Randall Waldman v. Ronald Stone
2012 U.S. App. LEXIS 22230
| 6th Cir. | 2012Background
- Stone, a Chapter 11 debtor-in-possession, founded STM, a Kentucky corporation, with limited cash flow despite positive equity.
- Waldman was STM’s principal creditor after a scheme involving Atherton, Stone’s attorney, who was in Waldman’s debt and assisted in defrauding Stone.
- Atherton filed a Chapter 11 petition for STM in 2004, but acted to aid Waldman’s interests rather than STM’s, allowing Fifth Third to foreclose.
- Waldman and Atherton arranged to transfer STM’s assets to Waldman-owned entities in exchange for Waldman paying off Stone’s debts, while promising Stone ownership and a job that never materialized.
- Stone later discovered the fraud, leading to bankruptcy adversary proceedings seeking disallowance of Waldman’s claim and damages for fraud; the bankruptcy court awarded Stone damages on affirmative claims and discharged Waldman’s debts.
- The district court affirmed; Waldman challenges jurisdiction, statutory authority, and Article III power, leading to a remand for the non-core claims and affirmation of disallowance claims.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether federal courts had jurisdiction | Stone’s claims arise related to his bankruptcy case. | Waldman contends jurisdiction is improper. | Related-to jurisdiction proper; claims fall within 28 U.S.C. § 1334(b). |
| Whether the bankruptcy court could render final judgment on the claims | Stone’s claims were core and within § 157(b)(1). | All claims were core and could be finally decided by the bankruptcy court. | Court held disallowance claims were core; affirmative claims were non-core and must be remanded for de novo district-court review. |
| Whether Article III limits bankruptcy court authority to enter final judgments | Article III permits bankruptcy judges to adjudicate core matters. | Judgment on private rights could violate Article III. | Disallowance claims constitutional; affirmative claims violate Article III; remand to convert to proposed findings of fact/conclusions of law for de novo review. |
| Whether the public-rights exception applies to allow final judgment | Affirmative claims could be resolved within bankruptcy process. | Affirmative claims involve private rights and are not public rights. | Affirmative claims are not public rights; require remand for non-core handling. |
Key Cases Cited
- Northern Pipeline Constr. Co. v. Marathon Pipe Line Co., 458 U.S. 50 (1982) (public-rights consideration in bankruptcy power)
- Pacor, Inc. v. Higgins, 743 F.2d 984 (3d Cir. 1984) (test for related-to jurisdiction in bankruptcy)
- Katchen v. Landy, 382 U.S. 323 (1966) (claims-allowance process permits final bankruptcy judgments)
- Langenkamp v. Culp, 498 U.S. 42 (1990) (creditor-proof of claim and final judgment authority)
- Granfinanciera, S.A. v. Nordberg, 492 U.S. 33 (1989) (fraudulent-conveyance claims are private rights; not final in bankruptcy court)
- Stern v. Marshall, 131 S. Ct. 2594 (2011) (public-rights and core vs. non-core in bankruptcy; Article III concerns)
- Radioshack Corp. v. ComSmart, Inc., 222 S.W.3d 256 (Ky. Ct. App. 2007) (parol evidence and statute of frauds in fraud cases)
- Celotex Corp. v. Edwards, 514 U.S. 300 (1995) (related-to jurisdiction and estate assets)
- Schor v. Commodity Futures Trading Comm., 478 U.S. 833 (1986) (structural Article III safeguards in delegation)