Wellness Int’l Network, Ltd. v. Sharif: Litigants May Consent to The Adjudication of Non-Core Counterclaims In Bankruptcy Proceedings

Case AnalysisWesley Gould

Wellness Int’l Network, Ltd. v. Sharif, 135 S.Ct. 1932 (2015).

Opinion Issued: May 26, 2015. Supreme Court Document Link. 

Written by: Wesley Gould, Comment Editor

Wellness International filed an adversary complaint in the bankruptcy court alleging that Sharif was precluded from discharging his debts because he concealed his assets by placing them in a trust as a means of evading creditors.[1] Sharif failed to provide the requested discovery documents.[2] He refuted the claims and Wellness International filed a motion to compel discovery.[3] The bankruptcy court granted this motion[4]; however, Sharif refused to comply with the discovery demand and the court issued a default judgment against him.[5] The bankruptcy court determined the trust was Sharif’s property and therefore Sharif could not obtain a discharge in bankruptcy. [6] The Seventh Circuit Court of Appeals affirmed in part and reversed in part, holding that the bankruptcy court lacked the authority to enter final judgment as to whether or not Sharif owned the assets in the trust.[7] The Seventh Circuit held the bankruptcy court was only allowed to enter proposed findings of fact and conclusions of law. [8]

The Supreme Court of the United States granted writ of certiorari and held that allowing a party to consent to adjudication of non-core counterclaims in a bankruptcy proceeding does not violate Article III of the constitution.[9] Bankruptcy court judges are non-Article III judges because they do not enjoy an unlimited tenure and their salary is subject to change.[10] However, if a litigant knows this, and still consents to a bankruptcy court's jurisdiction, there is no frustration of Article III's intent.[11]

Bankruptcy practitioners in Texas will want to note that Sharif overruled Fifth Circuit precedent. Litigants now have more options when it comes to adjudicating non-core counterclaims that arise in a bankruptcy proceeding.

[1] Wellness Int'l Network, Ltd. v. Sharif, 135 S.Ct. 1932, 1941 (2015).

[2] Id.

[3] Id.

[4] Id.

[5] Id.

[6] Id.

[7] Id.

[8] Id.

[9] Id. at 1939.

[10] Id. at 1951.

[11] Id. Consent may be express or implied. Id. at 1947.