Opinion
No. 82-00217 ML.
February 18, 1983.
Jennie Deden Behles, Albuquerque, New Mexico, attorney for the debtor.
Gail Gottlieb, Albuquerque, New Mexico, attorney for the creditor.
Jurisdiction — Constitutionality — Bankruptcy Courts — District Courts
The Supreme Court decision in Northern Pipeline Construction Co. v. Marathon Pipe Line Co., CCH BANKRUPTCY LAW REPORTS No. 73, July 1, 1982 at ¶ 68,698, held unconstitutional all of 28 U.S.C. § 1471, thus stripping the bankruptcy courts entirely of jurisdiction over bankruptcy matters and the district courts of so much of their bankruptcy jurisdiction as must be derived from that section. Thus, a permanent injunction issued by the bankruptcy court during the period Northern Pipeline was stayed, which forbade collection on a state court judgment against the president and majority stockholder of a debtor-corporation, was dissolved. See 28 U.S.C. § 1471 at ¶ 4501. Jurisdiction — District Courts — Related Matters
The grant to district courts of "original jurisdiction . . . of all matters and proceedings in bankruptcy" under 28 U.S.C. § 1334 does not extend to matters "related to" a bankruptcy proceeding, and so the district court does not have jurisdiction under that section over a permanent injunction previously issued by the bankruptcy court which forbade collection on a state court judgment against the president and majority stockholder of a debtor-corporation. See 28 U.S.C. § 1471 at ¶ 4501. Jurisdiction — District Courts — Bankruptcy as Federal Question
The grant to the district courts of "federal question" jurisdiction under 28 U.S.C. § 1331 does not grant those courts bankruptcy jurisdiction. Section 1331 jurisdiction must be derived from other federal laws and "in the face of clear congressional intent that 28 U.S.C. § 1471 be the sole grant of [bankruptcy] subject matter jurisdiction, any jurisdiction which did exist under Section 1331 would be `inconsistent with the Bankruptcy Reform Act of 1978.'" See 28 U.S.C. § 1471 at ¶ 4501.
[Opinion of the Court]
This matter is before the Court on the motion of Security Bank Trust (Security) to dissolve the Court's injuction entered on July 1, 1982. The motion squarely raises the question of what jurisdiction, if any, remains in this, or any, Court to continue to enforce the injunction in light of the decision of the United States Supreme Court in Northern Pipeline Construction Co. v. Marathon Pipe Line Co., ___ U.S. ___, 102 S.Ct. 2858, 73 L.Ed.2d 598 (1982) (Northern Pipeline).
In June of 1982 an order was entered by this Court permanently enjoining Security from executing or otherwise collecting on its state court judgment against Charles J. Dugan (Dugan). The Court did allow Security to record its transcript of judgment against Dugan's property but enjoined all further collection action. Dugan is president and majority stockholder of the debtor corporation, Otero Mills, Inc. (Otero Mills), and is guarantor of two loans made by Security to Otoero Mills. Dugan's personal property is not subject to the automatic stay. 11 U.S.C. § 362. However, Dugan had indicated that some portion of his property would be pleged to the debtor's reorganization plan, and Security had indicated that it was adequately protected by corporate assets. This combination of circumstances made Dugan's personal property a proper subject of the permanent injunction under section 105 of the Bankruptcy Code, 11 U.S.C. § 105. Otero Mills, Inc., v. Security Bank Trust (In re Otero Mills, Inc.), 21 B.R. 777 (Bankr. N.M. 1982). Thereafter, Security moved to have the injunction dissolved on the basis of the Northern Pipeline decision. The Court declined to do so, finding that it could exercise all of its powers during the pendency of the stay of the Northern Pipeline juugment or until Congress acted to deprive it of its powers. Otero Mills, Inc., v. Security Bank Trust (In re Otero Mills, Inc.), 21 B.R. 645 (Bankr. N.M. 1982). Security then petitioned the United States District Court for the District of New Mexico for a writ of mandamus directing this Court not to exercise jurisdiction over the matter. The writ was denied. Security Bank Trust v. Honorable Mark B. McFeeley, et al., No. 82-758 M, slip op. order (D.N.M. Aug. 17, 1982).
Security also appealed the order of the Court entered on July 1, 1982, to the United States District Court. The District Court affirmed this Court, Otero Mills, Inc., v. Security Bank Trust (In re Otero Mills, Inc.), ___ B.R. ___, No. 82-772 JB (D. N.M. Dec. 22, 1982). Thereafter, the Northern Pipeline stay expired and Security filed this motion for relief from the injunction.
This Court has previously stated that
. . . Northern Pipeline declared § 241(a) of the Bankruptcy Reform Act of 1978 unconstitutional. Section 241(a) is the whole grant of power to administer the Bankruptcy Code, and if we find it inenffective as of June 28, 1982, the unavoidable effect would be that no court presently existing could administer the bankruptcy laws. Otero Mills, Inc., v. Security Bank Trust (In re Otero Mills, Inc.), 21 B.R. at 647 (Bankr. N.M. 1982).
After another detailed analysis of the Northern Pipeline case and the other bases for jurisdiction urged on this Court by the debtor, the Court can only conclude that its previous analysis was correct.
It is apparent that Northern Pipeline stands for the proposition that all of Section 241(a) is unconstitutional. Section 241(a) includes all of 28 U.S.C. § 1471, that is § 1471(a) through § 1471(d). The Court specifically found that the grant of jurisdiction to the district courts and the bankruptcy courts was "a single statutory grant," facilitating "one of the express purposes of the Act [which] was to ensure adjudication of all claims in a single forum and to avoid the delay and expense of jurisdictional disputes." Northern Pipeline, Id. (Emphasis added.) The concurring justices agreed that the jurisdictional grants were not severable, Northern Pipeline, supra, 102 S.Ct at 2882, 73 L.Ed.2d at 628 (Rehnquist, J., concurring). Judge Mabey, addressing the severability issue in Color Craft Press, Ltd., v. Nationwide Shopper Systems, Inc., points out that the Northern Pipeline plurality did not first disset § 1471 into bankruptcy court and district court provisions before finding the section unconstitutional and its parts unseverable. Color Craft Press, Ltd., v. Nationwide Shopper Systems, Inc., ___ B.R. ___, Civ. Proc. No. 82-PM-0974 In re Color Craft Press, Ltd., No. 81M-03184) slip op. at 8 (Bankr. D. Utah, Feb. 7, 1983), and further observes that Justice Burger's dissent and indeed the strong language of the joint dissent in objecting to the "sweeping invalidation" of Section 241(a) are nothing if not an acknowledgment of such a failure to sever. Id. at 8-10. We must agree, as have other courts. Still v. First Bank of Newton, Kansas. ___ B.R. ___, Adv. Proc. No. 1-82-0638 (In re Jorges Carpet Mills, Inc., No. 1-80-02516), slip op. at 10 (Bankr. E.D. Tenn., Jan. 31, 1983); In re Motion to Dismiss: Constitutionality of Jurisdiction of the Bankruptcy Court, 23 B.R. 334, 338, also reported as Anderson v. CBS, Inc. (In re Trac Records) 7 C.B.C.2d 427, 432, 9 B.C.D. 1011, 1013 (Bankr. N.D. Ga. 1982); In re Conley and All other Debtors, ___ B.R. ___, No. 382-00990, et al., slip op. at 14-15 (Bankr. M.D. Tenn., Jan. 26, 1983); Winters National Bank Trust Co. of Dayton v. Schear Group, et al., ___ B.R. ___, Adv. No. 3-82-0491 (In re Schear Realty Investment Co., Inc., No. 3-82-01843) slip op. at 14-17 (Bankr. S.D. Ohio, Dec. 27, 1982); Gillman, Trustee, v. Preston Family Investment Co., et al., ___ B.R. ___, Civ. Proc. No. 82PC-0746 (In re Richardson, No. 82C-00736) slip op. at 3 (Bankr. D. Utah, Feb. 7, 1983); Levit Mason, "Where Do We Go From Here? Bankruptcy Administration Post-Marathon," 87 Comm. L.J. 353, 356 (1982). This Court has also studied those cases which come to the opposite conclusion, but regretfully cannot agree with those attempts to salvage some of the jurisdiction to administer the Bankruptcy Code. Prudential Insurance Co. of America v. The Stouffer Corporation, ___ B.R. ___, Adv. No. 82-2277-W (In re Northland Point Partners, No. 82-05387-W) slip op. (E.D. Mich., Jan. 7, 1983); Braniff Airways, Inc., v. Civil Aeronautics Boards, ___ B.R. ___, Misc. No. 4-221-E (In re Braniff Airways, Inc., et al., No. 4-82-00369), slip op. (N.D. Tex., Jan. 20, 1983); Herrera v. Weaver Construction Co., et al., ___ B.R. ___, Proc. No. 81 M 2788 (In re Herrera, No. 81 B 5867 J) slip op. (Bankr. D. Colo., Feb. 3, 1983). If such jurisdiction remained, it would have been unnecessary for the Court to stay its decision to allow Congress to act. The most that would have been necessary would have been for the Court to have stayed its decision a short time to allow district courts to implement a reference rule. In fact, under its rulemaking power, the Supreme Court could itself have made such a rule. P. Law No. 995-598, Sect. 410, 92 Stat. 2687 (1978). Nor would the plurality have found it necessary to disagree with the Chief Justice's statement "that ancillary common law actions, such as the one involved in this case, be routed to the United States district court of which the bankruptcy court is an adjunct." Northern Pipeline, 102 S.Ct. at 2880 n. 40; 73 L.Ed.2d at 625 n. 40.
Having concluded that no Section 1471 jurisdiction remains in this Court or the district court, it is then necessary to determine if jurisdiction can be found in the district court under any other jurisdictional grant.
Debtor argues that the district court has jurisdiction over this proceeding pursuant to 28 U.S.C. § 1334. That section provides: "The district court shall have original jurisdiction, exclusive of the courts of the states, of all matters and proceedings in bankruptcy."
For the purposes of this opinion, it is not necessary to determine if there is Section 1334 jurisdiction to administer the provisions of the Bankruptcy Code vested in the district courts. That matter is presently pending before this Court and will be decided another day. However, it is clear that Section 1334, by its terms, could give jurisdiction only with respect to "all matters and proceedings in bankruptcy." That section has never before, and cannot now, be read to give United States district courts jurisdiction in a case, as this one, which is "related to" a bankruptcy proceeding. Still v. First Bank of Newton, et al., supra; Color Craft Press, Ltd., v. Nationwide Shopper Systems, Inc., supra; In re Motion to Dismiss: Constitutionality of Jurisdiction of the Bankruptcy Court, supra; Herrera v. Weaver Construction Co., et al., supra.
It seems then that the only remaining basis for jurisdiction is 28 U.S.C. § 1331. In Gillman v. Preston Family Investment Co., et al., supra, Judge Clark thoroughly explores the question of whether subject matter jurisdiction over bankruptcy proceedings can be derived from that statute. He points out the rule that federaal courts are courts of limited, not general, jurisdiction and will be presumed not to have jurisdiction until the contrary is shown, Id. slip op. at 27. He then observes that other federal laws which could conceivably be the bases of "federal questions" under Article III of the Constitution are not included in the jurisdictional grant of Section 1331. Id. slip op. at 28-30. My study of the matter leads me to conclude that I can add nothing to Judge Clark's careful analysis and its requisite conclusion, which is that "[n]either Section 1331 nor any of its predecessors was designed to grant subject matter jurisdiction of actions arising under federal bankruptcy law," Id. slip op. at 36, and that in the face of clear congressional intent that 28 U.S.C. § 1471 be the sole grant of subject matter jurisdiction, any jurisdiction which did exist under Section 1331 would be "inconsistent with the Bankruptcy Reform Act of 1978." Id. slip op. 47. I therefore adopt his reasoning and conclusion in full.
Based on the foregoing, I regretfully conclude that neither this Court nor the United States district court has subject matter jurisdiction over this "related to" matter.
There are few cases where the Supreme Court has stayed the entry of a judgment of unconstitutionality and this Court can only conclude that the Supreme Court foresaw the chaos which is facing the bankruptcy system today. This Court has already been faced wiwth hearing complex and substantial matters only to have its jurisdiction questioned by the non-prevailing party. Debtors and creditors alike are unsure if orders issued by this or any court are valid and can be relied on. Until the Supreme Court rules on the validity of the local rules adopted district-by-district or until Congress acts, the uncertainty will continue. If there is in fact no jurisdiction in any court to administer bankruptcy laws, thousands and thousands of jobs will be in jeopardy nationwide, viable reorganizations will collapse, and the expiration of the Northern Pipeline stay will have been the starting signal in the race to see which creditors can be first to the state courthouse and first to obtain executions. While I cannot help but agree with Judge Mahon's statement in Braniff Airways that "[I]f ever a case came before this Court commanding that Reason be sought and that Reason be applied to the ends of Justice — this is that case," Braniff Airways, Inc., et al., v. Civil Aeronautics Board, supra, slip op. at 10, I do not agree that a court can use its equitable powers to legislate, particularly in the face of a mandate from the United States Supreme Court that the decision as to the appropriate manner in which to reconstitute the courts was to be left to Congress. Northern Pipeline, supra, 102 S.Ct. 2858, 2880 n. 40, 73 L.Ed.2d 598, 625 n. 40. Nor, absent a firm jurisdictional basis, can I agree with Judge DeMascio that the Circuit Council's rulemaking power gives the judicial system the power to give jurisdiction when none would otherwise exist. Prudential Insurance Co. of America v. The Stouffer Corporation, supra. Mindful of my oath of office and of the Constitution and Laws which I have sworn to uphold, I am compelled to reach the conclusion I do today. The permanent injunction should be dissolved.
Pursuant to United States District Court Amended Local Rule 31(d)(2), this judgment shall be stayed. It is hereby certified to the district court for review in accordance with paragraph e(3) of the rule.
This opinion shall constitute findings of fact and conclusions of law. Bankruptcy Rule 752.
An appropriate order shall enter.