Jogert, Inc., In re, s. 89-56251

• Decision Date: 20 December 1991
• Docket Number: Nos. 89-56251,89-56252,s. 89-56251
• Citation: 950 F.2d 1498
• Parties: 26 Collier Bankr.Cas.2d 181, Bankr. L. Rep. P 74,376 In re JOGERT, INC., etc., Debtor. Betty MOORE; Hilton Beals; Kenneth L. Beals, Plaintiffs-Appellees, v. JOGERT, INC.; John W. Reid; Hasso G. Vahl, Defendants-Appellees, v. Robert J. CHAMBERLAIN, Appellant. In re JOGERT, INC., etc., Debtor. Betty MOORE; Hilton Beals; Kenneth L. Beals, Plaintiffs-Appellees, v. JOGERT, INC.; John W. Reid; Hasso G. Vahl, Defendants-Appellees, v. COLDWELL BANKER, Appellant.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1498

950 F.2d 1498

26 Collier Bankr.Cas.2d 181, Bankr. L. Rep. P 74,376

In re JOGERT, INC., etc., Debtor.

Betty MOORE; Hilton Beals; Kenneth L. Beals, Plaintiffs-Appellees, v. JOGERT, INC.; John W. Reid; Hasso G. Vahl, Defendants-Appellees, v. Robert J. CHAMBERLAIN, Appellant.

In re JOGERT, INC., etc., Debtor.

Betty MOORE; Hilton Beals; Kenneth L. Beals, Plaintiffs-Appellees, v. JOGERT, INC.; John W. Reid; Hasso G. Vahl, Defendants-Appellees, v. COLDWELL BANKER, Appellant.

Nos. 89-56251, 89-56252.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted June 7, 1991.

Decided Dec. 20, 1991.

Robert J. Chamberlain, pro se.

Brad R. Godshall, Latham & Watkins, Los Angeles, Cal., for appellant.

Stanley C. Immerman, Scheinman & Bell, and Max H. Rush, Sulmeyer, Kupetz, Baumann & Rothman, Los Angeles, Cal., for plaintiffs-appellees.

Philip W. Bartenetti, Dolores Cordell, Clark & Trevithick, Los Angeles, Cal., for defendants-appellees-appellants.

Appeal from the United States District Court for the Central District of California.

Before NELSON, O'SCANNLAIN and TROTT, Circuit Judges.

TROTT, Circuit Judge:

Robert Chamberlain and Coldwell Banker appeal the bankruptcy court's award of damages for fraudulent misrepresentations made in connection with the purchase and sale of a lumber yard. They challenge the bankruptcy court's jurisdiction, the standard of review applied by the district court, and the bankruptcy court's finding of reasonable reliance. We have jurisdiction under 28 U.S.C. § 158(d), and we affirm.

I Facts and Proceedings Below

This dispute arose from a transaction in which Jogert, Inc. ("Jogert") acquired all the outstanding stock of Dietel Lumber Company, Inc. ("Dietel") from Elizabeth Moore, Hilton Beals, and Kenneth Beals, Dietel's three shareholders (collectively, the "Seller"). Robert Chamberlain, a real estate broker with Coldwell Banker ("Coldwell"), ¹ acted as the Seller's broker and advised both sides throughout the negotiation sessions.

When the sale closed after lengthy negotiations, Jogert's principals, John Reid and Hasso Vahl (collectively, the "Buyer"), who had guaranteed Jogert's performance under the stock purchase agreement, were unhappy with what they received. They tendered a notice of rescission, alleging that the Seller and Chamberlain had misrepresented Dietel's financial condition. The Seller filed suit in state court against the Buyer, alleging breach of contract and fraud. The Buyer cross-complained against the Seller, Chamberlain, and Coldwell for fraud and breach of fiduciary duty. Coldwell and Chamberlain cross-complained for indemnification against Dietel, the Buyer, and the Buyer's broker.

After a period of hotly contested litigation, Jogert filed for relief under the Bankruptcy Code, and the state court action was removed to the bankruptcy court. Eventually, in response to the Seller's attempt to obtain relief from the automatic stay to foreclose on the Dietel stock, the Buyer agreed to return the shares to the Seller and to relinquish physical possession of Dietel. The Buyer and the Seller also stipulated to a bench trial of the main action in the bankruptcy court.

Prior to trial, the Buyer and the Seller settled their actions against one another and decided to proceed jointly against Coldwell and Chamberlain. Pursuant to the settlement agreement, the Buyer agreed to share with the Seller a portion of any recovery received from Coldwell and Chamberlain. Needless to say, Coldwell and Chamberlain were displeased with this development, which they regarded as surprising and unfortunate. They moved for a continuance, and also moved to dismiss the action on jurisdictional grounds. The bankruptcy court denied both motions, and the district court affirmed.

After trial, the bankruptcy court held: (1) "As a direct and proximate result of the conduct of Chamberlain and [Coldwell] ... [the] Seller[ ] ha[s] suffered damage," (2) The Seller is "entitled to recover ... commissions [it] paid to Chamberlain and [Coldwell]," and (3) The Seller is "entitled to recover as damages ... the cost of the third party litigation between [the] Seller ... and [the Buyer]...." The district court affirmed each of these findings. Coldwell and Chamberlain now appeal.

II

The Bankruptcy Court's Jurisdiction and the District Court's

Standard of Review

As a threshold matter, Coldwell argues that, pursuant to Northern Pipeline Construction Co. v. Marathon Pipeline Co., 458 U.S. 50, 102 S.Ct. 2858, 73 L.Ed.2d 598 (1982) (plurality opinion), the bankruptcy court lacked jurisdiction to hear this case. Further, Coldwell argues that the district court erroneously reviewed the bankruptcy court's factual findings for clear error.

"The existence of subject matter jurisdiction is a question of law reviewed de novo." Schoenberg v. Exportadora de Sal, S.A. de C.V., 930 F.2d 777, 779 (9th Cir.1991). Whether the district court applied the proper standard of review to the bankruptcy court's factual findings is also a question of law and, as such, is reviewed de novo.

A The Marathon Decision

In Marathon Pipe Line, a plurality of the Supreme Court held that "the broad grant of jurisdiction to the bankruptcy courts" contained in the Bankruptcy Act of 1978 ² was unconstitutional:

We conclude that [28 U.S.C. § 1471], as added by 241(a) of the Bankruptcy Act of 1978, has 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. Such a grant of jurisdiction cannot be sustained as an exercise of Congress' power to create adjuncts to Art. III courts.

458 U.S. 50, 87, 102 S.Ct. 2858, 2880 (plurality opinion). ³ "This circuit has interpreted Marathon as depriving the bankruptcy court of jurisdiction 'to make final determinations in matters that could have been brought in a district court or a state court.' ... However, if the district court ... review[s] de novo, giving no deference to findings of the bankruptcy judge, initial proceedings can be held before a non-Article III court." Piombo Corp. v. Castlerock Properties (In re Castlerock Properties), 781 F.2d 159, 162 (9th Cir.1986) (quoting In re Thomas, 765 F.2d 926, 929 (9th Cir.1985)).

In 1984, Congress amended the Bankruptcy Code in response to Marathon. The new structure is based upon the distinction between core and noncore bankruptcy matters:

In noncore matters, the bankruptcy court acts as an adjunct to the district court, in a fashion similar to that of a magistrate or special master. In noncore matters, the bankruptcy court may not enter final judgments without the consent of the parties, and its findings of fact and conclusions of law in noncore matters are subject to de novo review by the district court.... In contrast to the bankruptcy court's authority in noncore cases, the bankruptcy court may enter final judgments in so-called core cases, which are appealable to the district court. The standard for appeal of core matters of the district court is the same as in other civil matters appealed from the district court to the circuit courts of appeal. 28 U.S.C. § 158(c).

Castlerock Properties, 781 F.2d at 161, quoted in Taxel v. Electronic Sports Research (In re Cinematronics), 916 F.2d 1444, 1449 (9th Cir.1990).

The parties agree that this case constitutes a noncore related proceeding that normally would be affected by Marathon. Moreover, this circuit has recently held:

[S]tate law contract claims, which did not fall within one of the enumerated core proceedings in 28 U.S.C. 157(b)(2)(B)-(N), are not core claims.... [E]ven if the state law claims could arguably fall within the language of section 157(b)(2)(A) or (O), one of two broadly worded, catch-all provisions of the section, such claims should still not be deemed core.... In reaching this conclusion, we emphasized that courts "should avoid characterizing a proceeding as 'core' if to do so would raise constitutional problems."

Cinematronics, 916 F.2d at 1450 (citations omitted). Therefore, as Coldwell points out, "[t]he Bankruptcy Court unquestionably would have had no jurisdiction to take these actions if this case had been tried post-Marathon."

B Marathon's Prospective-Only Effect

The Marathon holding applies only prospectively. The Court noted:

It is plain that Congress' broad grant of judicial power to non-Art. III bankruptcy judges presents an unprecedented question of interpretation of Art. III. It is equally plain that retroactive application would not further the operation of our holding, and would surely visit substantial injustice and hardship upon those litigants who relied upon the Act's vesting of jurisdiction in the bankruptcy courts. We hold, therefore, that our decision today shall apply only prospectively.

Marathon, 458 U.S. at 88, 102 S.Ct. at 2880 (plurality opinion) (footnote omitted). Further, "the date that the decision in Marathon was to take effect was stayed by the Supreme Court until December 24, 1982, and the majority limited its holding to apply only [after that date]." Equitable Factors Co. v. Wallen (In re Wallen), 34 B.R. 785, 787 (Bankr. 9th Cir.1983), aff'd mem. 742 F.2d 1461 (9th Cir.1984).

This case was decided by the bankruptcy court on April 19, 1982--before the announcement of the Marathon decision. Technically, therefore, the Marathon holding does not apply. As we stated in Klapp v. Landsman (In re Klapp), 706 F.2d 998, 999 n. 1 (9th Cir.1983),

[i]f the stay of the Marathon decision is to have any effect, it must limit the prospective effect of the substantive Marathon holding to decisions made after the termination of the stay. Thus, even assuming that the exercise of judicial power by the bankruptcy court and BAP here is otherwise unconstitutional under the principles set forth in Marathon, since Marathon is not to have retroactive effect, the BAP decision is a valid judgment over which this court has...