Arnold Printworks, Inc. v. Apkin
| Decision Date | 03 June 1986 |
| Docket Number | Bankruptcy No. 4-81-00532-G,Appeal No. 85-0482-F. |
| Citation | 61 BR 520 |
| Court | U.S. District Court — District of Massachusetts |
| Parties | In re ARNOLD PRINTWORKS, INC., Appellant, v. Joseph APKIN and William Apkin, d.b.a. George Apkin & Sons, Appellees. |
Philip Hendel, Hendel, Collins & Stocks, Springfield, Mass., for appellant.
Robert C. Ware, Freedman, DeRosa & Rondeau, North Adams, Mass., for appellees.
This appeal from a final order of the Bankruptcy Court, 54 B.R. 562, which declined to abstain in action by debtor in possession to recover account receivable. The District Court, Freedman, J., held that: (1) action was a noncore matter, but (2) bankruptcy court should have abstained.
On June 26, 1981 appellant/debtor ("debtor") filed a petition in bankruptcy court seeking protection under Chapter 11 of the Bankruptcy Code, 11 U.S.C. §§ 1101 et seq. Debtor has continued to manage its property as a debtor-in-possession since that time.
Appellees/defendants ("defendants") operate a salvage and scrap metal company. In 1984 they entered into several transactions with debtor in which defendants purchased copper rollers previously used in debtor's business. The copper rollers were then resold to a smelting company for reprocessing.
In April or May of 1984, as part of its ongoing efforts to liquidate the remaining assets of its Chapter 11 estate, debtor, through its co-liquidating and disbursing agent, sold and subsequently delivered to defendants a quantity of rollers represented to be made of copper. Defendants transported the rollers to a smelting plant for refining. Defendants allege that during the refining process, it became apparent that the rollers were not pure copper. The presence of other substances in the rollers caused damage to the smelting company's equipment. The smelting company withheld a sum from amounts due to defendants to compensate for the damage.
As of June 17, 1984 there remained an outstanding balance due from defendants of $20,485.60. On June 18, 1984 defendants paid debtor $10,997.40 but refused to pay the remaining balance of $9,448.20, deducting this amount as compensation for the losses incurred as a result of the impure rollers.
On April 8, 1985 debtor filed a Complaint to Compel Turnover in the bankruptcy court to recover $9,488.20 from defendants. Defendants filed an answer setting forth a general denial and raising the affirmative defenses of misrepresentation and breaches of contract and warranty. Defendants also filed a motion to dismiss or for abstention and made a timely demand for a jury trial on all issues.
Bankruptcy Judge Glennon conducted a pretrial conference and hearing on defendants' motions on May 2, 1985. The judge entered a Memorandum and Order on November 6, 1985 holding that the proceeding before him was not a core matter, but merely one related to the Chapter 11 proceedings, 54 BR 562. The Judge nevertheless refused to dismiss the complaint or to abstain and denied defendants' request for a jury trial. Instead, Judge Glennon held that the bankruptcy court would administer the related proceeding, conduct a non-jury trial on the complaint and submit proposed findings of fact and conclusions of law to the district court for the entry of final judgment.
The bankruptcy judge's determination that this case involved a non-core matter involves a question of law over which this court has plenary appellate review power. 28 U.S.C. § 158. See Local 369, Utility Workers Union of America, AFL-CIO v. Boston Edison Co., 588 F.Supp. 800, 806 (D.Mass.1984), aff'd 725 F.2d 1 (1st Cir.1984).
The starting point in understanding the present statutory scheme of core and non-core matters as it pertains to this case is Northern Pipeline v. Marathon Pipe Line, Co., 458 U.S. 50, 102 S.Ct. 2858, 73 L.Ed.2d 598 (1982). Before the Marathon Court was the question of whether the 1978 Bankruptcy Act, Pub.L. 95-598, 92 Stat. 2549 (effective October 1, 1979), unconstitutionally vested judicial functions in non-article III judges.
The facts in Marathon can be simply stated. Northern Pipeline filed a petition for reorganization in the bankruptcy court in January 1980. In March of that year, Northern initiated a suit in the bankruptcy court against Marathon Pipe Line for breaches of contract and warranty, misrepresentation, coercion and duress. Marathon moved in the bankruptcy court to dismiss on the ground that the delegation of authority to the bankruptcy court to adjudicate the matter was contrary to article III of the Constitution. The district court reversed the bankruptcy court's denial.
After rejecting the possibility that the 1978 Act should be construed as creating legislative courts, 458 U.S. 63-76, 102 S.Ct. at 2867, 2874, the plurality considered whether the bankruptcy courts were "merely an `adjunct' to the district court," seized with the ability to make factfinding without adjudicating "private rights." Id. at 77, 102 S.Ct. at 2874. The plurality accepted the validity of Congress' power to bestow factfinding powers to an adjunct only insofar as the rights being so adjudicating are created by federal statutes. Nevertheless, state-created rights, such as those asserted by Northern Pipeline, could not, the Court held, be finally adjudicated by a non-article III court.
The concurring opinion of Justice Rehnquist joined by Justice O'Connor, rested on somewhat narrower grounds than the plurality. Justice Rehnquist indicated he would hold that "so much of the Bankruptcy Act of 1978 as enables a bankruptcy court to entertain and decide Northern's lawsuit over Marathon's objection to be violative of Article III of the United States Constitution." Id. at 91, 102 S.Ct. at 2881. Justice Rehnquist's terse reasoning is notable:
From the record before us, the lawsuit in which Marathon was named defendant seeks damages for breach of contract, misrepresentation, and other counts which are the stuff of the traditional acts at common law tried by the courts at Westminister in 1789. There is apparently no federal rule of decision provided for any of the issues in the lawsuit; the claims of Northern arise entirely under state law. No method of adjudication is hinted, other than the traditional common-law mode of judge and jury. The lawsuit is before the Bankruptcy Court only because the plaintiff has previously filed a petition for reorganization in that court.
Both the plurality and concurring opinions rejected the view that as long as "some degree of appellate review" of the bankruptcy orders was provided, article III concerns are satisfied. Id. 86 n. 39, 102 S.Ct. at 2879 n. 39 (Brennan, J. plurality opinion); Id. at 91, 102 S.Ct. at 2881 (Rehnquist, J., concurring).
In response to Marathon's invalidation of the 1978 Bankruptcy Act, Congress enacted the Bankruptcy Amendments and Federal Judgeship Act of 1984, Pub.L. 98-353, 98 Stat. 333 codified at 28 U.S.C. §§ 151 et seq.1 Of particular interest is the distinction, found in 28 U.S.C. § 157,2 between core and non-core proceedings, the purpose for which was to remedy the constitutional defects found to exist in the 1978 Act.
Under Section 157(b), bankruptcy judges are empowered to "hear and determine" all core proceedings arising under title 11 or arising in a case under title 11, and to enter "appropriate orders and judgments" subject to district court review. No explicit definition of "core proceedings" is provided; however, the statute does contain a non-exhaustive list of fifteen illustrated core proceedings. Of interest in this case are "(A) matters concerning the administration of the estate"; "(E) orders to turn over property of the estate"; and "(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."
A bankruptcy court's power with respect to non-core proceedings, "that is one otherwise related to a case under title 11," is rather more limited. Under section 157(c), a bankruptcy judge can only submit proposed findings of fact and conclusions of law subject to de novo review by the district court.3
The statute is also silent as to a clear definition of a related or non-core proceeding. Discovering such a definition is crucial because Congress attempted to meet the Marathon Court's constitutional concerns primarily by adopting the core/non-core dichotomy.
Generally, according to Collier, in light of Marathon and the legislative history of the 1984 Act, the term "related proceedings" should refer to two situations: (1) causes of action owned by a debtor that became property of the estate under section 541; and (2) suits between third parties which affect the administration of the title 11 case. Collier, ¶ 3.011civ. Underlying these two situations is the theoretical justification that Id.4
The courts that have considered the question of whether a debtor-in-possession's contract action is a core or non-core matter have yielded a decisive split. In several cases,5 bankruptcy courts have adopted a very expansive definition of "core proceedings." Such a reading would support core status for the instant case, treating it as an action concerning the administration of an estate, 28 U.S.C. § 157(b)(2)(A); one to turn over property of the estate of a proceeding, 28 U.S.C. § 157(b)(2)(E); or one "affecting the liquidation of the assets of the estate," 28 U.S.C. § 157(b)(2)(O). On the other hand, in another line of cases,6 bankruptcy courts have adopted a narrow construction of what can fit within the ambit of...
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