Matter of Seven Springs Apartments, Phase II, Bankruptcy No. 81-01382A.

CourtUnited States Bankruptcy Courts. Eleventh Circuit. U.S. Bankruptcy Court — Northern District of Georgia
Citation33 BR 458
Decision Date14 June 1983
PartiesIn the Matter of SEVEN SPRINGS APARTMENTS, PHASE II, d/b/a Seven Springs Joint Venture, d/b/a Seven Springs Apartments, a California Partnership Composed of Seven Springs Phase II Associates, a California Limited Partnership, Clinton E. Cooper, Gloria L. Cooper, and Plaza Pacific Equities, Inc., a California Corporation, Debtor.
Docket NumberBankruptcy No. 81-01382A.

33 B.R. 458 (1983)

In the Matter of SEVEN SPRINGS APARTMENTS, PHASE II, d/b/a Seven Springs Joint Venture, d/b/a Seven Springs Apartments, a California Partnership Composed of Seven Springs Phase II Associates, a California Limited Partnership, Clinton E. Cooper, Gloria L. Cooper, and Plaza Pacific Equities, Inc., a California Corporation, Debtor.

Bankruptcy No. 81-01382A.

United States Bankruptcy Court, N.D. Georgia, Atlanta Division.

June 14, 1983.

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Joyce Bihary, Edward J. Hardin, Janice E. Garlitz, Rogers & Hardin, Atlanta, Ga., for debtor

Marion Smith, Margaret Murphy, Deborah Burks, Smith, Cohen, Ringle, Kohler & Martin, and J. Michael Lamberth, J. Timothy White, Cotton, White, & Palmer P.A., Atlanta, Ga., for objectors.


WILLIAM L. NORTON, Jr., Bankruptcy Judge.

This Chapter 11 case was filed on March 31, 1981. After the parties' repeated but unsuccessful negotiations toward settlement of pending complex litigation as a precedent to a possible stipulated plan of reorganization and numerous court hearings, confirmation of the debtor's plan of reorganization is now before the court. However, creditors in this case have challenged this court's authority to confirm the plan. They allege that the Bankruptcy Court lacks subject matter jurisdiction in this case as a result of 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), and that the Judicial Conference Emergency Model Local Rule, promulgated by the District Court for the Northern District of Georgia, is illegal. In view of the uncertainty

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surrounding the Bankruptcy Courts' jurisdiction after Northern Pipeline and the controversy concerning the Rule, this court deems the following extensive discussion of its authority to be appropriate


(1) Whether the Bankruptcy Court, after the Northern Pipeline decision, has jurisdiction to enter an order of confirmation of this Chapter 11 plan pursuant to 11 U.S.C. § 1129.


The parties seem to be in agreement that, after Northern Pipeline, except for the Judicial Conference Local Rule, this court is absent any bankruptcy jurisdiction over this proceeding. Arguments in favor of the legality of the Local Rule generally merely refer to recent perfunctory, fairly uniform, decisions by Article III judges, the July 22, 1982, memorandum of the General Counsel of the Administrative Office of the U.S. Courts, and memoranda of the Administrative Office dated September 27, 1982, and December 3, 1982, which accompanied the Rule proposed to the District Courts. The point is made to this court by respondents to the motions to dismiss that the conception of the Rule by the Judicial Conference and its unanimous promulgation by the Circuit Councils and District Courts throughout the system indicate that the federal judiciary will, in all likelihood, automatically sustain the Rule on any appeal. Hence, respondents urge this court, to automatically approve the Rule as legal and binding, as many Bankruptcy Judges are doing. The court notes that, while the rule received swift and affirmative promulgation after its recommendation by the Judicial Conference and announcement by the Director of the Administrative Office, the Circuit Councils and District Judges had little initial opportunity to inquire into its legality. While every attorney with whom this court has discussed this matter is skeptical, in view of the national unanimity in promulgating the Rule, that any Article III judge is not committed to endorse the legality of the Rule, this Court rejects that cynical assumption and instead has always asserted that Article III judges would, in considering the Rule in the adversarial context of an appeal from the Bankruptcy Court, apply their recognized talents in scholarship and legal analysis to produce independent rulings. This court hopes that most of the Article III judges harbor no paternalistic bias toward the Rule merely because of their necessarily hasty approval at the time of its adoption in December, 1982.

Recently, several District Courts have sustained the legality of the Rule.1 One

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District Court has held that the Rule lacked the statutory foundation to delegate jurisdiction to the Bankruptcy Court, while another District Court has ruled that neither the Bankruptcy Court nor District Court has any bankruptcy jurisdiction and the Rule is therefore illegal.2 Some of these rulings, however, lacked significant legal analysis of the Reform Act and its legislative history. This is especially true of the two sentence per curiam ruling by the Fifth Circuit Court of Appeals on February 28, 1983.3 These rulings have to some extent eroded the confidence of the undersigned that Article III judges will not bring to their considerations of the Rule a preconception of its legality. Neither the several District Court opinions nor the Fifth Circuit opinion favorable to the Rule discussed Northern Pipeline beyond the points made in the memorandum of the Administrative Office which accompanied the proposed Rule. The novel conclusions at pp. 237-238
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of the opinion of the District Judge in the Braniff case, and especially n. 9, do, however, offer some very amazing insights into the legal analysis applied there.3A The recent District Court decision in the Middle District of Tennessee in In re Conley, supra, n. 1(a) sustaining bankruptcy jurisdiction in the District Court but holding that the Rule's authorization of referral of bankruptcy matters by District Judges to Bankruptcy Judges is without a legal basis, and the recent Sixth Circuit decision in White Motors,3B demonstrate that the decisions are in hopeless conflict. Only the Supreme Court can end the uncertainty surrounding the legality of the Rule in the absence of intervening action by the Congress. The recent Article III court decisions indicate a build-up of decisional authority and erroneous reliance on prior decisions offering little analysis; beginning with Prudential Insurance Co. v. The Stouffer Corporation, 26 B.R. 1019 (D.C.N.D.Mich.1983), by Judge DeMascio, who, as Chairman of the Judicial Conference Bankruptcy Committee, helped author the Rule and proposed its adoption by the Judicial Conference. Contrary to the assumptions made in these opinions, there can be no presumption of bankruptcy jurisdiction in the District Courts as proposed by the Rule. Thus far, no Article III court opinion which has considered the legality of the Rule has dealt with the applicable guiding principles of federal jurisdiction

As a result of the Supreme Court's decision in Northern Pipeline, the contentions of the movants may be summarized as follows:

(1) The District Court is without trial subject matter jurisdiction over the case or proceeding;
(2) This Bankruptcy Judge has no exercisable jurisdiction to hear and adjudicate the issues and enter an order in this proceeding;
(3) The District Court does not have the authority to promulgate the Local Rule, refer proceedings to, and direct this Bankruptcy Judge;
(4) The Local Rule impermissibly delegates Article III powers to non-Article III judges.


In Northern Pipeline Construction Co. v. Marathon Pipe Line Co., 458 U.S. 50, 102 S.Ct. 2858, 73 L.Ed.2d 598, 9 B.C.D. 67, (1982), the United States Supreme Court held that § 241(a) of the Bankruptcy Reform Act of 1978 ("Bankruptcy Reform Act"), which, inter alia, enacted 28 U.S.C. §§ 1471-1482, violated Article III of the United States Constitution because § 241(a) vested4 the Bankruptcy Courts solely with jurisdiction which empowered the Bankruptcy Judges to exercise the "essential attributes of the judicial power" of the United States without providing life tenure and protection against salary diminution for the Bankruptcy Judges as mandated by Article III for other federal judges empowered to exercise such jurisdiction. The Court stated: "We conclude that § 241(a) of the Bankruptcy Act of 1978 . . . has impermissibly removed most of . . . the judicial power from the Article III District Court and has vested5 those attributes in a non-Article III Court . . . Such a grant by

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§ 241(a) of jurisdiction cannot be sustained . . .". 458 U.S. 50 at 87, 102 S.Ct. 2858 at 2880, 73 L.Ed. 598 at 625, 9 BCD 84

The Supreme Court initially stayed its ruling in Northern Pipeline until October 4, 1982, to "afford Congress an opportunity to reconstitute the Bankruptcy Courts or to adopt other valid means of adjudication, without impairing the interim administration of the bankruptcy laws." 102 S.Ct. 2858 at 2880. Subsequently, the Supreme Court extended the stay until December 24, 1982. On December 23, 1982, however, the Court declined to extend the stay of its judgment a second time, and on December 25, 1982 the decision in Northern Pipeline became effective.

The Local Rule

Upon expiration of the stay of Northern Pipeline, and in the absence of remedial legislation, the Judicial Conference of the United States adopted the position that bankruptcy jurisdiction is vested6 in the District Courts during the Transition period to April 1, 1984. The Conference proposed a temporary Emergency Model Local Rule, hereinafter "Local Rule," "Model Rule," or "Emergency Rule", for the District Courts that would govern the conduct of Title 11 cases during the Transition period. The Rule suggested by the Judicial Conference, as drafted by the Administrative Office of the United States Courts and as directed by the Circuit Council, was adopted by the District Court of the Northern District of Georgia on December 17, 1982.7 The Local Rule asserts jurisdiction and judicial power in the District Court over Title 11 cases and...

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