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Wellness Int'l Network, Ltd. v. Sharif
189 L. Ed. 2d 854
SCOTUS
2015
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Background

  • Wellness obtained a default judgment and later sought to collect from Sharif in his Chapter 7 bankruptcy, alleging Sharif concealed assets in a trust and asserting an alter-ego claim that would make the trust assets part of the bankruptcy estate.
  • The Bankruptcy Court entered default judgment and declared the trust assets part of Sharif’s estate; Sharif appealed to the district court but did not raise a Stern objection until after briefing closed.
  • While the appeal was pending, this Court’s decision in Stern v. Marshall recognized that bankruptcy courts lack Article III authority to enter final judgment on certain "Stern claims"—claims that exist independently of the bankruptcy and only "augment" the estate.
  • The Seventh Circuit held Sharif’s Stern objection could not be waived because it implicated structural Article III interests and concluded the Bankruptcy Court lacked constitutional authority to enter final judgment on the alter-ego claim.
  • The Supreme Court granted certiorari to decide whether parties may consent to bankruptcy-court adjudication of Stern claims and whether consent must be express, and it reversed the Seventh Circuit.

Issues

Issue Plaintiff's Argument (Wellness) Defendant's Argument (Sharif) Held
May bankruptcy courts constitutionally enter final judgment on Stern claims if the parties knowingly and voluntarily consent? Consent cures the Article III problem; parties may agree to adjudicate before a bankruptcy judge. Consent cannot cure structural Article III defects; parties cannot waive the institutional protections of Article III. Yes. Article III permits bankruptcy judges to adjudicate Stern claims with knowing, voluntary consent.
Must consent to adjudication by a bankruptcy court be express? Implied consent suffices so long as it is knowing and voluntary. Express consent is required to ensure the waiver is knowing and voluntary. No. Consent need not be express; implied consent is acceptable if knowing and voluntary (Roell standard).
Was Sharif’s Stern objection timely/forfeited and did he in fact consent? Wellness: Sharif impliedly consented and also forfeited the Stern objection by delay. Sharif: objection timely due to structural nature; he did not consent. The Supreme Court remanded those fact-specific issues to the Seventh Circuit to decide whether Sharif knowingly and voluntarily consented and whether he forfeited the objection.

Key Cases Cited

  • Commodity Futures Trading Comm’n v. Schor, 478 U.S. 833 (discusses waiver/consent and limits where structural Article III interests implicated)
  • Stern v. Marshall, 564 U.S. 462 (2011) (holds bankruptcy courts lack Article III authority to enter final judgment on certain claims that do not stem from the bankruptcy)
  • Northern Pipeline Constr. Co. v. Marathon Pipe Line Co., 458 U.S. 50 (1982) (limits on Congress assigning traditional Article III matters to non-Article III tribunals)
  • Peretz v. United States, 501 U.S. 923 (1991) (consent to magistrate involvement alters Article III analysis)
  • Gomez v. United States, 490 U.S. 858 (1989) (magistrate authority without consent raises constitutional concerns)
  • Roell v. Withrow, 538 U.S. 580 (2003) (statutory/constitutional waiver by conduct; implied consent standard)
  • Granfinanciera, S.A. v. Nordberg, 492 U.S. 33 (1989) (distinguishes fraudulent-transfer actions and discusses jury/right-to-trial considerations in bankruptcy)
  • Plaut v. Spendthrift Farm, Inc., 514 U.S. 211 (1995) (structural separation-of-powers principles and limits on retroactive legislative action)
Read the full case

Case Details

Case Name: Wellness Int'l Network, Ltd. v. Sharif
Court Name: Supreme Court of the United States
Date Published: May 26, 2015
Citation: 189 L. Ed. 2d 854
Docket Number: 13-935
Court Abbreviation: SCOTUS