Wellness International Network, Ltd. v. Sharif
135 S. Ct. 1932
| SCOTUS | 2015Background
- Wellness obtained a federal district-court judgment against Sharif and later sued in bankruptcy to except the debt from discharge and to treat assets held in the Soad Wattar Living Trust as Sharif’s (an alter-ego / estate property claim).
- Sharif filed Chapter 7 in the Northern District of Illinois; Wellness brought an adversary proceeding in bankruptcy court (pleading included a count seeking a declaratory judgment that the Trust’s assets were Sharif’s).
- The Bankruptcy Court entered default judgment for Wellness on discovery grounds and declared the Trust assets property of Sharif’s bankruptcy estate.
- On appeal, after Stern v. Marshall, the Seventh Circuit held the alter-ego count was a “Stern” claim (a claim requiring Article III adjudication) and ruled the bankruptcy court lacked constitutional authority to enter final judgment on it.
- The Supreme Court granted certiorari to decide whether Article III permits bankruptcy judges to enter final judgment on Stern-type claims when the parties knowingly and voluntarily consent.
- The Supreme Court reversed the Seventh Circuit, holding Article III is not violated when parties knowingly and voluntarily consent to adjudication of Stern claims by bankruptcy judges, and remanded to determine whether consent existed here.
Issues
| Issue | Plaintiff's Argument (Wellness) | Defendant's Argument (Sharif) | Held |
|---|---|---|---|
| 1. May bankruptcy judges enter final judgment on "Stern" claims? | Wellness argued the alter-ego claim implicated estate property and was properly adjudicated by the bankruptcy court (or, alternatively, could be resolved by consent). | Sharif argued Stern & Northern Pipeline mean bankruptcy judges cannot enter final judgment on such claims because they require Article III judges. | Court: Absent consent, Stern claims implicate Article III; but parties may validly consent to final adjudication by a bankruptcy judge. |
| 2. Can litigant consent cure an Article III structural problem for Stern claims? | Wellness: Yes; consent diminishes separation-of-powers concerns when Article III supervision remains. | Sharif: No; structural separation-of-powers protections cannot be waived by private parties. | Court: Consent (knowing and voluntary) can permit bankruptcy adjudication of Stern claims; structural concerns are reduced when Article III courts retain control. |
| 3. Must consent be express? | Wellness: §157 and practice allow consent; implied consent is acceptable if knowing and voluntary. | Sharif: Consent must be express to ensure waiver of Article III rights. | Court: Express consent not required; implied consent allowed under Roell standard if parties were informed and voluntarily appeared. |
| 4. Did Sharif actually consent / procedural consequence? | Wellness: Sharif’s pleadings/admissions in bankruptcy indicated consent or forfeiture. | Sharif: Did not validly consent; preserved Stern objection. | Court: Left factual determination to Seventh Circuit on remand whether Sharif knowingly and voluntarily consented and whether he forfeited the Stern argument. |
Key Cases Cited
- Stern v. Marshall, 564 U.S. 462 (2011) (held certain claims classified as "core" by statute nonetheless require Article III adjudication)
- Commodity Futures Trading Comm’n v. Schor, 478 U.S. 833 (1986) (party waiver can mitigate Article III concerns; consent to non-Article III adjudication may be valid where structural interests are not implicated)
- Northern Pipeline Constr. Co. v. Marathon Pipe Line Co., 458 U.S. 50 (1982) (plurality) (invalidated certain bankruptcy adjudications by non-Article III judges absent consent)
- Peretz v. United States, 501 U.S. 923 (1991) (consent to magistrate judge proceedings alters constitutional analysis)
- Roell v. Withrow, 538 U.S. 580 (2003) (consent to magistrate adjudication need not be express; implied consent standard requires awareness and voluntariness)
- Granfinanciera, S.A. v. Nordberg, 492 U.S. 33 (1989) (distinguished fraudulent-conveyance actions and discussed jury/right-to-jury and Article III allocation of adjudicative authority)