Burley, In re

• Decision Date: 26 July 1984
• Docket Number: No. 83-5565,83-5565
• Citation: 738 F.2d 981
• Parties: 10 Collier Bankr.Cas.2d 1339, Bankr. L. Rep. P 69,923 In re James A. BURLEY and Elsie M. Burley, Debtors. B.H. BRINEY and Lucile Briney, Creditors/Appellees, v. James A. BURLEY and Elsie M. Burley, Debtors/Appellants.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 981

738 F.2d 981

10 Collier Bankr.Cas.2d 1339, Bankr. L. Rep. P 69,923

In re James A. BURLEY and Elsie M. Burley, Debtors B.H. BRINEY and Lucile Briney, Creditors/Appellees, v. James A. BURLEY and Elsie M. Burley, Debtors/Appellants.

No. 83-5565.

United States Court of Appeals Ninth Circuit.

Argued and Submitted Jan. 4, 1984.

Decided July 3, 1984.

As Amended July 26, 1984.

Yale Harlow, Pomona, Cal., for creditors/appellees.

Richard Levin, Stutman, Treister & Glatt, Los Angeles, Cal., for debtors/appellants.

Appeal from the Bankruptcy Appellate Panel.

Before CHOY, FARRIS, and NORRIS, Circuit Judges.

FARRIS, Circuit Judge:

Burley appeals from a decision of the bankruptcy appellate panel (BAP). The BAP reversed the bankruptcy court's denial of a creditor's Fed.R.Civ.P. 60(b) motion to set aside the discharge of Burley's debts.

Burley contends that the BAP decision is invalid: (1) because the BAP was rendered unconstitutional by the Supreme Court's decision in Northern Pipeline Const. Co. v. Marathon Pipe Line Co., 458 U.S. 50, 102 S.Ct. 2858, 73 L.Ed.2d 598 (1982); and (2) because the BAP did not apply the correct standard of review.

We hold that the BAP may issue decisions in all cases in which the order of the bankruptcy court was entered before entry of the mandate in Marathon. We reverse the BAP's decision setting aside the bankruptcy court's denial of the Rule 60(b) motion, however, because the court's order did not constitute an abuse of discretion. ¹

I The Constitutionality of the BAP

In Northern Pipeline Const. Co. v. Marathon Pipe Line Co., 458 U.S. 50, 102 S.Ct. 2858, 73 L.Ed.2d 598 (1982), the Supreme Court invalidated the trial court jurisdiction accorded bankruptcy judges by the Bankruptcy Reform Act of 1978. The bankruptcy judges' powers violated the Constitution, the Court held, because bankruptcy judges exercised the judicial power of the United States under Article III of the Constitution, but were not afforded the tenure and salary protections required by Article III. Id. at 53, 87, 102 S.Ct. at 2862, 2880. The Court held that Congress could not accord an Article I court jurisdiction over the type of claim involved in Marathon --a state law action by the bankruptcy trustee that was not integral to the core bankruptcy function of restructuring debtor-creditor rights. Id. at 71-72, 90-91, 102 S.Ct. at 2871-2872, 2881-2882. The Court also held that bankruptcy judges did not function as true adjuncts of Article III courts because Article III courts exercised too little control over their activities, and because Article III courts did not control closely enough the final decision in matters submitted to bankruptcy judges. Id. at 82-87, 102 S.Ct. at 2877-2880.

To prevent undue disruption, the Court held that the Marathon decision would not apply to judgments entered by bankruptcy judges before October 4, 1982. Id. at 88, 102 S.Ct. at 2880. The Court later extended this stay to December 24, 1982. 459 U.S. 813, 103 S.Ct. 199-200, 662, 74 L.Ed.2d 160 (1982).

The present case concerns the effect of the Marathon decision on the appellate functions of bankruptcy judges under the 1978 Act. The Act provides that a party may appeal an adverse ruling of a bankruptcy judge to the district court. 28 U.S.C. Sec. 1334. The judicial council of a court of appeals, however, may order that appeals from bankruptcy courts be decided by a bankruptcy appellate panel comprised of three bankruptcy judges, instead of by the district court. 28 U.S.C. Secs. 160, 1482. The Ninth Circuit council established a BAP to hear appeals from selected districts, including the district from which the current appeal arises. Following the Marathon decision, the Ninth Circuit council directed the BAP to decide only those cases in which judgment was entered by the bankruptcy court before December 24, 1982. The order appealed from here was entered by the bankruptcy court on May 28, 1981. The decision of the BAP was entered on December 28, 1982, after the stay in Marathon expired.

Burley contends that the bankruptcy judges' authority to enter appellate decisions expired on December 24, 1982 along with their authority to enter trial decisions. We do not agree.

A. Did Marathon Remove Jurisdiction from the BAP?

Burley first contends that Marathon directly invalidated the statutory provision establishing the jurisdiction of the BAP.

The jurisdiction of the BAP is established by 28 U.S.C. Sec. 1482. Section 1482 is part of section 241(a) of the Bankruptcy Act of 1978. Burley argues that Marathon struck down all of section 241(a). We disagree. Instead, we agree with all other circuits that have addressed the issue that Marathon struck down only the trial court jurisdiction of the bankruptcy judges in 28 U.S.C. Sec. 1471(c). See Salomon v. Kaiser, 722 F.2d 1574 (2d Cir.1983); Coastal Steel Corp. v. Tilghman Wheelabrator Ltd., 709 F.2d 190, 200 (3d Cir.), cert. denied, --- U.S. ----, 104 S.Ct. 349, 78 L.Ed.2d 315 (1983); White Motors Corp. v. Citibank, 704 F.2d 254, 259-61 (6th Cir.1983); In re Hansen, 702 F.2d 728, 729 (8th Cir.1983), cert. denied, --- U.S. ----, 103 S.Ct. 3539, 77 L.Ed.2d 1389 (1983); In re Braniff Airways, Inc., 700 F.2d 214, 215 (5th Cir.), cert. denied, --- U.S. ----, 103 S.Ct. 2122, 77 L.Ed.2d 1302 (1983).

A BAP may decide only those appeals involving judgments entered before the stay in Marathon expired. Section 1482 affords the BAP jurisdiction over appeals from judgments and orders entered by bankruptcy judges. Because the bankruptcy judges lost all statutory power to enter such orders and judgments after December 24, 1982, the BAP has no jurisdiction to decide appeals from judgments entered after that date. Judgments and orders entered by bankruptcy judges after that date under the Emergency Rule are entered on behalf of the district court and, as such, are not appealable to the BAP under section 1482. ²

B. Does the Logic of Marathon Render the BAP Unconstitutional?

Burley next argues that the logic, if not the direct holding, of Marathon prevents the BAP from entering decisions after the stay expired. Burley cites the following language in Marathon for the proposition that Article III applies at the appellate as well as the trial level.

Our precedents make it clear that the constitutional requirements for the exercise of the judicial power must be met at all stages of adjudication, and not only on appeal ....

458 U.S. at 86 n. 39, 102 S.Ct. at 2879 n. 39. He argues that the BAP, to function lawfully, must thus be comprised of Article III judges.

Burley's argument is supported by the decision of the First Circuit BAP in In re Dartmouth House Nursing Home, Inc., 30 B.R. 56 (Bankr.App. 1st Cir.1983), aff'd on other grounds, 726 F.2d 26 (1st Cir.1984). ³ That case held that under Marathon a BAP could not enter decisions after December 24, 1982. Dartmouth House adopted the logic that because the BAP judges were not appointed under Article III and because the Article III requirements apply at the appellate level, the BAP is unconstitutional.

It is obvious that if Congress cannot constitutionally establish non-Article III courts to exercise jurisdiction over the wide range of issues encompassed by section 1471 at the trial level, than it cannot establish non-Article III courts to hear the same issues at the appellate level.

30 B.R. at 62.

We disagree with the BAP decision in Dartmouth House because its reasoning omitted an important step. Marathon stated that non-Article III officers may constitutionally perform judicial functions so long as an Article III judge retains the "essential attributes of the judicial power." See 458 U.S. at 80-81, 102 S.Ct. at 2876-2877. The role of the BAP in the appellate process is constitutional because the court of appeals retains those "essential attributes...."

Marathon did not discuss what role a non-Article III officer could play in the appellate process or, more specifically, whether the role of the BAP is consistent with Article III.

Marathon did hold that the right to appeal a bankruptcy judge's order to an Article III court does not cure the constitutional problems created by the broad jurisdiction accorded the bankruptcy judges. The Court noted that the bankruptcy judges' power to make findings of fact is a key judicial function, and that the power of a court to set aside those findings on appeal is limited under the clearly erroneous standard of review. The Court concluded that the district court does not retain the "essential attributes of the judicial power," because it does not have sufficient control over the ultimate decision. See id. at 84-86 & n. 39, 102 S.Ct. at 2878-2879 & n. 39.

Article III judges may, however, overturn appellate decisions of a BAP more freely than they may overturn trial decisions of a bankruptcy judge. Both the BAP and the court of appeals review all questions of law de novo and all findings of fact under the clearly erroneous standard. See id. at 55 n. 5, 102 S.Ct. at 2863 n. 5. Because the court of appeals and the BAP apply the same standard of review to the underlying judgment, the court of appeals effectively reviews the decisions of the BAP de novo. See In re Mistura, 705 F.2d 1496, 1497 (9th Cir.1983). This close review contrasts sharply with the deference for bankruptcy judges' findings of fact that Marathon found fatal.

We conclude that the BAP is constitutional under United States v. Raddatz, 447 U.S. 667, 100 S.Ct. 2406, 65 L.Ed.2d 424 (1980), as an adjunct to the court of appeals. Raddatz, cited with approval in Marathon, upheld the provisions of the Federal Magistrates Act authorizing district judges to refer to magistrates motions to suppress evidence. The Court held that the Magistrates Act did not violate Article III because a magistrate makes only a recommendation that is reviewed de novo by a district judge. The district judge therefore makes the final decision. Because the court of appeals reviews the...