In re Indus. Tool Distributors, Inc.
| Decision Date | 03 December 1985 |
| Docket Number | Bankruptcy No. 84-03121A.,Civ. A. No. C85-1999A |
| Citation | 55 BR 746 |
| Parties | In re INDUSTRIAL TOOL DISTRIBUTORS, INC., Debtor. TELE-WIRE SUPPLY CORP., Appellant, v. PRESIDENTIAL FINANCIAL CORPORATION, INC., the United States of America and Honorable Hugh Robinson, United States Bankruptcy Judge, Appellees. |
| Court | U.S. District Court — Northern District of Georgia |
Ronald E. Barab, Smith, Gambrell & Russell, Atlanta, Ga., for Tele-Wire Supply Corp.
Scroggins, Brizendine & Bassler, Atlanta, Ga., for debtor.
Peter J. Anderson, Peterson, Young, Self & Asselin, Atlanta, Ga., for Presidential Financial Corp., Inc.
Robert S. Wayne, Schwall & Heuett, Atlanta, Ga., for National Bank of Ga.
Larry D. Thompson, U.S. Atty., Atlanta, Ga., for U.S.
Presently pending before the court is the appeal of Tele-Wire Supply Corporation ("Tele-Wire") from the February 6, 1985 Order of the United States Bankruptcy Court for the Northern District of Georgia (Robinson, J.) which found Tele-Wire in contempt of court and imposed contempt sanctions.
The underlying bankruptcy action was commenced on July 30, 1984, when appellant Tele-Wire filed a motion for relief from an automatic stay under 11 U.S.C. § 362. (R. 1-30).
For reasons irrelevant to the instant appeal, on November 16, 1984, the Bankruptcy Court ordered Tele-Wire to pay into an escrow account within ten days the sum of $59,000.00, the funds to be held in the escrow account until the Court determined certain issues involved in the bankruptcy action. (R. 69-72).
On November 26, 1984, the tenth day following the "payment order," Tele-Wire moved the Bankruptcy Court to alter or amend the payment order to require Tele-Wire to pay no more than $25,000.00 into the escrow account. (R. 73-75). Tele-Wire did not pay the sum of $59,000.00 into an escrow account but did deposit approximately $29,000.00 into such an account.
On December 12, 1984, a party claiming a secured interest in the rest of the funds held by Tele-Wire (appellee Presidential Financial Corporation) filed a motion for a contempt order and for sanctions against Tele-Wire for failure to comply with the November 16 payment order. (R. 84-85).
On January 28, 1985, after adequate notice to all parties concerned, the Bankruptcy Court held a hearing on the motion for contempt sanctions. At the hearing, Tele-Wire, through counsel, conceded that the payment order was not complied with (T. 3), but argued that its filing of a motion to amend the payment order prior to the expiration of the ten-day payment period should excuse its noncompliance. (T. 4).
Without addressing Tele-Wire's argument for excusing its noncompliance, the Bankruptcy Court found Tele-Wire in contempt of court for failing to deposit the $59,000.00 into the escrow account as directed (T. 19) and ordered Tele-Wire to pay a fine of $100.00 per day beginning the first day of noncompliance (November 27, 1985) and continuing through the date of the hearing, as well as the attorneys' fees incurred by the party bringing the motion for contempt sanctions. (T. 19-21). The bankruptcy judge, calling the hearing one for civil contempt, reasoned that the sanction was necessary to enforce his payment order. (T. 9).
No evidence was presented at the hearing of any injuries resulting from Tele-Wire's noncompliance other than evidence relating to attorneys' fees, and the court did not order Tele-Wire to compensate any party for such an injury.
The Bankruptcy Court's oral ruling was reduced to a written order on February 5, 1985, and the order was filed February 6, 1985. (R. 97-98). That order stated, in pertinent part:
This Court having considered the Motion for Contempt Order and For Sanctions and the briefs in support thereof and having heard argument of counsel and testimony, finds Tele-Wire in contempt of this Court\'s Order dated November 15, 1984 and entered November 16, 1984 by virtue of its failure to deposit into an interest-bearing escrow account the entire sum of $59,000.00 which was the subject matter of said Court\'s Order. As a result of Tele-Wire\'s failure to so comply with the Order of this Court, this Court imposes of sic a fine of $100.00 per day beginning November 27, 1985 the first day of noncompliance and continuing up to and through January 28, 1985 the date of the contempt hearing. In addition, this Court orders the sum of $315.00 to be paid to the party moving for contempt sanctions to cover its attorneys\' fees incurred in having to bring the Motion for Contempt and Sanctions before this Court.
(R. 98).1
The Bankruptcy Court stayed the enforcement of the contempt sanctions pending Tele-Wire's appeal of the contempt order. (Id.). Tele-Wire filed its Notice of Appeal on February 6, 1985.
Tele-Wire initially appealed from the February 6 contempt order on three grounds: (1) the Bankruptcy Court erred in enforcing an order for the payment of money with contempt sanctions; (2) the Bankruptcy court erred in imposing an excessive fine in a civil contempt proceeding; and (3) the Bankruptcy Court erred in imposing a punitive fine in a civil contempt proceeding.2 (Appellant's brief, pp. 3, 7, 8-16).
After the court questioned whether a bankruptcy judge even has the power to punish contempts in light of recent developments in bankruptcy law (see Order of July 1, 1985, pp. 5-6), Tele-Wire asserted lack of authority as another ground for reversal of the February 6 contempt order.3
Disposition of this appeal is initially made difficult by uncertainty as to the nature of the contempt involved as it is the nature of the contempt — that is, whether the contempt was civil or criminal — which determines the legal issues before the court. Because the sanction is just as easily labelled civil as criminal, the court will enter alternative conclusions addressing both possibilities.
To the extent the February 6 contempt order was criminal in nature because of the apparent intent of the bankruptcy judge to punish Tele-Wire for failure to comply with the payment order and to vindicate his authority, see Frankford Trust Co. v. Allanoff, 29 B.R. 407, 411 (E.D.Pa. 1983); In re Crabtree, 39 B.R. 702, 709 (Bankr.E.D.Tenn.1984), the court, upon careful consideration of the amendments made to the Bankruptcy Code in the Bankruptcy Amendments and Federal Judgeship Act of 1984, Pub.L. No. 98-353 (1984), concludes that the Bankruptcy Court lacked the statutory authority to punish for criminal contempt and thus that the February 5 contempt order must be vacated for lack of authority.
Under the former Bankruptcy Act and Bankruptcy Rules (Rule 920), a bankruptcy referee had limited remedial and punitive contempt powers. Subsequently, under the Bankruptcy Reform Act of 1978, Pub.L. No. 95-598 (1978), the contempt powers of bankruptcy judges were extended even though the judge was still prohibited from punishing a criminal contempt (a) not committed in the presence of the judge or (b) warranting a punishment of imprisonment. See 11 U.S.C. § 105(a) (pre-1984 version)4 and 28 U.S.C. § 1481. See generally 1 Collier on Bankruptcy ¶ 3.018 (15th Ed. 1985).
Congress then amended the Bankruptcy Code in the Bankruptcy Amendments and Federal Judgeship Act of 1984, supra. One amendment to the Code was the amending of § 105(a) to read:
(a) The district court rather than the bankruptcy court may issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of the Bankruptcy Code.
11 U.S.C. § 105(a) (1984). The 1984 amendments also added the following subsection to § 105, apparently in part to address the powers of bankruptcy judges in the absence of the former § 105(a):
Because nothing in the 1984 legislation explicitly deals with the contempt power of bankruptcy judges, a bankruptcy judge's statutory power to punish contempts is found, if at all, in the terms of § 105(c), which effectively provides that whether a bankruptcy judge has the broad power to issue "any order . . . that is necessary or appropriate to carry out the provisions of the Bankruptcy Code" is determined by the provisions of Title 28 relating to bankruptcy court jurisdiction.
Initially the court notes that 28 U.S.C. § 151, providing that the bankruptcy court is a "unit" of the district court, makes it clear that a bankruptcy court is not a "court of the United States" for purposes of 18 U.S.C. § 401 which sets forth the contempt powers of "courts of the United States." See also 28 U.S.C. § 451 ().
Turning to other relevant provisions of Title 28, § 157(a) states that "each district court may provide that any or all cases under title 11 the Bankruptcy Code 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) (1984). Section 157(b)(1) then provides that:
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, referred under subsection (a) of this section, and may enter appropriate orders and judgments, subject to review. . . .
28 U.S.C. § 157(b)(1) (1984) (Emphasis added).
The power of the bankruptcy court to enter "appropriate" orders pursuant to 28 U.S.C. § 157(b)(1) is, of course, restricted by 11...
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