In re Sweetwater, Bankruptcy No. 83A-2582
| Decision Date | 25 November 1985 |
| Docket Number | Bankruptcy No. 83A-2582,84PA-1437 and 84PA-1438 and No. C 84-2169J and C 84-2170J. |
| Citation | 55 BR 724 |
| Parties | In re SWEETWATER, a Utah corporation, et al., Debtors and Debtors in Possession. W. LaMonte ROBISON, as trustee for administrative claimants as assignees of a chose in action from Sweetwater, a Utah corporation, et al., Debtors and Debtors in Possession, Plaintiff-appellee, v. FIRST FINANCIAL CAPITAL MANAGEMENT CORPORATION, a Minnesota corporation, Defendant-appellant. W. LaMonte ROBISON, as trustee for administrative claimants as assignees of a chose in action from Sweetwater, a Utah corporation, et al., Debtors and Debtors in Possession, Plaintiff-appellee, v. CITICORP ACCEPTANCE COMPANY, INC., a Delaware corporation, Defendant-appellant. |
| Court | U.S. District Court — District of Utah |
Ralph R. Mabey, Salt Lake City, Utah, for W. LaMonte Robison.
L. Mark Ferre, William F. Kuntz, Salt Lake City, for Citicorp Acceptance Co.
Rolf H. Berger, Philip V. Martino, Salt Lake City, Utah, for First Financial Capital Management Corp.
The defendants in these related cases appealed the bankruptcy court's interlocutory order of December 17, 1984, denying their motions to dismiss. This court granted leave to appeal pursuant to Bankruptcy Rule 8003. The matter was argued before the court on April 1, 1985. L. Mark Ferre and William F. Kuntz appeared for the appellant Citicorp Acceptance Company. Rolf H. Berger and Philip V. Martino appeared for the appellant First Financial Capital Management Corporation. Ralph R. Mabey appeared for the appellee, W. LaMonte Robison. The appellants challenged the bankruptcy court's conclusion that it had jurisdiction to hear the adversary proceedings and that the plaintiff was a proper party to bring the actions. The court took the matter under advisement at that time. After considering the record, the arguments of counsel, the parties' briefs and the pertinent authorities, the court now enters this memorandum opinion.
On September 23, 1983, Sweetwater and its affiliates filed a petition for reorganization under chapter 11 of the Bankruptcy Code, 11 U.S.C.A. §§ 1101-1174 (1972 & Supp.1985).1 While the bankruptcy proceeding was pending, the debtors continued to operate their business as debtors in possession, under sections 1107 and 1108 of the Code, incurring certain debts that were considered "administrative expenses" under section 503 of the Code. The plaintiff-appellee represents those who have a claim for administrative expenses.
Under section 1129(a)(9)(A) of the Code, the debtors had to pay these administrative claimants the allowed amount of their claims in cash on the effective date of their reorganization plan unless the administrative claimants "agreed to a different treatment" of their claims. Because the debtors could not pay the administrative claims in full on the effective date of reorganization, they entered into an agreement with the administrative claimants under which certain claims would be paid in full and the remaining claims would be paid prorata from a pool of cash and other assets, including "potential proceeds from litigation or settlement with First Financial and Citicorp," the defendants in these actions. The agreement vested title to these assets in the plaintiff, as trustee for the administrative claimants. It provided, however, that the causes of action against First Financial and Citicorp "may be retained by the Debtors insofar as necessary to preserve the causes of action." Any balance in the pool after the trustee had deducted fees and costs and paid the administrative claimants in full, with interest, was to belong to the reorganized debtor.
This agreement between the debtors and the administrative claimants presumably became part of the debtors' reorganization plan, which the bankruptcy court confirmed on June 8, 1984.2
On September 12, 1984, the plaintiff, as assignee of the debtors' claims against First Financial and Citicorp,3 brought actions against the defendants in the bankruptcy court for this district, alleging that certain transfers of property to them are avoidable under 11 U.S.C.A. §§ 544(a)(1) (), 547(b) (preferential transfer provision), 549(a) (post-petition transfer provision), and 553(b)(1) (setoff provision).
The defendants moved to dismiss the complaints on three grounds. First, they claimed that the bankruptcy court lacked jurisdiction because the Bankruptcy Amendments and Federal Judgeship Act of 1984, Pub.L. No. 98-353, 98 Stat. 333 (), which purports to extend the terms of bankruptcy judges beyond June 28, 1984, violated the appointments clause of the United States Constitution, article II, section 2, clause 2. Second, the defendants claimed that the bankruptcy court lacked jurisdiction because the suits do not arise under title 11, nor do they arise in or relate to a case under title 11, as required by 28 U.S.C.A. § 1334(b). Third, the defendants claimed that the plaintiff could not maintain these actions because the avoiding powers of a trustee or debtor in possession under the Code are not assignable.
The plaintiff disputed each of the defendants' arguments and claimed that the defendants were precluded from challenging the validity of the assignment because they had failed to object to the reorganization plan when it was before the bankruptcy court.
The bankruptcy court denied the defendants' motions to dismiss, holding that the claims were properly assigned and that they arose under title 11, within the meaning of 28 U.S.C.A. § 1334(b). The bankruptcy court did not reach the constitutional issue because of an unpublished ruling by Judge David K. Winder of this court that the 1984 Act was constitutional. In re Wasatch Factoring, Inc., Misc. No. B-0015W (D.Utah Nov. 26, 1984).
The defendants' first contention on appeal is that the 1984 Act violates the appointments clause, U.S. Const. art. II, § 2, cl. 2, which vests in the President the power to appoint officers of the United States whose appointments are not otherwise provided for. To understand the defendants' argument, one must first understand the history of the bankruptcy courts, especially since the enactment of the Bankruptcy Reform Act of 1978, Pub.L. No. 95-598, 92 Stat. 2549 (the "1978 Act"). That history is set out in detail in In re Benny, 44 B.R. 581, 584-86 (N.D.Cal.1984). Suffice it to say that the 1978 Act restructured the bankruptcy court system and established a transition period during which the existing bankruptcy courts were to continue in operation. The term of office of each bankruptcy judge was extended to March 31, 1984, or "when his successor takes office." 1978 Act, tit. 4, § 404(b), 92 Stat. at 2683. For bankruptcy judges appointed during this transition period, such as the Honorable John H. Allen, who heard this case, the applicable hold-over provision was section 34(a) of the old Bankruptcy Act (codified at former 11 U.S.C. § 62(a)). Id. § 404(d), 92 Stat. at 2684. Section 34(a) provided: "Upon the expiration of his term, a referee in bankruptcy i.e., a bankruptcy judge shall continue to perform the duties of his office until his successor is appointed and qualifies. . . ."
The expiration date of the transition period was eventually extended to June 27, 1984. See Pub.L. No. 98-249, 98 Stat. 116 (1984); Pub.L. No. 98-271, 98 Stat. 163 (1984); Pub.L. No. 98-299, 98 Stat. 214 (1984); Pub.L. No. 98-325, 98 Stat. 268 (1984).
Some two weeks after this expiration date, on July 10, 1984, the Bankruptcy Amendments and Federal Judgeship Act of 1984, Pub.L. No. 98-353, 98 Stat. 333 ("the 1984 Act") was signed into law. Section 121(e) of that act retroactively extended the term of all bankruptcy judges serving on June 27, 1984, to July 10, 1984, the date the new act became law. Section 106(a) of the 1984 Act extended the terms of bankruptcy judges serving on July 10, 1984, to the later of October 1, 1986, or four years from the date of their last appointment.
The defendants claim that the terms of office of all bankruptcy judges ended on June 27, 1984, when the transition period expired, and that Congress, in the 1984 Act, created new bankruptcy judgeships and "appointed" interim judges to fill those positions, in violation of the appointments clause.
On this issue the parties have primarily relied on the extensive briefs filed in In re Benny, 44 B.R. 581 (N.D.Cal.1984).4 This court agrees with Judge Schnacke's conclusion in that case that there was no "gap" between June 27, 1984, and July 10, 1984, during which the bankruptcy courts ceased to exist. The hold-over provisions of the 1978 Act, sections 404(b) and (d) (as amended), authorized the bankruptcy judges to continue in office until June 27, 1984, or until their successors were appointed or took office. Because no bankruptcy judges were appointed or took office between June 27 and July 10, 1984, the bankruptcy judges serving on June 27, 1984, continued in office at least until July 10, 1984. Thus, the 1984 Act is not constitutionally infirm. It did not "appoint" interim bankruptcy judges, in violation of the appointments clause, because there were no vacant offices to appoint them to. Neither was it an impermissible retroactive extension of the bankruptcy judges' offices, since their offices had not expired at the time the act was passed.
Even if this court were persuaded that there was a gap between the expiration of the transition period and the effective date of the 1984 Act, it would reaffirm its judgment in In re Wasatch Factoring, Inc., Misc. No. B-0015W (D. Utah Nov. 26, 1984), upholding the constitutionality of the 1984 Act, for the reasons stated in Judge Schnacke's scholarly opinion in In re Benny.5 It was within Congress's authority to extend...
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