Recent Amendments to the Federal Rules of Bankruptcy Procedure, Effective December 1, 2016

Recent bankruptcy rule amendments, effective December 1, 2016, address the continuing impact of the Stern v. Marshall case on bankruptcy proceedings.

In Stern v. Marshall, 564 U.S. 462 (2011), the United States Supreme Court held that a bankruptcy court, as a non-Article III court (i.e. courts without full judicial independence) lacked constitutional authority under Article III of the United States Constitution to enter a final judgment on a state law counterclaim that is not resolved in the process of ruling on a creditor’s proof of claim, even though Congress purported to grant such statutory authority under 28 U.S.C. § 157(b)2(C).

As a consequence of Stern v. Marshall, certain amendments to the Federal Rules of Bankruptcy Procedure were amended to remove the distinction between “core”, namely those at the heart of the bankruptcy process, and “non-core” matters in Rules 7008, 7012(b), 7016(a) and (b), 9027 and 9033.

Under the amendments, parties are required to state whether they consent to entry of final orders or judgment by the bankruptcy judge in all adversary proceedings, not just “non-core” matters. These amendments provide that the Court shall decide, on its own motion or a party’s motion whether to hear and determine the proceeding; to hear the proceeding and issue proposed findings of fact and conclusions of law; or to take some other action.

Additionally, Rule 9006(f) was amended to eliminate the three days to the period of response if service was by electronic service.

As explained in the Committee Notes to the amendments:

Subdivision (f) is amended to remove service by electronic means under Civil Rule 5(b)(2)(E) from the modes of service that allow three added days to act after being served.

Civil Rule 5(b)—made applicable in bankruptcy proceedings by Rules 7005 and 9014(b)—was amended in 2001 to allow service by electronic means with the consent of the person served. Although electronic transmission seemed virtually instantaneous even then, electronic service was included in the modes of service that allow three added days to act after being served. There were concerns that the transmission might be delayed for some time, and particular concerns that incompatible systems might make it difficult or impossible to open attachments. Those concerns have been substantially alleviated by advances in technology and widespread skill in using electronic transmission.

Eliminating Rule 5(b) subparagraph (2)(E) from the modes of service that allow three added days means that the three added days cannot be retained by consenting to service by electronic means. Consent to electronic service in registering for electronic case filing, for example, does not count as consent to service “by any other means” of delivery under subparagraph (F).

Subdivision (f) is also amended to conform to a corresponding amendment of Civil Rule 6(d). The amendment clarifies that only the party that is served by mail or under the specified provisions of Civil Rule 5—and not the party making service—is permitted to add three days to any prescribed period for taking action after service is made.

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