Gecker v. Flynn (In re Emerald Casino, Inc.)

467 B.R. 128, 2012 WL 280724, 2012 U.S. Dist. LEXIS 11706
CourtDistrict Court, N.D. Illinois
DecidedJanuary 31, 2012
DocketAdversary No. 08 A 00972; Nos. 02 B 22977, 11 C 4714, 11 C 7515
StatusPublished
Cited by4 cases

This text of 467 B.R. 128 (Gecker v. Flynn (In re Emerald Casino, Inc.)) is published on Counsel Stack Legal Research, covering District Court, N.D. Illinois primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Gecker v. Flynn (In re Emerald Casino, Inc.), 467 B.R. 128, 2012 WL 280724, 2012 U.S. Dist. LEXIS 11706 (N.D. Ill. 2012).

Opinion

MEMORANDUM ORDER

REBECCA R. PALLMEYER, District Judge.

Bankruptcy Judge Eugene Wedoff is presiding over the Emerald Casino bankruptcy. In response to proofs of claim filed by a number of officers and directors of Emerald Casino, the bankruptcy Trustee, Frances Gecker, filed a variety of counterclaims. Judge Wedoff conducted a lengthy bench trial on those counterclaims in late 2010 and, after several postponements, is scheduled to issue a ruling on Wednesday, February 1, 2012. In consolidated proceedings before this court, the counterclaim Defendants challenge Judge Wedoff s continued exercise of jurisdiction on two grounds: First, in Gecker v. Flynn, No. 11 C 4714, Defendants argue that the Supreme Court’s ruling in Stern v. Marshall, — U.S. -, 131 S.Ct. 2594, 180 L.Ed.2d 475 (2011), strips the bankruptcy court of its authority to enter judgment in certain “core proceedings,” a term defined to include “counterclaims by the estate against persons filing claims against the estate.” 28 U.S.C. § 157(b)(2)(C). The claims at issue here fall into the category for which the bankruptcy court has no authority to enter judgment, Defendants argue. They contend that this court should therefore withdraw the reference to the bankruptcy court. Second, in McMahon v. Gecker, No. 11 C 7515, Defendants ask the court to require Judge Wedoff to recuse himself from the case for reasons that include the judge’s son’s recent employment as an associate with Jenner & Block, the law firm that represents the Trustee in this matter.1

For the reasons explained here, the court concludes that Defendants appear to be correct that Judge Wedoff has no power to enter judgment on certain of the Trustee’s counterclaims. Although that determination does not require withdrawal of the reference, the court exercises its discretion to do so in this instance. The petition for a writ of mandamus is therefore terminated as moot.

Motion to Withdraw the Reference

The United States Bankruptcy Code authorizes bankruptcy judges to hear and enter final judgments in “all core proceedings arising under title 11, or arising in a case under title 11.” 28 U.S.C. § 157(b)(1). Among the list of proceedings defined by the statute as “core proceedings” are “counterclaims by [a debt- or’s] estate against persons filing claims against the estate.” 28 U.S.C. § 157(b)(2)(C). With respect to “non-core proceedings,” on the other hand-that is, proceedings that are merely “otherwise related” to a case under title 11 — a bankruptcy judge may not enter a final judgment, but must instead “submit proposed findings of fact and conclusions of law to [131]*131the district court.” 28 U.S.C. § 157(c)(1). The plain language of the Code thus gives Judge Wedoff the authority to enter a final ruling on the Trustee’s counterclaims against Defendants in this case, and he conducted a six-week bench trial in November and December 2010. The parties’ post-trial briefs followed. Judge Wedoff had not yet ruled on the case when the Supreme Court decided Stern v. Marshall in June of last year.

In Stem, the Supreme Court announced that a bankruptcy court lacks authority under the Constitution to issue a final judgment in a lawsuit arising solely under state common law seeking to bring assets into a debtor’s bankruptcy estate. 181 S.Ct. at 2620. The case arose from a bankruptcy proceeding filed by Vickie Lynn Marshall (known to the world as Anna Nicole Smith). Id. at 2601. Pierce Marshall, the son of Ms. Marshall’s late husband, filed a proof of claim in her Chapter 11 case, seeking to recover damages for defamation; he claimed Ms. Marshall had falsely accused him of interfering with her expectation of money from her late husband’s estate. Id. The trustee in bankruptcy responded by alleging tortious interference as a counterclaim against Pierce in the bankruptcy proceeding; specifically, the trustee asserted a common-law tort claim for intentional interference with a testamentary gift. Id.

In considering whether the bankruptcy court properly entered a judgment against Pierce, the Supreme Court recognized that the Bankruptcy Code characterizes a counterclaim against a party who has filed a proof of claim as a matter of “core” bankruptcy jurisdiction. Id. at 2603 (citing 28 U.S.C. § 157(b)(2)(c)). As the Ninth Circuit observed, however, not all such counterclaims are “so closely related to [a creditor’s] proof of claim that the resolution of the counterclaim is necessary to resolve the allowance or disallowance of [the creditor’s own] claim,” Stern, 131 S.Ct. at 2602 (first alteration in original) (quoting In re Marshall, 600 F.3d 1037, 1058 (9th Cir.2010)). The Court concluded that Ms. Marshall’s tortious interference claim was “a state law action independent of the federal bankruptcy law and not necessarily resolvable by a ruling on the creditor’s proof of claim in bankruptcy.” Id. at 2611. Despite the explicit statutory authority granted to bankruptcy courts in such circumstances, the Court concluded that the bankruptcy judge “lacked the constitutional authority to enter a final judgment on a state law counterclaim that is not resolved in the process of ruling on a creditor’s proof of claim.” Id. at 2620.

In the months since the Supreme Court’s ruling in Stern, dozens of courts have considered its impact on pending bankruptcy proceedings. Just weeks ago, our Court of Appeals described Stem as holding “that Article III prohibited Congress from giving bankruptcy courts authority to adjudicate claims that went beyond the claims allowance process.” In re Ortiz, 665 F.3d 906, 910 (7th Cir.2011) (citing Stern, 131 S.Ct. at 2618). In Ortiz, a health care provider had filed proofs of claim in hundreds of individual bankruptcy proceedings. Id. at 908. The debtors brought two class actions against the provider, alleging that the proofs of claim disclosed confidential medical information, in violation of state law. Id. The bankruptcy judge entered judgment against the debtors, and, pre-Stem, the Seventh Circuit had permitted a direct appeal of the judgment orders. Id. at 908-09. In its December 30 opinion, however, the Court of Appeals concluded that Stern required dismissal of those appeals. Although the debtors’ claims arose from the bankruptcy procedures, the bankruptcy judge lacked authority to resolve and enter a final judgment on the debtors’ counterclaims be[132]*132cause the bankruptcy court did not have to decide those counterclaims in the process of ruling on the health care provider’s own claims against the bankruptcy estate. Id. at 913.

As the Ortiz court explained, the question in Stem was whether Article III permits the bankruptcy courts to hear and finally decide a particular type of core proceeding.

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Related

Gecker v. Flynn (In re Emerald Casino, Inc.)
530 B.R. 44 (N.D. Illinois, 2014)
Pulaski v. Dakota Financial, LLC (In re Pulaski)
475 B.R. 681 (W.D. Wisconsin, 2012)
Blixseth v. Brown
470 B.R. 562 (D. Montana, 2012)

Cite This Page — Counsel Stack

Bluebook (online)
467 B.R. 128, 2012 WL 280724, 2012 U.S. Dist. LEXIS 11706, Counsel Stack Legal Research, https://law.counselstack.com/opinion/gecker-v-flynn-in-re-emerald-casino-inc-ilnd-2012.