Lemco Gypsum, Inc., Matter of
| Citation | 910 F.2d 784 |
| Decision Date | 06 September 1990 |
| Docket Number | No. 89-8581,89-8581 |
| Parties | 23 Collier Bankr.Cas.2d 999, Bankr. L. Rep. P 73,616 In the matter of LEMCO GYPSUM, INC., Debtor. Lawrence E. MILLER, Jr., Miller Resources, Inc., Plaintiffs-Appellants v. KEMIRA, INC., Defendant-Appellee. |
| Court | United States Courts of Appeals. United States Court of Appeals (11th Circuit) |
C. James McCallar, Jr., Richard J. Harris, Savannah, Ga., for plaintiffs-appellants.
Walter Hartridge, E. Pomeroy Williams, James L. Drake, Jr., Savannah, Ga., for defendant-appellee.
Appeal from the United States District Court for the Southern District of Georgia.
Before COX, Circuit Judge, HILL * and SMITH **, Senior Circuit Judges.
Appellants purchased buildings and equipment owned by the debtor, Lemco Gypsum Inc., from the trustee in a Chapter 7 liquidation proceeding. The sale articles, which remained on appellee's land, were purchased pursuant to a sale order which required that the property be removed from the land within 60 days after purchase. The final sale order contained no reference to the sixty day removal requirement; consequently, since appellee voiced no objection, the sale became final. After appellant failed to remove the equipment, appellee filed a motion in the bankruptcy court seeking damages for the loss of use of its real property. The bankruptcy court found appellant in civil contempt and entered a judgment for damages in favor of appellee. 95 B.R. 860. The district court affirmed. We find that the bankruptcy court lacked jurisdiction to entertain appellee's motion; accordingly, the judgment of the district court is reversed with instructions to vacate the bankruptcy court's judgment.
In October 1986 Lemco Gypsum, Inc. (debtor or Lemco), a corporation engaged in gypsum recycling on property leased from Kemira, Inc. (Kemira or debtor's landlord), filed a petition for Chapter 7 bankruptcy. On July 10, 1987, the Chapter 7 trustee sought leave to publicly sell debtor's buildings, machinery, and equipment located and then remaining on Kemira's land.
On August 17, 1987 a bankruptcy judge entered an order permitting the trustee to conduct the sale of the subject property under specified conditions, including the following: "Unless other arrangements are made satisfactory to both the trustee and Kemira, ... all property shall be removed from the site within sixty (60) days following the sale."
On October 23, 1987 the sale articles were purchased by Miller Resources, Inc. (Miller Resources), a corporation organized and wholly owned by Lawrence Miller, the debtor's former president. An order entered by the bankruptcy judge on November 23, 1987 confirmed the sale subject to objection by an interested party within ten days; however, no reference was made to the sixty day removal requirement contained in the previous order of August 17. No objections were filed, so the sale became final on December 3, 1987.
In June 1988 debtor's landlord filed a motion in the bankruptcy court seeking damages for the loss of use of its real property, alleging that Miller and Miller Resources had failed to remove the sale articles as required by the August 17 order. After the issuance of a show cause order and an evidentiary hearing, debtor's landlord moved to have the sanction of civil contempt imposed upon Miller and Miller Resources as a penalty for noncompliance with the sixty day removal requirement. The court found that Lawrence Miller purchased the sale articles at a reduced price since all other bidders were forced to factor removal costs into their bids. Subsequently, according to the court, Miller knowingly and intentionally violated the sale conditions to enhance the potential profit margin on resale. In addition, as former president of Lemco, Miller was fully aware that intact buildings and equipment would bring a higher resale price than unassembled parts. Based on the above evidence and the willful character of Miller's disregard for the court's orders, the bankruptcy judge found both Miller and Miller Resources in civil contempt and awarded damages in favor of debtor's landlord. On appeal to the district court the defendants vigorously contended that the Bankruptcy Court lacked subject matter jurisdiction to enter the civil contempt order against them for the following reasons: (1) neither Miller nor Miller Resources were parties in Lemco's bankruptcy action; and (2) the articles at issue had ceased to be a part of the bankruptcy estate in December 1987 when the order of sale became final. The district court noted that the defendants intentionally refused to comply with the sixty day removal requirement in the bankruptcy court's August 17, 1987 sale order; therefore, according to the court, there had been no final disposition of the sale articles which would divest the bankruptcy court of jurisdiction over the matter. The bankruptcy court's action was classified as an exercise of its continuing power to enforce its orders and the civil contempt sanctions against Miller and Miller Resources were affirmed.
Miller and Miller Resources appeal the district court's ruling on the jurisdictional issue. We review the district court's findings of fact for clear error and its conclusions of law independently. 1
This appeal presents a narrow question of law: does the bankruptcy court retain jurisdiction and power to control the disposition of the debtor's property after the final sale of said property in a Chapter 7 proceeding?
The starting point in our jurisdictional analysis is 28 U.S.C. 1471(b), the jurisdictional provision of the Bankruptcy Reform Act of 1978. 2 Section 1471(b) conferred jurisdiction on the district court over "all civil proceedings arising under Title 11 or arising in or related to cases under Title 11." Legislative history suggests that the jurisdictional grant of Sec. 1471(b) was meant to "identify collectively a broad range of matters subject to the bankruptcy jurisdiction of the federal courts." 3 In enacting Sec. 1471(b) Congress intended to grant comprehensive jurisdiction to the bankruptcy courts to allow for efficient disposition of all matters connected with the debtor's estate. 4
The Supreme Court's opinion in Northern Pipeline Constr. Co. v. Marathon Pipe Line Co. 5 did not disturb the jurisdiction of the district courts over proceedings related to bankruptcy. 6 Northern Pipeline instead held that Congress could not vest the whole of bankruptcy jurisdiction in bankruptcy courts because the jurisdictional grant of the 1978 Act encompassed proceedings too far removed from the "core" of traditional bankruptcy powers to allow them to be adjudicated by non-Article III judges. 7 In response to Northern Pipeline Congress enacted the Bankruptcy Amendments and Federal Judgeship Act of 1984, 8 which modified the jurisdictional grant set forth in the 1978 Act by creating two distinct categories of bankruptcy proceedings: (1) "core" proceedings, over which the bankruptcy courts may exercise full judicial power; and (2) "non-core" proceedings, over which the bankruptcy courts may exercise only limited power. 9 Because Northern Pipeline did not compel Congress to reduce the scope of bankruptcy jurisdiction, but merely altered the "placement" 10 of jurisdictional power between Article III and Article I judges, Congress apparently intended no change in the scope of jurisdiction set forth in the 1978 Act when it later enacted the jurisdictional provision of the 1984 Act, 28 U.S.C. Sec. 1334. 11
After Northern Pipeline, jurisdiction over matters allegedly related to a bankruptcy case is best analyzed in two steps: first, the reviewing court must decide whether federal jurisdiction exists in the district court; second, if jurisdiction does exist, it must determine whether the bankruptcy court properly exercised its constitutionally available powers in proceeding over the matter as a "core" or "non-core" proceeding. 12 Thus, we first consider whether the district court had jurisdiction over the present dispute under Congress' grant of jurisdiction over proceedings "related to" a bankruptcy case.
The circuits have developed slightly different definitions of what constitutes a related case under Sec. 1471(b) and its nearly identical successor, Sec. 1334(b). However, it is well settled that the jurisdiction of the bankruptcy courts to hear cases related to bankruptcy is limited initially by statute and eventually by Article III. 13 For subject matter jurisdiction to exist there must be some nexus between the related civil proceeding and the Title 11 case. In exploring the bounds of this nexus we endeavor to seek a definition for "related to" that best represents Congress' intent to "reduce substantially the time-consuming and expensive litigation regarding a bankruptcy court's jurisdiction over a particular proceeding". 14 The interpretation of Sec. 1334(b) must also avoid the inefficiencies of piecemeal adjudication and promote judicial economy by aiding in the efficient and expeditious resolution of all matters connected to the debtor's estate. 15 This court is also concerned that an overbroad construction of Sec. 1334(b) may bring into federal court matters that should be left for state courts to decide. 16
In Pacor, Inc. v. Higgins 17 the Third Circuit enunciated a test for determining whether a civil proceeding is sufficiently related to bankruptcy to confer federal jurisdiction on the district court. ...
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