Boise City Farmers Co-op. v. Palmer

• Decision Date: 27 December 1985
• Docket Number: No. 83-2248,83-2248
• Citation: 780 F.2d 860
• Parties: , Bankr. L. Rep. P 70,905 BOISE CITY FARMERS COOPERATIVE, Plaintiff-Appellant, v. Jim PALMER, et al., Defendants-Appellees.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 860

780 F.2d 860

14 Bankr.Ct.Dec. 176, Bankr. L. Rep. P 70,905

BOISE CITY FARMERS COOPERATIVE, Plaintiff-Appellant, v. Jim PALMER, et al., Defendants-Appellees.

No. 83-2248.

United States Court of Appeals Tenth Circuit.

Dec. 27, 1985.

G. Blaine Schwabe, II, of Mock, Schwabe, Waldo, Elder, Reeves & Bryant, Oklahoma City, Okl. (Stanley Ed Manske, of Loofbourrow, Loofbourrow & Manske, Boise City, Okl. with him on the brief), for plaintiff-appellant.

Richard E. Coulson, of Rainey, Ross, Rice & Binns, Oklahoma City, Okl. (Jim W. Lee, of Lee, Beuch & Davis, Oklahoma City, Okl., with him on the brief), for defendants-appellees.

Before BARRETT and LOGAN, Circuit Judges, and BALDOCK ^*, District Judge.

BARRETT, Circuit Judge.

Boise City Farmers' Cooperative (Boise City) appeals from a final order of the District Court for the Western District of Oklahoma, dismissing an adversary proceeding brought by Boise City in the Bankruptcy Court for the Western District of Oklahoma, against its former directors, Jim Palmer, E.H. Allen, Gorden Folkers, Roy Baker, and Guy Ottinger (Directors), appellees herein. Boise City initiated the adversary proceeding based upon an Oklahoma state claim imposing statutory liability on corporate directors, such as defendants-appellees, under certain circumstances. The bankruptcy court entered an interlocutory order which included a ruling upholding its jurisdiction to hear the case under 28 U.S.C. Sec. 1471. The district court granted Directors' motion for leave to appeal the bankruptcy court's interlocutory order on jurisdiction, and thereafter dismissed the adversary proceeding without prejudice on the ground that neither it nor the bankruptcy court had jurisdiction over the subject matter of the proceeding. It is from this order of the district court that Boise City appeals.

I. FACTS

Appellant Boise City Farmers' Cooperative is a grain storage marketing cooperative serving the Oklahoma and Texas panhandles. On February 4, 1980, Boise City filed a voluntary petition in the United States Bankruptcy Court for the Western District of Oklahoma, seeking reorganization under Chapter 11, Title 11 of the United States Code. On May 30, 1980, the bankruptcy court confirmed Boise City's reorganization plan pursuant to Chapter 11.

On October 22, 1980, the newly reorganized Boise City commenced an adversary proceeding in the bankruptcy court against its former directors, independent of its original Chapter 11 reorganization proceeding. Boise City's claim was a state law claim arising under section 431, Title 18 of the Oklahoma statutes, which provides in relevant part as follows: "If the indebtedness of a corporation [cooperative] shall at any time exceed the amount of its subscribed capital stock and surplus, the directors ascending thereto are personally and individually liable to such excess to the creditors." Okla.Stat. tit. 18, Sec. 431 (1951). Jim Palmer, E.H. Allen, Gorden Folkers Roy Baker and Guy Ottinger were members of the board of directors of Boise City prior to the filing of the bankruptcy petition of February 4, 1980, and were named as defendants. Boise City maintains that the Chapter 11 reorganization plan assigned to it all the claims of the creditors in existence prior to its filing Chapter 11 bankruptcy. Boise City argues that among the claims assigned to it was the creditors' right to hold Directors personally liable for violating section 431, Title 18 of the Oklahoma statutes.

Directors responded to the adversary proceeding by challenging the jurisdiction of the bankruptcy court under 28 U.S.C. Sec. 1471. In addition, Directors requested that the bankruptcy court abstain, considering the uniqueness of the assignment question under Oklahoma law. On March 24, 1982, the bankruptcy court entered an order in which it expressed doubt about its own jurisdiction, but assuming jurisdiction, the court decided to abstain. On May 24, 1982, however, the bankruptcy court vacated its order of March 24, 1982, and informed the parties that it would exercise jurisdiction in the adversary proceeding.

On August 31, 1982, the bankruptcy court entered its Memorandum Order and, among other things, denied Directors' motion to dismiss for lack of subject matter jurisdiction; refused to certify a question to the Oklahoma Supreme Court regarding the Oklahoma directors' liability statute; and disposed of Directors' motion to dismiss for failure to state a claim (finding that the creditors' claim under Sec. 431 was assignable under Oklahoma law).

The portion of the bankruptcy court's August 31, 1982, Memorandum Order, to the extent pertinent to the subject matter jurisdiction issue, stated:

Plaintiff claims that, under the terms of the reorganization plan, any rights which the debtor's creditors may have had against the debtor's former directors under the above-quoted statute [18 Okla. stat. Sec. 431 (1971) ] were assigned to the reorganized debtor. This Court believes that this action is sufficiently related to the debtor's bankruptcy case so as to confer jurisdiction upon this Court under 28 U.S.C.A. Sec. 1471. Defendants' motion to dismiss for lack of subject matter jurisdiction is therefore denied.

(R. Vol. I, p. 5). It is important to note that the bankruptcy court's order regarding subject matter jurisdiction did not depend upon a finding that the Oklahoma state law claim was in fact assigned to Boise City. Rather, the bankruptcy court found that it had jurisdiction assuming that an assignment of claims had taken place. Accordingly, the bankruptcy court's August 31, 1982, ruling on jurisdiction did not reach the merits of the adversary proceeding. It was only with respect to the motion to dismiss for failure to state a claim that the assignment issue was addressed by the bankruptcy court.

On November 17, 1982, the district court granted Directors' application for leave to appeal the bankruptcy court's interlocutory order for the purpose of reviewing the question of whether or not the bankruptcy court had jurisdiction over the subject matter as contemplated by its Memorandum Order of August 31, 1982. (R.Vol. I, p. 25.) Oral arguments were held on June 16, 1983, and August 25, 1983. The district court entered the following Order on August 25, 1983:

[T]his Court finds that the claims that formed the basis of the Adversary Proceeding in question herein were not assigned from the creditors of the debtor to the reorganized debtor. The adversary claim attempted to be pursued by plaintiff does not arise in or relate to a case under Title XI, U.S.C., as required by 28 U.S.C. Sec. 1471(b). Neither this Court nor the Bankruptcy Court for the Western District of Oklahoma have jurisdiction over the adversary claim and that claim should be dismissed without prejudice to the refiling of the claim in a court of proper jurisdiction.

IT IS THEREFORE ORDERED, ADJUDGED AND DECREED that the claims that form the basis of the adversary proceeding in question herein were never assigned from the creditors of the debtor to the reorganized debtor, the adversary claim does not arise in or relate to a case under Title 11, U.S.C., as required by 28 U.S.C. Sec. 1471(b), and neither this Court nor the Bankruptcy Court for the Western District of Oklahoma has jurisdiction of the adversary claim of plaintiff. That claim is hereby dismissed without prejudice to its being refiled in a court of proper jurisdiction.

(R.Vol. I, p. 219.)

The district court, in its Order of August 25, 1983, found that "neither this Court nor the Bankruptcy Court for the Western District of Oklahoma has jurisdiction over the adversary claim of plaintiff," because there was no assignment of the creditors' liability claim against Directors to Boise City under the reorganization plan. Because there was no assignment, there was no claim which arose in or was related to a case under Title 11, of the United States Code as required by 28 U.S.C. Sec. 1471. (R.Vol. I, p. 219.)

Among other things, the parties ask us to review the district court's ruling that neither it nor the bankruptcy court had subject matter jurisdiction over the case in light of the Supreme Court's decision in Northern Pipeline Construction Company v. Marathon Pipeline Company, 458 U.S. 50, 102 S.Ct. 2858, 73 L.Ed.2d 598 (1982). In reviewing the district court's ruling in light of Northern Pipeline, we will consider the following issues: (1) the applicability, if any, of Northern Pipeline at the time the bankruptcy court entered its interlocutory order; (2) the effect of Northern Pipeline on the district court's jurisdiction to hear the interlocutory appeal; (3) the applicability of Northern Pipeline at the time the district court entered its order; and (4) the effect of Northern Pipeline on the bankruptcy court's order. Our consideration of these issues will lead us to hold that (1) Northern Pipeline was not applicable at the time the bankruptcy court entered its interlocutory order; (2) the district court retained both original and appellate jurisdiction under Northern Pipeline; (3) Northern Pipeline was the governing law and applied to the district court's review of the bankruptcy court's interlocutory order; and (4) the bankruptcy court did not have jurisdiction over the adversary proceeding after December 24, 1982 because the proceeding was not sufficiently related to the bankruptcy action under Northern Pipeline.

II. THE BANKRUPTCY COURT'S JURISDICTION

In a plurality opinion, the Supreme Court in Northern Pipeline held, "that 28 U.S.C. Sec. 1471 (1976 ed., Supp. IV), as added by Sec. 241(a) of the Bankruptcy Act of 1978, has impermissibly removed most, if not all, of 'the essential attributes of the judicial power' from the Art. III district court, and has vested those attributes in a non-Art. III adjunct. Such a grant of jurisdiction cannot be sustained as an exercise of Congress' power to create adjuncts to Art. III courts." 458 U.S. at 87, 102 S.Ct. at 2880. The...