In re Metal Center, Inc.
| Decision Date | 12 July 1983 |
| Docket Number | Bankruptcy No. 5-82-01005,Adv. No. 5-82-0471. |
| Citation | 31 BR 458 |
| Court | U.S. Bankruptcy Court — District of Connecticut |
| Parties | In re The METAL CENTER, INC., Debtor. PLESSEY PRECISION METALS, INC., Plaintiff, v. The METAL CENTER, INC. and William J. Gardner, Defendants. |
Maureen Daheny Cox, Carmody & Torrance, Waterbury, Conn., for plaintiff.
Louise C. LaMontagne, Greenfield, Krick & Jacobs, P.C., New Haven, Conn., for defendant, The Metal Center, Inc. David L. Belt, Jacobs, Grudberg & Belt, P.C., New Haven, Conn., for defendant, William J. Gardner.
ALAN H.W. SHIFF, Bankruptcy Judge.
This matter is before the court on the plaintiff's Objection To Application For Removal/Motion For Remand.1
On June 21, 1982, the plaintiff, Plessey Precision Metals, Inc. (Plessey) instituted suit in the Superior Court of the State of Connecticut for the Judicial District of New Haven against the debtor and William J. Gardner (Gardner). In essence Plessey claimed that it sold and delivered goods to the debtor on an open account, that despite demand for payment of the amount due, the debtor failed to make complete payment, leaving a balance due and owing of $18,639.20 plus interest, and that Gardner absolutely guaranteed payment of all indebtedness incurred by the debtor.
On August 31, 1982, the debtor filed a voluntary petition, seeking relief under Chapter 11 of the Bankruptcy Reform Act of 1978. On October 13, 1982, the debtor filed a verified application for removal of the superior court action to the bankruptcy court, to which, as noted, Plessey objected and alternatively moved, pursuant to 28 U.S.C. § 1478(b), that its claim against Gardner be remanded to the superior court. On or about October 13, 1982, the debtor objected to Plessey's claim.2
A.
Plessey contends that the bankruptcy court lacks jurisdiction over its claim against Gardner, a nondebtor. In the alternative, Plessey argues that even if this court has jurisdiction over its claim against Gardner, principles of equity militate against the exercise of such jurisdiction.
The debtor, on the other hand, contends that this court does have jurisdiction. The debtor further argues that it is the indemnitor of Gardner and is bound by any judgment Plessey obtains against Gardner and that therefore severing the claim so that Plessey can proceed in state court against Gardner would indirectly affect the debtor's estate.
One of the principal elements of the Bankruptcy Reform Act of 1978 was the congressional grant of pervasive jurisdiction to bankruptcy courts. Recognizing that debtors and creditors were entitled to a unified, inexpensive and efficient system of justice to resolve their controversies and determine their rights and obligations3, Congress extended the jurisdiction of the bankruptcy court to all civil proceedings arising under Title 11 or arising in or related to cases under Title 11.4
Although the scope of the jurisdiction conferred by the words "related to" found in 28 U.S.C. § 1471 has been subject to various interpretations, see generally, In re General Oil Distributors, Inc., 21 B.R. 888, 9 B.C.D. 392, 394-95 n. 13 (Bkrtcy.E.D. N.Y.1982), numerous bankruptcy courts have found jurisdiction where, as here, a nondebtor has sued a debtor's guarantor. See In re Bretano's Inc., 27 B.R. 90, 10 B.C.D. 157 (Bkrtcy.S.D.N.Y.1983); In re Maine Marine Midland Corporation, 20 B.R. 426 (Bkrtcy.D.Me.1982); In re Brothers Coal Co., Inc., 6 B.R. 567, 6 B.C.D. 1066 (Bkrtcy.W.D.Va.1980); In re Johnie T. Patton, Inc., 12 B.R. 470 (Bkrtcy.D.Nev.1981); In re Greeman Motors, Inc., 22 B.R. 1 (Bkrtcy.D.N.M.1982); In re Hartley, 16 B.R. 777 (Bkrtcy.N.D.Ohio 1982). I find this line of cases persuasive and accordingly conclude that the cause of action against Gardner is "related to" the above captioned bankruptcy case within the meaning of 28 U.S.C. § 1471.
The broad reach of 28 U.S.C. § 1471 is not, of course, dispositive of the jurisdictional issue here because the Supreme Court in Northern Pipeline Construction Co. v. Marathon Pipe Line Co., ___ U.S. ___, 102 S.Ct. 2858, 73 L.Ed.2d 598 (1982) decided that the grant of power to bankruptcy judges under section 241(a) of Public Law 95-598 was unconstitutional. The effect of that decision was stayed until December 24, 1982, and the jurisdiction of this court is now founded upon the Emergency Resolution For Administration Of Bankruptcy System (Emergency Rule) adopted by the United States District Court for the District of Connecticut, effective December 25, 1982. See In the Matter of Braniff Airways, Inc., 700 F.2d 214 (5th Cir.), aff'g, 27 B.R. 231 (N.D.Tex.1983); White Motor Corp. v. Citibank, N.A., 704 F.2d 254 (6th Cir.1983); In the Matter of Hansen, 702 F.2d 728 (8th Cir.1983); In re Q1 Corp., 28 B.R. 647, 10 B.C.D. 522 (E.D.N.Y.1983); Moody v. Martin, 27 B.R. 991, 10 B.C.D. 575 (W.D.Wis.1983); In re Northland Point Partners, 26 B.R. 1019 (E.D.Mich.1983); In re Color Craft Press, Ltd., 27 B.R. 962, 10 B.C.D. 182 (D.Utah 1983) (). Contra In the Matter of Seven Springs Apartments, 10 B.C.D. 634 (Bkrtcy. N.D.Ga.1983) ().
While the underpinnings of the Emergency Rule are subject to divergent opinion, the consensus of the circuit courts which have reviewed the rule appears to be that 28 U.S.C. § 1471 was not completely rejected, leaving the district court with jurisdiction, inter alia, to refer matters to bankruptcy judges. In re Hansen, supra; In re Braniff Airways, Inc., supra; White Motor Corp. v. Citibank, N.A., supra.
Paragraph (c)(1) of the Emergency Rule, which tracks 28 U.S.C. § 1471, provides:
In all civil proceedings thus referred, a bankruptcy judge may enter final orders and judgments except in related proceedings where the parties have not consented to such entry. Emergency Rule ¶¶ (d)(2), (d)(3)(B).
"Related proceedings" are defined, for purposes of determining when a bankruptcy judge may enter a dispositive order, as "those civil proceedings that, in the absence of a petition in bankruptcy, could have been brought in a District Court or a State Court." The instant adversary proceeding is a related proceeding as defined in ¶ (d)(3)(A) of the Emergency Rule. Since, however, the parties have consented, a dispositive order may be entered here. Emergency Rule ¶ (d)(3)(B).
One final preliminary issue remains, namely, whether civil proceedings, otherwise within the scope of a bankruptcy court's jurisdiction under the Emergency Rule, may be removed to that bankruptcy court. This question arises from the broad language found in the Marathon plurality opinion that held section 241(a) of the Bankruptcy Reform Act unconstitutional.5 Section 241(a) not only granted bankruptcy courts broad, albeit unconstitutional, jurisdiction, but also provided the removal provisions found at 28 U.S.C. § 1478. Consequently, it might be argued that the bankruptcy court cannot entertain removed proceedings.
The post Marathon decisions, which hold that 28 U.S.C. § 1471 was not invalidated in its entirety, apply a fortiori in support of the continued vitality of 28 U.S.C. § 1478. As noted by the district court in In re Braniff Airways, Inc., supra, 27 B.R. at 233 n. 2, "the Supreme Court decision in Marathon addresses only the jurisdictional grants of § 1471, which is included in § 241(a)." Because the removal provisions carry no constitutional infirmities independent of those connected with 28 U.S.C. § 1471, which have been temporarily alleviated by the Emergency Rule, I conclude that 28 U.S.C. § 1478 remains in force. Just as proceedings are now commenced in the bankruptcy court and then "referred" there by the district court, Emergency Rule, ¶¶ (b), (c)(1), so too proceedings may be removed to the bankruptcy court in the context of the referral by the district court.
Having concluded that this court has jurisdiction and may enter a dispositive order, I now turn to the substance of the issue presented. The options presented by the parties are sever and remand Plessey's claim against Gardner, so that Plessey may continue with its state court action against Gardner or retain the entire proceeding in this court, so that the rights and obligations of all parties can be litigated together. An analysis of these options necessarily requires a consideration of the effect upon the debtor of a state court judgment against Gardner, the applicability of the automatic stay (11 U.S.C. § 362(a))6 upon a nondebtor-guarantor, judicial economy and general principles of equity.
Here Plessey argues that his right to pursue his claim against Gardner should not be impeded by the administration of the debtor's estate. Indeed, the very reason Plessey obtained Gardner's guarantee was to insure full payment in the event the debtor could not or did not pay its debt to Plessey. So Plessey urges this court to sever and remand its claim against Gardner and that result might be appropriate unless any judgment against Gardner would be binding upon the debtor. Under those circumstances, the automatic stay provided by 11 U.S.C. § 362(a) must be considered as a potential obstacle to such litigation.
Generally, the automatic stay does not apply to proceedings against nondebtors. See In re Dino Smith, 14 B.R. 956, 957-958, 8 B.C.D. 417 (Bkrtcy.D.Conn.1981). As pointed out by Chief Judge Peckham in In re Related Asbestos Cases, 23 B.R. 523, 527 (N.D.Ca.1982): "The plain language of section 362, supra, clearly and repeatedly refers to...
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