In re GWF Inv., Ltd.
| Citation | 85 BR 771 |
| Decision Date | 25 March 1988 |
| Docket Number | 3-81-0337.,Adv. No. 3-81-0428,Bankruptcy No. 3-81-00699 |
| Parties | In re GWF INVESTMENT, LTD., Debtor. Frederic E. GAGEL, Plaintiff, v. KINGSTON-GREENE PARTNERS, LTD., et al., Defendants. |
| Court | United States Bankruptcy Courts. Sixth Circuit. U.S. Bankruptcy Court — Southern District of Ohio |
Horace W. Baggott, Jr., Dayton, Ohio, for Frederick E. Gagel.
Gary W. Crim, Dayton, Ohio, for trustee for GWF Inv. Co.
Thomas R. Noland, Dayton, Ohio, for defendants.
DECISION AND ORDER DISMISSING ADVERSARY PROCEEDINGS FOR LACK OF JURISDICTION
This matter is before the court upon a remand from district court to review the captioned cause and to make a determination of this court's subject matter jurisdiction in view of post-Northern Pipeline jurisprudence and statutory enactments.
GWF Investment, Ltd. ("Debtor") was a debtor in this court under chapter 11 of the Bankruptcy Code and an Ohio general partnership with two partners: Frederic E. Gagel and W & F Investment Company (also an Ohio partnership whose partners are Wilfrey Management Company, the estate of Steven F. Williams and H. Garrett Frey). (See attached Exhibit A which illustrates the complex relationships of the partnerships involved herein.) On May 26, 1981 Debtor filed a complaint (Adversary Proceeding X-XX-XXXX) against H. Garrett Frey and Kingston Greene Partners, Ltd. The complaint seeks $102,483 for money advanced by Debtor to the defendants to rehabilitate Kingston Greene Apartments.
On June 30, 1981 H. Garrett Frey filed an application (Adversary Proceeding X-XX-XXXX) to remove a certain state court action from the Common Pleas Court of Butler County, Ohio to this court. The state court action had previously been filed by Frederic E. Gagel against Kingston Greene Partners, Ltd., H. Garrett Frey, the law firm of Graydon, Head and Ritchey, and John L. Evans, Jr. In his state court complaint Mr. Gagel demanded $145,875 from Kingston Greene Partners, Ltd. for money had and received and demanded that the deed of Kingston Greene Apartments, which had been executed and delivered by him to Kingston Greene Partners, Ltd., be delivered up and cancelled and that he be restored to the ownership of the premises. Mr. Gagel also demanded damages from the other defendants for fraud and false representations in connection with the transfer of the deed of Kingston Greene Apartments.
On September 8, 1981 the two adversary proceedings were ordered consolidated by the bankruptcy court. Subsequently, the court granted leave for Mr. Gagel to join Wilfrey Investment Company (the alleged general contractor for the rehabilitation of Kingston Greene Apartments) and Wilfrey Management Company (a partner of Wilfrey Investment Company) as parties in these proceedings.
On July 22, 1982 Hon. Charles A. Anderson, United States Bankruptcy Judge, found that the bankruptcy court, pursuant to former 28 U.S.C. § 1471, had jurisdiction to adjudicate the adversary proceedings and "that all the alleged claims of Plaintiff arise from a single continuing transaction and bifurcation of the issues could lead to conflicting results. . . ." Doc. No. 29; Adv.Pro. X-XX-XXXX Judge Anderson also denied a motion of Mr. Gagel to remand the removed state court action to the Common Pleas Court of Butler County, Ohio.
On September 14, 1982 Judge Anderson, upon representation of a settlement having been reached, dismissed with prejudice the claims of Mr. Gagel against the law firm of Graydon, Head and Ritchey, and those against John L. Evans, Jr.
On January 11, 1983 Judge Anderson sua sponte reviewed the bankruptcy court's jurisdiction in light of the Supreme Court's decision of Northern Pipeline Construction Co. v. Marathon Pipe Line Co., 458 U.S. 50, 102 S.Ct. 2858, 73 L.Ed.2d 598 (1982), and found that jurisdiction of the type of litigation involved in the instant adversary proceedings was "vested only in the state courts." As a result Judge Anderson remanded Adversary Proceeding X-XX-XXXX to state court and abstained from deciding Adversary Proceeding X-XX-XXXX. The orders of remand and abstention were appealed to district court. The matter is now before this court upon instructions of the district court to determine in accordance with post-Northern Pipeline judicial decisions and statutory enactments whether bankruptcy jurisdiction exists to decide these two adversary proceedings.
On June 28, 1982 the Supreme Court concluded in a plurality opinion, Northern Pipeline Co. v. Marathon Pipe Line Co., 458 U.S. 50, 102 S.Ct. 2858, 73 L.Ed.2d 598 (1982), that:
28 U.S.C. § 1471 (1976 ed., Supp. IV), as added by § 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. Id. at 87, 102 S.Ct. at 2880.
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," the Court stayed its judgment until October 4, 1982. Id. at 88, 102 S.Ct. at 2880. Upon motion of the Solicitor General, the Court extended its stay of judgment until December 24, 1982, 459 U.S. 813, 103 S.Ct. 199, 74 L.Ed. 2d 160, but despite Congress' failure to enact remedial legislation, refused the Solicitor General's request for an additional stay of its judgment, 459 U.S. 1094, 103 S.Ct. 662, 74 L.Ed.2d 942.
Subsequently, Hon. Carl Rubin, Chief Judge for the Southern District of Ohio adopted the model rule which became known as the "Emergency Rule" or the "Interim Rule." Many, if not most, bankruptcy judges and scholars found Northern Pipeline to be enigmatic and raised serious questions about the remaining scope of bankruptcy jurisdiction and the validity of the Emergency Rule (which was dependent on the survival of bankruptcy jurisdiction in the district courts). In the instant proceedings Judge Anderson's decision to remand one adversary proceeding and to abstain from deciding the other was grounded on the rationale contained in his previous decision of Winters National Bank and Trust Co. v. Schear Group (In re The Schear Realty and Investment Co.), 25 B.R. 463 (Bankr.S.D.Ohio 1982), in which he detailed his reservations concerning the Emergency Rule. In brief, Judge Anderson found that once the judgment of Northern Pipeline became effective neither the bankruptcy courts nor the district courts had jurisdiction to decide state law causes of action and that district courts by use of the Emergency Rule could not supply the requisite jurisdiction. Subsequently, however, the Sixth Circuit included Schear Realty in an illustrative listing of cases with which it disagreed. See White Motor Corp. v. Citibank, N.A., supra, 704 F.2d at 259, and held that "former §§ 1471(a) and (b) giving the district courts original jurisdiction in all cases under Title 11 were not affected by the Supreme Court's decision in Northern Pipeline," Id. at 260, and that the bankruptcy courts possessed derivative jurisdiction to determine bankruptcy matters. In the Sixth Circuit's view the Supreme Court invalidated only former § 1471(c), which had conferred direct, nonderivative bankruptcy jurisdiction on the bankruptcy courts:
The interim rule does not violate the Constitution because the district courts retain primary jurisdiction over all bankruptcy proceedings. The bankruptcy courts have only derivative jurisdiction. They do not operate under an exclusive grant of jurisdiction as in § 1471(c) but rather derive their jurisdiction from the district court as under the Chandler Act. The district courts retain control and primary responsibility for the conduct of bankruptcy proceedings. The interim rule implants sufficient mechanisms in the existing system to ensure that bankruptcy cases are resolved through a constitutionally valid process. Id. at 263.
With the benefit of twenty-twenty hindsight, it must be concluded that the bankruptcy court, on the basis of a lack of jurisdiction, improperly remanded and abstained with respect to the adversary proceedings in this case. During the effective period of the Emergency Rule bankruptcy jurisdiction existed to decide these...
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