This summer, the United States Supreme Court handed down a decision in the case of Executive Benefits Insurance Agency v. Arkison that changed how bankruptcy judges, covered under Article I (the Executive Branch) of the Constitution, and district court Article III judges work together. Arkison helped clarify nagging procedural issues between district and bankruptcy courts. At the same time, Arkison verified a significant reduction in the ability of bankruptcy courts to resolve common claims arising in bankruptcy proceedings.

Arkison began as a seemingly conventional case. In 2006, Bellingham Insurance Agency filed for Chapter 7 bankruptcy. Peter Arkison was assigned as the trustee. Mr. Arkison filed a fraudulent conveyance complaint against Bellingham, something not uncommon in a bankruptcy proceeding. In fact, Title 28 specifically grants bankruptcy courts the ability to hear and determine such claims. The bankruptcy court granted summary judgment on Mr. Arkison’s claim.

The black letter language in Title 28 and Supreme Court precedent contradict each other. Title 28 provides a list of core proceedings over which a bankruptcy court has authority to “hear and determine”. 28 U.S.C. § 157(b)(1). Despite this, the Supreme Court has previously held in Stern v. Marshall that bankruptcy courts do not have constitutional authority to provide final judgments even on the claims listed in Title 28. Stern v. Marshall was entertaining as it involved the estates of celebrity Anna Nicole Smith and her oil magnate husband, J. Howard Marshall. While the Court in Stern removed bankruptcy courts’ abilities to render final judgments, it did not quite explain what bankruptcy courts were to do if faced with a core proceeding claim such as a fraudulent conveyance.

The Court in Arkison clarified the proper procedure for such claims. Per Arkison, bankruptcy courts are directed to provide findings of fact and conclusions of law to the district court to be reviewed de novo. Bankruptcy judges then rely on the district courts’ final judgments in order to proceed with bankruptcy proceedings.

Arkison, however, did not clarify everything. The Supreme Court did not broach the issue of whether parties could consent to allowing a bankruptcy court to render a final judgment. Such a system could expedite the ping pong-like process developed in Arkison. The fate of magistrates are similarly unresolved. Magistrates, like bankruptcy judges, are also Article I judges. It is unclear whether Stern and Arkison indicate that magistrates will be soon stripped of some of their judicial powers as well. At minimum, Arkison represents an interesting step in the interplay between Article I and Article III judges.