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SUPREME COURT OF THE UNITED STATES
_________________
No. 12–1200
_________________
EXECUTIVE BENEFITS INSURANCE AGENCY,
PETI-TIONER v. PETER H. ARKISON, chapter 7 trustee of the ESTATE OF
BELLINGHAM INSURANCE AGENCY, INC.
on writ of certiorari to the united states
court of appeals for the ninth circuit
[June 9, 2014]
Justice Thomas
delivered the opinion of the Court.
In Stern v. Marshall,
564 U. S. ___ (2011), this Court held that even though
bankruptcy courts are statutorily authorized to enter final
judgment on a class of bankruptcy-related claims, Article III of
the Constitution prohibits bankruptcy courts from finally
adjudicating certain of those claims. Stern did not, however,
decide how bankruptcy or district courts should proceed when a
“Stern claim” is identified. We hold today that when, under Stern’s
reasoning, the Constitution does not permit a bankruptcy court to
enter final judgment on a bankruptcy-related claim, the relevant
statute nevertheless permits a bankruptcy court to issue proposed
findings of fact and conclusions of law to be reviewed de novo
by the district court. Because the District Court in this case
conducted the de novo review that petitioner demands, we
affirm the judgment of the Court of Appeals upholding the District
Court’s decision.
I
Nicolas Paleveda and
his wife owned and operated two companies—Aegis Retirement Income
Services, Inc. (ARIS), and Bellingham Insurance Agency, Inc. (BIA).
By early 2006, BIA had become insolvent, and on January 31, 2006,
the company ceased operation. The next day, Paleveda used BIA funds
to incorporate Executive Benefits Insurance Agency, Inc. (EBIA),
petitioner in this case. Paleveda and others initiated a scheme to
transfer assets from BIA to EBIA. The assets were deposited into an
account held jointly by ARIS and EBIA and ultimately credited to
EBIA at the end of the year.
On June 1, 2006, BIA
filed a voluntary Chapter 7 bankruptcy petition in the United
States Bankruptcy Court for the Western District of Washington.
Peter Arkison, the bankruptcy trustee and respondent in this case,
filed a complaint in the same Bankruptcy Court against EBIA and
others. As relevant here, the complaint alleged that Paleveda used
various methods to fraudulently convey BIA assets to EBIA.[
1] EBIA filed an answer and denied many
of the trustee’s allegations.
After some disagreement
as to whether the trustee’s claims should continue in the
Bankruptcy Court or instead proceed before a jury in Federal
District Court, the trustee filed a motion for summary judgment
against EBIA in the Bankruptcy Court. The Bankruptcy Court granted
summary judgment for the trustee on all claims, including the
fraudulent conveyance claims. EBIA then appealed that determination
to the District Court. The District Court conducted de novo
review, affirmed the Bankruptcy Court’s decision, and entered
judgment for the trustee.
EBIA appealed to the
United States Court of Appeals for the Ninth Circuit. After EBIA
filed its opening brief, this Court decided Stern, supra. In Stern,
we held that Article III of the Constitution did not permit a
bankruptcy court to enter final judgment on a counterclaim for
tortious interference, id., at ___, even though final adjudication
of that claim by the Bankruptcy Court was authorized by statute,
see Part II–B, infra.[
2] In
light of Stern, EBIA moved to dismiss its appeal in the Ninth
Circuit for lack of jurisdiction, contending that Article III did
not permit Congress to vest authority in a bankruptcy court to
finally decide the trustee’s fraudulent conveyance claims.
The Ninth Circuit
rejected EBIA’s motion and affirmed the District Court. In re
Bellingham Ins. Agency, Inc., 702 F. 3d 553 (2012). As
relevant here, the court held that Stern, supra, and
Granfinanciera, S. A. v. Nordberg, 492 U. S. 33 (1989)
,[
3] taken together, lead to
the conclusion that Article III does not permit a bankruptcy court
to enter final judgment on a fraudulent conveyance claim against a
noncreditor unless the parties consent. 702 F. 3d, at 565. The
Ninth Circuit concluded that EBIA had impliedly consented to the
Bankruptcy Court’s jurisdiction, and that the Bankruptcy Court’s
adjudication of the fraudulent conveyance claim was therefore
permissible. Id., at 566, 568. The Court of Appeals also observed
that the Bankruptcy Court’s judgment could instead be treated as
proposed findings of fact and conclusions of law, subject to
de novo review by the District Court. Id., at 565–566.
We granted certiorari,
570 U. S. ___ (2013).
II
In Stern, we held
that Article III prohibits Congress from vesting a bankruptcy court
with the authority to finally adjudicate certain claims. 564
U. S., at ___. But we did not address how courts should
proceed when they encounter one of these “Stern claims”—a claim
designated for final adjudication in the bankruptcy court as a
statu-tory matter, but prohibited from proceeding in that way as a
constitutional matter.[
4]
As we explain in
greater detail below, when a bankruptcy court is presented with
such a claim, the proper courseis to issue proposed findings of
fact and conclusions of law. The district court will then review
the claim de novo and enter judgment. This approach accords
with the bankruptcy statute and does not implicate the
constitutional defect identified by Stern.
A
We begin with an
overview of modern bankruptcy legislation. Prior to 1978, federal
district courts could refer matters within the traditional “summary
jurisdiction” of bankruptcy courts to specialized bankruptcy
referees.[
5] See Northern
Pipeline Constr. Co. v. Marathon Pipe Line Co., 458 U. S. 50, 53
(1982) (plurality opinion). Summary jurisdiction covered claims
involving “property in the actual or constructive possession of the
[bankruptcy] court,” ibid., i.e., claims regarding the
apportionment of the existing bankruptcy estate among creditors.
See Brubaker, A “Summary” Statutory and Constitutional Theory of
Bankruptcy Judges’ Core Jurisdiction After Stern v. Marshall, 86
Am. Bankr. L. J. 121, 124 (2012). Proceedings to augment the
bankruptcy estate, on the other hand, implicated the district
court’s plenary jurisdiction and were not referred to the
bankruptcy courts absent both parties’ consent. See MacDonald v.
Plymouth County Trust Co., 286 U. S. 263, 266 (1932) ; see
also Brubaker, supra, at 128.
In 1978, Congress
enacted sweeping changes to the federal bankruptcy laws. See
92Stat. 2549. The Bankruptcy Reform Act eliminated the historical
distinction between “ ‘summary’ ” jurisdiction belonging
to bankruptcy courts and “ ‘plenary’ ” jurisdiction
belonging to either a district court or an appropriate state court.
Northern Pipeline, supra, at 54 (plurality opinion); see also 1 W.
Norton & W. Norton Bankruptcy Law and Practice §4:12, p. 4–44
(3d ed. 2013). Instead, the 1978 Act mandated that bankruptcy
judges “shall exercise” jurisdiction over “all civil proceedings
arising under title 11 or arising in or related to cases under
title 11.” 28 U. S. C. §§1471(b)–(c) (1976 ed., Supp.
IV). Under the 1978 Act, bankruptcy judges were “vested with all of
the ‘powers of a court of equity, law, and admiralty,’ ” with
only a few limited exceptions. Northern Pipeline, 458 U. S.,
at 55 (plurality opinion) (quoting §1481). Notwithstanding their
expanded jurisdiction and authority, these bankruptcy judges were
not afforded the protections of Article III—namely, life tenure and
a salary that may not be diminished. Id.,at 53.
In Northern Pipeline,
this Court addressed whether bankruptcy judges under the 1978 Act
could “constitutionally be vested with jurisdiction to decide [a]
state-law contract claim” against an entity not otherwise a party
to the proceeding. Id., at 53, 87, n. 40. The Court concluded
that assignment of that claim for resolution by the bankruptcy
judge “violates Art. III of the Constitution.” Id., at 52, 87
(plurality opinion); see id., at 91 (Rehnquist, J., concurring in
judgment). The Court distinguished between cases involving
so-called “public rights,” which may be removed from the
jurisdiction of Article III courts, and cases involving
“private rights,” which may not. See id., at 69–71 (plurality
opinion); id., at 91 (Rehnquist, J., concurring in judgment).
Specifically, the plurality noted that “the restructuring of
debtor-creditor relations, which is at the core of the federal
bankruptcy power, must be distinguished from the adjudication of
state-created private rights,” which belong in an Article III
court. Id., at 71–72, and n. 26.
B
Against that
historical backdrop, Congress enacted the Bankruptcy Amendments and
Federal Judgeship Act of 1984—the Act at issue in this case. See 28
U. S. C. §151 et seq. Under the 1984 Act, federal
district courts have “original and exclusive jurisdiction of all
cases under title 11,” §1334(a), and may refer to bankruptcy judges
any “proceedings arising under title 11 or arising in or related to
a case under title 11,” §157(a).[
6] Bankruptcy judges serve 14-year terms subject to
removal for cause, §§152(a)(1), (e), and their salaries are set by
Congress, §153(a).
The 1984 Act largely
restored the bifurcated jurisdictional scheme that existed prior to
the 1978 Act. The 1984 Act implements that bifurcated scheme by
dividing all matters that may be referred to the bankruptcy
courtinto two categories: “core” and “non-core” proceedings. See
generally §157.[
7] It is the
bankruptcy court’s responsibility to determine whether each claim
before it is core or non-core. §157(b)(3); cf. Fed. Rule Bkrtcy.
Proc. 7012. For core proceedings, the statute contains a
nonexhaustive list of examples, including—as relevant
here—“proceedings to determine, avoid, or recover fraudulent
conveyances.” §157(b)(2)(H). The statute authorizes bankruptcy
judges to “hear and determine” such claims and “enter appropriate
orders and judgments” on them. §157(b)(1). A final judgment entered
in a core proceeding is appealable to the district court,
§158(a)(1), which reviews the judgment under traditional appellate
standards, Rule 8013.
As for “non-core”
proceedings—i.e., proceedings that are “not . . . core”
but are “otherwise related to a case under title 11”—the statute
authorizes a bankruptcy court to “hear [the] proceeding,” and then
“submit proposed findings of fact and conclusions of law to the
district court.” §157(c)(1). The district court must then review
those proposed findings and conclusions de novo and enter any
final orders or judgments. Ibid. There is one statutory exception
to this rule: If all parties “consent,” the statute permits the
bankruptcy judge “to hear and determine and to enter appropriate
orders and judgments” as if the proceeding were core.
§157(c)(2).
Put simply: If a matter
is core, the statute empowers the bankruptcy judge to enter final
judgment on the claim, subject to appellate review by the district
court. If a matter is non-core, and the parties have not consented
to final adjudication by the bankruptcy court, the bankruptcy judge
must propose findings of fact and conclusions of law. Then, the
district court must review the proceeding de novo and enter
final judgment.
C
Stern v. Marshall,
564 U. S. ___, confronted an underlying conflict between the
1984 Act and the requirements of Article III. In particular, Stern
considered a constitutional challenge to the statutory designation
of a particular claim as “core.” The bankrupt in that case had
filed a common-law counterclaim for tortious interference against a
creditor to the estate. Id., at ___. Section 157(b)(2)(C), as added
by the 1984 Act, lists “counterclaims by the estate against persons
filing claims against the estate” as a core proceeding, thereby
authorizing the bankruptcy court to adjudicate the claim to final
judgment. See supra this page. The respondent in Stern objected
that Congress had violated Article III by vesting the power to
adjudicate the tortious interference counterclaim in bankruptcy
court. Stern, 564 U. S., at ___.
We agreed. Id., at ___.
In that circumstance, we held, Congress had improperly vested the
Bankruptcy Court with the “ ‘ judicial Power of the
United States,’ ” just as in Northern Pipeline. 564
U. S., at ___, ___ (slip op., at 21, 38). Because “[n]o
‘public right’ exception excuse[d] the failure to comply with
Article III,” we concluded that Congress could not confer on the
Bankruptcy Court the authority to finally decide the claim. Id., at
___. (slip op., at 21).
III
Stern made clear that
some claims labeled by Congress as “core” may not be adjudicated by
a bankruptcy court in the manner designated by §157(b). Stern did
not, how-ever, address how the bankruptcy court should proceed
under those circumstances. We turn to that question now.
The Ninth Circuit held
that the fraudulent conveyance claims at issue here are Stern
claims—that is, proceedings that are defined as “core” under
§157(b) but may not, as a constitutional matter, be adjudicated as
such (at least in the absence of consent, see n. 4, supra. See
702 F. 3d, at 562. Neither party contests that conclusion.
The lower courts,
including the Ninth Circuit in this case, have described Stern
claims as creating a statutory “gap.” See, e.g., 702 F. 3d, at
565. By definition, a Stern claim may not be adjudicated to final
judgment by the bankruptcy court, as in a typical core proceeding.
But the alternative procedure, whereby the bankruptcy court submits
proposed findings of fact and conclusions of law, applies only to
non-core claims. See §157(c)(1). Because §157(b) does not
explicitly authorize bankruptcy judges to submit proposed findings
of fact and conclusions of law in a core proceeding, the argument
goes, Stern created a “gap” in the bankruptcy statute. See 702
F. 3d, at 565. That gap purportedly renders the bankruptcy
court powerless to act on Stern claims, see Brief for Petitioner
46–48, thus requiring the district court to hear all Stern claims
in the first instance.
We disagree. The
statute permits Stern claims to proceed as non-core within the
meaning of §157(c). In particular, the statute contains a
severability provision that accounts for decisions, like Stern,
that invalidate certain applications of the statute:
“If any provision of this Act or the
application thereof to any person or circumstance is held invalid,
the remainder of this Act, or the application of that provision to
persons or circumstances other than those as to which it is held
invalid, is not affected thereby.” 98Stat. 344, note following 28
U. S. C. §151.
The plain text of this
severability provision closes the so-called “gap” created by Stern
claims. When a court identifies a claim as a Stern claim, it has
necessarily “held invalid” the “application” of §157(b)—i.e., the
“core” label and its attendant procedures—to the litigant’s claim.
Note following §151. In that circumstance, the statute instructs
that “the remainder of th[e] Act . . . is not affected
thereby.” Ibid. That remainder includes §157(c), which governs
non-core proceedings. With the “core” category no longer available
for the Stern claim at issue, we look to §157(c)(1) to determine
whether the claim may be adjudicated as a non-core
claim—specifically, whether it is “not a core proceeding” but is
“otherwise related to a case under title 11.” If the claim
satisfies the criteria of §157(c)(1), the bankruptcy court simply
treats the claims as non-core: The bankruptcy court should hear the
proceeding and submit proposed findings of fact and conclusions of
lawto the district court for de novo review and entry
ofjudgment.
The conclusion that the
remainder of the statute may continue to apply to Stern claims
accords with our general approach to severability. We ordinarily
give effect to the valid portion of a partially unconstitutional
statute so long as it “remains ‘ “fully operative as a
law,” ’ ” Free Enterprise Fund v. Public Company
Accounting Oversight Bd., 561 U. S. 477, 509 (2010) (quoting
New York v. United States, 505 U. S. 144, 186 (1992) ), and so long
as it is not “ ‘evident’ ” from the statutory text and
context that Congress would have preferred no statute at all, 561
U. S., at 509 (quoting Alaska Airlines, Inc. v. Brock, 480 U.
S. 678, 684 (1987) ). Neither of those concerns applies here. Thus,
§157(c) may be applied naturally to Stern claims. And, EBIA has
identified “nothing in the statute’s text or historical context”
that makes it “evident” that Congress would prefer to suspend Stern
claims in limbo. 561 U. S., at 509.[
8]
IV
A
Now we must determine
whether the procedures set forth in §157(c)(1) apply to the
fraudulent conveyance claims at issue in this case. The Court of
Appeals held, and we assume without deciding, that the fraudulent
conveyance claims in this case are Stern claims. See Part III,
supra. For purposes of this opinion, the “application” of both the
“core” label and the procedures of §157(b) to the trustee’s claims
has therefore been “held invalid.” Note following §151.
Accordingly, we must decide whether the fraudulent conveyance
claims brought by the trustee are within the scope of
§157(c)(1)—that is, “not . . . core” proceedings but
“otherwise related to a case under title 11.” We hold that this
language encompasses the trustee’s claims of fraudulent
conveyance.
First, the fraudulent
conveyance claims in this case are “not . . . core.” The
Ninth Circuit held—and no party disputes—that Article III does not
permit these claims to be treated as “core.” See Part III, supra.
Second, the fraudulent conveyance claims are self-evidently
“related to a case under title 11.” At bottom, a fraudulent
conveyance claim asserts that property that should have been part
of the bankruptcy estate and therefore available for distribution
to creditors pursuant to Title 11 was improperly removed. That sort
of claim is “related to a case under title 11” under any plausible
construction of the statutory text, and no party contends
otherwise. See, e.g., Celotex Corp. v. Edwards, 514 U. S. 300
, n. 5, 308 (1995) (“Proceedings ‘related to’ the bankruptcy
include . . . suits between third parties which have an
effect on the bankruptcy estate”). Accordingly, because these Stern
claims fit comfortably within the category of claims governed by
§157(c)(1), the Bankruptcy Court would have been permitted to
follow the procedures required by that provision, i.e., to submit
proposed findings of fact and conclusions of law to the District
Court to be reviewed de novo.
B
Although this case
did not proceed in precisely that fashion, we affirm nonetheless. A
brief procedural history of the case helps explain why.
As noted, §157 permits
a bankruptcy court to adjudicate a claim to final judgment in two
circumstances—in core proceedings, see §157(b), and in non-core
proceedings “with the consent of all the parties,” §157(c)(2). In
this case, the Bankruptcy Court entered judgment in favor of the
bankruptcy trustee without specifying in its order whether it was
acting pursuant to §157(b) (core) or §157(c)(2) (non-core with
consent). EBIA immediately appealed to the District Court, see
§158, but it did not argue that the Bankruptcy Court lacked
constitutional authority to grant summary judgment. As a result,
the District Court did not analyze whether there was a Stern
problem and did not, as some district courts have done, relabel the
bankruptcy order as mere proposed findings of fact and conclusions
of law. See, e.g., In re Parco Merged Media Corp., 489
B. R. 323, 326 (Me. 2013) (collecting cases). The District
Court did, however, review de novo the Bankruptcy Court’s
grant of summary judgment for the trustee—a legal question—and
issued a reasoned opinion affirming the Bankruptcy Court. The
District Court then separately entered judgment in favor of the
trustee. See 28 U. S. C. §1334(b) (“[T]he district courts
shall have original but not exclusive jurisdiction of all civil
proceedings . . . related to cases under title 11”).
EBIA now objects on
constitutional grounds to the Bankruptcy Court’s disposition of the
fraudulent conveyance claims. EBIA contends that it was
constitutionally entitled to review of its fraudulent conveyance
claims by an Article III court regardless of whether the parties
consented to adjudication by a bankruptcy court. Brief for
Petitioner 25–27. In an alternative argument, EBIA asserts that
even if the Constitution permitted the Bankruptcy Court to
adjudicate its claim with the consent of the parties, it did not in
fact consent. Id., at 38.
In light of the
procedural posture of this case, however, we need not decide
whether EBIA’s contentions are correct on either score. At bottom,
EBIA argues that it was entitled to have an Article III court
review de novo and enter judgment on the fraudulent conveyance
claims asserted by the trustee. In effect, EBIA received exactly
that. The District Court conducted de novo review of the
summary judgment claims, concluding in a written opinion that there
were no disputed issues of material fact and that the trustee was
entitled to judgment as a matter of law. In accordance with its
statutory authority over matters related to the bankruptcy, see
§1334(b), the District Court then separately entered judgment in
favor of the trustee. EBIA thus received the same review from the
District Court that it would have received if the Bankruptcy Court
had treated the fraudulent conveyance claims as non-core
proceedings under §157(c)(1). In short, even if EBIA is correct
that the Bankruptcy Court’s entry of judgment was invalid, the
District Court’s de novo review and entry of its own valid
final judgment cured any error. Cf. Carter v. Kubler, 320
U. S. 243, 248 (1943) (bankruptcy commissioner’s error was
cured after the District Court “madean independent and complete
review of the conflicting evidence”).
Accordingly, we affirm
the judgment of the Court of Appeals.
It is so ordered.
