Decision Date20 June 1986
Docket NumberCV 85-0-361 to CV 85-0-362 and CV 85-0-383 to CV 85-0-402.,No. CV 85-0-341 to CV 85-0-347,CV 85-0-349 to CV 85-0-359,CV 85-0-341 to CV 85-0-347
Citation62 BR 439
CourtU.S. District Court — District of Nebraska

Nelson & Harding, Robert V. Ginn and MaryBeth Frankman, Omaha, Neb., for Associated Grocers of Nebraska.

Kennedy, Holland Law Firm, Frank M. Schepers, Omaha, Neb., for official creditors committee.

Dixon, Dixon & Minahan, Harry D. Dixon, Jr. and Daniel W. Evans, Omaha, Neb., for American Home Products Corp.

Ronald D. Lahners, U.S. Atty., Douglas R. Semisch, Asst., and Richard K. Willard, Acting Asst. Atty. Gen., Civil Div., and J. Christoffer Kohn, Tracy J. Whitaker and Allen L. Lear, Attys. U.S. Dept. of Justice, Washington, D.C., for U.S.A., intervenor.


BEAM, Chief Judge.

These matters arise out of adversary proceedings brought in the United States Bankruptcy Court by Associated Grocers of Nebraska Cooperative, Inc., the debtor-in-possession, against American Home Products Corporation and several other defendants (hereinafter referred to collectively as the "Trade Creditors").1 In those actions, Associated Grocers sought in its first cause of action to set aside (1) certain preferential transfers pursuant to 11 U.S.C. § 547(b), and in its second cause of action to set aside (2) unauthorized post-petition transfers pursuant to 11 U.S.C. § 549(a) (Record on Appeal, filing 1 — hereinafter R-1). In response, the Trade Creditors filed motions to dismiss alleging that the Bankruptcy Court could not constitutionally exercise jurisdiction over the claims of Associated Grocers without violating Article III of the United States Constitution. The Bankruptcy Court sustained the motions to dismiss, holding that 28 U.S.C. § 157(b)(2)(F) unconstitutionally vests Article III powers in judges lacking the commensurate protections. Associated Grocers of Nebraska Cooperative, Inc. v. Nabisco, 46 B.R. 173, 175 (Bankr.D.Neb. 1985).

Associated Grocers filed motions to vacate and to reconsider. After argument, the Bankruptcy Court reinstated Associated Grocers' second claim for the recovery of alleged unauthorized post-petition transfers (R-33). The Bankruptcy Court, in finding that it had subject matter jurisdiction to hear and determine a post-petition transfer case, held that by accepting a post-petition transfer, a creditor sufficiently subjects himself to the jurisdiction of the Bankruptcy Court so as to constitute consent to the Bankruptcy Court's jurisdiction (R-33, at 10-11).

This Court granted leave for Associated Grocers to appeal the dismissal of its first cause of action concerning the preferential transfers, and leave for the Trade Creditors to cross-appeal the reinstatement of the second cause of action concerning alleged unauthorized post-petition transfers. In addition, the United States and the Official Creditors' Committee were granted leave to intervene to support the constitutionality of 28 U.S.C. § 157(b)(2)(F). For the reasons set forth below, the Court finds that 28 U.S.C. § 157(b)(2)(F),2 on the facts presented here, does not violate Article III of the constitution, and that the cases should be remanded to the Bankruptcy Court for consideration of the merits of the causes of action.


The Trade Creditors contend that Congress, by awarding bankruptcy judges jurisdiction to enter final judgments in cases involving claims of preferential transfers, has unconstitutionally vested such judges with inherently judicial powers reserved for Article III judges.3

Article III is designed to provide judicial impartiality and is "an inseparable element of the constitutional system of checks and balances. . . ." Northern Pipeline Construction Co. v. Marathon Pipe Line Co., 458 U.S. 50, 58, 102 S.Ct. 2858, 2865, 73 L.Ed.2d 598 (1982). "It both defines the power and protects the independence of the Judicial Branch." Id. Article III provides:

The judicial Power of the United States, shall be vested in one supreme Court, and in such inferior Courts as the Congress may from time to time ordain and establish. The Judges, both of the supreme and inferior Courts, shall hold their Offices during good Behavior, and shall, at stated Times, receive for their Services, a Compensation, which shall not be diminished during their Continuance in Office.

U.S. Const. art. III, § 1. The difficulty inherent in the interpretation of this language is illustrated by the statement of the Supreme Court when it said that "an absolute construction of Article III is not possible in this area of `frequently arcane distinctions and confusing precedents.'" Thomas v. Union Carbide Agricultural Products, Co., ___ U.S. ___, 105 S.Ct. 3325, 3334, 87 L.Ed.2d 409 (1985), quoting Marathon, 458 U.S. at 90, 102 S.Ct. at 2881. "Neither this Court nor Congress has read the Constitution as requiring every federal question arising under the federal law . . . to be tried in an Art. III court before a judge enjoying life tenure and protection against salary reduction." Citations omitted. Thomas, 105 S.Ct. at 3334.

In Marathon, a divided Supreme Court was "unable to agree on the precise scope and nature of Article III's limitations. The Court's holding in that case establishes only that Congress may not vest in a non-Article III court the power to adjudicate, render final judgment, and issue binding orders in a traditional contract action arising under state law, without consent of the litigants, and subject only to ordinary appellate review." Thomas, 105 S.Ct. at 3335, citing Marathon, 458 U.S. at 84, 102 S.Ct. at 2878 (plurality opinion), id., at 90-92, 102 S.Ct. at 2881-2882 (opinion concurring in judgment), id., at 92, 102 S.Ct. at 2882 (Burger, C.J., dissenting). Marathon did not "implicate the jurisdiction of the bankruptcy courts in other matters within the `traditional' bankruptcy jurisdiction." In re Kaiser, 722 F.2d 1574, 1580 (2d Cir. 1983). As the Court pointed out in Kaiser:

Marathon stated that "the restructuring of the debtor-creditor relations, which is at the core of the federal bankruptcy power, . . . may well be a `public right\'" and thus subject to adjudication in an Article I court. 458 U.S. at 71 102 S.Ct. at 2871. See also 458 U.S. at 92 102 S.Ct. at 2882 (Burger, C.J., dissenting) ("I write separately to emphasize that, notwithstanding the plurality opinion, the Court does not hold today that Congress\' broad grant of jurisdiction to the new bankruptcy courts is generally inconsistent with Article III. . . . Rather, the Court\'s holding is limited to the proposition stated by Justice Rehnquist in his concurrence in the judgment — that a `traditional\' state common-law action, not made subject to a federal rule of decision, and related only peripherally to an adjudication of bankruptcy under federal law, must, absent consent of the litigants, be heard by an `Article III court\' if it is to be heard by any court or agency of the United States. This limited holding, of course, does not suggest that there is something inherently unconstitutional about the new bankruptcy courts; nor does it preclude such courts from adjudicating all but a relatively narrow category of claims `arising under\' or `arising in or related to cases under\' the Bankruptcy Act.").

In re Kaiser, 722 F.2d at 1580, n. 2. The Supreme Court invalidated the jurisdictional grant on separability grounds, not on the grounds the bankruptcy courts could not adjudicate traditional bankruptcy matters. Id. at 1580.

The Trade Creditors' claim that giving bankruptcy courts' jurisdiction to make final determinations in claims of preferential transfers pursuant to Section 547(b) and Section 549(a) is unconstitutional because (a) an action to recover a preference is a private right not a public right; (b) the right to recover a preference is not a congressionally created right; and (c) the powers granted bankruptcy judges are greater than those which may be permissibly granted adjuncts.

The first argument focuses on the distinction made by Justice Brennan in Marathon between "public rights" and "private rights." Marathon, 458 U.S. at 62-76, 102 S.Ct. at 2866-2874. In Marathon the United States argued that Congress could, pursuant to its Article I powers, create a legislative court (a non-Article III court) in "`specialized areas having particularized needs and warranting distinctive' treatment such as the area of bankruptcy law." Marathon, 458 U.S. at 62-63, 102 S.Ct. at 2867. Justice Brennan identified three situations in which Congress could create legislative courts without violating Article III. Id. at 65-69, 102 S.Ct. at 2868-2870. The three categories identified were territorial courts, courts-martial, and courts to adjudicate public rights. Id. at 71, 102 S.Ct. at 2871. Justice Brennan states that:

The distinction between public rights and private rights has not been definitively explained in our precedents. Nor is it necessary to do so in the present cases, for it suffices to observe that a matter of public rights must at a minimum arise "between the government and others." Ex parte Bakelite Corp., 279 U.S. 438, 451 49 S.Ct. 411, 413, 73 L.Ed. 789 (1929). In contrast, "the liability of one individual to another under the law as defined," Crowell v. Benson, 285 U.S. 22, 51 52 S.Ct. 285, 292, 76 L.Ed. 598 (1932), is a matter of private rights. Our precedents clearly establish that only controversies in the former category may be removed from Art. III courts and delegated to legislative courts or administrative agencies for their determination. See Atlas Roofing Co. v. Occupational Safety and Health Review Comm\'n, 430 U.S. 442, 450, n. 7, 97 S.Ct. 1261, 1266 n. 7, 51 L.Ed.2d 464 (1977); Crowell v. Benson, 285 U.S. at 50-51 52 S.Ct. at 292-293. See also Katz, Federal Legislative Courts, 43

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