In re River Transp. Co., Bankruptcy No. 382-00328
| Decision Date | 30 November 1983 |
| Docket Number | 382-0354.,Adv. No. 382-0153,381-03432,Bankruptcy No. 382-00328 |
| Citation | 35 BR 556 |
| Court | U.S. Bankruptcy Court — Middle District of Tennessee |
| Parties | In re RIVER TRANSPORTATION COMPANY, Debtor. In re William H. BARTON, Jr. and Barbara M. Barton, Debtors. NASHVILLE CITY BANK & TRUST COMPANY, Plaintiff, v. James W. ARMSTRONG, Jr., Peggy H. Armstrong, River Transportation Company, William H. Barton, Jr. and Barbara M. Barton, Defendants. William H. BARTON, Jr. and Barbara M. Barton, Counter-plaintiffs, v. NASHVILLE CITY BANK & TRUST COMPANY, Counter-defendant. |
Samuel D. Lipshie, Nashville, Tenn., for Nashville City Bank and Trust Co.
William H. Tate, Nashville, Tenn., for William H. and Barbara M. Barton.
This matter is before the court on the joint oral motion made by the parties at a pretrial hearing to clarify this court's authority to conduct a jury trial of the issues presented in this adversary proceeding. Upon consideration of the relevant authorities and the entire record, this court is of the opinion that the parties may proceed with the jury trial set in this court on December 6, 1983.
The following shall represent findings of fact and conclusions of law pursuant to Federal Rule of Bankruptcy Procedure 7052.
William H. Barton, Jr. and Barbara M. Barton filed a joint Chapter 11 petition in this court on October 27, 1981. On February 4, 1982, River Transportation Company (hereinafter "River Transportation") also filed a Chapter 11 petition in this court.
On March 5, 1982, River Transportation submitted an application to remove a cause of action styled Nashville City Bank & Trust Co. v. Armstrong, No. 81-1734-III, from the Chancery Court for Davidson County, Tennessee. This case had been initiated by Nashville City Bank to recover a judgment against James W. Armstrong, Jr., Peggy H. Armstrong, and the aforementioned debtors for an outstanding note obligation of $549,631.80 and for an overdraft of $164,256.17 on the checking account of H & S Transportation Company which these defendants had allegedly guaranteed. Nashville City Bank also requested a separate judgment against James W. Armstrong, Jr. for $152,793.83 as the amount due on two outstanding notes.
The defendants William H. Barton, Jr. and Barbara M. Barton responded by filing in the bankruptcy court a counterclaim objecting to the Bank's claim on the basis of fraud, seeking to recover a preferential transfer from the Bank, and requesting a judgment against the Bank for $250,000.00 compensatory damages and $500,000.00 punitive damages for wrongful attachment and outrageous conduct. The Bartons demanded a trial by jury of all these issues.
The court granted River Transportation's application for removal on July 12, 1982. Nashville City Bank then filed a motion to strike the Barton's demand for a jury as untimely. This motion was denied by the court on October 26, 1982, and the jury trial was set for four days beginning December 6, 1983. However, at a pretrial hearing on November 1, 1983, all parties expressed their concern that the jury trial could not proceed in this court because the district court's local rule delegating authority to this court to act in all bankruptcy cases and proceedings specifically forbids this court from conducting jury trials.1
The sole issue confronting the court is whether this jury trial can proceed in light of the prohibition contained in the district court's local rule. A brief history of the events leading to the adoption of this local rule is necessary to comprehend the problem presented. On June 28, 1982, the United States Supreme Court held the broad grant of jurisdiction to the bankruptcy courts contained in § 241(a) of the Bankruptcy Reform Act of 1978 unconstitutional. Northern Pipeline Construction Co. v. Marathon Pipe Line Co., 458 U.S. 50, 102 S.Ct. 2858, 73 L.Ed.2d 598 (1982). As the Court explained, § 241(a) "impermissibly removed most, if not all, of `the essential attributes of the judicial power' from the Art III district court, and has vested those attributes in a non-Art III adjunct." Northern Pipeline Construction Co. v. Marathon Pipe Line Co., 102 S.Ct. at 2879-2880. The Supreme Court nevertheless stayed the effect of its decision until October 4, 1982, in order to give Congress an opportunity to reconstitute the bankruptcy system. This deadline was subsequently extended to December 24, 1982. Northern Pipeline Construction Co. v. Marathon Pipe Line Co., ___ U.S. ___, 103 S.Ct. 199-200, 74 L.Ed.2d 160 (1982). When Congress failed to act by this date, the Court refused to continue the stay any longer. Northern Pipeline Construction Co. v. Marathon Pipe Line Co., ___ U.S. ___, 103 S.Ct. 662, 74 L.Ed.2d 942 (1982).
In order to continue the administration of the bankruptcy system once the Northern Pipeline decision became effective, the United States District Court for the Middle District of Tennessee, as did other district courts throughout the country, adopted the "interim emergency rule" promulgated by the Judicial Conference of the United States as Administrative Order No. 28-1. This local rule referred all bankruptcy cases and proceedings to this court. The rule apparently sought to circumvent the jurisdictional defects of the Bankruptcy Reform Act by instituting certain changes in the procedure formerly followed under the Reform Act, including (1) providing that the reference to a bankruptcy judge could be withdrawn by the district court at any time on its own motion or on timely motion by a party, (2) prohibiting bankruptcy judges from conducting jury trials, (3) requiring a bankruptcy judge to submit findings, conclusions and a proposed judgment or order to the district judge in all "related proceedings" unless the parties consent to entry of the judgment by the bankruptcy judge and (4) allowing a district judge, in reviewing a bankruptcy court order or a judgment, to hold a hearing and receive such evidence as appropriate without the need to give any deference to the findings of the bankruptcy court.
Shortly after the rule was enacted, this court found it unconstitutional on several grounds and concluded that neither the district nor bankruptcy court possessed jurisdiction over cases initiated after the effective date of Northern Pipeline. In re Conley, 26 B.R. 885 (Bkrtcy.M.D.Tenn.1983). The district court, in an opinion by Chief Judge L. Clure Morton, affirmed this court's decision finding the local rule unconstitutional but reversed the holding that the district court lacked jurisdiction over bankruptcy cases. Walter E. Heller & Co. v. Matlock Trailer Corp., 27 B.R. 318 (D.M.D. Tenn.1983). The district court therefore vacated the local rule and instituted several new administrative orders which, among other things, appointed the bankruptcy judges for this district standing masters pursuant to Federal Rule of Civil Procedure 53(a) to assist the district court in the administration of all bankruptcy cases and proceedings. The effect of these orders was to require virtually all orders and judgments previously entered by the bankruptcy court to be signed by the district court so as to protect litigants from any possible jurisdictional problem.
The Court of Appeals for the Sixth Circuit subsequently upheld the constitutionality of the emergency interim rule on April 1, 1983. White Motor Corp. v. Citibank, N.A., 704 F.2d 254 (6th Cir.1983). On August 1, 1983, the new Federal Rules of Bankruptcy Procedure promulgated by the United States Supreme Court and approved after amendment by Congress became effective. These Rules specifically prohibited the use of standing masters in cases under the Bankruptcy Code. Fed.R.Bankr.P. 9031. Apparently in response to these events, the United States District Court for the Middle District of Tennessee vacated the "standing master" system and reinstated the emergency local rule on August 2, 1983. Adm.Order No. 28-8. The local rule has continued in operation in this district, albeit with some difficulties, until this date.
The fallout from the Northern Pipeline decision rendered more than a year ago continues to plague the bankruptcy system. The specific problem now before the court is whether the new Bankruptcy Rules conflict with the reinstituted local rule's prohibition against bankruptcy courts conducting jury trials and, if so, which set of rules prevails. According to its preamble, the provisions of the local rule are directed towards remedying the Northern Pipeline defects. However this court can only speculate as to why the drafters of this emergency rule, whomever they may be, forbid bankruptcy judges from conducting jury trials. In legislatively enacted legislation, a court can review legislative history and determine through committee reports, debate and bill drafts the meaning and intent of statutory provisions. Unfortunately, judicially created legislation, such as is before this court, provides no such guidance.
The court nonetheless finds that the local rule does conflict with the new Bankruptcy Rules regarding the conduct of jury trials. Rule 9015 of the Federal Rules of Bankruptcy Procedure governs jury trial requests made in a bankruptcy case or proceeding. Fed.R.Bankr.P. 9015 provides in relevant part:
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