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Showing 18 posts in U.S. Supreme Court.

Supreme Court Applies its Stern Ruling and Issues a Narrow Decision Holding that Bankruptcy Courts Can Hear, But not Decide, “Stern Claims”

In 2011, the U.S. Supreme Court (the “Court”) issued its noteworthy decision in Stern v. Marshall,1 in which it held that bankruptcy courts lack the constitutional authority to enter a final judgment on a state law counterclaim that is not related to the bankruptcy proceeding. Since Stern, a number of cases have been published - at both the bankruptcy court and court of appeals levels - where Stern jurisdictional issues have been raised and adjudicated. We recently wrote about one on this blog.

The Court, itself, had a chance to consider the implications of Stern in the case of Executive Benefits Ins. Agency v. Arkinson.2 In a unanimous decision written by Justice Clarence Thomas, the Court ruled that where Article III of the U.S. Constitution does not permit a bankruptcy court to enter final judgment on a bankruptcy related claim, the bankruptcy court may issue proposed findings of fact and conclusions of law with respect to the claim, to be reviewed de novo by a federal district court.

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Categories: U.S. Supreme Court

Law Won

In Law v. Siegel, a case decided by the U.S. Supreme Court in March, the Court unanimously ruled that the bankruptcy court exceeded its authority when it surcharged the debtor’s homestead exemption to pay the Chapter 7 Trustee’s attorney fees, despite the debtor’s misconduct.

The case involved Stephen Law, a consumer debtor who filed for Chapter 7 bankruptcy in California. Law's only significant asset was his house, worth approximately $360,000. Law exempted $75,000 of the home equity under the state homestead exemption. Law further claimed that there was no additional equity in the house because it was subject to two mortgages totaling up to more than $300,000 — more than the nonexempt value of the house. The first mortgage was real. The second mortgage, allegedly in favor of "Lin's Mortgage & Associates,” was fake. Law was perpetrating a fraud. Alfred Siegel, the Chapter 7 Trustee, uncovered the mortgage scam. Unfortunately, in the process, the trustee incurred approximately $500,000 in legal fees. Read More ›

Categories: Chapter 7, U.S. Supreme Court

U.S. Supreme Court Clarifies Requirements of Defalcation

In a recent decision, the United States Supreme Court provided guidance relating to the term “defalcation” of the Bankruptcy Code under Section 523(a)(4).1 In a unanimous decision, the Supreme Court held that the term “defalcation” of the Bankruptcy Code includes a “culpable state of mind requirement involving knowledge of, or gross recklessness in respect to, the improper nature of the fiduciary behavior.” Read More ›

Categories: U.S. Supreme Court

Sixth Circuit Holds That Right to Article III “Judicial Power” is Not a Waivable Right

In a recent opinion, the Sixth Circuit has provided clarification of Stern v. Marshall's1 holding by analyzing Article III “judicial power,” the pubic rights doctrine, and the bankruptcy court's authority.

In Waldman, the Western District of Kentucky Bankruptcy Court entered a judgment against the principal creditor after finding that the creditor had defrauded the debtor and had acquired nearly all of the debtor’s assets by means of fraud.  The Bankruptcy Court entered a judgment discharging the debts the debtor owed the creditor and awarded the debtor a judgment of more than $3 million in compensatory and punitive damages.  The creditor appealed the Bankruptcy Court’s entry of a final judgment based upon three challenges:  (1) the debtor’s state law fraud claims are beyond the jurisdiction of the federal court; (2) the judgment entered was beyond the statutory authority of the bankruptcy court; and (3) the judgment was beyond the bankruptcy court’s power pursuant to Article III of the Constitution. Read More ›

Categories: 6th Circuit Court of Appeals, U.S. Supreme Court

Interpretations of Stern in the Western District of Michigan

This blog entry includes material originally prepared by the author for the 2012 FBA Bankruptcy Seminar. 

The U.S. Supreme Court’s decision in Stern v. Marshall, 131 S. Ct. 2594 (2011), immediately cast a shadow of uncertainty on bankruptcy courts’ constitutional authority to enter final orders.  But Stern leaves many questions unanswered, and the bankruptcy judges within the Western District of Michigan have differed as to whether the case should be interpreted narrowly or broadly.  As a result, depending on the presiding judge in a particular case, Stern may be critically important or unworthy of mentioning.  The following is a brief review of cases in this district that address the scope of Stern. Read More ›

Categories: Chapter 7, U.S. Supreme Court, Western District of Michigan

In "Anna Nicole Smith" Case, U.S. Supreme Court Limits Bankruptcy Courts' Authority

Many are familiar with Anna Nicole Smith, the late television personality who married an elderly oil tycoon shortly before his death and later became embroiled in a legal battle over his estate.  Recently, the bankruptcy case of Vickie Lynn Marshall – Anna Nicole Smith's legal name – made its way to the U.S. Supreme Court and resulted in an opinion that limits the authority of bankruptcy courts to enter final orders in common law actions.

Vickie married J. Howard Marshall approximately a year before his death, and although he gave her many gifts, he did not leave her anything in his will.  Before J. Howard passed away, Vickie sued his son, Pierce, in state probate court for tortious interference with J. Howard's will.  Vickie then filed bankruptcy.  Pierce filed a nondischargeability action and a proof of claim in Vickie's bankruptcy case, asserting that Vickie had defamed him.  Vickie filed a counterclaim against Pierce, essentially restating the tort allegations from her state probate court action. Read More ›

Categories: U.S. Supreme Court

U.S. Supreme Court: Chapter 13 Debtor Who Does Not Make Loan or Lease Payments Cannot Deduct Vehicle Ownership Expenses

Ransom v FIA Card Services, NA, Supreme Court of the United States, Jan. 11, 2011 (Case No. 09-907).

In the first opinion authored by Justice Elena Kagan, the Supreme Court of the United States held that a Chapter 13 debtor who owns a vehicle outright and thus does not make loan or lease payments cannot include vehicle ownership costs in his or her monthly expenses for purpose of the means test.

Under BAPCPA, debtors in Chapter 13 cases must follow a formula to calculate their disposable income - that is, the amount that the debtor must use to pay creditors under a court-approved Chapter 13 plan. To determine disposable income, the debtor deducts certain "reasonably necessary" expenses from his or her monthly income. Those reasonably necessary expenses, which are outlined in the IRS's "National and Local Standards," include allowances for vehicle ownership and operating costs. Read More ›

Categories: Chapter 13, U.S. Supreme Court

Espinosa Does Not Excuse Compliance With Bankruptcy Rules When Defect is Detected Pre-Confirmation

In re Peckens-Schmitt, Bankr. W.D. Mich., July 16, 2010 (Case No. 10-04164, Hon. Scott W. Dales).

In a notable decision, the United States Supreme Court recently upheld a bankruptcy court's confirmation of a Chapter 13 plan that discharged part of a student loan debt without an adversary proceeding where the student loan creditor had notice of the plan but did not object. United Student Aid Funds, Inc. v. Espinosa, 130 S. Ct. 1367 (2010). Read More ›

Categories: Chapter 13, U.S. Supreme Court, Western District of Michigan