In re Bobroff
| Decision Date | 25 July 1984 |
| Docket Number | Civ. A. No. 84-1814. |
| Parties | In re Charles T. BOBROFF, Debtor. Charles T. BOBROFF v. CONTINENTAL BANK, Frank Leis, Blank, Rome, Comisky & McCauley, Andrew D. Bershad, Esq., and Samuel H. Becker, Esq. |
| Court | U.S. District Court — Eastern District of Pennsylvania |
In this bankruptcy action, the debtor appeals from the bankruptcy court's grant of summary judgment to defendants on the debtor's claims of defamation and tortious interference with contractual relations. I find that the bankruptcy court had no jurisdiction over this matter, and therefore the judgment of the court below will be reversed, 37 B.R. 847, and the case will be remanded to the Court of Common Pleas of Philadelphia County.
The debtor, Charles T. Bobroff, formerly operated a shoe and leather goods store. In 1979, the debtor secured a loan from Continental Bank for business use; the debt was secured by a second mortgage upon the debtor's home and by a security interest in property of the debtor's business. The debtor had contracted with Guardian Life Insurance Co. for the issuance of ten policies of disability insurance. Under these policies, in the event of disability, Guardian would reimburse the debtor for business overhead, pay a monthly amount to Continental Bank as loss payee, and pay monthly amounts to the debtor personally. In June of 1980, the debtor became disabled due to a psychiatric episode, and Guardian began paying under these policies, on a somewhat irregular basis. The debtor then defaulted on the debt owed to Continental. The Bank obtained a judgment against him in February of 1981 in the Court of Common Pleas of Philadelphia County. On April 24, 1981, the debtor filed a petition in bankruptcy under Chapter 7 of the Bankruptcy Code.
Shortly after the petition in bankruptcy was filed, counsel for Continental, the law firm of Blank, Rome, Comisky & McCauley, deposed one Jane Engel, a friend of the debtor's. Ms. Engel stated that the debtor was storing items previously displayed at the debtor's store (and presumably subject to Continental's security interest) at her apartment and at the garage of a Mrs. Spector; and that the debtor stated to her that he had deliberately concealed three valuable lithographs from the Bank. The debtor had previously stated under oath that no one other than he had possession of any furnishings or art work belonging to his estate. The Blank, Rome firm informed the bankruptcy court of the deposition testimony, and the court ordered that the debtor's residence and business and the Spector garage be padlocked pending an inventory by the trustee.
Additional relevant events are conversations by Frank Leis, an employee of Continental, and by members of the Blank, Rome firm with Guardian, regarding the debtor's disability policies. Following these conversations Guardian terminated payments on all of the disability policies it had issued to the debtor.
On February 22, 1983, the debtor commenced an action in the Court of Common Pleas of Philadelphia County against Continental Bank, its employee, Frank Leis, its legal counsel, the Blank, Rome office, and two members of the Blank, Rome firm, Andrew D. Bershad, Esq., and Samuel H. Becker, Esq. The defendants filed an application in the bankruptcy court for removal of the action to that court1 on March 16, 1983, stating that the debtor's action in the state court was a "civil proceeding related to a case under title 11" and that therefore the bankruptcy court had jurisdiction over the matter. The case was then automatically removed to the bankruptcy court, and the debtor's motion to remand the case to the Pennsylvania Court of Common Pleas was denied.
In a "form of complaint" attached to the motion to remand, the debtor set forth three claims against the defendants: malicious prosecution, defamation, and interference with contractual relations. The parties subsequently agreed to a voluntary dismissal of the malicious prosecution cause of action. Debtor claimed that defendants had damaged his reputation in the community by stating that he was concealing assets from the bank and from the bankruptcy court. The debtor further claimed that defendants interfered with his contractual relations with Guardian Insurance Co. by inducing Guardian to cut off further payments to him under his policies of disability insurance. On March 5, 1984, the bankruptcy court granted summary judgment to defendants on both claims. This appeal followed.
The Bankruptcy Act of 1978 gave the United States district courts "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. § 1471(b) (1982). The Act also conveyed "all of the jurisdiction" conferred by section 1471(b) upon the district courts to the "bankruptcy court for the district in which a case under title 11 is commenced." 28 U.S.C. § 1471(c) (1982). In Northern Pipeline Construction Co. v. Marathon Pipe Line Co., 458 U.S. 50, 102 S.Ct. 2858, 73 L.Ed.2d 598 (1982), the Supreme Court held that, absent consent of the litigants, a state common law action not made subject to a federal rule of decision and related only peripherally to an adjudication of bankruptcy under federal law must be heard by a court established under Article III of the U.S. Constitution, if it is to be heard by any agency of the United States. Insofar as the 1978 Act confers direct, non-derivative jurisdiction over "related cases" to bankruptcy courts established without the Article III tenure and salary guarantees, the Court held, the Act is unconstitutional. Subsequent decisions interpret Northern Pipeline as invalidating section 1471(c) and leaving the jurisdictional grant to the district courts in section 1471(b) intact. See, e.g., Coastal Steel Corp. v. Tilghman Wheelabrator Ltd., 709 F.2d 190, 200 (3d Cir.), cert. denied, ___ U.S. ___, 104 S.Ct. 349, 78 L.Ed.2d 315 (1983).
In the wake of Northern Pipeline an "Interim Rule" was promulgated governing bankruptcy jurisdiction pending corrective legislation by Congress.2 Although all civil proceedings "related to" cases brought under Title 11 are automatically referred to bankruptcy courts under the Rule, the bankruptcy judges may not issue binding judgments in "related" proceedings, but are limited to submissions of findings of fact and proposed rulings which must be reviewed de novo by the district court. Interim Rule § (e)(2).3 "Related" proceedings are defined in part by the Rule as "civil proceedings that, in the absence of a petition in bankruptcy, could have been brought in a district court or a State court . . . including, but . . . not limited to, claims brought by an estate against parties who have not filed claims against the estate." Interim Rule § (d)(3)(A).
In the recent Bankruptcy Amendments & Federal Judgeship Act of 1984, Pub.L. No. 98-353, 98 Stat. 333, Congress codified into positive law the provisions of the Interim Rule applicable to proceedings "related to" bankruptcy, providing:
A bankruptcy judge may hear a proceeding that is not a core proceeding4 but that is otherwise related to a case under title 11. In such proceeding, the bankruptcy judge shall submit proposed findings of fact and conclusions of law to the district court, and any final order or judgment shall be entered by the district judge after considering the bankruptcy judge\'s proposed findings and conclusions and after reviewing de novo those matters to which any party has timely and specifically objected.
Bankruptcy Amendments & Federal Judgeship Act of 1984, § 157(c)(1).5
Under both the Interim Rule and the 1984 Bankruptcy Amendments, this court, and derivatively, the bankruptcy court, have jurisdiction over cases "related to" proceedings arising under title 11. When such a case is initially heard by a bankruptcy judge, this court must review de novo the bankruptcy judge's findings and conclusions. As applied to this case, if the debtor's claims against defendants are "related to" the debtor's pending liquidation proceedings under chapter 7 of the Bankruptcy Code, the bankruptcy court below had jurisdiction to entertain this action and to recommend that summary judgment be granted to defendants on debtor's claims, and this court has the power to review the record below de novo and to adopt or reject the bankruptcy court's recommendation. Thus, the central issue to be decided in this case is whether a debtor's action against a creditor and its agents for defamation and interference with contractual relations, arising out of events occurring following the filing of debtor's bankruptcy petition, qualifies as a proceeding "related to" an action arising under title 11 of the Bankruptcy Code, and therefore falls within the jurisdiction of the district and bankruptcy courts of the United States.
Congress is given power in section 8 of Article I of the Constitution "To establish . . . uniform laws on the subject of bankruptcies throughout the United States." U.S. Const. art. I, § 8, cl. 4. Congress has enacted three bankruptcy statutes, the Acts of 1867, 1898, and 1978. These Acts set forth procedures for bankruptcy adjudications and for the adjustment of the rights of debtors and creditors in bankruptcy cases, thus making the core bankruptcy proceedings subject to federal rules of decisions under the authority of Article I of the Constitution. Under these Acts, core bankruptcy proceedings became cases "arising under the Constitution or laws of the United States" to which the judicial power exercised by courts of the United States extends under Article III of the Constitution, U.S. Const. art. III, § 2, cl. 1.
The question arises to what extent courts of the United States may exercise jurisdiction over actions subject only to state-created rules of decision that are in some way related to...
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