Windsor Communications Group, Inc. v. Grant
| Decision Date | 19 June 1985 |
| Docket Number | Misc. No. 84-0782. |
| Citation | 75 BR 713 |
| Parties | WINDSOR COMMUNICATIONS GROUP INC., t/a Norcross-Rust Craft Greeting Card Publishers v. Joseph GRANT. |
| Court | U.S. District Court — Eastern District of Pennsylvania |
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Nancy V. Alquist and Howard M. Holmes of Clark, Ladner, Fortenbaugh and Young, Philadelphia, Pa., for Windsor Communications Group.
Pending in this court is plaintiff's motion for entry of a default judgment. The motion was originally presented to Bankruptcy Judge William A. King, Jr. who recommended that judgment be entered in accordance with plaintiff's findings of fact and conclusions of law. The motion was then referred to this court for a final determination pursuant to 28 U.S.C. § 157(c)(1). That provision establishes that a Bankruptcy Judge may not enter a final judgment in a "non-core" proceeding as defined by the Bankruptcy Amendments and Federal Judgeship Act of 1984, Pub.L. No. 98-353 (1984). Judgment in such non-core proceedings may only be entered by the district court although that court considers the proposed findings and conclusions of the Bankruptcy Judge who has heard the proceeding.
At the commencement of this proceeding, service of the complaint and summons was effected by first class mail pursuant to Bankruptcy Rule 7004. No acknowledgment of service by the defendant was filed because none is required by that rule. However, in this court, service of a summons and complaint generally requires compliance with Federal Rule of Civil Procedure 4 which calls for written acknowledgment of service when the service is made solely by first class mail. Accordingly, I remanded this matter to Judge King for consideration of whether service in accordance with Bankruptcy Rule 7004 was sufficient.
Judge King has since filed an exhaustive and well-reasoned report on this question.* The report considers the history of service provisions in the statutes and rules governing bankruptcy and related proceedings prior to the enactment of the Bankruptcy Amendments and Federal Judgeship Act of 1984. In light of that history and the intent of Congress in drafting the Amendments, Judge King concludes that the Bankruptcy Rule provisions regarding service of process should apply in both core and non-core proceedings under the bankruptcy statutes.
As is apparent from Judge King's report, the issue of which set of procedural rules should apply to non-core proceedings is a difficult one on which the statutes and rules fail to provide a clear answer. Adjudication of such a complex and important issue is usually aided by the development of the question by the parties whose opposing interests lead them to develop fully the arguments on both sides of the issue. The procedural posture of the present case, however, does not allow for such adversarial testing of arguments and counter-arguments.
The immediate question to be resolved is whether this court has in personam jurisdiction over defendant notwithstanding that service of process, accomplished in compliance with Bankruptcy Rule 7004, has not been acknowledged in the manner called for by Rule 4 of the Federal Rules of Civil Procedure. On the basis of Judge King's thoughtful report, see also In re Martin-Trigona, 763 F.2d 503 (2d Cir.1985) (); Foreman Industries, Inc. v. General Motors Corp., 34 B.R. 712, 720 (S.D.Ohio 1983), I am satisfied that the record before me affirmatively supports a determination that this court has jurisdiction over defendant. I am, accordingly, prepared to enter a default judgment against the defendant. But because, owing to defendant's absence from this litigation, there has been no development of the arguments which might be marshalled by defendant against a finding of jurisdiction, entry of the default judgment is without prejudice to defendant's attempting, in some later phase of this litigation or its sequelae, to assert a challenge to this court's current exercise of in personam jurisdiction.
Accordingly, it is hereby ORDERED that the recommendation of Judge King that default judgment be entered is APPROVED AND ADOPTED. Plaintiff's motion for entry of default judgment is GRANTED and judgment is ENTERED for plaintiff and against defendant in the amount of $2,195.55.
This Report is intended to address the question of bankruptcy procedure posed by your Honorable Court to the undersigned Bankruptcy Judge in a Memorandum/Order of November 5, 1984. The matter is before Your Honor as a result of our submission of proposed findings of fact and conclusions of law recommending entry of default judgment in "non-core" bankruptcy matters to the District Court in accordance with 28 U.S.C. § 157(c)(1) (1984).
Your Honor questions whether the District Court may enter default judgment in a "non-core" bankruptcy proceeding where service of process was effectuated in a manner authorized by Bankruptcy Rule 7004(b), but not authorized by Rule 4(c) of the Federal Rules of Civil Procedure.1 Your Honor remanded five (5) adversary proceedings, including the one captioned above, to the Bankruptcy Court in order that the undersigned Bankruptcy Judge may address this question.
Although Your Honor's question is specifically directed toward the applicability of Bankruptcy Rule 7004 to "non-core" matters, we have found it necessary to discuss the applicability of the Bankruptcy Rules in general to "non-core" matters in light of the creation of a new bankruptcy court system under the Bankruptcy Amendments and Federal Judgeship Act of 1984 ("BAFJA").2
BAFJA was enacted to correct the jurisdictional defects of the Bankruptcy Reform Act of 1978 ("BRA") illuminated by the Supreme Court in Northern Pipeline.3 Rather than reconstitute the bankruptcy courts as Article III courts and preserve the system set up by the BRA, Congress chose to create a two-tiered court system that is similar to but not totally analogous to the summary/plenary jurisdictional distinction under the Bankruptcy Act of 1898. Under current law, bankruptcy judges may hear and decide "core" bankruptcy matters under 28 U.S.C. § 157(b)(1) (1984), but may only hear "non-core" bankruptcy matters under 28 U.S.C. § 157(c)(1) (1984). In "non-core" proceedings, the bankruptcy judge must submit proposed findings of fact and conclusions of law to the district court for entry of final judgment.
The Bankruptcy Rules were promulgated to procedurally implement the substantive law of the BRA,4 part of which was repealed by BAFJA. A few of the Bankruptcy Rules were revised after BAFJA. However, the Rules governing the scope of the Bankruptcy Rules (Rules 1001 and 9001(2)) were not brought into line with the new court terminology used in BAFJA, probably due to legislative oversight.5 As a consequence, we must indulge in some guesswork to determine whether it is appropriate to apply the Bankruptcy Rules to "non-core" proceedings.
Because some of the terminology of the Bankruptcy Rules fails to mesh properly with the statutory language of BAFJA, a technical argument can be made that the Bankruptcy Rules should not govern proceedings in the District Court after BAFJA. The end result of this argument, of course, is that the method of service utilized in the five (5) proceedings pending before Your Court would have to be declared invalid in retrospect because service was not authorized by Fed.R.Civ.P. 4(c). To apply BAFJA retroactively to invalidate the form of service used in these proceedings would be prejudicial to the plaintiff since the plaintiff had no way of knowing at the time service was made that the Bankruptcy Rules were not applicable. It would further appear to be contrary to the intent of Congress as our analysis will attempt to show.
While the appropriate answer to the question posed is ultimately for Your Honor to decide, we think a more compelling argument can be made in favor of upholding the mode of service utilized here, particularly since these proceedings were pending prior to the enactment of BAFJA. In summary, we cannot provide a definitive answer to the question raised, but we have taken a position in favor of upholding the mode of service utilized in the five (5) proceedings pending before Your Honor.
Although Your Honor has not specifically raised a due process question regarding the constitutional validity of Bankruptcy Rule 7004(b), we believe that this issue warrants discussion. Before entering default judgment, the District Court must posit valid jurisdiction over the defendant and must implicitly endorse the method of service used. Therefore, we have included within our Report information regarding the origin of Bankruptcy Rule 7004 and how it is intended to meet minimum procedural due process requirements.
A review of the procedural background of these proceedings follows in order to establish a framework for analysis.
Windsor Communications Group, Inc. t/a Norcross-Rust Craft Greeting Card Publishers ("Windsor" or "debtor") is the debtor in a case under title 11 of the United States Code () which has been pending before the Bankruptcy Court of the Eastern District of Pennsylvania since August, 1982.6
During the course of its pending bankruptcy case, Windsor has instituted approximately 1,500 adversary proceedings, including the instant proceeding, in the Bankruptcy Court, pursuant to Bankruptcy Rule 7001. In each action, Windsor seeks to collect monies alleged to be due and owing to the estate from the respective defendants. The five (5) proceedings pending before Your Honor were commenced by the filing of a Complaint entitled either "Debtor's Complaint for Turnover of...
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