M & E CONTRACTORS v. Kugler-Morris General Contractors

• Decision Date: 28 October 1986
• Docket Number: No. CA 3-86-0334-R,CA 3-86-0937-R and CA 3-86-0311-R.,CA 3-86-0334-R
• Citation: M & E CONTRACTORS v. Kugler-Morris General Contractors, 67 BR 260 (N.D. Tex. 1986)
• Parties: M & E CONTRACTORS, INC., v. KUGLER-MORRIS GENERAL CONTRACTORS, INC. SATELCO, INC. v. NORTH AMERICAN PUBLISHERS, INC., et al. Richard WOLFE v. FIRST FEDERAL SAVINGS & LOAN ASS'N OF PARAGOULD.
• Court: U.S. District Court — Northern District of Texas

67 B.R. 260 (1986)

M & E CONTRACTORS, INC., v.KUGLER-MORRIS GENERAL CONTRACTORS, INC.

SATELCO, INC. v.NORTH AMERICAN PUBLISHERS, INC., et al.

Richard WOLFE v.FIRST FEDERAL SAVINGS & LOAN ASS'N OF PARAGOULD.

Nos. CA 3-86-0334-R, CA 3-86-0937-R and CA 3-86-0311-R.

United States District Court, N.D. Texas, Dallas Division.

October 28, 1986.

E.P. Keiffer, Palmer, Palmer & Coffee, Jay M. Vogelson, Jay A. Kania, Moore & Peterson, Robert L. Hoffman, D. Bradley Kizzia, Strasburger & Price, Dallas, Tex., for plaintiff.

Jeanne Crandall, Moore & Peterson, Dallas, Tex., Walter S. Fortney, Pamela Arnold Owen, Law, Snakard & Gambill, Fort Worth, Tex., Rosemary J. Zyne, Geoffrey A. Gerard, Dallas, Tex., Charles W. Zahn, Jr., Jon K. Barton, Corpus Christi, Tex., Thomas Connop, Locke, Purnell, Boren, Laney & Neely, Dallas, Tex., Kenneth M. Morris, Houston, Tex., for defendant.

MEMORANDUM OPINION

BUCHMEYER, District Judge.

This opinion concerns the Bankruptcy Amendments Act, 11 U.S.C. § 101 et seq..It resolves a conflict between two insightful, but conflicting, decisions by the bankruptcy judges in the Dallas Division of this district — seeM & E Contractors, Inc. v. Rodgers Construction, Inc., CA 3-85-0477-R (Jan. 2, 1986)(Abramson, J., bankruptcy courtsmay not conduct jury trials in core proceedings) and Wolfe v. First Federal Savings and Loan Ass'n,68 B.R. 80(Bankr.N.D.Tex.1986)(McGuire, J., bankruptcy courtsmay conduct jury trials in core proceedings)¹ — and it holds that:

1.Bankruptcy courts may conduct jury trials in "core" proceedings under the Bankruptcy Amendments Act ("the Act").

2.Adversary proceedings that rest solely in issues of state law — such as collection suits by a debtor in bankruptcy against non-creditor defendants — are not "core" proceedings, but are "related" or "noncore" matters.

3.Unless the parties consent, bankruptcy courts have no jurisdiction to hear such "related" or "noncore" matters, except to submit proposed findings of fact and conclusions of law and recommendations to the district court, subject to de novo review under 28 U.S.C. § 157(c)(1).

I.The Cases

Three cases are involved in this opinion; each illustrates a distinct aspect of the complex relationship between the bankruptcy courts, the district courts, and the constitution.

Wolfe.Richard Wolfe, debtor, seeks to have a conveyance of his homestead declared invalid, thereby voiding the secured claims of a creditor bank.First Federal Savings & Loan wants the homestead conveyance upheld and its claim deemed secured, so it can proceed with foreclosure; First Federal also asserts a counterclaim under the Texas Deceptive Trade Practices Act, Texas Business & Comm.Code Ann. § 1741 et seq..A demand for a jury trial was filed by First Federal.The parties stipulated that the issues involved a core proceeding, but Wolfe argued that the bankruptcy court was without jurisdiction to hold a jury trial.Judge McGuire disagreed, and ruled that the bankruptcy court could hold a jury trial in a core proceeding.This appeal by Wolfe followed.²

Satelco.Satelco, debtor, has filed numerous adversary proceedings, seeking to recover amounts owed by 19 companies for long distance telephone service provided by Satelco before it filed for Chapter 11 relief.The bankruptcy court raised, sua sponte, the question of its jurisdiction to hear and finally adjudicate a dispute which was based solely "upon state contract law."Judge Abramson found that he had no jurisdiction over these collection suits, and granted the parties leave to move to "abate these proceedings pending a determination from an appropriate state law forum."Satelco moved in the district court for a withdrawal of the reference of these 19 separate adversary proceedings to the bankruptcy court.

M & E Contractors.M & E contractors, debtor, filed a complaint to recover a debt from a subcontractor.The subcontractor counterclaimed for damages, alleging breach of contract and negligence, and made a timely demand for a jury trial.However, in another adversary proceeding involving M & E Contractors, Judge Abramson held that the bankruptcy court was "without power to conduct jury trials," even in core proceedings.The subcontractor thus moved to withdraw the reference of this adversary proceeding.

II.The Act

Bankruptcy courts, of course, do not have the constitutional characteristics of Article III courts; instead, they exercise power delegated from the federal district courts under the Bankruptcy Amendments Act.That Act was "designed to narrow the delegation of authority to bankruptcy judges — that had resulted in invalidation of portions of the former bankruptcy regime — by, inter alia, authorizing the district courts to exercise all bankruptcy jurisdiction."Holland America Ins. Co. v. Succession of Roy,777 F.2d 992, 998(5th Cir.1985)(Jones, J.).The district courts, in turn, refer to the bankruptcy courts "any or all proceedings arising under Title 11 or arising in or related to a case under Title 11:" 28 U.S.C. 157(a).Regardless of this blanket reference,³the district court may "for cause shown" withdraw, in whole or in part, any matter that should be decided in the district court.See id. at 157(d);see alsoCarlton v. BAWW, Inc.,751 F.2d 781, 787-88(5th Cir.1985).

The language of the Act, however, is very broad.Indeed, it is possible to construe some of the provisions to permit a bankruptcy court to exercise jurisdiction even over claims which rest solely in issues of state law, like the adversary proceedings in Satelco and M & E Contractors.See, e.g.,28 U.S.C. 157(b)(2)(O)(other proceedings "affecting the liquidation of assets of the estate");but seeIn re George Woloch Co., Inc.,49 B.R. 68(E.D.Pa.1985)(sweeping interpretation not mandated by Congress).The breadth of the Act's language has led to substantial confusion concerning the jurisdictional provisions of § 157(b).See, e.g., M & E Contractors, slip op.at 4-9(citing numerous cases).And, this confusion has resulted in a split of authority between the bankruptcy judges of this division as to their jurisdictional limits and their ability to conduct jury trials in core proceedings.

III.The state law claims

Central to this opinion — and to the confusion discussed by both bankruptcy judges — is a determination of the scope and meaning of Northern Pipeline Construction Co. v. Marathon Pipe Line Co.,458 U.S. 50, 102 S.Ct. 2858, 73 L.Ed.2d 598(1982).Although the Marathon plurality struck down the entire bankruptcy act because it "removed most, if not all, of `the essential attributes of the judicial power' from the Art. III district court, and . . . vested those attributes in a non-Art. III adjunct,"id. at 87, 102 S.Ct. at 2880, other members of the Court limited the opinion's potentially broad holding.Justices Rehnquist and O'Connor, concurring, and Chief Justice Burger, dissenting, reasoned that:

". . . the Court\'s holding is limited to the proposition stated by Justice Rehnquist . . . that a `traditional\' state common-law action, not made subject to a federal rule of decision, and related only peripherally to an adjudication of bankruptcy under federal law, must, absent the consent of the litigants, be heard by an `Art. III court\' if it is to be heard by any court or agency of the United States."

Id. at 92, 102 S.Ct. at 2882(Burger, C.J., dissenting).The Court's most recent decision involving Marathon solidified this construction; in Thomas v. Union Carbide Agricultural Products Co.,473 U.S. 568, 105 S.Ct. 3325, 87 L.Ed.2d 409(1985), Justice O'Connor, in an opinion joined by each Justice, stated that:

"The Court\'s holding in that caseMarathon establishes only that Congress may not vest in a non-Article III court the power to adjudicate, render final judgment, and issue binding orders in a traditional contract action arising under state law, without consent of the litigants, and subject only to ordinary appellate review."

Id. at ___, 105 S.Ct. at 3334-35.The Supreme Court, then, has itself limited the scope of Marathon.

This recognition of Marathon's narrowed holding comes as little surprise in this circuit, which has consistently assumed that Marathon's scope was limited.See, e.g., Braniff Airways, Inc. v. Civil Aeronautics Board,700 F.2d 214(5th Cir.1983);In re Davis,730 F.2d 176, 182(5th Cir.1984)("This circuit . . . has refused to accordMarathon the broad sweep urged by petitioners");United States v. Westside Bank,732 F.2d 1258, 1264 n. 18(5th Cir.1984);Mitsubishi Int'l Corp. v. Clark Pipe & Supply,735 F.2d 160, 162(5th Cir.1984);Holland America Ins. Co. v. Succession of Roy,777 F.2d 992, 998(5th Cir.1985)(bankruptcy courts have no jurisdiction "over adversary proceedings that do not intimately involve the debtor-creditor relationship and rest solely in issues of state law").Other circuits have reached similar conclusions.⁴

However, this narrow interpretation of Marathon mandate cannot enlarge the jurisdiction of the bankruptcy courts beyond the constitutional limits of Article III.This causes difficulty because certain provisions of the Act are so broad that their terms seem to encompass "traditional" common law actions based solely upon state law.⁵Specifically, the two "catch-all"sections, 28 U.S.C. 157(b)(2)(A) and (O) could, arguably, be read to include the collection suits and contract claims presented in Satelco and in M & E Contractors — (A) provides that "matters concerning the administration of the estate" are core matters, and (O) provides that "other proceedings affecting the liquidation of the assets of the estate" are core proceedings.

Judge Abramson, in M & E Contractors v. Rodgers, CA 3-85-0477-R (Jan. 2, 1985), raised "serious concerns about the constitutionality" of the second catch-all clause, but felt constrained from addressing this problem because of the limited nature of this Court's remand in that case.Seeid. at 27,...