In re American Aluminum Window Corp., Bankruptcy No. 81-1037-HL
| Decision Date | 09 December 1981 |
| Docket Number | Bankruptcy No. 81-1037-HL,Adv. No. 81-860. |
| Parties | In re AMERICAN ALUMINUM WINDOW CORP., Debtor. John L. WHITLOCK, Trustee of American Aluminum Window Corp., Plaintiff, v. George S. WORRALL and Graham Glass, Inc., Defendants. |
| Court | United States Bankruptcy Courts. First Circuit. U.S. Bankruptcy Court — District of Massachusetts |
Charles P. McGinty, Herrick & Smith, Boston, Mass., for plaintiff trustee.
Simon C. Leeming, Boston, Mass., for defendant Worrall.
Girard R. Visconti, Providence, R.I., for defendant Graham Glass, Inc.
MEMORANDUM ON COURT'S DENIAL OF MOTION TO DISMISS FOR LACK OF JURISDICTION AND FINDING ON DISCHARGE OF LIEN
This proceeding to void a judicial lien as a preference under 11 U.S.C. § 547 came on to be heard on Defendant's Motion to Dismiss for lack of personal jurisdiction.
The Defendant, George S. Worrall, was formerly a salesman for the Debtor. On or about May 11, 1981, the Defendant filed suit in the Rhode Island Superior Court, Kent County, for $9,120.00 of alleged commissions due. Pursuant to that action, Defendant Worrall sought a restraining order and an attachment on trustee process requiring Defendant, Graham Glass, Inc., to hold and maintain, and not to transfer $10,000 of monies allegedly due the Debtor1 as security for any affirmative judgment Defendant, Worrall, might obtain against the Debtor. On May 11, 1981, the Restraining Order was issued, and on May 21, 1981 a Writ of Attachment was issued by the Rhode Island Superior Court.
The Debtor filed a voluntary petition in Chapter 7 on June 11, 1981. A trustee was appointed on June 12, 1981. On October 16, 1981, the Trustee filed a complaint against both George Worrall and Graham Glass, Inc. to recover a preferential transfer. The Defendant, George S. Worrall, appeared specially through counsel to argue this Motion to Dismiss. Defendant, Graham Glass, Inc. did not appear to contest this Court's jurisdiction. The Motion to Dismiss is denied.
Defendant argues that the basis for personal jurisdiction is governed by the Massachusetts Long Arm Statute, Mass.Gen.Laws Ann. ch. 223A, §§ 1-14, and since Defendant was employed and worked in Rhode Island, the necessary minimum contacts did not exist.
Initially, the objection is misconceived since the recovery of a preference requires an in rem jurisdiction over the property of the estate and not necessarily an in personam jurisdiction over the Defendant, Worrall.
The preference section 11 U.S.C. 547 provides:
11 U.S.C. § 541 broadly defines property of the estate to include "all legal and equitable interests of the debtor as of the commencement of the case." The term "transfer" is defined in 11 U.S.C. § 101(40) and includes "every mode, direct or indirect, absolute or conditional, voluntary or involuntary, of disposing of or parting with property or with an interest in property, including retention of title as a security interest." Both terms are broadly defined so that the Trustee can reach any alienation of property no matter how characterized.
Where property of the estate is concerned, the Code explicitly provides for jurisdiction.
The bankruptcy court in which a case under title 11 is commenced shall have exclusive jurisdiction of all property, wherever located, of the debtor, as of the commencement of such case. 28 U.S.C. § 1471(e).
Since this bankruptcy case was filed after October 1, 1979, it is controlled by the Bankruptcy Reform Act.2
While the new Code makes a jurisdictional leap in many areas, this need not be one of them. Even under the old Act, the Referee or Bankruptcy Judge was given summary jurisdiction to set aside a judicial lien obtained while Debtor was insolvent and within four months of filing. 11 U.S.C. § 107(a)(4). (Bankruptcy Act of July 1, 1898, repealed October 1, 1979, Act of November 6, 1978, P.L. 95-598, § 401).
Under the 1978 Act, no equivalent to Section 107(a)(4) is necessary, since it is now provided for under the preference section 11 U.S.C. § 547, and the jurisdictional grant in 28 U.S.C. § 1471.
The source of the Bankruptcy Court's jurisdiction, whether in rem or in personam, comes directly from the 1978 Bankruptcy Act and not from any state long arm statute. The basic jurisdictional provision of this Court is set forth in 28 U.S.C. § 1471:
Congress has made it clear in the history of the Reform Act that it desired to create a new all pervasive jurisdiction so that the bankruptcy administration would be expeditious and efficient, avoiding the wasteful disputes over summary and plenary jurisdiction, possession and consent, adverse or colorable claims, proceedings under the Act or arising in proceedings in bankruptcy. To quote from the Congressional history:
Subsection (b) (of § 1471) is a significant change from current law. It grants the bankruptcy court original (trial), but not exclusive, jurisdiction of all civil proceedings arising under title 11 or arising under or related to cases under title 11. This is the broadest grant of jurisdiction to dispose of proceedings that arise in bankruptcy cases or under the bankruptcy code. Actions that formerly had to be tried in State court or in Federal district court, at great cost and delay to the estate, may now be tried in the bankruptcy courts. The idea of possession or consent as the sole basis for jurisdiction is eliminated. The bankruptcy court is given in personam jurisdicition (sic) as well as in rem jurisdiction to handle everything that arises in a bankruptcy case.
H.R.Rep.No.95-595, 95th Cong., 1st Sess. 445-446 (1977), U.S.Code Cong. & Admin. News 1978, pp. 5787, 6400-6401.
Congress derives its powers to create a comprehensive grant of jurisdiction to the bankruptcy courts from Article 1, Sec. 8, Cl. 4 of the Constitution which gives Congress the authority "to establish . . . uniform laws on the subject of bankruptcy." Although the Bankruptcy Act of 1898 limited the jurisdictional grant of the bankruptcy courts, this was done by choice and not because of some constitutional prohibition. In Taubel-Scott-Kitzmillel Co. v. Fox, the Supreme Court acknowledged Congress' power to broaden or narrow the jurisdiction of the bankruptcy court:
Congress has, of course, power to confer upon the bankruptcy court jurisdiction to adjudicate the rights of trustees to property adversely claimed. In matters relating to bankruptcy its power is paramount. Hence, even if the property is not within the possession of the bankruptcy court; Congress can confer upon it, as upon any lower federal court, jurisdiction of the controversy, by conferring jurisdiction over the person in whose possession the property is. 264 U.S. 426, 430, 44 S.Ct. 396, 398, 68 L.Ed. 770 (1924).
In the 1978 Act under § 1471, Congress has conferred upon the bankruptcy courts exactly the in personam jurisdiction to which the Supreme Court referred.
The Supreme Court has on other occasions considered Congress' constitutional right to create Article I courts with broad bankruptcy jurisdiction. In National Mutual Insurance Co. v. Tidewater Transfer Co., Inc., 337 U.S. 582, 594-600, 69 S.Ct. 1173, 1178-82, 93 L.Ed. 1556 (1949) (hereinafter Tidewater), the Supreme Court had to examine the constitutionality of the exercise of judicial power by the District of Columbia courts conferred on them by Congress pursuant to Article I. In enumerating Congress' powers under Article I, the Court carefully examined Congress' power "to establish uniform laws on the subject of bankruptcies." The Court stated that Congress, by virtue of Article I, may grant access to a court and may designate the district court and give to the district courts jurisdiction over cases between the trustee and others that, but for the bankruptcy powers, would be beyond their jurisdiction because of the lack of diversity or the existence of a federal question under Article III. Tidewater, supra at 594, 69 S.Ct. at 1178, citing Schumacher v. Beeler, 293 U.S. 367, 55 S.Ct. 230, 79 L.Ed. 433 (1934) (hereinafter Beeler) and Williams v. Austrian, 331 U.S. 642, 67 S.Ct. 1443, 91 L.Ed. 1718 (1947) (hereinafter Austrian). Both cases involved jurisdictional challenges since they were not diversity cases and the main controversy did not involve a federal question but arose under state law. In Beeler, the Court had to interpret the newly amended § 23(b) of the old Bankruptcy Act which previously provided for jurisdiction absent possession over adverse claimants only if they consented. Congress had amended § 23(b) to provide that consent was not necessary in suits by the trustee to recover preferences and fraudulent conveyances within four months of bankruptcy. The Court upheld this grant of jurisdiction stating that "Congress, by virtue of its constitutional authority over bankruptcies, could confer or withhold jurisdiction to entertain such suits and could prescribe the conditions upon which the federal courts should have jurisdiction." Beeler, supra 293 U.S. at 374, 55 S.Ct. at 233. In the Austrian case, the Court held that by eliminating § 23(b) from Chapter X of the Bankruptcy Act, Congress intended to establish the jurisdiction of the federal courts to hear...
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