Opposition Brief — Insurance Co. of Pennsylvania v. Ben Cooper, Inc.

Supreme Court, U.S.

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4} APR 17 199]

No. 90-1280

DEEICE OF THE CLERK

IN THE

Supreme Court of the United States

OcToBER TERM, 1990

THE INSURANCE COMPANY OF THE STATE OF

PENNSYLVANIA and KERWICK & CURRAN, INC.,

Petitioners.

VS.

BEN COOPER, INC..

Respondent.

ON PETIT?}ON FOR A WRIT OF CERTIORARI TO

THE UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

RESPONDENT'S BRIEF IN OPPOSITION

LAWRENCE L. GINSBURG

Counsel of Record

CHARLES S. BIENER

LOWENTHAL, LANDAU, FISCHER,

ZIEGLER & BRING, P.C.

250 Park Avenue

New York, New York 10177

(212) 986-1116

Attorneys for Respondent

Kp

TABLE OF CONTENTS

Table of Contents

ue udesehonsendasasuccns

Rule 29-1 Statement

REASONS FOR DENYING THE WRIT

POINT I THE ISSUES RAISED IN THE

PETITION ARE NOT YET

APPROPRIATE FOR REVIEW ........

POINT II THE DECISION OF THE SECOND

CIRCUIT WAS CORRECT AND

NEED NOT BE REVIEWED............

A.

CONCLUSION

THE SECOND CIRCUIT

CORRECTLY HELD THAT A

BANKRUPTCY COURT HAS

CORE JURISDICTION OVER

STATE LAW CLAIMS

INVOLVING A POST-PETITION

. THE SECOND CIRCUIT

CORRECTLY RULED THAT A

BANKRUPTCY COURT MAY

CONDUCT A JURY TRIAL IN

CORE PROCEEDINGS ............

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ey

Page

1]

iii

TABLE OF AUTHORITIES

CASES: Page

Arnold Print Works, Inc. v. Apkin (In re Arnold Print

Works, Inc.), 815 F.2d 165 (1st Cir. 1987)......... 8

Brown Transport Corp. v. Atcon, Inc., 439 U.S.

Tee oc cdasuassheneronwen 5

Chelsea House Publishers v. Nicholstone Book

Bindery, Inc., 455 U.S. 994 (1982) ...............04. 5

Granfiranciera, S.A. v. Nordberg, 492 U.S. 33

TT cts ssicae sdckcken$esenisenasnsiagedines 9, 10

Greco v. Orange Memorial Hospital Corp., 423 U.S.

See et ile isi Nekdonswvwekesenneste 5

In re Kaiser Steel Corp., 911 F.2d 380 (10th Cir.

EE i 2

Kamberos v. GTE Automatic Electric, Inc., 454 U.S.

Ne Lieu cpickcaadenesn’ 5

Northern Pipeline Construction Co. v. Marathon Pipe

Se A, WP ae OP CE POE) cece sccvencsecsccvcceeves 7,8

Piombo Corp. v. Castlerock Properties, Inc. (In re

Castlerock Properties), 781 F.2d 159 (9th Cir.

ee rsa di richeessennbearnincsthacdde 4

Pryb v. U.S., 59 U.S.L.W. 3292 (Oct. 15, 1990)...... 5

State of Maryland v. Baltimore Radio Show, 338 U.S.

ends es idsewteninannevaeseknniees ie 3

Teel v. Tennessee, 59 U.S.L.W. 3404 (Dec. 3, 1990) . ?

In re United Missouri Bank of Kansas City, N.A., 901

ee |

Nm

iv

Page

US. ¥. Mapes, 431 U.S. FE4 CIS Tas sccscscssvcssceces 5

Wood v. Wood (In re Wood), 825 F.2d 90 (Sth Cir.

BN sack cctentucnsecuncumaderk ic satuanenmekiiuunvas en 4

Statutes:

ee ccc cing haan us ca vatenetendbansoneoonares 10

NS I Mc senha Uapunkesndeuseanenauenccenass 7, 8, 10

See TE pric vayciccacksconsnvauabanescteansces 10

Other Authorities:

Baker, A Practical Guide to Certiorari, 33 Cath.

es eas UE OE nc bce esis ces anadenacehasan 3

Estreicher & Sexton, A Managerial Theory of the

Supreme Court's Responsibilities: An Empirical

Study, 59 N.Y.U. L. Rev. 681 (1984)........ er

R. Stern, E. Gressman & S. Shapiro, Supreme

Court Practice (6th ed. 1986)......................eeee 3

Stevens, Some thoughts on judicial restraint, 66

PN B70 © PIED cnc iceseucovesnacehccsivcsaceeinxss 6

RULE 29. 1 STATEMENT

Respondent has no parent companies nor any subsid-

iaries which are not wholly-owned subsidiaries.

No. 90-1280

IN THE

Supreme Court of the United States

OcToBER TERM, 1990

THE INSURANCE COMPANY OF THE STATE OF

PENNSYLVANIA and KERWICK & CURRAN, INC.,

Petitioners,

VS.

BEN COOPER, INC.,

Respondent.

ON PETITION FOR A WRIT OF CERTIORARI TO

THE UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

RESPONDENT'S BRIEF IN OPPOSITION

The petition for a writ of certiorari submitted by The

Insurance Company of the State of Pennsylvania and Kerwick

& Curran, Inc. does not provide a sufficient basis for this

Court to exercise its discretionary jurisdiction. The issues

raised have not been adequately explored by the lower federal

courts and should be allowed to percolate, in order to permit a

fuller development of these complicated issues.

In addition, a careful analysis of the decision of the

Court of Appeals for the Second Circuit! demonstrates that it

correctly held that the adversary proceeding commenced by

respondent Ben Cooper, Inc. was a core proceeding and that

the core proceeding should be referred to the bankruptcy court

for a jury trial. The arguments cited in the petition are

insufficient to require review.

REASONS FOR DENYING THE WRIT

POINT I

THE ISSUES RAISED IN

THE PETITION ARE NOT

YET APPROPRIATE FOR REVIEW

Since the Second Circuit rendered the decision sought

to be reviewed, two other circuit courts have rulec on one of

the issues raised in the petition — the authonty of bankruptcy

judges to conduct jury trials. Although the Eighth Circuit in /n

re United Missouri Bank of Kansas City, N.A., 901 F.2d

1449 (8th Cir. 1990) and the Tenth Circuit in /n re Kaiser Steel

Corp., 911 F.2d 380 (10th Cir. 1990) each disagreed with the

Second Circuit’s holding that bankruptcy judges have the

authority to conduct jury trials, only the Second Circuit

analyzed both the statutory and constitutional basis for such

authority. Thus, in spite of this conflict, it is submitted that the

issues raised should be permitted to percolate further before

this Court issues a definitive ruling.

The benefits of percolation have long been recognized

as a reason for denying certiorari. As Justice Frankfurter stated

! The decision of the Second Circuit is reported at 896 F.2d 1394 (2d Cir.

1990), and is reprinted in the appendix to the petition at A-12.

in Siate of Maryland v. Baltimore Radio Show, 338 U.S. 912,

918 (1950): “A case may raise an important question but the

record may be cloudy. It may be desirable to have different

aspects of an issue further illuminated by the lower courts.

Wise adjudication has its own time for ripening.”

Professors Estreicher and Sexton, in a study of the

Supreme Court’s responsibilities, explained the advantages of

percolation:

... Disagreements in the lower courts facilitate

percolation — the independent evaluation of a legal

issue by different courts. The process of percolation

allows a period of exploratory consideration and

experimentation by lower courts before the Supreme

Court ends the process with a nationally binding

rule. The Supreme Court, when it decides a fully

percolated issue, has the benefit of the experience of

these lower courts.

Estreicher & Sexton, A Managerial Theory of the Supreme

Court’s Responsibilities: An Empirical Study, 59 N.Y.U.L.

Rev. 681, 716 (1984). See also Baker, A Practical Guide to

Certiorari, 33 Cath. Univ. L. Rev. 611, 618 (1984) (“Each

additional decision may shed new light on the way the issue

should be analyzed. While it makes for temporary uncertainty,

this process of percolation is ultimately good for the law.”’); R.

Stern, E. Gressman & S. Shapiro, Supreme Court Practice, n.

at 199 (6th ed. 1986) (“In some cases the Justices may feel that

the time is not ripe for the Court to resolve a conflict,

preferring to await further litigation that might produce a

consensus or a Satisfactory majority view among the lower

courts.”’).

Further percolation is especially appropriate in this

c.se. As stated previously, neither the Eighth Circuit nor the

Tenth Circuit addressed the constitutional basis for the conduct

of jury trials by bankruptcy judges, relying solely on their

belief that bankruptcy judges lacked the statutory authority to

conduct jury trials. Only the Second Circuit explored both the

statutory and constitutional basis for a bankruptcy judge’s

authority to conduct jury trials. Thus, the conflict among the

Second, Eighth and Tenth Circuits is limited to one aspect of

one of the issues presented for review (the other examples cited

by petitioners are all lower court cases). This Court should

permit additional percolation of this complex issue so that,

when a binding national ruling is made, this Court has the

benefit of more fully developed views among the circuits.?

With respect to the other issue sought to be reviewed

— the Second Circuit’s determination that the adversary

proceeding is core — the other circuit-level cases relied upon in

the petition are readily distinguishable and do not reflect a true

conflict among the circuits. As the Second Circuit noted, the

Ninth Circuit’s decision in Piombo Corp. v. Castlerock

Properties, Inc. (In re Castlerock Properties), 781 F.2d 159

(9th Cir. 1986) was based on a pre-petition contract claim

unlike the post-petition claim in this case. Similarly, Wood v.

Wood (In re Wood), 825 F.2d 90 (Sth Cir. 1987), though

involving post-petition activities (the issuance of stock), did

not involve a contract knowingly entered into with a debtor-in-

possession, which was required to maintain proper insurance

under its proposed plan of reorganization. Whereas the effect

on administration of the estate may not have been clear in

Wood, the effect on estate administration in the case at bar was

very Clear.

Contrary to petitioners’ argument (p.28), the nature of

~the underlying dispute cannot be considered in a vacuum; the

2 In fact, were the Court to grant certiorari and find that the Second Circuit

was incorrect on the core/noncore issue, it would not be necessary for the

Court to even address the conflict among the Second, Eighth and Tenth

Circuits.

effect of the dispute on administration of the estate must be

considered. Moreover, the Second Circuit’s finding is arguably

consistent with Wood since, as a post-petition claim, this

proceeding could not have arisen except in the context of a

bankruptcy case.

Of course, the mere presence of a conflict among the

circuits is not determinative. Although the Court usually does

not state its reasons for denying certiorari, there are numerous

examples of a denial of certiorari despite a conflict among

circuit courts. See, e.g., Chelsea House Publishers v.

Nicholstone Book Bindery, Inc., 455 U.S. 994 (1982); ~

Kamberos v. GTE Automatic Electric, Inc., 454 U.S. 1060

(1981); Brown Transport Corp. v. Atcon, Inc., 439 U.S.

1014 (1978) (White, J., dissenting) (citing seven examples of

cases on a particular conference calendar in which certiorari

was denied despite a conflict among the circuits); U.S. v.

Mayes, 431 U.S. 924 (1977); Greco v. Orange Memorial

Hospital Corp., 423 U.S. 1000 (1975). Even during the

current term, the Court has denied certiorari despite the

presence of a conflict. See Pryb v. U.S., 59 U.S.L.W. 3292

(Oct. 15, 1990); Teel v. Tennessee, 59 U.S.L.W. 3404 (Dec.

3, 1990).

Clearly, not every conflict is intolerable. In fact,

Professors Estreicher and Sexton suggest that only certain

conflicts are of an intolerable nature:

For example, an intolerable conflict ®ccurs when

litigants are able to exploit conflicts affirmatively

through forum shopping, or when the planning of

primary behavior is thwarted by the absence of a

nationally binding rule. Disuniformity in the law

becomes intolerable when litigants are able to bring

themselves under radically different legal regimes

through forum choice or are unable to readily adjust

their affairs to the law’s divergent commands.

Estreicher & Sexton, supra, at 725.3

Here, the forum shopping and planning concerns raised

by Professors Estreicher and Sexton are not present. The

choice of a bankruptcy forum is usually severely limited and it

is highly unlikely, despite the arguments raised by petitioners,

that any entity would be hampered in its planning by

disagreement among the circuits concerning the core/noncore

jurisdiction of bankruptcy courts or their authority to conduct

jury trials.

As Justice Stevens stated to the American Judicature

Society in 1982:

... the existence of differing rules of law in different

sections of our great country is not always an

intolerable evil .. . . It would be better, of course, if

federal law could be applied uniformly in all federal

courts, but experience with conflicting interpretations

of federal rules may help to illuminate an issue

before it is finally resolved and thus may play a

constructive role in the lawmaking process. The

doctrine of judicial restraint teaches us that patience

in the judicial resolution of conflicts may sometimes

produce the most desirable result.

Stevens, Some thoughts on judicial restraint, 66 Judicature

177, 183 (1982).

3 Though Professors Estreicher and Sexton believe that a tolerable conflict

may become intolerable once three circuits have addressed the issue, they

also agree that “(a)ppropriate percolation often requires consideration by

more than three courts.” /d., at 727. In this case, where only one of three

courts has fully explored the issue, further percolation would be beneficial.

The judicial restraint urged by Justice Stevens is

particularly appropriate here.

POINT II

THE DECISION OF THE SECOND

CIRCUIT WAS CORRECT AND NEED

NOT BE REVIEWED

A. The Second Circuit Correctly Held That a Bankruptcy

Court Has Core Jurisdiction Over State Law Claims

Involving a Post-Petition Contract

After reviewing this Court’s decision in Northern

Pipeline Construction Co. v. Marathon Pipe Line Co., 458

U.S. 50 (1982), as well as the statutory framework contained

in the Bankruptcy Amendments and Federal Judgeship Act of

1984 ("BAFJA"), the Second Circuit held that the bankruptcy

court has core jurisdiction, pursuant to 28 U.S.C.

§ 157(b)(2)(A), over state law contract claims when the

contract was entered into post-petition. This holding is fully

consistent with Marathon and the resulting statutory scheme.

In finding the adversary proceeding to be a “core”

proceeding within the meaning of 28 U.S.C. § 157(b)(2)(A)

— administration of the estate — the Second Circuit

recognized the crucial difference between a dispute arising

before the filing of the bankruptcy petition and a dispute arising

after the filing of the petition, and determined that post-petition

activities must be analyzed differently from pre-petition

activities.4

4 Contrary to petitioners’ statement, the Second Circuit did in fact

consider the state law nature of the underlying dispute. Of course, the fact

(Footnoie continued)

In the case at bar, the Second Circuit noted that the

facility at which the fire took place was an asset of the estate;

the debtor’s plan of reorganization expressly required that the

debtor maintain adequate insurance; the confirmation of the

plan was premised on the maintenance of adequate insurance;

and the appellees (petitioners) were fully aware that they were

dealing with a debtor (A-23). Under these circumstances, the

Second Circuit found that “(i)t is difficult to conceive of a

claim, at least one arising outside of the substantive law of

bankruptcy, that would be more intrinsic to estate

administration.” (A-23)

Contrary to petitioners’ argument, there is nothing

arbitrary about the test applied by the Second Circuit. A debtor-

in-possession is an entity created by the bankruptcy laws. It is

hardly arbitrary to hold that those who knowingly contract with

a debtor-in-possession be held accountable before the court

charged with protecting the debtor. Indeed, this is the only

holding consjstent with the statutory scheme.

The Second Circuit’s holding is also consistent with

this Court’s decision in Marathon. The Court in Marathon held

that Congress could grant bankruptcy courts the nght to issue

final orders in actions that were at the “core of the federal

bankruptcy power,” but not in those actions which involved

merely “‘state-created private rights”. /d., 458 U.S. at 71. The

dispute in Marathon arose pre-petition; thus, the holding in

Marathon is entirely consistent with the holding of the Second

Circuit. See, e.g., Arnold Print Works, Inc. v. Apkin (In re

Arnold Print Works, Inc.), 815 F.2d 165, 166 (1st Cir. 1987)

(“In our view, the matter of timing and the relation to judicial

administration of the bankrupt’s estate make a critical

that the adversary proceeding involves state law issues is, by statute, not

determinative. See 28 U.S.C. § 157(b)(3).

constitutional difference between Marathon and the present

case.”’).

A pre-petition cause of action fits more readily within

the Court’s description of “private” mghts. However, once the

bankruptcy petition is filed, post-petition contracts fit squarely

within the core of the federal bankruptcy power which, in this

case, concerns the administration of the estate.

In holding that a post-petition contract ts an essential

part of estate administration, the Court below was merely

acknowledging the intent of Congress in enacting BAFJA — to

ensure that proceedings “‘core”’ to the debtor’s rehabilitation be

determined by the bankruptcy court. This holding should not

be disturbed.

B. The Second Circuit Correctly Ruled That a Bankruptcy

Court May Conduct a Jury Trial in Core Proceedings

In ruling that a bankruptcy court may hold a jury tal in

a core proceeding, the Second Circuit came to the only

conclusion consistent with the statutory scheme.>

In Granfinanciera, S.A. v. Nordberg, 492 U.S. 33,

109 S.Ct. 2782 (1989), this Court held that Congress could

not eliminate a party’s Seventh AmendmMent right to a jury tral.

Id., 109 S.Ct. at 2800. However, the Court found it

unnecessary to explicitly rule on the jury trial issue. /d., 109

5 Indeed, the conduct of jury trials within bankruptcy proceedings is

appropriate for sound policy reasons and is consistent with the primary

goals of the federal bankruptcy system. Removing proceedings involving

jury trials from the bankruptcy courts would not only bifurcate and delay

the resolution of bankruptcy reorganizations but would also overwhelm an

already overcrowded district court system.

10

S.Ct. at 2802. Despite petitioners’ arguments, the fact that this

Court left open the jury trial question in Granfinanciera does

not compel the Court to answer it now.

Since Granfinanciera did not decide the issue, the

Second Circuit examined the statutory and constitutional

authority for jury trials in bankruptcy court.

Finding little guidance in the only statute which

explicitly addresses jury trials (28 U.S.C. § 1411), the Court

tuviied to the statutes granting jurisdiction to the bankruptcy

court. 28 U.S.C. § 151 gives bankruptcy judges “the

authority conferred under this chapter with respect to any

action, suit or proceeding.” 28 U.S.C. § 157(b) gives

bankruptcy judges the authority to conduct trials and issue final

orders in core proceedings. The Second Circuit believed that

the only way to reconcile these concerns, consistent with

Granfinanciera, was to permit the bankruptcy court to conduct

jury trials.

Next, the Second Circuit turned to the Constitution.

The Court found no impediment in the Seventh Amendment, at

least as to core proceedings, since the statutory provisions do

not require de novo review of determinations in core

proceedings. Contrary to petitioners’ statement (p.36), the

Second Circuit never acknowledged a Seventh Amendment

problem with respect to core proceedings, but only with

respect to non-core proceedings (A-31). .

As for Article III, the Second Circuit reasoned that

since bankruptcy courts have the constitutional power to enter

final judgments without violating Article III, jury verdicts

likewise would not be violative of Article III.

No further elaboration is necessary and the jury trial

issue need not be reviewed.

11

CONCLUSION

For the foregoing reasons, the petition should be denied.

Dated: Apnil 16, 1991

Respectfully submitted,

LAWRENCE L. GINSBURG

(Counsel of Record)

CHARLES S. BIENER

- LOWENTHAL, LANDAU, FISCHER,

ZIEGLER & BRING, P.C.

250 Park Avenue

New York, New York 10177

(212)986-1116

Attorneys for Respondent