08/18/2011 – Order filed in the AFY, INC. Adversary Proceedings by Sears before Chief, U.S. Bankruptcy Judge Thomas L. Saladino in the United States Bankruptcy Court for the District of Nebraska. Judge Saladino rules on the defendant’s one sentence motion to dismiss for “lack of subject matter jurisdiction” in light of Stern v. Marshall. In this turnover action under 28 U.S.C. § 157(b)(2)(E), the Court finds that the action is a core proceeding. Accordingly, the bankruptcy court “is not deprived of subject matter jurisdiction simply because resolution of the lawsuit may require the application of state law.”

Judge Saladino’s order nearly matches the brevity of defendant’s motion. The following of the two substantive paragraphs of this three paragraph order.

The defendant Robert Sears has moved to dismiss this adversary proceeding for “lack of subject matter jurisdiction” in light of the United States Supreme Court’s decision in Stern v. Marshall, 131 S. Ct. 2594 (2011).1 In Stern, the Supreme Court determined that while the bankruptcy court had statutory authority under 28 U.S.C. § 157(b)(2)(C) to enter final judgment on a counterclaim, it lacked the constitutional authority to do so on a state law counterclaim that is not resolved in the process of ruling on a creditor’s proof of claim. Id. at 27. In his opinion, Chief Justice Roberts made a point of noting that Congress exceeded its constitutional authority only in “one isolated respect.” In particular, no other subsection of 28 U.S.C. § 157(b)(2) was found to be unconstitutional.

This adversary proceeding was filed to identify and force the turnover of certain property alleged to be property of the debtor’s bankruptcy estate, which constitutes a core proceeding under 28 U.S.C. § 157(b)(2)(E). Further, the trustee’s right to bring a turnover proceeding is created by Title 11. 11 U.S.C. §542. This court is not deprived of subject matter jurisdiction simply because resolution of the lawsuit may require the application of state law. In re Salander OReilly Galleries, ___ B.R. ___, 2011 WL 2837494, at 10-13 (Bankr. S.D.N.Y. July 18, 2011).