In re White Motor Credit Corp.
| Decision Date | 20 September 1982 |
| Docket Number | No. C 81-1088.,C 81-1088. |
| Parties | In re The WHITE MOTOR CREDIT CORPORATION, White Motor Corporation, Gemini Manufacturing Company, White Farm Equipment Company, White Motor Corporation of Canada Limited, the White Motor Credit Corporation of Canada Limited, Debtors. CITIBANK, N.A. and the other bank creditors listed on Exhibit 1, Appellants, v. The WHITE MOTOR CORPORATION, Debtor and Debtor in Possession, Appellee. |
| Court | U.S. District Court — Northern District of Ohio |
Joseph Patchan, Cleveland, Ohio, for appellants.
John C. Parks, Cleveland, Ohio, for appellee.
The appeal before this Court challenges the Bankruptcy Court's order of April 22, 1981, appointing a Special Master for the disposition of product liability claims. That Order was amended on May 27, 1981 to correct the Bankruptcy Court's language which erroneously had stated that the Order was entered "with the consent of the creditors". On May 1, 1981, the bank creditors filed their Notice of Appeal,1 together with a Motion for a Stay. The Motion for A Stay was denied on May 18, 1981.
This Court has jurisdiction pursuant to the Bankruptcy Reform Act of 1978, Pub.L. No.95-598, Title IV, § 405(c)(2), 92 Stat. 2549, 2685 (1978) which provides that during the transition period from October 1, 1979 through March 31, 1984, the jurisdiction of the district courts to hear bankruptcy appeals shall be governed by the future 28 U.S.C. § 1334.
The relevant facts are not in dispute. On September 4, 1980, debtor-appellee, White Motor Corporation (hereinafter "White"), and five affiliates filed reorganization proceedings pursuant to Chapter 11 of the Bankruptcy Code. White is engaged primarily in the manufacture and sale of heavy duty trucks and their major components. White's gross sales for the year ending December 31, 1979 exceeded 1.2 billion dollars. Measured thus, White's reorganization was the largest matter theretofore filed under the new Bankruptcy Code. Unsecured creditors of the parent corporation are owed roughly $250,000,000.
Among the unsecured claims against the debtors are some 160 pending product liability claims in suits filed in various state and federal courts throughout the nation. Each of these suits were in various procedural postures at the time of the filing of the debtors' petitions, and since that time, all but one have been stayed by virtue of the provisions of 11 U.S.C. § 362(a). Each of these product liability suits presents a contingent and unliquidated claim which must be fixed or liquidated in order for White to close its reorganization.
On April 22, 1981 White, asserting that liquidation of the contingent products liability claims in the various forums where they were then pending would unduly delay the closing of its bankruptcy reorganization, filed an application for the approval of a program for the overall disposition of the products liability claims, including a request for the appointment of a Special Master.
Appellant creditors urge that the bankruptcy court is not an Article III court and therefore has no authority to appoint a Special Master. They pray that this Court vacate that appointment.
Appellee White urges (1) that the bankruptcy court has all of the power of the district court, including the authority to appoint a Special Master, at least in exceptional circumstances, which it claims exist here; and (2) that the issue with respect to the authority of the bankruptcy court was not properly raised before that court, and therefore cannot be appealed to this Court.
White contends that the creditors are raising the issue of the authority of the Bankruptcy Court to appoint a Special Master for the first time in this appeal, and that therefore this Court should refuse to consider the issue. This argument is without merit for two reasons.
(1) Although a general rule of appellate procedure precludes an appellate court from reviewing matters and objections not presented to the lower court, the question of subject matter jurisdiction in federal courts has long been an exception to that rule. 5 Wright & Miller, Federal Practice and Procedure: § 1393 at 866 (2d ed. 1979), and cases there cited. This Court is obliged to review the propriety of the bankruptcy court's jurisdiction because "(a)n appellate federal court must satisfy itself not only of its own jurisdiction, but also of that of the lower courts in a cause under review." Mitchell v. Maurer, 293 U.S. 237, 244, 55 S.Ct. 162, 165, 79 L.Ed. 338 (1934). See also, McCulloch v. Sociedad Nacional de Marineros de Honduras, 372 U.S. 10, 83 S.Ct. 671, 9 L.Ed.2d 547 (1963).
(2) An important reason for the general rule requiring timely objection, prior to appeal, is the need to afford the lower court an opportunity to reconsider its ruling. It is clear from the Bankruptcy Court's Order Denying a Stay of the Appointment of the Special Master that the creditors' objections to that Court's jurisdiction were made known to the Bankruptcy Court through the creditors' Memorandum in Support of their Motion for a Stay. In its Order denying a Stay, the Bankruptcy Court addressed at length the challenges to its jurisdiction.
Accordingly, this Court finds that the creditors did present their jurisdictional objections to the Bankruptcy Court, and it ruled upon those objections. Furthermore, even if the objections had not been made, this Court may still properly review challenges to the Bankruptcy Court's subject matter jurisdiction.
The decision of June 28, 1982 in Northern Pipeline Company v. Marathon Pipe Line, ___ U.S. ___, 102 S.Ct. 2858, 73 L.Ed.2d 598 furnishes definitive guidance to this Court with respect to the substantive question presented for appeal. A plurality of four justices decided that the assignment by Congress to bankruptcy judges of the broad jurisdiction granted in § 241(a) of the Bankruptcy Act of 1978 violates Article III of the Constitution. In that case, Marathon Pipe Line Company was named as a defendant in a suit brought by Northern Pipeline, which was a debtor in a United States Bankruptcy Court. The suit sought damages for breach of contract and warranty. Marathon moved to dismiss the action on the grounds that the Bankruptcy Act of 1978, which authorized the suit, violated Article III of the Constitution because it conferred Article III judicial power on bankruptcy judges, who lack life tenure and protection against salary diminution. The two concurring justices limited their decision to the facts in the particular case. Holding only that insofar as the Bankruptcy Act of 1978 enables the bankruptcy court to entertain and decide Northern's lawsuit over Marathon's objection, the two justices ruled that the Act violates Article III of the United States Constitution.
This Court, like the concurring justices, takes no position with respect to the broad jurisdiction granted in § 241(a) of the Bankruptcy Act of 1978. This opinion is confined to its particular facts.
It is clear that six judges of the United States Supreme Court agree that a bankruptcy court is not an Article III court. The product liability claims to be resolved by the Special Master, like the contract and warranty claims in Northern, involve Northern, supra at 2881. In this case, as in Northern, the plaintiffs' claims arise entirely under state law. In neither Northern nor this case is there a federal rule of decision provided for any of the issues. The product liability claims here, as in Northern, are before the Bankruptcy Court only because one of the parties has previously filed a petition for reorganization in that court.
It appears clear to this Court that six judges of the United States Supreme Court would, without doubt, find that the Bankruptcy Court, as presently constituted, has no authority to hear the claims presented by the plaintiffs in these product liability suits over those plaintiffs' objections. It follows, as night follows day, that if the Bankruptcy Court lacks the authority, constitutionally, to entertain the plaintiffs' claims in product liability suits, then the Bankruptcy Judge cannot delegate authority which he does not have to a Special Master to hear those claims. The Order appealed from here appoints a Special Master for the purpose of hearing those claims, and for no other purpose. That appointment cannot stand.
This is not to suggest that a bankruptcy court has no power to appoint a Special Master. In appropriate circumstances, perhaps it can. However, it cannot appoint a Master to resolve claims which the bankruptcy court itself lacks the authority to entertain.
The same six justices also agree that their decision in Northern should apply only prospectively. Id. at 2880, 2882. Clearly, this means that the discharges and judgments entered by the various bankruptcy courts prior to June 28, 1982 are validated. Buckley v. Valeo, 424 U.S. 1, 142, 96 S.Ct. 612, 693, 46 L.Ed.2d 659 (1976).
The specific references to Chicot County Drainage Dist. v. Bank, 308 U.S. 371, 376-377, 60 S.Ct. 317, 319-320, 84 L.Ed. 329 (1940); and Insurance Corp. v. Compagnie Des Bauxites, ___ U.S. ___, ___, n. 9, 102 S.Ct. 2099, 2104, n. 9, 72 L.Ed.2d 492 (1982) in Northern, note 41, relate to the question of res judicata and collateral attack. It is eminently clear that a federal court sitting in bankruptcy has the authority to pass upon its own...
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