Edgcomb Metals Co. v. Eastmet Corp.
| Decision Date | 30 June 1988 |
| Docket Number | Civ. A. No. N-88-1383. |
| Citation | 89 BR 546 |
| Parties | EDGCOMB METALS COMPANY v. EASTMET CORPORATION. |
| Court | U.S. District Court — District of Maine |
Richard J. Magid, Paul M. Nussbaum, and Whiteford, Taylor & Preston, of Baltimore, Md. and William J. Rochelle, III, Adam C. Harris, and Kronish, Lieb, Weiner & Hellman, New York City, for plaintiff.
Mark J. Friedman, Timothy F. McCormack, Eric B. Miller, and Piper & Marbury of Baltimore, Md., for defendant.
Plaintiff Edgcomb Metals Company's ("Edgcomb") suit is one for breach of a contract made with a debtor under the protection of the bankruptcy court. Prior to filing this action, Edgcomb filed an administrative claim in the bankruptcy court seeking compensation for the identical obligation in suit here. Now pending before the Court is the defendant debtor Eastmet Corporation's ("Eastmet") motion to refer this case to the bankruptcy court pursuant to 28 U.S.C. § 157. Edgcomb opposes that motion and asks for a default judgment in this case and, for withdrawal of its administrative claim or for an injunction precluding Eastmet from pursuing adjudication of the administrative claim.
After careful consideration of the parties' pleadings, the Court finds that no hearing is necessary. Local Rule 6. For the reasons set forth below, defendant's motion for referral to the bankruptcy court is granted, and plaintiff's motions are denied in all respects.
In September 1987, some two years after Eastmet filed its Chapter 11 case, Eastmet and Edgcomb entered into a contract ("September contract") for the sale of approximately 1,000 tons of stainless steel coil. That contract provided that Eastmet deliver all of the stainless steel coil in the fourth quarter of 1987. The last shipment was to be made by December 21, 1987. Edgcomb alleges that Eastmet breached the agreement by supplying only 155 tons of steel coil, and by refusing to deliver the remaining 889 tons of coil unless Edgcomb agreed to increases in the purchase price.
Without waiving its rights to enforce the September contract, Edgcomb initiated negotiations with Eastmet to secure delivery of the balance of the coil. In March 1988, Eastmet and Edgcomb agreed to a new contract ("March contract") specifying new price and payment terms. However, Edgcomb reserved its rights to enforce the September contract in the event that Eastmet failed to perform under the March contract. Edgcomb alleges that Eastmet subsequently informed it that Eastmet would not perform under that second contract.
On April 5, 1988, the bankruptcy court entered an order setting May 4, 1988 as a "bar date" for filing proofs of claim for administrative expenses against the estate. To preserve its claim against Eastmet's estate for the debt incurred under the September and March contracts, Edgcomb filed a proof of administrative claim in the bankruptcy court on May 4, 1988. Eight days later, Edgcomb initiated this action seeking inter alia damages stemming from Eastmet's breach of those same agreements.
To understand the legal issue in this case, one must begin with the Supreme Court's decision in Northern Pipeline Construction Co. v. Marathon Pipeline Co., 458 U.S. 50, 102 S.Ct. 2858, 73 L.Ed.2d 598 (1982). In that case, a bankrupt corporation in the midst of federal bankruptcy proceedings brought an ordinary state contract claim against another corporation for monies owed pursuant to a pre-petition contract. The Supreme Court ruled that federal bankruptcy judges lacked the constitutional authority to determine such claims because they "do not enjoy the protections constitutionally afforded to Article III judges." Marathon, supra, 458 U.S. at 60, 102 S.Ct. at 2866. In so holding, the Court struck down the key jurisdictional provision of the Bankruptcy Reform Act of 1978, Pub.L. No. 95-598, 92 Stat. 2549, ("the 1978 Act") granting bankruptcy judges the power to adjudicate claims "related to," but not "arising under" a Title 11 case. Central to the Court's conclusion was its determination that the right involved in Marathon was one created by state law, "a right independent of and antecedent to the reorganization petition that conferred jurisdiction upon the Bankruptcy Court." Id. at 84, 102 S.Ct. at 2878. Thus, Congress' power to control the manner in which that right is adjudicated is plainly at a minimum. Marathon teaches 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 appellate review." Thomas v. Union Carbide Agricultural Products, 473 U.S. 568, 584, 105 S.Ct. 3325, 3335, 87 L.Ed.2d 409 (1985). Nothing in the case, however, implicates the bankruptcy court's jurisdiction to decide matters within its traditional competence.
Congress responded to Marathon by enacting the Bankruptcy Amendments and Federal Judgeship Act of 1984, Pub.L. 98-353, 98 Stat. 333 ("1984 Amendments"). Those amendments made two signal changes. First, Congress modified the jurisdictional section contained in the 1978 Act, by granting original and exclusive jurisdiction of all cases under Title 11, to the district courts. 11 U.S.C. §§ 101 et seq.1 The district court, in turn, is provided discretion to refer proceedings to the bankruptcy court. 28 U.S.C. § 157. Second, Congress bifurcated bankruptcy jurisdiction, classifying proceedings as either "core" or "non-core." Upon referral from the district court, a bankruptcy court can enter final orders and judgments in core matters. 28 U.S.C. § 158(b). Representative Kastenmeier, one of the 1984 Amendments' co-sponsors, explained that core proceedings are those matters "integral to the core bankruptcy function of restructuring debtor-creditor rights," including "all necessary aspects of a bankruptcy case." 130 Cong. Rec. E 1109-09 (daily ed. March 20, 1984). Section 157(b)(2) supplies an extensive but nonexclusive list of core proceedings. Some courts have adopted a narrow approach in determining the scope of what matters may be core; others have taken a more expansive approach. See Atlas Fire Apparatus, Inc. v. Beaver, 56 B.R. 927, 932 (Bankr.E.D.N.C.1986) and the authorities there cited. Be that as it may, the 1984 Amendments make clear that a matter shall not be deemed "non-core" merely because its resolution is controlled by state law. 28 U.S.C. § 157(b)(3).
Non-core proceedings are "Marathon type" suits, that is, claims "concerned only with state law issues that do not arise in the core bankruptcy function of adjusting debtor-creditor rights." 130 Cong.Rec. H-1848 (daily ed. March 21, 1984). If the parties to a non-core proceeding consent, the bankruptcy judge may decide the case and enter orders and judgments as if the matter were a core proceeding. Absent the parties' consent, the bankruptcy judge may not make a final determination, but must submit proposed findings of fact and conclusions of law to the district court. Only the district court is permitted to enter final orders and judgments in those circumstances. Moreover, the district court judge is required to perform a de novo review of those matters to which any party has "timely and specifically" objected. 28 U.S.C. §§ 157(c)(1) and (c)(2). Finally, the 1984 Amendments provide that the bankruptcy court may (and sometimes must) abstain from hearing non-core matters. 28 U.S.C. § 1334(c).
Edgcomb's objections to the bankruptcy court's exercise of jurisdiction rest on its contention that the claim in suit is a non-core "Marathon-type" action. Edgcomb argues that this must be so because Marathon and its progeny establish that common law contract suits are archetypical "related proceedings" entitling the complainant to a jury trial. It urges that referral to the lower court is improper because the bankruptcy judge's post-Marathon authority to conduct jury trials is uncertain.2 Edgcomb thus contends that were this Court to refer this matter to the bankruptcy court, the Court would be required to withdraw the reference.
Eastmet, on the other hand, points to plaintiff's filing of an administrative claim as proof of plaintiff's consent to the bankruptcy court's jurisdiction. In making this argument, Eastmet relies upon decided law holding that the filing of a claim against the estate is construed as a waiver of the personal litigant's right to an Article III adjudication. See Katchen v. Landy, 382 U.S. 323, 86 S.Ct. 467, 15 L.Ed.2d 391 (1966) (reaffirmed in Commodity Futures Trading Commission v. Schor, 478 U.S. 833, 106 S.Ct. 3245, 3258, 92 L.Ed.2d 675 (1986)); In re STN Enterprises, Inc., 73 B.R. 470 (Bankr.D.Vt.1987); In re NTW Inc., 69 B.R. 656, 659 (Bankr.E.D.Va.1987); In re Sun West Distributors, Inc., 69 B.R. 861, 864-65 (Bankr.S.D.Calif.1987); In re Bokum Resources Corp., 64 B.R. 924 (Bankr.N.M.1986); Hauytin v. Grynberg, 52 B.R. 657, 661 (Bankr.D.Col.1987); In re Lombard-Wall, 44 B.R. 928, 936 (Bankr.S. D.N.Y.1984); In re Southern of Rocky Mount, Inc., 36 B.R. 175, 177 (Bankr.E.D. N.C.1983). Edgcomb disputes that proposition citing an express disclaimer in its bankruptcy filing designed to vitiate the appearance of consent. That disclaimer provides:
Edgcomb reserves the right to withdraw this administrative proof of claim if it is determined that the filing of this administrative proof of claim will subject Edgcomb to the jurisdiction of the bankruptcy court generally or with respect to any adversary proceedings therein. The filing of this proof of administrative claim by Edgcomb has been compelled and does not in any way indicate or constitute, and may not be construed to indicate or constitute, Edgcomb\'s consent to the exercise of jurisdiction over it by any tribunal.
(Emphasis added). Edgcomb Proof of Administrative Claim, para. 10. Edgcomb also contends that its filing in the lower court was "compelled...
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