In re Lion Capital Group
| Decision Date | 12 February 1985 |
| Docket Number | Adv. No. 84-5996A (HCB),84-5997A (HCB).,Bankruptcy No. 84-B-10668-72 (HCB) |
| Citation | 46 BR 850 |
| Parties | In re LION CAPITAL GROUP, et al., Debtors. Stanley T. LESSER, Trustee for Hamilton Gregg Monetary Management Limited, Plaintiff, v. A-Z ASSOCIATES, et al., Defendants. Stanley T. LESSER, Trustee for Hamilton Gregg Asset Management Ltd., Plaintiff, v. 931 INVESTORS, et al., Defendants. |
| Court | U.S. Bankruptcy Court — Southern District of New York |
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Kaye, Scholer, Fierman, Hays & Handler by Milton Sherman, New York City, for trustee.
Stroock, Stroock & Lavan by Lawrence Handelsman, New York City, for certain defendants.
Stanley T. Lesser, Trustee, has submitted an order implementing this Court's opinion of December 3, 1984, reported at 44 B.R. 690, ___ BCD ___, (familiarity with which is assumed). There, it was determined that a motion to stay defendants from pursuing litigation in the district court and to dismiss certain counterclaims and defenses in an action brought to enforce contractual obligations payable on demand should be granted. Defendants object to that order on the grounds that these proceedings are not "core proceedings" as that term is employed in 28 U.S.C. § 157(b) enacted as part of the Bankruptcy Amendments and Federal Judgeship Act of 1984, P.L. 98-353 (1984). They assert that the order must instead be cast as findings of fact and conclusions of law for submission to the district court pursuant to 28 U.S.C. § 157(c)(1). The Trustee responds that, even if the proceeding is not found to be a core proceeding, the order is not a final order requiring approval by the district court under § 157(c)(1).
The distinction in the bankruptcy courts' role in core versus non-core proceedings is the essence of the jurisdictional system designed by Congress in the wake of the Supreme Court's invalidation under Article III of the Constitution of 28 U.S.C. § 1471(b) in Northern Pipeline Construction Co. v. Marathon Pipe Line Co., 458 U.S. 50, 102 S.Ct. 2858, 73 L.Ed.2d 598 (1982). Briefly, 28 U.S.C. § 1334 was amended to provide the district courts with jurisdiction over all "cases under title 11" and "all civil proceedings arising under title 11 or arising in or related to cases under title 11." Pursuant to § 28 U.S.C. § 157(a), the district courts are permitted to refer all such cases and proceedings to bankruptcy judges.1 Acting as the bankruptcy court for the district,2 bankruptcy judges are empowered by 28 U.S.C. § 157(b) to "hear and determine all cases under title 11 and all core proceedings arising under title 11, or arising in a case under title 11" which are so referred. If the proceeding is core, the bankruptcy judge can enter all appropriate judgments subject to appellate review by the district court. § 157(b). For those proceedings which are non-core but "otherwise related to a case under Title 11," the bankruptcy judge can hear them and "submit proposed findings of fact and conclusions of law to the district court and any final order or judgment shall be entered by the district judge" with those recommendations in mind, reviewing de novo only those matters to which a party has timely and specifically objected. § 157(c)(1). Determination of whether a proceeding is core is entrusted to the bankruptcy judge under § 157(b)(3).
In support of his form of order, the Trustee asserts that its entry need not await determination of whether these proceedings are core or related proceedings under § 157(b). He claims that the order is not a final order and therefore requires not the imprimatur of a district court judge.
This assertion requires some explication of the opinion the order would implement in order to be understood. The motion before this Court sought several forms of relief: (i) the issuance of an order staying defendants from pursuing litigation against persons and entities related to the debtors-in-possession here pending determination of these adversary proceedings, (ii) dismissal of fraud based counterclaims pursuant to Rule 9(b) of the Federal Rules of Civil Procedure and (iii) dismissal of certain counterclaims pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure on the ground that they failed to state a claim upon which relief may be granted. In our opinion of December 3, 1984, it was determined that a stay should issue, that the Rule 9(b) motion should be granted with leave to amend and that the Rule 12(b)(6) motion should be granted to the extent of dismissing certain counterclaims brought pursuant to the Racketeer Influenced Corrupt Organizations Act, 18 U.S.C. § 1962(c). ("RICO").
Of these various forms of relief, it would appear that only that portion of the order dismissing certain counterclaims under Rule 12(b)(6) would be a final order. While that term of art is not defined, the employment of "familiar legal expressions in their familiar legal sense employed connotes an intention by Congress that the words be accorded the same meaning, limitations and gloss previously attached to them." Henry v. United States, 251 U.S. 393, 395, 40 S.Ct. 185, 186, 64 L.Ed. 322 (1920).
District court orders dismissing complaints with leave to amend are not final decisions under 28 U.S.C. § 1291 (1982) and are thus not appealable. Kozemchak v. Ukrainian Orthodox Church of America, 443 F.2d 401 (2d Cir.1971). Similarly, injunctions pendente lite are not final orders but are interlocutory under 28 U.S.C. § 1292(a)(1) (1982) and may be appealed under that statute. Absent any evidence that Congress meant to accord the term "final order or judgment" as used in 28 U.S.C. § 157(c) a different meaning from that attached to it under 28 U.S.C. § 1291, these precepts would apply.
The defendants respond to this reasoning by observing that § 157(c)(1) provides the bankruptcy judges with power only to "hear" a non-core related proceeding and requires bankruptcy judges to submit findings and conclusions to the district court for consideration by it in entering a final order. They thus observe that bankruptcy judges are not expressly given the power to enter interlocutory orders.
This argument results from inartful draftsmanship for § 157(c)(1) indicates that the district courts may enter only final orders in related cases referred to the bankruptcy judges. Furthermore, the end result of the defendants' argument would require wholesale deferral of all interlocutory matters, such as orders regulating discovery and the like, to the district courts thereby swamping district court calendars.
In light of the burden on the district courts and on litigants that such wholesale referral would entail, we are reluctant to impute any such intention to Congress absent support for such an interpretation in the legislative history. Given the burdens described, and that Congress enabled the district courts to withdraw the reference under § 157(d), the absence of any such indication is hardly surprising. It consequently appears that Congress sought to involve the district courts only with respect to final orders in referred proceedings and that the bankruptcy courts are to issue interlocutory orders in related cases referred to them. The order, insofar as it would enjoin the defendants from proceeding with their district court actions against affiliates of the debtors and dismiss counterclaims and defenses with leave to amend, may, therefore, be entered without regard to whether the proceeding is core or non-core. But the order dismissing defendants' RICO counterclaims and defenses under Rule 12(b)(6) is unquestionably final. It thus compels determination of the nature of the proceeding. Furthermore, the parties agree that at this stage in these proceedings, determination of whether the proceeding is core or non-core is appropriate. 28 U.S.C. § 157(b)(3) provides that the bankruptcy judge is to make that decision. Accordingly, we now turn to that issue.
Turning first, as we must in the exercise of interpretation, e.g., Ernst & Ernst v. Hochfelder, 425 U.S. 185, 197, 96 S.Ct. 1375, 1382, 47 L.Ed.2d 668 (1976), to the statutory language of 28 U.S.C. § 157(b)(2), it is self-evident that Congress sought to define core proceedings by setting forth under that broad umbrella fifteen types of matters which fall thereunder but do not circumscribe its meaning; outer limits are left to be defined by the courts. Among the express inclusions, four are of interest here: "matters concerning the administration of the estate," "orders to turn over property of the estate," "allowance or disallowance of claims against the estate," and "other proceedings affecting ... the adjustment of the debtor-creditor or the equity security holder relationship...." In addressing these issues, § 157(b)(3) expressly commands that "determination that a proceeding is not a core proceeding shall not be made solely on the basis that its resolution may be affected by State law."
Since the stay of defendants from pursuing their actions in the district court is grounded on the harm to efficient administration of the debtor's estate that would likely occur absent a stay, the motion seeking such relief is undoubtedly a core proceeding within the meaning of the statute.3Mahaffey v. E.C.P. of Arizona, Inc., 40 B.R. 469, 12 B.C.D. 164 (Bankr.D.Colo. 1984). Moreover, the phrase "matters concerning the administration of the estate" bears resemblance to the description by the Supreme Court in Taylor v. Voss, 271 U.S. 176, 46 S.Ct. 461, 70 L.Ed. 889 (1926) of the bankruptcy court's jurisdiction under the former Bankruptcy Act as pertaining to "matters of an administrative character including questions between the bankrupt and his creditors which are presented in the ordinary course of the administration of the bankrupt's estate." Id. at 181, 46 S.Ct. at 463. It is thus significant that under the former ...
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