In re Hanson Industries, Inc.

• Decision Date: 07 March 1988
• Docket Number: Adv. No. 4-87-091.,Bankruptcy No. 4-87-1478
• Citation: 83 BR 659
• Parties: In re HANSON INDUSTRIES, INC., Debtor. The BANK OF NEW ENGLAND, N.A., Plaintiff, v. HANSON INDUSTRIES, INC. and Steven D. Hanson, Defendants.
• Court: U.S. Bankruptcy Court — District of Minnesota

83 B.R. 659 (1988)

In re HANSON INDUSTRIES, INC., Debtor The BANK OF NEW ENGLAND, N.A., Plaintiff, v. HANSON INDUSTRIES, INC. and Steven D. Hanson, Defendants.

Bankruptcy No. 4-87-1478, Adv. No. 4-87-091.

United States Bankruptcy Court, D. Minnesota.

March 7, 1988.

Phillip W. Bohl, William J. Fisher, Gray, Plant, Mooty, Mooty & Bennett, Minneapolis, Minn., for plaintiff.

John J. Connelly, Lindquist & Vennum, Kathryn P. Seebart, Wagner, Johnston & Falconer, Ltd., Minneapolis, Minn., for defendants.

MEMORANDUM OF LAW

ROBERT J. KRESSEL, Chief Judge.

This proceeding came on for hearing on Steven D. Hanson's motion for remand pursuant to 28 U.S.C. § 1452(b). Phillip W. Bohl and William J. Fisher appeared for the Bank of New England, John J. Connelly appeared for Steven D. Hanson, and Kathryn P. Seebart, the trustee in the case of Hanson Industries, Inc., appeared in propria persona.¹

The underlying dispute in this proceeding initially arose as part of a consolidated action in the Hennepin County District Court. On August 19, 1986, the Bank of New England commenced an action against Hanson Industries, Inc. and Steven D. Hanson to recover on a promissory note and foreclose on its security interest. On November 6, 1986, employees of Hanson Industries, Inc. started a second action in the same court against the same two defendants, as well as several other defendants. The employees action sought recovery of unpaid wages. Because the two cases were sufficiently related, the Hennepin County District Court consolidated them on January 16, 1987.

On May 1, 1987, various creditors, including the Bank of New England, filed an involuntary petition against Hanson Industries, Inc.² Shortly thereafter, this proceeding was removed from the Hennepin County District Court by the bank. On November 20, 1987, Steven D. Hanson filed a motion to remand this proceeding to the Hennepin County District Court.

On January 20, 1988, I ordered that this case be remanded for three reasons. First, the parties cannot agree as to whether the entire consolidated action has been removed or just the Bank of New England's claim. Second, the employees' claim is clearly not a core proceeding and it is debateable as to whether the bank's claim is a core proceeding. Third, and perhaps most important, one or more of the parties may be entitled to a jury trial. Under the circumstances, remanding this proceeding to the Hennepin County District Court is appropriate.

I am writing this Memorandum of Law in support of my decision to directly remand this proceeding, rather than filing a report and recommendation with the district court as provided in Bankruptcy Rule 9027(e). Effective August 1, 1987, Rule 9027(e) prohibits a bankruptcy judge from entering an order of remand. Because Rule 9027(e) as amended alters the jurisdictional powers of the district court, I have concluded that it is invalid and unconstitutional.

I.

A brief discussion of the inter-related jurisdiction of the district court and the bankruptcy court is necessary to fully appreciate how Bankruptcy Rule 9027(e) infringes on Congress' grant of power to the district court. The bankruptcy court's jurisdiction is derived from the district court. "The bankruptcy judges in regular active service shall constitute a unit of the district court to be known as the bankruptcy court for that district." 28 U.S.C. § 151. The district court "may provide that any or all cases under title 11 and any or all proceedings arising under title 11 or arising in or related to a case under title 11 shall be referred to the bankruptcy judges for the district." 28 U.S.C. § 157(a). Pursuant to an order of the district court dated November 1, 1985, Local Bankruptcy Rule 103 was adopted in the district of Minnesota.³ That Rule provides in relevant part:

(b) Reference Subject to paragraphs (e) and (f) of this rule, all bankruptcy cases and all proceedings referable under 28 U.S.C. § 157(a), including any claim or cause of action that is removed under 28 U.S.C. § 1452 or Rule 9027, are referred to the bankruptcy judges and shall be assigned among them according to orders made by them under 28 U.S.C. § 154(a).

. . . . .

(e) Transfer: Abstention A bankruptcy judge on the judge\'s own motion or motion of a party in interest may abstain from and dismiss an adversary proceeding under Local Rule 106(h) and 28 U.S.C. § 1334(c). A bankruptcy judge on the judge\'s own motion or motion of a party in interest may transfer to the district court a non-core adversary proceeding that is related to a bankruptcy case in which a party has not consented to a bankruptcy judge hearing and determining the proceeding under paragraph (c) of this rule, or is a jury trial proceeding under paragraph (d) of this rule, or is a personal injury or wrongful death tort claim proceeding under 28 U.S.C. § 157(b)(5). Upon entry of an order for transfer, the clerk of the bankruptcy court shall transmit all papers in the adversary proceeding file and the docket of the proceeding to the clerk of the district court who shall file and treat the papers as a civil action filed in the district court on the date filed in the bankruptcy court and assign the action to a district judge.

(f) Withdrawal A motion for withdrawal of reference in whole or in part of an adversary proceeding or a bankruptcy case under 28 U.S.C. § 157(d) shall be served and filed with the clerk of the bankruptcy court within 30 days after the basis for (sic) asserted cause becomes known to the moving party and a certified copy of the motion with proof of service annexed shall be filed by the clerk of the bankruptcy court with the clerk of the district court who shall file and treat the papers as a miscellaneous proceeding and assign the proceeding to a district judge for disposition. If an adversary proceeding or a bankruptcy case is ordered withdrawn in whole or in part under this paragraph, these rules shall continue to apply to the case or proceeding, unless the district court orders otherwise.

Thus, bankruptcy courts have jurisdiction over bankruptcy cases and proceedings by reference from the district court.

(a) Reference of Bankruptcy Cases and Proceedings

Perhaps the first issue that needs to be addressed is whether it is statutorily and constitutionally permissible for the district court to refer remand determinations to the bankruptcy court. Congress conferred on the district court "original and exclusive jurisdiction of all cases under title 11." 28 U.S.C. § 1334(a). Further, § 1334(b) provides:

Notwithstanding any Act of Congress that confers exclusive jurisdiction on a court or courts other than the district courts, the district courts shall have original but not exclusive jurisdiction of all civil proceedings arising under title 11, or arising in or related to cases under title 11.

28 U.S.C. § 1334(b). The district court may refer "any or all cases under title 11 and any or all proceedings arising under title 11 or arising in or related to a case under title 11 . . ." to the bankruptcy court. 28 U.S.C. § 157(a). It is through § 1334(b) and § 157(a) that the bankruptcy court derives its jurisdiction to hear and determine motions to remand. There is no language in either statute that restricts the district court's power to refer remand decisions to the bankruptcy court. Therefore, reference is statutorily permissible. See Borchardt v. Farmers State Bank, 56 B.R. 791, 792-93 (D.Minn.1986); Thomasson v. Amsouth Bank, N.A., 59 B.R. 997, 1006-08 (N.D.Ala.1986).

A related question is whether an order of the bankruptcy court remanding a case is permissible in light on the 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). In Marathon, the Supreme Court found Congress' original grant of jurisdiction to the bankruptcy court under the Bankruptcy Reform Act of 1978, Pub.L. No. 95-598, 92 Stat. 2549 (1978), to be unconstitutional. Jurisdiction was established under 28 U.S.C. § 1471. Subsections (a) and (b) of § 1471 were substantially the same as subsections (a) and (b) of § 1334:

(a) Except as provided in subsection (b) of this section, the district courts shall have original and exclusive jurisdiction of all cases under title 11.

(b) Notwithstanding any Act of Congress that confers exclusive jurisdiction on a court or courts other than the district courts, the district courts shall have original but not exclusive jurisdiction of all civil proceedings arising under title 11 or arising in or related to cases under title 11.

28 U.S.C. § 1471 (repealed). Subsection (c), however, provided that "the bankruptcy court for the district in which the case under title 11 is commenced shall exercise all of the jurisdiction conferred by this section on the district courts." 28 U.S.C. § 1471(c) (repealed). The Supreme Court in Marathon, by plurality opinion, concluded that the broad grant of jurisdiction to bankruptcy judges under § 1471(c) was unconstitutional. Id. at 87, 102 S.Ct. at 2880. The Court reasoned that Article III of the Constitution prohibited Congress from vesting such expansive judicial powers in non-tenured judges. Id. at 76, 102 S.Ct. at 2874.

In response to Marathon, Congress enacted 28 U.S.C. §§ 1334 and 157. Section 157(a) authorizes the district court to refer its § 1334 jurisdiction to the bankruptcy court. The bankruptcy court's power, however, is more restricted than under the original jurisdictional statutes. Although bankruptcy judges have jurisdiction over any and all bankruptcy cases and proceedings, there are limitations on the judge's power to enter final orders. "Bankruptcy judges may hear and determine all cases under title 11 and all core proceedings arising under title 11, or arising in a case under title 11 . . ." that are referred by the district court. 11 U.S.C. § 157(b)(1). Section 157(b)(2) sets forth a nonexclusive list of core proceedings:

(A) matters concerning

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