Matter of Kakolewski

• Decision Date: 21 April 1983
• Docket Number: Adv. No. 83-0250-SW.,Bankruptcy No. 82-02611-SW
• Parties: In the Matter of Jan Wiktor KAKOLEWSKI, Debtor. Arthur B. FEDERMAN, Trustee, Plaintiff, v. William Ray STRICKLIN et al., Defendants.
• Court: U.S. Bankruptcy Court — Western District of Missouri

29 B.R. 572 (1983)

In the Matter of Jan Wiktor KAKOLEWSKI, Debtor.

Arthur B. FEDERMAN, Trustee, Plaintiff, v. William Ray STRICKLIN et al., Defendants.

Bankruptcy No. 82-02611-SW, Adv. No. 83-0250-SW.

United States Bankruptcy Court, W.D. Missouri, Southwestern Division.

April 21, 1983.

Arthur B. Federman, Kansas City, Mo., for plaintiffs.

FINAL JUDGMENT DIRECTING EACH OF THE ABOVE DEFENDANTS FORTHWITH, WITH REASONABLE DISPATCH, AND WITHIN 30 DAYS (OR SUCH ADDITIONAL TIME AS THE COURT MAY, FOR GOOD CAUSE TIMELY SHOWN IN WRITING, GRANT) TO TURN OVER TO PLAINTIFF THE SUM ABOVE OPPOSITE HIS OR HER NAME

DENNIS J. STEWART, Bankruptcy Judge.

These are actions instituted by the plaintiff trustee in bankruptcy to compel the turnover to him, pursuant to section 542(b) of the Bankruptcy Code, of amounts due the debtor which are, within the meaning of that section, "matured, payable on demand, or payable on order." Process has been issued to each of the defendants, setting forth a time to answer or otherwise to respond to the plaintiff's complaint.¹ But the above and foregoing respondents have neither answered nor otherwise responded. Default judgment is therefore warranted under the provisions of Rule 755(a) of the Rules of Bankruptcy Procedure.²

None of the above defendants has raised any objection to the jurisdiction of the court of bankruptcy in the manner required by Rule 915(a) of the Rules of Bankruptcy Procedure, "by timely motion or answer." Therefore, each of them must be regarded as having consented to the subject matter jurisdiction of the bankruptcy court. As this court has noted on prior occasion, such consent, under traditional bankruptcy authority, bestows subject-matter jurisdiction on the bankruptcy court when such subject-matter jurisdiction would not otherwise exist. Matter of Brown, 26 B.R. 119 (Bkrtcy.W.D.Mo.1983).

Further, it is not true, as has sometimes been suggested, that the striking of section 1471, Title 28, United States Code, by the United States Supreme Court pursuant to its decision in Northern Pipeline Constr. Co. v. Marathon Pipe Line Co., ___ U.S. ___, 102 S.Ct. 2858, 73 L.Ed.2d 598 (1982), means that the bankruptcy court is without jurisdiction of an action such as that at bar. According to the unambiguous letter of section 542(b), a matured account or an indebtedness payable on demand is property which is within the summary turnover power of a bankruptcy court. It follows from the standard definitions of summary jurisdiction that such matured accounts and indebtednesses are in the constructive possession of the bankruptcy court as of the date of inception of title 11 proceedings. "Upon the filing of a petition in bankruptcy, all the property of the alleged bankrupt passes at once into the custody of the court of bankruptcy, and becomes subject to its summary jurisdiction to obtain actual possession, if that is necessary." 2 Collier on Bankruptcy para. 23.05(2), p. 474.2 (1976). This view is corroborated by the legislative history of section 541 of the Bankruptcy Code, the statute which defines the bankruptcy estate, and which explicitly states that that section is intended to include within the bankruptcy estate "property recovered by the trustee under section 542 . . ., if the property was merely out of the possession of the debtor, yet remained `property of the debtor.'" H.R. No. 95-595, 95th Cong., 1st Sess. (1977), 367-8; S.R. No. 95-989, 95th Cong., 2d Sess. (1978) 82-3, U.S.Code Cong. & Admin.News, pp. 5787, 6323. The traditional summary jurisdiction of a bankruptcy court may be exercised despite the absence of any bankruptcy court jurisdictional statute. As this court has previously explained in Matter of Brown, 26 B.R. 119, 9 B.C.D. 1276 (Bkrtcy.W.D.Mo. 1983), and Matter of Isis Foods, Inc., 26 B.R. 122 (Bkrtcy.W.D.Mo.1983), matters concerning the administration and distribution of a bankruptcy estate are within the inherent, nonstatutory jurisdiction of the bankruptcy court.³

It must next be considered whether the bankruptcy court's exercise of power under section 542(b) offends the rule of Northern Pipeline Constr. Co. v. Marathon Pipe Line Co., supra, to the effect that non-Article-III bankruptcy judges may not preside over actions which arise under state law or nonbankruptcy federal law. By virtue of section 542(b), supra, an action such as that at bar is made to arise under bankruptcy law. And this is so even though actions on account and debt and contract generally arise under state law, for the provisions of section 542(b) are sufficient to arrogate the general law concepts and transform them into bankruptcy law.⁴ But to what extent may it be said that the Congress may by simple fiat transform general law actions into actions arising under bankruptcy law? If it were possible for Congress to transform all types of actions into actions arising under bankruptcy law, then it would appear that the current turmoil on the issue of bankruptcy court jurisdiction might be ended simply by legislating all forms of action now arising under nonbankruptcy law to arise under bankruptcy law when arising in or related to a bankruptcy case.

In the examples of instances in which such a transformation has previously been accomplished, in the field of nondischargeability statutes and other statutes,⁵ it can be seen that the Congress has with some regularity, and without apparent offense to the Constitution, transformed actions which arise under state law to those which arise under bankruptcy law. The one seeming limitation, struck upon by commentary and case decisions and reiterated in the Marathon decision, supra, is that the constitutional right to a jury trial may not be abridged.⁶ This limitation is of crucial importance in the current bankruptcy court, which is without any power to conduct a jury trial.⁷ And it is applicable in the types of action now before the court, for it is well established that, in actions sounding in account and contract, there is a right to jury trial under the Seventh Amendment to the Constitution.⁸

But, in any type of action, before the right to a jury trial can be said to arise, there must be an issue of fact to be tried by the jury.⁹ In respect of accounts and contract rights, if they are, in the parlance of section 542(b), really "matured" and "due," it seems that the only likely issue of fact to be raised would be that of full or partial payment or other claim of setoff which must be affirmatively pleaded and proved.¹⁰ In the actions at bar, in which the judgments are being rendered against defendants who have neither answered nor otherwise responded, no such affirmative defenses have been raised and there is therefore no issue of fact which can constitutionally command a jury trial.

And generally, when actions have been determinable as a matter of clear contract right, even under the more restrictive brand of law which governed inherent jurisdiction under the former Bankruptcy Act,¹¹ one line of authority held summary bankruptcy court jurisdiction to be appropriately exercised.¹² These authorities must now be considered to be more firmly established under the current Bankruptcy Code, which expressly provides for summary turnover power which can now be exercised as a matter of inherent equity jurisdiction over the estate without the many restrictive trammels of the former law.¹³

It seems true, of course, that, when a demand for jury trial is added to a timely factual defense, the bankruptcy court must yield to the constitutional right to a jury trial and give the case over to a court of general jurisdiction. An exception to this rule should exist when the matter would be triable as an action in equity, without the right to a jury trial, as when it is an action for an accounting by a corporate officer or other fiduciary, or an action on a long and complicated account, or an action in which the legal remedy is less adequate than the equitable one.¹⁴

And otherwise, it would seem that the bankruptcy court may conduct a hearing if and when the defense is timely raised upon a demand for jury trial to determine whether there is a material factual issue warranting a jury trial—whether, in the terminology formerly developed, the defense is real and substantial or merely colorable.¹⁵ In most imaginable instances, then, it seems that the trustee in bankruptcy can collect the accounts and contract rights due the bankruptcy estate without the impediments which hindered his attempts under the former law. Thus, he may bring the action in his local bankruptcy court, taking advantage of the nationwide service of process which is afforded by the rules of bankruptcy procedure, and may bring the matter to a hearing to determine whether there is any potential merit to any defense. In this manner, the trustee, it seems, may readily collect most of the obligations owed the debtor by third parties and, as to the rest, may have a preview of the defenses to enable him to weigh the merits and demerits of bringing the action in a nonbankruptcy forum. And finally, even if the trustee must ultimately bring the suit in the nonbankruptcy forum, he may seemingly enforce any judgment there obtained, if it is on a matured account or demand obligation, within the meaning of section 542(b), supra, as enforcement of a turnover order, i.e., by civil coercive contempt,¹⁶ thus pretermitting the expense of returning to the nonbankruptcy forum to enforce the award.

The same principle applies in the actions at bar which appear to involve the issuance of a turnover order in the purest and simplest form predicated by the statute. Therefore, collection of the turnover orders may be enforced by citations sounding in civil contempt.¹⁷

Nor can it be said that the inherent nonstatutory equity jurisdiction which forms the basis for this judgment is displaced by the exclusive jurisdiction of the district court under section 1334, Title 28, United States Code, as one court has held.¹⁸...