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In re Ortiz: Opinion by the Seventh Circuit Applying Ster=
Creditor filed POC for balance debtor owed for
health care services provided by creditor.
Debtor filed an adversary complaint (a compulsory
counterclaim, FRCP 13) for creditors violation of state statute re improperdisclosure
of medical information in the process of filing the POC (attached to the claim).
The adversary complaintwas a"core" proceedingunder 28 U.S.C. Section 157(b) since it arose in the bankruptcy case.
The subject cause of action wouldnt have arisen but for the POC, but it is still a purely private (state law) rights between two individuals.
Resolution of adversary complaint was not
necessary to determine allowance of creditors POC.
7th Circuit (on direct appeal from bankruptcycourt) held that the bankruptcy judge (an Article I judge as opposed to an Article III judge) did not have jurisdiction to enter a final order in theprivate right proceeding (adversary complaint)since itwas notnecessary to resolve the allowance of creditor's POC. Stern v. Marshall.
The adversary complaint was "core" not "related to" and 28 USC 157 doesn't provide a procedure for bankruptcy judges to enter proposed finding of facts and conclusions of law in "core" matters. In re Blixseth. But, In re Heller (NDCA) held bankruptcy judges can enter proposed FOF&COL.
The adversary complaint was being prosecuted toaugment the estate in the same way trustees (and DIPs)prosecutefraudulent transfer recovery (private contract rights).
If the 9th circuit follows this holding, then bankruptcy judges in the 9th circuit will not have jurisdiction to enter final orders or proposed FOF&COL in fraudulent transfer actions unless those proceedings are necessary to resolve the allowance of the creditor's proof of claim.
Note that allowance of a POC is not the same as resolution of what the creditor ultimately recovers as a ratable distribution from the estate.
This would result in higher costs to trustees (and DIPs) in proceeding involving private rights matters,that are not necessary fordetermining allowance of POC,in state court or District Court (Artile III judges).
Peter M. Lively, JD, MBA
The Personal Financial Law Center
A-Bankruptcy-Attorney.com
Culver City (310) 391-2400
________________________________
To: cdcbaa@yahoogroups.com
Sent: Tuesday, January 3, 2012 4:22 PM
Subject: [cdcbaa] In re Ortiz: Opinion by the Seventh Circuit Applying Stern
Has anyone read and digested the recent decision in Ortiz interpreting Stern? Should we be concerned?
Thanks,
Nancy B. Clark
Borowitz & Clark, LLP
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