Matter of Hughes-Bechtol, Inc.

• Decision Date: 25 October 1989
• Docket Number: Adv. No. 3-89-0161.,Bankruptcy No. 3-88-02492
• Citation: 107 BR 552
• Parties: In the Matter of HUGHES-BECHTOL, INC., Debtor. HUGHES-BECHTOL, INC., Plaintiff, v. AIR ENTERPRISES, INC., Defendant. AIR ENTERPRISES, INC., Plaintiff, v. OHIO FARMERS INSURANCE COMPANY, Defendant.
• Court: U.S. Bankruptcy Court — Southern District of Ohio

107 B.R. 552 (1989)

In the Matter of HUGHES-BECHTOL, INC., Debtor.

HUGHES-BECHTOL, INC., Plaintiff, v. AIR ENTERPRISES, INC., Defendant.

AIR ENTERPRISES, INC., Plaintiff, v. OHIO FARMERS INSURANCE COMPANY, Defendant.

Bankruptcy No. 3-88-02492, Adv. No. 3-89-0161.

United States Bankruptcy Court, S.D. Ohio, W.D.

October 25, 1989.

Bruce A. Buren, Dayton, Ohio.

Sally Conley Lux, of counsel, Akron, Ohio, for Air Enterprises.

Thomas R. Noland, Dayton, Ohio, for Hughes-Bechtol, Inc.

Dennis Liston, Columbus, Ohio, for Ohio Farmers.

Wayne Dawson, Dayton, Ohio, for Soc. Bank.

John P. Gartland, Michael W. Currie, Columbus, Ohio.

John Paul Rieser, Dayton, Ohio, for Unsecured Creditors Committee.

David C. Greer, Dayton, Ohio.

John Ducker, Dayton, Ohio, for IPS Robertshaw.

THOMAS F. WALDRON, Bankruptcy Judge.

I. PROCEDURAL BACKGROUND

This adversary proceeding is before the court on an Amended Application For Removal Pursuant To Bankruptcy Rule 9027 Of Consolidated Cases (Doc. 3) filed by Hughes-Bechtol, Inc. seeking to remove various State Court actions, pending in the Montgomery County Court of Common Pleas, which involve claims and counterclaims arising out of labor and materials supplied by Air Enterprises, Inc. (Air) to Hughes-Bechtol, Inc. (Hughes-Bechtol) in connection with the construction of certain facilities (the project) at Wright-Patterson Air Force Base. A brief identification of the entities involved in this adversary proceeding and the procedural history of the State Court actions and the filings in this adversary proceeding will aid in understanding this report and decision.

Hughes-Bechtol, the debtor-in-possession in this pending Chapter 11 reorganization case, is a construction company engaged in commercial and governmental construction projects. Hughes-Bechtol is often in the position of a subcontractor to the general contractor on construction projects; additionally, Hughes-Bechtol frequently employs a number of other entities as subcontractors. Butt and Head, Inc. (Butt) was the general contractor on the project. Hughes-Bechtol was a subcontractor of Butt. Federal Insurance Co. provided a performance bond to Butt in connection with the project. Ohio Farmer's Insurance Co. (Ohio Farmers) provided a performance bond to Hughes-Bechtol in connection with the project. Air was a subcontractor of Hughes-Bechtol in connection with the project.

Hughes-Bechtol, prepetition, had filed a State Court action (Case No. 3-87-3682) against the general contractor, Butt, which involved a third-party complaint against Air. Air had filed a counterclaim in that action; however, all of the parties in that action (Case No. 87-3682) have filed dismissals of their claims. Accordingly, that case, which is not presently pending in the state court, is, likewise, not a subject of removal in this adversary proceeding.

Hughes-Bechtol had also filed a separate State Court action against Air and Air had filed a counterclaim in that action against Hughes-Bechtol and demanded a trial by jury. (Case No. 87-3793). Wright Patterson Air Force Base, where the project is located, is situated in two (2) Ohio counties, Montgomery and Greene, and, accordingly, Air Enterprises commenced two (2) identical actions involving the project, one in the Montgomery County Court of Common Pleas under Case No. 88-2879 and one in the Greene County Court of Common Pleas under Case No. 88-CV-326. In each of these actions, Air demanded trial by jury. These two actions (88-2879 and 88-CV-326) named Ohio Farmers as a defendant, but did not name Hughes-Bechtol as a defendant. The Greene County State Court action (88-CV-326) was transferred to Montgomery County and thereafter consolidated with the two (2) pending Montgomery County Court of Common Pleas actions (87-3793 and 88-2879) for purposes of coordinating discovery and conducting pretrial hearings.

In this adversary proceeding, Air filed Air Enterprises, Inc.'s Memorandum In Opposition To Hughes-Bechtol's Removal Application And In Support Of Air Enterprise's Motions For Abstention And Remand (Doc. 6). The court entered an Order Requiring Filing Of Motions Pursuant To 28 U.S.C. § 157(d), Setting Oral Arguments On Pending Motions And Determination Of Further Proceedings In This Adversary And Pretrial Conference (Doc. 7). Thereafter, Hughes-Bechtol filed a Motion To Withdraw Reference And Consolidate Actions And Response Of Debtor-In-Possession To Motion Of Air Enterprises, Inc. For Remand Or Abstention (Doc. 8) and Air filed Reply Of Air Enterprises, Inc. To Response To Motion For Remand And Abstention And Response Of Air Enterprises, Inc. To Motion To Withdraw The Reference (Doc. 10).

II. ISSUES PRESENTED

Although all of the issues raised in this adversary proceeding (removal, remand, abstention, withdrawal and jury trial) are interrelated, this court's consideration of these issues is governed by specific federal statutes which control the form of the court's determination. With regard to the removal, remand and abstention issues this court is required to file a report and recommendation for final determination by the district court. With regard to whether a proceeding is core or non-core, or whether a party is entitled to a jury trial, this court is authorized to enter final orders. With regard to Hughes-Bechtol's Motion For Withdrawal, that matter is committed exclusively to decision by the district court.

III. DECISION

A. Jurisdiction Determination

The interrelated issues presented in this proceeding require this court to examine the existing statutes governing the jurisdiction of the United States District Court in bankruptcy cases and proceedings and the exercise of that jurisdiction by United States Bankruptcy Judges. This court has previously explored these issues in three decisions, which contain principles relevant in the determination of this adversary proceeding: Matter of Commercial Heat Treating Of Dayton, Inc., 80 B.R. 880 (Bankr.S.D.Ohio 1987); Matter of Walton, Chp. 7 Case No. 3-88-00747 (Bankr.S.D. Ohio 1988) (Lexis, 1988 Bankr. Lexis 2539) (Abstention) (hereinafter Walton-abstention); Matter of Walton, 104 B.R. 861 (Bankr.S.D.Ohio 1988) (Core proceeding) (hereinafter Walton-core).

As this court has noted,

A recognition of the difference between the existence of jurisdiction and the exercise of jurisdiction in bankruptcy cases and proceedings is fundamental to an understanding and resolution of the issues presented in this proceeding and may provide guidance for future proceedings. The existence of jurisdiction in a bankruptcy case or proceeding rests on a broad and complete constitutionally authorized direct grant of authority by Congress to the district courts over all matters and proceedings that are connected to a bankruptcy case. The exercise of jurisdiction by a bankruptcy court in a bankruptcy case or proceeding rests on a limited and circumscribed reference of derivative authority from the district court to the bankruptcy court over most, but not all, proceedings that are connected to a bankruptcy case.

This broad grant of authority establishing the existence of jurisdiction in the district court has been recognized repeatedly in various circuit opinions. In re Arkansas Communities, Inc., 827 F.2d 1219 (8th Cir.1987), Matter of Wood, 825 F.2d 90 (5th Cir.1987), In re Mankin, 823 F.2d 1296 (9th Cir.1987), In re Arnold Print Works, Inc., 815 F.2d 165 (1st Cir.1987).

The Sixth Circuit decisions which specifically recognize this broad grant of authority include In re Southern Indus. v. Banking Corp., 809 F.2d 329 (6th Cir. 1987); In re Salem Mortg. Co., 783 F.2d 626 (6th Cir.1986); and White Motor Corp. v. Citibank, N.A., 704 F.2d 254 (6th Cir.1983) (which upheld the constitutionality of the Interim rule adopted following Northern Pipeline). . . .

Commercial Heat Treating, 80 B.R. at 884-885.

The court notes that recently the Sixth Circuit abrogated its prior rule announced in In re Washington, 623 F.2d 1169 (6th Cir.1980), cert. denied, 449 U.S. 1101, 101 S.Ct. 896, 66 L.Ed.2d 826 (1981), and recognized the bankruptcy court's superior jurisdiction over a debtor's property even though a state court had already exercised in rem jurisdiction over the property. The Sixth Circuit in In re White, 851 F.2d 170, 172-173 (6th Cir.1988) noted,

Our decision to award superior jurisdiction to the state court was based on "traditional notions of comity, which require that, as between state and federal courts, jurisdiction must be yielded to the court that first acquires jurisdiction over the property." 623 F.2d at 1172. We traced this holding to a broader doctrine which advocates granting exclusive jurisdiction to the first court asserting in rem jurisdiction, when both courts base jurisdiction on control of the same property. See, e.g. Princess Lida of Thurn and Taxis v. Thompson, 305 U.S. 456, 466, 59 S.Ct. 275, 280, 83 L.Ed. 285 (1939).

Despite the federalism interests served by such a rule, we agree with debtor\'s argument that the 1978 and 1984 changes to the Bankruptcy Code were primarily aimed at getting away from the kind of in rem jurisdiction set out in Princess Lida and In re Washington. The jurisdiction granted in 28 U.S.C. § 1334(d) indicates a conscious effort by Congress to grant the bankruptcy court special jurisdiction and to preclude the type of jurisdictional disputes evidenced in those cases. See H.R.Rep. No. 95-595, 95th Cong., 1st Sess., 445, reprinted in 1978 U.S. Code Cong. & Admin. News 5787, 5963, 6400; 1 L. King, Collier on Bankruptcy § 3.01 p. 3-30 (15th ed. 1983).

. . . .

The rule in In re Washington should therefore no longer apply to give the state court jurisdiction over property simply because it may have been the first court to exercise control over the property.

The Sixth Circuit previously noted that "although situations may arise where an extremely tenuous connection to the estate would not satisfy the jurisdictional requirement, we...