Furness v. Lilienfield, Civ. No. Y-82-1272.
| Decision Date | 22 December 1983 |
| Docket Number | Civ. No. Y-82-1272. |
| Citation | 35 BR 1006 |
| Parties | Colin W.E. FURNESS v. Gerald S. LILIENFIELD, et al. |
| Court | U.S. District Court — District of Maine |
Paula M. Junghans, Baltimore, Md., for plaintiff.
Melvyn J. Weinstock, Neal S. Melnick, and Sidney S. Friedman, Baltimore, Md., for defendants Gerald S. Lilienfield, Ashley Investment Corp., and Honor Realty Co.
Richard A. Kramer, Oxon Hill, Md., for defendants Stephen F. Marsalek and Benchmark Land Title and Escrow Corp.
On May 17, 1982, Colin W.E. Furness, a resident of the Bahamas, filed a complaint alleging a violation of the Racketeering-Influenced and Corrupt Organizations Act, 18 U.S.C. § 1961-68, and several state common-law claims in federal court under diversity jurisdiction. Named as defendants were Gerald S. Lilienfield, one other individual, and several corporate entities. A scheduling order was issued on August 10, 1982, setting the trial date for May 9, 1983. After an evidentiary hearing, service of process on Lilienfield and two corporate defendants with which he is affiliated was quashed on September 1, 1982.
A second summons was prepared and served on Lilienfield on September 8, 1982. On November 19, 1982, after Lilienfield had answered the complaint, the Court informed the parties that the scheduling order of August 10, 1982 would control the preparation of the case and "the trial thereof." Defendant's delay in responding to discovery requests resulted in the imposition of a $300 fine and an Order of this Court (dated March 7, 1983) requiring a timely response. Delays in discovery and the plaintiff's motion for contempt filed April 6, 1983 prevented the trial from going forward as scheduled and a second scheduling conference was held June 14, 1983 at which time trial was scheduled for October 24, 1983, and a letter confirming the new trial date was sent to attorneys for the parties on June 16, 1983. Therefore, defendant Lilienfield (and other parties) had five month's advance notice of the May, 1983 trial date and was aware of the October trial date for more than four months.
Despite this advance notice, Lilienfield waited until one week before the trial date, October 18, 1983, to request a postponement for "recent medical problems." On October 18, 1983, the parties were informed that the trial would go forward as scheduled, noting that Lilienfield's medical problems were not recent (he had a history of high blood pressure), not "life-threatening," and not "sufficient to cause a postponement."
At the request of Lilienfield's attorney, a court-appointed doctor examined the defendant and reported on Thursday, October 20, that there was no valid medical reason to prevent the case from going forward as scheduled. One hour after learning of this fact, Lilienfield's counsel told the Court that this case could not go forward as scheduled the following Monday because he intended to file a petition for Chapter 11 reorganization (under Title 11 of the United States Code) the following day, imposing an automatic stay of any judicial proceedings against Lilienfield. 11 U.S.C. § 362(a)(1). The petition for reorganization was filed in Bankruptcy Court for the District of Maryland under Emergency Rule 51-A of the Rules for the United States District Court, District of Maryland, and was docketed by the Clerk of that court as 83-A-1562.
Because of the repeated delays caused by Lilienfield and the circumstances surrounding his filing of the bankruptcy papers— particularly the fact that the petition was not filed until the eve of the trial, immediately after his request for postponement was denied—this Court in an Order dated October 24, 1983, withdrew the reference of the Chapter 11 petition to the bankruptcy court, and scheduled the case for a hearing on October 27 to determine whether the automatic stay of the proceedings in Y-82-1272 should be lifted—or the Chapter 11 petition dismissed—because of the questionable validity and good faith of the petition filed in 83-A-1562.
The basis of this Court's withdrawal of the reference of In re Lilienfield to the bankruptcy court is a logical starting point, and any discussion of the relationship between this Court and the Bankruptcy Court for this District must begin with a discussion of Northern Pipeline Construction Co. v. Marathon Pipe Line Co., 458 U.S. 50, 102 S.Ct. 2858, 73 L.Ed.2d 598 (1982).
For years, bankruptcy matters were handled in United States courts by bankruptcy referees, whose final orders were appealable to United States District Courts, and from whom the district court could withdraw cases. See 458 U.S. at 53, 102 S.Ct. at 2862. Under the Bankruptcy Reform Act of 1978, bankruptcy referees were elevated to the status of judges. Although not clothed with the protections of Article III judges as to tenure and salary, bankruptcy judges were vested under the 1978 Act with "all the powers of a court of equity, law and admiralty," except the powers to enjoin another court or to punish certain acts of criminal contempt. 458 U.S. at 55, 102 S.Ct. at 2862. In Northern Pipeline, the Supreme Court held that this broad grant of power to bankruptcy court judges was unconstitutional, since the jurisdiction of the bankruptcy courts had been expanded to include all "civil proceedings arising under Title 11 the Bankruptcy title or arising in or related to cases under Title 11," and the judges were not clothed with the constitutional protection afforded Article III judges.
We conclude that § 241(a) of the Bankruptcy Act of 1978 has impermissibly removed most, if not all, of "the essential attributes of the judicial power" from 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 2879-80.
The Supreme Court gave only prospective effort to its decision on the constitutionality of the newly instituted network of bankruptcy courts, staying the judgment first until October 4, 1982, and then again delaying the effect of the judgment until December 24, 1982. The delay was established to "afford Congress an opportunity to reconstitute the bankruptcy courts or to adopt other valid means of adjudication." 458 U.S. at 88, 102 S.Ct. at 2880. Congress has not yet acted to meet the Supreme Court's edict, and this Court, like many—if not all—federal district courts, has adopted an emergency rule, Rule 51-A of the local rules, to deal with what became an administrative headache.
Under Rule 51-A, Title 11 (bankruptcy) cases are automatically referred to the bankruptcy court, but the district court retains substantial power over the case in order to avoid the constitutional flaws of the system which Congress established. The rule, which is effective until March 31, 1984, or until Congress enacts "remedial legislation," provides, in Section (c):
Predictably, there are few cases interpreting this rule, particularly that portion of the rule granting the district court the authority to withdraw the reference to the bankruptcy court and reassign the case to a district court. However, the rule — on its face—establishes a procedure whereby bankruptcy matters are automatically referred from the district court to the bankruptcy court, and expressly allows the district court to withdraw the reference "at any time on its own motion or on timely motion by a party." Under this rule, the Court has withdrawn the reference of In re Lilienfield to the Bankruptcy Court and has ordered that the case be transferred to this Court.
This Court is not the first district court to take such action. In NLT Computer Services v. Capital Computer Systems, 31 B.R. 960 (M.D.Tenn.1983), a federal district court was sitting on an interpleader case. On the morning of the day of a hearing, two of the creditors seeking funds deposited with the court filed an involuntary petition against the debtor, who had been made a party to the case. The court determined that the automatic stay imposed by 11 U.S.C. § 362(a) did not apply to an interpleader action, and held, as an alternate ground, that it had the power to withdraw the reference of the case to a bankruptcy court, revoke the stay with regard to the matter before it, and then refer the remainder of the case to the bankruptcy court.
. . . the rule gives this Court the power to withdraw the reference at any time upon its own motion. Therefore, this Court, at the hearing, withdrew the reference to bankruptcy court regarding the involuntary petition filed against the debtor, lifted the automatic stay (if it applies at all) as it pertains to this interpleader action; and remanded the bankruptcy case to the bankruptcy court for any further proceedings in this matter. 31 B.R. at 962.
This Court has watched with alarm as major corporations have filed for Chapter 11 reorganization or threatened to file Chapter 11 petitions to evade existing labor contracts, or to invoke the automatic stay provision to evade pending litigation. As will be discussed hereafter, the Court...
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