In re First Hartford Corp.

• Decision Date: 28 July 1986
• Docket Number: Adv. 82-5456A.,Bankruptcy No. 81 B 10390 (TLB)
• Citation: 63 BR 479
• Parties: In re FIRST HARTFORD CORPORATION d/b/a Wyandotte Mills, Debtor. WYANDOTTE INDUSTRIES, DIVISION OF FIRST HARTFORD CORPORATION, Plaintiff, v. E.Y. NEILL & COMPANY, Defendant.
• Court: U.S. Bankruptcy Court — Southern District of New York

63 B.R. 479 (1986)

In re FIRST HARTFORD CORPORATION d/b/a Wyandotte Mills, Debtor WYANDOTTE INDUSTRIES, DIVISION OF FIRST HARTFORD CORPORATION, Plaintiff, v. E.Y. NEILL & COMPANY, Defendant.

Bankruptcy No. 81 B 10390 (TLB), Adv. 82-5456A.

United States Bankruptcy Court, S.D. New York.

July 28, 1986.

Bandler & Kass, New York City, for debtor; by Iris S. Richman.

Warner & Stackpole, Boston, Mass., for E.Y. Neill & Co.; by Charles N. Trippe, Jr.

Morgan, Lewis & Bockius, New York City, for E.Y. Neill & Co.

PROPOSED FINDINGS OF FACT AND CONCLUSIONS OF LAW

TINA L. BROZMAN, Bankruptcy Judge.

First Hartford Corporation ("FHC"), the plaintiff and debtor in possession, commenced an adversary proceeding against E.Y. Neill & Company ("E.Y. Neill") seeking damages caused by the claimed late delivery of allegedly unmerchantable fine super Australian scoured lamb's wool. Defendant urges that the wool was not delivered late, that it was in fact merchantable and that, in any event, FHC cannot prevail because of its failure to notify E.Y. Neill of the alleged unmerchantability within a reasonable period of time. Defendant also challenges the subject matter and personal jurisdiction of this court.

Defendant argues that FHC's complaint must be dismissed because the bankruptcy court lacks subject matter jurisdiction over state law claims for breach of contract and breach of warranty. Defendant urges that the legislative response to the Supreme Court's decision in Northern Pipeline Construction Co. v. Marathon Pipe Line Co., 458 U.S. 50, 102 S.Ct. 2858, 73 L.Ed.2d 598 (1982) ("Marathon"), in which a plurality of the Court held unconstitutional the broad grant of jurisdiction to the bankruptcy courts to adjudicate state law breach of contract and warranty claims under former 28 U.S.C. § 1471 (1976 ed., Supp. IV), is itself unconstitutional.¹ Because we find that this adversary proceeding is a related one which can be finally adjudicated only by the district court, we need not determine the constitutional reach of this court's jurisdiction. See Nanodata Computer Corporation v. Kollmorgen Corporation (In re Nanodata Computer Corporation), 52 B.R. 334 (Bankr.W.D.N.Y.1985); see generally L. King, Jurisdiction and Procedure Under the Bankruptcy Amendments of 1984, 38 Vand.L.Rev. 675, 686-89 (1985) (hereinafter, "King").

The Congressional solution to Marathon, the Bankruptcy Amendments and Federal Judgeship Act of 1984 ("BAFJA"), Pub.L. No. 98-353 (1984), permits bankruptcy judges pursuant to section 157(b)(1), 28 U.S.C. § 157(b)(1), to hear and enter final orders in all cases under title 11 and in all "core" proceedings (which necessarily arise in or under the bankruptcy case), subject to traditional appellate review under 28 U.S.C. § 158. Manville Corporation v. The Equity Security Holders' Committee (In re Johns-Manville Corporation), 60 B.R. 842, 848 & n. 18 (S.D.N.Y.1986); Nanodata, 52 B.R. at 441 n. 22. Pursuant to 28 U.S.C. § 157(c), bankruptcy judges may also hear, but not determine, "non-core" proceedings related to a case under title 11; unless the parties consent to entry of a final order by the bankruptcy judge, the judge will submit proposed findings of fact and conclusions of law to the district court. Manville, supra, 60 B.R. at 848.

In our view, the district court is clearly vested with subject matter jurisdiction pursuant to 28 U.S.C. § 1334 to hear FHC's action against E.Y. Neill, a civil proceeding related to a case under title 11. Although FHC would have us determine that its action for damages is a "core" proceeding in that it affects the liquidation of the assets of the estate or the adjustment of the debtor-creditor relationship, we reject FHC's contention that an action for breach of contract and breach of warranty, precisely the type of action involved in Marathon, is included within the ambit of "core" proceedings, notwithstanding the undeniably broad definition of that phrase. See Manville, supra, 60 B.R. at 848-49; King, 38 Vand.L.Rev. at 686-89. Whereas the definition of a core proceeding includes no fewer than four catch-all phrases which could be interpreted to encompass the type of action at issue in Marathon, the constitutionality of a statute is to be presumed; thus we do not believe that the definition should be read in the fashion proposed by FHC. See Nanodata, 52 B.R. at 342; Mohawk Industries, Inc. v. Robinson Industries, Inc., 46 B.R. 464 (D.Mass.1985); Manville, supra, 60 B.R. at 849; but see Satelco Incorporated v. North American Publishers, Inc. (In re Satelco, Incorporated), 58 B.R. 781 (Bankr.N.D.Tex.1986). Inasmuch as the district court is vested with jurisdiction to finally determine this adversary proceeding, we may, pursuant to 28 U.S.C. § 157(a) and the order of July 10, 1984 referring all cases and proceedings under title 11 to the bankruptcy judges of this district, propose findings of fact and conclusions of law without running afoul of the Constitution.

Trial was held on May 13, June 6 and June 7, 1985, FHC calling as witnesses an expert and three of its former officers. E.Y. Neill called its senior partner and a former officer of another company which eventually purchased and used most of the wool in question. After carefully considering the exhibits, hearing and observing the witnesses and weighing all the evidence and arguments of counsel, we propose the following facts.

PROPOSED FINDINGS OF FACT

On February 20, 1981, FHC, a manufacturer and seller of finished textiles which operated a mill in Waterville, Maine, filed a petition for reorganization pursuant to Chapter 11 of the Bankruptcy Code (the "Code"). FHC was continued in possession of its property and operation of its business pursuant to sections 1107 and 1108 of the Code. E.Y. Neill, a wool merchant with 50 years' experience in the industry and almost 40 years' experience in the sale of Australian wools, Tr. at 359, is a Massachusetts partnership with its principal place of business in Boston, having no office, agent, mailing address or telephone listing in New York. Tr. at 351-52.

In late April, 1981, Eric Ullman ("Ullman"), FHC's vice president, and Stanley E. Neill ("Neill"), E.Y. Neill's senior partner, agreed during the course of a telephone conversation that E.Y. Neill would sell to FHC about 20,000 pounds of fine super Australian scoured lamb's wool at $4.12 per pound, as had. This was the final purchase of wool that FHC made from E.Y. Neill, with whom FHC had been dealing for many years. Tr. at 353-54.

FHC's purchase order indicates that half the wool was to be shipped in mid-July and that the other half was to be shipped in mid-August. Plaintiff's Exhibit 22. E.Y. Neill's confirmation disagrees with the delivery terms; it provides that half the wool was to be shipped "as soon as possible," that the remainder was to be shipped 3 weeks after the first shipment and that "we will notify you shortly what ship the first 10,000 lbs. will be coming on." Plaintiff's Exhibit 23. This confirmation was accepted in writing by H. Peter Pearson, the vice president and general manager of FHC. Plaintiff's Exhibit 23. Although FHC steadfastly maintained that the delivery terms were agreed as set forth in its purchase order, the purchase order was not signed by E.Y. Neill and Ullman did not testify in rebuttal of Neill's testimony, which was both credible and congruent with the confirmation sent by E.Y. Neill to, and accepted by, FHC.

Neill testified that on April 29, 1981 he and Ullman had a telephone conversation during which Ullman expressed an interest in purchasing 20,000 pounds of Australian lamb's wool. Tr. at 355-56. When Neill informed Ullman that no shipping date could be guaranteed because of strikes in Australia, Ullman nevertheless urged Neill to communicate with his suppliers, which he did. Tr. at 356.

E.Y. Neill's principal supplier telexed an offer for the requested wool, indicating that a specific arrival date could not be guaranteed. Tr. at 356. Neill telephoned the offer to Ullman and read him the telex from the supplier. Tr. at 356-57. Ullman agreed to the purchase but asked Neill to confirm in writing that E.Y. Neill would endeavor to ship as soon as possible. Tr. at 357. Thus the confirmation so provided, further stating that "Seller shall not be liable in damages to buyers for any action or any other cause beyond seller's control, and the dates and quantities of deliveries shall be modified to the extent necessitated by such causes." Plaintiff's Exhibit 23.

After this second conversation, Neill telexed his supplier, providing the requisite information and indicating that the wool was to be shipped as soon as possible. Tr. at 360. The supplier sent samples from the lot of wool to FHC and E.Y. Neill. Tr. at 382. Neill noted on his own sample that the mate had been sent to Ullman on June 3, 1981 and approved by Ullman on June 11, 1981. Tr. at 383.

The supplier advised E.Y. Neill that half the shipment would be sent on a ship estimated to arrive in Boston on July 16, and that the other half would be sent on a ship estimated to arrive in Boston on July 25. Tr. at 362-63. Thereafter, the supplier sent numerous telexes to Neill to apprise him of the status of the labor strikes. Tr. at 369-70; Defendant's Exhibit C.² Neill advised Ullman by letter in mid-June that, because of a container terminal strike, the first shipment of wool would instead be shipped aboard a later-departing ship; unfortunately, because of the strikes, that ship departed without the wool. Plaintiff's Exhibit 20; Tr. at 370; Defendant's Exhibits D, E & F.

During June, July and August of 1981, Neill spoke each week with either Ullman or Marcel Renny, FHC's former vice president of production, to keep them apprised of the shipping situation. Tr. at 377-78. Neither of them ever requested Neill to cancel the order or indicated that the wool was late. Tr. at 378. At the end of August, however, Renny called Neill and asked him...