In re Maness, Bankruptcy No. 1-87-02450
| Decision Date | 10 June 1988 |
| Docket Number | Bankruptcy No. 1-87-02450,Adv. No. 1-88-0003. |
| Citation | 88 BR 177 |
| Parties | In re James C. MANESS, Lura A. Maness, Debtors. EXCHANGE MUTUAL INSURANCE COMPANY, Plaintiff, v. James C. MANESS, Lura A. Maness, Defendants. |
| Court | U.S. Bankruptcy Court — Eastern District of Tennessee |
The court has entered a memorandum opinion and an order concluding that this adversary proceeding should be remanded to state court. The question is how to proceed in light of Rule 9027(e).
Rule 9027(e) makes the bankruptcy court's decision on a motion to remand subject to de novo review by the district court. De novo review is not an appeal by a party to the proceeding. The bankruptcy court itself is required to send the decision to the district court for de novo review.
De novo review is a stricter standard for reviewing the bankruptcy court's findings of fact than the district court would apply in an appeal from the bankruptcy court. Furthermore, once the district judge has completed the de novo review, he has options that would not be available in an appeal. 28 U.S.C. §§ 157 & 158; Bankr. Rules 8013 & 9033(d); 1 L.King, Collier on Bankruptcy ¶ 3.01 at 3-51 — 3-54 (15th ed. 1988).
De novo review is also required in a broad range of proceedings known as non-core proceedings. In non-core proceedings, the bankruptcy judge's decision on the merits is subject to de novo review on the presumption that the parties are constitutionally entitled to a decision at the trial level by an Article III court, the district court.
The parties' constitutional right to an Article III trial court is satisfied by the district court's power of de novo review; it makes the district court the ultimate decisionmaker at the trial level. 1 L. King, Collier on Bankruptcy ¶ 3.012d. (15th ed. 1988).
In a core proceeding, the bankruptcy court's decision is "final". It binds the parties unless one of them appeals to the district court. The district court acts only as an appellate court. 28 U.S.C. §§ 157 & 158.
The drafters of Rule 9027(e) required de novo review of a decision on a motion to remand because they were concerned with the effect of subsection (b) of the removal statute. It provides that a decision on a motion to remand is not reviewable by appeal or otherwise. 28 U.S.C. § 1452(b). The rule drafters thought that a final decision by the bankruptcy court might not be reviewable by the district court on appeal or otherwise, and this lack of any control by an Article III judge could raise a constitutional problem. In re Hanson Industries, Inc., 83 B.R. 659, 17 Bankr.Ct.Dec. 250, 18 Coll.Bankr.Cas.2d 444 (Bankr.D. Minn. 1988).
The bankruptcy court in the Hanson Industries case concluded that the jurisdiction and procedure statutes and the Constitution do not require an Article III trial court to decide a motion to remand. In light of this conclusion, the remaining problem was whether the right to appeal to an Article III court was constitutionally required if the bankruptcy court could enter a final decision. The court concluded that there was no constitutional problem because a bankruptcy court's decision on a motion to remand can be reviewed by the district court on appeal, despite subsection (b) of the removal statute. The court reasoned that the removal statute's prohibition of review does not apply between the bankruptcy court and the district court because they are not separate courts. In re Hanson Industries, Inc., 83 B.R. 659, 17 Bankr.Ct.Dec. 250, 18 Coll.Bankr.Cas.2d 444 (Bankr.D.Minn.1988). The court concluded that Rule 9027(e) is unenforceable to the extent it requires de novo review because the requirement is inconsistent with the jurisdiction and procedure statutes.
This court could reach the same result. See Boone Coal & Timber Co. v. Polan, 787 F.2d 1056, 14 Bankr.Ct.Dec. 622, 14 Coll.Bankr.Cas.2d 1386 (6th Cir. 1986). The court, however, proposes a slightly different approach.
The parties in a non-core proceeding in the bankruptcy court can waive de novo review by the district court and consent to a final decision by the bankruptcy court on the merits. The bankruptcy court's decision will become final unless appealed to the district court. 28 U.S.C. §§ 157 & 158.
The Constitution and the statutes do not prohibit the parties from waiving de novo review by the district court even if the bankruptcy court's decision will not be reviewable on appeal or otherwise by the district court or another Article III court.
Waiver of de novo review by the district court does not give the bankruptcy court jurisdiction it can not constitutionally have. The parties' waiver of their right to a decision by the district judge does not create jurisdiction in the bankruptcy court as a separate non-Article III court. It only waives their personal right to a decision by a judge with tenure under Article III. Pacemaker Diagnostic Clinic of America, Inc. v. Instromedix, Inc., 725 F.2d 537 (9th Cir.1984) (en banc) rev'g 712 F.2d 1305 (9th Cir.1983), cert. den. 469 U.S. 824, 105 S.Ct. 100, 83 L.Ed.2d 45 (1984).
Are the parties constitutionally barred from waiving de novo review because the decision will not be reviewable by the district court or any other Article III court? In other words, is de novo review unwaivable when the decision will not be reviewable on appeal?
A statute can constitutionally deny appellate review of an order remanding or denying remand of a proceeding removed to federal court. See 28 U.S.C. § 1447(d); Gravitt v. Southwestern Bell Tel. Co., 430 U.S. 723, 97 S.Ct. 1439, 52 L.Ed.2d 1 (1977) reh. den. 431 U.S. 975, 97 S.Ct. 2941, 53 L.Ed.2d 1073 (1977); Kloeb v. Armour & Co., 311 U.S. 199, 61 S.Ct. 213, 85 L.Ed. 124 (1940). The court assumes for the purpose of argument that the denial of appeal is constitutional only if the court with jurisdiction of the motion to remand is an Article III court. Does this mean that only the Article III judge can decide the motion to remand? The court thinks not.
The principle of the Pacemaker decision appears to apply. The Constitution is satisfied if the parties have the right to de novo review by the district judge, whether or not they take advantage of it; they can waive it without causing a constitutional problem. Even if the decision will be unappealable, the important point is not whether the Article III district judge actually signs the order but whether jurisdiction to decide is in an Article III court. It is in the Article III district court if the parties have the right to de novo review.
This reasoning may be begging the question. The Constitution may require that some issues be actually decided by an Article III trial judge or subject to appeal to an Article III court. The court is of the opinion that a motion to remand does not fall into this category.
A comparison to the treatment of a motion to remand in a non-bankruptcy removal may be helpful on this point.
A district judge can refer a motion to remand a non-bankruptcy removal to the magistrate without the parties' consent. 28 U.S.C. § 636(b)(1) & (c). The district judge can refer the motion with the restriction that the magistrate's decision must be treated as a recommendation and sent back to the district judge for de novo review. 28 U.S.C. § 636(b)(1)(B); 12 C. Wright, A. Miller, & F. Elliott, Federal Practice & Procedure, Civil § 3076.5 at nn. 15 & 16 (Supp. 1987).
If the district judge does not impose this restriction, the motion to remand is treated as any other nondispositive pretrial motion. 28 U.S.C. § 636(b)(1)(A). The district judge is not absolutely required to review the magistrate's decision. The district judge will review the decision if a party objects after the decision is rendered, but without an objection he may or may not review the order. 12 C. Wright, A. Miller & F. Elliott, Federal Practice & Procedure, Civil § 3076.6 at 43 (Supp.1987).
When an objection is made, the standard of review is essentially appellate review, rather than de novo review; the district judge will reverse the magistrate's decision only if it is clearly erroneous on the facts or contrary to law. 28 U.S.C. § 636(b)(1)(A).
In summary, the magistrate's decision on a motion to remand is not automatically subject to de novo review by the district court. The statute essentially gives the parties the right to appeal to the district judge. Of course, the right to appeal can be waived by failure to object to the magistrate's decision. The result is that when no party objects to the magistrate's decision, it can be the final decision without review by the district judge or the right to appellate review by the court of appeals. 12 C.Wright, A.Miller & F.Elliott, Federal Practice & Procedure, Civil § 3076.6 at 43 (Supp.1987). 28 U.S.C. § 1447(c). The magistrate's decision will be final without any review by the Article III trial judge and without the right to appellate review by an Article III court.
The court realizes that a bankruptcy removal may be different because of the different statutory grounds for remand. The bankruptcy judge can remand a proceeding on any equitable ground. The magistrate, however, can remand a proceeding only if it was removed improvidently and without jurisdiction. 28 U.S.C. §§ 1452(b) & 1447(c). The courts have in fact reviewed remand orders in non-bankruptcy removals when the remand was on some basis other than the only statutory basis — that the removal was improvident and without jurisdiction. Gravitt v. Southwestern Bell Tel. Co., 430 U.S. 723, 97 S.Ct. 1439, 52 L.Ed.2d 1 (1977) reh.den. 431 U.S. 975, 97 S.Ct. 2941, 53 L.Ed.2d 1073 (1977).
The bankruptcy statute could be interpreted to disallow review even if the remand order is not based on an equitable ground as required by the statute. The court doubts that the bankruptcy statute's prohibition on review will be interpreted this absolutely; the courts are likely to conclude that a remand order is reviewable if it is not based...
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