Bankruptcy Court Lacked Authority To Issue Final Order In "Core" Proceeding
IN RE: ORTIZ (December 30, 2011)
Aurora Health Care filed proofs of claim in thousands of Wisconsin bankruptcy cases between 2003 and 2008. The filings were public and contained some medical treatment information. Two class actions were filed against Aurora alleging that it violated a Wisconsin statute that requires that all health records be kept confidential. Bankruptcy Judge Kelley (E.D. Wis.) granted summary judgment to Aurora in both cases. The classes appealed directly from the bankruptcy court.
In their opinion, Seventh Circuit Judges Williams and Tinder and District Judge Gottschall dismissed for lack of appellate jurisdiction. When the Court heard oral argument, it believed that it had appellate jurisdiction under Section 158(d)(2). But then the United States Supreme Court decided Stern v. Marshall, in which it held that bankruptcy judges lacked authority to enter final judgments in traditional common law actions. After receiving additional briefing, the Court addressed the jurisdictional issue. First, it looked to what authority Congress gave to the bankruptcy courts. Congress gave the bankruptcy courts authority in cases arising under, arising in, or related to Title 11. But Congress gave the courts authority to issue final orders only in "core" proceedings and core proceedings are those that either arise under Title 11 or arise in a Title 11 case. The Court concluded that the debtors' claims were core proceedings in that they arose in a bankruptcy case. Satisfied that the bankruptcy court had congressional authority to do what it did, the Court turned to whether Congress exceeded its powers under the Constitution. It concluded that it did. Just like the claim in Stern, the debtors' claims are private party claims involving interests of state law. Just because these ordinary state law claims are related to the debtors' bankruptcy cases does not mean that the bankruptcy court has jurisdiction to issue a final order. The Court also concluded that the bankruptcy court's ruling did not fit within any the other types of orders that are directly appealable under Section 158(d)(2)(A).
Michael Rigney practices in the law offices of GVC Ltd. in Chicago. In this blog, he reports on select