Sequoia Auto Brokers Ltd., Inc., In re

• Decision Date: 14 September 1987
• Docket Number: No. 85-2352,85-2352
• Parties: , 17 Collier Bankr.Cas.2d 622, 16 Bankr.Ct.Dec. 826, Bankr. L. Rep. P 71,984 In re SEQUOIA AUTO BROKERS, LTD., INC., Debtor. Christopher PLASTIRAS, Joseph Lanza, Richard Klein, Freida Klein, and Judith Fasani, Petitioning Creditors-Appellants, v. Ira P. IDELL, Respondents-Appellees. United States of America, Intervenor.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1281

827 F.2d 1281

56 USLW 2165, 17 Collier Bankr.Cas.2d 622,

16 Bankr.Ct.Dec. 826,

Bankr. L. Rep. P 71,984

In re SEQUOIA AUTO BROKERS, LTD., INC., Debtor Christopher PLASTIRAS, Joseph Lanza, Richard Klein, Freida Klein, and Judith Fasani, Petitioning Creditors-Appellants, v. Ira P. IDELL, Respondents-Appellees United States of America, Intervenor.

No. 85-2352.

United States Court of Appeals Ninth Circuit.

Argued and Submitted June 12, 1986.

Decided Sept. 14, 1987.

Lysbeth Goodman, Santa Rosa, Calif., for petitioning creditors-appellants.

John L. Taylor, Walnut Creek, California, for respondents-appellees.

Harold J. Krent, Washington, D.C., for intervenor.

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

Before ALARCON and WIGGINS, Circuit Judges, and STEPHENS, Jr., ^* District Judge.

WIGGINS, Circuit Judge:

The bankruptcy court found Ira Idell in civil contempt for failing to prepare a statement of affairs and a master-mailing list. The district court reversed and creditors of the debtor corporation, Sequoia Auto Brokers, Ltd., Inc. (Sequoia), appeal. We vacate the district court's order and remand with directions to vacate the bankruptcy court's contempt order for lack of jurisdiction.

FACTS AND PROCEDURAL HISTORY

Sequoia was an automobile dealership, and Idell its sole shareholder, officer, director, and manager. In January 1984 Sequoia went out of business. Several persons who had advanced money for cars reported their losses to local authorities, who began investigating alleged fraud by Idell and Sequoia. Idell then filed a voluntary petition for personal bankruptcy, and the creditors filed a Chapter 7 involuntary corporate bankruptcy petition against Sequoia. The bankruptcy court ordered Idell, as the designated responsible individual for Sequoia, to file the corporate statement of affairs, schedules, and master mailing list of creditors as required by 11 U.S.C. Sec. 521. Idell filed the statement of affairs and schedules with the following response to each question: "I hereby exercise my privilege not to respond to this question in accordance with the Fifth and Fourteenth Amendments to the United States Constitution." Idell filed no master mailing list, but at some point apparently turned over all existing books and records of Sequoia to the trustee. The trustee and creditors assert that these records are wholly inadequate for preparation of the required statements.

The bankruptcy court ordered Idell to show cause why he should not be held in contempt for failing to file the documents. The court then cited Idell for contempt and referred the matter to the overseeing district court. The district court remanded the matter back to the bankruptcy court to determine whether the bankruptcy court wished to impose criminal or civil contempt sanctions. ¹ The district court found that the bankruptcy court had the power to impose civil contempt sanctions itself.

The bankruptcy court then found Idell in civil contempt on November 29, 1984. In view of Idell's financial condition, the court concluded that fines would be ineffective and ordered him imprisoned until he complied with its order to complete the documents. On appeal to the district court, a different district court judge found merit in Idell's fifth amendment argument and reversed the contempt order. The creditors timely appeal to this court. The United States intervened to defend the contempt power of the bankruptcy courts.

DISCUSSION

I. APPEALABILITY OF ORDER

The threshold question is whether this court has jurisdiction over the appeal. The bankruptcy court's contempt order against Idell was final for purposes of appeal to the district court both because Idell is a nonparty, see David v. Hooker, Ltd., 560 F.2d 412, 415 (9th Cir.1977), and because the basis of the contempt citation is Idell's invocation of the fifth amendment, see Maness v. Meyers, 419 U.S. 449, 461, 95 S.Ct. 584, 592, 42 L.Ed.2d 574 (1975) (both cases finding contempt order final for purposes of appeal under 28 U.S.C. Sec. 1291). The district court's reversal of the bankruptcy court's final contempt order is immediately appealable to this court, see Sambo's Restaurants v. Wheeler (In re Sambo's Restaurants), 754 F.2d 811, 814 (9th Cir.1985), unless the intermediate court remands for factual development, see King v. Stanton (In re Stanton), 766 F.2d 1283, 1287-88 (9th Cir.1985); see also Crevier v. Welfare & Pension Fund (In re Crevier), 820 F.2d 1553, 1555 (9th Cir.1987). Since no factual issues are pending, the district court's reversal is final for purposes of appeal to this court pursuant to 28 U.S.C. Sec. 158(d). We therefore have jurisdiction on appeal.

II. JURISDICTION OF BANKRUPTCY COURTS TO ISSUE CONTEMPT ORDERS

We now turn to the principal question before us: whether a bankruptcy judge has jurisdiction to issue a civil contempt order. The bankruptcy judge here made the actual finding of contempt, issued a civil contempt order, and ordered Idell's incarceration pending his compliance with its order to file the corporate statement of affairs, schedules and master mailing list of creditors pursuant to 11 U.S.C. Sec. 521. Though the parties did not contest jurisdiction in the district court, we raise the issue of jurisdiction of the bankruptcy court on our own motion. See Csibi v. Fustos, 670 F.2d 134, 136 n. 3 (9th Cir.1982) (lack of subject matter jurisdiction in the lower court can be raised by the appellate court on its own motion for the first time on appeal). Our review is de novo. Peter Starr Prod. Co. v. Twin Continental Films, 783 F.2d 1440, 1442 (9th Cir.1986). We consider first whether bankruptcy judges have an inherent authority to exercise the contempt power, and if not, whether bankruptcy judges derive contempt jurisdiction from express or implied statutory authority.

A. Inherent Authority

The contempt power is inherent in article III courts, and not dependent on Congressional authorization. See, e.g., Michaelson v. United States ex rel. Chicago, St. Paul, Minneapolis & Omaha Ry Co., 266 U.S. 42, 65-66, 45 S.Ct. 18, 19-20, 69 L.Ed. 162 (1924) (courts of the United States possess the power of civil contempt once they are invested with jurisdiction over any subject matter); Ex parte Robinson, 86 U.S. (19 Wall.) 505, 510, 22 L.Ed. 205 (1873) (power to punish for contempt is inherent in article III courts). The ability to penalize disobedience to judicial orders is "essential in ensuring that the Judiciary has a means to vindicate its own authority without complete dependence on other branches." Young v. United States ex rel. Vuitton et Fils S.A., --- U.S. ----, 107 S.Ct. 2124, 2131, 95 L.Ed.2d 740 (1987). Article III is the source of this inherent power to punish contempt. See id. at 2143-45 (Scalia, J., concurring) (reviewing doctrine of inherent contempt power in article III courts). Congress may place restrictions on the exercise of the power, see, e.g., id. at 2133; Ex parte Robinson, 86 U.S. (19 Wall.) at 510-511; Bessette v. W.B. Conkey Co., 194 U.S. 324, 326-27, 24 S.Ct. 665, 666-67, 48 L.Ed. 997 (1904); see also 18 U.S.C. Sec. 401, but the power may "neither be abrogated nor rendered practically inoperative." Michaelson, 266 U.S. at 66, 45 S.Ct. at 20.

However, bankruptcy courts do not derive their authority from article III. Bankruptcy judges neither enjoy lifetime tenure nor receive compensation that may not be diminished by Congress. Compare U.S. Const. art. III, Sec. 1 with 28 U.S.C. Secs. 152-153 (bankruptcy judges have fourteen year terms and a salary subject to reduction). Instead, Congress created bankruptcy courts pursuant to its substantive authority over bankruptcies. U.S. Const. art. I, Sec. 8, cl. 4. Unlike an article III court, a bankruptcy court has no necessity to invoke an inherent contempt power to vindicate its authority; article I bankruptcy judges can enforce compliance with their orders by resorting to article III courts. 28 U.S.C. Sec. 157(c)(1); Omega Equip. Corp. v. John C. Louis Co. (In re Omega Equip. Corp.), 51 Bankr. 569, 573 (D.D.C.1985). Congress vests bankruptcy courts with their jurisdiction and their authority has no "inherent" source. See, e.g., American Ins. Co. v. 356 Bales of Cotton (Canter), 26 U.S. (1 Pet.) 511, 545, 7 L.Ed. 242 (1828) (as territorial courts are not article III courts "in which the judicial power conferred by the constitution on the general government" is deposited, their jurisdiction "is conferred by congress, in the execution of those general powers which that body possesses over the territories of the United States"); Palmore v. United States, 411 U.S. 389, 397, 93 S.Ct. 1670, 1676, 36 L.Ed.2d 342 (1973) (Congress has plenary power to legislate for District of Columbia under Art. I, Sec. 8, cl. 17, including establishing jurisdiction of court system). Consequently bankruptcy judges have jurisdiction to exercise the contempt power only if they have a statutory basis for that authority.

B. Implied Statutory Authority

There is no express statutory authority granting the contempt power to bankruptcy judges. We therefore consider whether such power may be implied. The creditors and intervenor United States contend that statutory grants of jurisdiction in title 28, 28 U.S.C. Sec. 157, and title 11, 11 U.S.C. Sec. 105, impliedly empower bankruptcy judges to issue civil contempt orders. Under 28 U.S.C. Sec. 157(b)(1), bankruptcy judges can "hear and determine all cases under title 11 and all core proceedings arising under title 11 or arising in a case under title 11 ... and may enter appropriate orders and judgments." District courts may refer such cases to bankruptcy judges. Id. Sec. 157(a). The creditors and the government argue that the substantive power of bankruptcy judges to enter "appropriate orders and judgments" in core proceedings, id. Sec. 157, as well as the authorization that the court issue "necessary or appropriate" orders,...