Castlerock Properties, In re

Decision Date23 January 1986
Docket NumberNo. 85-1514,85-1514
Citation781 F.2d 159
Parties15 Collier Bankr.Cas.2d 20, 14 Bankr.Ct.Dec. 322, Bankr. L. Rep. P 70,970 In re CASTLEROCK PROPERTIES, Debtor. PIOMBO CORPORATION, a California Corporation, Plaintiff-Appellee, v. CASTLEROCK PROPERTIES, a California limited partnership, Defendant-Appellant.
CourtU.S. Court of Appeals — Ninth Circuit

Robert A. Julian, Murphy, Weir, & Butler, San Francisco, Deborah S. Ballati, Farello, Braun & Martel, Cal., for plaintiff-appellee.

Christopher G. Costin, Misuraca, Beyers, & Costin, Santa Rosa, Cal., for defendant-appellant.

Micheal D. Dempsey, Finley, Kumble, Wagner, Heine, Underberg, Manley & Casey, Beverly Hills, Cal., for intervenor.

Appeal from the United States District Court for the Northern District of California.

Before SKOPIL, FLETCHER, and WIGGINS, Circuit Judges.

FLETCHER, Circuit Judge:

This is an appeal from an order of the district court vacating a bankruptcy court judgment and vacating a stay of California state court proceedings. The order stated that the bankruptcy court did not have jurisdiction to determine appellant Castlerock Properties' counterclaims. We affirm.


Castlerock filed a Chapter 11 proceeding in bankruptcy court, thereby automatically staying a state court contract action involving Castlerock and Piombo. Piombo filed for relief from the automatic stay. Castlerock filed an answer incorporating state law contract counterclaims against Piombo. The bankruptcy judge elected to try the counterclaims but did not enter an order denying the relief from stay.

Although Piombo conceded subject matter jurisdiction, it moved to dismiss or sever the counterclaims questioning the propriety of deciding the counterclaims in a relief from stay proceeding. When the motion was denied, Piombo filed an answer to the counterclaims, and later filed a Proof of Secured Claim in the bankruptcy.

Piombo continued to object to trying the counterclaims in a relief from stay proceeding, but moved in the alternative to be allowed to bring its own counterclaim. The bankruptcy court denied both alternatives.

At the pretrial conference, Piombo objected to the bankruptcy court's jurisdiction, citing Northern Pipeline Construction Co. v. Marathon Pipe Line Co., 458 U.S. 50, 102 S.Ct. 2858, 73 L.Ed.2d 598 (1982) (Marathon ), which had been decided in the interim. 1 Piombo then moved the district court to withdraw its reference to the bankruptcy court, arguing that the jurisdiction of the court over the state law claims was unconstitutional. This motion was summarily denied. The bankruptcy court then tried the relief of stay issue and Castlerock's contract counterclaims against Piombo and entered judgment for Castlerock.

The district court vacated the judgment on stipulation of the parties in order to determine whether the bankruptcy court could properly enter judgment. Piombo filed a motion for trial de novo; Castlerock filed a cross-motion for entry of judgment. After hearing, the district court entered its order holding that the bankruptcy court did not have jurisdiction to determine the substantive issues and vacating the automatic stay. Castlerock timely appealed.


After the Supreme Court removed jurisdiction from the bankruptcy courts, see Marathon, 458 U.S. 50, 87, 102 S.Ct. 2858, 2880, the Judicial Council of the United States approved a model "Emergency Rule" that might be adopted by district courts for use upon the expiration of the stay in Marathon until Congress enacted remedial legislation. Lucas v. Thomas (In re Thomas), 765 F.2d 926, 928 n. 2 (9th Cir.1985). When the Marathon stay expired in December 1982, all the district courts in the Ninth Circuit adopted the model rule, some with minor variations. Id. Northern District General Order 24 [Emergency Rule] went into effect on December 24, 1982.

While this case was pending before the district court, the President signed into law the "Bankruptcy Amendments and Federal Judgeship Act of 1984" (1984 Act). Section 122 of the law provided that it would "take effect" on the date of enactment [July 10, 1984], P.L. 98-353 Sec. 122(a), with exceptions for certain provisions that would not apply to pending cases. Id. Sec. 122(b). The implication is that the balance of the act does apply to cases pending on July 10, 1984. However, the parties appear to be in some doubt as to whether this court should apply the 1984 Act or the Emergency Rule.

Absent manifest injustice or congressional intent to the contrary, we generally apply the law as it exists at the time the decision is rendered. Rubin v. Belo Broadcasting Corp., (In re Rubin), 769 F.2d 611, 614 (9th Cir.1985). Thus, we have applied the 1984 Act to cases pending on July 10, 1984. Id. at 615 n. 4. Other circuits have done the same. In re Amatex Corp., 755 F.2d 1034, 1037 (3d Cir.1985); Carlton v. Baww, Inc., 751 F.2d 781, 787 n. 6 (5th Cir.1985); Creasy v. Coleman Furniture Corp., 763 F.2d 656, 659-60 (4th Cir.1985). We apply the 1984 Act in this case.


The district court's order stated that the bankruptcy court did not have jurisdiction to "determine" Castlerock's state law claim against Piombo. We read this to mean simply that the bankruptcy court could not properly enter judgment. Thus, the question on appeal is whether, under the 1984 Act, the bankruptcy court had jurisdiction to enter final judgment on Castlerock's state law counterclaims. We review questions of jurisdiction de novo. South Delta Water Agency v. U.S. Dept. of Interior, 767 F.2d 531, 535 (9th Cir.1985).

The role of the bankruptcy court under the 1984 Act is succinctly described in Production Steel, Inc. v. Bethlehem Steel Corp. (In re Production Steel, Inc.), 48 B.R. 841 (M.D.Tenn.1985).

In noncore matters, the bankruptcy court acts as an adjunct to the district court, in a fashion similar to that of a magistrate or special master. In noncore matters, the bankruptcy court may not enter final judgments without the consent of the parties, and its findings of fact and conclusions of law in noncore matters are subject to de novo review by the district court.... In contrast to the bankruptcy court's authority in noncore cases, the bankruptcy court may enter final judgments in so-called core cases, which are appealable to the district court. The standard for appeal of core matters of the district court is the same as in other civil matters appealed from the district court to the circuit courts of appeal. 28 U.S.C. Sec. 158(c).

Id. at 844. Thus, the "essence of the jurisdictional system" is the distinction between core and noncore matters. Lesser v. A-Z Associates, Inc. (In re Lion Capital Group), 46 B.R. 850, 852 (Bankr.S.D.N.Y.1985).

28 U.S.C. Sec. 157(b)(2), which enumerates the proceedings designated as "core," consists of two "catch-all" provisions, Sec. 157(b)(2)(A) and (O), and a list of more specific provisions. Sec. 157(b)(2)(B)-(N). King, Jurisdictional Procedure Under the Bankruptcy Amendments of 1984, 38 Vand.L.Rev. 675, 687-88 (1985). The only one of the specific provisions which might apply to Castlerock's counterclaims is section 157(b)(2)(C), "counterclaims by the estate against persons filing claims against the estate." However, it seems unfair under the facts of this case to categorize the counterclaims as falling within this provision. The counterclaims were asserted before the Proof of Claim was filed. Piombo would not have filed the Proof of Claim if the bankruptcy court had declined jurisdiction over the counterclaims. Nor are we persuaded that they fall within either of the catch-all provisions, "matters concerning the administration of the estate," Sec. 157(b)(2)(A) or "other proceedings affecting the liquidation of the assets of the estate," Sec. 157(b)(2)(O). State law contract claims that arguably fall within these catch-all provisions have been held to be "noncore" "related proceedings" under Sec. 157(c). See K-Rom Construction Corp. v. Behling (In re K-Rom Construction Corp.), 46 B.R., 745, 749 (S.D.N.Y.1985); Mohawk Industries, Inc. v. Robinson Industries, Inc., 46 B.R. 464, 465-66 (D.Mass.1985); Cameron v. Anderson (In re American Energy, Inc.), 50 B.R. 175, 178-79 (Bankr.D.N.D.1985); Morse Electric Co., Inc. v. Logicon, Inc. (In re Morse Electric Co., Inc.), 47 B.R. 234, 237 (Bankr.N.D.Ind.1985). Cf. Harry C. Partridge, Jr. & Sons, Inc. v. M & R Construction Corp. (In re Harry C. Partridge, Jr. & Sons, Inc.), 48 B.R. 1006, 1010 (Bankr.S.D.N.Y.1985) (state law contract claim characterized as core proceeding where it fit the description of Sec. 157(b)(2)(E), one of the specific provisions).

Further, we are persuaded that a court should avoid characterizing a proceeding as "core" if to do so would raise constitutional problems. See Mohawk, 46 B.R. at 466; Morse Electric, 47 B.R. at 237-38. The apparent broad reading that can be given to Sec. 157(b)(2) should be tempered by the Marathon decision. American Energy, 50 B.R. at 178.

This circuit has interpreted Marathon as depriving the bankruptcy court of jurisdiction "to make final determinations in matters that could have been brought in a district court or a state court." Thomas, 765 F.2d at 929. However, if the district court can review de novo, giving no deference to findings of the bankruptcy judge, initial proceedings can be held before a non-Article III court. Id. Cf. Briney v. Burley (In re Burley), 738 F.2d 981, 986 (9th Cir.1984) (non-Article III Bankruptcy Appeals Panel constitutional where de novo review by court of appeals). Accordingly, we hold that state law contract claims that do not specifically fall within the categories of core proceedings enumerated in 28 U.S.C. Sec. 157(b)(2)(B)-(N) are related proceedings under Sec. 157(c) even if they arguably fit within the literal wording of the two catch-all provisions, sections Sec. 157(b)(2)(A) and (O). To hold otherwise...

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