In re Arnold Print Works, Inc.

• Court: U.S. Bankruptcy Court — District of Massachusetts
• Writing for the Court: PAUL W. GLENNON
• Citation: In re Arnold Print Works, Inc., 54 B.R. 562, 13 B.C.D. 883 (Bankr. Mass. 1985)
• Decision Date: 06 November 1985
• Docket Number: Bankruptcy No. 4-81-00532-G.
• Parties: In re ARNOLD PRINT WORKS, INC., Debtor. ARNOLD PRINT WORKS, INC., Plaintiff, v. Joseph APKIN and William Apkin d/b/a George Apkin & Sons, Defendant.

54 B.R. 562 (1985)

In re ARNOLD PRINT WORKS, INC., Debtor ARNOLD PRINT WORKS, INC., Plaintiff, v. Joseph APKIN and William Apkin d/b/a George Apkin & Sons, Defendant.

Bankruptcy No. 4-81-00532-G.

United States Bankruptcy Court, D. Massachusetts.

November 6, 1985.

Philip J. Hendel, Hendel, Collins & Stocks, P.C., Springfield, Mass., for plaintiff.

Robert C. Ware, Freedman, DeRosa & Rondeau, North Adams, Mass., for defendant.

Office of the U.S. Trustee, Boston, Mass., Trustee.

MEMORANDUM RE DEFENDANTS' MOTION TO DISMISS OR FOR ABSTENTION

PAUL W. GLENNON, Bankruptcy Judge.

BACKGROUND

This matter comes before the Court on motion of Joseph Apkin and William Apkin, d/b/a George Apkin & Sons, ("Defendants") to dismiss the Complaint to Compel Turnover ("Complaint") of Arnold Print Works, Inc. ("Arnold Print Works" or "Debtor") or to abstain.

On June 26, 1981, the Debtor filed a voluntary petition in bankruptcy seeking relief under Chapter 11 of Title 11 of the United States Code.¹ Since that time, the Debtor has managed its property as a debtor-in-possession.

During the early part of 1984, the Debtor, as part of an ongoing effort to liquidate remaining assets of its Chapter 11 estate, sold Defendants, who operate a salvage and scrap metal company, copper rollers previously used in the Debtor's business. These copper rollers were resold by Defendants to a smelting company which melted and reprocessed the copper.

In April of 1984, the Debtor and Defendants discussed the sale of additional rollers. Allegedly, in reliance upon Debtor's representations that the rollers were made of copper, Defendants agreed to purchase additional rollers from the Debtor through the Debtor's co-liquidating and disbursing agents. The Debtor alleges that on or about May 8, 1985, the sales transaction took place.

As in the past, Defendants resold the rollers to the smelting company. During the refining process, the smelting company discovered that the rollers were not all copper but included alloys of other metals. The presence of these other metals allegedly caused serious damage to the smelting company's smelter. It, therefore, deducted the amount of its losses from the amount due Defendants. Defendants, in turn, refused to pay the Debtor the agreed upon amount for the rollers.

On April 8, 1985, the Debtor instituted the instant adversary proceeding as a complaint to compel turnover pursuant to 11 U.S.C. §§ 541 and 542. The Debtor alleged that, as of June 17, 1985, Defendants owed the Debtor $20,485.60, and that, at the time the Complaint was filed, Defendants owed the Debtor $9,488.20, $10,997.40 having been paid in the interim by Defendants.

Defendants answered the Complaint on May 9, 1985. They admitted paying the Debtor $10,997.40, but denied all other averments of the Debtor's Complaint. By way of affirmative defenses, Defendants averred that 1) the Court is without jurisdiction because a non-core matter is involved; 2) the Court should abstain from hearing the case because a jury trial is demanded and the action is a common law action governed by state law; 3) Defendants paid the Debtor sums owed, if any; 4) the Debtor breached its contract with the Defendants; 5) the Debtor breached its warranty of merchantability; 6) the Debtor violated M.G.L. Chapter 93A, Section 11 in that it misrepresented the quality of goods sold; 7) the Debtor negligently or intentionally misrepresented the quality of goods sold to the Defendant with the intention of inducing reliance, and Defendants did, in fact, rely on these representations to their detriment, and 8) the Debtor, in any event, waived payment for the goods.

On the same day, Defendants filed a Motion to Dismiss or for Abstention, relying on 28 U.S.C. §§ 157 and 1334. In it, Defendants assert the Court must either dismiss the Complaint or abstain because a jury trial has been demanded and the proceeding involves a non-core, state law matter with respect to which the Court cannot enter a final judgment. Defendants also suggest that trial of the claim in this Court will violate the constitution in that non-Article III bankruptcy judges are precluded from adjudicating the Debtor's claim.

DISCUSSION

The issues raised for consideration are: 1) whether the instant proceeding is core or related; 2) whether this Court should abstain; and 3) whether the Bankruptcy Court may conduct a jury trial in these proceedings.

Under the Bankruptcy Amendments and Federal Judgeship Act of 1984 ("BAA"), district courts have original and exclusive jurisdiction of all cases under Title 11. 28 U.S.C. § 1334(a). They have original but not exclusive jurisdiction of all civil proceedings arising under Title 11 or arising in or related to cases under Title 11. 28 U.S.C. § 1334(b). Thus, it is important to distinguish among civil proceedings (1) arising under Title 11, (2) arising in cases under Title 11, and (3) related to cases under Title 11. This is so because the determination of whether a proceeding is a core proceeding, and which abstention provision of 28 U.S.C. § 1334(c) applies, depends upon whether the proceeding fits within category (1), (2) or (3). Significantly, the grant of jurisdiction extends over all property of the debtors as of the commencement of the case, and of the estate. 28 U.S.C. § 1334(d).

Under the BAA, district courts are empowered to refer any and all proceedings arising under Title 11 or arising in or related to cases arising under Title 11 of the United States Code, except for personal injury tort or wrongful death claims, to the bankruptcy judge of that district. 28 U.S.C. § 157(a).² Pursuant to this discretionary referral power, all district courts have issued standing reference orders transferring entire bankruptcy dockets to bankruptcy judges. Therefore, this Court, pursuant to § 157(b)(1), may determine matters involved in bankruptcy actions.³ Notably, however, proceedings related to a case under Title 11, which are referred to bankruptcy judges under Section 157(a) are not included in the language of Section 157(b)(1). This is because core proceedings are proceedings that either arise under Title 11 or arise in a case under Title 11. A civil proceeding related to a case under Title 11 is not a core proceeding and, therefore, cannot be heard and determined by a bankruptcy judge pursuant to 28 U.S.C. § 157(b)(1).

I

The Debtor characterizes this action as one to recover proceeds from the liquidation of Chapter 11 assets, a core proceeding. Defendants characterize it as one to collect an accounts receivable, a non-core proceeding. Although the Debtor has labeled its complaint a Complaint to Compel Turnover and section 157(b)(3) provides that an order to turnover property to the estate is a core proceeding, "the bankruptcy judge shall determine, on the judge's own motion or on timely motion of a party, whether a proceeding is a core proceeding under this subsection or is a proceeding that is otherwise related to a case under Title 11." 28 U.S.C. § 157(b)(3).⁴

No explicit definition of core proceedings exists anywhere in the BAA. As a consequence, an undefined area exists between proceedings arising under or arising in cases under Title 11 and those related to cases under Title 11. Section 157(b)(2) contains fifteen illustrations of core proceedings, including "(A) matters concerning the administration of the estate," "(E) orders to turn over property to the estate," and "(O) other proceedings affecting the liquidation of the assets of the estate or the adjustment of the debtor-creditor or the equity security holder relationship, except personal injury tort or wrongful death claims." 28 U.S.C. § 157(b)(2). However, the outer limits of what constitutes a core proceeding must be defined by courts "within the guidelines set forth by the Supreme Court, since the purpose of the amendments was to rectify the unconstitutional jurisdiction found in Marathon."⁵ In re Illinois — California Express, Inc., 50 B.R. 232, 13 Bankr.Ct.Dec. (CRR) 153 (Bankr.D.Colo.1985).

Courts and commentators are split on whether to adopt a broad or narrow approach to categorizing proceedings as either core or related. In the instant proceeding, the Debtor's Complaint may be viewed several ways: 1) as an action to collect a amount due from the post-petition sale of one of its assets; 2) as an action to collect an account receivable; or 3) as an action predicated on Defendants breach of its contractual obligation to pay for rollers purchased. No matter which way the Complaint is viewed, the proceeding may constitute a core proceeding under 28 U.S.C. § 157(b)(2)(A), (E) or (O), if this section is broadly construed.

In re Franklin Computer Corp., 50 B.R. 620, 13 Bankr.Ct.Dec. (CRR) 209, 213 (Bankr.E.D.Pa.1985) is a case factually undistinguishable from the instant proceeding. In that case, an adversary proceeding was initiated by the debtor to collect $15,524.39 in accounts receivable from the post-petition sale of goods. In holding that "disputes on accounts receivable are core matters within the meaning of § 157(b) thus allowing bankruptcy judges to enter final orders theron," the court observed:

When an entity files for relief under the Bankruptcy Code the debtor in possession or the trustee is required to collect property of the estate for the purpose of liquidation and distribution of this property to creditors or for the funding of a debt repayment plan. When the debtor has been in business a substantial portion of its assets are in the form of accounts receivable. The prompt collection of these assets is often essential to administration of the bankruptcy or reorganization process since the funds represented by the accounts are typically needed to meet the estate\'s expenses in advancing the administration of the estate. . . . Since the rapid resolution of this type of litigation is often essential to the sound administration of the estate, § 157(b)(2)(A) weighs in favor of finding that

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