Zazzali v. 1031 Exchange Group (In Re DBSI, Inc.)
467 B.R. 767
Bankr. D. Del.2012Background
- DBSI and affiliates filed Chapter 11; trustee seeks avoidance/recovery of transfers and related relief across multiple adversary actions.
- Actions include 1031 Exchange, Air Performance, Blind Gallery, Atlas Van Lines, Hoefer Wysocki, IBF Group, Brooks & Amaden, and New West Paving; core and non-core issues alleged.
- Movants move to dismiss arguing Stern v. Marshall and Granfinanciera deprive bankruptcy court of final authority and contend lack of Article III authority.
- Court recognizes Stern’s narrow holding and concludes bankruptcy court may enter final judgments on core avoidance/fraudulent transfer claims.
- Court rejects argument that § 157(c) precludes a recommendation-based approach; Amended Standing Order enables district court to treat order as proposed findings.
- Concludes Stern does not preclude final adjudication and denies motions to dismiss convey finality of proceedings.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Stern bars bankruptcy court from final adjudication of these actions | Stern narrow; fraud/avoidance claims are core. | Stern broad enough to bar final adjudication. | Stern does not bar final adjudication. |
| Whether these actions are core or related with Article III constraints | Claims arise under/because of bankruptcy | Some claims are non-core. | Court can adjudicate core matters; non-core issues via recommended findings. |
| Whether § 157(c)(1) allows recommendations to the district court when final adjudication is constitutionally barred | Recommendations permitted to district court | No authority for recommendations if final adjudication barred | Authority exists to submit proposed findings of fact and conclusions of law. |
| Impact of jury demand on court proceedings | Defendants will demand jury trial | Bankruptcy court cannot conduct jury trial | Not dispositive; jury demand issue not resolved here; resources not wasted. |
| Effect of Amended Standing Order of Reference on final judgments | Order allows district to treat as proposed findings | Is not necessary if final adjudication possible | Amended Standing Order supports treatment of decisions as recommendations if Article III issues arise. |
Key Cases Cited
- Stern v. Marshall, 131 S. Ct. 2594 (Supreme Court, 2011) (narrow vs broad interpretation of bankruptcy court authority)
- Granfinanciera, S.A. v. Nordberg, 492 U.S. 33 (Supreme Court, 1989) (public rights and jury-trial concerns)
- In re Refco, Inc., 461 B.R. 165 (Bankr.S.D.N.Y. 2011) (bankruptcy court can adjudicate fraudulent transfer actions under 11 U.S.C. §§ 544/548)
- In re USDigital, Inc., 461 B.R. 275 (Bankr.D. Del. 2011) (narrow view of Stern; confirms core/related distinctions)
- In re Direct Response Media, Inc., 466 B.R. 626 (Bankr.D.Del. 2012) (adopts narrow Stern interpretation; discusses § 157(c) mechanisms)