The Ninth Circuit Court of Appeals weighed in on Stern v. Marshall in the case of Executive Benefits Ins. Agency, Inc. v. Arkison (In re: Bellingham Ins. Agency, Inc.), Case No. 11-35162, D.C. No. 2:10-cv-00929-MJP. In brief, the Court ruled:
1. A non-Article III Bankruptcy Judge lacks the constitutional authority to enter a final judgment in a fraudulent conveyance action against a non-claimant to the bankruptcy estate. The Court’s rationale focused on the fact that the defendant in the fraudulent transfer action had not filed a claim in the case, and the trustee could only recover a fraudulent conveyance by initiating a legal action. The claim against the non-creditor would not be resolved in the course of allowing or disallowing claims against the bankruptcy estate;
2. The Bankruptcy Court has the power to hear fraudulent conveyance cases and to submit proposed findings of fact and conclusions of law to the District Court. (This ruling is in conflict with the Seventh Circuit case of Ortiz v. Aurora Health Care, Inc. (In re: Ortiz), 665 F.3d 906 (7th Cir. 2011), which implied that Bankruptcy Courts cannot issue proposed findings of fact and conclusions of law in §157 core proceedings); and
3. Notwithstanding the lack of constitutional authority, the parties consented to the non-Article III Bankruptcy Judge hearing and deciding the fraudulent conveyance case. The Court ruled implied consent is sufficient.