Wellness International Network, Ltd. v. Sharif

Whether a bankruptcy court has constitutional authority to enter a final order in a federal 11 U.S.C. § 541 action when there is also a state property law issue present because the action does not “stem from the bankruptcy itself,” and whether conduct of a party is enough to satisfy implied consent for purposes of Article III judicial power.

Respondent entered into sales contracts with Petitioner. Respondent and others brought suit against Petitioner alleging Petitioner was involved in a pyramid scheme. Respondent ignored Petitioner’s discovery requests, and the district court granted summary judgment for Petitioner. The Fifth Circuit affirmed, and $655,596.13 was awarded in attorney’s fees. Respondent continued to ignore requests from Petitioner.

Respondent filed for Chapter 7 bankruptcy because of the fees he owed. Petitioner filed an adversary complaint against him. Respondent failed to respond to discovery requests in the bankruptcy court, and thus default judgment was entered for Petitioner. Respondent appealed to the district court after the United States Supreme Court decided Stern v. Marshall, holding that a bankruptcy court does not have constitutional authority to enter judgment on a state claim.

The district court denied Respondent’s motion as untimely, and affirmed the bankruptcy court’s judgment. The United States Court of Appeals Seventh Circuit affirmed the default judgment against Respondent denying the discharge of debts, but reversed the judgment for Petitioner’s adversary complaint, holding that a Stern objection is not waivable.

The United States Supreme Court granted certiorari on the issues of whether a bankruptcy court has constitutional authority to enter a final order in a federal 11 U.S.C. § 541 action when there is also a state property law issue present because the action does not “stem from the bankruptcy itself,” and whether conduct of a party is enough to satisfy implied consent for purposes of Article III judicial power.

Petitioner claims there are inconsistencies between the Seventh Circuit and the Fourth Circuit. In addition, the Seventh Circuit’s decision that an action against the debtor is a state law claim conflicts with six other circuits. Furthermore, Petitioner hopes the Court will clarify Stern and determine when an “action stems from the bankruptcy itself.”