Marathon Pipeline Co. v. Northern Pipeline Construction Co., Civ. No. 4-80-589.

• Decision Date: 24 July 1981
• Docket Number: Civ. No. 4-80-589.
• Citation: 12 BR 946
• Parties: MARATHON PIPELINE COMPANY, Petitioner, v. NORTHERN PIPELINE CONSTRUCTION CO., Respondent.
• Court: U.S. District Court — District of Minnesota

12 B.R. 946 (1981)

MARATHON PIPELINE COMPANY, Petitioner, v. NORTHERN PIPELINE CONSTRUCTION CO., Respondent.

Civ. No. 4-80-589.

United States District Court, D. Minnesota, Fourth Division.

April 23, 1981.

Supplemental Opinion July 24, 1981.

Lindquist & Vennum by Melvin I. Orenstein, Minneapolis, Minn., for defendant.

Briggs & Morgan by John Devney, St. Paul, Minn., for plaintiff.

ORDER

MILES W. LORD, District Judge.

The Court, having heard the arguments of counsel and considered the files, briefs, and all relevant material, has concluded that the petitioner's motion to dismiss is meritorious and that the delegation of authority in 28 U.S.C. § 1471 to the Bankruptcy Judges to try cases which are otherwise relegated under the Constitution to Article III judges is an unconstitutional delegation of authority.¹

Accordingly, IT IS HEREBY ORDERED That the adversary proceeding instituted by Northern Pipeline Construction Co. against Marathon Pipeline pursuant to the provisions of the Bankruptcy Code is dismissed.

IT IS FURTHER ORDERED That a stay of the provisions of this Order is granted pending appeal.

SUPPLEMENTAL OPINION

This action comes before this Court upon an appeal from an Order of the United States Bankruptcy Court for the District of Minnesota concluding that no constitutional infirmity invalidated the jurisdictional grant of authority under 28 U.S.C. § 1471.¹ On April 23, 1981, this Court issued an Order concluding that the delegation of authority in 28 U.S.C. § 1471 to the Bankruptcy Judges empowering them to try cases which are otherwise relegated under the Constitution to Article III judges is an unconstitutional delegation of authority. Supplementing its Order, the Court makes the following Findings of Fact and Conclusions of Law.

I. Facts

On March 8, 1979, respondent, Northern Pipeline Construction Co. (Northern) instituted a lawsuit against petitioner, Marathon Pipeline Company (Marathon) under 28 U.S.C. § 1332 in the United States District Court for the Western District of Kentucky, for claims arising out of a contract between the parties involving the construction of pipelines in Kentucky. That case is still pending. On January 14, 1980, Northern filed a petition for reorganization in the United States Bankruptcy Court for the District of Minnesota. On March 25, 1980, Northern initiated an adversary proceeding, against Marathon, under the Bankruptcy Code, asserting the same breach of contract claims asserted in its suit before the United States District Court for the Western District of Kentucky.² Marathon responded to this later complaint by filing a motion requesting an Order of the bankruptcy court dismissing the adversary proceeding for lack of jurisdiction. The bankruptcy court denied Marathon's motion to dismiss on November 17, 1980. Eleven days later Marathon filed an application for leave to appeal to this Court the bankruptcy court's order upholding its grant of jurisdiction under 28 U.S.C. § 1471. Marathon continued to press its claim that the bankruptcy court lacked the jurisdiction over the action for breach of contract as it involved an exercise of "the Judicial Power of the United States" which may be exercised solely by tenured judges as provided by Article III of the United States Constitution. This Court holds that 28 U.S.C. § 1471 is an unconstitutional delegation of Article III judicial power to nontenured judges.

II. Jurisdiction and Powers

28 U.S.C. § 151(a) creates the new bankruptcy courts as adjuncts to the federal district courts, and correspondingly, bankruptcy jurisdiction is vested by 28 U.S.C. § 1471(a) and (b) initially in the district courts. 28 U.S.C. § 1471(a) vests in the district courts "original and exclusive jurisdiction over all cases under title 11." 28 U.S.C. § 1471(b) confers on the district courts "original but not exclusive jurisdiction of all civil proceedings arising under title 11 or arising in or related to cases under title 11."³ Nevertheless, the ultimate repository of this jurisdiction is not the federal district court. 28 U.S.C. § 1471(c) assigns the jurisdiction granted to the district courts by subsections (a) and (b) to the bankruptcy courts. This assignment or transfer of jurisdiction from the district courts to the bankruptcy courts is mandatory, as the bankruptcy courts "shall exercise all the jurisdiction so conferred." Thus, the statutory scheme is constructed in such a manner as to remove with one hand what was just previously bestowed by the other.⁴

a. 28 U.S.C. § 1471(b)⁵

Section 1471(b) is a substantial enlargement over the grant of jurisdiction of the former bankruptcy courts. This fact was noted in the House Report to the legislation which ultimately became § 1471(b).

Subsection (b) is a significant change from current law. It grants the bankruptcy court original (trial), but not exclusive, jurisdiction of all civil proceedings under title 11 or arising under or related to cases under title 11. This is the broadest grant of jurisdiction to dispose of proceedings that arise in bankruptcy cases or under the bankruptcy code. Actions that formerly had to be tried in State court or in Federal district court, at great cost and delay to the estate, may now be tried in the bankruptcy courts. The idea of possession or consent as the sole bases for jurisdiction is eliminated. The bankruptcy court is given in personam jurisdiction as well as in rem jurisdiction to handle everything that arises in a bankruptcy case. (emphasis added). H.R.Rep.No.595, 95th Cong., 1st Sess. 445 (1977), U.S.Code Cong. & Admin.News 1978, p. 5787, 6400.

The scope of "all civil proceedings arising under . . . or related to cases arising under title 11" is amazingly broad as it encompasses claims based on both federal and state law. An attorney who handled the bankruptcy reorganization of a major supermarket chain testified as to the potential breadth of this expanded jurisdiction. Included in the supermarket's five-year reorganization were such state law claims as disputes over the validity of contracts, landlord-tenant relationships, reclamation of goods, foreclosures of security interests, and alleged torts. At the same time the bankrupt was the defendant in an action to enforce collective bargaining agreements and a title VII employment discrimination action filed in response to massive layoffs. The trustee initiated an antitrust action against several of the supermarket's suppliers, and a securities fraud action against the parent corporation. Because each of these state and federal law disputes affected the bankrupt's assets, financial condition, and obligations, they were all "related to" the underlying reorganization proceeding and thus come within the present jurisdiction of the new courts of bankruptcy. See Bankruptcy Court Revision, Hearings on H.R. 8200 Before the Subcommittee on Civil and Constitutional Rights of the House Committee on the Judiciary. 95th Cong., 1st Sess. 18-27 (1977) (statement of J. Stanley Shaw). It is unnecessary to dwell on the myriad other fact situations that may come to mind.⁶ It is evident that 28 U.S.C. § 1471(b) and its transition counterpart extend to the new courts of bankruptcy a grant of jurisdiction that will equal, and in some instances exceed the jurisdiction of the federal district courts.⁷ As Collier on Bankruptcy notes "section 1471(b) finds its analogue in 28 U.S.C. § 1331, which confers original jurisdiction upon the district courts." Collier, Bankruptcy, Appendix 1, ¶ 3.011dii (1980). Indeed, the only significant difference is that an Article I bankruptcy judge's cases will be in some manner "related to" an underlying bankruptcy proceeding.

b. Powers of the bankruptcy court

The Bankruptcy Reform Act of 1978 concomitantly expands the powers of the bankruptcy courts under 28 U.S.C. § 1481. Section 1481 states "a bankruptcy court shall have the powers of a court of equity, law and admiralty. . . ." As a court of equity the bankruptcy court has wide discretion to fashion new remedies where remedies at law are inadequate. In re Evergreen Memorial Park Ass'n, 308 F.2d 65 (3d Cir. 1962). As a court of admiralty the bankruptcy court has the power to sell property of an estate free of maritime liens. As a court of law the bankruptcy court has the power to award damages. Title 11 U.S.C. § 105 gives the bankruptcy court the power to "issue any order, process or judgment that is necessary or appropriate to carry out the provisions of this title." Under 28 U.S.C. § 1651 the bankruptcy court has the power to issue all writs necessary in aid of its expanded jurisdiction. Whereas the old bankruptcy courts were unable to hold jury trials, the new courts will have that power. 28 U.S.C. § 1480. Because specific types of contempt are not set out in the 1978 statute, as they were under the old Act, the bankruptcy courts are governed by 18 U.S.C. § 401, which allows the court "to punish by fine or imprisonment, at its discretion, such contempt of its authority, and none other, as (1) misbehavior of any person in its presence . . . (2) misbehavior of any of its officers in their official transactions (3) disobedience or resistance to its lawful writ, process, order, rule, decree, or command." This contempt power is restricted somewhat by 28 U.S.C. § 1481, where the bankruptcy court is denied the ability to punish criminal contempts not committed in its presence or those warranting a punishment of imprisonment. Finally, the bankruptcy court is granted the power to issue a writ of habeas corpus. 28 U.S.C. § 2256. In sum, the new bankruptcy court has the power to fashion remedies at law or equity, issue writs of execution and habeas corpus, punish all civil and some criminal contempts, conduct jury trials, and enter final judgments. Except for the inability to enjoin another court and the limitation over certain kinds of criminal contempt, the bankruptcy court is endowed with the full array of judicial powers. The ...