Bankruptcy Experts Discuss Supreme Court's Ruling in Wellness International Network, Limited v. Sharif

Tuesday, May 26, 2015

The U.S. Supreme Court on May 26 ruled (6-3) in the case of Wellness International Network, Limited v. Sharif (No. 13-935) that Article III of the Constitution permits bankruptcy judges to adjudicate Stern claims with the involved parties’ knowledge and consent.



Prof. S. Elizabeth Gibson is the Burton Craige Professor of Law at the UNC School of Law, a conferee of the National Bankruptcy Conference and co-author of “Wellness International Ltd. v. Sharif: Stern and State Law Claims and the Constitutional Validity of Consent.”

Ben Logan is Of Counsel in O'Melveny & Myers LLP's Los Angeles office, where he focuses on chapter 11 reorganizations and out-of-court workouts, representing major creditors and business debtors. He was a member of the team that represented the debtor (Sharif) before the Supreme Court in Wellness.


Prof. Kenneth Klee is a Professor of Law Emeritus at UCLA Law School and is a founding member of Klee, Tuchin, Bogdanoff & Stern LLP in Los Angeles, specializing in corporate reorganization, insolvency and bankruptcy law.

The U.S. Supreme Court on May 26 ruled (6-3) that Article III of the Constitution permits bankruptcy judges to adjudicate Stern claims with the parties’ knowing and voluntary consent. The Court’s 2011 ruling in Stern v. Marshall held that Article III “forbids bankruptcy courts to enter a final judgment on claims that seek only to augment the bankruptcy estate and would otherwise exist without regard to any bankruptcy proceeding.” Since the Stern decision, bankruptcy practitioners and courts have struggled to determine the scope of a bankruptcy court’s authority with regard to Stern claims.
Wellness presented the Court with additional questions regarding the authority of federal bankruptcy courts to enter final orders and judgments in certain proceedings:
(1) Whether the presence of a subsidiary state property law issue in a 11 U.S.C. § 541 action brought against a debtor to determine whether property in the debtor’s possession is property of the bankruptcy estate means that such action does not “stem[] from the bankruptcy itself,” and therefore, that a bankruptcy court does not have the constitutional authority to enter a final order deciding that action; and
(2) whether Article III permits the exercise of the judicial power of the United States by the bankruptcy courts on the basis of litigant consent, and if so, whether implied consent based on a litigant’s conduct is sufficient to satisfy Article III.

ABI’s media teleconference on the Supreme Court's ruling in Wellness presents experts involved in the case to discuss the effects of the Court’s ruling and will take questions from the media. If have any questions for the panelists from the teleconference, please contact ABI Public Affairs Manager John Hartgen at [email protected] or 703-894-5935.

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