Wellness Int’l Network v. Sharif

The Supreme Court will also hear Wellness Int’l Network v. Sharif (No. 13-935).  In this case the defendant, Sharif, sought bankruptcy after a court entered a $650,000 judgment against him after he failed to complete discovery.  The case involved a significant amount of litigation around the country and ultimately landed on appeal in the Seventh Circuit Court of Appeals.  Part of the issue was a waiver of a constitutional challenge to whether a bankruptcy court can issue a final order.

The Seventh Circuit held that the constitutional objection was not waivable due to separation of powers principles, and it concluded the bankruptcy court lacked constitutional authority to enter a final judgment on the “alter-ego claim.”  It concluded the bankruptcy

court did have constitutional authority to enter final judgment on the adversary complaint–which were objections to the discharge of Sharif’s debts.  And the court concluded the entry of default judgment and award of fees were proper sanctions.

On review, the Supreme Court is being asked to review two issues: (1) Whether the presence of a subsidiary state property law issue in a 11 U.S.C. § 541 action brought against a debtor to determine whether property in the debtor’s possession is property of the bankruptcy estate means that such action does not “stem[] from the bankruptcy itself” and therefore, that a bankruptcy court does not have the constitutional authority to enter a final order deciding that action; and (2) whether Article III of the United States Constitution (Article III addresses the power of the judiciary) permits the exercise of the judicial power of the United States by the bankruptcy courts on the basis of litigant consent, and if so, whether implied consent based on a litigant’s conduct is sufficient to satisfy Article III.