Parklane/Atlanta Joint Venture, In re

• Decision Date: 19 March 1991
• Docket Number: No. 89-8609,89-8609
• Parties: , Bankr. L. Rep. P 73,871 In re PARKLANE/ATLANTA JOINT VENTURE, Debtor. PARKLANE HOSIERY COMPANY, INC., Plaintiff-Appellee, v. PARKLANE/ATLANTA VENTURE, Defendant, James D. Silvers, Defendant-Appellant.
• Court: U.S. Court of Appeals — Eleventh Circuit

Page 532

927 F.2d 532

59 USLW 2577, Bankr. L. Rep. P 73,871

In re PARKLANE/ATLANTA JOINT VENTURE, Debtor.

PARKLANE HOSIERY COMPANY, INC., Plaintiff-Appellee, v. PARKLANE/ATLANTA VENTURE, Defendant, James D. Silvers, Defendant-Appellant.

No. 89-8609.

United States Court of Appeals, Eleventh Circuit.

March 19, 1991.

Frank B. Wilensky, Michael D. Pinsky, Macey, Wilensky, Cohen, Wittner & Kessler, Atlanta, Ga., for defendant-appellant.

James Peyton Smith, Jerome L. Kaplan, Arnall, Golden & Gregory, Atlanta, Ga., for plaintiff-appellee.

Appeal from the United States District Court for the Northern District of Georgia.

Before JOHNSON and HATCHETT, Circuit Judges, and SMITH ^*, Senior Circuit Judge.

JOHNSON, Circuit Judge:

Defendant James D. Silvers ("Silvers") appeals from the district court's order withdrawing this proceeding from the bankruptcy court.

I. FACTS

A. Background

In 1981, Silvers and plaintiff Parklane Hosiery Company, Inc. ("the plaintiff") executed an agreement creating a joint venture known as the Parklane/Atlanta Joint Venture ("the joint venture"). Pursuant to this agreement, the plaintiff leased five stores in the metropolitan Atlanta area for Silvers to operate. The relationship deteriorated, leading the plaintiff to file suit in the Superior Court of Fulton County. On January 5, 1989, the superior court entered an order dissolving the joint venture and requiring Silvers to turn over possession of the stores to the plaintiff within fifteen days. The order also instructed Silvers to retain control and possession of all inventory and revenues of the joint venture pending further order of the court. On January 19, 1989, one day before the turnover date, Silvers filed a Chapter 11 bankruptcy petition on behalf of the joint venture.

B. Proceedings Before the District Court

The bankruptcy court assumed jurisdiction of Silvers' petition pursuant to Section 157(a) of Title 28. ¹ The plaintiff filed responsive pleadings to the petition in the bankruptcy court. It simultaneously filed in the district court a motion to withdraw the reference, pursuant to 28 U.S.C.A. Sec. 157(d) (West Supp.1990), and a motion for abstention or, in the alternative, dismissal, pursuant to 11 U.S.C.A. Sec. 305 (West 1979). ² The plaintiff argued that the bankruptcy court could not enter a Section 305 order because that section did not provide for appellate review by an Article III court. The district court agreed and granted the motion to withdraw the reference. It directed both parties to file additional briefs addressing the merits of the Section 305 motion to dismiss. Silvers filed a timely motion for reconsideration which the district court denied. Silvers subsequently appealed the district court's order to this Court. In this appeal, we address the issue of whether Article III of the United States Constitution prohibits a bankruptcy court from entering an order of abstention or dismissal pursuant to Section 305.

II. ANALYSIS

This Court reviews the district court's determinations of law de novo. In re Sublett, 895 F.2d 1381, 1383 (1990).

A. Jurisdiction Over An Appeal Of An Order Withdrawing Reference

Before reaching the principal issue raised in this appeal, this Court must first determine whether it has jurisdiction. This Court has held previously that orders to withdraw reference are not appealable final orders unless they fall into one of the recognized exceptions to the final judgment rule. See In re King Memorial Hospital, Inc., 767 F.2d 1508, 1510 (11th Cir.1985). Under the collateral order exception, this Court may review those interlocutory orders that: (1) finally determine a claim separate and independent from the other claims in the action; (2) cannot be reviewed after the final judgment because by then effective review will be precluded and rights conferred will be lost; and (3) are too important to be denied review because they present a significant and unresolved question of law. In re King, 767 F.2d at 1510.

The instant order to withdraw easily meets the first and third requirements for review under the collateral order exception. The order to withdraw is separable from the other claims in this action and the question whether only an Article III court may grant a Section 305 motion to dismiss is certainly an unsettled question of law. ³ Moreover, the instant order meets the first part of the second prong of the collateral order exception. If the district court grants the plaintiff's Section 305 order to dismiss, its decision is unreviewable and this Court would be precluded from reviewing the order as part of an eventual final judgment. See 11 U.S.C.A. Sec. 305 (West 1979). Nevertheless, the crucial consideration under the collateral order exception is whether "rights conferred will be lost." In re King, 767 F.2d at 1510. Therefore, this Court must determine whether the order to withdraw deprives Silvers of rights sufficient to trigger our jurisdiction under the collateral order exception. We find that it does so and therefore hold that we have jurisdiction to hear this appeal under the collateral order exception.

The 1984 Bankruptcy Amendments placed jurisdiction for bankruptcy cases and proceedings in the district courts. See 28 U.S.C.A. Sec. 1334(a)-(b) (West Supp.1990). The Amendments also established the bankruptcy courts as "units" of the district courts and granted the district courts the discretion to refer Title 11 cases or proceedings to the bankruptcy courts. See 28 U.S.C.A. Secs. 151, 157(a) (West Supp.1990). Congress also gave district courts the discretionary authority to withdraw any case or proceedings from a bankruptcy court "for cause shown." See 28 U.S.C.A. Sec. 157(d). ⁴ It provided, however, no statutory definition for the term "cause."

Silvers, citing Section 157(d) as authority, claims a right of access to the expertise of the bankruptcy courts from the moment he filed the petition on behalf of the joint venture. Silvers contends that if he did not have a protectable interest in the expertise of the bankruptcy court, then Congress would have left withdrawal solely to the discretion of the district courts rather than requiring a showing of cause. He claims that, at the very least, once the bankruptcy court assumes jurisdiction the debtor has a protectable interest in the bankruptcy court's retention of its jurisdiction absent a showing of cause justifying withdrawal.

In his rush to establish his right of access to the bankruptcy court, Silvers ignores the fact that Congress has placed original jurisdiction over bankruptcy cases and proceedings in the district courts. See 28 U.S.C.A. Sec. 1334 (West Supp.1990). If Congress had intended to give debtors a right of access to bankruptcy courts, it would not have given the district courts the discretion over the bankruptcy courts' jurisdiction. See 28 U.S.C.A. Sec. 157(a) (West Supp.1990). In the face of the plain language of Sections 1334 and 157(a), a debtor cannot claim to have a right to the bankruptcy court's expertise from the moment he files a petition.

Once a bankruptcy court has assumed jurisdiction, however, a district court may withdraw reference only "for cause shown." See 28 U.S.C.A. Sec. 157(d) (West Supp.1990). Even though Congress provided no statutory definition of the word "cause", the courts have made it plain that this is not an empty requirement. See In re Onyx Motor Car Corp., 116 B.R. 89 (S.D.Ohio 1990) (held that withdrawal of reference must be conditioned upon a showing of cause); Hatzel & Buehler, Inc. v. Central Hudson Gas & Electric Corp., 106 B.R. 367 (D.Del.1989) (held movant must show cause as a predicate to withdrawal); In re Wedtech Corp., 94 B.R. 293 (S.D.N.Y.1988) (held cause must be shown for withdrawal); In re American Community Services, Inc., 86 B.R. 681 (D.Utah 1988) (held discretionary withdrawal must be predicated upon cause shown on a case by case basis). Thus, Silvers is correct that he has a right to the continued benefit of bankruptcy jurisdiction absent a showing of cause for withdrawal. ⁵ The district court's order therefore meets all three prongs of the collateral order exception. Consequently we have jurisdiction to review the district court's ruling that because Article III bars bankruptcy courts from issuing Section 305 orders it had cause to withdraw reference in order to consider the plaintiff's Section 305 motion.

B. The Bankruptcy Court's Authority to Issue Section 305 Orders

Section 305 of Title 11 of the United States Code declares in part:

(a) The court, after notice and a hearing, may dismiss a case under this title, or may suspend all proceedings in a case under this title, at any time if

(1) the interests of creditors and the debtor would be better served by such dismissal or suspension ...

(c) An order under subsection (a) of this section dismissing a case or suspending all proceedings in a case, or a decision not so to dismiss or suspend, is not reviewable by appeal or otherwise.

11 U.S.C.A. Sec. 305 (West 1979).

When it ordered the withdrawal of the instant case from the bankruptcy court, the district court reasoned, in accordance with Northern Pipeline Constr. Co. v. Marathon Pipe Line Co., 458 U.S. 50, 102 S.Ct. 2858, 73 L.Ed.2d 598 (1982), that the 1984 Bankruptcy Amendments required that Article III courts have the authority to review all bankruptcy proceedings. The district court noted that the plaintiff's motion for dismissal under Section 305 is unreviewable and concluded that such a dismissal must be made by an Article III court. ⁶ The court therefore found "cause" justifying withdrawal of reference under 28 U.S.C.A. Sec. 157(d) (West Supp.1990).

In this appeal, Silvers argues that Congress may delegate to the bankruptcy court the authority to dismiss a case under Title 11 without review by an Article III court. Citing the Supreme Court's decisions in Northern Pipeline, supra.; Thomas v. Union Carbide Agricultural Products Co., 473...