Order, Report and Recommendation filed in the AFY, INC. Adversary Proceedings by Ainsworth Feed Yards, LLC before Chief, U.S. Bankruptcy Judge Thomas L. Saladino in the United States Bankruptcy Court for the District of Nebraska. Judge Saladino grants defendant’s motion for relief from a $4.5 million judgment based on the U.S. Supreme Court’s decision in Stern v. Marshall. The defendant moved to set aside the judgment entered in the proceeding on June 1, 2011. The Bankruptcy Court had granted the trustee’s motion for summary judgment on the trustee’s efforts to collect approximately $4.5 million on an account receivable allegedly owed to the debtor from defendant. Although not mentioned by Judge Saladino as a factor in his decision, the defendant had not filed a claim in the underlying bankruptcy case. Judge Saladino focused on the nature of the action, concluding “What the trustee is pursuing is a demand on an alleged debt, which is beyond the scope of § 542.”
The order is in two parts. In the first portion of the order, Judge Saladino addresses whether request for relief from the judgment is available under Fed. R. Bankr. P. 8002(a). He first finds that “a decision by the United States Supreme Court may provide the extraordinary circumstance for granting a Rule 60(b)(6) motion. Ben Hur Constr. Co. v. Goodwin, 116 F.R.D. 281, 284 (E.D. Mo. 1987).” He then concludes that the motion was timely filed based on the observation that “there is no indication irrevocable acts have occurred, or that the judgment cannot be undone.”
Judge Saladino then considers the impact of Stern v. Marshall. That portion of the order follows:
As to the merits of the motion, the defendant did not elaborate, stating only that Stern deprives this court of subject matter jurisdiction to enter judgment. Presumably, the defendant is arguing that relief is necessary and appropriate because Stern represents a change in the applicable law. Generally, a change in the law is not, in and of itself, an extraordinary circumstance that would justify relief from a judgment. Kansas Pub. Emp. Ret. Sys. v. Reimer & Koger Assoc., Inc., 194 F.3d 922, 925 (8th Cir. 1999). However, a decision by the United States Supreme Court may provide the extraordinary circumstance for granting a Rule 60(b)(6) motion. Ben Hur Constr. Co. v. Goodwin, 116 F.R.D. 281, 284 (E.D. Mo. 1987).
The Stern decision circumscribes the ability of non-Article III judges to enter final judgments on certain types of claims, limiting the bankruptcy court’s constitutional authority to do so to core proceedings stemming from the bankruptcy itself and actions that “would necessarily be resolved in the claims allowance process.” 131 S. Ct. at 2618. This case fits into neither category.
In his complaint, the trustee asserted, without reference to specific authority, that this action was a core proceeding. The defendant argues that it is non-core. The trustee characterizes the adversary proceeding as an action to force the turnover of property belonging to the bankruptcy estate under 11 U.S.C. § 542(b). Section 542(b) refers to the collection of debts that are “matured, payable on demand, or payable on order.” The debt the trustee is attempting to collect is not clearly a receivable and, according to the defendant, is not even a debt. What the trustee is pursuing is a demand on an alleged debt, which is beyond the scope of § 542. Lovald v. Falzerano (In re Falzerano), ___ B.R. ___, 2011 WL 3477218 (B.A.P. 8th Cir. Aug. 10, 2011). It is a claim that would not be before the bankruptcy court but for the fact that the debtor filed a bankruptcy petition. As a disputed debt or a collection action, it could, and normally would, be adjudicated outside of bankruptcy.
Because this action does not arise under Title 11 or arise in the bankruptcy case itself, nor would it be resolved in the claims allowance process, it is not a core proceeding within the constitutional authority of the bankruptcy court to enter judgment. Instead, the case should be transferred to the United States District Court for the District of Nebraska for further proceedings. Moreover, the defendant requested a jury trial, which this court has determined it is entitled to, so the bankruptcy court is not the appropriate forum for this trial.
Accordingly, I will grant the defendant’s motion for relief from the judgment, vacate the judgment, and recommend to the district court that it withdraw the reference of the case in order for the parties to proceed in the proper forum. IT IS ORDERED: The defendant’s motion for relief from judgment (Fil. No. 27) is granted. The order granting the plaintiff’s motion for summary judgment and the judgment entered thereon Fil. Nos. 22 and 23) are hereby vacated.