1. “We do not think the removal of counterclaims such as Vickie’s from core bankruptcy jurisdiction meaningfully changes the division of labor in the current statute; we agree with the United States that the question presented here is a ‘narrow’ one.” 131 S.Ct. at 2620

2. Facts Vickie Marshall - married billionaire Howard Marshall on June 27, 1994 Sued stepson Pierce Marshall in Texas for Tortious Interference with Trust and Inheritance in April 1995 Files Bankruptcy in California on Jan. 25, 1996 Pierce Marshall Files Adversary for Defamation in Bankruptcy for statements made by Vickie’s lawyers and to declare the debt nondischargeable for willful and malicious injury Files proof of claim for unliquidated amount Vickie files counterclaim for tortious interference in bankruptcy, awarded $475 after bench trial. Vickie dismisses claims in Texas probate. Court refuses to give bankruptcy judgment full faith based to later filed action. Five month jury trial on validity of trust and will excluding Vickie. Held – not entitled to anything.

3. More Procedural History California District Court held only related to jurisdiction, treated as proposed findings and reviewed de novo. “Evidence of Pierce’s tortious conduct is legion.” Reduced judgment to $90 million. Occurs after Texas judgment. Which judgment entitled to preclusive effect? Ninth Circuit originally held no jurisdiction under probate exception to federal jurisdiction – Supreme Court reverses in Round 1. On remand Ninth holds no core jurisdiction. Texas court was first proper court to enter judgment – entitled to preclusive effect. Certiorari granted on question of core jurisdiction of bankruptcy court to enter judgment.

4. Issues Before Supreme Court Whether Bankruptcy Court Lacked Subject Matter Jurisdiction to Enter Summary Judgment Dismissing Pierce’s Defamation Claims Pursuant to 28 USC § 157(b)(5) Whether Bankruptcy Court Lacked Subject Matter Jurisdiction to Enter Final Judgment on Vickie’s Counterclaims for Tortious Interference

5. Bankruptcy Jurisdiction: 28 U.S.C. § 1334(b) Except as provided in subsection (e)(2), and notwithstanding any Act of Congress that confers exclusive jurisdiction on a court other than the district courts, the district courts shall have original but not exclusive jurisdiction of all civil proceedings arising under title 11, or arising in or related to cases under title 11.

6. 28 U.S.C. § 157 (b)(1) Bankruptcy judges may hear and determine all cases under title 11 and all core proceedings arising under title 11 or arising in a case under title 11 … and may enter appropriate orders and judgments, subject to review under section 158 of this title. (c) Core proceedings include, but are not limited to – (C) counterclaims by the estate against persons filing claims against the estate; (G) proceedings to determine, avoid, or recover preferences (H) proceedings to determine, avoid or recover fraudulent conveyances

7. 28 USC § 157 (cont’d) (c)(1) A bankruptcy judge may hear a proceeding that is not a core proceeding but that is otherwise related to a case under title 11. In such a proceeding, the bankruptcy judge shall submit proposed findings of fact and conclusions of law to the district court, and any final order or judgment shall be entered by the district court after considering the bankruptcy judge’s proposed findings of fact and conclusions of law and after reviewing de novo those matters to which any party has timely and specifically objected. (c)(2) Notwithstanding the provisions of paragraph (1) of this subsection, the district court, with the consent of all the parties to the proceeding may refer a proceeding related to a case under title 11 to a bankruptcy judge to hear and determine and to enter appropriate orders and judgments, subject to review under section 158 of this title. (e) If the right to a jury trial applies in a proceeding that may be heard under this section by a bankruptcy judge, the bankruptcy judge may conduct the jury trial if specifically designated to exercise such jurisdiction by the district court and with the express consent of all the parties.

8. Vicki’s Arguments Pierce Consented or Waived Jurisdiction to the Defamation Claim and Vickie’s Counterclaim for Tortious Interference Bankruptcy Court had Authority to Enter Final Judgment Core Jurisdiction Public Rights Proof of Claim

9. Pierce’s Defamation Claim Argued Defamation was a Personal Injury Tort that must be tried by District Court under 28 USC § 157(b)(5): “The district court shall order that personal injury tort and wrongful death claims shall be tried in the district court in which the bankruptcy case is pending, or in the district court in which the claim arose, as determined by the district court in which the bankruptcy case is pending.”

10. Ruling on § 157(b)(5) Assumed that Defamation was a Personal Injury Tort – Left Open Rejected Argument – Pierce Consented Two major points:

11. § 157(b)(5) is Not Jurisdictional “Section 157 allocates the authority to enter final judgment between the bankruptcy court and the district court. See §§ 157(b)(1), (c)(1). That allocation does not implicate questions of subject matter jurisdiction. See § 157(c)(2) (parties may consent to entry of final judgment by bankruptcy judge in non- core case). By the same token, § 157(b)(5) simply specifies where a particular category of cases should be tried.” Stern v. Marshall, 131 S.Ct.at 2607.

12. Parties Can Consent to Resolution in the Bankruptcy Court “Given Pierce’s course of conduct before the Bankruptcy Court, we conclude that he consented to that court’s resolution of his defamation claim (and forfeited any argument to the contrary). We have recognized the value of waiver and forfeiture rules in complex cases, and this case is not exception. In such cases, as here, the 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,” be particularly severe… Pierce repeatedly stated to the Bankruptcy Court that he was happy to litigate there. We will not consider his claim to the contrary, now that he is sad.” Stern v. Marshall, 131 S.Ct. at 2608

13. Vickie’s Counterclaim for Tortious Interference Although we conclude that § 157(b)(2)(C) permits the Bankruptcy Court to enter final judgment on Vickie’s counterclaim, Article II of the Constitution does not. Stern, 131 S.Ct. at 2608.

14. Core Jurisdiction- § 157(b) Bankruptcy Courts have statutory jurisdiction to enter final judgments in core proceedings. Counterclaims specifically enumerated as core proceeding under § 157(b)(2)(C). Supreme Court discusses within the framework of Pierce’s defamation claim: “… Pierce’s reading of the statute necessarily assumes that there is a category of core proceedings that neither arise under Title 11 nor arise in a Title 11 case.” Stern, 131 S.Ct. at 2604. “… the statute simply does not provide for a proceeding that is simultaneously core and yet only related to the bankruptcy case.” Id. at 2605.

15. Public Rights Exception Marathon Issue – Only Article III courts have Constitutional Authority to exercise judicial power. Article I courts may decide cases within the Public Rights Exception Matters arising between individuals and the Government in connection with the performance of the constitutional functions of the executive or legislative departments. Not limited actions involving the Government as a party, so long as the right is integrally related to a particular federal government action.

16. Public Rights Exception Commodity Futures Trading Commission v. Schor, 478 U.S. 833, 106 S.Ct. 3245 (1986) Statutory rights to recover for broker’s violation of commodities law before the Commodities Futures Trading Commission Customer filed claim with CFTC Broker filed lawsuit to recover same amount from client Broker files claim with CFTC and loses Argues – no jurisdiction over counterclaim Single dispute, particularized area of law, specific and limited federal regulatory scheme in agency’s expertise, consent, and enforceable by district court.

17. Public Rights Exception-cont’d Granfinanciera, S.A. v. Nordberg, 492 U.S. 33, 109 S.Ct. 2782 (1989) Fraudulent conveyance claim against non-creditor (no proof of claim) under 11 USC § 548 “The sole issue before us is whether the Seventh Amendment confers on petitioners a right to a jury trial in the face of Congress’ decision to allow a non-Article III tribunal to adjudicate the claims against them.” Id. at 2795. “Congress may only deny trials by jury in actions at law … where ‘public rights are litigated.” Id. “… fraudulent conveyance actions were ‘more accurately characterized as a private rather than a public right as we have used those terms in our Article III decisions.” Stern, 131 S.Ct. at 2614 (quoting Granfinanciera).

18. Public Rights Exception-cont’d Stern Court Reasoned: Counterclaim did not depend on the will of congress - it was state tort claim Claim did not flow from a federal statutory right Pierce did not truly consent Claim was not limited to a particularized area of the law Conclusion: “… this case involves the most prototypical exercise of judicial power: the entry of a final, binding judgment by a court with broad substantive jurisdiction on a common law cause of action, when the action neither derives from nor depends upon any agency regulatory scheme.” Stern, 131 S.Ct. at 2615.

19. Consent by a Creditor By filing claim against bankruptcy estate, creditor triggers the process of allowance and disallowance of claims – subjecting it to bankruptcy court’s equitable powers. Katchen v. Landy, 382 U.S. 323, 86 S.Ct. 467 (1966) Langenkamp v. Culp, 498 U.S. 42, 111 S.Ct. 330 (1990) “The only overlap between the two claims in this case was the question of whether Pierce had in fact tortiously taken control of his father’s estate in the manner alleged by Vickie in her counterclaim and described in the allegedly defamatory statements.” Stern, 131 S.Ct. at 2617 Unlike prior cases, “Vickie’s claim is in no way derived from or dependent upon bankruptcy law; it is a state tort action that exists without regard to any bankruptcy proceeding.” Id. at 2618

20. What Stern Decided Cannot have related to, core jurisdiction. § 157 is not jurisdictional but allocates whether district court or bankruptcy court may enter final judgment. There is a difference between constitutional authority and subject matter jurisdiction. Constitutional right to determination by an Article III judge can be waived Proof of claim is not always consent to determination by bankruptcy court

21. What Stern Left Undecided When can a bankruptcy judge enter final judgments Fraudulent conveyances – does it matter whether they arise under § 548 or § 544? Preferences Mix of core and non-core claims When does a proof of claim constitute consent to entry of final judgment by bankruptcy courts When and how does a party have to consent, and can they change that consent? Can bankruptcy courts propose findings in core proceedings?

22. Judicial Reaction 380 Cases citing Stern through April 20, 2012 Six added in the last week 74 listed as “negative” treatment Madoff Order– April 13, 2012: The reference of the Adversary Proceedings is withdrawn from the Bankruptcy Court, in part, to this Court for the limited purpose of deciding the following issues (the “Withdrawn Stern Issues”): (a) whether the Stem Decision prevents the Bankruptcy Court from entering a final order or judgment resolving claims by the Trustee to avoid or recover initial or subsequent transfers as fraudulent transfers, fraudulent conveyances and/or preferences; (b) if the Bankruptcy Court cannot finally resolve the claims by the Trustee to avoid or recover initial or subsequent transfers as fraudulent transfers, fraudulent conveyances and/or preferences, whether the Bankruptcy Court has the authority to render proposed findings of fact and proposed conclusions of law; and (c) whether the Court should permissively withdraw the reference of the Adversary Proceedings based on the Stem Decision for cause shown pursuant to 28 U.S.C. § 157(d).28 U.S.C. § 157(d)

23. Current Trends In re Blixseth, 2011 WL 3274042 (Bankr. D. Idaho – Aug. 1, 2011) “Since this Court may not constitutionally hear the fraudulent conveyance claim as a core proceeding and this Court does not have statutory authority to hear it as a non-core proceeding, it may in no case hear the claim.” Blixseth, 63 B.R. 896 (Bankr. D. Idaho 2012), amended prior order based on difference between constitutional authority and subject mater jurisdiction, “… several courts have recently concluded that Stern v. Marshall does not deprive bankruptcy courts of subject matter jurisdiction.” In re Heller Ehrman, LLP, 2011 WL 4542512 (Bankr. N.D. Cal. Sept. 28, 2011) “given that Heller's [fraudulent conveyance]claims do arise from bankruptcy law (11 U.S.C. §§ 544(b) & 548) and would not exist but for the bankruptcy (unlike the counterclaims in Stern), I believe that Stern may not limit my power to enter a final judgment on those claims.” In re Heller Ehrman, LLP, 464 B.R. 348, 354 (N.D. Cal. 2011) “By likening the claim in question explicitly to the fraudulent conveyance claims in Granfinanciera, this Court believes that Stern clearly implied that the bankruptcy court lacks constitutional authority to enter final judgment on the fraudulent conveyance claims presented here.” But see In re Appalachian Fuels, LLC, 2012 WL 1344984 (E.D. Ky. April 12, 2012) “In conclusion, the Court finds that the holding of Stern does not apply to the fraudulent transfer and preference claims in Plaintiff's Amended Complaint.” Bellingham Insurance Agency, Inc. v. Executive Benefits Insurance Agency, Inc., Case No. 11-35162 (9 th Cir.) – Pending Modification of Standing Orders re: Withdrawal of Reference