Mankin, In re

Decision Date27 July 1987
Docket NumberNo. 86-1804,86-1804
Citation823 F.2d 1296
Parties17 Collier Bankr.Cas.2d 469, Bankr. L. Rep. P 71,918 In re Roxanne MANKIN, fdba the Roxanne Mankin Co., Inc., Debtor. Charles DUCK, Trustee, Plaintiff-Appellee, v. G.B. MUNN, aka Bruce Munn, Defendant-Appellant.
CourtU.S. Court of Appeals — Ninth Circuit

Timothy W. Hoffman, Santa Rosa, Cal., for plaintiff-appellee.

Robert L. Pollak, Haas & Najarian, San Francisco, Cal., for defendant-appellant.

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

Before MERRILL, and NOONAN, Circuit Judges, and WATERS, * Senior District Judge.

LAUGHLIN E. WATERS, Senior District Judge:

This appeal arises from an action filed in a Chapter 7 bankruptcy case by the trustee to avoid, pursuant to 11 U.S.C. Sec. 544(b), an alleged fraudulent conveyance made by the Chapter 7 debtor, Roxanne Mankin ("Mankin"). Named as the defendant in the trustee's action is G.B. Munn ("Munn"), the party to whom Mankin made the alleged fraudulent transfer. Two issues have been raised on appeal: (1) whether the trustee's action is a "core proceeding" which Congress intended bankruptcy courts to "hear and determine" pursuant to 28 U.S.C. Sec. 157(b) and, if so, (2) whether exercise of jurisdiction by the bankruptcy court is unconstitutional under the holding of the Supreme Court in Northern Pipeline Construction Co. v. Marathon Pipe Line Co., 458 U.S. 50, 102 S.Ct. 2858, 73 L.Ed.2d 598 (1982).

28 U.S.C. Sec. 157(a) provides that district courts may refer "cases under title 11 or arising in or related to a case under title 11" to bankruptcy judges. Of the cases referred to them pursuant to 157(a), bankruptcy judges are authorized to "hear and determine" "cases under title 11" and "core proceedings" arising under Title 11. 28 U.S.C.A. Sec. 157(b) (West Supp.1987). The "cases under title 11" and "core proceedings" heard and determined by bankruptcy judges pursuant to Sec. 157(a) and (b) are subject to review by a district court "in the same manner as appeals in civil proceedings generally are taken to the courts of appeals from the district courts." 28 U.S.C.A. Sec. 158(c) (West Supp.1987). Non-core proceedings related to cases under Title 11 may also be referred to bankruptcy judges pursuant to 28 U.S.C. Sec. 157(a). However, unless the parties stipulate otherwise, bankruptcy judges are authorized only to "hear" non-core proceedings referred to them and then submit proposed findings of fact and conclusions of law to the district court for de novo review. 28 U.S.C.A. Sec. 157(c)(1) (West Supp.1987).

Congress has determined that proceedings to determine, avoid or recover fraudulent conveyances are "core proceedings" which may be referred to bankruptcy judges for determination pursuant to 28 U.S.C. Sec. 157(b). 28 U.S.C.A. Sec. 157(b)(2)(H) (West Supp.1987). There are two separate provisions in Title 11 which authorize a bankruptcy trustee to avoid conveyances: 11 U.S.C. Sec. 544(b) and 11 U.S.C. Sec. 548. Section 548 specifically authorizes the trustee to avoid any transfer of an interest of the debtor that was "made or incurred on or within one year before the date of the filing of the [bankruptcy] petition" if the debtor "made such transfer ... with actual intent to hinder, delay or defraud [any creditor]." 11 U.S.C.A. Sec. 548(a)(1) (West 1979 & Supp.1987). Section 544(b) gives to the trustee the power to avoid any conveyances which an unsecured creditor could have avoided under applicable state law. See 11 U.S.C.A. Sec. 544(b) (West 1979 & Supp.1987). Under California law, unsecured creditors are entitled to set aside fraudulent conveyances made by insolvent debtors. See Cal.Civ.Code Secs. 3439-3439.11 (West Supp.1987).

In the present suit, the trustee seeks relief under Sec. 544(b). 1 According to the trustee's complaint, the debtor entered into a written assignment agreement with Munn in which she agreed to transfer to Munn her right to receive profits as a general partner in Capitola Investors, a limited partnership, in exchange for Munn's promise to co-sign and guarantee a loan needed to refinance real property owned by Capitola. The trustee alleges that the transaction was fraudulent in that Munn's promise to co-sign the loan was not fair consideration, the assignment was made while the debtor was insolvent or rendered her insolvent and the assignment was made with intent to hinder, delay or defraud creditors.

The trustee filed his Sec. 544(b) action in the United States Bankruptcy Court for the Northern District of California on February 1, 1985. Munn responded to the complaint by filing a motion to dismiss. In this motion, Munn asserted the same position which he asserts on this appeal: that under the holding of the United States Supreme Court in Northern Pipeline Construction Co. v. Marathon Pipe Line Co., 458 U.S. 50, 102 S.Ct. 2858, 73 L.Ed.2d 598 (1982), adjudication by the bankruptcy court of the trustee's action violates Article III of the Constitution. The bankruptcy court accepted this position and by written order granted Munn's motion to dismiss. This order was filed on May 22, 1985 and entered on May 27, 1985. The trustee then filed a motion for reconsideration which the bankruptcy court denied on July 25, 1985. On August 5, 1985, the trustee filed and served a notice of appeal to the district court from the bankruptcy court's order dismissing the complaint.

In ruling on the trustee's appeal, the district court found that the trustee's action was a "core proceeding" as defined in 28 U.S.C. Sec. 157(b)(2)(H) over which the bankruptcy court had jurisdiction pursuant to 28 U.S.C. Sec. 157(b)(1). The district court also found that the Supreme Court's holding in Northern Pipeline did not preclude the bankruptcy court's jurisdiction "because the right of action arises under Title 11." Accordingly, the district court reversed the order of dismissal and remanded the case to the bankruptcy court with instructions to the bankruptcy court to exercise jurisdiction.

The district court's written order was entered on February 14, 1986. Munn noticed an appeal from this order to this court on March 12, 1986. Although the district court's order authorizes further proceedings, we have jurisdiction under 28 U.S.C. Sec. 158(d) to hear the appeal from the district court's order because the bankruptcy court order appealed from was final. In re Sambo's Restaurants, 754 F.2d 811, 813-815 (9th Cir.1985).

I. Statutory Jurisdiction of the Bankruptcy Court

28 U.S.C. Sec. 157(b)(1) provides for bankruptcy court jurisdiction over core proceedings and 28 U.S.C. Sec. 157(b)(2) lists various types of proceedings deemed by Congress to be core proceedings. Clause (H) of Sec. 157(b)(2) provides that core proceedings include "proceedings to determine, avoid, or recover fraudulent conveyances...." 28 U.S.C.A. Sec. 157(b)(2)(H) (West Supp.1987). A proceeding under 11 U.S.C. Sec. 548, which specifically authorizes a trustee to set aside fraudulent conveyances made within one year of the filing of a bankruptcy petition, is unquestionably the type of proceeding referred to in Sec. 157(b)(2)(H). Whether Sec. 157(b)(2)(H) refers to state fraudulent conveyance actions is, perhaps, somewhat less clear. The right of a trustee to bring state fraudulent conveyance actions is not specifically mentioned in the federal bankruptcy statutes but rather arises from 11 U.S.C. Sec. 544(b), which allows the trustee to set aside a conveyance which an unsecured creditor could have set aside under state law. Munn argues that in order to avoid the constitutional question raised by allowing Sec. 157(b)(2) bankruptcy jurisdiction over state fraudulent conveyance actions, we should construe Sec. 157(b)(2)(H) as referring only to the federal fraudulent conveyance action codified in 11 U.S.C. Sec. 548.

We decline to adopt the construction of Sec. 157(b)(2)(H) suggested by Munn. It is true that "[f]ederal statutes are to be so construed as to avoid serious doubt of their constitutionality." International Ass'n. of Machinists v. Street, 367 U.S. 740, 749, 81 S.Ct. 1784, 1790, 6 L.Ed.2d 1141 (1961). By the same token however, "this canon of construction does not give a court the prerogative to ignore the legislative will in order to avoid constitutional adjudication." Commodity Futures Trading Comm'n. v. Schor, --- U.S. ----, 106 S.Ct. 3245, 3252, 92 L.Ed.2d 675 (1986). To construe Sec. 157(b)(2)(H) as being limited to proceedings pursuant to Sec. 548 would be to "ignore the legislative will" underlying the statute. Not only is there nothing in the language of Sec. 157(b)(2)(H) to support Munn's argument, examination of Sec. 157(b)(2)(H)'s context within the Bankruptcy Code, as well as its wording and legislative history, demonstrates that Congress never intended it to be given the restrictive reading that Munn urges.

Section 157(b)(2) does not set categorical limits on the jurisdiction of bankruptcy courts over core proceedings, but rather merely enumerates examples of proceedings falling within a bankruptcy court's core proceeding jurisdiction. That Congress did not intend to limit the bankruptcy courts' jurisdiction over core proceedings by enumerating examples of core proceedings in Sec. 157(b)(2) is apparent from the prefatory language of Sec. 157(b)(2): "Core matters include, but are not limited to...." (emphasis added). 28 U.S.C.A. Sec. 157(b)(2) (West Supp.1987). Thus, in construing a bankruptcy court's jurisdiction over a particular action pursuant to Sec. 157(b)(1), the crucial consideration is not whether the action falls within one of the clauses of Sec. 157(b)(2), but rather whether the action is or is not in fact a core proceeding. As explained later in this opinion, an action by a trustee pursuant to Sec. 544(b) to set aside a fraudulent conveyance is in fact a core proceeding. See infra at p. 1307.

Even if the bankruptcy court's Sec....

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