Burtch v. Huston (In Re USDigital, Inc.)
461 B.R. 276
Bankr. D. Del.2011Background
- Defendants seek a determination whether Counts 9–16 are core or non-core; plaintiff concedes Counts 9, 10, 12, 13, and 16 are non-core, leaving Count 15 (equitable subordination) as the issue.
- Count 15 asks equitable subordination of claims by McNeil, Ziegler, Humphrey, and NexGen; the court must decide its core/non-core status.
- Stern v. Marshall is invoked to distinguish core vs non-core and constitutional authority to enter final judgments in non-core matters.
- Statutory framework: §157(b) lists core proceedings; non-enumerated core claims may exist per Third Circuit approach; non-core matters are subject to de novo review.
- The court analyzes whether Count 15 fits within enumerated core categories or non-enumerated core analysis under §157(b), and then considers Stern’s constitutional limitations.
- Proceeding is an adversary in a Chapter 7 case in the District of Delaware; decision issued December 20, 2011 by Judge Sontchi.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Is Count 15 a core proceeding under §157(b)(2)? | Count 15 invokes a bankruptcy-specific substantive right (510(c)) and is non-enumerated core. | Count 15 is not a core matter under the enumerated list and the non-enumerated core test is uncertain post-Stern. | Count 15 is a core proceeding under the statute (non-enumerated core) and constitutionally valid. |
| Does Stern v. Marshall apply to Count 15 and limit its core status or final-judgment authority? | Stern should constrain final judgments on non-core matters as constitutional issues independent of 510(c). | Stern controls; its holding may strip bankruptcy courts of power to enter final judgments in certain state-law counterclaims. | Stern is applicable but its scope is narrow; Count 15 remains core under both statute and Constitution. |
| If Stern applied broadly, would Count 15 still be core by statutory/constitutional standards? | Even under Stern’s constitutional concerns, Count 15 can remain core via §510(c) and bankruptcy-subordination framework. | A broad reading of Stern would render many core proceedings unconstitutional. | The court reads Stern narrowly; Count 15 remains core notwithstanding Stern’s general admonitions. |
Key Cases Cited
- Stern v. Marshall, 131 S. Ct. 2594 (Supreme Court 2011) (bankruptcy court cannot enter final judgment on a state-law counterclaim lacking relation to creditor's claim)
- Granfinanciera, S.A. v. Nordberg, 492 U.S. 33 (Supreme Court 1989) (fraudulent conveyance action; public rights exception and state-law claims in bankruptcy)
- Northern Pipeline Constr. Co. v. Marathon Pipe Line Co., 458 U.S. 50 (Supreme Court 1982) (public rights exception foundational standard)
- Katchen v. Landy, 382 U.S. 323 (Supreme Court 1966) (priority of claims and bankruptcy adjudication principles)
- Langenkamp v. Culp, 498 U.S. 42 (Supreme Court 1990) (consent and finality issues in bankruptcy proceedings)
- In re Winstar Communications, Inc., 554 F.3d 382 (3d Cir. 2009) (two-step core vs non-core analysis; related to 157(b) framework)