In the Matter of BELLINGHAM INSURANCE AGENCY, INC., Debtor. Executive Benefits Insurance Agency, Appellant, v. Peter H. Arkison, Trustee, solely in his capacity as Chapter 7 Trustee of the estate of Bellingham Insurance Agency, Inc., Appellee.
No. 11-35162
United States Court of Appeals, Ninth Circuit
Argued and Submitted Oct. 13, 2011. Filed Dec. 4, 2012.
702 F.3d 553
Our decision to overrule Acosta amounts to a complete reversal of a settled rule of law upon which a vulnerable class of litigants reasonably and detrimentally relied. The equities tip heavily in their favor, since those who sought adjustment of status in reliance on Acosta will face deportation if our rule applies retroactively. Though the second factor weighs in favor of retroactivity, in light of the strength of the first and third factors, I conclude that the rule of Briones should apply in this circuit purely prospectively.
V.
For these reasons, I respectfully dissent. The rule of Chevron Oil, not Montgomery Ward, should govern our retroactivity analysis in Brand X deference cases. Applying that rule here, our decision should apply prospectively, and Garfias‘s petition should be granted.8
Denice Moewes; Wood & Jones, Seattle, WA, for Appellee.
Alan Vanderhoff; Vanderhoff Law Group, San Diego, CA, for Amicus Curiae Alan Vanderhoff.
G. Eric Brunstad, Jr.; Dechert LLP, Hartford, CT, for Amicus Curiae G. Eric Brunstad, Jr.
Seth P. Waxman and Craig Goldblatt; Wilmer Cutler Pickering Hale and Dorr LLP, Washington, D.C., for Amici Curiae S. Todd Brown, G. Marcus Cole, Ronald D. Rotunda, and Todd J. Zywicki.
John Anthony Edwards Pottow; University of Michigan Law School, Ann Arbor, MI, for Amicus Curiae John Anthony Edwards Pottow.
Roberta Ann Colton; Trenam Kemker Attorneys, Tampa, FL, for Amicus Curiae the Business Law Section of the Florida Bar.
Paul D. Moore; Duane Morris LLP, Boston, MA, for Amici Curiae New CH YMC Acquisition LLC, Yellowstone Mountain Club, LLC, and Yellowstone Development, LLC.
Lynne F. Riley; Riley Law Group LLC, Boston, MA; and Jessica D. Gabel; Georgia State University College of Law, Atlanta, GA, for Amicus Curiae National Association of Bankruptcy Trustees.
Nathaniel Garrett; Jones Day, San Francisco, CA, for Amicus Curiae Jones Day.
Sarang Vijay Damle and Robert Loeb; U.S. Department of Justice Civil Division, Washington, D.C., for Amicus Curiae United States of America.
Douglas Hallward-Driemeier; Ropes & Gray, LLP, Washington, D.C., for Amicus Curiae Marcia M. Tingley.
David Anthony Gaston; Law Offices of David Anthony Gaston, San Diego, CA; and Edward Silverman; Sandler Lasry Laube Byer & Valdez, LLP, San Diego, CA, for Amici Curiae Alejandro Diaz-Barba and Martha Margarita Barba de la Torre.
Matthew Rutledge Schultz and Christopher Daniel Sullivan; Trepel Greenfield Sullivan & Draa LLP, San Francisco, CA, for Amicus Curiae Concerned Chapter 7 and 11 Trustees and Plan Administrators.
Before ALEX KOZINSKI, Chief Judge, RICHARD A. PAEZ, Circuit Judge, and RANER C. COLLINS,* District Judge.
OPINION
PAEZ, Circuit Judge:
This quotidian bankruptcy case presents a novel question: can a non-Article III bankruptcy judge enter a final judgment in a fraudulent conveyance action against a nonclaimant to the bankruptcy estate? Federal law empowers bankruptcy judges to do so, but we hold that the Constitution forbids it.
The Executive Benefits Insurance Agency suffered an adverse final judgment in a fraudulent conveyance at the hands of a bankruptcy judge. But our decision today is no reprieve, because we also hold that the company consented to the adjudication of the fraudulent conveyance claim by a bankruptcy judge by failing to object until the case reached this court. Thus, unencumbered by constitutional doubts, we review the entry of summary judgment de novo, and affirm.
I
Nicholas Paleveda and his wife, Marjorie Ewing, operated a welter of companies, including Aegis Retirement Income Services, Inc. (“ARIS“) and the Bellingham Insurance Agency, Inc. (“BIA“). ARIS designed and administered defined-benefit pension plans, and BIA sold insurance and annuity products that funded those plans.
BIA and ARIS were closely related: Paleveda owned 100% of ARIS and served as the CEO and sole director of BIA until February 14, 2006, when Ewing took over. Ewing owned 80% of BIA and served as ARIS‘s general manager. ARIS and BIA shared an office and a phone number. Because ARIS lacked sufficient assets to operate independently, it routed all of its income and expenses through BIA, kept joint accounting records with BIA, and declared its income on consolidated tax returns with BIA.
By early 2006, BIA was insolvent. And though the company ceased operations on January 31, 2006, it did not stop acting entirely. Two weeks after closing its doors, the company irrevocably assigned the insurance commissions from one of its largest clients, the American National Insurance Company, to Peter Pearce, a longtime BIA and ARIS employee who had often acted as a conduit for insurance commissions between BIA and its clients.
The day after BIA stopped operating, Paleveda used BIA funds to incorporate
* The Honorable Raner C. Collins, United States District Judge for the District of Arizona, sitting by designation.
In the meantime, BIA had filed a voluntary Chapter 7 bankruptcy petition in the United States Bankruptcy Court for the Western District of Washington. The Trustee, Peter Arkison—the Appellee in this case—filed a complaint against EBIA and ARIS in the same court to recover the commissions deposited into the EBIA/ARIS account, which the Trustee alleged to be property of the estate. The complaint alleged eighteen causes of action, including federal- and state-law preferential and fraudulent transfer claims and a claim that EBIA was a successor corporation of BIA and therefore liable for its debts.
The bankruptcy court granted summary judgment in favor of the Trustee, concluding that the deposits into the EBIA/ARIS account were fraudulent conveyances of BIA assets and that EBIA was a “mere successor” of BIA. The bankruptcy court entered a final judgment for $373,291.28.2
EBIA appealed to federal district court. The district court affirmed, holding that the commissions paid into the ARIS/EBIA account were fraudulent transfers under both the Bankruptcy Code,
EBIA appealed. In a motion to dismiss submitted prior to oral argument, EBIA objected for the first time to the bankruptcy judge‘s entry of final judgment on the Trustee‘s fraudulent conveyance claims. Styled as a motion to vacate the judgment for lack of subject-matter jurisdiction, and relying on Stern v. Marshall, — U.S. —, 131 S. Ct. 2594, 180 L. Ed. 2d 475 (2011), the motion argued that the bankruptcy judge was constitutionally proscribed from entering final judgment on the Trustee‘s claims.3 It is to this vexing constitutional issue that we first turn.
A
Bankruptcy judges are appointed for terms of 14 years,
Nonetheless, bankruptcy judges enjoy substantial statutory authority. Although the district courts have exclusive jurisdiction over “all cases under title 11,”
Section 157(b)(2) enumerates sixteen nonexclusive examples of “core proceedings.” Among these are “proceedings to determine, avoid, or recover fraudulent conveyances.”
B
To explain why this is so, we must begin somewhat earlier, with the Supreme Court‘s epochal decision in Northern Pipeline Construction Co. v. Marathon Pipe Line Co., 458 U.S. 50, 102 S. Ct. 2858, 73 L. Ed. 2d 598 (1982). The Bankruptcy Reform Act of 1978 invented the modern bankruptcy judge, subject to the same conditions as today: a 14-year term and a mutable salary. Id. at 53, 102 S. Ct. 2858. Northern Pipeline was the Supreme Court‘s first effort to demarcate the constitutional limits of these judges’ authority.
Northern Pipeline filed a Chapter 11 petition for reorganization in a bankruptcy court. Id. at 56, 102 S. Ct. 2858. It then filed a suit against Marathon Pipe Line for a prepetition breach of contract and warranty. Id. Marathon sought to dismiss the suit on the grounds that the claim at issue could only be decided by an Article III judge. Id.
A plurality of the Court agreed that the assignment of Northern Pipeline‘s state-law claims for resolution by a bankruptcy
While a majority of the Court could not agree on the scope of the public rights exception, a majority did agree that the public rights exception could not justify the adjudication of Northern Pipeline‘s claims by a non-Article III officer. See id. at 69, 102 S. Ct. 2858 (plurality opinion); id. at 91, 102 S. Ct. 2858 (“To whatever extent different powers granted under [the Bankruptcy Reform] Act might be sustained under the ‘public rights’ doctrine . . . I am satisfied that the adjudication of Northern‘s lawsuit cannot be so sustained.“) (Rehnquist, J., concurring).
Despite consigning the breach of contract and breach of warranty claims at issue to the category of private rights, the Northern Pipeline plurality hinted that some quantum of bankruptcy proceedings might fall within the public rights exception:
[T]he restructuring of debtor-creditor relations, which is at the core of the federal bankruptcy power, must be distinguished from the adjudication of state-created private rights, such as the right to recover contract damages that is at issue in this case. The former may well be a “public right,” but the latter obviously is not.
Following the Northern Pipeline decision, Congress amended the statutes governing bankruptcy jurisdiction and bankruptcy judges. See Bankruptcy Amendments and Federal Judgeship Act of 1984,
Similarly, in Commodity Futures Trading Commission v. Schor, 478 U.S. 833, 851, 106 S. Ct. 3245, 92 L. Ed. 2d 675 (1986), the Supreme Court abjured “formalistic and unbending rules” for “determining the extent to which a given congressional decision to authorize the adjudication of Article III business in a non-Article III tribunal impermissibly threatens the institutional integrity of the Judicial Branch.” Instead, the Court held that determining when a proceeding required an Article III court entailed balancing several factors “with an eye to the practical effect that the congressional action will have on the constitutionally assigned role of the federal judiciary“:
Among the factors upon which we have focused are the extent to which the “essential attributes of judicial power” are reserved to Article III courts, and, conversely, the extent to which the non-Article III forum exercises the range of jurisdiction and powers normally vested only in Article III courts, the origins and importance of the right to be adjudicated, and the concerns that drove Congress to depart from the requirements of Article III.
Id. (citing Thomas, 473 U.S. at 587, 589-93, 105 S. Ct. 3325). This multi-factor standard demanded a certain hierophancy on the part of the lower courts, which had to comb through the Court‘s inconsistent statements about the metes and bounds of Article III to apply it. But the standard did reflect a pragmatic accommodation of the realities of modern bankruptcy practice and the logistical and administrative difficulty of circumscribing the authority of the bankruptcy courts.
Encouraged by the Supreme Court‘s retreat from a formalist conception of the
Today, we acknowledge Mankin‘s demise.5 It has been felled by two cases: Granfinanciera, S.A. v. Nordberg, 492 U.S. 33, 109 S. Ct. 2782, 106 L. Ed. 2d 26 (1989), and Stern v. Marshall, which together point ineluctably to the conclusion that fraudulent conveyance claims, because they do not fall within the public rights exception, cannot be adjudicated by non-Article III judges.
In Granfinanciera, the Court considered whether a non-claimant to a bankruptcy estate has a Seventh Amendment right to a jury trial when sued by the bankruptcy trustee under
Was a fraudulent conveyance proceeding a matter of public right? The Court‘s answer was, if not unequivocal, at least conclusive: “Although the issue admits of some debate, a bankruptcy trustee‘s right to recover a fraudulent conveyance under
Granfinanciera clarified that fraudulent conveyance actions are not matters of public right, and that a noncreditor retains a Seventh Amendment right to a jury trial on a bankruptcy trustee‘s fraudulent conveyance claim. Some courts, however, seemed disinclined to deduce from those holdings that such litigants also retain a right to be heard by an Article III court. See, e.g., McFarland v. Leyh (In re Tex. Gen. Petroleum Corp.), 40 F.3d 763, 770 (5th Cir. 1994), withdrawn and replaced by 52 F.3d 1330 (5th Cir. 1995); Turner v. Davis, Gillenwater & Lynch (In re Investment Bankers, Inc.), 4 F.3d 1556, 1561 (10th Cir. 1993). But see Leyh, 52 F.3d at 1336-37; Gower v. Farmers Home Admin. (In re Davis), 899 F.2d 1136, 1140 n. 9 (11th Cir. 1990).
Following Stern, we can no longer resist Granfinanciera‘s logic. The issue in Stern was whether a bankruptcy court could enter final judgment on a state-law claim for tortious interference with a gift expectancy, which Vickie Marshall had filed as a compulsory counterclaim to Pierce Marshall‘s proof of claim in her ongoing bankruptcy proceeding. See 131 S. Ct. at 2601. The Supreme Court held that it could not, because “Vickie‘s counterclaim cannot be deemed a matter of ‘public right’ that can be decided outside the Judicial Branch.” Id. at 2611. In the course of a lengthy exegesis of its own public-rights precedents, the Court explained that the state-law counterclaim at issue was indistinguishable from the fraudulent conveyance claim in Granfinanciera: “Vickie‘s counterclaim—like the fraudulent conveyance claim at issue in Granfinanciera—does not fall within any of the varied formulations of the public rights exception in this Court‘s cases.” Id. at 2614. This common character of the claims in Granfinanciera and Stern means that neither can be consigned to the bankruptcy courts without doing violence to the constitutional separation of powers:
What is plain here is that this case involves the most prototypical exercise of judicial power: the entry of a final, binding judgment by a court with broad substantive jurisdiction, on a common law cause of action, when the action neither derives from nor depends upon any agency regulatory regime. If such an exercise of judicial power may nonetheless be taken from the Article III Judiciary simply by deeming it part of some amorphous “public right,” then Article III would be transformed from the guardian of individual liberty and separation of powers we have long recognized into mere wishful thinking.
Id. at 2615. Here, the Trustee‘s fraudulent conveyance claims are not matters of “public right,” and, ipso facto, cannot be decided outside the Article III courts.7
Indeed, our decisions point to the conclusion that, if a statutory cause of action is legal in nature, the question whether the Seventh Amendment permits Congress to assign its adjudication to a tribunal that does not employ juries as factfinders requires the same answer as the question whether Article III allows Congress to assign adjudication of that cause of action to a non-Article III tribunal. For if a statutory cause of action, such as respondent‘s right to recover a fraudulent conveyance under
11 U.S.C. § 548(a)(2) , is not a “public right” for Article III purposes, then Congress may not assign its adjudication to a specialized non-Article III court lacking “the essential attributes of the judicial power.”
492 U.S. at 53, 109 S. Ct. 2782. And the Court in Stern characterized cases involving Seventh Amendment jury trial rights as binding authority on the Article III issue. Stern described Granfinanciera—a case about Seventh Amendment rights—as deciding that “Congress could not constitutionally assign resolution of the fraudulent conveyance action to a non-Article III court.” 131 S. Ct. at 2614 n. 7.
The Stern Court again transmuted a Seventh Amendment case into an Article III precedent in its analysis of Langenkamp v. Culp, 498 U.S. 42, 111 S. Ct. 330, 112 L. Ed. 2d 343 (1990). Langenkamp itself stated that the case “present[ed] the question whether creditors who submit a claim against a bankruptcy estate and are then sued by the trustee in bankruptcy to recover allegedly preferential monetary transfers are entitled to jury trial under the Seventh Amendment.” Id. at 42-43, 111 S. Ct. 330. On the Stern Court‘s reading, however, Langenkamp also decided whether such a claim could be heard in bankruptcy at all: “We explained [in Langenkamp] that a preferential transfer claim can be heard in bankruptcy when the allegedly favored creditor has filed a claim . . . . If, in contrast, the creditor has not filed a proof of claim, the trustee‘s preference action does not ‘become[] part of the claims-allowance process’ subject to resolution by the bankruptcy court.” 131 S. Ct. at 2617 (alteration in original) (emphasis added) (quoting Langenkamp, 498 U.S. at 45, 111 S. Ct. 330).
Stern fully equated bankruptcy litigants’ Seventh Amendment right to a jury trial in federal bankruptcy proceedings with their right to proceed before an Article III judge. Hence, Granfinanciera‘s statement that “[u]nless a legal cause of action involves ‘public rights,’ Congress may not deprive parties litigating over such a right of the Seventh Amendment‘s guarantee to a jury trial” is powerful evidence that Congress also may not deprive such parties of their right to an Article III tribunal. 492 U.S. at 53, 109 S. Ct. 2782.
Several amici object that the claim at issue in Stern was a state-law claim, and that the Trustee‘s
That is wrong for two reasons. First, the dispositive distinction between the claims in Stern and Katchen was that in Katchen, the trustee‘s preference action “would necessarily be resolved in the claims allowance process” because the defendant had filed a proof of claim against the bankruptcy estate. Stern, 131 S. Ct. at 2618. The preference action necessarily had to be resolved in the course of deciding whether to allow the defendant‘s claim on the estate. By contrast, Vickie Marshall‘s counterclaim in Stern required the bankruptcy court to “make several factual and legal determinations that were not disposed of in passing on objections to Pierce‘s proof of claim for defamation.” Id. at 2617 (internal quotation marks omitted). “There thus was never reason to believe that the process of ruling on Pierce‘s proof of claim would necessarily result in the resolution of Vickie‘s counterclaim.” Id. at 2617-18.
Second, a rule that classified any federal-law claim as a “public right” would render Stern internally contradictory. Assume that the Stern Court‘s observation that “Vickie‘s claim . . . is in no way derived from or dependent upon bankruptcy law” was the sole basis by which the Court distinguished the counterclaim in that case from the preference action in Katchen. If that were so, the Stern Court‘s characterization of the holding in Granfinanciera that “Congress could not constitutionally assign resolution of the fraudulent conveyance action to a non-Article III court,” 131 S. Ct. at 2614 n. 7—would be incoherent, because the claim in Granfinanciera arose under
Granfinanciera involved a federal-law claim, and Stern involved a state-law claim. But Stern held that both claims required an Article III court. Thus, the only principled basis on which to distinguish Katchen from both Stern and Granfinanciera is that Katchen involved a claim against a creditor that necessarily had to be resolved in the course of the claims-allowance process, and Stern and Granfinanciera did not.
In this case, EBIA is a noncreditor to the BIA bankruptcy estate. Hence, it is not subject to the bankruptcy court‘s equitable jurisdiction; the trustee can recover monies fraudulently conveyed to it only by initiating a legal action. Cf. Langenkamp v. Culp, 498 U.S. 42, 45, 111 S. Ct. 330, 112 L. Ed. 2d 343 (1990) (“If a party does not submit a claim against the bankruptcy estate, however, the trustee can recover allegedly preferential transfers only by filing what amounts to a legal action to recover a monetary transfer.“). That legal action need not necessarily have been resolved in the course of allowing or
*
*
*
Taken together, Granfinanciera and Stern settle the question of whether bankruptcy courts have the general authority to enter final judgments on fraudulent conveyance claims asserted against noncreditors to the bankruptcy estate. They do not. We now turn to a subsidiary question: whether bankruptcy judges may constitutionally hear such claims, and prepare recommendations for de novo review by the federal district courts.
III
Federal law authorizes bankruptcy judges to “hear and determine all cases under title 11 and all core proceedings arising under title 11, or arising in a case under title 11.”
Our conclusion today creates a gap in this framework: Federal law classifies fraudulent conveyance proceedings as “core” proceedings,
We have noted that Congress enumerated the examples of core proceedings in
In sum,
Our conclusion is consistent with the Stern Court‘s tacit approval of bankruptcy courts’ continuing to hear and make recommendations about statutory core proceedings in which entry of final judgment by a non-Article III judge would be unconstitutional. The district court that heard Stern before it reached the Supreme Court took the view that the bankruptcy court had lacked the constitutional authority to enter final judgment on Vickie Marshall‘s counterclaim. See Stern, 131 S. Ct. at 2602. For that reason, the district court treated the bankruptcy court‘s judgment as “proposed[,] rather than final,” and reviewed the judgment de novo. Id. (alteration in original). Nowhere did the Stern Court object to the district court‘s judgment. Instead, the Court noted that Pierce Marshall “ha[d] not argued that the bankruptcy courts are barred from hearing all counterclaims or proposing findings of fact and conclusions of law on those matters.” Id. at 2620 (internal quotation marks omitted). Immediately thereafter, the Court explained, “We do not think the removal of counterclaims such as Vickie‘s from core bankruptcy jurisdiction meaningfully changes the division of labor in the current statute; we agree . . . that the question presented here is a ‘narrow’ one.” Id. Stripping the bankruptcy courts of the power to entertain state-law counterclaims in any capacity would have roiled the prevailing bankruptcy schema. The Court was surely suggesting that bankruptcy courts were not “barred from hearing all counterclaims or proposing findings of facts and conclusions of law on those matters.” Id. (internal quotation marks omitted); see also Heller Ehrman LLP v. Arnold & Porter, LLP (In re Heller Ehrman), 464 B.R. 348, 355-56 (N.D. Cal. 2011) (noting the near-universal approbation by district courts and bankruptcy courts of the view that Stern permits bankruptcy courts to submit reports and recommendations in bankruptcy-related proceedings even when the entry of final judgment is unconstitutional).
For these reasons, we conclude that bankruptcy courts have statutory authority to hear and enter proposed findings of fact and conclusions of law in a fraudulent conveyance proceeding asserted by a bankruptcy trustee against a noncreditor, subject to de novo review by a federal district court.
IV
Several amici contend that even if defendants in fraudulent conveyance suits have a right to a hearing in an Article III court, that right is waivable. We agree, and hold that EBIA waived its right to an Article III hearing.
The waivable nature of the allocation of adjudicative authority between bankruptcy courts and Article III courts is well established. Prior to the Bankruptcy Act of 1978, federal law distinguished between “summary” matters, which involved property in the actual or constructive possession of the court, and “plenary” matters, which did not. See Northern Pipeline, 458
Following the genesis of the modern bankruptcy system, the Supreme Court clarified that “Article III, § 1‘s guarantee of an independent and impartial adjudication by the federal judiciary of matters within the judicial power of the United States . . . serves to protect primarily personal, rather than structural, interests.” Schor, 478 U.S. at 848, 106 S. Ct. 3245.9 Stern further made clear that
If consent permits a non-Article III judge to decide finally a non-core proceeding, then it surely permits the same judge to decide a core proceeding in which he would, absent consent, be disentitled to enter final judgment. The only question, then, is whether EBIA did in fact consent to the bankruptcy court‘s jurisdiction.
We have previously held that a bankruptcy litigant impliedly consents to the bankruptcy court‘s jurisdiction when he fails to timely object. In In re Daniels-Head, 819 F.2d at 919, we held “that appellant‘s failure to object to the bankruptcy court‘s jurisdiction constitutes consent to that jurisdiction.” Similarly, in Mann v. Alexander Dawson Inc. (In re Mann), 907 F.2d 923, 926 (9th Cir. 1990), we held that a debtor‘s decision to file an adversary proceeding in bankruptcy court, and his failure to object to the court‘s jurisdiction prior to the time it rendered judgment against him, meant that “he consented to the court‘s jurisdiction.” Id.
A month later, the bankruptcy court entered summary judgment in Arkison‘s favor. EBIA abandoned its motion to withdraw the reference, and the district court dismissed the action. See Order, Arkison v. Exec. Benefits Ins., No. 10-cv-00171 (W.D. Wash. July 2, 2010), ECF No. 8. EBIA then separately appealed the bankruptcy court‘s judgment in the district court for the Western District of Washington. EBIA did not argue at any point during that appeal that the bankruptcy court lacked authority to issue a final judgment in the fraudulent conveyance action. In fact, EBIA did not raise a constitutional objection to the bankruptcy court‘s entry of final judgment in favor of the Trustee until after the briefing in this appeal was complete, when it filed a motion to vacate the bankruptcy court‘s judgment on the eve of oral argument. Because EBIA waited so long to object, and in light of its litigation tactics, we have little difficulty concluding that EBIA impliedly consented to the bankruptcy court‘s jurisdiction. See United States v. Olano, 507 U.S. 725, 731, 113 S. Ct. 1770, 123 L. Ed. 2d 508 (1993) (“‘No procedural principle is more familiar to this Court than that a constitutional right,’ or a right of any other sort, ‘may be forfeited . . . by the failure to make timely assertion of the right before a tribunal having jurisdiction to determine it.‘” (quoting Yakus v. United States, 321 U.S. 414, 444, 64 S. Ct. 660, 88 L. Ed. 834 (1944))). Cf. In re Ortiz, 665 F.3d at 909-10, 915 (refusing to find implied consent to a bankruptcy judge‘s authority where the debtors moved for the bankruptcy judge to abstain from jurisdiction and petitioned the district court to withdraw the reference from the bankruptcy judge).
There are two potential objections to our conclusion that EBIA impliedly consented to the bankruptcy judge‘s authority. The first is that Federal Rules of Bankruptcy Procedure 7008 and 7012, which implement the statutory core/non-core dichotomy, preclude a finding of implied consent. These rules provide that an adversary proceeding complaint “shall contain a statement that the proceeding is core or non-core and, if non-core, that the pleader does or does not consent to entry of final orders or judgment by the bankruptcy judge“; a similar requirement applies to responsive pleadings. See
Indeed, Roell—decided in 2003—precludes any objection on the basis of the bankruptcy rules. 538 U.S. at 586, 123 S. Ct. 1696. At the time Roell was decided, Federal Rule of Civil Procedure 73(b) specified that if parties consented to a magistrate judge‘s dispositive power over their case, their consent was required to “be memorialized in ‘a joint form of consent or separate forms of consent setting forth such election.‘” 538 U.S. at 586, 123 S. Ct. 1696 (quoting
Like the provision of the Federal Magistrate Act at issue in Roell, the text of
The second potential objection is that Stern was not decided until EBIA‘s appeal was pending before this court. True, but EBIA had ample reason to be alert to the possible jurisdictional problem. We published Marshall v. Stern, 600 F.3d 1037 (9th Cir. 2010), on March 19, 2010, before EBIA asked the district court to stay its motion to withdraw the reference. That predicate opinion featured a lengthy perscrutation of the Article III question. Although we reached a different set of conclusions than the Supreme Court ultimately did, the opinion should have been sufficient to alert EBIA to the possible jurisdictional problem. The same is true of Granfinanciera, which thoroughly foreshadowed the result in Stern. And we know that EBIA‘s counsel was aware of Granfinanciera, because the company asserted—and then abandoned—the very Seventh Amendment right that case established.
Further, the Stern Court applied the doctrine of litigant consent even when little authority existed to notify the litigant that a constitutional objection was there for the making. In Stern, Pierce Marshall propounded the novel argument that the bankruptcy court lacked jurisdiction to enter final judgment on his defamation claim because
Although EBIA may not be as sophisticated or creative as Pierce, it fully litigated the fraudulent conveyance action before the bankruptcy court and the district court, without so much as a peep about Article III—even going so far as to abandon its motion to withdraw the reference. “[T]he consequences of a litigant sandbagging the court—remaining silent about his objection and belatedly raising the error only if the case does not conclude in his favor—can be . . . severe.” Id. at 2609 (internal quotation marks, alterations, and citations omitted). Having lost before the bankruptcy court, EBIA cannot assert a right it never thought to pursue when it still believed it might win. Id.
V
Because we conclude that EBIA consented to the bankruptcy court‘s jurisdiction, we proceed to the merits of that judgment.
A
The district court affirmed the bankruptcy court‘s grant of summary judgment on the claim that the transfer of BIA‘s assets to EBIA constituted a fraudulent transfer. See
The district court held that the trustee satisfied all elements of a constructively fraudulent transfer, because BIA transferred to EBIA all of its assets when EBIA began operating in February 2006, including its phone number, book of business, and especially its stream of insurance commissions. BIA received nothing in return.
EBIA‘s only defense is that it received no items of value from BIA prior to the filing of the bankruptcy petition. EBIA argues first that any commission streams that changed hands were transferred to the related entity ARIS, not to EBIA, and second that everything else that was transferred was either a liability or an asset with negligible value.11
EBIA‘s assertions are belied by the record. EBIA is correct that the Trustee‘s expert accountant, Michael Quackenbush, testified that $373,291.28 was deposited into an account held jointly by ARIS and EBIA. But, as the district court correctly noted, those commissions were credited to EBIA via intercompany transfers in the accounting software. The evidence that this money was transferred from BIA to EBIA is overwhelming. BIA executed a written assignment of its commissions from a major client to an employee, Peter Pearce, who immediately became an EBIA employee upon BIA‘s dissolution. Pearce deposited $123,133.58 into the ARIS/EBIA account. And EBIA itself deposited more than $250,000 in additional commissions that obviously belonged to BIA.
Both claims are incredible. Property of the estate includes intangible assets, such as corporate goodwill and a “book of business.” See Stoumbos v. Kilimnik, 988 F.2d 949, 963-64 (9th Cir. 1993). The transfer of an ongoing business concern can constitute a fraudulent transfer. See, e.g., id. The Trustee produced to the bankruptcy court the document assigning the commissions from BIA‘s client American National to Pearce, and various witnesses testified that Pearce‘s role at BIA was to act as a conduit for commissions between the company and its clients. Further, Paleveda stated that EBIA did not earn any revenue until May 2006. Paleveda thus suggests that in a matter of weeks—from May to June 1—EBIA earned hundreds of thousands of dollars of new commissions that were unrelated to BIA‘s old business.
Put simply, there is no genuine dispute of material fact that these transfers were constructively fraudulent and recoverable by the Trustee under
The bankruptcy court also granted summary judgment on the Trustee‘s claim that EBIA violated Washington‘s Uniform Fraudulent Transfer Act,
(i) Was engaged or was about to engage in a business or a transaction for which the remaining assets of the debtor were unreasonably small in relation to the business or transaction; or
(ii) Intended to incur, or believed or reasonably should have believed that he or she would incur, debts beyond his or her ability to pay as they became due.
EBIA does not argue in its briefs that we ought to distinguish between the state- and federal-law causes of action. We therefore conclude that the district court properly affirmed the bankruptcy court‘s grant of summary judgment on the Trustee‘s state-law constructively fraudulent transfer claim.
The district court also concluded that the Trustee adduced sufficient evidence to demonstrate actual fraudulent intent by BIA. Our conclusion that the transfers to EBIA were constructively fraudulent under Washington law is a sufficient basis on which to affirm the judgment. See Thompson v. Hanson, 167 Wash. 2d 414, 219 P.3d 659, 664 (2009). Hence, we need not reach the question of whether the transfers were actually fraudulent.
B
In addition to addressing the Trustee‘s fraudulent conveyance claims,
The rule in Washington is that “a corporation purchasing the assets of another corporation does not become liable for the debts and liabilities of the selling corporation.” Cambridge Townhomes, LLC v. Pac. Star Roofing, Inc., 166 Wash. 2d 475, 209 P.3d 863, 868 (2009). An exception is made, however, when “the purchaser is a mere continuation of the seller.” Id. (internal quotation marks omitted). Several factors dictate whether a business is a “mere continuation” of its predecessor, including “a common identity between the officers, directors, and stockholders of the selling and purchasing companies, and the sufficiency of the consideration running to the seller corporation in light of the assets being sold.” Id. The nub of the inquiry is whether “the purchaser represents merely a ‘new hat’ for the seller.” Cashar v. Redford, 28 Wash. App. 394, 624 P.2d 194, 196 (1981) (internal quotation marks omitted).
EBIA marshals a variety of facts in an attempt to prove that the two companies are authentically distinct entities. For instance, EBIA notes that none of BIA‘s seven shareholders became EBIA shareholders. EBIA also adopted a radically different business image, including a “completely different name” and a new logo and website. Finally, EBIA remarks that its business model represents a sea change from BIA‘s, because BIA focused exclusively on 412(i) retirement plans, while EBIA traffics in a broader range of defined-benefit retirement plans.
EBIA is indulging in what Freud called the narcissism of minor differences.12
EBIA‘s statement that there were no common shareholders between the two entities is technically true but deeply misleading. Paleveda was the sole owner of EBIA and the CEO of BIA prior to EBIA‘s incorporation; his wife, Marjorie Ewing, owned eighty percent of BIA. Because a “common identity of the officers, directors, and stockholders” is the “crucial factor” in the “mere continuation” judgment, Cashar, 624 P.2d at 196, the fact that the same married couple owned and operated both BIA and EBIA is virtually dispositive. In any case, a variety of other factors militate in favor of a finding of successor liability. The core employees remained the same, there was no consideration paid for BIA‘s transfer of assets, and the essential business—marketing and selling defined-benefit plans funded by insurance policies—remained the same. Cf. Cambridge Townhomes, 209 P.3d at 869.
Weighed against these fundamental commonalities, minor divergences like the company names, logos, and websites are immaterial. The evidence shows that EBIA was nothing more than a “new hat” for Paleveda and Ewing. The bankruptcy court correctly granted summary judgment to the Trustee on the issue of successor liability.
VI
Fraudulent conveyance claims are “quintessentially suits at common law” designed to “augment the bankruptcy estate.” Granfinanciera, 492 U.S. at 56, 109 S. Ct. 2782. Thus, Article III bars bankruptcy courts from entering final judgments in such actions brought by a noncreditor absent the parties’ consent. But here EBIA consented to the bankruptcy court‘s jurisdiction, rendering that court‘s entry of summary judgment in favor of the Trustee
AFFIRMED.