Wellness International Network, Limited, v. Sharif

Facts

In 1978, Congress enacted the Bankruptcy Reform Act, which gave the newly created bankruptcy courts power “much broader than that exercised under the former referee system.” The Act enabled bankruptcy courts to decide “all ‘civil proceedings arising under title 11 [the Bankruptcy title] or arising in or related to cases under title 11.’” Congress thus vested bankruptcy judges with most of the “‘powers of a court of equity, law, and admiralty,’” Under the Bankruptcy Amendments and Federal Judgeship Act of 1984, district courts have original jurisdiction over bankruptcy cases and related proceedings. But “each district court may provide that any or all” bankruptcy cases and related proceedings “shall be referred to the bankruptcy judges for the district.” Bankruptcy judges are “judicial officers of the United States district court,” appointed to 14-year terms by the courts of appeals, and subject to removal for cause. “The district court may withdraw” a reference to the bankruptcy court “on its own motion or on timely motion of any party, for cause shown.” Congress gave bankruptcy courts the power to “hear and determine” core proceedings and to “enter appropriate orders and judgments,” subject to appellate review by the district court. It gave bankruptcy courts more limited authority in non-core proceedings: They may “hear and determine” such proceedings, and “enter appropriate orders and judgments,” only “with the consent of all the parties to the proceeding.” §157(c)(2). Absent consent, bankruptcy courts in non-core proceedings may only “submit proposed findings of fact and conclusions of law,” which the district courts review de novo. §157(c)(1). Wellness (D) is a manufacturer of health and nutrition products. D and respondent Sharif (P) entered into a contract under which P would distribute D's products. P sued D and P repeatedly ignored discovery requests and other litigation obligations, resulting in an entry of default judgment for D. The District Court eventually sanctioned P by awarding D over $650,000 in attorney’s fees. This case arises from D's long-running-and so far unsuccessful-efforts to collect on that judgment. In February 2009, P filed for Chapter 7 bankruptcy. D was listed as a creditor. D requested documents concerning P's assets, which P did not provide. D obtained a loan application for P which listed more than $5 million in assets. P said he had lied on the loan application. The listed assets were actually owned by the Soad Wattar Living Trust (Trust), an entity P said he administered on behalf of his mother, and for the benefit of his sister. D requested information on the Trust,  and P again failed to respond. D filed a five-count adversary complaint against P in the Bankruptcy Court. P admitted that the adversary proceeding was a “core proceeding” and requested judgment in his favor on all counts and urged the Bankruptcy Court to “find that the Soad Wattar Living Trust is not property of the [bankruptcy] estate.” P ignored discovery requests. D filed a motion for sanctions, or, in the alternative, to compel discovery. The motion to compel was granted. P eventually complied with some discovery obligations but did not produce any documents related to the Trust. The Bankruptcy Court issued a ruling finding that P had violated the court’s discovery order. It denied P’s request to discharge his debts and entered a default judgment against him in the adversary proceeding. And it declared that the assets supposedly held by the Trust were in fact property of P’s bankruptcy estate because P “treats the assets as his own property.” P appealed to the District Court. The Supreme Court decided Stern. In Stern, the Court held that Article III prevents bankruptcy courts from entering final judgment on claims that seek only to “augment” the bankruptcy estate and would otherwise “exist without regard to any bankruptcy proceeding.” After the close of briefing, P moved for leave to file a supplemental brief, arguing that in light of a recently issued decision interpreting Stern-“the bankruptcy court’s order should only be treated as a report and recommendation.” The District Court denied P's motion for supplemental briefing as untimely and affirmed the Bankruptcy Court’s judgment. P appealed. The Seventh Circuit held that “a litigant may not waive” a Stern objection. The Bankruptcy Court lacked constitutional authority to enter final judgment on count V of D's complaint. The Supreme Court granted certiorari. 

Issues

Rule of Law

Holding and Decision

Legal Analysis

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