In 6 pages of Findings of Fact and Conclusions of Law released December 19, 2014 in the Liberty Brands bankruptcy (Bank. D. Del. 09-50965), Judge Walrath’s ruling referenced Stern v. Marshall, 131 S.Ct. 2594 (2011). Judge Walrath’s Findings of Fact and Conclusions of Law are available here (the “Opinion”). Because of the continuing discussions caused by the Stern opinion, we wanted to touch briefly on the (very short) part of the opinion referencing Stern. The Stern case was previously discussed in numerous posts on this site, including the following:
Judge Walsh Provides Analysis of Stern v. Marshall in DBSI Opinion
Stern v. Marshall: Effects on Delaware
The Opinion ruled on the Motion of the Trustee for New Trial to Amend or Make New Findings of Fact and Conclusions of Law with respect to certain allegedly preferential transfers. The motion sought reconsideration of the Court’s Proposed Findings of Fact and Conclusions of Law issued on September 25, 2014, arguing that certain transactions should be ruled preferences, despite the Trustee having failed to adequately argued that point.
Judge Walrath’s first analysis in the Opinion is contained in paragraph 6 in which she states “[t]he Bankruptcy Court does not have the constitutional authority to enter a final order on the preference action because DTW never filed a claim in this bankruptcy case.” She then cited to the Stern holding that “a preferential transfer claim can be heard in bankruptcy when the allegedly favored creditor has filed a claim . . . . If, in contrast, the creditor has not filed a proof of claim, the trustee’s preference action does not ‘become part of the claims-allowance process’ subject to resolution by the bankruptcy court.” 131 S. Ct. 2594, 2617 (2011).
This is one of few recent opinions on how the Stern holding will affect preference litigation in Delaware. It should be remembered, however, that while the Bankruptcy Court only has the power to issue Findings of Fact and Conclusions of Law, there has yet to be a Delaware District Court opinion ruling contrary to the Bankruptcy Court’s recommendations regarding preference litigation (in this post-Stern era). This is just one more nuance to the defense (or prosecution) of preference actions that any lawyer in this practice area needs to be aware of.