In re Braniff Airways, Inc., Miscellaneous No. 4-221-E

• Decision Date: 20 January 1983
• Docket Number: Bankruptcy No. 4-82-00369.,Miscellaneous No. 4-221-E
• Citation: 27 BR 231
• Parties: In re BRANIFF AIRWAYS, INCORPORATED, et al. BRANIFF AIRWAYS, INCORPORATED, et al. v. CIVIL AERONAUTICS BOARD.
• Court: U.S. District Court — Northern District of Texas

27 B.R. 231 (1983)

In re BRANIFF AIRWAYS, INCORPORATED, et al. BRANIFF AIRWAYS, INCORPORATED, et al. v. CIVIL AERONAUTICS BOARD.

Miscellaneous No. 4-221-E, Bankruptcy No. 4-82-00369.

United States District Court, N.D. Texas, Fort Worth Division.

January 20, 1983.

Ronald S. Orr, Gibson, Dunn & Crutcher, Los Angeles, Cal., Stephen L. Taylor, Dall FW Airport, Tex., for American Airlines, intervenor.

David Bonderman, Arnold & Porter, Washington, D.C., for Braniff.

MEMORANDUM OPINION

MAHON, District Judge.

A hearing was held on January 13, 1983, concerning a "Motion to Revoke Reference of Adversary Proceedings" filed on January 11, 1983, by American Airlines, Inc., a corporation and an intervenor in the above-captioned proceeding pending before the Fort Worth Bankruptcy Division of this Court. The Court entered an Order on January 14, 1983, holding that the Local Rule of the Northern District of Texas Concerning Bankruptcy Cases and Proceedings adopted by the United States District Court for the Northern District of Texas on December 21, 1982,¹ is constitutional and valid, and further holding that the Court has jurisdiction over bankruptcy cases and proceedings, including the one presently before it, pursuant to sections 1331, 1332, 1334, and 1471 of Title 28 of the United States Code. In support of that Order, the Court will now elaborate on its reasons by addressing: (1) The Court's Jurisdiction, (2) Marathon's Effect on the "Structure" of the Bankruptcy System, (3) The Court's Statutory and Equitable Powers, and (4) The Referral of the Braniff Bankruptcy Proceeding to the Bankruptcy Judge.

I. The Court's Jurisdiction

A. 28 U.S.C. § 1471.

The United States Supreme Court invalidated at least a portion of 28 U.S.C. § 1471 in Northern Pipeline Construction Co. v. Marathon Pipe Line Co., ___ U.S. ___, 102 S.Ct. 2858, 73 L.Ed.2d 598 (1982) (hereinafter called Marathon). In his plurality opinion, Justice Brennan states:

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 the 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.

Marathon 102 S.Ct. at 2879-80.² By stating that the power was "impermissibly removed" from the district court, the Supreme Court clearly indicates that jurisdiction was first vested in the Art. III district court pursuant to § 1471(a), and it expresses no disapproval of this grant of jurisdiction to the district court.

The next sentence and footnote of the plurality opinion, however, have led to some confusion over what parts of § 1471 were invalidated. Justice Brennan continues:

Having concluded that the broad grant of jurisdiction to the bankruptcy courts contained in § 241(a) is unconstitutional, we must now determine whether our holding should be applied retroactively to the effective date of the Act.

Marathon 102 S.Ct. at 2880.

In his use of the words "bankruptcy courts" in Marathon, Justice Brennan makes a distinction between bankruptcy courts and district courts. This should not be confused with the bankruptcy laws, which define "courts of bankruptcy" to include the district courts. See Bankruptcy Reform Act of 1978, Pub.L. No. 95-598, § 404(a), 92 Stat. 2549, 2683 (1978). Thus, the "broad grant of jurisdiction to the bankruptcy courts" does not refer to the grant of jurisdiction to the district courts. Furthermore, in footnote 40, he states:

It is clear that, at the least, the new bankruptcy judges cannot constitutionally be vested with jurisdiction to decide this state-law contract claim against Marathon. As part of a comprehensive restructuring of the bankruptcy laws, Congress has vested jurisdiction over this and all matters related to cases under title 11 in a single non-Art. III court, and has done so pursuant to a single statutory grant of jurisdiction.

Marathon 102 S.Ct. at 2880 n. 40 (emphasis added). This Court interprets the phrase "single statutory grant of jurisdiction" as referring to the words "all of the jurisdiction" in § 1471(c). This grant of jurisdiction under § 1471(c) encompasses not only bankruptcy "cases" (see § 1471(a)), but also "all civil proceedings arising under title 11 or arising in or related to cases under title 11." 28 U.S.C. § 1471(b) (emphasis added). The Supreme Court's conclusion that at least some of the "related to" matters must be heard by an Art. III court meant that the words "all of the jurisdiction" contain both constitutional and unconstitutional grants of jurisdiction to the bankruptcy courts. Thus, an attempt to separate and remove the unconstitutional part of the bankruptcy court's jurisdiction from the constitutional part of its jurisdiction would be no easy feat. Facing such a difficulty, and examining the intent of Congress in § 1471(c), Justice Brennan continues his footnote:

In these circumstances we cannot conclude that if Congress were aware that the grant of jurisdiction could not constitutionally encompass this and similar claims, it would simply remove the jurisdiction of the bankruptcy court over these matters, leaving the jurisdictional provision in the bankruptcy court and adjudicatory structure intact with respect to other types of claims, and thus subject to Art. III constitutional challenge on a claim-by-claim basis. Indeed, we note that one of the express purposes of the Act was to ensure adjudication of all claims in a single forum and to avoid the delay and expense of jurisdictional disputes.

Marathon 102 S.Ct. at 2880 n. 40 (emphasis added).

Finally, Justice Brennan concludes the footnote:

Nor can we assume, as THE CHIEF JUSTICE suggests, post, at 2, that Congress\' choice would be to have this case "routed to the United States district court of which the bankruptcy court is an adjunct." We think that it is for Congress to determine the proper manner of restructuring the Bankruptcy Act of 1978 to conform to the requirements of Art. III, in the way that will best effectuate the legislative purpose.

Marathon 102 S.Ct. at 2880 n. 40 (emphasis added). The difficulty was not in separating § 1471(c) from § 1471(a) and (b), but in separating jurisdiction over "this case," i.e. a case like Marathon, requiring an Art. III court, from the other appropriate jurisdiction of the bankruptcy court over non-Art. III matters, all of which were combined in the words "all of the jurisdiction" in 28 U.S.C. § 1471(c). Therefore, this Court concludes that the Supreme Court never intended to invalidate, nor did it invalidate 28 U.S.C. § 1471(a) and (b), and that Marathon only held 28 U.S.C. § 1471(c) unconstitutional.³

B. 28 U.S.C. § 1334, § 1331, and § 1332.

In light of the debate surrounding the continued validity of 28 U.S.C. § 1471(a) and (b), the Court will also address the question of its jurisdiction over bankruptcy cases and proceedings assuming arguendo that 28 U.S.C. § 1471 is no longer valid. During the transition period (from October 1, 1979, through March 31, 1984), Congress clearly intended for both the old and new versions of 28 U.S.C. § 1334 to exist simultaneously. See Bankruptcy Reform Act of 1978, Pub.L. No. 95-598, §§ 402, 403, 404, 92 Stat. 2549, 2682-83 (1978). The old § 1334 stated: "The district courts shall have original jurisdiction, exclusive of the courts of the States, of all matters and proceedings in bankruptcy." 28 U.S.C. § 1334. It may be argued that Congress, in writing the new version of 28 U.S.C. § 1334 (making district courts the courts of appeals for final judgments, orders, and decrees of bankruptcy courts absent an appointed bankruptcy judge panel), intended that the old § 1334 would only apply to cases filed before October 1, 1979.

However, if the new grant of original and exclusive jurisdiction in 28 U.S.C. § 1471(a) —which was meant to repeal and replace the old § 1334 for cases filed after October 1, 1979—is unconstitutional and no longer valid, the Court must now read the bankruptcy laws as if the new § 1471 had not been written. See Frost v. Corporation Comm'n of Oklahoma, 278 U.S. 515, 526-27, 49 S.Ct. 235, 239, 73 L.Ed. 483 (1929); Davis v. Wallace, 257 U.S. 478, 485, 42 S.Ct. 164, 166, 66 L.Ed. 325 (1922). In so doing, the Court finds that the old § 1334 places the original and exclusive jurisdiction over bankruptcy matters and proceedings in the district court.

This jurisdiction under the old § 1334 was "summary jurisdiction" only. The Court must now look to 28 U.S.C. § 1331 and § 1332 for those cases which would have originated in the federal district court because of either a federal question involved or the diversity of citizenship of the parties. Those cases, now properly in the district court's jurisdiction, may be combined with the bankruptcy cases in which they arise or to which they are related for the purpose of referring both the bankruptcy "matters and proceedings" (in this court's jurisdiction under the old § 1334) and the "arising in or related to" matters (in this court's jurisdiction under 28 U.S.C. § 1331 or § 1332) to the bankruptcy judge.⁴

II. Marathon's Effect on the "Structure" of the Bankruptcy System

Next, the Court turns to the question of what adjudicatory structure⁵ remains intact after Marathon. During the transition period from October 1, 1979, through March 31, 1984, Congress intended the old structure (under the 1898 Bankruptcy Act) to exist concurrently with the new structure (under the 1978 Bankruptcy Reform Act).⁶ Assuming arguendo that Marathon rendered the new bankruptcy structure unusable, the Court nevertheless has available an entire structure, left intact by Congress and Marathon and in existence through March 31, 1984, which may be used for the adjudication of bankruptcy cases and proceedings.

Counsel for American Airlines suggest that the Court, in promulgating the ...