The late actress and Playboy model Anna Nicole Smith has been gone from this Earth for seven years. But the Texan’s gift to bankruptcy law continues to live on, most recently in a decision by the U.S. Court of Appeals for the Fifth Circuit.
“Though she is well-known in pop culture, bankruptcy law and casebooks will remember her for a different reason,” wrote Fifth Circuit Judge Jerry Smith in In The Matter of BP RE v. RML Waxahachie Dodge. On Feb. 28, the full Fifth Circuit denied en banc review of a three-judge panel’s Nov. 11, 2013, decision in the case.
Smith is immortalized in bankruptcy law by the U.S. Supreme Court’s 2011 decision in Stern v. Marshall.
In Stern, wrote Smith, theU.S. Supreme Court “determined that the bankruptcy court lacked the constitutional authority to enter final judgment on the debtor’s state law counterclaim, even though the statute conferred such authority.” Smith wrote, “Section 157(b)(1) designates certain cases as ‘core proceedings’ and authorizes a bankruptcy court to ‘enter appropriate orders and judgments’ in such cases.”
The three-judge panel of the Fifth Circuit cited Stern in deciding BP RE on Nov. 11, 2013. The panel held that a U.S. Bankruptcy Court for the Western District of Texas did not have constitutional authority to render a final judgment in a “noncore” proceeding even if the parties consented. That case involved a contract dispute regarding a car dealership that the parties had litigated in bankruptcy court by consent.
But that issue was worth another look, wrote Judge Stephen Higginson in his Feb. 28 dissent to the Fifth Circuit’s denial of en banc review. He noted that the U.S. Supreme Court had heard an argument in 2013 in a U.S. Court of Appeals for the Ninth Circuit case, Executive Benefits Insurance Agency v. Arkison, which has the same noncore proceedings issue.
“I write in dissent of full court rehearing to note that this case presents an enbancworthy issue—whether a bankruptcy court, consistent with its stated authority under 28 U.S.C. § 157 (c)(2), may enter final judgment in a noncore proceeding with the parties’ consent,” Higginson wrote.
“Fortunately, Executive Benefits likely will shed light on this issue,” Higginson wrote. “Our court will benefit from that guidance, and I write separately to note that I would usefully have incorporated such guidance into our own full court assessment of these weighty constitutional boundaries.”
The case now heads back to U.S. District Judge Walter Smith in Waco for a decision about what to do next, said Kevin Terrazas, an associate with Austin’s Weisbart Springer Hayes, who represented the appellant BP RE in the case.
“The primary issue here was, actually, the bankruptcy court used the wrong complaint in deciding the case. That was the primary issue. But one of the issues we had [was] that the bankruptcy court didn’t have the authority to render a final judgment,” said Terrazas. He said his client was one of the first in the nation to obtain appellate relief from a trial court judgment by arguing that Stern also applied to noncore proceedings heard by consent of the parties.
The appellees, including RML Waxahachie, won the votes of six Fifth Circuit judges to hold a rehearing.
“The thought was: If it was important enough for the Supreme Court to address, that maybe at least the Fifth Circuit en banc should discuss it. But eight judges found that, for whatever reason, they didn’t want to rehear it en banc,” said Terrazas—and that is fine by his client.
Rodney Page, a partner in the Washington, D.C., office of Bryan Cave who represents the appellees in the case, said his clients have not decided yet whether to appeal the ruling.