American Bar Association
Media Alerts
Media Alerts - BP RE, L.P. v. RML Waxahachie Dodge, L.L.C. - Fifth Circuit
Decrease font size
Increase font size
November 12, 2013
  BP RE, L.P. v. RML Waxahachie Dodge, L.L.C. - Fifth Circuit
Headline: Fifth Circuit Finds Bankruptcy Court's Exercise of Jurisdiction Unconstitutional.

Area of Law: Bankruptcy, Constitutional Law.

Issue Presented: Whether the bankruptcy court, acting with the parties' consent, has the constitutional authority to enter judgment on "non-core" claims related to a bankruptcy filing.

Brief Summary: BP RE, L.P. ("BPRE") filed a petition for Chapter 11 bankruptcy relief as well as a related adversary complaint in the federal bankruptcy court. The adversary complaint alleged "non-core" state-law tort and contract claims against several RML entities ("RML") regarding the negotiation of the sale and lease of a car dealership and related property. BPRE consented to the entry of a final judgment by the bankruptcy court pursuant to 28 U.S.C. § 157(c)(2). The bankruptcy court ultimately entered judgment denying BPRE's claims, and the district court affirmed the bankruptcy court's judgment. The U.S. Court of Appeals for the Fifth Circuit held that the bankruptcy court lacked Article III authority to enter final judgment on BPRE's claims.

Significance: This decision builds on the U.S. Supreme Court's decision in Stern v. Marshall (2011) and further limits the authority of bankruptcy courts to enter final judgments.

Extended Summary: BP RE, L.P. ("BPRE") filed a petition for Chapter 11 bankruptcy relief as well as a related adversary complaint in the federal bankruptcy court. The adversary complaint alleged "non-core" state-law tort and contract claims against several RML entities ("RML") regarding the negotiation of the sale and lease of a car dealership and related property. These claims were related to the bankruptcy in that recovery on the claims brought by BPRE, the debtor, would augment BPRE's estate. In non-core proceedings such as these, the bankruptcy court has the power to issue proposed findings of fact and conclusions of law for the district court's consideration, and - pursuant to 28 U.S.C. § 157(c)(2) - the bankruptcy court may enter a final judgment if the parties agree to give it that authority. BPRE consented to the entry of a final judgment by the bankruptcy court. BPRE later moved to withdraw this consent and have the district court hear the case when it was denied its untimely request for a jury trial. The district court rejected BPRE's attempt to withdraw its consent, because the case had already been litigated in the bankruptcy court for six months.

The bankruptcy court entered judgment against BPRE on its claims, and on appeal the district court affirmed in part and vacated in part. On remand, the bankruptcy court again denied relief to BPRE. On a second appeal, the district court affirmed. On further appeal, the U.S. Court of Appeals for the Fifth Circuit held that the bankruptcy court lacked Article III authority to enter final judgment on BPRE's claims, and it consequently vacated the district court's judgment and remanded the case back to the district court.

The Fifth Circuit largely relied on a recent Supreme Court case, Stern v. Marshall (2011), which held that a bankruptcy court lacked constitutional authority to enter final judgment on a debtor's state-law counterclaim even though a statute specifically conferred such authority. Bankruptcy judges are appointed by the court of appeals and do not receive the same authority and tenure as Article III judges. The Fifth Circuit found that in the instant case, the bankruptcy court had the statutory authority to render a final binding decision because the parties had consented to the district court referring the case to the bankruptcy court pursuant to 28 U.S.C. § 157(c)(2). However, the bankruptcy court did not have the constitutional authority to render a final binding decision on BPRE's claims. The Fifth Circuit found that the instant claims involved the entry of a final, binding judgment by a court with broad jurisdiction on a common law cause of action, traditionally left for Article III judges. The court further held that parties cannot consent to have the bankruptcy court issue a final and binding judgment against the parties. Although the Fifth Circuit's decision precludes bankruptcy courts from issuing final judgments in non-core matters, it does not preclude the bankruptcy court from submitting proposed findings of fact and conclusions of law for the district court to consider de novo.

For the full opinion, please see: http://www.ca5.uscourts.gov/op...ub/12/12-51270-CV0.pdf.

Panel: Circuit Judges Smith, Garza, and Southwick

Argument Date: 8/6/2013

Date of Issued Opinion: 11/11/2013

Docket Number: No.12-51270 consolidated with No. 12-51279

Decided: Vacated and remanded

Case Alert Author: Yong Eoh

Counsel: Kevin James Terrazas for Appellant BP RE, L.P; Lyndel Anne Mason for Appellee RML Waxahachie Dodge, L.L.C.

Author of Opinion: Judge Smith

Case Alert Circuit Supervisor: Aaron-Andrew P. Bruhl

    Posted By: Aaron Bruhl @ 11/12/2013 09:30 PM     5th Circuit  

FuseTalk Enterprise Edition - © 1999-2018 FuseTalk Inc. All rights reserved.

Discussion Board Usage Agreement

Back to Top