In a June 9, 2014 opinion, Executive Benefits Insurance Agency v. Arkison, the US Supreme Court clarified the procedure a bankruptcy court must follow when facing a related, but non-bankruptcy claim (No. 12-1200, (S. Ct., June 9, 2014)). The Court held that in such situation a bankruptcy court should issue proposed findings of fact and conclusions of law for the non-bankruptcy claims, which the district court would review de novo. This ruling clarifies the procedure for such claims in the wake of Stern v. Marshall, which held that the Constitution did not permit a bankruptcy court to enter final judgment on claims that are not bankruptcy-related, but did not provide any guidance on how such claims would be heard (131 S. Ct. 2594 (2011)).

Nicolas Paleveda owned Executive Benefits Insurance Agency (EBIA), the petitioner in this matter. Paleveda opened EBIA when it became clear that another company he owned, Bellingham Insurance Agency (BIA), was no longer solvent and consequently transferred BIA's assets to EBIA. In 2006, BIA filed a voluntary Chapter 7 bankruptcy petition. The bankruptcy trustee, respondent Peter Arkison, filed a complaint in bankruptcy court alleging that Paleveda used various methods to fraudulently transfer assets from BIA to EBIA. The bankruptcy court granted summary judgment to Arkison on all claims, including the fraudulent conveyance claims. EBIA appealed to the district court, which conducted a de novo review, affirmed the bankruptcy court's decision and entered judgment for Arkison.

EBIA appealed to the US Court of Appeals for the Ninth Circuit. During the pendency of the appeal, the Supreme Court decided Stern. In Stern, the Court held that Article III of the US Constitution did not permit a bankruptcy judge to enter final judgment on a counterclaim for tortious interference. In light of Stern, EBIA moved to dismiss its appeal for lack of jurisdiction, contending that Article III did not permit a bankruptcy court to decide the trustee's fraudulent conveyance claims. The Ninth Circuit rejected this argument and affirmed the district court decision, concluding that the district court was correct for two reasons:

The Supreme Court granted certiorari and determined that when a bankruptcy court is presented with a related non-bankruptcy claim, the proper course is the latter, that is, to issue proposed findings of fact and conclusions of law which the district court will review de novo. The Court found that such an approach accorded with the bankruptcy statute and did not implicate the constitutional defect identified in Stern.

Practitioners should note that the Supreme Court's decision did not address one of the key issues in the Ninth Circuit opinion, that of implied consent to a bankruptcy court's jurisdiction. However, this decision outlines the course a bankruptcy court will take when faced with a related but non-bankruptcy claim.