State of N.J., Dept. of Environmental Protection and Energy v. Heldor Industries, Inc., 92-5283

• Decision Date: 02 April 1993
• Docket Number: No. 92-5283,92-5283
• Citation: 989 F.2d 702
• Parties: Bankr. L. Rep. P 75,207 STATE OF NEW JERSEY, DEPARTMENT OF ENVIRONMENTAL PROTECTION AND ENERGY, Appellant, v. HELDOR INDUSTRIES, INC., Appellee.
• Court: U.S. Court of Appeals — Third Circuit

Page 702

989 F.2d 702

Bankr. L. Rep. P 75,207

STATE OF NEW JERSEY, DEPARTMENT OF ENVIRONMENTAL PROTECTION AND ENERGY, Appellant, v. HELDOR INDUSTRIES, INC., Appellee.

No. 92-5283.

United States Court of Appeals Third Circuit.

Argued Jan. 7, 1993.

Decided April 2, 1993.

Robert J. Del Tufo, Atty. Gen. of N.J., Joseph L. Yannotti, Asst. Atty. Gen., Rachel Jeanne Lehr, (argued), Deputy Atty. Gen., Trenton, NJ, for appellants.

Karen A. Giannelli, Crummy, Del Deo, Dolan, Griffinger & Vecchione, Newark, NJ, for appellee Heldor Industries, Inc.

Peter R. Sarasohn, Bruce Buechler, Ravin, Sarasohn, Cook, Baumgarten Fisch & Baime, Roseland, NJ, for Unsecured Creditors Committee.

Before: MANSMANN and NYGAARD, Circuit Judges, and DALZELL, District Judge. ^*

OPINION OF THE COURT

DALZELL, District Judge.

This appeal involves the question of whether a bankruptcy court judge may, consistent with Article III of the United States Constitution, opine and rule upon an objection that was known to him to have been withdrawn prior to the issuance of his opinion and order. Because we hold that the bankruptcy judge was constitutionally disabled from taking such action under such circumstances, we will vacate his advisory opinion and order.

I.

Heldor Industries, Inc. (the "Debtor"), a manufacturer and seller of prefabricated swimming pool packages and related products, on December 7, 1990 filed a petition for reorganization under chapter 11 of the Bankruptcy Code, 11 U.S.C. § 1101 et seq., and thereafter remained in possession. The Debtor's headquarters and manufacturing operations were conducted on real property leased in two New Jersey locations.

After attempting to sell its business, the Debtor concluded an agreement to sell substantially all of its assets to HI Acquisition Corp. ("HI"). The New Bank of New England, N.A. (the "Bank"), the principal secured creditor, objected, and further negotiations between the Debtor and HI occurred. The Bank ultimately supported a new sale agreement among the Debtor, HI and HI's parent, Aqua Fab Industries, Inc. Unlike the original sale agreement, the amended document did not contain terms requiring the Debtor to comply with New Jersey's Environmental Clean-Up Responsibility Act, N.J.S.A. 13:1K-6 et seq. ("ECRA"). The Bank consented to the new sale agreement, which proffered it for the approval of the bankruptcy court.

Hearings took place on the amended sale agreement on March 25, 26 and 27, 1991, at which the Official Unsecured Creditors Committee pressed its objection. After further negotiations, the Committee's objection was settled and the proposed sale received bankruptcy court approval on March 27, 1991. Although the New Jersey Department of Environmental Protection (the "DEP") received notice concerning the proposed sale, it did not object to it.

On April 23, Heldor applied to the bankruptcy court for approval of the settlement agreement concerning the sale and the resolution of the Committee's objection. The DEP and another creditor objected, and hearings were held on May 20 and July 9, 1991. The bankruptcy court overruled the other creditor's objection on July 9, but the DEP pressed its objection because the DEP contended that the settlement agreement was not in compliance with ECRA since no funds were set aside from the sale proceeds for ECRA compliance. The bankruptcy judge reserved his decision after the July 9 hearing on DEP's objection, and stated he would issue an opinion within "a couple of months."

By an August 9, 1991 letter, the DEP advised the bankruptcy judge that "[t]he State wishes at this time to withdraw its objection, filed on May 8, 1991, to the Settlement Agreement in the above captioned matter." The letter then explained the reasons for this withdrawal, and concluded that "[t]he object of ECRA having been achieved the State will not hold up the distribution of proceeds any longer and formally withdraws its objections effective immediately." On August 15, 1991, counsel for the Debtor, Karen A. Giannelli, Esquire, transmitted to the bankruptcy judge a proposed form of order approving the settlement agreement. In the first paragraph of her letter, Ms. Giannelli noted, "The State has since withdrawn its objection by letter dated August 9, 1991."

According to the transcript of the telephonic conference among counsel for the Debtor, DEP, other creditors and the bankruptcy judge held on September 27, 1991, the bankruptcy judge was on vacation at the time the DEP's letter was received. On the other hand, the bankruptcy judge stated (70a):

However, I did see Ms. Giannelli's letter, I forget what the date was--I think it was dated August 16th or something, which referred to the withdrawal of the DEP's objection. That was the first notice that I had that the DEP had withdrawn it's [sic ] objection. However, I did not see Ms. Giannelli's letter until something like August 27th or 28th when I came back from vacation. I did not see that because vacation intervened.

Although he was aware by no later than August 28, 1991, that the DEP's objection had been withdrawn, on September 6, 1991, the bankruptcy judge issued his Memorandum Opinion, In re Heldor Industries, Inc., 131 B.R. 578 (Bankr.D.N.J.1991), which "addresses an objection by the New Jersey Department of Environmental Protection ... to a proposed settlement involving distribution of the proceeds of a sale of substantially all of the Debtor's assets", id. at 580, and concluded, at 588, with the order that the "DEP's objection to the settlement in this case is overruled, and the settlement is approved."

As noted, a telephonic conference was held on September 27, 1991, at which the DEP objected at length to the issuance of this September 6 opinion. Among other things, the opinion held that various parts of ECRA were unconstitutional under the United States Constitution because of violations of the Supremacy Clause of Article VI and the Takings Clause of the Fifth Amendment, id. at 586-587. In explaining why he issued his September 6 memorandum notwithstanding his knowledge that "the objection had been withdrawn", the bankruptcy judge stated:

In most instances in a situation like that, in virtually--well, certainly in most similar circumstances I would stop working on an adjudication of the dispute and let the matter be resolved by the parties as proposed if there were no legal or equitable reason to do otherwise. However, in this situation, when I finally saw Ms. Giannelli's letter, the opinion that I finally filed on September 6 was substantially complete. It was finished except for essentially citation and grammatical checking, and I decided and elected that, notwithstanding notice that there may be a withdrawal of the objection, to issue the opinion anyway. And I did that for what I consider to be compelling reasons.

The bankruptcy judge therefore refused to vacate his September 6 memorandum and the order that concluded it, but did on September 27, 1991 issue an order approving the sale. ¹ On October 1, 1991, another telephonic conference was held with the bankruptcy judge, counsel for the Debtor, DEP, and others, at which the DEP's counsel said that she, on behalf of the State, wanted to "file a motion to vacate the judgment" or, in the alternative, that the bankruptcy judge withdraw the September 6 opinion. After heated colloquy, the bankruptcy judge stated, "don't expect me to vacate the opinion because I have no intention of doing so." Whereupon the DEP filed a notice of appeal to the United States District Court for the District of New Jersey "from the Memorandum Opinion dated September 6, 1991 and the final order of the United States Bankruptcy Court for the District of New Jersey entered on October 1, 1991."

On April 21, 1992, the district court affirmed the bankruptcy court, In re Heldor Industries, Inc., 139 B.R. 290 (D.N.J.1992), and held that the withdrawal of the DEP's objection to the terms of the proposed settlement was not moot within the meaning of Article III of the Constitution. The DEP timely filed its notice of appeal from this decision.

II.

We have jurisdiction of this appeal pursuant to 28 U.S.C. § 158(d), since this is an appeal from a final judgment of a district court approving a final decision of the bankruptcy court. ² We consider questions related to mootness issues under a plenary standard of review. Huber v. Casablanca Industries, Inc., 916 F.2d 85, 107 (3d Cir.1990).

The actions taken and views expressed below require us to consider some first principles of Article III jurisprudence in connection with our analysis of this appeal.

Article III extends "the judicial Power of the United States" to "all Cases" of three classes and to "controversies" of six others. Although it is possible to parse distinctions between a "controversy" and a "case" as Justice Field did in In re Pacific Railway Comm'n, 32 F. 241 (C.C.D.Cal. 1887), the record of the Framers supports the more common modern practice to merge the terms, as Justice Frankfurter did in Joint Anti-Fascist Refugee Comm. v. McGrath, 341 U.S. 123, 150, 71 S.Ct. 624, 637, 95 L.Ed. 817 (1951) (concurring opinion) ("case or controversy").

What survives from the Framers' deliberations is that it was "generally supposed that the jurisdiction given was constructively limited to cases of a Judiciary Nature." 2 Farrand, The Records of the Federal Convention of 1787, 430 (Madison, August 27) (1911) ("Farrand"). This record is quite clear that the Framers did not wish the federal "judicial Power" to extend beyond "cases of a Judiciary Nature." The delegates in Philadelphia in the summer of 1787 consistently "defeated a variety of proposals to give non-judicial functions" to the court(s) to be created under Article III. Hart & Wechsler's The Federal Courts and the Federal System 7 (3d ed., 1988). Most pertinent to the present inquiry was their consistent rejection of any power to render what we now call advisory opinions. See, for...