A Stern Warning: Litigation Tactics Can Waive Jurisdictional Challenges

An important new decision out of the U.S. Court of Appeals for the Ninth Circuit not only adds to the growing body of case law interpreting and applying the Supreme Court's controversial Stern v. Marshall decision, but will have bankruptcy practitioners considering even more carefully whether, when and how to challenge a bankruptcy court's jurisdiction to enter a final order in an avoidance action.

The Ninth Circuit's opinion in Executive Benefits Insurance Agency v. Arkison (In re Bellingham Insurance Agency), No. 11-35162, 2012 U.S. App. LEXIS 24873 (Dec. 4, 2012), offers a cautionary tale of the consequences litigants can suffer by not asserting timely jurisdictional challenges in the bankruptcy court or delaying such challenges until dispositive motions are decided. The court found that although the bankruptcy court did not have the constitutional authority to enter a final judgment in a fraudulent conveyance action against a nonclaimant to the bankruptcy estate,