In re WWG Industries, Inc.
| Decision Date | 28 November 1984 |
| Docket Number | Civ. A. No. C84-343R.,Bankruptcy No. 82-156R |
| Citation | 44 BR 287 |
| Parties | In re WWG INDUSTRIES, INC., Debtor. CHEMICAL BANK, as assignee of WWG Industries, Inc., Plaintiff, v. GRISBY'S WORLD OF CARPET, INC., Defendant. |
| Court | U.S. District Court — Northern District of Georgia |
Kevin C. Greene, Troutman, Sanders, Lockerman & Ashmore, Atlanta, Ga., for plaintiff.
Paul T. Carroll, III, Rome, Ga., for defendant.
This case represents one of many suits brought against non-resident defendants by Chemical Bank, as assignee of WWG Industries, to collect on accounts allegedly owed WWG, the debtor in bankruptcy in the underlying bankruptcy action. The defendant in this case objects to the bankruptcy court's findings as to jurisdiction and venue, as to certain set-offs and rebates, and as to its liability for debts incurred by a related corporation. The defendant has filed its objections pursuant to the Bankruptcy Amendments and Federal Judgeship Act of 1984, Pub.L.No. 98-353, 1984 U.S. Code Cong. & Ad. News (98 Stat.) 333, 341 (to be codified at 28 U.S.C. § 157(c)(1)). After reviewing de novo the issues raised by defendant's objections, the Court adopts in part the findings and conclusions of the bankruptcy court.
Defendant first objects to the bankruptcy court's exercise of subject matter jurisdiction in the wake of the Supreme Court's opinion in Northern Pipeline Construction Company v. Marathon Pipeline Company, 458 U.S. 50, 102 S.Ct. 2858, 73 L.Ed.2d 598 (1982). Under the newly enacted amendments to the Bankruptcy Act, however, jurisdiction in this type of case is vested in the Article III district court. The Constitution grants Article III courts the power to determine cases that arise under the laws of the United States and to decide controversies between citizens of different states. U.S. Const. art. 3, § 2, cl. 1. Whether this case involves a "federal question" or "diversity of citizenship" or both, Congress clearly had the power to place subject matter jurisdiction of this case in the United States District Court. This was accomplished in Section 101 of the new Bankruptcy Amendments.
Defendant also objects to the Court's exercise of personal jurisdiction over the defendant in this case. In light of the Marathon case, this objection raises questions that have not yet been fully addressed. Prior to Marathon, it was possible to posit that the bankruptcy courts were federal Article I tribunals created by Congress pursuant to Article I of the Constitution. See U.S. Const. art. I, § 8, cl. 4 and 18; In re G. Weeks Securities, Inc., 5 B.R. 220 (Bkrtcy.W.D.Tenn.1980). The courts generally held that Congress had sufficiently indicated that the bankruptcy courts' personal jurisdiction should be as broad as possible, such that minimum contracts with the forum state were unnecessary. In re Nixon Machinery Co., 15 B.R. 131, 135 (Bkrtcy.E.D.Tenn.1981). The bankruptcy courts found that personal jurisdiction over defendants in related bankruptcy proceedings was nationwide, much like the personal jurisdiction exercised by district courts in cases involving a federal question.1
The bankruptcy court in In re Schack Glass Industries thus found minimum contacts to a state forum irrelevant. The court found that Congress, when it enacted 28 U.S.C.A. § 1471 (Supp.1984), gave "bankruptcy courts comprehensive jurisdiction of all civil proceedings under, or in, or related to bankruptcy and reorganization cases." In re Schack Glass Industries Co., Inc., 20 B.R. 967, 970 (Bkrtcy.S.D.N.Y. 1982). Moreover, Congress provided for nationwide service of process so that a state service of process statute need not be borrowed. See Rule 7004(d) of the Bankruptcy Rules and Official Forms. This grant of comprehensive jurisdiction, however, has since been found unconstitutional.
The Marathon case eliminated the theory that the bankruptcy courts could be given plenary jurisdiction under Article I. See Marathon, supra, 458 U.S., at 63-76, 102 S.Ct. at 2867-2874. In response, Congress, rather than grant the bankruptcy courts Article III status, chose to place the type of non-core, related bankruptcy proceeding involved in this case with the district court. Thus the issue is no longer whether Congress has granted full plenary power to Article I bankruptcy courts to hear related cases such that personal jurisdiction exists without minimum contacts. The issue facing this District Court is whether, in deciding the purely state-law issues raised by this non-core proceeding, the Court is exercising federal question jurisdiction such that minimum contacts are irrelevant or whether the Court is exercising diversity jurisdiction such that minimum contacts analysis under the Fourteenth Amendment Due Process Clause is implicated. The Court finds that, despite the state law nature of the issues raised in this case, these issues are ancillary to the bankruptcy action. Rather than a diversity action, the Court has before it a state-law claim ancillary to the federal claim in the underlying bankruptcy action. Thus, the defendant's amenability to process under state law is irrelevant. Terry v. Raymond International, Inc., 658 F.2d 398, 402 (5th Cir.1981) (Unit A).
The concept of ancillary personal jurisdiction is clearly extended in this non-core bankruptcy proceeding where the state-law issues are contained in a separate action related to the federal statutory action, rather than in the same action as ancillary claims. Nonetheless, the concept of ancillary jurisdiction is the only constitutional basis on which to explain Congress's grant of subject matter jurisdiction to this Court, in what will be 28 U.S.C. § 1334(c)(2), over certain non-diverse actions based purely on state-law claims. Section 1334(c)(2) states:
Upon timely motion of a party in proceeding based upon a State law claim or State law cause of action, related to a case under title 11 but not arising under title 11 or arising in a case under title 11, with respect to which an action could not have been commenced in a court of the United States absent jurisdiction under this section, the district court shall abstain from hearing such proceeding if an action is commenced, and can be timely adjudicated, in a State forum of appropriate jurisdiction.
Bankruptcy Amendments and Federal Judgeship Act of 1984, Pub.L. No. 98-353, 1984 U.S.Code Cong. & Ad.News (98 Stat.) 333 (to be codified at 28 U.S.C. § 1334(c)(2)). The import of the section is that Congress is asking the district courts, in certain situations, to hear purely state-law questions that do not involve diversity of citizenship or a federal question. The only means by which to find this congressional enactment constitutional is to adopt the concept of ancillary jurisdiction. Thus the Court holds that, as the district courts have personal jurisdiction in federal bankruptcy actions over any person with minimum contacts with the United States, and as the Bankruptcy Act permits nationwide service of process, this Court has ancillary personal jurisdiction over the non-resident defendant in this related case. This is true even though the defendant lacks minimum contacts with the forum state.
As recognized in the bankruptcy opinions considering the issue of venue, this broad power over persons located throughout the United States must be tempered by liberally reading the change of venue provision for bankruptcy courts. See 28 U.S.C.A. § 1475 (Supp.1984); In re Advent Corp., 20 B.R. 561 (Bkrtcy.D.Mass. 1982). The power of a debtor in bankruptcy or its creditor to reel persons from all over the country into a single forum should be abrogated when the greater relative inconvenience shifts to the defendant. In this case a change of venue at this point in the proceedings would serve no useful purpose.
Defendant Grigsby's World of Carpet, Inc. ("Grigsby's World") objects to the bankruptcy court's finding that it is liable for amounts allegedly owed by Grigsby's Carpet, Inc. ("Grigsby's Carpet"). Defendant argues that the Court should not, under the law, "pierce the corporate veil" and dissolve the juristic wall that separates the two corporations. Plaintiff argues that the two corporations acted in concert as joint venturers and that therefore each is liable for the debt they incurred in that capacity.
Considering first the plaintiff's theory as adopted by the bankruptcy court, the Court finds the law of joint ventures set forth in the Fifth Circuit case, Putnam v. Williams, 652 F.2d 497 (5th Cir.1981) (Unit B).
A joint venture relationship is characterized by a number of identifying features. In a joint venture arrangement, two or more people combine property and skill to conduct for profit a single business transaction, as opposed to a continuing business enterprise. The venturers enjoy joint proprietary interest, the right to control each other\'s conduct, and the obligation to share in losses as well as profits.
Id. at 500-01. The plaintiff sought to prove that the two entities, Grigsby's Carpet and Grigsby's World, had a history of working cooperatively, and that they had held themselves out...
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