Matter of Billing

• Decision Date: 25 January 1993
• Docket Number: Civ. A. No. 92-4278 (MTB).
• Court: U.S. District Court — District of New Jersey
• Parties: In the Matter of: Anders S. BILLING and Diann E. Billing, Debtors. Anders S. BILLING and Diann E. Billing, Plaintiffs, v. RAVIN GREENBERG & ZACKIN, P.A.; Ravin, Greenberg & Marks, P.A.; Howard Greenberg, Defendants.

150 B.R. 563 (1993)

In the Matter of: Anders S. BILLING and Diann E. Billing, Debtors.

Anders S. BILLING and Diann E. Billing, Plaintiffs, v. RAVIN GREENBERG & ZACKIN, P.A.; Ravin, Greenberg & Marks, P.A.; Howard Greenberg, Defendants.

Civ. A. No. 92-4278 (MTB).

United States District Court, D. New Jersey.

January 25, 1993.

Ross & Hardies by Jody B. Keltz, Somerset, NJ, for plaintiffs.

Franzblau, Dratch & Friedman by Kenneth K. Lehn, Roseland, NJ, for defendants.

OPINION

BARRY, District Judge.

I. Introduction

Plaintiffs Anders S. Billing and Diann E. Billing have brought this action against the law firm of Ravin Greenberg & Zackin, P.A.; its successor firm, Ravin, Greenberg & Marks, P.A.; and a member of the firms, Howard Greenberg. Plaintiffs' causes of action of malpractice, misrepresentation, breach of fiduciary duty, breach of contract, and breach of professional obligations arise from what they assert was defendants' substandard representation in the course of plaintiffs' Chapter 11 bankruptcy proceedings. Defendants now move, alternatively, for dismissal of this action, abstention, referral to the bankruptcy court, or for a stay of this action until a fee dispute is resolved by the bankruptcy court.

II. Background

Plaintiffs filed several petitions under Chapter 11 of the Bankruptcy Code in June, 1989. Defendants were thereafter retained by plaintiffs pursuant to an order of the bankruptcy court. On August 10, 1992, a Joint Modified Plan of Reorganization was confirmed by the bankruptcy court. See Debtors' Objection to the Final Application for Compensation and Reimbursement of Expenses of Ravin, Greenberg & Marks, Def. Moving Br., Exh. B (hereinafter "Fee Objection") ¶ 4.

Plaintiffs claim that they have paid defendants fees totalling $310,000. Fee Objection ¶ 6. Currently pending in the bankruptcy court is a dispute over defendants' final fee application for an additional $199,043.50 for services rendered in representing plaintiffs. Id. ¶¶ 5, 7-12. Plaintiffs have filed objections to the application relating to excessive time spent in meetings, reviewing pleadings, reviewing the file and, "most importantly," defendants' alleged malpractice as reflected by the complaint filed in this action. Fee Objection ¶¶ 7-11.

The instant action is brought in this court under 28 U.S.C. § 1334 in that plaintiffs' bankruptcy petitions, now consolidated, are pending in the District of New Jersey and this action arises under title 11 of the United States Code. Complaint ¶ 2. Plaintiffs base their claims in this action on allegations that defendants (1) failed to formulate a confirmable reorganization plan, (2) failed to meet certain bankruptcy court-imposed deadlines, (3) acted disloyally towards plaintiffs by counselling them to agree to the unreasonable demands of secured creditors, (4) failed to seek a "Wedgewood Order" which allowed Citizens First National Bank to obtain relief from an automatic stay, (5) failed to oppose a motion by First Fidelity Bank to convert the Chapter 11 proceedings to Chapter 7 proceedings until two days before the return date of the motion, (6) failed to comply with the requirements of the Bankruptcy Code with respect to the assumption of a ground lease for a commercial building in Morristown, New Jersey, (7) mishandled the sale of plaintiffs' residence and the purchase of a new residence, (8) allowed Amerifirst Bank to obtain relief from the automatic stay and sell certain property for less than had previously offered for the property, and (9) denigrated plaintiffs' lender liability claims against Citizens First National Bank. Complaint ¶¶ 6-13.

III. Discussion

Plaintiffs contend that the claims raised in this action must remain before this court because they are legal in nature and therefore implicate their Seventh Amendment right to a jury trial. The extension from this argument is twofold. First, they argue that the malpractice claims do not constitute a core proceeding and that, because the Third Circuit squarely held in Beard v. Braunstein, 914 F.2d 434, 443 (3d Cir. 1990), that a bankruptcy court cannot conduct a jury trial in a non-core proceeding, only this court can adjudicate this dispute. Alternatively, they argue that even if the malpractice action is deemed a core proceeding, the bankruptcy court is not empowered to conduct a jury trial. Both parties recognize that the latter question, i.e. whether a bankruptcy court may conduct a jury trial in a core proceeding, remains unanswered by the Third Circuit and is the subject of a split among other circuits. See Metro Transportation Co. v. North Star Reinsurance Co., 912 F.2d 672, 675 n. 1 (3d Cir.1990); see also In re Ben Cooper, Inc., 896 F.2d 1394 (2d Cir.), cert. granted, 497 U.S. 1023, 110 S.Ct. 3269, 111 L.Ed.2d 779 vacated and remanded, 498 U.S. 964, 111 S.Ct. 425, 112 L.Ed.2d 408 (1990), reinstated, 924 F.2d 36 (2d Cir.), cert. denied, ___ U.S. ___, 111 S.Ct. 2041, 114 L.Ed.2d 126 (1991); In re Grabill Corp., 967 F.2d 1152 (7th Cir.1992); In re Baker & Getty Financial Services, Inc., 954 F.2d 1169 (6th Cir.1992); In re Kaiser Steel Corp., 911 F.2d 380 (10th Cir.1990); In re United Missouri Bank, N.A., 901 F.2d 1449 (8th Cir. 1990). Thus, key to a determination of whether the instant action proceeds in this court or in the bankruptcy court is whether the proceeding is deemed to be core or non-core.

A. Core or Non-core Proceeding

The starting point in determining whether this action is a core or a non-core proceeding is the Supreme Court's decision in Northern Pipeline Construction Co. v. Marathon Pipe Line Co., 458 U.S. 50, 102 S.Ct. 2858, 73 L.Ed.2d 598 (1982). The Court in Marathon found unconstitutional that portion of the Bankruptcy Act of 1978 which gave bankruptcy courts "jurisdiction over all `civil proceedings arising under or related to cases under title 11.' 28 U.S.C. § 1471(b) (1976 ed., Supp. IV) (emphasis added)." Id. at 54, 102 S.Ct. at 2862. Recognizing that Congress can grant bankruptcy courts the power to issue final orders in proceedings "at the core of the federal bankruptcy power," the Court held that Congress cannot give bankruptcy courts power to adjudicate "state-created private rights" which are the province of Article III courts. Id. at 71, 102 S.Ct. at 2871.

In response to Marathon, Congress passed the Bankruptcy Amendments and Federal Judgeship Act of 1984 ("1984 Act"), which provided that "Bankruptcy judges may hear and determine all cases under title 11 and all core proceedings arising under title 11 . . . and may enter appropriate orders and judgments, subject to review under section 158 of this title." Thus, in an attempt to stay within the constitutional bounds delineated by Marathon, Congress vested the bankruptcy courts with full adjudicative power with regard to "core" proceedings, subject to ordinary appellate review by the district courts. 28 U.S.C. §§ 157(b)(1), 158(a), (c). At the same time, it provided that as to non-core proceedings the bankruptcy court "shall submit proposed findings of fact and conclusions of law to the district court" subject to de novo review by that court. 28 U.S.C. § 157(c)(1).

Congress provided a non-exclusive list of core proceedings in 28 U.S.C. § 157(b)(2)(A)-(O). Defendants premise their argument that this is a core proceeding on subsections (A) and (O), the statute's two "catch-all" provisions. Subsection (A) pertains to "matters concerning the administration of the estate" while subsection (O) relates to "other proceedings affecting the liquidation of the assets of the estate or the adjustment of the debtor-creditor or the equity security holder relationship, except personal injury tort or wrongful death claims." 28 U.S.C. § 157(b)(2)(A) & (O).

Courts have taken differing views of how to categorize claims as core or non-core, particularly with regard to the two catch-all provisions. Congress explicitly stated that the determination of whether a proceeding is core or non-core "shall not be made solely on the basis that its resolution may be affected by State law." 28 U.S.C. § 157(b)(3). Some courts have taken the view that the catch-all provisions are to be interpreted narrowly:

we hold that state law contract claims that do not fall within the categories of core proceedings enumerated in 28 U.S.C. § 157(b)(2)(B)-(N) are related proceedings under § 157(c) even if they arguably fit within the literal wording of the two catch-all provisions, sections § sic 157(b)(2)(A) and (O). To hold otherwise would allow the bankruptcy court to enter final judgments that this court has held unconstitutional. Since we find the case before us a "related proceeding," the district court was correct in ruling that the bankruptcy court had no jurisdiction to enter judgment. 28 U.S.C. § 157(c)(1).

In re Castlerock Properties, 781 F.2d 159, 162 (9th Cir.1986). Other courts have taken the opposite view, interpreting the congressional intent behind the 1984 law to be that the phrase "core proceedings" be read broadly, "close to or congruent with constitutional limits." In re Arnold Print Works, Inc., 815 F.2d 165, 168 (1st Cir. 1987) (finding evidence in the legislative history that Congress intended non-core proceedings, termed "Marathon-type" cases, to be of a "very limited kind").

Beyond these polar positions, courts have found it useful to examine whether a claim arose pre-petition or post-petition, the latter being more appropriately considered core proceedings. See, e.g. Ben Cooper, 896 F.2d at 1400; Davis v. Merv Griffin Co., 128 B.R. 78, 90-91 (D.N.J. 1991); cf. Beard v. Braunstein, 914 F.2d 434, 444-45 (3d Cir.1990). Finally, the Fifth Circuit compared the language of 28 U.S.C. § 157(b)(1) ("core proceedings arising under title 11, or arising in a case under title 11") (emphasis supplied in Wood) with the language of 28 U.S.C. § 1134 setting forth the three categories of bankruptcy jurisdiction ("arising under" title 11, "arising in" title 11 cas...