Sarachek v. Right Place, Inc. (In re Agriprocessors, Inc.)

• Decision Date: 12 July 2012
• Docket Number: Bankruptcy No. 08–02751.,Adversary No. 10–9123.
• Citation: 479 B.R. 835
• Parties: In re AGRIPROCESSORS, INC., Debtor. Joseph E. Sarachek, In his capacity As Chapter 7 Trustee, Plaintiff, v. The Right Place, Inc., Defendant.
• Court: U.S. Bankruptcy Court — Northern District of Iowa

479 B.R. 835

In re AGRIPROCESSORS, INC., Debtor.Joseph E. Sarachek, In his capacity As Chapter 7 Trustee, Plaintiff,

v.The Right Place, Inc., Defendant.

Bankruptcy No. 08–02751.

Adversary No. 10–9123.

United States Bankruptcy Court, N.D. Iowa.

July 12, 2012.

Recognized as Unconstitutional

28 U.S.C.A. § 157(b)(2)(C)

Desiree A. Kilburg, Keith J. Larson, Paula L. Roby, Dan Childers, Elderkin & Pirnie, PLC, Cedar Rapids, IA, for Plaintiff.

Christopher C. Fry, O'Connor & Thomas, P.C., Dubuque, IA, Kurt F. Gwynne, Wilmington, DE, Lead Attorney, for Defendant.

ORDER ON THE COURT'S AUTHORITY TO HEAR AND DECIDE THIS CASE

THAD J. COLLINS, Chief Judge.

This matter came before the Court to determine this Court's authority to hear and decide this case. The Court held a telephonic hearing on the issue. Desiree Kilburg appeared on behalf of Plaintiff, Joseph E. Sarachek, in his capacity as the Chapter 7 Trustee. Peter Arling and Kurt Gwynne appeared on behalf of Defendant, The Right Place, Inc. After hearing the arguments of counsel, the Court took the matter under advisement providing additional time for the parties to submit briefs.

STATEMENT OF THE CASE

Plaintiff filed this adversary against Defendant alleging that Debtor had fraudulently conveyed funds to Defendant or made preferential transfers to Defendant. The parties disagree about the Court's authority to hear and decide this matter. Defendant argues that under the Supreme Court's recent decision in Stern v. Marshall, ––– U.S. ––––, 131 S.Ct. 2594, 180 L.Ed.2d 475 (2011), the claims should not be heard or decided by this Court. Defendant argues this Court should direct the parties to file a motion with the District Court to withdraw reference of this case. Plaintiff disagrees arguing that under Stern, and the subsequent cases interpreting Stern, the fraudulent conveyance and preferential transfer claims in this case are core proceedings. Plaintiff asserts this Court has full, dispositive authority.

The Court concludes that it need not determine whether the claims constitute core proceedings because at a minimum, the Court has jurisdiction to hear the matter and issue proposed findings of fact and conclusions of law for the District Court's review.

BACKGROUND

On April 1, 2011, Defendant filed a Motion to Dismiss alleging the Complaint failed to state a cause of action. The Court denied the Motion, but directed Plaintiff to file an amended complaint. Plaintiff filed an Amended Complaint on October 31, 2011. Defendant filed an Answer on December 5, 2011. Defendant denied the claims and presented six affirmative defenses.

The Court held a scheduling conference on December 22, 2011. At the scheduling conference, Defendant stated it did not believe the adversary claims were core proceedings and questioned whether the case should be heard by the Bankruptcy Court. The Court scheduled a hearing on the question of its authority to hear this case. After hearing argument and taking briefing, the Court took the matter under advisement.

CONCLUSIONS OF LAW AND DISCUSSION

This Court dealt with the limited effects of the Supreme Court's decision in Stern v. Marshall, in the recent opinion, City of Sioux City v. Civic Partners Sioux City (In re Civic Partners Sioux City, LLC), Adv. Nos. 11–9045, 11–9046, Bankr.No. 11–00829, 2012 WL 761361 (Bankr.N.D.Iowa Mar. 8, 2012). The Court will briefly reiterate its reasoning from that decision here, before discussing the parties' arguments about Stern 's effect on the facts currently before the Court.

A. Bankruptcy Court Jurisdiction and Authority to Enter Final Judgment

Congress has provided that the United States “[d]istrict courts shall have original but not exclusive jurisdiction of all civil proceedings arising under title 11, or arising in or related to cases under title 11.” 28 U.S.C. § 1334(b). Congress has also provided: “Each district court may provide that any or all cases under title 11 and any or all proceedings arising under title 11 or arising in or related to a case under title 11 shall be referred to the bankruptcy judges for the district.” 28 U.S.C. § 157(a). See Badami v. Sears (In re AFY, Inc.), 461 B.R. 541, 546 (8th Cir. BAP 2012) (“Congress has allowed district courts to refer cases and proceedings to the bankruptcy judges in its district.”). The Northern District of Iowa has, by standing order, referred all such cases to this Court. In re the Referral of Bankruptcy Cases, No. 07–AO–16–P (Dec. 5, 2007).

The United States Code limits a bankruptcy court's authority to enter final judgments to “core proceedings.” In re AFY, Inc., 461 B.R. at 547;see In re Civic Partners Sioux City, 2012 WL 761361, at *5. “Bankruptcy judges may hear and determine all cases under title 11 and all core proceedings arising under title 11, or arising in a case under title 11, referred under subsection (a) of this section, and may enter appropriate orders and judgments subject to review under section 158 of this title.” 28 U.S.C. § 157(b)(1) (emphasis added). Congress provided a specific, but not limited, list of matters that qualify as “core proceedings” in 28 U.S.C. § 157(b)(2). In re AFY, 461 B.R. at 547.Section 157(b)(2) specifically states:

(2) Core proceedings include, but are not limited to—

(A) matters concerning the administration of the estate;

...

(F) proceedings to determine, avoid, or recover preferences;

...

(O) other proceedings affecting the liquidation of the assets of the estate or the adjustment of the debtor-creditor or the equity security holder relationship, except personal injury tort or wrongful death claims; and

....

28 U.S.C. § 157(b)(2) (emphasis added).

The United States Code also specifically identifies a category of cases over which bankruptcy courts may preside but do not have final dispositive authority. 28 U.S.C. § 157(c)(1); see In re AFY, 461 B.R. at 547;In re Civic Partners Sioux City, 2012 WL 761361, at *5.Section 157(c)(1) provides:

(c)(1) A bankruptcy judge may hear a proceeding that is not a core proceeding but that is otherwise related to a case under title 11. In such proceeding, the bankruptcy judge shall submit proposed findings of fact and conclusions of law to the district court, and any final order or judgment shall be entered by the district judge after considering the bankruptcy judge's proposed findings and conclusions and after reviewing de novo those matters to which any party has timely and specifically objected.

28 U.S.C. § 157(c)(1) (emphasis added).

Thus, as the statute specifically establishes, bankruptcy courts have final dispositive authority over core proceedings. They also have jurisdiction over non-core, “related to” proceedings, but not final dispositive authority. In those “related to” cases, bankruptcy judges must submit proposed findings of fact and conclusions of law (a report and recommendation) which the district court will review de novo. See In re AFY, 461 B.R. at 547;In re Civic Partners Sioux City, 2012 WL 761361, at *5. In sum, core proceedings are matters which “arise in” or “arise under” title 11. 28 U.S.C. § 157(b)(1). Non-core matters are those that are simply “related to” a case under title 11. 28 U.S.C. § 157(c)(1).

B. The Effect of Stern v. Marshall on this Court's Authority to Hear and Decide this Case

To determine whether a matter is core and falls within the Court's dispositive authority,this Court, and most others, have routinely relied on the list of examples Congress provided in 28 U.S.C. § 157(b)(2). The Supreme Court's recent decision in Stern v. Marshall, noted an additional layer of analysis is required in certain cases.

In Stern, the Supreme Court addressed whether a counter-claim by the debtor's estate against a creditor that had filed a proof of claim, was a core proceeding under the facts of that case. Stern, 131 S.Ct. at 2598. The Court first concluded that the bankruptcy court had jurisdiction under 28 U.S.C. § 157(b)(2)(C), which specifically notes that core proceedings include “counterclaims by the estate against persons filing claims against the estate.” Id. at 2604. The Court, however, then noted: “Although we conclude that § 157(b)(2)(C) permits the bankruptcy court to enter final judgment on [the debtor's] counterclaim, Article III of the Constitution does not.” Id. at 2608. In so holding, the Court stated:

We conclude today that Congress, in one isolated respect, exceeded that limitation in the Bankruptcy Act of 1984. The Bankruptcy Court below lacked the constitutional authority to enter a final judgment on a state law counter-claim that is not resolved in the process of ruling on a creditor's proof of claim.

Id. at 2620.

Much has been written and discussed about the scope and implications of Stern v. Marshall.In re AFY, 461 B.R. at 547 (“there has been an enormous amount of discussion regarding the implications of Stern v. Marshall ”); In re Civic Partners Sioux City, 2012 WL 761361, at *5 (same). Most courts, including this Court, have concluded that the Supreme Court should be taken at its word—that the holding in Stern is very narrow in spite of some language in the analysis that could be given a broader application or interpretation. See, e.g., In re AFY, 461 B.R. at 547 (the “Supreme Court itself has cautioned that its holding is a narrow one”); Tolliver v. Bank of America (In re Tolliver), 464 B.R. 720, 733 (Bankr.E.D.Ky.2012) (noting Stern 's “holding is a narrow one”); In re Civic Partners Sioux City, 2012 WL 761361, at *5 (same). The Supreme Court repeatedly used language to emphasize the narrowness of its holding. Stern, 131 S.Ct. at 2620 (noting the issue before the Court is “a narrow one” describing it as a “slight encroachment” on constitutional authority and noting again that its opinion was limited to Congress exceeding Article III in “one isolated respect”); see Tolliver, 464 B.R. at 733 (quoting In re Safety Harbor Resort & Spa, 456 B.R. 703, 715 (Bankr.M.D.Fla.2011)); In re MPC Computers, LLC, 465 B.R. 384, 388 ...