The Zombie Dancers

[VivaLasVegas]

Mic-
There appear to have been some real game changing developments from WaMuland.

I'm not blessed enough in law to figure this out, but wondering if the fact it's a possible game changer for equity in WaMu could mean it may spill over to the Lehman BK case.

If you have time to review, let me know what your thoughts are,,, or advise to whom I should run these by,,, i.e. Linda?

There are some posts by posters here on the Hub and some NEW (2-3 days old) precedents.
Cheers



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WithCatz
Friday, July 08, 2011 10:00:59 AM

I don't know the basis of any of the Lehman saga.

If there are items that were in District Court for Lehman, then it is perhaps that Stern applies.

If everything in Lehman is just in Bankruptcy court, then Stern probably does not apply.

The reason Stern applies here is that there are District Court items that are stayed, pending Bankruptcy Court -- and Stern says those items can't be adjudicated or settled in Bankruptcy Court -- in the past, one could 'settle' them in BK court {but not adjudicate them}, now Stern says you can't do either -- settle nor adjudicate.

Adjudicate = hold trial.

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WithCatz
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Friday, July 08, 2011 9:34:35 AM
Re: WithCatz post# 317599 Post # of 317627
My opinion on next steps...

{Part 2}

Now that I've read it, I'm wondering on the 'next steps'. I think, for the moment, the options are.

1) Confirmation Hearing still goes forward. There are plenty of things that need to air out -- IT, etc, etc. But the TPS filing carries into doubt the approvability of the POR and likely the GSA as well. {In other words, THJMW hears arguments on this and other issues, and we don't see until her Opinion/Ruling -- perhaps 1-2 months later as before -- her take on applicability here}

2) A delay occurs. Numerous reasons -- the Debtors or others pull from the GSA, a new settlement gains traction, etc, etc.

3) Sua Sponte, the court says "we agree, these items will not be adjudicated in this court, pull them from the GSA" { http://en.wikipedia.org/wiki/Sua_sponte }

4) Others?


I'd love #3 -- IMHO, Ain't gonna happen. Not without giving the Debtors, etc the chance to argue that the Stern case doesn't apply -- of course, that will be the argument. Expect it. Stay tuned. The fun part of this is that the TPS argument *QUOTES WEIL* from a website posting of theirs!!! {And includes the entire website posting. Wonder if they will take it down...}


_____________________

And another comment. I find it interesting the way TPS did construct this. As in "new facts" -- gives THJMW an 'honorable' way out of changing her opinion. Eg, she can maintain the "I was correct in how I ruled, however new facts -- ANICO and the Supreme Court decision, change the lay of the land -- and owing to both of them, I am compelled to rule xxx instead..."

This is important as has been noted by Bopfan and El Juez -- THJMW is human, and a lawyer, and is reticent to ever say "I was wrong" -- TPS wrote it in a nice enough way to give her that out.

...Catz




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jackfburns
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Friday, July 08, 2011 1:30:30 AM
Re: None Post # of 317616
More from my attorney friend, in response to my question "Is the GSA now dead?":

"The GSA should be dead, but Walrath could disagree -- wrongly, I think -- that Stern prevents her from adjudicating these claims.

Also, the ANICO ruling means she should require at least that JPM kick in more money, as the fairness and reasonableness of the "value" they were to pay in the GSA was predicated on a presumption that FIRREA barred WMI's claims against JPM. Now, that presumption is gone, so that value should be currently insufficient."

-Jack



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ilenes
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Thursday, July 07, 2011 7:50:29 PM
Re: None Post # of 317617
This is a very interesting read, and a killer objection, relying on two fairly recent decisions. 1) AINCO, which was directly related to us, and 2) Stern, which limits certain powers of BK courts in their jurisdiction to decide cases. (I was just reading about the Stern decision today...very timely for us)


SECOND SUPPLEMENTAL OBJECTION OF THE CONSORTIUM OF
TRUST PREFERRED SECURITY HOLDERS TO CONFIRMATION OF
THE MODIFIED SIXTH AMENDED JOINT PLAN OF AFFILIATED DEBTORS
PURSUANT TO CHAPTER 11 OF THE UNITED STATES BANKRUPTCY CODE


http://www.kccllc.net/documents/0812229/0812229110707000000000008.pdf


This could be a game changer!




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WithCatz
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Friday, July 08, 2011 9:34:18 AM
Re: None Post # of 317627
My opinion, regarding the TPS Objection

{Part #1 of my Opinion}

Let me start by reposting (with permission) words from El Juez on this topic. Of which I agree with.

He Writes:
Holy <redacted>! This objection is <redacted> brilliant! These TPS lawyers have done an outstanding job as the unlikely allies of the EC. (Keep in mind these guys are either in front of us or split about 50/50 with preferreds.) This objection is relatively simple at its core, yet elegant and to the point, and devastating in the direct yet subtle and respectful manner in which it undermines Judge W's very jurisdiction to make the decisions she has already made. The Stern case has been decided just in the nick of time and appears to change our legal game completely (and appears to turn the entire BK system on its head), and gives Judge W. an complete excuse to reverse herself in her erroneous approval of the GSA, which my gut tells me she would like to do anyway. I think this is a game-changer. (More later when I have a chance to digest the Stern case.)

And he writes more

O.K..I've read the Stern case. I can't believe it, it is so bizarre, but this Supreme Court case is part of the whole Anna Nicole Smith (True name: Vickie Anne Marshall) celebrity meltdown fiasco! Stern (her lawyer-boyfriend-heir) is the trustee of her estate, and was counter-suing her nonagenerian husband's estate for "tortious interference" with the "gift" Nicole expected upon his death, after the husband's son first sued her for defamation based her her allegations of his fraud. (Got it?) Anna's estate was in bankruptcy, so that defamation suit by the son was filed as a "claim" in the BK court. (Shades of JPM and it's "claims" vs. WaMu? Did I say almost three years ago that JPM made a tactical mistake in doing so? I hope so.) . . . Bottom line (and I'm still confused about how this all plays out for us), the Supreme Court decided that the counterclaims by Vickie (Anna Nicole) against the son are not "core proceedings" in BK court and therefore that the BK court has no jurisdiction over them under the Constitution, even if the statutes passed by Congress enabling BK courts would seem to say otherwise. In other words, it says that exercise of such jurisdiction by BK courts is "unconstitutional". . . How does that play out with our case? I'm still not sure, but it would appear to mean that Judge W. has/had no jurisdiction to decide whether WMI's counterclaims against JPM for torts based on state law or federal law theories are valid or even arguable in BK court, and therefore to undermine her decision that the GSA is/was "fair and reasonable".

Fingers crossed. ;D ;D ;D



xxxxxxxxxxxxxxx Below- IS THE CASE THAT PART OF THE ABOVE MESSAGES REFER TO XXXXXXXXXXXXX


Stern Views on Bankruptcy Court Jurisdiction – United States Supreme Court Addresses Bankruptcy Court Jurisdiction in the Anna Nicole Smith Case

By Sara Coelho
Published on July 6, 2011 Print This Post
Recently, we wrote about the United States Supreme Court’s decision in Stern v. Marshall, where the Court held by a 5 to 4 majority that the United States Constitution prohibits federal bankruptcy judges from entering a final judgment on a state law counterclaim asserted by a debtor where the counterclaim is not resolved in the process of ruling on the creditor’s proof of claim. In Stern, the Court found that such determinations may only be made by judges who enjoy the privileges of lifetime tenure and salary protection provided by Article III of the Constitution. The decision revives questions about the extent and nature of bankruptcy court jurisdiction, that many thought were resolved by the Court’s seminal 1982 decision on bankruptcy jurisdiction, Northern Pipeline Construction Company v. Marathon Pipe Line Company, and subsequent amendments to the bankruptcy jurisdiction statutes in 1984. In this post, we explore the underpinnings of the Court’s decision, and some of its implications, in more detail.

Facts and Procedural History

The case arises from disputes over the inheritance of the late J. Howard Marshall II’s fortune. Before Howard Marshall’s death, his wife, Vickie Lynn Marshall (better known as Anna Nicole Smith), filed a suit in Texas alleging that Howard Marshall’s son, E. Pierce Marshall, fraudulently induced Howard Marshall to cut Smith out of his estate. Following Howard Marshall’s death, Smith filed for bankruptcy in California. Pierce Marshall filed a claim against Smith in the bankruptcy case, asserting that Smith’s allegations of fraud defamed him, and an adversary proceeding seeking a determination that his defamation claim was not dischargeable in the bankruptcy. Smith counterclaimed, alleging, among other claims, tortious interference with the gift she expected from Howard Marshall. Under Federal Rule of Bankruptcy Procedure 7013, she was required to do so to the extent that her counterclaim was “compulsory.”

The bankruptcy court ruled against Pierce Marshall’s claim and in favor of Smith’s claim, and awarded Smith more than $425 million. Appeals ensued. In the meantime, the Texas state court issued a conflicting judgment in favor of Pierce Marshall. The various appellate findings (including one by the U.S. Supreme Court) are not detailed here, except to say that, in the end, on remand, the Ninth Circuit found that Smith’s counterclaim was not a “core” proceeding that bankruptcy judges have the power to hear under section 157(b)(2)(C) of the Judicial Code because resolution of her claim was not necessary to resolve the claims asserted against her by Pierce Howard. Although Smith had, by that time, passed away, her estate had continued the case. The U.S. Supreme Court granted certiorari.

The Court’s Decision

The Court agreed with Smith that the bankruptcy court correctly applied section 157 of the Judicial Code, but it held that the Constitution requires that Smith’s common law claim be resolved by an Article III judge. Under the U.S. Constitution, Article III defines the judicial power of the United States and prescribes that federal judges enjoy important salary and tenure protections designed to prevent the political branches from encroaching on the judicial power. U.S. Const. Art. III, § 1. Bankruptcy judges on the other hand, are appointed pursuant to Article I of the U.S. Constitution, which confers on the Congress the power to “establish . . . uniform Laws on the subject of Bankruptcies throughout the United States,” and do not enjoy constitutionally imposed salary and tenure protections. U.S. Const. Art. I, § 8. Citing Murray’s Lessee v. Hoboken Land & Improvement Co., 18 How. 272, 284 (1856), a 155-year-old Supreme Court decision, which states that “Congress may not ‘withdraw from judicial cognizance any matter which, from its nature, is the subject of a suit at the common law, or in equity, or admiralty,’” the Court found that Congress could not confer authority on a bankruptcy judge to resolve Smith’s state law counterclaim without violating the mandate of Article III of the Constitution because a non-Article III judge could not enter final judgment on claims like those asserted by Smith. The Court further concluded that this result was consistent with the plurality opinion in Marathon, 458 U.S. 50 (1982), which found that a statute’s grant of jurisdiction to bankruptcy judges to issue final decisions on state law contract claims violated Article III, and the opinion of the majority in Marathon that (i) a public rights exception did not apply in that case, and (ii) the bankruptcy court was not acting as an adjunct of the district court. The Court rejected arguments that Smith’s counterclaim could be resolved in the bankruptcy court under several alternate theories, which are discussed here in turn.

First, the Court found that any “public rights” exception to the requirement of Article III adjudications was not applicable and did not permit a bankruptcy court to adjudicate Smith’s claim. In Murray’s Lessee, the Court described “matters, involving public rights, which may be presented in such form that the judicial power is capable of acting on them . . . but which congress may or may not bring within the cognizance of the courts of the United States, as it may deem proper.” Such rights, the Court argued, are historically within the purview of the legislative or executive branches, which, in conferring such rights, have the power to determine whether those rights will be subject to adjudication before Article III courts or before a different tribunal, such as an administrative law judge. Subsequent cases have expounded on this doctrine, but the Court maintained the doctrine has always been limited to cases where the “claim at issue derives from a federal regulatory scheme, or in which resolution of the claim by an expert government agency is deemed essential to a limited regulatory objective within the agency’s authority” and that public rights are “integrally related to particular federal government action.” The Court held that Smith’s counterclaim did not resemble public rights under any of the precedent as it was not a “matter that could be pursued only by grace of the other branches.” It also found that Smith’s counterclaim did not flow from any federal statutory scheme and that the bankruptcy court authority to decide Smith’s counterclaim was not limited to a particularized area of the law, as in an agency adjudication.

The Court similarly rejected the argument that the bankruptcy court had jurisdiction to decide Smith’s counterclaim as a result of Pierce Marshall having filed a proof of claim in Smith’s bankruptcy case. The Court asserted that Pierce Marshall’s “decision to file a claim” should not “make any difference with respect to the characterization of [Smith’s] counterclaim.” The majority opinion referred to and distinguished from the instant case previous cases that had permitted assertion of a preference action in the bankruptcy court against creditors that had filed proofs of claim because, among other things, in those cases, resolution of the preference actions had been necessary to resolve the disputed proofs of claim, and the actions brought had been created by federal bankruptcy law. Thus, the Court continued the validity of bankruptcy court jurisdiction for certain counterclaims, particularly where such claims are grounded in the Bankruptcy Code. Resolution of Smith’s counterclaim however, required rulings from the bankruptcy court on issues that the bankruptcy court did not need to determine in the course of allowing or disallowing Pierce Howard’s claim.

The Court also rejected the notion that the mandates of Article III were met because the bankruptcy court was operating as an “adjunct” of the district court. It found that because the bankruptcy court “exercises the essential attributes of judicial power” and because it did not make “specialized” factual determinations in a particular area of law, but rather resolves “‘[a]ll matters of fact and law in whatever domains of the law to which’ the parties’ counterclaims might lead,” the bankruptcy court could not properly be viewed as an adjunct to another court.

The Court dismissed arguments that its ruling would lead to substantial additional cost and delay as unconvincing, and pointed to other kinds of state law claims that reside outside the bankruptcy court’s jurisdiction. It so doing, the majority downplayed the potential effects of its decision stating, “[w]e do not think the removal of counterclaims such as [Smith’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.”

The Dissent

In the dissent, Justice Breyer, joined by justices Ginsburg, Sotomayor and Kagan, argued that the Court overstated the importance of Murray’s Lessee and Marathon, and failed to apply more recent precedent under which the Court has laid out factors to consider in determining whether a particular delegation of adjudicatory authority to a non-Article III judge encroaches on the judicial branch. Such factors include the nature of the claim to be adjudicated and of the non-Article III tribunal, the extent of control over the proceeding by Article III courts, whether the parties consent, and the nature and importance of the legislative purpose served by the grant of adjudicatory authority to the non-Article III forum. To the extent that the rights in question are “private rights,” a more “‘searching’ examination of the relevant factors” is required. In weighing these factors under the Court’s precedent, Justice Breyer concluded that the “magnitude of any intrusion on the Judicial Branch can only be termed de minimis.” (Internal quotations omitted).

Justice Breyer’s dissent also argued against the majority’s assertion that the effect of its decision would be minor, citing the frequency of similar disputes, the “staggering” volume of bankruptcy cases (approximately 1.6 million filings in 2010 compared with approximately 358,000 federal district court cases for the same period) and the fact that compulsory counterclaims are frequently premised on the same factual disputes as the claims asserted against bankruptcy estates that the bankruptcy courts are authorized to adjudicate. He argued that a “constitutionally required game of jurisdictional ping-pong between courts would lead to inefficiency, increased cost, delay, and needless additional suffering among those faced with bankruptcy.”

Effects of the Decision

In addition to the logistical difficulties identified by the dissent, the Stern opinion raises numerous questions about a bankruptcy court’s jurisdiction in general, and how a debtor should assert its counterclaims in particular. Most importantly, although the majority was careful to say that it was ruling on a narrow question, it will have to be seen how litigants and courts apply Stern’s reasoning. In the case of state law counterclaims asserted by a debtor, it is not clear how procedures for referring those matters to the district court will evolve, or how claims presently being litigated will be treated. In addition, the jurisdictional issue will, in some instances, be difficult for the bankruptcy court to determine at the outset of a case, and there may be cases where it becomes apparent that jurisdiction is lacking after substantial investment in the litigation by the parties.

Stern is not the first Supreme Court decision to raise substantial questions about the bankruptcy court’s power, however, and if past controversies are any guide, it will take time to fully understand its significance as the bankruptcy courts (and no doubt, Article III courts) grapple with its application.


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