Rene R. Ortiz, Douglas L. Lindsey, and Valerie Jones, Plaintiffs-Appellants, v. Aurora Health Care, Inc., Defendant-Appellee. In re Kathy Bembenek and Susan Dandridge, Debtors. Kathy Bembenek and Susan Dandridge, Plaintiffs-Appellants, v. Aurora Health Care, Inc., Defendant-Appellee.
Nos. 10-3465, 10-3466
United States Court of Appeals, Seventh Circuit
Decided Dec. 30, 2011
Argued Feb. 22, 2011.
665 F.3d 906
B. Personal Jurisdiction
We need not spend much time discussing the Trust‘s second argument. By way of brief background, the Trust claims that Magistrate Judge Schenkier erred in dismissing the complaint against Cigna for lack of personal jurisdiction. The Trust devotes a significant portion of its brief arguing that Cigna, LINA‘s parent company, exercises an unusually high degree of control over LINA. This type of control, the trust argues, should have allowed the district court to exercise personal jurisdiction over Cigna. But it is unnecessary for us to address the merits of the Trust‘s argument, because the Trust‘s substantive claims against Cigna and LINA are identical. Therefore, we summarily dismiss all claims against Cigna for the same reasons we affirm the grant of summary judgment for LINA.
III. CONCLUSION
We hold that the Trust has not produced any evidence suggesting that the two parties did not execute an enforceable group insurance contract. Because no reasonable jury could find in the Trust‘s favor, we AFFIRM the district court‘s grant of summary judgment on all counts.
In re Rene R. ORTIZ, Douglas L. Lindsey, and Valerie Jones, Debtors.
Michael J. Watton (argued), Attorney, Watton Law Group, Milwaukee, WI, for Debtors-Appellants.
Frank W. DiCastri, Brian W. McGrath (argued), Attorneys, Foley & Lardner LLP, Milwaukee, WI, for Appellee.
Guy J. DuBeau, Attorney, Axley Brynelson, LLP, Madison, WI, for Amicus Curiae.
Before WILLIAMS and TINDER, Circuit Judges, and GOTTSCHALL, District Judge.*
Wisconsin medical provider Aurora Health Care, Inc. filed proofs of claim in an estimated 3,200 bankruptcy cases in the Eastern District of Wisconsin from June 2003 to December 2008 that listed the debtors’ medical treatment information. The filings were public and available on the court‘s docket. Two groups of debtors filed separate class action lawsuits against Aurora under a Wisconsin statute that allows individuals to sue if their health care records are disclosed without permission. See
I. Background
The debtors alleged that Aurora violated
Both sides sought to avoid litigating the case in the bankruptcy court but also opposed the others’ proposed forum. The Ortiz debtors filed a motion for the bankruptcy judge to abstain from jurisdiction in favor of a Wisconsin court, see
The bankruptcy judge then dismissed the Ortiz debtors’ complaint on Aurora‘s motion for summary judgment because it found that
II. Analysis
When we held argument in this case on February 22, 2011, our appellate jurisdiction appeared secure under
- from final judgments, orders, and decrees;
- from interlocutory orders and decrees issued under section 1121(d) of title 11 increasing or reducing the time periods referred to in section 1121 of such title; and
- with leave of the court, from other interlocutory orders and decrees; and, with leave of the court, from interlocutory orders and decrees, of bankruptcy judges entered in cases and proceedings referred to the bankruptcy judges under section 157 of this title.
When we authorized the appeal, Aurora and the debtors maintained that the appeals were from final judgments or orders—namely, the bankruptcy judge‘s grant of summary judgment and dismissal of the debtors’ complaints. Dubbing the bankruptcy judge‘s decision a final judgment appeared correct then, but that was before the Supreme Court decided Stern v. Marshall, which held that bankruptcy judges lack authority under Article III to enter final judgments on claims that constitute “the stuff of the traditional actions at common law tried by the courts at Westminster in 1789.” 131 S.Ct. at 2609 (quoting N. Pipeline, 458 U.S. at 90, 102 S.Ct. 2858 (Rehnquist, J., concurring in judgment)).
Because we have an independent duty to determine whether we have jurisdiction, e.g., Maddox v. Love, 655 F.3d 709, 715 (7th Cir.2011), we ordered supplemental briefing on three issues: (1) whether the bankruptcy judge had constitutional authority to issue final judgments, orders,
The first question requires a close reading of Stern v. Marshall. Although the Court noted that the question presented was “narrow,” it was quite significant as Congress “may no more lawfully chip away at the authority of the Judicial Branch than it may eliminate it entirely.” 131 S.Ct. at 2620. The Court held that Article III prohibited Congress from giving bankruptcy courts authority to adjudicate claims that went beyond the claims allowance process. Id. at 2618. The decision rebuffed an intrusion into the Judicial Branch that would “compromise the integrity of the system of separated powers and the role of the Judiciary in that system, even with respect to challenges that may seem innocuous at first blush.” Id. at 2620.
But before we address the constitutional question, we must establish that Congress gave bankruptcy courts authority to issue final judgments on the debtors’ claims.
The debtors’ claims fit within the category of “arising in” cases generally defined as “administrative matters that arise only in bankruptcy cases.” In re Repository Techs., Inc., 601 F.3d 710, 719 (7th Cir. 2010) (quoting In re Commercial Loan Corp., 363 B.R. 559, 565 (Bankr.N.D.Ill. 2007)). Like the state-law claims in Repository Technologies, the debtors’ claims would have “no existence outside of the bankruptcy,” id. (quoting Stoe v. Flaherty, 436 F.3d 209, 216 (3d Cir.2006)), and are thus deemed “arising in” a bankruptcy case because the claims are “predicated on the defendants’ participation in” the debtors’ bankruptcies, id. at 720; see also Grausz v. Englander, 321 F.3d 467, 471-72 (4th Cir.2003) (finding a debtor‘s claim against a law firm for malpractice in his bankruptcy within “arising in” jurisdiction because it would have “no practical exis-
But because congressional authorization must, of course, be constitutional, we now examine whether Congress exceeded the limits of Article III in authorizing bankruptcy judges to enter final judgments in the debtors’ claims. Stern v. Marshall gives us a definitive answer based on “very basic principles” of Article III. 131 S.Ct. at 2600.
Vickie Lynn Marshall, more commonly known as Anna Nicole Smith, was married to wealthy Texan J. Howard Marshall II. Id. at 2601. Before J. Howard died, Vickie sued in Texas state probate court claiming J. Howard‘s son E. Pierce Marshall fraudulently induced J. Howard to exclude her from what eventually would be J. Howard‘s will. Id. After J. Howard died, Vickie filed for bankruptcy in California. Id. Pierce filed a complaint in her bankruptcy proceeding alleging that Vickie defamed him by getting her lawyers to tell the media that he fraudulently gained control of his father‘s money. Id. He asserted that his claim was not dischargeable in her bankruptcy and later filed a proof of claim seeking to recover damages from Vickie‘s bankruptcy estate. Id. Vickie responded by filing a counterclaim for tortious interference with the gift she expected from J. Howard. Id. The bankruptcy judge granted Vickie judgment on her counterclaim after a bench trial, awarding her over $400 million in compensatory and $25 million in punitive damages. Id. Meanwhile, the Texas court conducted a jury trial on the merits of the dispute and found in Pierce‘s favor. Id. at 2602. The district court found that Vickie‘s counterclaim was not core and thus treated the bankruptcy court‘s judgment as proposed rather than final. Id. After a trip to the Supreme Court and back on another issue, the court of appeals held that Vickie‘s counterclaim was not a core proceeding. Id. (citing In re Marshall, 600 F.3d 1037, 1059 (9th Cir. 2010)). Thus, the Texas court‘s judgment became the earliest final judgment on the matter requiring the district court to afford preclusive effect to the Texas court‘s judgment in Pierce‘s favor. Id. at 2602-03 (citing In re Marshall, 600 F.3d at 1064-65).
The Supreme Court again granted certiorari and held that although Vickie‘s counterclaim against Pierce was a core proceeding under
The Court then examined whether Pierce‘s filing of a proof of claim gave the bankruptcy judge authority to adjudicate Vickie‘s counterclaim and held that because the counterclaim merely sought to augment her bankruptcy estate, Pierce‘s filing of a claim made no difference. Id. at 2615-16. The bankruptcy judge did not rule on Vickie‘s counterclaim as part of the process for allowing or disallowing Pierce‘s claim, id. at 2616, nor was Vickie‘s counterclaim “integral to the restructuring of the debtor-creditor relationship,” id. at 2617 (quoting Langenkamp v. Culp, 498 U.S. 42, 44, 111 S.Ct. 330, 112 L.Ed.2d 343 (1990) (per curiam)). Vickie‘s bankruptcy did not “make any difference” in characterizing her tortious interference counterclaim because state law creates and defines property interests. Id. at 2616 (citing Travelers Cas. & Sur. Co. of Am. v. Pac. Gas & Elec. Co., 549 U.S. 443, 451, 127 S.Ct. 1199, 167 L.Ed.2d 178 (2007)). The Court distinguished cases involving preferences in that they “in effect increase that creditor‘s proportionate share of the estate,” and require a ruling before adjudicating the creditor‘s proof of claim. Id. (citing Katchen v. Landy, 382 U.S. 323, 330, 86 S.Ct. 467, 15 L.Ed.2d 391 (1966)). By contrast, Vickie‘s counterclaim involved factual and legal determinations the bankruptcy judge did not dispose of in addressing Pierce‘s defamation proof of claim. Id. at 2617. Federal law created the right to recovery in a preference action while Vickie‘s counterclaim was a state tort action that existed “without regard to any bankruptcy proceeding.” Id. at 2618.
Aurora argues that the debtors’ claims are different than Vickie‘s counterclaim because the debtors’ claims go to the heart of the bankruptcy judge‘s management of its Chapter 13 cases. Every court, it maintains, has authority to resolve disputes claiming that the way one party acted in the course of the court‘s proceedings violated another party‘s rights. Yet Aurora assumes that bankruptcy judges are akin to Article III judges by citing cases involving not legislative courts but Article III courts. See Chambers v. NASCO, Inc., 501 U.S. 32, 43-44, 111 S.Ct. 2123, 115 L.Ed.2d 27 (1991) (holding that a district court has inherent power to vacate its own judgment); Link v. Wabash R. Co., 370 U.S. 626, 630-31, 82 S.Ct. 1386, 8 L.Ed.2d 734 (1962) (holding that district courts have the inherent power to dismiss a complaint); United States v. Hudson, 11 U.S. (7 Cranch) 32, 34, 3 L.Ed. 259 (1812) (noting that federal courts have certain implied powers). The difference between those Article III courts and the bankruptcy court goes to the constitutional underpinning of Stern v. Marshall‘s holding: “Article III could neither serve its purpose in the system of checks and balances nor preserve the integrity of judicial decisionmaking if the other branches of the Federal Government could confer the Government‘s ‘judicial Power’ on entities outside Article III.” 131 S.Ct. at 2609. That the factual circumstances of the debtors’ claims arise from bankruptcy procedures does not alter the fact that bankruptcy judges are not Article III judges. The question is whether the nature of the debtors’ claims allowed Congress to withdraw
Like Vickie‘s counterclaim, the debtors’ claims involve “private parties,” id. at 2614, disputing interests “defined by state law,” id. at 2616 (quoting Travelers, 549 U.S. at 451, 127 S.Ct. 1199), not historically determined by the executive or legislative branches, id. at 2613-14 (citing N. Pipeline, 458 U.S. at 68, 102 S.Ct. 2858). There are no government parties involved; it is a private matter involving “the liability of one individual to another” under a Wisconsin law. Id. at 2612 (quoting Crowell v. Benson, 285 U.S. 22, 50, 51, 52 S.Ct. 285, 76 L.Ed. 598 (1932)). The debtors’ claimed right to relief does not flow from a federal statutory scheme, id. at 2614, or address a “particularized area of the law” where “Congress devised an ‘expert and inexpensive method for dealing with a class of questions of fact which are particularly suited to examination and determination by an administrative agency specially assigned to that task,‘” id. at 2615 (quoting Crowell, 285 U.S. at 46, 52, 52 S.Ct. 285). The debtors’ claims are simply ordinary state-law claims. See id. at 2609.
Just as Pierce‘s filing of a proof of claim in Vickie‘s bankruptcy did not give the bankruptcy judge authority to adjudicate her counterclaim, Aurora‘s act of filing proofs of claim in the debtors’ bankruptcies did not give the bankruptcy judge authority to adjudicate the debtors’ state-law claims. The debtors’ claims seek “to augment the bankruptcy estate—the very type of claim that ... must be decided by an Article III court.” Id. at 2616 (citing N. Pipeline and Granfinanciera, S.A. v. Nordberg, 492 U.S. 33, 109 S.Ct. 2782, 106 L.Ed.2d 26 (1989)). Non-Article III judges may hear cases when the claim arises “as part of the process of allowance and disallowance of claims,” id. (quoting Katchen, 382 U.S. at 336, 86 S.Ct. 467), or when the claim becomes “integral to the restructuring of the debtor-creditor relationship,” id. at 2617 (quoting Langenkamp, 498 U.S. at 44, 111 S.Ct. 330). Although there is some factual overlap between the debtors’ claims and Aurora‘s proofs of claim, the bankruptcy judge “was required to and did make several factual and legal determinations that were not ‘disposed of in passing on objections’ to” Aurora‘s proofs of claim. Id. (quoting Katchen, 382 U.S. at 332 n. 9, 86 S.Ct. 467). In granting Aurora‘s summary judgment motion, the bankruptcy judge interpreted a Wisconsin state law to require proof of actual damages as an essential element of the debtors’ claims and found that there was no genuine issue of material fact as to the lack of actual damages. Nothing about these decisions involved an adjudication of Aurora‘s proofs of claim and there is no “reason to believe that the process of adjudicating [Aurora‘s] proof[s] of claim would necessarily resolve” the debtors’ claims. Id. Stern reaffirmed that “Congress may not bypass Article III simply because a proceeding may have some bearing on a bankruptcy case; the question is whether the action at issue stems from the bankruptcy itself or would necessarily be resolved in the claims allowance process.” Id. at 2618. The debtors’ action owes its existence to Wisconsin state law and will not necessarily resolve in the claims allowance process. That the circumstances giving rise to the claims involved procedures in the debtors’ bankruptcies is insufficient to bypass Article III‘s requirements. Stern v. Marshall makes plain that the bankruptcy judge in our cases “exercised the ‘judicial Power of the United States’ in purporting to resolve and enter final judgment on” the debtors’ Wisconsin state-law claims. Id. at 2611. We thus hold that the bankruptcy judge lacked authority under Article III to enter final judgments on the disclosure claims.
We did not ask for briefing on Aurora‘s argument that the debtors consented to the bankruptcy judge‘s authority by opposing Aurora‘s motions for the district court to withdraw its reference. Under
Given the answers to the first two questions, we cannot escape the answer to the third question of whether we had authority under