In re Conley

Citation26 BR 885
Decision Date26 January 1983
Docket NumberBankruptcy No. 382-00990.
PartiesIn re James C. CONLEY and Laura J. Conley, Debtors. and All Other Debtors Having Confirmed and Pending Chapter 13 Cases in Which Commerce Union Bank is a Creditor.
CourtUnited States Bankruptcy Courts. Sixth Circuit. U.S. Bankruptcy Court — Middle District of Tennessee


Henry E. Hildebrand, III, Nashville, Tenn., Trustee.

Marc McNamee, Nashville, Tenn., for Commerce Union Bank.

Perry Happell, Steve Norris and L.G. Caroland, Nashville, Tenn., for debtors.

Before GEORGE C. PAINE, II and KEITH M. LUNDIN, Bankruptcy Judges.


This matter is before the court on Commerce Union Bank's motion to compel the Chapter 13 trustee Henry E. Hildebrand to distribute funds currently held by the trustee in this and all other Chapter 13 cases in which Commerce Union Bank is a creditor. The trustee has responded by requesting a declaratory judgment from this court as to what, if any, subject matter jurisdiction this court continues to possess over pending and future Chapter 13 cases in light of the United States Supreme Court's decision in Northern Pipeline Construction Co. v. Marathon Pipe Line Co., ___ U.S. ___, 102 S.Ct. 2858, 73 L.Ed.2d 598 (1982).1 These cases are pending before both bankruptcy judges of this district. In a decision entered contemporaneously with this opinion, this court has concluded that it retains subject matter jurisdiction under 28 U.S.C. § 1471 of the 1978 Bankruptcy Reform Act to adjudicate any matter or proceeding arising in a case commenced on or before December 24, 1982. Walter E. Heller & Co. v. Matlock Trailer Corp., 27 B.R. 311 (Bkrtcy. M.D.Tenn.1983). The only issue remaining, therefore, concerns this court's jurisdiction to adjudicate Chapter 13 cases filed subsequent to December 24, 1982. Upon consideration of the evidence presented at the hearing, briefs of the parties, stipulations and the entire record, this court concludes that it lacks subject matter jurisdiction to adjudicate any case commenced after December 24, 1982, including cases initiated under Chapter 13 of the Bankruptcy Reform Act.

The hearing of this matter is necessitated by the Supreme Court's decision not to extend the stay of its opinion in Northern Pipeline beyond December 24, 1982. In Northern Pipeline, the Supreme Court found the broad grant of jurisdiction to the bankruptcy courts contained in § 241(a) of the Bankruptcy Reform Act of 1978 unconstitutional on the grounds that § 241(a) "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."2Northern Pipeline Construction Co. v. Marathon Pipe Line Co., 102 S.Ct. at 2879-2880. See also In re Rivers, 19 B.R. 438 (Bkrtcy.E.D.Tenn.1982). The Court held that Article III of the United States Constitution precluded Congress from delegating the broad judicial powers encompassed in § 241(a) to judges who lacked the protections of lifetime tenure and guaranteed salaries.3 Although the Northern Pipeline opinion was issued on June 28, 1982, the Court stayed its judgment until October 4, 1982, in order to "afford Congress an opportunity to reconstitute the bankruptcy courts or to adopt other valid means of adjudication, without impairing the interim administration of the bankruptcy laws." Northern Pipeline Construction Co. v. Marathon Pipe Line Co., 102 S.Ct. at 2880. This court subsequently determined that the Supreme Court's stay permitted bankruptcy courts to exercise § 241(a) jurisdiction until October 4, 1982, so as to avoid "immediate chaos in the administration of bankruptcy cases." Schneider v. 2-Star Foods, Inc. (In re Cumberland Enterprises, Inc.), 22 B.R. 626, 631 (Bkrtcy.M.D.Tenn. 1982). See also McAllester v. Aldridge (In re Anderson), 24 B.R. 640 at 642 (Bkrtcy.M. D.Tenn.1982). When Congress failed to take any action prior to the expiration of the initial deadline, the Supreme Court extended the stay until December 24, 1982. Northern Pipeline Construction Co. v. Marathon Pipe Line Co., ___ U.S. ___, ___, 103 S.Ct. 199-200, 74 L.Ed.2d 160 (1982). See also United States v. Security Industrial Bank, ___ U.S. ___, ___ n. 5, 103 S.Ct. 407, 410 n. 5, 74 L.Ed.2d 235, 240 n. 5 (1982). That date has also come and gone without Congress taking any measures to rectify the emasculated jurisdictional grant. Apparently dissatisfied with Congressional inaction on the issue, the Supreme Court refused to continue the stay past December 24, 1982. See 51 U.S.L.W. 2382.

In anticipation of the failure of the United States House of Representatives and the United States Senate to act in accordance with Northern Pipeline and the refusal of the United States Supreme Court to extend its stay, the Judicial Conference of the United States Courts requested the Director of the Administrative Office of the courts to provide each circuit with a proposed rule to permit the bankruptcy system to continue without disruption. Judicial Conference Resolution (September 23, 1982). The Director, William E. Foley, attempted to comply by providing a proposed rule drafted in the United States Court of Appeals for the Ninth Circuit. See, e.g., Docter v. Gleicher (In re Stillman), 26 B.R. 834, 837 (Bkrtcy.D.Md.1983); Letters from William E. Foley (September 27 and December 3, 1982) (discussing proposed rule). Thereafter the Judicial Council for the United States Court of Appeals for the Sixth Circuit promulgated a version of Mr. Foley's rule as an "emergency rule" which the United States District Court for the Middle District of Tennessee adopted on December 24, 1982, to "convey to the bankruptcy judges of this district authority to act in bankruptcy cases and proceedings until the Congress enacts appropriate remedial legislation in response to the Supreme Court's decision in Northern Pipeline Construction Co. v. Marathon Pipe Line Co., ___ U.S. ___, 102 S.Ct. 2858, 73 L.Ed.2d 598 (1982), or until March 31, 1984, whichever first occurs." In re Administration of the Bankruptcy System, Adm.Order No. 28(a), at 1 (M.D.Tenn. December 24, 1982). (A copy of this rule is made an appendix to this Memorandum and hereinafter said rule shall be referred to as "Adm. Order No. 28").

The Chapter 13 trustee for this district has now refused to distribute funds in and administer both pending and future Chapter 13 cases because of the questionable jurisdiction possessed by this court. As a result, Commerce Union Bank has filed this motion to compel distribution and the trustee has requested a declaration regarding the jurisdictional question.

A brief history of § 241(a) of the Bankruptcy Reform Act of 1978 is necessary to place the problem now confronting the court in proper perspective. The Bankruptcy Reform Act of 1978 itself was, as explained by one commentator, conceived in an atmosphere "surrounded by controversy and intrigue." Klee, Legislative History of the New Bankruptcy Law, 28 DePaul L.Rev. 941, 942 (1979). This characterization is equally descriptive of the events which culminated in the enactment of the jurisdictional provisions contained in § 241(a). After decades of battling with the bifurcated district court/bankruptcy court jurisdictional provisions of the 1898 Bankruptcy Act, one of the principal new features of the Bankruptcy Code of 1978 was the consolidation of all bankruptcy jurisdiction in one bankruptcy court. One of the central issues confronting Congress in establishing this new single court structure was whether the expanded jurisdictional grant to the bankruptcy courts necessitated the conferral of Article III status, with its protections of lifetime appointment and guaranteed salaries, upon the new bankruptcy judges. After extensive study, the House of Representatives concluded that the Constitution required Article III courts to adjudicate the broad range of matters arising under the revamped Bankruptcy Reform Act. H.R. 8200, 95th Cong., 1st Sess. (1977). See Hearings on H.R. 31 and H.R. 32 before the Subcommittee on Civil and Constitutional Rights of the House Committee on the Judiciary, 94th Cong., 2d Sess., 2081, 2084 and 2682-2706 (1976); H.R.Rep. No. 595, 95th Cong., 1st Sess. 23-39, reprinted in 1978 U.S.Code Cong. & Ad.News 5787, 5984-6000. See also Northern Pipeline Construction Co. v. Marathon Pipe Line Co., 102 S.Ct. at 2866 n. 12; Klee, supra, at 945-948. The House's finding was based in large part upon the Subcommittee on Civil and Constitutional Rights' reports which, buttressed by the opinions of many leading experts, had concluded that Article III bankruptcy courts were constitutionally required. Subcommittee on Civil and Constitutional Rights of the House Committee on the Judiciary, Constitutional Bankruptcy Courts, 95th Cong.2d Sess., 33 (Comm.Print. No. 3, 1977); Subcommittee on Civil and Constitutional Rights of the House Committee on the Judiciary, Report on Hearings on the Court Administration Structure for Bankruptcy Cases, 95th Cong., 2d Sess., 5 (Comm.Print No. 13, 1978). The Senate bill, however, did not adopt the Article III status proposed by the House, opting instead for the creation of bankruptcy courts as adjuncts to the district courts under the auspices of Article I.S. 2266, 95th Cong., 2d Sess. (1978).4

The decision to accept the Senate's proposal, in disregard of the possible constitutional infirmity of such a broad grant of jurisdiction to non-Article III bankruptcy judges, was the result of a series of last minute compromises between the managers of both houses. Northern Pipeline Construction Co. v. Marathon Pipe Line Co., 102 S.Ct. at 2866 n. 12. See also Klee, supra, at 952-956. Strong political opposition existed against conferring Article III status on bankruptcy judges and therefore the provision in the House bill creating Article III bankruptcy judges was deleted in order to insure passage of the bankruptcy legislation before the end of the congressional session. See...

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