Not pausing to cite authority other than the statute and rules, Seventh Circuit Judge Richard A. Posner laid down a significant, albeit obvious, rule on the final adjudicatory power of bankruptcy courts.
Creditors filed an adversary proceeding alleging that third parties’ assets actually belonged to the bankrupt estate. The bankruptcy judge issued proposed findings and conclusions recommending that the district court enter judgment for the plaintiffs. The district court entered judgment and remanded the case for the bankruptcy court to order turnover of the assets.
Although the third parties did not appeal the bankruptcy court’s turnover order, they appealed to the circuit court from the district court order remanding to the bankruptcy court. The third-party defendants argued that only the district court could enter a final turnover order in view of 28 U.S.C. Section 157(c)(1).
Reciting the differences between core and non-core proceedings, Judge Posner said in his Aug. 11 opinion that the limitations on the power of a bankruptcy court under subsection (c)(1) “are irrelevant” because they only apply to non-core matters. Although the adversary proceeding was non-core in declaring that the property belonged to the estate, Judge Posner held that the turnover order was a core proceeding, allowing the bankruptcy judge to enter final judgment.
In other words, a bankruptcy court has final adjudicatory power to order turnover of property when an Article III court has already ruled on ownership. Presumably also, in view of last year’s Wellness International Network Ltd. v. Sharif decision from the Supreme Court, the bankruptcy court can enter a final turnover order if the parties impliedly or actually consented to final adjudication in bankruptcy court on the underlying ownership question.