BP RE, L.P. v. RML Waxahachie Dodge, L.L.C.
735 F.3d 279
| 5th Cir. | 2013Background
- BPRE (a Chapter 11 debtor) and BP Automotive sued multiple RML entities in bankruptcy court on state-law contract and tort claims arising from dealership sale/lease negotiations. The adversary complaint characterized the matters as non-core but BPRE initially consented to the bankruptcy court entering a final judgment.
- BPRE later demanded a jury trial and moved to withdraw the reference to the district court after the bankruptcy court denied the jury demand as untimely; the district court denied the withdrawal motion and the case proceeded to a bench trial in the bankruptcy court.
- The bankruptcy court entered final judgment denying BPRE relief; the district court affirmed after de novo review of legal conclusions and clear-error review of facts; this appeal followed to the Fifth Circuit.
- On appeal BPRE argued (inter alia) breach of lease, fraud, and procedural errors including lack of rulings, reliance on out-of-record evidence, denial of jury trial, and lack of constitutional authority for the bankruptcy court to enter final judgment.
- The Fifth Circuit certified and analyzed whether the bankruptcy court had statutory and, crucially, Article III constitutional authority to enter final, appealable judgment on BPRE’s state-law claims under Stern v. Marshall and subsequent precedent.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the bankruptcy court had statutory authority under 28 U.S.C. § 157(c)(2) to enter final judgment on non-core claims | BPRE contends it did not validly consent (and later revoked consent) so bankruptcy court lacked statutory authority | RML argues BPRE consented (expressly in pleadings and pretrial filings) so § 157(c)(2) authorized final judgment | Statutorily § 157(c)(2) would permit final judgment with consent; court found BPRE’s earlier express consent (and conduct) estopped belated revocation for statutory purposes |
| Whether the bankruptcy court had Article III constitutional authority to enter final judgment on state-law claims that merely augment the bankruptcy estate | BPRE argues constitutional objections preclude bankruptcy-court final judgment | RML argues party consent can cure any Article III defect | Court held Stern and its progeny bar bankruptcy courts from entering final judgment on these types of state-law claims even with statutory consent; Article III structural interests are implicated |
| Whether parties may consent to cure the Article III defect (i.e., waive structural Article III protections) | BPRE maintains consent is insufficient to cure structural Article III limitations | RML contends consent or failure to timely object waives the objection | Court followed Waldman and Frazin: parties cannot consent to cure the structural Article III violation where essential attributes of judicial power are exercised; consent is not dispositive |
| Remedy / disposition | BPRE sought reversal and remand with favorable findings on merits | RML sought affirmance of district-court judgment | Court vacated the district-court judgment and remanded to the district court for further proceedings consistent with Article III (bankruptcy court may only submit proposed findings and conclusions if referred) |
Key Cases Cited
- Northern Pipeline Constr. Co. v. Marathon Pipe Line Co., 458 U.S. 50 (1982) (plurality holding non-Article III bankruptcy adjudication of state-law claims unconstitutional)
- Stern v. Marshall, 131 S. Ct. 2594 (2011) (bankruptcy court lacks Article III authority to enter final judgment on certain state-law counterclaims not integral to the claims-allowance process)
- Waldman v. Stone, 698 F.3d 910 (6th Cir. 2012) (parties cannot consent to cure Article III structural defect for bankruptcy-court final adjudication of state-law claims)
- Frazin v. Haynes & Boone, L.L.P. (In re Frazin), 732 F.3d 313 (5th Cir. 2013) (applying Stern to hold bankruptcy court lacked constitutional authority over debtor’s state-law counterclaims despite implied consent)
- Commodity Futures Trading Comm’n v. Schor, 478 U.S. 833 (1986) (framework for assessing whether non-Article III adjudication implicates structural Article III interests)