In re Color Craft Press, Ltd., Bankruptcy No. 81M-03184
| Decision Date | 22 February 1983 |
| Docket Number | Civ. No. C 83-0140J,82C-00736,Bankruptcy No. 81M-03184,C 83-0139J.,Civil Proceeding No. 82PM-0974,82PC-0746 |
| Citation | 27 BR 962 |
| Parties | In re COLOR CRAFT PRESS, LTD., a Utah limited partnership, Debtor. COLOR CRAFT PRESS, LTD., a Utah limited partnership, Plaintiff, v. NATIONWIDE SHOPPER SYSTEMS, INC., Defendant. In re Kent D. RICHARDSON and F. Nadine Richardson, Debtors. Duane H. GILLMAN, Trustee of the estate of Kent D. and F. Nadine Richardson, Plaintiff, v. PRESTON FAMILY INVESTMENT COMPANY, and First Interstate Bank of Utah, Defendants. |
| Court | U.S. District Court — District of Utah |
Duane H. Gillman and Judith Boulden, Salt Lake City, Utah, for trustee for the estate of Richardson.
Stephen T. Preston, Salt Lake City, Utah, for Preston Family Inv. Co.
Duke Wahlquist and Roy Williams, Salt Lake City, Utah, for First Interstate Bank & Trust Co.
William G. Fowler and Ronald Goss, Salt Lake City, Utah, for Color Craft Press, Ltd.
Robert A. Bentley, Salt Lake City, Utah, for Nationwide Shopper System, Inc.
Before ANDERSON, Chief Judge, JENKINS, and WINDER, District Judges, and CHRISTENSEN, Senior Judge.
These cases were filed in the office of the Clerk of the Bankruptcy Court of and for the United States District Court for the District of Utah. The defendant in each case brought a motion to dismiss the action from the bankruptcy court for lack of subject matter jurisdiction, challenging the constitutionality of an Interim Rule adopted by the United States District Court of Utah, governing the administration of certain bankruptcy matters.1 Relying on Northern Pipeline Construction Co. v. Marathon Pipe Line Co., ___ U.S. ___, 102 S.Ct. 2858, 73 L.Ed.2d 598 (1982) (hereafter "Marathon"), each of the bankruptcy judges granted each respective defendant's motion to dismiss. The orders of dismissal, however, were stayed and the matters certified to the District Court for review. The cases were consolidated for the purpose of review.
The question for review is whether the dismissals for lack of subject matter jurisdiction were providently granted. After careful consideration of the arguments made and briefs submitted, we hold that they were not.
Although the bankruptcy opinions 27 B.R. 392; 27 B.R. 407, are scholarly and well-written, it appears that one analytic and one historic matter were overlooked. Analytically, there is a two-step grant of power under the provisions of the Bankruptcy Reform Act of 19782—one to the United States District Court and one to the Bankruptcy Court. The bankruptcy opinions imply that these jurisdictional grants are so intertwined that the invalidation of step two in some fashion invalidates step one. That is not so. The jurisdictional provision of the Bankruptcy Reform Act, as codified, provides, in part:
28 U.S.C. § 1471 (Appendix III). Under § 1471, district courts and courts of bankruptcy were given concurrent jurisdiction over matters under title 11. The Marathon decision invalidated only one tier of that jurisdictional grant. The plurality in Marathon held that "Art. III bars Congress from establishing legislative courts to exercise jurisdiction over all matters related to those arising under the bankruptcy laws." ___ U.S. ___, ___, 102 S.Ct. 2858, 2874, 73 L.Ed.2d 598. The Court held that the broad jurisdictional grant to hear matters "arising in or related to a case under title 11" includes the power to adjudicate "private rights". The Marathon plurality found that such power must be vested in a court having the attributes of independence prescribed by Article III of the United States Constitution, which provides:
The Judges, both of the supreme and inferior Courts, shall hold their Offices during good Behaviour, and shall, at stated Times, receive for their Services, a Compensation, which shall not be diminished during their Continuance in Office.
U.S.Const. art. III, § 1. The analytical difficulty with the bankruptcy opinions is that they read Marathon too broadly. The question is not whether the bankruptcy courts have jurisdiction under § 1471. The Supreme Court held that they do not. As Article I courts, the bankruptcy courts lack the constitutional attributes necessary to exercise Article III power. Nowhere in the Marathon opinion, however, did the Court suggest that an Article III court could not exercise Article III power. The first prong of the two-step jurisdictional grant is valid. The United States District Courts retain original jurisdiction over all cases under title 11. 28 U.S.C. § 1471(a) & (b).
The bankruptcy opinions argue that the Supreme Court refused to divide § 1471 into valid and invalid provisions, finding the jurisdictional grant unconstitutional in toto. We disagree. The Marathon plurality discussed severability in the context of separating the Article I court's power to hear matters "arising under title 11" from the power to hear those "arising in or related to a case under title 11." It is that distinction the Court refused to make in Marathon, not the readily-made distinction between the powers of Article I and Article III courts. Although the Marathon Court never discussed whether the United States District Courts are competent to exercise the broad jurisdictional grant of the Act, not one of the Article I deficiencies is present in the district courts.
The historical matter that the bankruptcy court's analysis seems to overlook is the effective date of the Reform Act. The United States Bankruptcy Court's prospective independence from the United States District Court is not an existing fact in 1983. The amendments made by Title II of the Reform Act do not take complete effect until April 1, 1984.3 Until that time the statute provides for a transition period. During the five-year experimental period— the transition period—Congress built in some jurisdictional insurance. First, during the transition period, the bankruptcy court remained an adjunct of the district court. Second, the grant of jurisdiction to the Article III district court to hear cases was expanded by the 1978 Act. Further, during the interim, jurisdiction in the district court, as expanded, remained intact by virtue of 28 U.S.C. § 1334, which states:
The district courts shall have original jurisdiction, exclusive of the courts of the States, of all matters and proceedings in bankruptcy.4 Emphasis added.
In no sense did Marathon attack that investment of ongoing original jurisdiction in the United States District Courts. It attacked only the second step—the investment in the bankruptcy court—of a two-step grant. It invalidated the jurisdiction of the bankruptcy court in both the transitional and the final stage, relating to the exercise of power by it in certain phases of the bankruptcy and reorganization process. The opinion did not diminish the power of the United States District Court. That structure remained unscathed. The district court has all of the bankruptcy power it ever had because its authority over bankruptcy matters remains as jurisdictional insurance until April 1, 1984. Full separation of the bankruptcy court from the district court was not to occur until that time. Congress, being concerned with how the new system worked and being apprehensive that what happened, might happen, wisely provided that the district court bankruptcy power did not expire until the five-year bankruptcy experiment had been concluded. The events have vindicated the good sense of Congress.
Marathon is concerned with separation of powers in the classic sense. It said that a legislative instrumentality, the Article I court, could not exercise, by mandatory delegation, Article III power absent Article III attributes. Nowhere in Marathon did the Supreme Court hold that an Article III court, the United States District Court, could not exercise bankruptcy power. One cannot find such from the fact it stayed its order to allow Congress to make such changes as it saw fit. The original jurisdiction of the United States District Court over bankruptcy matters is not limited by the language of § 241(a) of the Act. That section has been held unconstitutional as to bankruptcy courts, in contrast to United States District Courts sitting in bankruptcy matters. 28 U.S.C. § 1334, which gives district courts original jurisdiction over "all matters and proceedings in bankruptcy" remains fully intact.
The district courts' original jurisdiction, likewise, is unimpaired by the language of § 405 of the Bankruptcy Reform Act. Section 405 is the transition provision that deals with the disposition of matters during the period from October 1, 1979 to April 1, 1984. The bankruptcy opinions suggest that the mandatory delegation of § 405 deprives the district courts of all jurisdiction in bankruptcy matters. However, to the extent that § 405 mandates a redelegation of district court power to Courts of Bankruptcy (Article I courts) it is as unconstitutional as the direct delegation in § 241(a), for the reasons set forth in Marathon. While the district court may sua sponte refer matters to the Courts of Bankruptcy, Congress may not compel delegation, other than to an Article III court, without colliding with constitutional principles of separation of powers.
In short, the jurisdictional vacuum claimed to exist does not in...
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