Supreme Court Limits Bankruptcy Court Authority in Insurance Case

June 10, 2014

The Supreme Court says bankruptcy courts have limited authority to rule on disputes outside the traditional bankruptcy process.

The justices ruled unanimously this week that a Washington state bankruptcy court did not exceed its powers when it considered a lawsuit claiming the Bellingham Insurance Agency had wrongfully transferred assets to the another insurance company shortly before declaring bankruptcy.

Lower courts had upheld the bankruptcy court action. The 9th U.S. Circuit Court of Appeals found the bankruptcy judge was simply making recommendations that were later approved by a federal judge and that all parties had consented to the proceeding.

In an opinion by Justice Clarence Thomas, the high court agreed that a bankruptcy court can rule on non-bankruptcy matters as long as a federal district court reviews those findings.

The case is Executive Benefits Insurance Agency v. Arkison, 12-1200.

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