Lindsey v. Ipock

• Decision Date: 13 April 1984
• Docket Number: 83-1562,Nos. 83-1534,s. 83-1534
• Citation: 732 F.2d 619
• Parties: 10 Collier Bankr.Cas.2d 890, 11 Bankr.Ct.Dec. 1170, Bankr. L. Rep. P 69,837 Robert P. LINDSEY, Trustee, Appellee, v. Evans IPOCK and Wayne Cryts, Appellants. Bill Jewell. Robert P. LINDSEY, Trustee, Appellant, v. Mrs. Wayne CRYTS a/k/a Sandy Cryts; William Cryts, Jr.; Evans Ipock; Bill Jewell; Wayne Cryts, Appellees.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 619

732 F.2d 619

10 Collier Bankr.Cas.2d 890, 11 Bankr.Ct.Dec. 1170,

Bankr. L. Rep. P 69,837

Robert P. LINDSEY, Trustee, Appellee, v. Evans IPOCK and Wayne Cryts, Appellants.

Bill Jewell.

Robert P. LINDSEY, Trustee, Appellant, v. Mrs. Wayne CRYTS a/k/a Sandy Cryts; William Cryts, Jr.;

Evans Ipock; Bill Jewell; Wayne Cryts, Appellees.

Nos. 83-1534, 83-1562.

United States Court of Appeals Eighth Circuit.

Submitted Nov. 16, 1983.

Decided April 13, 1984.

Thomas D. Kershaw, Jr., American Constitutional Rights Ass'n, Klamath Falls, Or., for Cryts et al.

J. Paul McGrath, Asst. Atty. Gen., Washington, D.C., George W. Proctor, U.S. Atty., Little Rock, Ark., Michael F. Hertz, Eloise E. Davies, Appellate Staff, Civil Div., Dept. of Justice, Washington, D.C., for U.S. intervenor.

A. Jan Thomas, Jr., West Memphis, Ark., Davidson, Horne, Hollingsworth, Arnold & Grobmyer, Little Rock, Ark., Warren Dupwe, Jonesboro, Ark., Richard Steele, Cape Girardeau, Mo., for Lindsey.

Before LAY, Chief Judge, and FAGG and BOWMAN, Circuit Judges.

LAY, Chief Judge.

On August 11, 1980, Cox and Frisbee Cotton Companies filed a voluntary chapter 7 bankruptcy proceeding. Thereafter, upon the debtors' motion, the proceeding was converted to a chapter 11 reorganization. Robert Lindsey was appointed as trustee under chapter 11.

Debtors' assets consisted primarily of grain storage facilities. The ownership of the grain therein--some 3.27 million bushels--was subject to dispute. Wayne Cryts had stored 31 thousand bushels of soybeans in debtors' Ristine, Missouri, elevator, though he did not have clear title to this grain. Cryts had pledged the negotiable warehouse receipts issued by debtor to Commodity Credit Corp.

On September 23, 1980, the trustee sought authorization from the bankruptcy court, pursuant to 11 U.S.C. Sec. 363, to sell the grain in debtors' facilities. The liens and ownership claims were to attach to the proceeds of the sales. Various farmers, including Cryts, filed objections. In addition, the State of Missouri commenced five separate Missouri state court receivership actions and obtained ex parte injunctions on October 20, 1980, against the trustee and the bankruptcy court, which enjoined them from exercising jurisdiction over the grain. The next day the State of Missouri received an ex parte stay order from this court, which operated as a blanket stay of all proceedings in the bankruptcy court. This court then entered an order on April 8, 1981, sustaining the jurisdiction of the bankruptcy court. State of Missouri v. United States Bankruptcy Court, 647 F.2d 768 (8th Cir.1981).

On May 18, 1981, the bankruptcy court held a hearing to determine whether the Missouri grain should be sold free and clear of all liens and interests. The evidence revealed substantial, conflicting claims of various types to all the Missouri grain. Additionally, the condition of the grain was poor and was rapidly deteriorating. The bankruptcy court thus authorized the trustee to sell the Missouri grain, with all claims and liens to attach specifically to the net sale proceeds. This order was not appealed.

The trustee contracted to sell the grain to Bearhouse, Inc. To prevent the sale of the 31 thousand bushels that Cryts claimed an interest in, Cryts and others unlawfully took possession of an elevator in Bernie, Missouri, and removed at least 31 thousand bushels of soybeans. The immediate loss to debtors was approximately $218,000. ¹

The trustee moved in the bankruptcy court to hold Cryts and others in civil contempt for the removal of the grain from the Bernie elevator. The court conducted hearings over a seven-month period and eventually concluded, on June 7, 1982, that Cryts and others had conspired to deprive the trustee of the property of the estate when they were fully aware that the grain was in the control and jurisdiction of the bankruptcy court. The fine imposed was the losses and expenses of the estate plus interest, which totaled $287,708. To induce compliance, the court also assessed a penalty of $1,500 per day from the date of its contempt judgment.

Cryts and others appealed this contempt judgment to the district court, challenging the bankruptcy court's jurisdiction to authorize the sale of the grain and exercise civil contempt powers. The district court held that the bankruptcy court had jurisdiction to authorize the sale of the grain, but further held that the contempt power exercised by the bankruptcy court was unconstitutional because of its Article I status. The district court then held its own civil contempt hearing in February of 1983, which resulted in a civil contempt judgment against Cryts only. The others subject to the bankruptcy court's contempt judgment either were found in contempt but no monetary judgment assessed or were found not in contempt. The fine imposed against Cryts was $272,550 plus interest from the date of the bankruptcy court's judgment.

On appeal, the trustee asserts that the district court erred in holding the bankruptcy court lacked constitutional authority to exercise contempt power, that Cryts is estopped to challenge the bankruptcy court's contempt power, and that the district court erred in not making its order prospective. On cross appeal Cryts contends that the bankruptcy court lacked jurisdiction to sell the grain and therefore there was no authority for the court to hold Cryts in contempt.

I. Bankruptcy Court Jurisdiction

We address the issue raised on the cross appeal first. Cryts argues that the bankruptcy court only had preliminary jurisdiction over the grain to determine ownership. This court, in its April 8, 1981, opinion, 647 F.2d 768, stated that the trustee's interest in the grain was "sufficient to trigger preliminary jurisdiction over the property in the bankruptcy court." Id. at 774. We went on to say that "the bankruptcy court must make the final determination of property interests after full presentation of the evidence." Id. Before authorizing the trustee to sell the grain, the bankruptcy court was to "carefully consider the requirements of section 363(f) and the duty under the Code to protect the property interests of third parties." Id. at 778. We directed that "[t]he bankruptcy court should particularly examine its authority to order the sale if title documents indicate that the estate possesses no substantial ownership rights to the grain and that any bona fide dispute over the property exists only between third parties." Id.

Section 363(f) allows the bankruptcy court to authorize the sale

free and clear of any interest in such property of an entity other than the estate, only if--

(1) applicable nonbankruptcy law permits sale of such property free and clear of such interest;

(2) such entity consents;

(3) such interest is a lien and the price at which such property is to be sold is greater than the aggregate value of such interest;

(4) such interest is in bona fide dispute; or

(5) such entity could be compelled, in a legal or equitable proceeding, to accept a money satisfaction of such interest.

11 U.S.C. Sec. 363(f). The district court agreed with the bankruptcy court's findings that subsections (4) and (5) were satisfied and therefore authorization of the sale was justified. In re Cox Cotton Co., 24 B.R. 930, 937 (D.C.E.D.Ark.1982).

Cryts disagrees, however, and argues that the conditions were not met for the sale authorization. Cryts claims that neither subsections (4) or (5) were satisfied and that Cryts, as legal owner, thus had the right to remove the 31,000 bushels of soybeans because the trustee held the soybeans solely as a bailee.

Cryts' argument fails for two reasons. First, he may not belately attack the bankruptcy order of sale in these collateral proceedings; once Cryts was apprised of the bankruptcy court's sale order and failed to timely appeal, he was obligated to obey these orders even if they were in error. Second, we think it clear from the overall evidence that the district court's extensive analysis and ultimate conclusion with respect to the bankruptcy court's jurisdiction over the grain, see 24 B.R. at 933-39, was not in error. Thus, we conclude the bankruptcy court did not err in ordering the sale of the grain. ²

II. Bankruptcy Court Contempt Power

The fundamental question before us is the constitutionality of Congress's delegation in the 1978 Bankruptcy Reform Act of civil contempt powers to bankruptcy courts. The district court, in a thorough, analytical opinion found that exercise of the contempt power by the bankruptcy judge was unconstitutional. The core analysis of the district court's opinion was that the judicial power of the United States can be vested only in Article III judges, that bankruptcy judges are not Article III judges, and that the delegation of contempt power to bankruptcy judges is therefore unconstitutional.

We do not pass on the merits of the district court's analysis; we conclude that the district court erred in failing to give proper recognition to the prospective holding of Northern Pipeline Construction Co. v. Marathon Pipe Line Co., 458 U.S. 50, 102 S.Ct. 2858, 73 L.Ed.2d 598 (1982). In holding that the decision regarding the unconstitutionality of the Bankruptcy Reform Act of 1978 should not be applied retroactively, the Supreme Court stated: "It is ... 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." 458 U.S. at 88, 102 S.Ct. at 2880. ³

The question then arises whether the prospective application is limited to Sec. 1471 jurisdiction, which the Northern Pipeline concurrence argues was the only issue before the Court, or includes the entire Bankruptcy Act and thus Sec. 1481, which provides for the exercise of contempt powers by...