The Supreme Court recently confirmed in Wellness Int’l Network, Ltd. v. Sharif that parties may consent to having bankruptcy judges resolve their non-core claims – claims to which bankruptcy courts would normally lack adjudicatory authority. The issue presented to the court was 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.
The Court’s decision reversed holdings in both the 6th and 7th Circuit Court, which had understood the Court’s 2011 ruling in Stern v. Marshall to prohibit bankruptcy courts from hearing any claims that did not stem from the bankruptcy or would exist without the bankruptcy proceeding (such as state law claims), even if the parties consented to adjudication of these claims by the bankruptcy courts. In clarifying the scope of Stern, the 6-3 majority wrote, “[a]djudication based on litigant consent has been a consistent feature of the federal court system since its inception” and this reaffirmation of that fact “poses no great threat to anyone’s birthrights, constitutional or otherwise.”
The Court further clarified that consent need not be “express” but may be implied from the parties’ conduct. Though the strongly worded dissent highlighted that there are still issues as to what qualifies as a “non-core” claim, the Wellness decision clarifies that as long as there is consent, parties in a bankruptcy proceeding can have all their claims heard in the bankruptcy court.
So, why is this a big deal? It’s because most parties can benefit from litigating their non-core matters in the bankruptcy forum. First, the case has been filed and the parties are likely represented by counsel already familiar with their client and the facts of the matter. Second, bankruptcy issues would almost always blend into tangential/non-core matters, even if these issues could proceed outside bankruptcy, so it makes sense to address the issues holistically. Third, the non-core case may not qualify for federal jurisdiction, a venue preferable by most clients. Further, claims in bankruptcy court normally involve less cost and less time to litigate the matter.