Restructuring

Co-authored by Kyle J. Ortiz and Doron P. Kenter.
The Local Rules Committee for the United States Bankruptcy Court for the Southern District of New York has proposed new Local Bankruptcy Rules that, in response to the Supreme Court’s decision in Stern v. Marshall, require parties to expressly state whether or not they consent to entry of final orders by bankruptcy judges in core proceedings where the bankruptcy judge lacks constitutional authority to enter a final judgment.
The Committee is proposing five new rules:

• Rule 7008-1. Statement Regarding Consent to Entry of Orders or Judgment in Core Proceeding
  In an adversary proceeding before a bankruptcy judge, in addition to statements required by Rule 7008(a) of the Federal Rules of Bankruptcy Procedure, if the complaint, counterclaim, cross-claim, or third-party complaint contains a statement that the proceeding or any part of it is core, it shall contain a statement that the pleader does or does not consent to the entry of final orders or judgment by the bankruptcy judge if it is determined that the bankruptcy judge, absent consent of the parties, cannot enter final orders or judgment consistent with Article III of the United States Constitution.

• Rule 7012-1. Statement in Responsive Pleading Regarding Consent to Entry of Orders or Judgment in Core Proceeding
  In addition to statements required by Rule 7012(b) of the Federal Rules of Bankruptcy Procedure, if a responsive pleading states that the proceeding or any part of it is core, it also shall contain a statement that the pleader does or does not consent to the entry of final orders or judgment by the bankruptcy judge if it is determined that the bankruptcy judge, absent consent of the parties, cannot enter final orders or judgment consistent with Article III of the United States Constitution.

• Rule 9027-1. Statement in Notice of Removal Regarding Consent to Entry of Orders or Judgment in Core Proceeding
  If, pursuant to Rule 9027(a)(1) of the Federal Rules of Bankruptcy Procedure, a notice of removal states that upon removal of the claim or cause of action the proceeding or any part of it is core, the notice shall also state that the party removing the proceeding does or does not consent to the entry of final orders or judgment by the bankruptcy judge if it is determined that the bankruptcy judge, absent consent of the parties, cannot enter final orders or judgment consistent with Article III of the United States Constitution.

• Rule 9027-2. Statement Regarding Consent to Entry of Orders or Judgment in Core Proceeding
  If a statement filed pursuant to Rule 9027(e)(3) by a party who filed a pleading in connection with a removed claim or cause of action, other than the party filing the notice of removal, states that the proceeding or any part of it is core, the party shall also state that the party does or does not consent to the entry of final orders or judgment by the bankruptcy judge if it is determined that the bankruptcy judge, absent consent of the parties, cannot enter final orders or judgment consistent with Article III of the United States Constitution.

• Rule 9033-1. Proposed Findings and Conclusions in Certain Core Proceedings
  If the Court determines that it cannot enter a final order or judgment consistent with Article III of the United States Constitution in a particular proceeding referred to the Court and designated as core under section 157(b) of title 28, and the Court hears the proceeding, Rule 9033(a), (b), and (c) of the Federal Rules of Bankruptcy Procedure shall apply as if it is a non-core proceeding.

Thus, the Committee has suggested that consent may cure Stern related constitutional defects in the bankruptcy court’s final authority over core claims, and that where a bankruptcy court lacks constitutional authority to enter a final judgment with respect to statutorily core matters, such matters will be treated as if they were non-core matters and the court should therefore issue a report and recommendation to the district court, rather than a final judgment.
The Committee is posting the proposed rules for comment for a thirty day period ending on March 22, 2012.  Those who wish to comment may find more information here.