In Re: Bellingham Ins. Agency, Inc.

Summarized by:

  • Court: 9th Circuit Court of Appeals Archives
  • Area(s) of Law: Bankruptcy Law
  • Date Filed: 12-04-2012
  • Case #: 11-35162
  • Judge(s)/Court Below: Circuit Judge Paez for the Court; Chief Circuit Judge Kozinski and District Judge Collins
  • Full Text Opinion

Under 28 U.S.C. § 157, a non-Article III bankruptcy judge has constitutional authority to hear and enter proposed findings of fact and conclusions of law in a fraudulent conveyance proceeding asserted by a bankruptcy trustee against a noncreditor, but entering a final judgment is left to the federal district court.

Aegis Retirement Income Services, Inc. (“ARIS”), which designed and administered defined-benefit pension plans, and Bellingham Insurance Agency, Inc. (“BIA”), which sold insurance and annuity products that funded those plans, were closely-related companies. ARIS routed all its income and expenses through BIA, kept joint accounting records with BIA, and declared its income on consolidated tax returns with BIA. When BIA became insolvent, BIA funds were used to incorporate the Executive Benefits Insurance Agency, Inc. (“EBIA”), and commission income was deposited into an account held jointly by ARIS and EBIA. BIA filed a voluntary Chapter 7 bankruptcy petition, and the Trustee filed a complaint against EBIA and ARIS to recover the commissions, which he alleged to be property of the estate. The bankruptcy court granted summary judgment in favor of the Trustee, finding that the deposits were fraudulent conveyances of BIA assets and that EBIA was a “mere successor” of BIA, and the district court affirmed. EBIA did not object to the bankruptcy judge’s entry of final judgment until the appeal. Relying on Supreme Court precedent, the Court held that bankruptcy courts do not have constitutional authority to enter final judgments on fraudulent conveyance claims asserted against noncreditors to the bankruptcy estate. The Court also found that the right to a hearing in an Article III court is waivable, and held that here, the nonclaimant consented to the bankruptcy judge’s adjudication of the fraudulent conveyance claim by failing to object until the case reached the court of appeals. The Court’s conclusion that the transfers to EBIA were constructively fraudulent under Washington law was a sufficient basis on which to affirm the judgment; the Court did not need to determine whether the transfers were actually fraudulent. AFFIRMED.

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