WELLNESS INTERNATIONAL NETWORK v. SHARIF
Richard Sharif and others entered into distributorship contracts with Wellness International Network (WIN) for the sale of health and wellness products. Sharif and others later sued WIN and claimed that WIN was running a pyramid scheme. The district court granted summary judgment for WIN and awarded $655,596.13 in attorney’s fees as a sanction against Sharif and his co-plaintiffs for ignoring some of WIN’s discovery requests. WIN attempted to discover Sharif’s assets, but Sharif ignored all attempts until he was held in civil contempt for discovery violations and arrested. In 2009, Sharif filed for Chapter 7 bankruptcy. WIN filed an adversary proceeding in bankruptcy court and claimed that Sharif had continuously concealed property and information pertaining to his assets. The bankruptcy court found in favor of WIN and ordered Sharif to pay WIN’s attorney’s fees along with other sanctions.
Sharif appealed to federal district court, but before he filed his first brief, the U.S. Supreme Court decided Stern v. Marshall, which held that a bankruptcy court lacked the authority to enter a final judgment on a state-law counterclaim against a creditor. Sharif subsequently attempted to advance an argument based on Stern, but the district court did not allow it. Instead, the district court held that such an objection can be waived and that Sharif’s failure to bring up to argument earlier constituted an implied waiver. The U.S. Court of Appeals for the Seventh Circuit affirmed in part and vacated in part. The Court of Appeals held that an objection based on Stern cannot be waived and that the bankruptcy court only had the authority to enter a final judgment on some of WIN’s claims.
(1) Does the presence of a subsidiary state law issue to determine whether property in a debtor’s possession is part of the bankruptcy estate mean that the issue does not stem from the bankruptcy itself and therefore that the bankruptcy court does not have jurisdiction to issue a final ruling?
(2) Can bankruptcy courts exercise the judicial power of the United States by litigant consent, and if so, can that consent be implied?