Paloian v. American Express Co. (In Re Canopy Financial, Inc.)
2011 U.S. Dist. LEXIS 99804
N.D. Ill.2011Background
- Debtor Canopy Financial filed a Chapter 11 petition in 2009, later converted to Chapter 7; Paloian appointed as Chapter 7 trustee.
- Paloian filed an adversary complaint against American Express on March 4, 2011 seeking avoidance and recovery of transfers due to alleged officer fraud, comprising six counts.
- Counts 1 and 3 pursue fraudulent transfers under Bankruptcy Code §§ 548 and 550; Counts 2, 4, and 5 pursue Illinois law fraudulent transfer theories with § 550; Count 6 asserts unjust enrichment under Illinois law.
- American Express moved to withdraw the reference to the Bankruptcy Court on constitutional grounds, arguing the reference violates Article III.
- The court analyzes Stern v. Marshall to determine the Bankruptcy Court’s authority to adjudicate Paloian’s claims and whether withdrawal is warranted.
- The court concludes Stern did not strip the Bankruptcy Court of authority to hear and propose findings on Paloian’s claims, and denies the motion to withdraw the reference.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Stern's impact on bankruptcy court authority | Stern narrow; fraud claims are core and can be finally decided by the court | Stern precludes final judgment by the Bankruptcy Court on these claims | Stern does not strip authority to hear and propose findings |
| Remaining statutory authority after Stern | Claims remain related-to and can be heard with proposed findings | Statutory framework cannot support final adjudication or proper proceedings after Stern | Bankruptcy Court may hear and propose findings of fact and conclusions of law |
| Withdrawal of reference standard and outcome | No cause shown to withdraw reference given authority to hear and propose | Constitutional concerns warrant withdrawal | Motion to withdraw reference denied |
Key Cases Cited
- Stern v. Marshall, 131 S. Ct. 2594 (2011) (bankruptcy court may not enter final judgment on certain core counterclaims; but may hear related matters)
- Granfinanciera, S.A. v. Nordberg, 492 U.S. 33 (1989) (fraudulent conveyance actions are quintessentially suits at common law)