In re Continental Airlines, Inc., 90-322 to 90-984

• Decision Date: 09 January 1997
• Docket Number: No. 90-322 to 90-984,Civ.A. No. 93-485-LON.,90-322 to 90-984
• Citation: 218 BR 324
• Parties: In re CONTINENTAL AIRLINES, INC., et al., Debtor. UNITED STATES of America, Appellant, v. CONTINENTAL AIRLINES, INC., et al., Appellee.
• Court: U.S. District Court — District of Delaware

218 B.R. 324 (1997)

In re CONTINENTAL AIRLINES, INC., et al., Debtor UNITED STATES of America, Appellant, v. CONTINENTAL AIRLINES, INC., et al., Appellee.

Nos. 90-322 to 90-984, Civ.A. No. 93-485-LON.

United States District Court, D. Delaware.

January 9, 1997.

Patricia C. Hannigan, U.S. Attys. Office (J. Christopher Kohn, Tracey J. Whitaker, Allen L. Lear, of counsel), Wilmington, DE, Samuel R. Maizel, U.S. Dept. of Justice, Washington, DC, for Appellant.

Laura Davis Jones, Young, Conaway, Stargatt & Taylor (Christian C. Onsager, Faegre & Benson, Denver, CO, of counsel), Wilmington, DE, for Appellee.

OPINION

LONGOBARDI, District Judge.

This matter comes before the Court on appeal from Orders of the United States Bankruptcy Court for the District of Delaware denying the United States's motion for an order directing the return of monies deposited with the Registry of the Bankruptcy Court and granting Continental's cross-motion for an order directing disbursement of the monies deposited with the Registry. Docket Item ("D.I.") 14, at A-168 to A-174. The matter was referred to the Honorable Mary Pat Trostle, United States Magistrate-Judge, pursuant to 28 U.S.C. § 636(b) for the purpose of obtaining a report and recommendation to aid this Court in its disposition of this matter. D.I. 20. The Magistrate-Judge issued her Report and Recommendation recommending affirmance of the Orders of the Bankruptcy Court. D.I. 22. The Government filed objections to the Report and Recommendation. This Court will therefore conduct a de novo review of the Magistrate-Judge's Report and Recommendation. 28 U.S.C. § 636(b)(1).

I.

On December 3, 1990, Continental filed a petition for reorganization under chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the District of Delaware. On April 16, 1993, the Bankruptcy Court entered an Order confirming Continental's Revised Second Amended Joint Plan of Reorganization ("Plan of Reorganization" or "Plan"). Prior to confirmation of the Plan of Reorganization, ten agencies of the United States filed proofs of claim against Continental. This appeal arises from the attempt by the United States to setoff certain funds the General Services Administration ("GSA") was ordered to pay to Continental in an unrelated matter against debts which Continental owed to these agencies.

In prior litigation, Continental and several other airlines commenced an administrative proceeding before the Comptroller General challenging GSA's policy and practice regarding government travel. The Comptroller General ruled in favor of the airlines, concluding that GSA had wrongfully withheld funds from the airline. GSA refused to abide by the ruling, claiming that the Comptroller General lacked constitutional authority to issue a binding decision. Consequently, the airlines filed suit in the United States District Court for the District of Columbia in Alaska Airlines, Inc. v. Richard Austin, 801 F.Supp. 760 (D.D.C.1992), to enforce the Comptroller's decision.

On August 11, 1992, the court ruled in the airlines favor and entered an injunction which, inter alia, ordered GSA to return money improperly withheld from the airlines. See Alaska Airlines, Inc. v. Richard Austin, 801 F.Supp. 760 (D.D.C.1992), rev'd in part on other grounds, 8 F.3d 791 (Fed.Cir.1993). Following the issuance of the injunction, the United States moved in the District Court of the District of Columbia for a stay pending its appeal. This motion was denied. The United States appealed this denial to the United States Court of Appeals for the Federal Circuit. In an Order dated February 10, 1993, the Federal Circuit also denied the United States's motion. On reconsideration, at the request of the United States, the Federal Circuit ordered GSA to pay the money withheld from Continental and three other airlines in bankruptcy proceedings into the registry of the respective bankruptcy courts rather than to the trustees. In accordance with the Federal Circuit's Order, on May 19, 1993, the United States deposited approximately $4.5 million in the Registry of the Bankruptcy Court for the District of Delaware.

On May 28, 1993, the United States moved in the Bankruptcy Court in the present action for an order directing the return of the money deposited in the Registry as a setoff against the debts owed by Continental to the various agencies of the United States that filed proofs of claims in this case. Continental opposed this motion and filed a cross-motion for disbursement of the funds. After a hearing, the Bankruptcy Court denied the United States's motion and granted Continental's cross-motion. This Court has jurisdiction over the United States's appeal from these Orders pursuant to 28 U.S.C. § 158(a).

II.

A.

As a preliminary matter, the United States objects to this Court's referral of this case to the Magistrate-Judge. Pursuant to 28 U.S.C. § 636(b), this Court assigned this case to the Magistrate-Judge for the purpose of obtaining a report and recommendation to aid this Court in its decision of this matter. The United States asserts that it is improper for a district court to refer bankruptcy appeals to a magistrate-judge.

Resolution of this issue requires an examination of the modern procedural changes in the United States Bankruptcy Court system. The previous bankruptcy law, enacted as part of the Bankruptcy Reform Act of 1978 ("BRA"), expressly prohibited the district courts from referring appeals of bankruptcy court decisions to magistrate-judges. Under that system, 28 U.S.C. § 1334(c) provided: "A district court may not refer an appeal ... to a magistrate or to a special master." This system also provided for three avenues of appeal from orders of bankruptcy judges: (1) to a panel of three bankruptcy judges; (2) to the United States district courts; or (3) directly to the courts of appeals, provided the parties agreed. See 1 Collier on Bankruptcy § 3.03(1)(a) (1996).

In response to the United States Supreme Court's decision in Northern Pipeline Constr. Co. v. Marathon Pipe Line Co., 458 U.S. 50, 102 S.Ct. 2858, 73 L.Ed.2d 598 (1982), which raised doubts about the constitutionality of the bankruptcy court system established by the BRA, Congress amended the bankruptcy court system through the enactment of the Bankruptcy Amendments and Federal Judgeship Act of 1984 ("BAFJA"). The BAFJA, inter alia, completely rewrote section 1334. By rewriting this section, Congress repealed the prohibition against referral to a magistrate-judge by omission. The BAFJA also reduced the avenues of appeal from the order of a bankruptcy judge from three to two. Under 28 U.S.C. § 158, a party may appeal an order of a bankruptcy court (1) to a district court; or (2) to panel of three bankruptcy judges.

The United States relies on the decisions in Minerex Erdoel, Inc. v. Sina, Inc., 838 F.2d 781 (5th Cir.), cert. denied sub.nom. Baker, Smith & Mills v. Minerex Erdoel, Inc., 488 U.S. 817, 109 S.Ct. 57, 102 L.Ed.2d 35 (1988), and In re Elcona Homes Corp., 810 F.2d 136 (7th Cir.1987) in challenging the propriety of referring this bankruptcy appeal to the Magistrate-Judge. These cases, however, are both distinguishable from the situation before the Court. In both of those cases, the district court referred the bankruptcy appeal to the magistrate-judge pursuant to 28 U.S.C. § 636(c)(1). See Minerex, 838 F.2d at 782 n. 1; Elcona Homes, 810 F.2d at 138. Under section 636(c)(1), a magistrate-judge, upon consent of the parties, "may conduct any or all proceedings in a jury or nonjury civil matter and order the entry of judgment in the case, when specifically designated to exercise such jurisdiction by the district court...." Thus, in both of those cases, the magistrate-judge entered the final order in the case with no consideration or review from the district court. This was found to be contrary to the language in section 158 which clearly delineates the possible routes of appeal. The Court of Appeals for the Fifth Circuit opined:

We are firmly convinced that § 158 can and must be taken at face value. Section 158 provides an intricate, balanced, and elaborate scheme for bankruptcy appeals carefully and thoughtfully crafted by Congress. Under that scheme appeals could be taken to (i) the District Court or (ii) to a panel of bankruptcy judges. No other type or kind of appeal was recognized, acknowledged, or permitted under that scheme.... It is reasonable to conclude that had Congress meant for its appeals scheme to include the potential for reference to a magistrate, Congress would have expressly so provided. Congress did not do so. Congress intended for its § 158 scheme to be comprehensive and complete in itself, and the avenues which it expressly provided to be the exclusive routes for bankruptcy appeals.

Minerex, 838 F.2d at 786 (footnote omitted); accord Elcona Homes, 810 F.2d at 139.

Conversely, in this case, the referral to the Magistrate-Judge was made pursuant to section 636(b). Unlike the situations described above, the Magistrate-Judge's decision is merely advisory, and the final order will be issued by this Court after de novo review of the Magistrate-Judge's Report and Recommendation. This distinction has been found to be critical by every post-BAFJA court reviewing this issue.¹ See Virginia Beach Fed. Sav. and Loan Ass'n v. Wood, 901 F.2d 849, 851 (10th Cir.1990); Hall v. Vance, 887 F.2d 1041, 1045-46 (10th Cir.1989); In re Apex Oil Co., 146 B.R. 821, 822-23 (E.D.Mo. 1992). As the Court of Appeals for the Tenth Circuit stated,

In this case, the district court\'s order specifically states that the hearing before the magistrate would be advisory and that its purpose was "to further define and focus the issues on appeal." The district court explicitly reserved for itself the final decision on appeal. The district court, therefore, properly availed itself of the magistrate\'s assistance to hasten its handling of the case. By reserving for

...