Another court has decided that a defendant’s default represents implied consent enabling a bankruptcy court to enter a final judgment in an avoidance action.
The chapter 7 trustee had sued several defendants for receipt of fraudulent transfers made with actual intent to hinder, delay or defraud under Section 548 and the New York Debtor & Creditor Law. None of the defendants answered, although they had been properly served and proofs of service were filed.
The clerk entered the defendants’ default, and the trustee moved for entry of a default judgment under Bankruptcy Rule 7055.
In his February 11 opinion, Bankruptcy Judge Martin Glenn of Manhattan examined the prerequisites for entry of a default judgment and concluded that all had been met in terms of proper service, proof of service and statement of a valid claim.
Judge Glenn then turned to the question of whether he possessed authority as a bankruptcy judge to enter final judgment because none of the defendants had explicitly consented to final adjudication in bankruptcy court.
In terms of the general power to enter judgments by default, Judge Glenn wrote the leading authority in 2012. Executive Sounding Board Associates v. Advanced Machine & Engineering Co. (In re Oldco M. Corp.), 484 B.R. 598 (Bankr. S.D.N.Y. 2012). There, he concluded that the doctrine of implied consent gave him constitutional authority to enter a final default judgment in an adversary proceeding.
However, Oldco M. Corp. was written before Wellness International Network Ltd. v. Sharif, 575 U.S. 665 1932 (2015), where the Supreme Court held that an objection to the power of the bankruptcy court to enter a final order can be waived. The justices also ruled that creditors’ inaction can result in implied consent to the bankruptcy court’s authority to issue a final order.
Judge Glenn concluded that his reasoning “in Oldco M. Corp. remains sound in that bankruptcy judges may enter default judgments based on implied consent resulting from a defendant’s failure to respond to a summons and complaint.”
Judge Glenn cited several other bankruptcy courts that followed Oldco M. Corp. after Wellness International.
Having decided that he had authority to enter judgment, Judge Glenn ruled that the trustee employed the proper damages rule and had established through a preponderance of the evidence that the trustee was entitled to a recovery in excess of $13 million.
In 2018, Judge Glenn had decided that the bankruptcy court has constitutional authority to enter final judgments by default against foreign defendants who had been served pursuant to the Hague Convention. Kravitz v. Deacons (In re Advance Watch Co. Ltd.), 587 B.R. 598 (Bankr. S.D.N.Y. June 29, 2018). To read ABI’s report on Advance Watch, click here.
Another court has decided that a defendant’s default represents implied consent enabling a bankruptcy court to enter a final judgment in an avoidance action.
The chapter 7 trustee had sued several defendants for receipt of fraudulent transfers made with actual intent to hinder, delay or defraud under Section 548 and the New York Debtor & Creditor Law. None of the defendants answered, although they had been properly served and proofs of service were filed.
The clerk entered the defendants’ default, and the trustee moved for entry of a default judgment under Bankruptcy Rule 7055.
In his February 11 opinion, Bankruptcy Judge Martin Glenn of Manhattan examined the prerequisites for entry of a default judgment and concluded that all had been met in terms of proper service, proof of service and statement of a valid claim.