In re: Shawn Deitz

• Court: United States Bankruptcy Appellate Panel for the Ninth Circuit
• Decided: April 23, 2012
• Docket: EC-11-1427-PaDMk
• Status: Published

Opinion

FILED APR 23 2012 1 SUSAN M SPRAUL, CLERK U.S. BKCY. APP. PANEL 2 ORDERED PUBLISHED O F TH E N IN TH C IR C U IT

3 UNITED STATES BANKRUPTCY APPELLATE PANEL 4 OF THE NINTH CIRCUIT 5 6 In re: ) BAP No. EC-11-1427-PaDMk ) 7 SHAWN DEITZ, ) Bk. No. 08-13589 ) 8 Debtor. ) Adv. No. 08-01217 ___________________________________) 9 ) ) 10 SHAWN DEITZ, ) ) 11 Appellant, ) ) 12 v. ) O P I N I O N ) 13 WAYNE FORD and PATRICIA FORD, ) ) 14 Appellees. ) ___________________________________) 15 16 Argued and Submitted on March 22, 2012 at Sacramento, California 17 Filed - April 23, 2012 18 Appeal from the United States Bankruptcy Court 19 for the Eastern District of California 20 Hon. Richard T. Ford, Bankruptcy Judge, Presiding 21 22 Appearances: Alexander B. Wathen argued for Appellant Shawn Deitz. Thomas H. Armstrong argued for Appellees 23 Wayne Ford and Patricia Ford. 24 Before: PAPPAS, DUNN and MARKELL, Bankruptcy Judges. 25 26 27 28 1 PAPPAS, Bankruptcy Judge: 2 3 Chapter 71 debtor Shawn Deitz (“Deitz”) appeals the 4 bankruptcy court’s judgment awarding damages to creditors Wayne 5 (“Ford”) and Patricia Ford (together, the “Fords”), and declaring 6 the debt represented by the judgment excepted from discharge under 7 § 523(a)(2)(A), (a)(4), and (a)(6). We AFFIRM. 8 FACTS 9 Deitz was a sometime general building contractor in the 10 Fresno area. Mr. Ford had served in the U.S. Army, where he was 11 injured; he is disabled and has not worked since that injury. 12 Mrs. Ford is a registered nurse. 13 In late August or September 2006, the Fords met Deitz at the 14 Applegate Project housing development, where Deitz was building 15 new homes. The Fords informed Deitz that they were planning to 16 build a handicap-assisted home. They all toured the house Deitz 17 had under construction, and further discussed the Fords’ building 18 plans. 19 Over the next two months, the parties had several more 20 meetings. During their conversations, Deitz represented to the 21 Fords that he could build a new house to the specifications 22 required by the Americans with Disabilities Act (“ADA”) and which 23 would comply with Veterans Administration (“VA”) standards for 24 providing financial support for the homeowners. Deitz told the 25 Fords that he had previously worked on construction projects 26 1 Unless otherwise indicated, all chapter, section and rule 27 references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532, and the Federal Rules of Bankruptcy Procedure, Rules 1001-9037. The 28 Federal Rules of Civil Procedure are referred to as “Civil Rules.”

-2- 1 meeting the ADA and VA standards. Deitz also represented on 2 several occasions to the Fords that he was a former Marine, and 3 thus a fellow veteran with Mr. Ford; that his mother was a nurse, 4 as was Mrs. Ford; and that he had worked as a pharmacy technician 5 at the VA Hospital where Ford had been treated. Perhaps most 6 importantly, both of the Fords would later testify that Deitz 7 represented that he was a licensed general contractor in good 8 standing with the State of California. 9 Deitz gave the Fords a proposal bid to build their home on 10 September 25, 2006. It offered to build a 4,170 square foot house 11 with additional improvements, for a total of 7,050 square feet. 12 Deitz proposed to build the house for the total price of 13 $444,105.00 ($106.50 per square foot). The Fords agreed, and a 14 final contract was entered into by the parties incorporating 15 substantially the same terms. The contract bears Deitz’ signature 16 directly above what is shown as his state contractor’s license 17 number. However, it is not disputed that on the date that the 18 contract was signed by the Fords, November 7, 2006, Deitz’ license 19 was not in good standing, and had been suspended. Indeed, the 20 license was not reinstated by the state until January 3, 2007.2 21 During the period of construction and up through trial of 22 this action, the Fords paid Deitz a total of $511,800.00 to build 23 the home. Deitz admitted that he failed to complete the 24 2 The parties appear to agree that at some point before 25 signing of the contract, Deitz informed the Fords that his license was suspended, but that, he told them, the suspension would be 26 lifted before the contract was signed. It is uncontroverted that Deitz’ license was suspended at the time of the contract signing 27 and would not be reinstated until the following month. It is also uncontroverted that Deitz’ license was suspended again several 28 times, and was ultimately revoked, during construction.

-3- 1 construction. According to the expert testimony of John Thompson 2 (“Thompson”), a former senior investigator with the California 3 Contractors’ State License Board, the house was approximately 65 4 percent completed. Additionally, the Fords testified that they 5 made repeated demands to Deitz that he provide them an accounting 6 and itemization, supported by receipts and invoices, to show how 7 he had disbursed the monies he had been paid for the construction. 8 The bankruptcy court would ultimately determine that Deitz never 9 gave the Fords an appropriate accounting, but instead, that Deitz 10 had “simply submitted asserted [construction cost] overages 11 without proof, and unsigned change orders.” 12 Deitz filed a chapter 7 bankruptcy petition on June 20, 2008. 13 His schedules list the Fords as creditors holding a claim in an 14 unknown amount. 15 The Fords commenced an adversary proceeding against Deitz on 16 September 9, 2008. The complaint alleged that their claims for 17 damages against Deitz arising from the construction of the house 18 should be excepted from discharge under § 523(a)(2)(A), (a)(4) and 19 (a)(6). As to the § 523(a)(2)(A) claim, the Fords alleged that 20 Deitz knowingly made intentional material misrepresentations to 21 them with the intent to deceive the Fords, upon which they 22 justifiably relied in retaining Deitz, and that the Fords suffered 23 damages as a result of Deitz’ fraud. As to § 523(a)(4), the Fords 24 alleged that through fraud, trick and device, with a preconceived 25 design and intent, Deitz misappropriated monies from the Fords. 26 And as to § 523(a)(6), the Fords alleged that Deitz’ actions were 27 willful, malicious, and the proximate cause of the Fords’ 28 financial damages.

-4- 1 Deitz, who represented himself in the bankruptcy case and 2 adversary proceeding,3 filed an answer to the complaint denying 3 all allegations. 4 Before a trial could be held, the Fresno County District 5 Attorney filed a criminal complaint against Deitz on March 23, 6 2009. People v. Deitz, case no. F07-9086 (Superior Court Fresno 7 County). Four of the counts in that complaint alleged that Deitz 8 was guilty of grand theft of personal property in connection with 9 building contract transactions with the Fords and three other 10 parties on their respective properties. Deitz was found not 11 guilty of those four counts by a jury on October 25, 2010. 12 However, Deitz was convicted on a fifth count for the crime of 13 Contracting Without License in violation of CAL . BUS . & PROF . CODE 14 § 7028.4 15 After several continuances to allow the criminal proceeding 16 to be completed, the trial in the adversary proceeding took place 17 on April 4, 5 and 11, 2011. Although the Fords submitted a 18 pretrial brief, Deitz did not, yet the bankruptcy court took note 19 of a pretrial statement made by Deitz that he never intended to 20 21 3 Deitz appeared pro se in both the bankruptcy and adversary 22 proceeding, but has been represented by counsel in the criminal proceeding and in this appeal. 23 4 7028. Contracting without license; first conviction; 24 second, third, and subsequent convictions; limitation of actions; restitution 25 (a) It is a misdemeanor for a person to engage in the business or 26 act in the capacity of a contractor within this state without having a license therefor, unless the person is particularly 27 exempted from the provisions of this chapter. CAL. BUS . & PROF . CODE § 7028 (2012). 28

-5- 1 defraud or willfully injure the Fords. At the trial, over 500 2 pages of documentary evidence were admitted, and the bankruptcy 3 court heard testimony from five witnesses (the Fords, Deitz, 4 Thompson, and Terry Freeman, a representative of a supplier of 5 doors to the Fords’ project). As reported later in its findings 6 of fact, the court evaluated the credibility of each witness. 7 At the close of trial, the bankruptcy court took the issues 8 under advisement; it entered its formal Findings of Fact and 9 Conclusions of Law on July 28, 2011. In addition to making over 10 sixty separate, detailed findings of fact, the court listed forty 11 conclusions of law in support of its decision that Deitz’ debt to 12 the Fords was nondischargeable under § 523(a)(2), (4) and (6). 13 As to Fords’ § 523(a)(2)(A) fraud claim, the bankruptcy court 14 found and concluded that Deitz knowingly made false 15 representations to the Fords that he was a licensed contractor in 16 October-November 2006 when he contracted with them, and that he 17 misrepresented that he would complete the construction of the home 18 according to ADA, VA and local building code standards. The court 19 found that these misrepresentations were false, intentional, and 20 made to deceive the Fords into entering into the building 21 contract. Finally, the court found that the Fords justifiably 22 relied on Deitz’ misrepresentations, and that the Fords’ money 23 damages established via the evidence were proximately caused by 24 these intentional misrepresentations. 25 As to the § 523(a)(4) claim, the bankruptcy court found that 26 the evidence established that Deitz was given significant funds by 27 the Fords, and that Deitz took possession of those funds for a 28 particular purpose (i.e., to construct the Fords’ home). The

-6- 1 court found that Deitz failed to use those funds to build and 2 complete the home, and that Deitz’ conduct amounted to fraud. 3 Consequently, the court concluded that Deitz had committed 4 embezzlement as contemplated by § 523(a)(4). 5 As to the § 523(a)(6) claim, the court concluded that Deitz 6 fraudulently induced the Fords to enter into the building contract 7 at a time when he knew he was not licensed as a contractor. Deitz 8 further deceived the Fords into making progress payments on the 9 project with continued misrepresentations about the status of 10 work, and that he did so with the intent to obtain substantial 11 funds from the Fords, and that the financial injuries the Fords 12 suffered were foreseeable. As a result, the bankruptcy court 13 concluded that Deitz’ actions constituted a willful and malicious 14 injury to the Fords for purposes of § 523(a)(6). 15 On July 28, 2011, the bankruptcy court entered a money 16 judgment in favor of the Fords and against Deitz in the amount of 17 $386,092.76 and ordered that the judgment was excepted from 18 discharge in Deitz’ bankruptcy case pursuant to § 523(a)(2)(A), 19 (a)(4) and (a)(6). 20 Deitz filed a timely appeal on August 5, 2011. 21 JURISDICTION 22 The bankruptcy court had subject matter jurisdiction over 23 this action under 28 U.S.C. § 1334(b), something which Deitz 24 apparently concedes. In addition, there is no dispute that this 25 action was a core proceeding under 28 U.S.C. § 157(b)(2)(I). In 26 this appeal, however, Deitz challenges the constitutional 27 authority of the bankruptcy court to enter a final judgment 28 against him in the adversary proceeding, relying upon the Supreme

-7- 1 Court’s recent decision in Stern v. Marshall, ___ U.S. ___, 131 2 S.Ct. 2594 (2011). We discuss this contention below. Finally, 3 the Panel has jurisdiction over this appeal under 28 U.S.C. § 158. 4 ISSUES 5 Whether the bankruptcy court had the constitutional authority 6 to enter a final judgment determining the amount of the Fords’ 7 claims against Deitz, and the dischargeability of those claims. 8 Whether the bankruptcy court erred in ruling that Deitz’ debt 9 to the Fords was nondischargeable under § 523(a)(2), (4) and (6). 10 STANDARD OF REVIEW 11 We review the constitutionality of a federal statute de novo. 12 United States v. Vongxay, 594 F.3d 1111, 1114 (9th Cir. 2010), 13 cert. denied, 131 S. Ct. 294 (2010). 14 Whether a claim is excepted from discharge under § 523(a) 15 presents mixed issues of law and fact and is reviewed de novo. 16 Carrillo v. Su (In re Su), 290 F.3d 1140, 1142 (9th Cir. 2002). 17 De novo means review is independent, with no deference given 18 to the trial court’s conclusion. Barclay v. Mackenzie (In re AFI 19 Holding, Inc.), 525 F.3d 700, 702 (9th Cir. 2008). 20 DISCUSSION 21 I. The bankruptcy court had the constitutional authority to enter a final judgment against Deitz. 22 23 In 28 U.S.C. § 1334(b), Congress granted nonexclusive subject 24 matter jurisdiction to the district court over “all civil 25 proceedings arising under title 11, or arising in or related to 26 cases under title 11.” Congress also authorized each district 27 court to refer such proceedings to a bankruptcy judge. 28 U.S.C. 28

-8- 1 § 157(a).5 The bankruptcy court, in turn, may hear and determine

2 such proceedings, 28 U.S.C. § 157(b)(1), and if the particular

3 action involves a “core proceeding” as defined in 28 U.S.C.

4 § 157(b)(2), it may enter “appropriate orders and judgments

5 subject to [appellate] review under section 158 of [title 11].”

6 Here, the Fords’ adversary complaint sought a determination

7 that their claims against Deitz were excepted from his discharge

8 in bankruptcy under several subsections of § 523(a). Clearly,

9 then, because such claims arose under the Bankruptcy Code, subject

10 matter jurisdiction existed in the district court, and by its

11 referral, in the bankruptcy court, as well.

12 Moreover, “determinations as to the dischargeability of

13 particular debts . . .” are expressly included in the statutory

14 list of core proceedings. 28 U.S.C. § 157(b)(2)(I). As a result,

15 Congress has provided that the bankruptcy court may enter a final

16 judgment on exception to discharge claims, subject only to

17 appellate review. 28 U.S.C. § 157(b)(2)(I). Indeed, the

18 bankruptcy court, via the reference from the district court, has

19 the exclusive authority to determine the dischargeability of debts

20 under § 523(a)(2), (4) and (6). See § 523(c) (the debtor shall be

21 discharged from a debt of the kind specified in § 523(a)(2), (4)

22 and (6) unless, after notice and a hearing, “the [bankruptcy]

23 court determines such debt to be excepted from discharge . . .

24 .”); Sasson v. Sokoloff (In re Sasson), 424 F.3d 864, 869-70 (9th

25 Cir. 2005).

26 27 5 The district court in the Eastern District of California has indeed referred such proceedings to the bankruptcy court. 28 See E.D. Cal. General Order 161 (July 10, 1984).

-9- 1 Deitz does not dispute the bankruptcy court’s subject matter 2 jurisdiction over this action, nor that the adversary proceeding 3 was a core proceeding. Instead, Deitz argues that, under Stern, 4 the bankruptcy court’s entry of a final judgment in this case was 5 an unconstitutional act. We disagree. 6 In Stern, the Supreme Court held that, as an Article I court, 7 a bankruptcy court “lacked the constitutional authority to enter a 8 final judgment on a state law counterclaim that is not resolved in 9 the process of ruling on a creditor’s proof of claim” in a 10 bankruptcy case. Stern, 131 S.Ct. at 2620. Put another way, 11 though 28 U.S.C. § 157(b)(2)(C) authorized the bankruptcy court to 12 decide the merits of the bankruptcy estate’s counterclaim against 13 a creditor, such an exercise of judicial power by an Article I 14 bankruptcy judge violated the Constitution, because “Congress may 15 not bypass Article III simply because a proceeding may have some 16 bearing on a bankruptcy case; the question is whether the action 17 at issue stems from the bankruptcy itself or would necessarily be 18 resolved in the claims allowance process.” Id. at 2618. 19 But the Stern decision addressed the constitutionality of a 20 particular subsection of 28 U.S.C. § 157(b)(2) (i.e., 21 “counterclaims by the estate against persons filing claims against 22 the estate”), and only then, under the particular facts of that 23 case. In Stern, Chief Justice Roberts made it clear that any 24 constitutional bar to the exercise of judicial power by a 25 bankruptcy court erected by that decision was a very limited one: 26 We conclude today that Congress, in one isolated respect, exceeded that limitation in the Bankruptcy Act 27 of 1984. The Bankruptcy Court below lacked the constitutional authority to enter a final judgment on a 28 state law counterclaim that is not resolved in the

-10- 1 process of ruling on a creditor’s proof of claim. 2 Stern, 131 S.Ct. at 2620. Indeed, in describing the impact of its 3 decision, the majority predicts that the Court’s opinion in Stern 4 should have few “practical consequences,” and that the majority 5 did “not think that the removal of [such] counterclaims . . . from 6 core bankruptcy jurisdiction meaningfully changes the division of 7 labor in the current statute . . . .” 131 S.Ct. at 2619-20. 8 Though by its own edict Stern is a narrow decision, 9 restricted in impact to only certain types of core proceedings, 10 Deitz relies upon Stern to launch a frontal attack on the 11 bankruptcy courts’ authority to enter a final judgment in a 12 prototypical bankruptcy context, a dischargeability action. In 13 this appeal, Deitz asks the Panel to reverse the judgments of the 14 bankruptcy court concluding that the Fords’ claims against Deitz 15 are excepted from discharge under § 523(a)(2)(A), (4) and (6). In 16 Deitz’ view, the three exception to discharge claims advanced in 17 the Fords’ adversary complaint were, at bottom, simply disputes 18 between private parties about a common law fraud claim and their 19 dischargeability in bankruptcy. Although Deitz provides a 20 creative spin on the “public versus private rights” analysis in 21 Stern, reduced to its essence, his position is that the bankruptcy 22 court’s judgment entered in this case was a violation of Article 23 III of the Constitution. Deitz Op. Br. at 16, 20. He argues, 24 In this case Appellant argues that Stern v. Marshall makes the judgment in this case unconstitutional as a 25 violation of the life tenure and salary anti-diminution provisions of Article III. A non-Article III judge 26 cannot litigate dischargeability and issue a common law fraud judgment which means entering a final judgment 27 because . . . a final judgment requires a judge appointed under Article III. 28

-11- 1 Deitz Op. Br. at 17. 2 Deitz has not cited even a single post-Stern decision 3 supporting his broad statement that only Article III judges may 4 enter final judgments in core dischargeability actions.6 Even in 5 the few cases we have located suggesting an expansive 6 interpretation of Stern, the courts generally limit their concerns 7 to those actions in bankruptcy courts that seek to augment the 8 bankruptcy estate at the expense of third parties, primarily 9 fraudulent conveyance avoidance actions, because those legal 10 actions seek through a money judgment to take the defendant’s 11 property and that adjudication can only be made by a member of the 12 independent Article III judiciary. See e.g., Meoli v. Huntingdon 13 Nat’l Bank (In re Teleservices Group, Inc.), 456 B.R. 318, 323 14 n.59 (Bankr. W.D. Mich. 2011) (holding that the bankruptcy court 15 could not adjudicate the debtor’s fraudulent conveyance proceeding 16 against a bank because “only an Article III judge can enter a 17 judgment associated with the estate’s recovery of contract and 18 tort claims to augment the estate. . . if the relief sought by the 19 estate included the involuntary recovery of property from a third 20 party”); In re Canopy Financial, Inc., 2011 WL 3911082 (Bankr. 21 N.D. Ill. Sept. 1, 2011) (holding that the bankruptcy court could 22 not adjudicate through final orders a fraudulent conveyance 23 6 The only authorities Deitz cites are pre-Stern cases and 24 reports going back over 20 years. Deitz gives extended attention to the Report of the National Bankruptcy Review Commission, NBRC 25 § 4.11(B) & (C) (1997), that advocated a transition from the current system to an all-Article III bankruptcy system. Although 26 that report did call into question the constitutionality of the current bankruptcy courts, it also presented arguments in favor of 27 the current courts. In any event, its proposals were never adopted, so we question how useful this information is to our 28 analysis of Stern v. Marshall.

-12- 1 action); In re Blixseth, 2011 WL 3274042 (Bankr. D. Mont. Aug. 1, 2 2011) (pursuant to Stern v. Marshall, giving parties fourteen days 3 in which to request that the district court withdraw the reference 4 to the bankruptcy court of such action, or the court would dismiss 5 the fraudulent conveyance claims for lack of subject matter 6 jurisdiction), but see Samson v. Blixseth (In re Blixseth), 463 7 B.R. 896 (Bankr. D. Mont. 2012) (modifying prior holding). 8 In contrast to the decisions of these courts, a significant 9 majority of decisions rendered since Stern follow Chief Justice 10 Robert’s admonition that the decision be applied narrowly. See 11 Burtch v. Seaport Capital, LLC (In re Direct Response Media, 12 Inc.), 2012 WL 112503 * 10 (Bankr. D. Del. 2012) (“The Court 13 adopts the Narrow Interpretation and holds that Stern only removed 14 a non-Article III court’s authority to finally adjudicate one type 15 of core matter, a debtor’s state law counterclaim asserted under 16 § 157(b)(2)(C). By extension, the Court concludes that Stern does 17 not remove the bankruptcy courts’ authority to enter final 18 judgments on other core matters[.]”); Spanish Palms Mktg. LLC v. 19 Kingston (In re Kingston), 2012 Bankr. LEXIS 755 at *8 (Bankr. D. 20 Idaho Feb. 27, 2012) (“The Supreme Court’s recent decision in 21 Stern v. Marshall . . . does not prohibit a bankruptcy court from 22 entering a final judgment resolving issues under the Bankruptcy 23 Code, which would be completely resolved in the bankruptcy 24 process, or that flow from a federal statutory scheme. See 131 25 S.Ct. at 2611-15. Plaintiffs’ exception-to-discharge claims are 26 premised solely on provisions of the Code, will be completely 27 resolved in the bankruptcy process, and the Court has 28 constitutional authority to issue a final judgment in regards to

-13- 1 those claims.”); In re Ambac Fin. Grp., Inc., 457 B.R. 299, 308 2 (Bankr. S.D.N.Y. 2011) (“Stern v. Marshall has become the mantra 3 of every litigant who, for strategic or tactical reasons, would 4 rather litigate somewhere other than the bankruptcy court.”); In 5 re Salander O’Reilly Galleries, 453 B.R. 106, 115-16 (Bankr. 6 S.D.N.Y. 2011) (Stern “should be limited to the unique 7 circumstances of that case” and “does not remove from the 8 bankruptcy court its jurisdiction over matters directly related to 9 the estate that can be finally decided in connection with 10 restructuring debtor and creditor relations”); In re Heller Ehrman 11 LLP, 2011 WL 4542512, at *1 (Bankr. N.D. Cal. 2011) (“Withdrawal 12 of the reference at this time would amount to an unnecessary 13 extension of the narrow holding in Stern, would be an inefficient 14 use of judicial resources by overburdening the district court and 15 foregoing the services of a bankruptcy court ready, willing and 16 able to do its job and would distort the traditional way to 17 challenge and decide the constitutionality of a federal 18 statute.”); In re Safety Harbor Resort and Spa, 456 B.R. 703, 714 19 (Bankr. M.D. Fla. 2011) (holding that Stern does not preclude 20 bankruptcy courts from adjudicating core claims, but rather that 21 it is a “narrow” holding that Congress exceeded the limits of 22 Article III in “one isolated respect”); In re Olde Prairie Block 23 Owner, LLC, 457 B.R. 692, 698 (Bankr. N.D. Ill. 2011) (Stern has a 24 “narrow effect”); In re Am. Bus. Fin. Servs., Inc., 457 B.R. 314, 25 (Bankr. D. Del. 2011) (holding that bankruptcy courts have the 26 authority to decide matters “directly and conclusively related to 27 the bankruptcy” and granting summary judgment to defendants on 28 avoidance and state law claims brought by trustee) (citations

-14- 1 omitted). 2 Based on our review of the case law, we conclude, as one 3 bankruptcy court explained, “there can be little doubt that [a 4 bankruptcy court], as an Article I tribunal, has the 5 constitutional authority to hear and finally determine what claims 6 are non-dischargeable in a bankruptcy case.” Farooqui v. Carroll 7 (In re Carroll), 464 B.R. 293, 312 (Bankr. N.D. Tex. 2011). As 8 the Farooqui court explained, 9 Determining the scope of the debtor’s discharge is a fundamental part of the bankruptcy process. As noted by 10 the court in Sanders v. Muhs (In re Muhs), 2011 Bankr. LEXIS 3032, 2011 WL 3421546 (Bankr. S.D. Tex Aug. 2, 11 2011), “[t]he Bankruptcy Code is a public scheme for restructuring debtor-creditor relations, necessarily 12 including the ‘exercise of exclusive jurisdiction over all of the debtor’s property, the equitable distribution 13 of that property among the debtor’s creditors, and the ultimate discharge that gives the debtor a ‘fresh start’ 14 by releasing him, her, or it from further liability for old debts.’” 2011 Bankr. LEXIS 3032, [WL] at *1 (citing 15 Central Va. Cmty. College v. Katz, 546 U.S. 356, 363-64, 126 S. Ct. 990, 163 L. Ed. 2d 945 (2006)). Congress 16 clearly envisioned that bankruptcy courts would hear and determine all core proceedings, 28 U.S.C. § 157(b)(1), 17 which include, as relevant here, “determinations as to the dischargeability of particular debts.” 28 U.S.C. 18 § 157(b)(2)(I). The Supreme Court has never held that bankruptcy courts are without constitutional authority 19 to hear and finally determine whether a debt is dischargeable in bankruptcy. In fact, the Supreme 20 Court’s decision in Stern clearly implied that bankruptcy courts have such authority when it concluded 21 that bankruptcy courts had the constitutional authority to decide even state law counterclaims to filed proofs 22 of claim if the counterclaim would necessarily be decided through the claims allowance process. Stern, 23 131 S. Ct. at 2618. 24 Id. 25 Deitz not only challenges the constitutional authority of the 26 bankruptcy court to enter final judgments on discharge claims, he 27 also argues that the bankruptcy court is without the 28 constitutional power to liquidate the amount of such claims.

-15- 1 Again, this contention lacks support in the case law. In 2 contrast, at least four decisions specifically address, in light 3 of Stern, the authority of the bankruptcy court to liquidate a 4 creditor’s state law claim, and to enter a final money judgment, 5 in actions to determine nondischargeability under § 523(a). 6 In In re Ueberroth, a bankruptcy court believed that, in view 7 of Stern, it did not have authority to enter a monetary judgment 8 with a nondischargeability judgment, and submitted a report and 9 recommendation to the district court so it could do so. Mich. St. 10 Univ. Fed. Credit Union v. Ueberroth (In re Ueberroth), 2011 11 Bankr. LEXIS 5136 (Bankr. W.D. Mich. Dec. 19, 2011). Within a 12 matter of days, the district court held that, “[W]hile the Court 13 acknowledges the uncertainty Stern created regarding the 14 constitutional authority of bankruptcy courts to enter final 15 judgment in certain proceedings, the Court does not believe Stern 16 affects the Bankruptcy Court’s authority to enter a default 17 judgment in this action.” The district court considered the 18 unnecessary report and recommendation of the bankruptcy court to 19 be harmless error and simply entered judgments in accordance with 20 that report as a matter of judicial economy. Mich. St. Univ. Fed. 21 Credit Union v. Ueberroth (In re Ueberroth), 2012 U.S Dist. LEXIS 22 12 at * 1 (W.D. Mich. January 3, 2012). 23 The Farooqui case, discussed above, analyzed the issue under 24 the public rights exception: “[A] right closely integrated into a 25 public regulatory scheme may be resolved by a non-Article III 26 tribunal.” Farooqui, 464 B.R. at 312 (quoting Thomas v. Union 27 Carbide Agricultural Prods. Co., 473 U.S. 568, 593 (1985)). The 28 Farooqui court then reasoned that liquidating state law claims is

-16- 1 “closely integrated” into the bankruptcy code because the court 2 has to determine the claim before it can logically determine that 3 it is nondischargeable. Id. 4 In Dragisic v. Boricich (In re Boricich), 464 B.R. 335, 336- 5 37 (Bankr. N.D. Ill. 2011), the bankruptcy court noted that 6 adjudications of the dischargeability of debts have usually been 7 accompanied by entry of a final money judgment in favor of a 8 prevailing creditor under applicable Seventh Circuit authority, 9 N.I.S. Corp. v. Hallahan (In re Hallahan), 936 F.2d 1496, 1508 10 (7th Cir. 1991). However, the court felt it should reexamine this 11 principle in light of Stern. Finding no reason to change its 12 practice, the court reasoned that, 13 this action contrasts with Stern in being an action directly under and defined by the Bankruptcy Code to 14 determine nondischargeability rather than being independent of bankruptcy law. . . . Stern left intact 15 the authority of a bankruptcy judge to fully adjudge a creditor’s claim. In this case, the claim was an 16 adversary proceeding against debtor to bar dischargeability of a debt due to Plaintiff. Therefore, 17 the authority to enter a final dollar judgment as part of the adjudication of nondischargeability, as 18 recognized in Hallahan, was not impaired by Stern. Quite clearly it was necessary here to determine the 19 amount of debt in order to determine the debt that is nondischargeable. Therefore, under the clear exception 20 recognized by Stern, final judgment is authorized because such resolution is required to resolve the 21 creditor’s claim. 22 In re Boricich, 464 B.R. at 337. 23 And in In re Soo Bin Kim, 2011 WL 2708985 (Bankr. W.D. Tex. 24 July 11, 2011), the bankruptcy court held that the bankruptcy 25 court had the power to enter a final judgment concerning an 26 exception to discharge as well as to liquidate the underlying 27 claim. In response to the debtor’s arguments that Stern bars the 28 court’s authority, the bankruptcy court observed that “the

-17- 1 [debtor] over reads that case and its application to this 2 proceeding. Even if the [debtor] were right, however, the court 3 would be compelled to follow existing Fifth Circuit precedent as 4 set out in In re Morrison, 555 F.3d 473, 478-79 (5th Cir. 2009).” 5 Id. at * 2 n.2. 6 The holdings in Boricich and Kim are particularly relevant in 7 this appeal. Both of those cases relied on the existing precedent 8 of their courts of appeals. Indeed, the In re Soo Bin Kim case 9 held that, even if Stern did overturn the Fifth Circuit precedent 10 in In re Morrison, the bankruptcy court was required to follow the 11 circuit precedent until that court of appeals overturned its 12 earlier precedent. 13 The Ninth Circuit has also expressly held, pre-Stern, that a 14 bankruptcy court may enter a monetary judgment on a disputed state 15 law fraud claim in the course of determining that the debt is 16 nondischargeable. Cowen v. Kennedy (In re Kennedy), 108 F.3d 1015 17 (9th Cir. 1997). The facts in Kennedy are remarkably similar to 18 those in this case. There, the debtor was a real estate developer 19 who made representations to the buyers of a home that he had 20 relevant construction experience, had a high quality of 21 workmanship, and even made the same representation as Deitz in 22 this appeal that the resulting home would be a “showplace.” Id. 23 at 1016. Kennedy sold a house to the buyers but within the year 24 the buyers filed suit in state court alleging fraud. Kennedy 25 filed a bankruptcy petition under Chapter 7, and the buyers 26 brought an adversary proceeding seeking a determination that 27 Kennedy owed a nondischargeable debt to them for fraud in the sale 28 of the home. After a two-day trial, the bankruptcy court

-18- 1 determined that the plaintiff suffered $100,000 in damages as a 2 result of the developer’s fraud and it was nondischargeable under 3 § 523(a)(2)(A). Id. at 1017. 4 On appeal, Kennedy argued that the bankruptcy court had no 5 jurisdiction to enter judgment on the fraud because it was a state 6 law cause of action. The Ninth Circuit held that the bankruptcy 7 court could liquidate the debt and enter a final judgment in 8 conjunction with determining that the debt was excepted from 9 discharge under § 523(a). Id. at 1018. The Ninth Circuit noted 10 that its decision was consistent with all its sister circuits that 11 had considered the matter at that time. Porges v. Gruntal & Co. 12 (In re Porges), 44 F.3d 159, 163-65 (2d Cir. 1995); Atassi v. 13 McLaren (In re McLaren), 990 F.2d 850, 853-54 (6th Cir. 1993), 14 reaff’d, Longo v. McLaren (In re McLaren), 3 F.3d 958, 965-66. 15 (6th Cir. 1993); In re Hallahan, 936 F.2d at 1507-1508; Vickers v. 16 Home Indem. Co., Inc., 546 F.2d 1149, 1151 (5th Cir. 1977).7 The 17 court was “particularly persuaded by the analysis of one 18 bankruptcy judge” which it quoted: 19 If it is acknowledged as beyond question that a complaint to determine dischargeability of a debt is 20 exclusively within the equitable jurisdiction of the bankruptcy court, then it must follow that the 21 bankruptcy court may also render a money judgment in an amount certain without the assistance of a jury. This is 22 true not merely because equitable jurisdiction attaches to the entire cause of action but more importantly 23 because it is impossible to separate the determination of dischargeability function from the function of fixing 24 the amount of the non-dischargeable debt. 25 26 7 In Johnson v. Riebesell (In re Riebesell), the Tenth Circuit joined with the Kennedy court and the other circuits in 27 concluding that the bankruptcy court may enter a monetary judgment as part of a dischargeability proceeding. 586 F.3d 782, 793 (10th 28 Cir. 2009).

-19- 1 Id. at 1017-18 (quoting In re Devitt, 126 B.R. 212, 215 (Bankr. D. 2 Md. 1991)). The Ninth Circuit held: “We conclude, in conformity 3 with all of the circuits which have considered the matter, that 4 the bankruptcy court acted within its jurisdiction in entering a 5 monetary judgment against Kennedy in conjunction with a finding 6 that the debt was non-dischargeable.” In re Kennedy, 108 F.3d at 7 1018. The Court of Appeals reaffirmed this position in In re 8 Sasson, 424 F.3d at 870. 9 In this appeal, Deitz would have the Panel ignore this 10 binding precedent on the grounds that it is inconsistent with his 11 interpretation of Stern — in other words, that Stern overturns 12 this circuit’s authority that the bankruptcy court may enter final 13 judgments on both nondischargeability and liquidation of debt. We 14 decline that invitation. 15 The Panel, like all courts of this circuit, must adhere to 16 the holdings in published opinions of the Court of Appeals unless 17 those opinions are overturned by the Supreme Court. United States 18 v. Martinez-Rodriguez, 472 F.3d 1087, 1093 (9th Cir. 2007). Of 19 course, the critical question for the Panel is how to determine if 20 a Supreme Court decision does in fact overturn the circuit 21 precedent. After all, the Ninth Circuit has also taught us that 22 “overturning a long-standing precedent is never to be done 23 lightly[.]” United States v. Heredia, 483 F.3d 913, 918 (9th Cir. 24 2007). 25 The Ninth Circuit has given us the necessary guidance on that 26 question. In Miller v. Gammie, 335 F.3d 889, 900 (9th Cir. 2003) 27 (en banc), the court considered the question of the scope of the 28 absolute immunity of family-service social workers where its

-20- 1 existing precedent appeared inconsistent with a later Supreme 2 Court decision. Id. at 900. In Gammie, a three-judge panel had 3 decided it was bound by the earlier circuit opinion. The court 4 convened an en banc panel to “clarify our law concerning the 5 sometimes very difficult question of when a three-judge panel may 6 reexamine normally controlling circuit precedent in the face of an 7 intervening United States Supreme Court decision.” Id. at 892. 8 After reviewing the long history of the relationship between 9 circuit panel decisions and Supreme Court decisions, the Ninth 10 Circuit concluded, 11 We hold that in circumstances like those presented here, where the reasoning or theory of our prior circuit 12 authority is clearly irreconcilable with the reasoning or theory of intervening higher authority, a three-judge 13 panel should consider itself bound by the later and controlling authority, and should reject the prior 14 circuit opinion as having been effectively overruled.” 15 Id. at 893 (emphasis added). The circuit went on to advise that, 16 “[i]n future cases of such clear irreconcilability, a three-judge 17 panel of this court and district courts should consider themselves 18 bound by the intervening higher authority and reject the prior 19 opinion of this court as having been effectively overruled.” Id. 20 at 900.8 By extending this rule to the district courts, we infer 21 that the Court of Appeals would intend that the Panel apply the 22 clearly irreconcilable rule before rejecting an existing circuit 23 opinion. 24 8 The “clearly irreconcilable” rule is still good law, as 25 indicated by recent three-judge circuit panel rulings applying it before affirming or rejecting existing precedents. See, e.g., 26 United States v. Ayala-Nicanor, 659 F.3d 744, 748 (9th Cir. 2011); Perfect 10, Inc. v. Google, Inc., 653 F.3d 976, 980 (9th Cir. 27 2011); Greensprings Baptist Christian Fellowship Tr. v. Cilley, 629 F.3d 1064, 1068 (9th Cir. 2010); Atl. Nat’l Tr. LLC v. Mt. 28 Hawley Ins. Co., 621 F.3d 931, 940 (9th Cir. 2010).

-21- 1 Given the ample authorities that counsel against a broad 2 interpretation of Stern, we decline to conclude that Kennedy is 3 “clearly irreconcilable” with the Supreme Court’s decision. On 4 the contrary, the analysis in Stern, and its expressly limited 5 application to specific types of otherwise core proceedings (i.e., 6 state law counterclaims by the estate against third parties), 7 leads us to conclude that Stern is altogether reconcilable with 8 Kennedy’s endorsement of the bankruptcy court’s authority to enter 9 final judgments in actions to determine dischargeability and for 10 liquidation of a creditor’s claim. There are no state common law 11 actions involved in this case, nor any third parties involved. 12 Exception to discharge claims arise solely under title 11 and 13 could not exist outside the federal bankruptcy system. Simply 14 put, exceptions to discharge and liquidations of related claims 15 are examples of the bankruptcy courts doing what they are supposed 16 to do. 17 For all these reasons, we conclude that the holding in Stern 18 is not clearly irreconcilable with the existing precedent in 19 Kennedy that a bankruptcy court may liquidate a debt and enter a 20 final judgment in conjunction with finding the debt 21 nondischargeable. Consequently, we consider ourselves bound by 22 the decision in Kennedy until the Court of Appeals indicates 23 Kennedy is no longer good law. 24 We hold that, even after Stern, the bankruptcy court had the 25 constitutional authority to enter a final judgment determining 26 both the amount of Fords’ damage claims against Deitz, and 27 determining that those claims were excepted from discharge. 28

-22- 1 II. The bankruptcy court did not err in concluding that the debt owed by Deitz to the Fords was nondischargeable 2 under § 523(a)(2)(A), (a)(4) and (a)(6). 3 A. § 523(a)(2)(A) 4 To prevail on a claim under section 523(a)(2)(A), a creditor 5 must demonstrate five elements: (1) misrepresentation, fraudulent 6 omission or deceptive conduct by the debtor; (2) knowledge of the 7 falsity or deceptiveness of his statement or conduct; (3) an 8 intent to deceive; (4) justifiable reliance by the creditor on 9 the debtor’s statement or conduct; and (5) damage to the creditor 10 proximately caused by its reliance on the debtor’s statement or 11 conduct. Oney v. Weinberg (In re Weinberg), 410 B.R. 19, 35 (9th 12 Cir. BAP 2009) (citing Turtle Rock Meadows Homeowners Ass’n v. 13 Slyman (In re Slyman), 234 F.3d 1081, 1085 (9th Cir. 2000)). “The 14 creditor bears the burden of proof to establish all five of these 15 elements by a preponderance of the evidence.” Weinberg, 410 B.R. 16 at 35 (citing Slyman, 234 F.3d at 1085). 17 In the statement of issues in his opening brief, Deitz 18 challenges the bankruptcy court’s factual findings about the 19 intent and justifiable reliance prongs of § 523(a)(2)(A). 20 However, Deitz did not present arguments regarding the justifiable 21 reliance prong in his briefs. 22 The bankruptcy court found that “[Deitz’] misrepresentations 23 were intentional and designed specifically to deceive and induce 24 [the Fords] for the sole purpose of being retained to build 25 Plaintiff’s home and profit thereby.” In making this finding, the 26 bankruptcy court had heard testimony that, based upon his 27 statements to them, the Fords believed that Deitz had resolved any 28 problems with his contractors license before they entered into the

-23- 1 building contract with him. That a contractor was properly 2 licensed was important to the Fords because it was a condition for 3 their receipt of funds from the VA. The court clearly found that 4 Deitz was not licensed at the time of executing the contract. 5 Additionally, the evidence showed that Deitz’ contractor license 6 had been suspended six times, and was finally revoked, during his 7 construction of the Fords’ house. The court had testimonial 8 evidence from Ford and Thompson, as well as documentary evidence, 9 that Deitz had made misrepresentations regarding his license and 10 skills to several other parties by which he had induced them to 11 enter into construction contracts that, like the Ford case, had 12 failed. Evidence of the habit of a person, or of a routine or 13 practice, is relevant to prove that the conduct of a person on a 14 particular occasion was in conformity with their habit or routine 15 practice. FED . R. EVID . 406. The bankruptcy court also determined 16 that Deitz misrepresented to the Fords that he would complete the 17 construction of the home according to ADA, VA and county 18 standards. 19 In this appeal, Deitz does not deny that he was not licensed 20 at the time of signing the contract, or that he suffered numerous 21 suspensions and ultimate revocation of the license during the 22 period of constructing the Fords’ home. 23 Intent to defraud in the context of a dischargeability 24 proceeding is a question of fact. In re Kennedy, 108 F.3d at 25 1018. The bankruptcy court’s factual findings are reviewed for 26 clear error. In re Ashley, 903 F.2d 599, 602 (9th Cir. 1990). 27 And, because the bankruptcy court’s factual findings were based in 28 part on its assessment of the credibility of witnesses, those

-24- 1 findings are entitled to deference from the Panel. Rule 8013. 2 Based upon the testimony of the witnesses and documentary 3 evidence, the bankruptcy court properly determined that Deitz 4 acted with the intent to deceive the Fords, and with the intent to 5 keep money that should otherwise have been used in the 6 construction. We therefore conclude that the bankruptcy court did 7 not clearly err in finding that Deitz’ misrepresentations to the 8 Fords were made with the requisite intent to deceive them for 9 purposes of § 523(a)(2)(A). 10 As to justifiable reliance, the bankruptcy court found that 11 Deitz intended to gain the trust of the Fords by highlighting his 12 military career, the common nursing occupation of Mrs. Ford and 13 Deitz’ mother, and Deitz’ experience as a tech at the VA medical 14 facility where Ford had been treated. 15 Whether the Fords justifiably relied on Deitz’ 16 misrepresentations is a question of fact. Eugene Parks Law Corp. 17 Defined Benefit Pension Plan v. Kirsh (In re Kirsh), 973 F.2d 18 1454, 1456 (9th Cir. 1992). As noted above, the bankruptcy 19 court’s factual findings are reviewed for clear error. In re 20 Ashley, 903 F.2d at 602. Given the evidentiary record, and 21 affording due deference to the bankruptcy judge’s evaluation of 22 the credibility of witnesses, we conclude that the bankruptcy 23 court did not clearly err in determining that the Fords 24 justifiably relied on the misrepresentations of Deitz. 25 Because Deitz has not challenged the Fords’ proof on the 26 other three elements for an exception to discharge under 27 § 523(a)(2)(A), and in light of the bankruptcy court’s extensive 28 findings and conclusions regarding those prongs in its decision,

-25- 1 we conclude that the bankruptcy court did not err in determining 2 that Deitz’ debt to the Fords was excepted from discharge under 3 § 523(a)(2)(A). 4 B. § 523(a)(4) and (6) 5 In his opening brief, Deitz failed to discuss the other two 6 statutory bases relied upon by the bankruptcy court in holding 7 that his debt to the Fords was excepted from discharge — 8 § 523(a)(4) and (6). In recent decisions, the Ninth Circuit has 9 reaffirmed its long-standing instruction that, “An appellate court 10 reviews only issues which are argued specifically and distinctly 11 in a party’s opening brief.” Cruz v. Int’l Collection Corp., 12 ___ F.3d ___, 2012 WL 742337 (9th Cir. March 8, 2012); Christian 13 Legal Soc’y Chapter of Univ. of Cal. v. Wu, 626 F.3d 483, 485 (9th 14 Cir. 2010) (same); Brownfield v. City of Yakima, 612 F.3d 1140, 15 1149 n.4 (9th Cir. 2010) (same). 16 After the Fords noted Deitz’ failure to argue the latter two 17 discharge issues in their responsive brief, Deitz in his reply 18 brief asserted that intent was lacking under § 523(a)(2)(A), 19 intent is an element under all three discharge exceptions, and 20 therefore disproving fraudulent intent under § 523(a)(2)(A) 21 suffices as a defense to all three exception to discharge claims. 22 However, Deitz presented no authority or reasoned analysis to 23 support this assertion. 24 Even had it been timely presented in his opening brief (which 25 it was not), Deitz’ conclusory statement does not meet minimum 26 acceptable standards for arguing an issue “specifically and 27 distinctly.” Deitz’ challenges to the bankruptcy court’s findings 28 and conclusions concerning the § 523(a)(4) and (6) claims have

-26- 1 been waived. 2 CONCLUSION 3 We AFFIRM the judgment of the bankruptcy court fixing the 4 amount of Fords’ damages and determining that Deitz’ debt to the 5 Fords is excepted from discharge under §523(a)(2)(A), (a)(4) and 6 (a)(6). 7 8 Markell, Bankruptcy Judge, concurring: 9 10 I join in the opinion. I fully agree that Kennedy and Sasson 11 control this case’s outcome. I write this concurrence, however, 12 to note how Stern v. Marshall, 131 S.Ct. 2594 (2011), may have 13 reshaped the jurisdictional landscape in nondischargeability 14 actions. 15 Both Kennedy and Sasson were written well before Stern. When 16 viewed in light of Stern, this case highlights some potential 17 jurisdictional flaws in Kennedy and Sasson, as well as some of the 18 challenges Stern presents when allocating decision making 19 authority between district courts and bankruptcy courts. 20 Congress’s Power to Provide a Discharge 21 Initially, it is beyond doubt that Congress has the power to 22 provide for a discharge in bankruptcy. U.S. CONST . art. 1, § 8, 23 cl. 4.1 As Congress has plenary power to regulate the bankruptcy 24 1 25 One of the most enduring definitions of Congress’s power under the Bankruptcy Clause is that the power: 26 extends to all cases where the law causes to be 27 distributed, the property of the debtor among his creditors: this is its least limit. Its greatest, is a 28 (continued...)

-27- 1 discharge – a legislative status in an area unknown to the common 2 law – Congress can generally delegate the implementation of the 3 discharge to non-Article III judges.2 Put another way, since 4 there is no common law or other nonstatutory right to the 5 discharge of a debt, it is within Congress’s power to determine 6 how to dispense and bestow the benefit. 7 Court’s Subject Matter Jurisdiction Over the Discharge 8 An essential element of such power is the subject matter 9 jurisdiction to implement it, and the subject matter jurisdiction 10 to determine nondischargeability is provided by § 1334(b) of title 11 28. Section 1334(b) grants subject matter jurisdiction to the 12 District Courts over matters which “arise in,” “arise under,” or 13 14 1 (...continued) 15 discharge of the debtor from his contracts. And all intermediate legislation, affecting substance and form, 16 but tending to further the great end of the subject-distribution and discharge-are in the competency 17 and discretion of Congress. 18 In re Klein, 42 U.S. (1 How.) 277, 281 (1843) (Catron, J., sitting as circuit justice; case reported in a note to Nelson v. Carland, 19 42 U.S. (1 How.) 265 (1843), inserted therein “as being of general interest”) (emphasis supplied). Klein was indicated as the source 20 of one of the “oft-quoted” definitions of the bankruptcy power in Louisville Joint Stock Land Bank v. Radford, 295 U.S. 555, 588 21 n.18 (1935). 22 2 Although Congress cannot “withdraw from [Art. III] judicial cognizance any matter which, from its nature, is the 23 subject of a suit at the common law, or in equity, or admiralty,” Murray’s Lessee v. Hoboken Land & Improvement Co., 18 How. 272, 24 284 (1856), the discharge was not such a “matter.” See Hanover Nat. Bank v. Moyses, 186 U.S. 181, 188 (1902) (“The subject of 25 ‘bankruptcies’ includes the power to discharge the debtor from his contracts and legal liabilities, as well as to distribute his 26 property. The grant to Congress involves the power to impair the obligation of contracts, and this the states were forbidden to 27 do.”). Cf. Pobreslo v. Joseph M. Boyd Co., 287 U.S. 518, 524 (1933) (“[T]he discharge of a bankrupt from his debts constitutes 28 the very essence of the Bankruptcy Law . . .”).

-28- 1 are “related to” a bankruptcy. Nondischargeability matters, such 2 as the one here, were unknown at common law, and thus can only 3 “arise under” the Bankruptcy Code. 4 Section 157(a) of title 28 allows the District Courts to 5 refer discharge matters to the bankruptcy courts, and 6 § 157(b)(2)(I) then classifies the exercise of the power referred 7 as a core determination which Article I bankruptcy courts can 8 “hear and determine” and enter final judgments. As reflected in 9 the legislative history, “[b]y a grant of jurisdiction over all 10 proceedings arising under title 11, the bankruptcy courts will be 11 able to hear any matter under which a claim is made under a 12 provision of title 11.” H.R. REP . NO . 95-595, at 445 (1977), as 13 reprinted in 1978 U.S.C.C.A.N. 5963, 6401. 14 Entering Money Judgments Against the Debtor 15 The analysis is somewhat different, however, when analyzing 16 the ability to hear and determine the underlying nonbankruptcy 17 claims themselves, and to finalize that determination with the 18 entry of an enforceable money judgment. Both subject matter 19 jurisdiction and the constitutional power to decide the matter are 20 implicated. 21 Subject Matter Jurisdiction to Enter a Money Judgment Against 22 a Debtor 23 First, subject matter jurisdiction. Unlike 24 nondischargeability determinations, claims for money damages do 25 not “arise in” or “arise under” the Bankruptcy Code. They exist 26 independent of the bankruptcy process. They are claims against 27 the debtor, not against the estate. As a consequence, at least 28 with respect to § 1334, the only remaining ground for subject

-29- 1 matter jurisdiction is that such claims are “related to” the 2 bankruptcy. See Ralph Brubaker, On the Nature of Federal 3 Bankruptcy Jurisdiction: a General Statutory and Constitutional 4 Theory, 41 WM. & MARY L. REV . 743, 914-15 (2000). 5 The Ninth Circuit applies the so-called Pacor test to 6 determine “related to” jurisdiction. If the determination at 7 issue, in any conceivable way, could affect the bankruptcy estate, 8 then such jurisdiction exists. Vacation Village, Inc. v. Clark 9 County, Nev., 497 F.3d 902, 911 (9th Cir. 2007) (citing Pacor Inc. 10 v. Higgins, 743 F.2d 984, 994 (3d Cir. 1984)), for the proposition 11 that “where the cause of action is between third parties, the test 12 for ‘whether a civil proceeding is related to bankruptcy is 13 whether the outcome of that proceeding could conceivably have any 14 effect on the estate being administered in bankruptcy’”); Sasson 15 v. Sokoloff (In re Sasson), 424 F.3d 864, 868–69 (9th Cir. 2005) 16 (“A bankruptcy court’s ‘related to’ jurisdiction is very broad, 17 ‘including nearly every matter directly or indirectly related to 18 the bankruptcy.’”) (quoting Mann v. Alexander Dawson (In re Mann), 19 907 F.2d 923, 926 n.4 (9th Cir. 1990)). But I question whether 20 that is the case here. Unless related to the claims resolution 21 process, the liquidation of a nondischargeability claim against 22 the debtor does not necessarily affect the estate. 23 That point is driven home here as Deitz’s case is a no-asset 24 case in which creditors were instructed not to file claims.3 See 25 26 3 Were it otherwise, the filing of the nondischargeability 27 complaint would likely be held to be an informal proof of claim, depending on the prayer for relief. This would bring those 28 matters relevant to the resolution of the debtor-creditor relationship squarely before the court. See Pac. Res. Credit Union v. Fish (In re Fish), 456 B.R. 413, 416 (B.A.P. 9th Cir. 2011) (proof of claim issue raised through a debtor’s objection to a claim as late-filed).

-30- 1 FED. R. BANKR . P. 2002(e) (allowing trustee to notify creditors to 2 not file claims if it appears that there will be no dividends 3 paid). There was no claims resolution process here because there 4 was no bankruptcy estate to administer and then distribute. As a 5 consequence, the liquidation or allowance of the claim that will 6 never be paid has absolutely no effect on the estate. There thus 7 can be no “related to” jurisdiction. See Brubaker, supra, 41 WM . 8 & MARY L. REV . at 916-18 & n.603. 9 Sasson adverts to this conundrum, and attempts to settle 10 jurisdiction on a pragmatic basis by merging supplemental 11 jurisdiction into “related to” jurisdiction. Sasson accomplishes 12 this through pointing out that the facts related to the 13 determination of nondischargeability and the facts necessary to 14 liquidate the claim arise from the same nucleus of facts. Sasson, 15 424 F.3d at 869 (“the bankruptcy court’s ‘related to’ jurisdiction 16 also includes the district court’s supplemental jurisdiction 17 pursuant to 28 U.S.C. § 1367 ‘over all other claims that are so 18 related to claims in the action within [the court’s] original 19 jurisdiction that they form part of the same case or controversy 20 under Article III of the United States Constitution.’”) (quoting 21 Montana v. Goldin (In re Pegasus Gold Corp.), 394 F.3d 1189, 1195 22 (9th Cir. 2005)). Compare Susan Block-Lieb, The Case Against 23 Supplemental Bankruptcy Jurisdiction: a Constitutional, Statutory, 24 and Policy Analysis, 62 FORDHAM L. REV . 721 (1994) with Brubaker, 25 supra. 26 It would be a waste of judicial resources to require a second 27 trial on the same facts, especially since the bankruptcy court’s 28 determination of the essential nucleus of facts would likely have

-31- 1 issue preclusive effect on whatever court ultimately liquidated 2 the claim. See Katchen v. Landy, 382 U.S. 323, 334 (1966) (“The 3 normal rules of res judicata and collateral estoppel apply to the 4 decisions of bankruptcy courts.”); see also Veal v. Am. Home 5 Mortgage Servicing, Inc. (In re Veal), 450 B.R. 897, 918 (B.A.P. 6 9th Cir. 2011). But Sasson does not refer to matters of issue 7 preclusion, arguing by analogy to supplemental jurisdiction only, 8 and citing to § 105 of the Bankruptcy Code to assist in the 9 argument.4 Sasson, 424 F.3d at 868. 10 Sasson’s reference to § 105 may help here, even though it is 11 not a jurisdictional statute in the traditional sense, as the 12 close nexus between the nondischargeability claims and the 13 liquidation of the amount of those claims is undeniable. See id. 14 But the efficacy of the reference to § 105 requires analysis 15 beyond the scope of this concurrence. 16 A Bankruptcy Court’s Power to Enter a Money Judgment Against 17 the Debtor 18 This concern over the proper basis of subject matter 19 jurisdiction bleeds into Stern concerns. If supplemental 20 jurisdiction as augmented by § 105 is the best argument for a 21 District Court’s jurisdiction to liquidate a claim in a 22 23 4 The Ninth Circuit Court of Appeals has held District 24 Courts have supplemental jurisdiction under 28 U.S.C. § 1367 when hearing bankruptcy matters in the first instance, Security Farms 25 v. Int’l Bhd. of Teamsters, 124 F.3d 999, 1008 n.5 (9th Cir. 1997). It has also, as noted in Sasson, 424 F.3d at 869, approved 26 bankruptcy courts’ exercise of § 1367 supplemental jurisdiction over “state tort and contract claims” not otherwise connected to 27 the bankruptcy so long as those claims share a “common nucleus of operative facts” with “related to” claims and “would ordinarily 28 be expected to be resolved in one judicial proceeding” along with the “related to” claims. In re Pegasus Gold Corp., 394 F.3d at 1194-95.

-32- 1 nondischargeability setting, one has to wonder if Stern would 2 allow the delegation of that power to an Article I bankruptcy 3 court. Stern seems to suggest that, in the absence of consent, a 4 bankruptcy court’s power to enter a final judgment is necessarily 5 dependent on whether that bankruptcy court is exercising a power 6 constitutionally conferred by Congress to an Article I tribunal. 7 After all, what Stern found unconstitutional was the statutory 8 grant of the power to hear and determine a counterclaim based on 9 some, but not all, of the facts bound up in the original action 10 against the estate.5 11 Stern did not, however, question a bankruptcy court’s 12 authority to hear and determine state law claims that “stem[] from 13 the bankruptcy itself or would necessarily be resolved in the 14 claims allowance process,” id. at 2618, at least as long as that 15 determination is a necessary incident of the claims resolution 16 process. Stern seems to call into question the bankruptcy court’s 17 exercise of jurisdiction in any instance when that necessity is 18 lacking. Here, if Sasson’s augmented “related to” jurisdiction is 19 suspect, then so too is the constitutional ability for an Article 20 I tribunal to enter a final judgment on a common law claim when 21 the sole jurisdictional basis is § 1367 of title 28. 22 But even if that problem is resolved, there remain other 23 concerns. Although most disputes in bankruptcy are linked to or 24 bound up in claim determinations which are so related to the 25 bankruptcy power that Congress can authorize Article I tribunals 26 27 5 “The Bankruptcy Court below lacked the constitutional 28 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.” 131 S. Ct. at 2620.

-33- 1 to hear them,6 there are other, common, situations that may cause 2 concern. Section 502(b) of the Bankruptcy Code, for example, is 3 full of situations in which nonbankruptcy claims, otherwise valid 4 outside of bankruptcy, are limited in bankruptcy. For example, 5 § 502(b)(2) of the Bankruptcy Code permits parties in interest to 6 object to unmatured interest as a claim against the estate (except 7 for oversecured creditors). As a result, determination of 8 postpetition interest (especially if a variable rate) on claims 9 against the debtor would be a determination not within the scope 10 of the claims allowance process. Similarly, claims by landlords 11 for fraud in procuring a lease would be limited by § 502(b)(6)’s 12 limitation on landlords’ claims against the estate, with amounts 13 in excess of the limitations being valid against the debtor but 14 unnecessary to the administration of the bankruptcy case. Other 15 examples can be imagined for each paragraph of § 502(b) that 16 places federal limitations on otherwise valid state law claims. 17 Further complicating this analysis is the potential inability 18 of an Article I tribunal to make binding determinations on 19 critical factual issues with respect to nondischargeability 20 claims. Under Crowell v. Benson, 285 U.S. 22 (1932), Congress can 21 generally delegate final factfinding to an Article I legislative 22 tribunal with respect to those matters within the purview of the 23 statutory scheme unless the facts are “fundamental” or 24 25 6 In response to arguments that the decision would “create 26 significant delays and impose additional costs on the bankruptcy process,” Chief Justice Roberts noted in Stern that the Court did 27 not believe that “removal of counterclaims . . . from core bankruptcy jurisdiction meaningfully changes the division of labor 28 in the current statute; we agree with the United States that the question presented here is a ‘narrow’ one.” 131 S. Ct. at 2619-20.

-34- 1 “jurisdictional” as to the authority of the tribunal. See Stern, 2 131 S.Ct. at 2612 n.6 (“Although the Court in Crowell went on to 3 decide that the facts of the private dispute before it could be 4 determined by a non-Article III tribunal in the first instance, 5 subject to judicial review, the Court did so only after observing 6 that the administrative adjudicator had only limited authority to 7 make specialized, narrowly confined factual determinations 8 regarding a particularized area of law and to issue orders that 9 could be enforced only by action of the District Court.”). An 10 argument could be made that facts essential to determining the 11 full amount of creditors’ nonbankruptcy claims against the debtor 12 are fundamental in Crowell’s sense, or that they are at least made 13 outside the “specialized, narrowly confined factual 14 determinations” Stern refers to in note 6. As a consequence, 15 Stern raises the issue of whether a bankruptcy court has to defer 16 deciding postpetition accrued interest and excessive landlord 17 claims, among others, unless the parties otherwise consent to its 18 jurisdiction. 19 These issues, however, can only be decided by the Ninth 20 Circuit if and when it reconsiders Kennedy and Sasson. I thus 21 concur. 22 23 24 25 26 27 28

-35-