Consent-Based Magistrate Judge Jurisdiction in Bankruptcy Appeals: §636(c) Empowerment

1. Introduction

This case, In re: MTE Holdings LLC, arose from a dispute over oil-and-gas royalties between Chenault-Vaughan Family Partnership (“Chenault”), a royalty interest holder, and Centennial Resources Operating, LLC (“Centennial”), the operator of the wells. MDC Reeves Energy, LLC (“MDC”) owned the working interest but filed for Chapter 11, setting the stage for a bankruptcy‐court adversary proceeding in Delaware. Chenault claimed that Centennial underpaid or withheld certain royalties; the Bankruptcy Court granted Centennial summary judgment; a Magistrate Judge sitting by consent in the District of Delaware affirmed; and Chenault appealed to the Third Circuit.

2. Summary of the Judgment

The Third Circuit addressed two central questions:

Whether a magistrate judge, with party consent and district‐court referral under 28 U.S.C. §636(c), may enter final judgment in a bankruptcy appeal.
Whether, on the merits, Chenault’s trespass-to-try-title claim and its Texas Natural Resources Code (“TNRC”) §91 royalties claim were properly disposed of by summary judgment.

The Court held, as a matter of first impression in this Circuit post-1984, that:

Magistrate judges may, upon consent of the parties and referral by the district court, enter final judgment in bankruptcy appeals (reconciling 28 U.S.C. §§158(a) & 636(c)).
Summary judgment properly disposes of the trespass-to-try-title claim (Chenault could not show an unlawful dispossession of its mineral interest).
Summary judgment was improperly granted on the TNRC §91 royalties claim, because genuine disputes of material fact remain regarding Centennial’s role as “payor” and the binding effect of a division order.

The Third Circuit affirmed in part, vacated in part, and remanded for further proceedings on the TNRC claim.

3. Analysis

3.1 Precedents Cited

In re Morrissey, 717 F.2d 100 (3d Cir. 1983): Under the pre-1984 Bankruptcy Reform Act, the Third Circuit had held that a district court could not refer a bankruptcy appeal to a magistrate judge because of an “Express Prohibition.”
Northern Pipeline Construction Co. v. Marathon Pipe Line Co., 458 U.S. 50 (1982): Supreme Court struck down parts of the 1978 BRA on Article III grounds, prompting the 1984 Bankruptcy Amendments and Federal Judgeship Act (“BAFJA”).
Minerex Erdoel, Inc. v. Sina, Inc., 838 F.2d 781 (5th Cir. 1988) and In re Elcona Homes Corp., 810 F.2d 136 (7th Cir. 1987): Circuits that concluded magistrates cannot issue final orders in bankruptcy appeals—even by consent—because the BAFJA did not expressly permit it.
Wharton-Thomas v. United States, 721 F.2d 922 (3d Cir. 1983): Explained that magistrate judges are integral parts of the district court, appointed and removable by district judges, and function under their supervision.
Prater v. Department of Corrections, 76 F.4th 184 (3d Cir. 2023): Confirmed that under 28 U.S.C. §636(c), magistrate judges can enter final orders in non-bankruptcy civil matters when all parties consent, and their jurisdiction is coextensive with the district court’s.

3.2 Legal Reasoning

The Third Circuit’s reasoning proceeded in two steps:

3.2.1 Jurisdiction of Magistrate Judges in Bankruptcy Appeals

Pre-1984, the BRA expressly prohibited referral of bankruptcy appeals to magistrate judges. Morrissey enforced that bar.
Congress’s 1984 BAFJA repealed the “Express Prohibition” by omission, consolidated appeals into 28 U.S.C. §158, and left intact the broad magistrate-judge consent authority of 28 U.S.C. §636(c).
The Third Circuit in Prater confirmed that under §636(c)(1)—“notwithstanding any provision of law to the contrary” and “when specially designated … by the district court”—a magistrate judge may enter final judgment in any civil matter upon consent.
Magistrate judges function under district court supervision (§636(c)(4)), maintain court records through the district clerk, and judgments are appealable directly to the circuit (§158(c)(2)), preserving Article III oversight and separation-of-powers.
Accordingly, post-BAFJA, a magistrate judge may enter final judgment in a bankruptcy appeal if: (a) all parties consent; (b) the district court refers the case under §636(c); and (c) the matter is civil in nature (bankruptcy appeals qualify under §158(a)).

3.2.2 Merits of the Two Claims

A. Trespass to Try Title (Count I)

Under Texas law (Tex. Prop. Code §22.001; Tex. R. Civ. P. 783), plaintiff must show unlawful entry and dispossession.
After abandonment by MDC, Chenault and Luxe became cotenants. Under well-settled Texas doctrine, an operating cotenant may enter, develop, and withhold production proceeds pending payout without committing trespass.
Because Centennial’s conduct was within the rights of a cotenant and no wrongful dispossession occurred, summary judgment for Centennial on Count I was correct.

B. TNRC Royalties Claim (Count II)

Tex. Nat. Res. Code §91.402 creates a cause of action for “payee” (royalty‐holder) against “payor” (operator or distributor) for failure to pay proceeds according to lease or written agreement.
Chenault argued Centennial was its “payor” by virtue of: (a) Centennial’s payments of royalties pre-abandonment; (b) the Unit B Joint Operating Agreement as operator; and (c) a July 2019 division order listing Centennial as “Operator” and authorizing it to pay Chenault.
Centennial contended it never intended to assume payor obligations for Unit B (MDC was the lessee), and its payments resulted from a mistaken belief that MDC had signed the Unit B JOA.
The record contains contradictory evidence on Centennial’s knowledge of MDC’s signature status and on whether the division order bound Centennial as payor. These unresolved factual disputes preclude summary judgment.

3.3 Impact

This decision has immediate and far-reaching effects:

It resolves a circuit split by endorsing the jurisdiction of magistrate judges to enter final judgments in bankruptcy appeals upon consent and referral, aligned with §636(c) and post-1984 statutory changes.
It provides district courts and litigants clarity and efficiency: parties can invoke magistrate-judge resources in bankruptcy appeals without re-litigating the jurisdictional question.
It underscores the supervisory role of district judges under §636(c)(4) and bolsters Article III safeguards by enabling direct circuit review under §158(c)(2).
In the oil-and-gas context, the nuanced treatment of division orders and payor‐payee relationships under the TNRC will guide future summary-judgment motions and evidentiary showings.

4. Complex Concepts Simplified

Express Prohibition: A now-repealed BRA provision that once barred bankruptcy appeals from being sent to magistrate judges.
28 U.S.C. §158(a): Grants district courts jurisdiction to hear appeals from bankruptcy-court final or interlocutory orders.
28 U.S.C. §636(c): Allows magistrate judges to conduct any civil proceedings and enter final judgment if all parties consent and the district court refers the matter.
Magistrate Judge vs. Bankruptcy Judge: A magistrate judge is an Article III subordinate under district‐court supervision; a bankruptcy judge is an Article I officer with limited supervisory ties to the district court.
Division Order: A written direction by a royalty payee that instructs the designated operator or payor on how to distribute proceeds from oil/gas sales. It is usually binding until revoked.

5. Conclusion

In re: MTE Holdings establishes that, post-BAFJA, magistrate judges may enter final judgments in bankruptcy appeals when the parties consent and the district court refers the case under 28 U.S.C. §636(c). This vindicates efficient use of judicial resources and clarifies a previously uncertain jurisdictional area. On the merits, the Court affirmed summary judgment on the trespass claim but vacated the TNRC royalties ruling, noting genuine fact disputes over Centennial’s role as payor and the effect of the division order. The case is remanded for further bankruptcy-court proceedings on the TNRC claim, thereby preserving both procedural integrity and substantive rights in royalty disputes.