Exchange Nat. Bank of Chicago v. Wyatt
| Decision Date | 24 April 1975 |
| Docket Number | Nos. 946,947,D,s. 946 |
| Parties | Fed. Sec. L. Rep. P 95,076 EXCHANGE NATIONAL BANK OF CHICAGO et al., Petitioners, v. Inzer B. WYATT, United States District Judge, Southern District of New York, and Roy Babitt, Bankruptcy Judge, Southern District of New York, Respondents. SECURITIES AND EXCHANGE COMMISSION, Plaintiff, v. WEIS SECURITIES, INC., et al., Defendants. ockets 75-3012, 75-6004. |
| Court | U.S. Court of Appeals — Second Circuit |
Daniel A. Zimmerman, New York City, for petitioners.
Alan C. Winick, and I. Alan Harris, New York City, of counsel for petitioners Robert E. Slater, All-American Life & Casualty Co., General United Life Ins. Co., and O'Hare International Bank (N.A.).
Alan C. Winick, and Hahn, Hessen, Margolis & Ryan, New York City, of counsel for petitioner Exchange National Bank of Chicago.
Theodore H. Focht, Gen. Counsel, Securities Investor Protection Corp., Washington, D. C. (Wilfred R. Caron, Associate Gen. Counsel, Michael E. Don, and Charles R. McConachie, Washington, D. C., of counsel), for respondent Securities Investor Protection Corp.
John S. Allee, New York City (James F. Parver, and Hughes Hubbard & Reed, New York City, of counsel), for respondent trustee for the liquidation of Weis Securities, Inc.
Before FRIENDLY and FEINBERG, Circuit Judges, and LASKER, District Judge. *
On May 24, 1973, the Securities Investors Protection Corporation (SIPC) filed an application in the District Court for the Southern District of New York, pursuant to § 5(a)(2) of the Securities Investor Protection Act (SIPA), 84 Stat. 1636 (1970). SIPC asked the court to adjudicate under § 5(b)(1) that customers of Weis Securities, Inc. (Weis), a broker-dealer registered with the SEC, were in need of the protection afforded by SIPA and to appoint a trustee and an attorney under § 5(b)(3). The application was assigned to Judge Wyatt who was engaged in a long criminal trial. Then District Judge Gurfein, acting in his stead, granted the application on May 30, 1973, after conducting a thorough hearing. The trustee then applied for an order directing a general reference of the proceeding pursuant to § 22 of the Bankruptcy Act. Judge Gurfein on May 31 granted this application, entering an order which referred the proceeding generally to Referee (now Bankruptcy Judge) Roy Babitt to take such further action as would be appropriate under SIPA. 1
Petitioners, who had purchased subordinated notes from Weis, filed their claims with the bankruptcy judge and participated in the liquidation proceedings before him. After the trustee had contested these claims and asserted counterclaims against two of them by commencing adversary proceedings pursuant to Bankruptcy Rules 701(1) and 713, these two petitioners, later joined by the others, suggested to the bankruptcy judge that the general order of reference was invalid. When he indicated that the question would be more properly directed to the district court, petitioners filed a paper with Judge Wyatt which he considered to be a motion to vacate the reference; on February 14, 1975 he denied this in an oral opinion. 2 On March 3 petitioners moved this court for a writ of mandamus to direct Judge Wyatt to vacate the reference and a writ of prohibition to prevent the bankruptcy judge from proceeding under it. Because we considered the issue to be one of general importance to the administration of SIPA, which should be settled so far as we have power to do so, we entertained the petition, set an expedited schedule for briefs and argument, and stayed the proceedings with respect to petitioners before the bankruptcy judge. 3 Since we considered it likely that Judge Wyatt's order was appealable by virtue of § 24, sub. a of the Bankruptcy Act, we directed that a notice of appeal be filed and this was done.
SIPA, which emanated from the committees of the Congress that generally concern themselves with securities rather than bankruptcy legislation, 4 is not an integral part either of the Securities Exchange Act of 1934 or of the Bankruptcy Act. See 3 Collier, Bankruptcy P 60.79 (1974). With respect to the Securities Exchange Act, § 2 of SIPA declares: 5
Except as otherwise provided in this Act, the provisions of the Securities Exchange Act of 1934 () apply as if this Act constituted an amendment to, and was included as a section of, such Act.
The main provisions with respect to the Bankruptcy Act are the first sentence of § 5(b)(2):
Upon the filing of an application pursuant to subsection (a)(2), the court to which the application is made shall have exclusive jurisdiction of the debtor involved and its property wherever located with the powers, to the extent consistent with the purposes of this Act, of a court of bankruptcy and of a court in a proceeding under chapter X of the Bankruptcy Act.
the whole of § 6(c)(1):
Application of Bankruptcy Act.
(1) General provisions applicable. Except as inconsistent with the provisions of this Act and except that in no event shall a plan of reorganization be formulated, a liquidation proceeding shall be conducted in accordance with, and as though it were being conducted under, the provisions of chapter X and such of the provisions (other than section 60e) of chapters I to VII, inclusive, of the Bankruptcy Act as section 102 of chapter X would make applicable if an order of the court had been entered directing that bankruptcy be proceeded with pursuant to the provisions of such chapters I to VII, inclusive; except that the court may, for such period as may be appropriate, stay enforcement of, but shall not abrogate, the rights provided in section 68 of the Bankruptcy Act and the right to enforce a valid, nonpreferential lien or pledge against the property of the debtor. For purposes of applying the Bankruptcy Act in carrying out this section, any reference in the Bankruptcy Act to the date of commencement of proceedings under the Bankruptcy Act shall be deemed to be a reference to the filing date (as defined in section 5(b)(4)(B)).
and § 6(c)(2) which sets out "Special Provisions" to apply in SIPA liquidation proceedings in lieu of § 60, sub. e of the Bankruptcy Act.
At first blush it would seem rather plain that since § 22, providing for general references, is part of Chapter IV of the Bankruptcy Act, 6 such a reference is proper in liquidations under SIPA. After considering petitioners' arguments, we find this to be true on further blushes as well.
Petitioners' basic contention seemingly runs as follows: Since SIPA allegedly was enacted under the commerce power, when Congress in § 5(b)(2) conferred "exclusive jurisdiction" on "the court to which the application is made," it was referring to the district court as created pursuant to Article III of the Constitution and not to the "courts of bankruptcy" created by § 2 of the Bankruptcy Act (which by definition, § 1(9), "shall mean the judge or the referee of the court of bankruptcy in which the proceedings are pending") under the bankruptcy power, Article I, § 8. Consequently the governing rule with respect to references is Fed.R.Civ.P. 53, which, in permitting reference to a master, says that this "shall be the exception and not the rule," Fed.R.Civ.P. 53(b). 7 Petitioners seek to buttress this argument by a statement in the House Report recommending passage of SIPA that "the bill provides that SIPC members will be liquidated in special proceedings outside the Bankruptcy Act," 3 U.S.Code Cong. & Admin.News at 5262, 91st Cong., 2d Sess. (1970), and a similar statement by Senator Bennett on the floor, 116 Cong.Rec. 40905 (1970). 8
So far as the argument rests on statutory interpretation, it flies in the face of the language and purposes of the Act. Even apart from § 6(c), § 5(b)(2) of SIPA itself declares that the court shall have "the powers, to the extent consistent with the purposes of this Act, of a court of bankruptcy and of a court in a proceeding under chapter X of the Bankruptcy Act." One of such "powers" is the power, conferred by § 22 of the Bankruptcy Act, to make a general reference to a referee in bankruptcy free from the restrictions of Fed.R.Civ.P. 53(b). Such power is not only "consistent with the purposes" of SIPA but essential. 9 In this case almost 34,000 "customer" claims were analyzed by the trustee, 10 who objected to some 1,700; informal hearings on these were held before the bankruptcy judge. The process for the determination of such claims did not differ in any significant respect from what would have been required in a large stockbroker bankruptcy before enactment of SIPA; the difference lies in the supersession of § 60, sub. e of the Bankruptcy Act by the somewhat altered Special Provisions of § 6(c)(2) of SIPA and the entitlement of "customers" as therein defined to benefit from the SIPC Fund. This is the kind of business for which bankruptcy judges have developed special expertness and administrative skills and which Congress did not intend to dump on already overburdened district courts without needed clerical and other facilities.
There would be no merit in a contention that a different conclusion is demanded because § 6(c) selects as the basic model for SIPA liquidations not ordinary bankruptcy but chapter X. The claim would be that while the second section of chapter X, § 102, directs that with certain exceptions
(T)he provisions of chapters I to VII, inclusive, of this Act shall, insofar as they are not inconsistent or in conflict with the provisions of this chapter, apply in proceedings under this chapter.
the reference provision of chapter X, § 117, is somewhat less broad than § 22, providing only, so far as here relevant, that
(t)he judge may, at any stage of a proceeding under this chapter, refer the proceeding to a referee in bankruptcy to hear and determine any and all matters not reserved to the...
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