Court takes up bankruptcy issue that has split circuits since Anna Nicole Smith ruling

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Taking up a complicated jurisdictional issue that has split the circuits since the justices ruled in the case involving the late pinup Anna Nicole Smith, the U.S. Supreme Court has agreed to decide whether bankruptcy court judges can rule on matters normally reserved for Article III judges if the parties in the matter consent.

The court also will decide whether such consent can be implied from the parties’ conduct.

The court granted certiorari Monday in the 9th U.S. Circuit Court of Appeals case Executive Benefits Insurance Agency v. Arkison (In re Bellingham Insurance Agency Inc.), which held that parties can consent to bankruptcy court jurisdiction over matters that would normally be reserved for federal district courts. In Arkison, the 9th Circuit reasoned that “Article III’s guarantee of an impartial and independent federal adjudication” is a personal right belonging to the parties, and can therefore be waived.

The 6th Circuit has held to the contrary, holding that in non-core proceedings bankruptcy courts may only submit proposed findings of facts and conclusions of law to a district court to make the final determination. Lower courts have split on the matter since the 2011 Supreme Court ruling in Stern v. Marshall which ended a long and bitterly fought battle over the estate of Smith’s late oil magnate husband, Howard Marshall II.

In Stern, the court held that bankruptcy courts do not have jurisdiction under Article III to issue final judgments in matters not core to the bankruptcy proceeding. The justices invalidated a multi-million-dollar bankruptcy court ruling in the model’s favor on her claim of tortious interference against her late husband’s son, who was contesting her claimed inheritance.