precedent sub silentio.

Technical Automation can be interpreted as supporting bankruptcy courts' authority to enter final orders with consent. It noted: 1) the similarities between the bankruptcy judges and magistrates' jurisdiction; and 2) the Supreme Court's repeated emphasis on Stern's limited application. However, its avoidance of addressing bankruptcy courts' authority is troubling and may well indicate that the Fifth Circuit views magistrates and bankruptcy judges as sufficiently distinguishable.

Conclusion

Stern has created a jurisdictional quagmire ' like my morning bus ' the only certainty is its uncertainty. Prior to Stone, the authority of bankruptcy courts to enter a final order with consent was unquestioned. Until the Supreme Court defines the precise contours of Stern, practitioners must be vigilant: Final orders or even proposed orders entered by bankruptcy judges may be treated by a higher court, including the Supreme Court, as inconsistent with Article III.

The split among the circuits emphasizes the importance of venue selection. A debtor that seeks the efficiency and speed of a bankruptcy court may wish to avoid the Sixth Circuit where the circuit court has even questioned the bankruptcy court's ability to issue Proposed Findings. A circuit court that broadly interprets Stern increases attorneys' incentives to challenge the bankruptcy court's jurisdiction and authority. Because of this, the Ninth and the Second Circuits may well be more attractive options. Further, debtors may well be frightened away from circuit courts that have avoided making determinations regarding Stern. See, e.g., In re Houghton Mifflin Harcourt Pub. Co., 474 B.R. 122, 134 (Bankr.S.D.N.Y. 2012) (regarding the importance of predictability and certainty).'

Nevertheless, the bankruptcy courts in the Sixth Circuit are still open for business and, it appears, the bankruptcy world as we know it has not ended. It should also be noted that significantly, while Stone addressed waiver, it did not explicitly address consent. A cogent argument can be made that explicit consent empowers a bankruptcy judge to issue a final order. Thus, counsel, under appropriate circumstances, should seek explicit consent. Additionally, in districts that have not adopted Amended Standing Orders, incorporating language in bankruptcy and district courts' orders that treat the bankruptcy courts' orders as “Proposed Findings” will limit the uncertainty created by Stern.

Yitzhak Greenberg is currently practicing bankruptcy law in New York. He can be reached at [email protected].

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“[A] maelstrom of opinions and articles has been written about the scope of Stern, ranging in tone from 'much ado about nothing' to 'the end of the bankruptcy world as we know it.'” In re BankUnited Fin. Corp., 462 B.R. 885 (Bankr. S.D. Fla. 2011).

These predictions have both come to fruition, most notably in the split between the Sixth and Ninth Circuits regarding whether consent can authorize bankruptcy courts to enter final orders in proceedings that would otherwise be the exclusive province of Article III Courts. In Stern v. Marshall , 131 S.Ct. 2594, 2608 (2011), the Supreme Court concluded that “Congress, in one isolated respect [in granting authority to Bankruptcy Judges to enter judgment on all counterclaims], exceeded [Article III's] limitation in the Bankruptcy Act of 1984.” However, Stern's broad rationale regarding bankruptcy courts' infirmity as Article I courts has lead certain courts, to broadly construe the holding and greatly limit bankruptcy courts' authority.

This article analyzes the impact of Stern on bankruptcy courts' jurisdiction and authority, focusing on the recent circuit rulings regarding consent. The article concludes with strategies to address the uncertainty created by Stern and these recent decisions.

Circuit Court Rulings

In Waldman v. Stone (In re Stone), 698 F.3d 910 (6th Cir. 2012), the Sixth Circuit ruled that the structural principles advanced by Article III could not be waived and, as such, consent can no longer cure bankruptcy courts' Article III infirmity, thereby decreasing bankruptcy judges' authority to a point where it is weaker than that of pre Code referees. Further weakening the bankruptcy court's authority, the Sixth Circuit questioned and failed to resolve whether bankruptcy courts could issue proposed findings of facts and conclusions of law (“Proposed Findings”) in the new category created by Stern of “core” but unconstitutional. Prior to Stone, consent and the ability to treat bankruptcy courts' final orders as Proposed Findings was viewed as a panacea to the Article III concerns raised by Stern. This severely limits bankruptcy courts' ability to address claims under 11 U.S.C ” 5 44, 547 and 548, which until Stone comprised a significant portion of bankruptcy courts' workload.

Adding to the uncertainty, in Technical Automation Services Corp. v. Liberty Surplus Ins. Corp. , 673 F.3d 399, 401 (5th Cir. 2012), the Fifth Circuit determined that Stern does not prevent magistrates from entering final orders on common law causes of action with consent, but avoided making this determination regarding bankruptcy judges. Stone and Technical create uncertainty in other circuits that have not addressed Stern. These holdings have engendered the attitude of “If the bankruptcy courts can't decide claims we should close up shop and go home.” http://blogs.abi.org/node/10258 (quoting Professor Klee).'

In contrast, in In re Bellingham Ins. Agency, 702 F.3d 553 (9th Cir. 2012), the Ninth Circuit reassured practitioners that consent is alive and well. See In re Quigley Co., Inc., 676 F.3d 45 (2nd. Cir. 2012) emphasizing Stern's limited application and bankruptcy courts' historical jurisdiction and, as such, supporting bankruptcy courts' authority to issue a final order with consent. See also In re Oldco M Corp., 484 B.R. 598, 609 (Bankr.S.D.N.Y., 2012). Stone does not accurately reflect the law in the Second Circuit and Stern does not overrule the binding Second Circuit precedent of In re Men's Sportswear, Inc., 834 F. 2d 1134 (2d Cir. 1987), which states that express or implied consent allows entry of final judgment by a bankruptcy judge.

Waldman v. Stone

In this case, Waldman fraudulently acquired the business assets of Stone and a secured claim against him. Stone, as an individual Chapter 11 debtor, brought an adversary proceeding seeking disallowance of Waldman's secured claim (the Disallowance Claims), and sought' affirmative relief enforcing promises that Waldman made to' obtain his assets (the Affirmative Claims). The bankruptcy court ruled in Stone's favor with respect to both the Disallowance and Affirmative Claims.

On appeal, Waldman argued that the bankruptcy judge [as an Article I judge] lacked Constitutional authority to enter a final judgment on the Affirmative and Disallowance Claims. Stone and the United States, as amicus curiae, argued that Waldman implicitly consented to the bankruptcy court's jurisdiction by failing to object in the lower courts. The Sixth Circuit ruled that Waldman's Constitutional objection implicates not only his personal rights, but also the structural principle advanced by Article III, “which is not Waldman's to waive.” Stone, 698 F.3d 910, at 920. “To the extent that Congress can shift the judicial Power to judges without [Article III] protections, the Judicial Branch is weaker and less independent than it is supposed to be.” Id.'

The Sixth Circuit observed that the Affirmative Claims arose exclusively under state law and existed without regard to any bankruptcy proceeding and, as such, did not implicate public rights, which if present, would have provided a Constitutional basis for an Article I court to enter a final order. Thus, the Sixth Circuit found that the bankruptcy court's entry of a final order on the Affirmative Claims violated Article III.

However, the Sixth Circuit affirmed the bankruptcy court's final order on the Disallowance Claim, finding that it was consistent with Article III. Waldman was not required to, and did not, file a proof of claim for his secured claim. See, e.g., Katchen v. Landy , 382 U.S. 323 (1966); Langenkamp v. Culp , 498 U.S. 42 (1990) (filing a proof of claim provides bankruptcy courts authority over creditors' claims). Even absent a proof of claim, the Sixth Circuit found that the determination of the Disallowance Claim was integral to the claims resolution process and intimated that the determination of claims is a public right. Id. at 920. Further, the Sixth Circuit concluded that “Stern ' [does] not require the bankruptcy courts to abandon this power, which they have exercised for more than two centuries.” Id. at 921. Thus, Stone prevents secured claimants who did not file a proof of claim from arguing that Stern prevents the bankruptcy courts from entering final judgments on their claims.

As the final coup de grace, the Sixth Court raised and failed to resolve whether the bankruptcy courts have the jurisdiction to issue Proposed Findings in core proceeding. “In core proceedings, however, ' 157(b)(1) authorizes the bankruptcy court to 'enter appropriate orders and judgments,' not to propose them ' one might argue that ' Congress's grant of the greater power to enter final judgments implies a lesser authority to propose them.” Id. Prior to Stone, the overwhelming sentiment was that “it would be absurd to conclude that the bankruptcy courts are deprived of jurisdiction over matters designated by Congress as core when ' Congress gave jurisdiction ' in noncore matters.” Refco, 461 B.R. 181, 193 (Bankr. 2011). Avoiding this issue, the Sixth Circuit determined that the parties' stipulation that the matter was core could not strip the bankruptcy court's jurisdiction, and the Affirmative Claims “are just ordinary [non-core] state-law claims for fraud” for which ' 157(c) explicitly authorizes Proposed Findings. Id. at 922.

Under Stone, bankruptcy courts can no longer enter final orders and may not even be able to issue Proposed Findings for core but unconstitutional matters (including many actions to enlarge the bankruptcy estate under ” 544, 547 and 548). Even under the Bankruptcy Act of 1898, bankruptcy referees (pre-Code bankruptcy judges) could adjudicate certain matters with “consent of the defendant when the bankrupt could have brought them in another forum in the absence of the bankruptcy proceedings” In re Marshall, 600 F.3d 1037, 1050 (9th Cir. 2010). Thus, Stone shrinks bankruptcy judges' authority/jurisdiction to less than that enjoyed by referees.

Stone and its progeny render impotent the proposed Bankruptcy Rules and adopted amended standing orders, which rely on consent and jurisdiction. The proposed Bankruptcy Rules 7008 and 7012 include “whether [the party] consents to entry of final orders or judgment by the bankruptcy court.” This will do little to overcome the “structural principle advanced by Article III [approach]” championed by Stone. In the same vein, the amended orders of reference adopted to address the uncertainty generated by Stern include the stipulation that “the district court may treat any order of the bankruptcy court as proposed findings of facts and conclusions of law if entry of that order was not consistent with Article III.” Amended Standing Order of Reference for the Southern District of New York dated Jan. 31, 2012 (Preska C.J.). This will accomplish little if bankruptcy courts lack the jurisdiction to enter Proposed Findings.

In re Bellingham Ins. Agency

In Bellingham, the Chapter 7 trustee filed a complaint to recover a fraudulent conveyance from Executive Benefits Insurance Agency (EBIA), a non-creditor. The bankruptcy court granted summary judgment in favor of the Trustee. While EBIA's appeal was pending before the Ninth Circuit, Stern was decided. EBIA opportunistically invoked Stern, arguing that the Bankruptcy Court's entry of the final order on the fraudulent conveyance action violated Article III.

The Ninth Circuit ruled that the “[f]raudulent conveyance claim at issue ' does not fall within any of the varied formulations of the public rights exception.” Bellingham, 702 F.3d 553, 562. However, the Ninth Circuit also readily concluded that “' 157(c)(2) expressly provides that bankruptcy courts may enter final judgments in non-core proceedings with the consent … it surely permits the same judge to decide a core proceeding in which he would, absent consent, be disentitled to enter final judgment.” Id. Furthermore, the Ninth Circuit reasoned that consent permits magistrates, whose authority is similarly derived from Article I, to enter final judgments.

The Ninth Circuit ruled that EBIA consented to the bankruptcy court's jurisdiction because it waited so long to object and because of the litigation tactics it employed, EBIA abandoned its motion to withdraw the reference.

Thus, Bellingham reinforces the efficacy of consent and that fraudulent conveyance actions do not fall within the public rights exception.

Consent Revisited?

Consent plays a critical role in bankruptcy jurisprudence. Scholars have often criticized the bankruptcy system for manufacturing consent and condoning consent by ambush. Bankruptcy Judge Francis Conrad colorfully stated, “someone who goes into the burrow of a skunk looking for something ' and they get sprayed, ' it's the same equivalent of filing a proof of claim. Well, once you get sprayed by the skunk the only way you can get rid of it is usually with tomato juice.” In re Seatrain Lines, Inc., 198 B.R. 45, 48-49 (S.D.N.Y. 1996).

In contrast, Stern noted that “the notion of “consent” does not apply in bankruptcy proceedings as it might in other contexts” and appeared to supply some tomato juice. Stern 131 S.Ct. at 2615. “Pierce did not truly consent to resolution of Vickie's [Anna Nicole Smith's] claim in the bankruptcy court proceedings. He had nowhere else to go if he wished to recover from Vickie's estate.” Id. at 2614. “[Stern] erodes the viability of the practice of imposing bankruptcy court jurisdiction by ambush.” Professor Kenneth N. Klee on the Supreme Court's Holding in Stern v. Marshall, 2011 U.S. LEXIS 4791 (2011).

The Ninth Circuit maintained the pre-Stern notion of consent in finding that EBIA consented to the bankruptcy court's authority. While Stern was not decided until EBIA's appeal was pending, the Ninth Circuit found that its decision in Stern, which was ultimately overturned, alerted EBIA to bankruptcy courts' infirmity regarding resolution of fraudulent conveyance actions. Furthermore, EBIA's motion to withdraw the reference demonstrated familiarity with Granfinanciera, SA v. Nordberg, 492 US 33, 50, 109 S.Ct. 2782, 106 L.Ed.2d 26 (1989), which foreshadowed Stern . While neither of these cases explicitly addressed fraudulent conveyance actions, the Bankruptcy Code unequivocally authorizes bankruptcy courts to enter final orders.

Technical Automation Services

The Fifth Circuit addressed whether Stern affected its en banc precedent authorizing a magistrate to enter a final judgment with consent on common law causes of action in Technical Automation Services Corp. v. Liberty Surplus Ins. Corp., 673 F.3d 399 (5th Cir. 2012). The Fifth Circuit noted that “the similarities between bankruptcy judges and magistrate judges suggest that the Court's analysis in Stern could be extended.” Id. at 407. Rather than decide whether Stern permits all Article I judges to enter final orders with consent, the Fifth Circuit addressed the limited question regarding its en banc precedent. Technical Automation found that Stern does not expressly overrule the precedent and neither does it overrule that precedent sub silentio.

Technical Automation can be interpreted as supporting bankruptcy courts' authority to enter final orders with consent. It noted: 1) the similarities between the bankruptcy judges and magistrates' jurisdiction; and 2) the Supreme Court's repeated emphasis on Stern's limited application. However, its avoidance of addressing bankruptcy courts' authority is troubling and may well indicate that the Fifth Circuit views magistrates and bankruptcy judges as sufficiently distinguishable.

Conclusion

Stern has created a jurisdictional quagmire ' like my morning bus ' the only certainty is its uncertainty. Prior to Stone, the authority of bankruptcy courts to enter a final order with consent was unquestioned. Until the Supreme Court defines the precise contours of Stern, practitioners must be vigilant: Final orders or even proposed orders entered by bankruptcy judges may be treated by a higher court, including the Supreme Court, as inconsistent with Article III.

The split among the circuits emphasizes the importance of venue selection. A debtor that seeks the efficiency and speed of a bankruptcy court may wish to avoid the Sixth Circuit where the circuit court has even questioned the bankruptcy court's ability to issue Proposed Findings. A circuit court that broadly interprets Stern increases attorneys' incentives to challenge the bankruptcy court's jurisdiction and authority. Because of this, the Ninth and the Second Circuits may well be more attractive options. Further, debtors may well be frightened away from circuit courts that have avoided making determinations regarding Stern. See, e.g., In re Houghton Mifflin Harcourt Pub. Co., 474 B.R. 122, 134 (Bankr.S.D.N.Y. 2012) (regarding the importance of predictability and certainty).'

Nevertheless, the bankruptcy courts in the Sixth Circuit are still open for business and, it appears, the bankruptcy world as we know it has not ended. It should also be noted that significantly, while Stone addressed waiver, it did not explicitly address consent. A cogent argument can be made that explicit consent empowers a bankruptcy judge to issue a final order. Thus, counsel, under appropriate circumstances, should seek explicit consent. Additionally, in districts that have not adopted Amended Standing Orders, incorporating language in bankruptcy and district courts' orders that treat the bankruptcy courts' orders as “Proposed Findings” will limit the uncertainty created by Stern.

Yitzhak Greenberg is currently practicing bankruptcy law in New York. He can be reached at [email protected].

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