In re Jackson, Bankruptcy No. 81-00396
| Decision Date | 27 September 1990 |
| Docket Number | Bankruptcy No. 81-00396,81-04010 and 81-04615,Civ. A. No. 88-8303. |
| Citation | 118 BR 243 |
| Parties | In re Wilton B. JACKSON, Janet G. Jackson, t/a Greenbank Farm, A Partnership, Debtors. In re Wilton B. JACKSON and Janet G. Jackson, Individually as partners in Greenbank Farm, Debtors. In re Walter B. JACKSON and Carol E. Jackson, husband and wife, individually, and Walter B. Jackson, as a partner in Greenbank Farm, Debtors. James R. LEONARD, Jr., Trustee v. Henry WESSEL and Alan S. Carpel, Individually and t/d/b/a Wessel and Carpel, a Partnership. |
| Court | U.S. District Court — Eastern District of Pennsylvania |
Frederick P. Kramer, William J. Gallagher, West Chester, Pa., for appellees.
Duane, Morris & Heckscher by Reeder R. Fox, Philadelphia, Pa., for appellants.
Henry Wessel, pro se.
Friends, I thank you for your patience in the long gestation of this matter. I also thank you for coming in this morning. It's my intention this morning to rule on the matters that have been waiting decision.
What is at issue is a decision of Judge Scholl's in September of 1988, at which he made three rulings with respect to an adversary proceeding which had been instituted by the trustee in three consolidated Chapter 7 cases. Judge Scholl concluded that the adversary proceeding was a core proceeding within the meaning of 28 U.S.C. Section 157(b). Judge Scholl ruled that the trustee had not waived his entitlement to ask for a jury. And, finally, Judge Scholl ruled that the jury trial, which he concluded was appropriate, was a trial which could be had in the bankruptcy court.
Review of Judge Scholl's decision was held in abeyance pending the Supreme Court's review and disposition of the case called Granfinanciera. That case was ultimately decided in June of last year, and is reported at ___ U.S. ___, 109 S.Ct. 2782, 106 L.Ed.2d 26 (1989).
Subsequent to that decision, the parties have made supplementary submissions here prior to and following argument. At last, the issues are to be addressed and determined.
This case has its roots in a Chapter 11 proceeding filed on February 4th, 1981. That was a partnership filing.
In August of 1981, counsel for the debtor was replaced. Subsequently, new counsel converted the Chapter 11 proceeding into a Chapter 7 proceeding. An additional Chapter 7 proceeding was filed on behalf of those who had been originally denominated members of the partnership, Wilton B. Jackson and Janet G. Jackson; the partnership being Greenbank Farm. The additional Chapter 7 proceeding was brought on behalf of Wilton B. Jackson and Janet G. Jackson, individually and as partners in Greenbank Farm.
A further Chapter 7 proceeding was also filed on behalf of Walter B. Jackson and Carol Jackson, individually. Walter B. Jackson is a partner in Greenbank Farm.
The adversary proceeding, which is the focus of concern here, was initiated in September of 1982. That adversary proceeding was one brought against the law firm and its members, which had represented the original Chapter 11 partnership and its members — that is to say Wilton Jackson and Janet Jackson, and also, as alleged, Walter Jackson.
The adversary proceeding asserted three causes of action against the defendant attorneys. One sounded in contract and alleged a breach of a contract to perform expert legal services during the period running from January of 1981, some two weeks before the Chapter 11 filing, to August of 1981, when counsel were replaced.
The second count alleged negligent performance of the obligation incumbent on attorneys to perform competent legal services. And, again, the count covers the January to August time period.
The third count is characterized as one alleging gross negligence and breach of fiduciary duty and abuse of process. And that count, which covers essentially the same ground as the first two counts, focuses particularly on allegations of failures by the defendants to live up to their obligations to the bankruptcy court and to creditors, as well as to the debtor and its constituent members and Walter Jackson, in violation of the duties imposed on officers of the bankruptcy court by the Bankruptcy Code.
Now, the crux of the allegations of the complaint, which are said to support these three counts, has been summarized by Judge Scholl in the following language:
"The complaint in less than totally lucid fashion, alleges that the defendants acted wrongfully in at least six different senses.
(1) Advising the debtors to file bankruptcy at all, in light of the fact that they allegedly had sufficient assets to cure the defaults which had resulted in the sheriff's sale that had precipitated the bankruptcy filing;
(2) Filing the case as a partnership bankruptcy, but listing the partners' individual assets and/or commingling them with partnership assets on the debtor's schedules;
(3) Advising the debtors that they could recover certain post-petition expenditures as administrative expenses without filing requisite motions to assure this, which resulted in their loss of an opportunity to recover the funds expended for those purposes.
(4) Giving erroneous tax advice regarding the treatment of salary paid to Walter B. Jackson;
(5) Intentionally failing to disclose fees paid to them by the debtors or to disclose the repayment of a loan made by the debtors to finance such fees; and (6) Negotiating a liquidating plan for the debtors which they did not approve or desire." 90 B.R. 126 (1988).
That is on page three of Judge Scholl's opinion.
The adversary proceeding was stayed in October of 1982 to take account of the decision in the Marathon case. That is, of course, Northern Pipeline Construction Company v. Marathon Pipeline Company, 458 U.S. 50, 102 S.Ct. 2858, 73 L.Ed.2d 598 (1982). That case, which will be discussed in a moment or two, called for, in effect, the restructuring of the bankruptcy courts. It took until 1984 for the Congress to respond legislatively. The stay in this adversary proceeding remained in force, however, until 1988. A variety of factors appeared to contribute to this long delay. These need not be detailed here. But, essentially, among the things that happened were changes of trustees, changes of counsel for the trustees, and ultimately a transfer of the case from Chief Judge Twardowski to Judge Scholl pursuant to a petition to Judge Twardowski to recuse himself.
It is to be noted that the transfer related merely to this adversary proceeding, not to the underlying bankruptcy proceedings. It was after Judge Scholl took over the case that the stay was lifted, that a demand was made by the trustee for a jury trial of this matter — a demand that was resisted by the defendants — and that in due course, in the ruling which I have summarized of Judge Scholl's in September of 1988, Judge Scholl sustained the demand for a jury, finding that it had not been waived and that it was implementable in the bankruptcy court.
I have referred to Marathon as a decision in 1982, which created a pause of a substantial nature in this proceeding and in bankruptcy proceedings across the country.
What happened in Marathon? Well, in Marathon, the Supreme Court determined that the bankruptcy court, as constituted by Congress in its bankruptcy reform legislation of 1978, was, at least with respect to some proceedings, structured in a fashion that was inconsistent with the mandate of Article III — that the judicial power of the United States should be administered by Article III courts. The bankruptcy courts were not, and they are not today, Article III courts. That is to say, they are not staffed by judges appointed for good behavior and whose salaries are constitutionally protected against diminution while in office.
The determination of the Supreme Court in Marathon was that the claim made by Northern against Marathon was an ordinary contract claim defined by state law, which, if it were to come into the federal courts, as it was to, via the bankruptcy power, would have to be determined by an Article III court.
Now, the conclusion is easier to state than the rationale because there was no majority opinion in Marathon. There was a plurality opinion by Justice Brennan on behalf of himself and three colleagues. There was a concurring opinion by Justice Rehnquist for himself and one colleague, Justice O'Connor, and Chief Justice Burger, Justice White and Justice Powell were in dissent. Dissenting opinions were filed both by the Chief Justice and by Justice White.
Justice Brennan's plurality opinion announced that there were only three categories of situations in which it was compatible with the mandate of Article III that non-Article III tribunals administer federal justice. Those three categories covered, one, the creation of courts to sit in the Territories and the District of Columbia: Historically those areas over which the United States flag flies that have not been organized into states have been staffed by United States courts whose judges are not Article III judges, in the sense that they had not had the protections of tenure and salary which are the hallmark of Article III courts.
The second category of federal justice exempted from Article III's requirements is the category of courts-martials administering military justice.
The third category, less clearly defined, is that of disputes involving "public rights." Justice Brennan drew from the cases the conclusion that there is an area of "public rights" — an area involving rights created by, or closely appurtenant to, the functions of the United States, which can, in Congress' discretion, be dealt with by entities which may be administrative agencies, or may be court-like tribunals which are not structured as Article III courts are.
Justice Brennan, for the plurality, rejected the contention that the bankruptcy power vested in Congress was cognate with the three categories which he had...
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