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The Nature Of Bankruptcy Proceedings
The bankruptcy disputes are processed through two kinds of proceeding—adversary proceeding or contested matters. Adversary proceedings as defined by Rule 7001 are commenced by a lawsuit and contested matters are initiated and fought as regular motions, governed by bankruptcy rule 9014. Application filed as such are also included under the motion rubric.
The adversary proceedings are full fledged lawsuits, governed by federal rules of civil procedure incorporated by the federal rules of bankruptcy procedure. If a party has commenced proceeding as a motion, rather than an adversary proceeding, the court retains the liberty to convert the same to an adversary proceeding.
See Costa v. Marotta, Gund, Budd & Dzera, LLC, 281 Fed.Appx. 5, 6 (1st Cir.2008) (affirming both the bankruptcy court and the district court after “the bankruptcy court sua sponte converted the contested matter into an adversary proceeding”). And the same applies when a motion is filed instead of adversary. In re Wilborn, 401 B.R. 872, 893 (Bankr. S.D. Tex. 2009)(“Wells Fargo's suggestion that the Plaintiffs should have initiated a contested matter (i.e. filed a motion in the Plaintiffs' respective main cases), instead of an adversary proceeding, is nonsense; and its argument that this Court lacks jurisdiction to adjudicate this dispute in an adversary proceeding is sheer nonsense.). However, it is good to follow the rules,
Although this procedural issue raised by Lehman's motion does not warrant dismissal of the trustee's proceeding under § 362(h), the court nevertheless will instruct trustee's counsel to take steps to convert the sanctions contested matter to an adversary proceeding. This may be accomplished either by refiling the motion as a complaint or by other means allowed under the Bankruptcy Rules. I impose this requirement as a precaution. The sanctions requested in the trustee's motion are complex, and there is potential for appeal. Trustee's counsel has argued that refiling the motion as an adversary proceeding will be costly and time consuming. However, costs and time are better expended at this time than later upon a remand of the case on appeal.
In re Fas Mart Convenience Stores, Inc., 318 B.R. 370, 374 (Bankr. E.D. Va. 2004). The bankruptcy court
Core and Non-Core Proceeding
The proceedings before the bankruptcy court are broadly divided into core and non-core proceeding. In a core proceeding the bankruptcy judge retains the power to enter final judgment and orders binding the parties. And the appeal in core proceedings lies with the district court. 28 USC § 158(a). 28 U.S.C. § 157(b)(2) provides a list of the core proceedings:
(A) Matters concerning the administration of the estate;
(B) Allowance or disallowance of claims against the estate or exemptions from property of the estate, and estimation of claims of interest for the purposes of confirming a plan under chapter 11 or 13 of title 11 but not the liquidation or estimation of contingent or unliquidated personal injury tort or wrongful death claims against the estate for purposes of distribution in a case under title 11;
(C) Counterclaims by the estate against persons filing claims against the estate;
(D) Orders in respect to obtaining credit;
(E) Orders to turn over property of the estate;
(F) Proceedings to determine, avoid, or recover preferences;
(G) Motions to terminate, annul or modify the automatic stay;
(H) Proceedings to determine, avoid, or recover fraudulent conveyances;
(I) Determinations as to the dischargeability of particular debts;
(J) Objections to discharges;
(K) Determinations of the validity, extent, or priority of liens;
(L) Confirmations of plans;
(M) Orders approving the use or lease of property, including the use of cash collateral;
(N) Orders approving the sale of property other than property resulting from claims brought by the estate against persons who have not filed claims against the estate;
(O) Other proceedings affecting the liquidation of the assets of the estate or the adjustment of the debtor-creditor or the equity security holder relationship, except personal injury tort or wrongful death claims; and
(P) Recognition of foreign proceedings and other matters under chapter 15 of title 11.
Well, this is a broad list. Anything could become a core proceeding, a fact lamented by Justice Brennan in Granfianciera case. “Congress simply reclassified a pre-existing, common-law cause of action that was not integrally related to the reformation of debtor-creditor relations and that apparently did not suffer from any grave deficiencies. This purely taxonomic change cannot alter our Seventh Amendment analysis. Congress cannot eliminate a party's Seventh Amendment right to a jury trial merely by relabeling the cause of action to which it attaches and placing exclusive jurisdiction in an administrative agency or a specialized court of equity.” Granfinanciera, S.A. v. Nordberg, 492 U.S. 33, 60–61, 109 S. Ct. 2782, 2800, 106 L. Ed. 2d 26 (1989). This all-inclusive core aspect was also frowned upon by Chief Justice Robert in Stern case—"designating all counterclaims as “core” proceedings raises serious constitutional concerns.” Stern v. Marshall, 564 U.S. 462, 477 (2011). So, labeling of a claim or proceeding as core is not enough, it must be constitutionally agreeable. A good attorney must challenge the label. Remember something, if you are silent about it, the dispute would be treated as core, and you would be bound by the judgment. And if it is not core, the Court will have to submit proposed findings of fact and conclusions of law and you will have another chance to attack the proposed judgment. Also, it is another opportunity for you to raise additional issues or facts, as it is a de novo review of facts by the district court. This special additional power to do so comes from the harbinger of the administrative courts, Crowell v. Benson, 285 U.S. 22, 46 (1932).
A non-core proceeding or a claim shall not be decided with finality by a bankruptcy judge, but the district court. 28 U.S.C. § 157(c). However only, if you have demanded for an article III court, the bankruptcy judge cannot enter the decision. You must demand though. Silence is consent. Consent could be implied. In re Men’s Sportswear, Inc., 834 F.2d 1134 (2d Cir. 1987) (failure to object to bankruptcy court’s assumption of core jurisdiction may constitute implied consent). The bankruptcy judge would never advise of you the same and your adversary too would have you sub-silentio submit to the bankruptcy court jurisdiction. Wellness Int'l Network, Ltd. v. Sharif, 575 U.S. 665, 674 (2015)(holding that “litigants may validly consent to adjudication by bankruptcy courts”). See also, Saenz v. Gomez (In re Saenz), 899 F.3d 384 (5th Cir. 2018) (implied consent to liquidation of state law claim based on (1) submission of a pre-trial statement in which they listed no jurisdictional issues; (2) representation by experienced bankruptcy counsel; and (3) voluntary participation in the proceedings, including seeking affirmative relief by filing Rule 12(b)(6) motions and not expressing any limitations on its consent throughout the trial).
In case you have not consented, and the judgment proposed goes against you, you will fourteen days after service of the proposed findings of fact and conclusions of law to file your objection. FRBP 9033(b).In case you are not ready with your objection, you could ask for an extension of time up to 21 days, however it must be done before the expiry of the 14 days’ time. And if you do not file objection, there might not be a denovo review of your claims and or defenses.