In re Sonnyco Coal, Inc.
| Decision Date | 06 April 1988 |
| Docket Number | Adv. No. 2-85-0277.,Bankruptcy No. 2-85-02570 |
| Citation | 89 BR 658 |
| Parties | In re SONNYCO COAL, INC. dba Meredith Enterprises, Debtor. SONNYCO COAL, INC. dba Meredith Enterprises, Plaintiff, v. Emma Collins BARTLEY, et al., Defendants. |
| Court | U.S. Bankruptcy Court — Southern District of Ohio |
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Daniel F. Carmack, Columbus, Ohio, Trustee.
James C. Carpenter, Carlile Patchen Murphy & Allison, Columbus, Ohio, for trustee.
Terri G. Rasmussen, Columbus, Ohio, for defendants.
STATEMENT OF UNCONTESTED FACTS AND ISSUES; CONCLUSIONS OF LAW ON REQUEST TO DETERMINE CORE/NON-CORE STATUS AND REQUEST TO DISMISS CASE; TRANSFER TO DISTRICT JUDGE OF REQUEST FOR WITHDRAWAL OF THE REFERENCE; REPORT AND RECOMMENDATION ON REQUEST FOR ABSTENTION*
This matter is before the Court upon two pre-answer motions filed by defendants Emma Bartley, Ray Goff, and Clay Hall (collectively "Defendants"). One motion seeks either to have the reference of this adversary proceeding withdrawn so that it may be heard by a district judge, or to have the Court abstain from taking any action in this proceeding pursuant to 28 U.S.C. § 1334(c). The second motion seeks dismissal of the action or abstention by the bankruptcy court, or in the alternative, a determination whether this matter is a core proceeding pursuant to 28 U.S.C. § 157(b). Both motions are opposed by plaintiff Sonnyco Coal, Inc. Rulings on the issues raised by both motions are combined in this order because of their substantial overlap and interdependence.
The Court has jurisdiction in this proceeding pursuant to 28 U.S.C. § 1334(b) and the General Order of Reference entered in this district on July 30, 1984. For reasons stated below, the Court will set forth a statement of uncontested facts and an enumeration of the issues raised by the motions. The Court then will determine the core/non-core and dismissal issues. Finally, the Court will transfer the request for withdrawal of the reference to a district judge and will issue proposed conclusions of law relating to the abstention request.
The facts necessary for determining these pre-answer requests unrelated to the merits of the action, are essentially uncontested.
This adversary proceeding originally was filed by Sonnyco Coal, Inc., dba Meredith Enterprises ("Sonnyco"), as the debtor-in-possession in a Chapter 11 case pending before this Court. During the pendency of the adversary the underlying bankruptcy case was converted to a liquidation proceeding under Chapter 7 of the Bankruptcy Code. Upon that conversion, by operation of law, Daniel F. Carmack, the duly-appointed Trustee of the bankruptcy estate ("Trustee"), effectively became substituted as plaintiff in interest in this adversary.
In its complaint Sonnyco alleges that Bartley breached an oral agreement between Bartley as lessor and lessee Meredith Enterprises ("Meredith"), a name under which Sonnyco also did business. The agreement alleged to have been breached permitted Meredith to assign its rights in a written coal lease between the parties. Sonnyco accuses Bartley of malicious action and bad faith by her attempted cancellation of the lease and refusal to consent to the previously agreed-upon assignment to a third party. Those actions are blamed for Sonnyco's financial demise.
Count II of the complaint, directed against Goff and Hall, sets forth their alleged participation in Bartley's breach and attributes to their actions a conspiracy which forced Sonnyco into a Chapter 11 bankruptcy filing. The prayer of the complaint seeks $400,000 in compensatory damages, $500,000 in punitive damages and various costs.
The Defendants seek to have the reference of this matter withdrawn from the bankruptcy judge so that the dispute may be heard by a district judge. The bases asserted for that relief are that the bankruptcy court either lacks subject matter jurisdiction in this matter, or if vested with such jurisdiction, cannot constitutionally exercise it. The Defendants also contend that the bankruptcy court cannot exercise personal jurisdiction over these Defendants consistent with "minimum contacts" principles established by case law.
For those same jurisdictional concerns and because the complaint allegedly fails to state a cause of action, the Defendants have moved for dismissal of the action.
The Defendants also seek abstention by the bankruptcy court, either on a discretionary basis pursuant to 28 U.S.C. § 1334(c)(1) or on a mandatory basis pursuant to 28 U.S.C. § 1334(c)(2). The reasons stated for such relief are considerations of comity, interests of justice, involvement of state law issues and the inability of the plaintiff to have brought this action initially in a federal court in Ohio.
Finally, and perhaps most importantly for disposition of the other issues raised, the Defendants alternatively seek a determination from the Court whether this proceeding is a core proceeding pursuant to 28 U.S.C. § 157(b)(2) in which a bankruptcy judge may enter a final order or whether this is a non-core proceeding pursuant to 28 U.S.C. § 157(c), otherwise related to a case under title 11, in which final orders must be entered by a district judge.
Procedures pursuant to which a bankruptcy judge must decide matters filed with the bankruptcy court are provided in 28 U.S.C. § 151-158 as part of the statutory response to constitutional concerns expressed by the Supreme Court of the United States in Northern Pipeline Co. v. Marathon Pipeline Co., 458 U.S. 50, 102 S.Ct. 2858, 73 L.Ed.2d 598 (1982). Those concerns emanated from the expanded jurisdiction granted by statute to bankruptcy courts in the Bankruptcy Reform Act of 1978. That Act empowered bankruptcy judges, appointed only for 14-year terms of office to a court established as an adjunct to the district court, to exercise all bankruptcy jurisdiction granted to the district courts without oversight by judges appointed under Article III of the Constitution except through appeal. 28 U.S.C. § 1471 (now repealed). Northern Pipeline determined that such expanded jurisdiction was unconstitutional in certain circumstances.
The Bankruptcy Amendments and Federal Judgeship Act of 1984 restructured the grant of bankruptcy jurisdiction and made the bankruptcy court a unit of the district court. 28 U.S.C. § 151. Under the current statute, absent consent of the parties, only district judges, after review of proposed findings of fact and conclusions of law recommended by bankruptcy judges, may enter final orders in proceedings merely related to cases under Title 11 ("non-core proceedings"). 28 U.S.C. § 157(c). Bankruptcy judges, however, retain power to hear and determine all cases under Title 11 and to enter final orders in proceedings arising in a case under Title 11 or arising under Title 11 ("core proceedings"). Those procedures are codified at 28 U.S.C. §§ 151-158.
The initial determination whether a proceeding is core or non-core clearly by statute is the responsibility of the bankruptcy judge. 28 U.S.C. § 157(b)(3). Because a finding that a proceeding is non-core is not appealable immediately as a final order, this Court finds that the resolution of that issue is constitutionally within its power as a judicial officer of a unit of the district court.
The determination whether a proceeding is core or non-core, however, involves more than a choice between two options. If a proceeding is determined to be core, that conclusion ends the analysis and the bankruptcy judge not only may hear the matter, but also may enter whatever final orders are required. If it is determined that a proceeding is not a core proceeding, however, further determination must be made as to whether the proceeding is sufficiently related to the bankruptcy case to come within the bankruptcy subject matter jurisdiction of the district court. If the proceeding is not so related, although the district court might have an independent basis for jurisdiction, the bankruptcy court would have no subject matter jurisdiction over the proceeding as its jurisdiction by reference extends at its most remote nexus only to proceedings which are related to a bankruptcy case. 28 U.S.C. § 157(a). If the proceeding is not core, but is related to a bankruptcy case and, therefore is properly a non-core proceeding, the bankruptcy court has subject matter jurisdiction by reference and may hear the action, but absent consent of the parties, must submit proposed findings of fact and conclusions of law to a district judge for entry after de novo review of those matters objected to by the parties. 28 U.S.C. § 157(c)(1).
The substantive law governing the rights and responsibilities between and among the parties to this action is that of the state of Kentucky. The property to which the coal lease relates is in the state of Kentucky and the Defendants reside in Kentucky. Not only the formal requirements for the assignment of a lease, but also any contractual rights and remedies arising from a breach of such lease are determined under that state's applicable law. That finding alone, however, is not determinative as to whether this proceeding is core or non-core. 28 U.S.C. § 157(b)(3).
Argument can be advanced for application of core status to this proceeding by virtue of subsection O of 28 U.S.C. § 157(b)(2) which includes "other proceedings affecting the liquidation of the assets of the estate or the adjustment of the debtor-creditor ... relationship." Although the results of this proceeding clearly affect the liquidation of the estate's assets, it is not clear that the proceeding is intrinsic to the bankruptcy process itself, as characterizes a core proceeding. Because the cause of action arose prior to the bankruptcy filing, is based upon private...
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