The United States Supreme Court recently released an opinion in the case of Wellness International v. Sharif, ruling that a bankruptcy court may decide issues that are not directly related to the bankruptcy with the consent of the parties. The sharply divided court ruled that allowing bankruptcy judges to decide certain disputes does not unconstitutionally restrict the Judiciary.
The dissent, supported by three of the Court’s nine Justices, argued that bankruptcy courts were created by Congress and not the Judiciary, and they should not be permitted to decide any disputes or issues that would traditionally be decided in a federal District Court. The dissent argued that the constitutional protections that apply to federal district courts, such as life tenure for judges, are not present in bankruptcy courts, making them constitutionally inadequate to hear disputes outside the narrow scope of their congressional appointment.
The majority opinion, joined by six justices, didn’t agree with the criticisms of the dissent because the case was dealing with a situation in which both parties gave consent to have the issue heard by the bankruptcy court.
What Happened in the Case?
The case arises from Wellness International’s attempt to collect on a judgment they had been awarded against Sharif in a prior case. Sharif filed for bankruptcy in Illinois and tried to get the judgment discharged through the bankruptcy. Wellness International became involved in the bankruptcy and began to suspect that Sharif was concealing assets using an alter-ego trust.
Wellness International filed a complaint against Sharif in the bankruptcy court, which ruled that Sharif had violated several orders and awarded the property of the trust to Wellness International. Sharif appealed the decision to the federal district court, which agreed with the bankruptcy court’s decisions. Sharif then appealed to the Seventh Circuit Court of Appeals, who agreed that Sharif had violated orders but ruled that the bankruptcy court could not allocate assets that were part of the trust, even if Sharif had consented to the bankruptcy court hearing the dispute. On the final appeal to the United States Supreme Court, this judgment was reversed, and Wellness International may be able to seize the assets in the trust.
How Did Sharif Give Consent to the Bankruptcy Court to Hear the Claim Against Him?
When the Supreme Court addressed whether Sharif gave consent to the bankruptcy court to hear the dispute, it was not that he gave written or verbal permission on the court record for the dispute to be heard. The Court inferred consent from the fact that he didn’t lodge an appropriate or timely objection to the bankruptcy court’s involvement in the dispute.
This “implied consent” is enough consent for the bankruptcy court to hear the dispute, the court ruled. If Sharif had objected to the bankruptcy court’s hearing of the dispute, the issue would have been decided in the district court, and there may have been a different result. If an objection had been filed by Sharif or his attorney, the trust that he administers may have been able to protect the funds that will now likely become the property of Wellness International or another creditor as a part of the bankruptcy. In this case, the issue of consent has been remanded to the Seventh Circuit, although Sharif could have avoided the appeals entirely if he had clearly revoked or withheld consent in the bankruptcy court. People considering bankruptcy should always consult and obtain experienced legal counsel to ensure that their property is protected as the law allows, especially if a trust or joint property is involved.
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More Blog Posts:
Florida Doctor Gets Prison Time for Bankruptcy Fraud after Concealing Assets from Bankruptcy Trustee, Kentucky Bankruptcy Lawyers Blog, published May 1, 2015.
Court of Appeals Rules Filing Deadline For Bankruptcy Claims Apply to Secured Creditors as Well as Unsecured Creditors, Kentucky Bankruptcy Lawyers Blog, published May 28, 2015.