Burr Alert: Supreme Court Set to Rule on Waiver of Article III Rights
In Exec. Benefits Ins. Agency, Inc. v. Arkison (In re Bellingham Ins. Agency, Inc.), 702 F.3d 553 (9th Cir. 2012), the Ninth Circuit held that a non-creditor defendant waives its right to an Article III hearing by litigating in a bankruptcy court without challenging the court's jurisdiction. In that case, the chapter 7 trustee filed a fraudulent transfer action against a non-creditor that had received a transfer of substantial assets from the chapter 7 debtor. The bankruptcy judge entered summary judgment on behalf of the trustee and the non-creditor defendant appealed, arguing for the first time on appeal that under Stern v. Marshall, 131 S.Ct. 2594 (2011), the bankruptcy court lacked authority to enter a final judgment.
Citing Stern, the Ninth Circuit reasoned that a party should not be able to fully litigate a fraudulent conveyance action before the bankruptcy court and then only raise the question of Article III rights when it does not win. "[T]he consequences of a litigant sandbagging the court - remaining silent about his objection and belatedly raising the error only if the case does not conclude in his favor - can be . . . severe." In re Bellingham, 702 F.3d at 570 (citing Stern, 131 S.Ct. at 2609).