Executive Benefits Insurance Agency v Arkison

Whether Article III of the US Constitution allows a bankruptcy court to exercise their judicial power on the basis of litigant consent, and if allowed, does “implied consent” caused by a litigant’s conduct, where a statute does not require consent of the litigant, satisfy Article III.

After one of Petitioner's companies became insolvent, Petitioner used remaining funds from the insolvent company to incorporate another company and then filed for Chapter 7 bankruptcy. Respondent filed in bankruptcy court to recover the funds transferred from the insolvent company to the newly incorporated company. The bankruptcy court granted summary judgment in favor of Respondent. Petitioner appealed and the court affirmed the bankruptcy court’s decision. Petitioner then appealed to the Ninth Circuit Court of Appeals where, for the first time, petitioner challenged that the bankruptcy court judge was constitutionally prohibited from entering a final judgment for Respondent.

The Ninth Circuit Court of Appeals held that even though 28 U.S.C. 157(b)(2) allowed a bankruptcy judge to enter a final decision, bankruptcy courts are constitutionally prohibited from declaring a final judgment. However, the Ninth Circuit Court of Appeals found that Petitioner had consented to the bankruptcy judge’s final decision and there for waived all rights under Article III of the US Constitution. Petitioner contends that there is a violation of separation of powers when a non-Article III bankruptcy judge enters a final judgment on a private right of action and that consent should not be inferred from a failure to object.

The Supreme Court granted certiorari to decide whether Article III of the US Constitution allows a bankruptcy court to exercise their judicial power on the basis of litigant consent, and if allowed, does “implied consent” caused by a litigant’s conduct, where a statute does not require consent of the litigant, satisfy Article III.