# Appendix — In re International Harvester Co., 103 S. Ct. 1804 (1983) (No. 82-1385)

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Appendix
- **Published:** January 1, 1983

## Text

82-1385 RECEIVED

No. 82- FEB 16 1983
OFFICE OF THE CLERK
In The SUPREME COURT, U.S.
SUPREME COURT OF THE UNITED STATES Office-Suprenie Court, U.S.
kFilLED
October Term, 1982
FEB 16 1983
ALEXANDER L. STEVAS,
IN RE INTERNATIONAL HARVESTER COMPANY and CLERK

IH STEEL CORPORATION,

Petitioners.

SPECIAL FILING OF UNREPORTED CASES RE
PETITION FOR WRITS OF PROHIBITION AND MANDAMUS
TO THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
AND THE UNITED STATES BANKRUPTCY COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS

Robert W. Hallock
(Counsel of Record)
George D. Newton, Jr.
Marion B. Adler
Kirkland & Ellis
200 East Randolph Drive
Chicago, Illinois 60601
(312) 861-2042

Vern Countryman

1557 Massachusetts Avenue
Cambridge, Massachusetts 02138
(617) 495-4614

Wilbur F. Pell, III

401 North Michigan Avenue
Chicago, Illinois 60611
(312) 836-2171

Attorneys for Petitioners

February 16, 1983

GAF Corp. v. Johns-Manville Corp. (In re Johns-
e Corp.), No. 82-B-11656, Adv. No. 82-6221A
(Bankr. S.D.N.Y. January 10, 1983).

Prudential Ins. Co. v. Stouffer Corp. (In re
Northland Point Pe Partners), No. 82-5387-W, Adv. Nos.

- “W & -W (E.D. Mich. January 7, 1983.
Color Craft Press Ltd. Nationwide Shopper aes
Inc. (In re Color Craft cr Ltd.), No. M
Adv. No. 82-PM-974 (Bankr. D. Utah February 7, 1983).

Gillman v. Preston Family Inv. Co. (In re Richardson),
No. 82C-736, Adv. No. 82PC-746 (Bankr. D. Utah February
7, 1983.

In re Conley, No. 382-990 (Bankr. M.D. Tenn. January 26,
1983).

Walter E. Heller & Co. v. Matlock Trailer Corp. (In

re Matlock Trailer Corp.) No. 382-2778, Adv. No. 382-755
(Bankr. M.D. Tenn. January 26, 1983).

Still v. First Bank (In re Jorges Carpet Mill Inc.),
No. 1-80-2516, Adv. No. 1-82-638 (Bankr. E.D. Tenn.

January 31, 1983).

Docter v. Gleicher (In re Stillman), No. 8l- tt

UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK

In the Matter

of

JOHNS-MANVILLE CORPORATION,
et al.

Debtor

GAF CORPORATION, KEENE COR-
PORATION, ARMSTRONG WORLD
INDUSTRIES, INC., H.K.
PORTER COMPANY, INC., PITTS-
BURGH CORNING CORPORATION,
GARLOCK, INC., EAGLE-PICHER
INDUSTRIES, INC., THE
CELOTEX CORPORATION and
FIBERBOARD CORPORATION,

on behalf of themselves

and the unofficial commit-
tee of Asbestos Case Co-
Defendants,

Plaintiffs,
vs.

JOHNS-MANVILLE CORP.,
et al.,

Defendants.

82 B 11656
through
82 B 11076

DECISION
NO. 1

AND ORDER
IN RELATED
AUTOMATIC
STAY PRO-
CEEDINGS

A copy of this Opinion is set forth on

pages A-20 through A-83 of the Appendix

in No. 82-1242.

UNITED STATES DISTRICT COURT :
: EASTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION

Case No. 82-05387-W

/

THE PRUDENTIAL INSURANCE COMPANY OF AMERICA,

. Debtors.

Plaintiff, Adversary No. 82-2277-W

Vv.

THE STOUFFER CORPORATION,

Defendant.
® /
NORTHLAND POINT PARTNERS,

Plaintizf, Adversary No. 82-2332-W
? °

Ve.

THE STOUFFER CORPORATION,

Defendant.
. /
?
aie. t eee : ORDER
»

*" ORDER

This cause is before the court on appellant Stouffer

Corporation's motion challenging the constitutionality of an
Interim Rule governing the administration of the bankruptcy
eexen adopted by the United States District Court for the Eastern
District of Michigan. After a careful review of the relevant
statutory and case law, we remain persuaded that this Interim Rule,
adopted in response to the Supreme Court's decision in Northern
Pipeline Construction Co. Vv. Marathon Pipe Tine Ce. , oe U.S.
peed 50 U.S.L.W. 4892 (June 28, 1982), is constitutional and valid.

; We hold that Marathon does not create a jurisdictional.
' lapse. The relevant statutory provisions taken singularly and
conjunctiveiy manifest the Congressional intention that at the very
least federal district courts would retain jurisdiction of matters
arising under Title 11 or arising in or related to cases under
Title 11 until April 1, 1984. Congress carefully kept in effect,
until 1984, statutory provisions that give the federal district
courts “original jurisdiction, exclusive of the courts of the states,
of all matters and proceedings in bankruptcy.” 28 U.S.C. § 1334.
Congress also made.cleer, through incorporation by reference,
that the jurisdictional powers of the federal district courts would
not change during the transitional period. §§ 404 and 405, Bankruptcy
Reform Act of 1978 (P.L. 95-598). Congress purposely included these
provisions to satisfy its stated concern over the constitutionality
of the broad jurisdictional grant afforded to bankruptcy judges under

the act. It is-apparent that Congress, at a minimum, wanted to

were

----.in federal court jurisdiction over matters érising in bank-
Yeorey provesdisgs.
Alternatively, it appears to us that the only jurisdictional
czant that was deemed non-severable in Marathon was that given to
che article I bankruptcy courts. The two concurring justices notecé
that "This grant of authority is not readily severable from the

remaining grant of authority to bankruptcy courts.” Marathon, id. at

4903. In considering the entire structure of the Bankruptcy Reform
Act of 1978, it appears to us that the power conferred by 28 U.S.C.

§ 1471(a) and (b) was arguably not affected by the Marathon decision.

We recognize, however, that Congress did not want federal district ©

courts to permanently exercise the jurisdictional power found in

such provisions es present § 1334 of Title 28. Seé, Marathon, id.

at 4902, n.40. The a@istrict courts are vested at least

until 1984 with jurisdiction over bankruptcy matters. The rule that
Stouffer now. challenges was promulgated in complete accord with the
inherent power of an Article III federal district court to dispose

of judicial matters that come before it. This interim rule provides
that the district courts may delegate many of the duties they

must perform undies inks bankruptcy power to bankruptcy judges.

The authority for this is found in § 105 of the Bankruptcy Reform —
Act of 1978 (11 U.S.c. § 105), which gives courts of bankruptcy

the power to "issue any order, process, or judgment that is necessary

cr appropriate to carry out the provisions of this title," and in

Bankruptcy Rule 927, which gives bankruptcy courts the power to

-3- TE ayo

aoc TwWeW www LHOMAL Mit oe ys

afory ‘rules governing practice and procedure under the Act." This
Gelecation Pe power is consistent with the long tradition established
by Congress of a bankruptcy court consisting of two judicial officers
aka the clear intent of the Congress to continue a two-officer court
of bankruptcy through 1984.

Accordingly, we hold that the Emergency Rule adopted by
the United States District Court for the Eastern District of Michigan
pursuant to a resolution of the Sixth Circuit Judicial Council
is constitutional and valid. A more detailed analysis responding to .

all of appellant's contentions will be forthcoming in a Memorandum

‘ Opinion from this, court.

NOW, THEREFORE, IT IS ORDERED that appellant Stouffer's
motion challenging the Interim Rule be and the same hereby is
DISMISSED;

IT IS FURTHER ORDERED that appellant's motion for a stay

of bankruptcy proceedings be and the same hereby is DENIED.

rt &. DeMa fe)
ited States ‘Digtrict Judge

Dated: January 7, 1983

a

IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF UTAH

In re Bankruptcy No. 81M-03184

COLOR CRAFT PRESS, LTD.,
a Utah limited partnership, Civil Proceeding No. 82PM-0974
Debtor.

COLOR CRAFT PRESS, LTD.,
a Utah limited partnership,

MEMORANDUM OPINION

Plaintiff,
vs.

NATIONWIDE SHOPPER SYSTEMS,

)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
INC.,
)

Defendant.

Appearances: William G. Fowler, R. Kimball Mosier, Michael
N. Zundell, of Roe and Fowler, Salt Lake City, Utah, for the
plaintiff; Robert A. Bentley, Salt Lake City, Utah, for the
defendant.

I. INTRODUCTION AND BACKGROUND

On November 6, 1978, Congress enacted Pub. L. No. 95-598,
the first major revision of bankruptcy law in the United States
since 1938. The law contains sweeping jurisdictional reforms.

| See, Pub. L. No. 95-598, Section 241(a), 92 Stat. 2668 (1978),

codified at 28 U.S.C. Sections 1471-1482.) Section 1471, the

1

For an overview of these jurisdictional reforms, see, e.g., 1
COLLIER ON BANKRUPTCY 43.01 st seq. (15th ed. 1982); Babitt, "The
Bankruptcy Court, Its Judges, Their Jurisdiction and Powers, and
Appeals, Under Title 11 of the 1978 Bankruptcy Reform Act:
Transition and Beyond,” 1979 ANN. SURV. BANK. L. 89; Bondurant,

linchpin of these reforms, confers jurisdiction on a newly

Created “bankruptcy court," using a two step process. First,
Sections 1471(a) and 1471(b) grant original and exclusive
jurisdiction of all "cases" under title 11 and original but not

exclusive jurisdiction of all “proceedings” arising under title

"The Bankruptcy Court As a Constitutional Court," 45 AM. BANK.

L. J. 235 (1971); Broude, “Jurisdiction and Venue Under the
Bankruptcy Act of 1973," 48 AM. BANK. L. J. 231 (1974); Broude,
"The Referee in Bankruptcy As An Article I Judge: A Reply to Mr.
Bondurant,” 46 AM. BANK. L.J. 39 (1972); Cyr, "Structuring A New
Bankruptcy Court: A Comparative Analysis," 52 AM. BANK. L. J. 141
(1978); Drake, "The Judges’ Bill and the Commission's Bill: A
Question of Access to the Judicial Process," 26 MERCER L. REV.
1009 (1975); Eisen and Smrtnik, "The Bankruptcy Reform Act of
1978--An Elevated Judiciary," 28 DePAUL L:; REV. 1007 (1979);
Finley, “Article III Limits on Article I Courts: The Constitu-
tionality of the Bankruptcy Court," 1982 ANN. SURV. BANK. L. 1;
George, "The Bankruptcy Appellate Panels: An Unfinished Experi-
ment,” 1982 B.Y.U. L. REV. 205; Kennedy, "The Bankruptcy Court
Under The New Bankruptcy Law: Its Structure And Jurisdiction," 55
AM. BANK. L. J. 63 (1981); Kennedy, “The Bankruptcy Court Under
The New Bankruptcy Law: Its Structure, Jurisdiction, Venue, And
Procedure,” 11 ST. MARY'S L. J. 251 (1979); King, "Bankruptcy
Code~-Specialized Court Supported," 52 AM. BANK. L.J. 193 (1978);
Klee, "Legislative History of the New Bankruptcy Code," 54 AM.
BANK. L.J. 275 (1980); Krattenmaker, "Article III and Judicial
Independence: Why The New Bankruptcy Courts Are Unconstitu-
tional," 70 GEO. L. J. 297 (1981); Lieb, "Jurisdiction and

Venue in Bankruptcy Litigation," 1982 ANN. SURV. BANK. L. 69;
Levin, "Bankruptcy Appeals,” 58 NO. CAR. L. REV. 967 (1980);
Levine, "An Enhanced Conception of the Bankruptcy Judge: From
Case Administrator to Unbiased Adjudicator," 84 W. VA. L. REV.
637 (1982); Levit and Mason, “Where Do We Go From Here? Bank-
ruptcy Administration Post-Marathon,"” 87 COM. L. J. 353 (1982);
Plumb, "The Tax Recommendations of the Commission on the Bank-
ruptcy Laws--Tax Procedures,” 88 HARV. L. REV. 1360 (1975); Reed,
Sagar, and Granoff, "Subject Matter Jurisdiction, Abstention and
Removal Under The New Federal Bankruptcy Law," 56 AM. BANK. L. J.
121 (1982); Rifkind, “Bankruptcy Code--Specialized Court
Opposed,” 52 AM. BANK. L. J. 187 (1978); Note, "Determining
Proper Venue of Civil Proceedings Related to a Bankruptcy Case,"
1982 ANN. SURV. BANK. L. 393; Note, "Tenure and Salary Clause
Restrictions on the Jurisdiction of Article I Courts," 96 HARV.
L. REV. 257 (1982); Note, "Bankruptcy and the Limits of Federal
Jurisdiction,” 95 HARV. L. REV. 703 (1982); Note, "Selective
Exercise of Jurisdiction in Bankruptcy-Related Civil Pro-
ceedings,” 59 TEX. L. REV. 325 (1981).

11 or arising in or related to "cases" under title 11 to the
district court. Second, Section 1471(c) mandates that all
jurisdiction granted to the district court shall be exercised by
the bankruptcy court. Section 1471(e), which does not use this
two step process, grants exclusive jurisdiction over property of
the debtor to the bankruptcy court. Section 1478(a), which
likewise does not use a two step process, provides for removal of
“any Claim or cause of action in a civil action” from district or
state courts to the bankruptcy court. Under Section 1478(b),
"such claim or cause of action" is subject to remand "on any
equitable ground" by the bankruptcy court. A decision under
Section 1478(b) is nonreviewable "by appeal or otherwise." Most
other orders of the bankruptcy court, however, are appealable, as
of right or by permission, to the district court. See, Pub. L.
No. 95-598, Section 238(a), 92 Stat. 2667 (1978), codified at 28
U.S.C. Section 1334. These reforms, in large measure, were
designed to sever the umbilical relation which had existed
between the district court and bankruptcy matters. The district
court now exercises appellate not Supervisory jurisdiction over
the bankruptcy court. The truncated decisionmaking of former law
is replaced with comprehensive power over bankruptcy problems in
a single forum.

These reforms, however, were implemented during a period of
transition, from the effective date of the legislation, October
1, 1979, until March 31, 1984. See, Pub. L. No. 95-598, Sections
401-411, 92 Stat. 2681-2688 (1978) (uncodified). “Courts of
bankruptcy" as defined "under Section 1(10) of the Bankruptcy
Act, created under Section 2a of the Bankruptcy Act, and existing

on September 30, 1979," are continued, but as a "separate
Gepartment”" of the Gistrict court, and given jurisdiction under
Section 241(a). See, Pub. L. No. 95-598, Sections 404(a) and
405(b), 92 Stat. 2683, 2685 (1978). Consistent with Section
1471(c), cases and proceedings, in almost all regards, are
referred from the district judge to the bankruptcy judge within
the court of bankruptcy. See, Pub. L. No. 95-598, Section
405(a)(1), 92 Stat. 2685 (1978). And the System for appeals to
the district court, under Section 1334, is made effective in Pub.
L. No. 95-598, Sections 405(¢)(1)(C) and 405(c)(2), 92 Stat. 2685
(1978). The courts of bankruptcy thus are assimilated into the
new order.

On June 28, 1982, the Supreme Court ruled that Section
241(a), insofar as it authorizes non-Article III bankruptcy
judges to hear certain proceedings, is unconstitutional. Northern

Pipeline Construction Co. v. Marathon Pipe Line Co., 102 s. ce.

2858 (1982) (hereinafter Marathon). A Majority of the Court did
not agree on what were unconstitutional Proceedings under Section
241(a). Both Plurality and concurring opinions agreed, however,
that since Section 241(a) was nonseverable, it must be wholly
invalidated. The Court Stayed its judgment, first until October

4, and then until December 24, allowing time for curative

legislation,

By December 24, Congress had not acted, and the stay of
judgment expired. on December 27, in lieu of legislation, the
Gistrict court entered a rule to fill the jurisdictional gap.
The rule assumes that the district court has jurisdiction over

cases and proceedings in bankruptcy, and in essence refers them

—

to the bankruptcy judges who act for the district court as
special masters. The district court, on its own initiative, or
on motion by a party, may withdraw a reference in whole or in
part from the bankruptcy judges. The bankruptcy judges, with
certain exceptions, are empowered to perform "all acts and duties
necessary for the handling of those cases and proceedings.” The
rule divides "related" from "unrelated" proceedings. Related
proceedings "are those civil proceedings that, in the absence of
a petition in bankruptcy, could have been brought in a district
court or state court,” and include, without limitation, "claims
brought by the estate against parties who have not filed claims
against the estate.” Related proceedings do not include matters
growing out of the administration of an estate. Nor is a pro-
ceeding “related” “merely because the outcome will be affected by
state law.” If the proceeding is "related," the "bankruptcy
judge may not enter a judgment or dispositive order, but shall
submit findings, conclusions, and a proposed judgment or order to
the district judge, unless the parties to the proceeding consent
to entry of the judgment or order by the bankruptcy judge." The
bankruptcy judge, however, may enter orders in "unrelated"
proceedings. A district judge must review proposed orders in
“related” proceedings, even absent appeal by a party. A district
judge must also review orders in “unrelated” proceedings when
certified by a bankruptcy judge. The scope of review, in any
case, is unlimited: it may be de novo, and the district judge
“need give no deference to the findings of the bankruptcy judge."

<8

II. PROCEDURAL POSTURE

Plaintiff is a debtor in possession under Chapter 11 of the
Bankruptcy Code. On August 20, 1982, it commenced this pro-
ceeding against defendant. The complaint alleges that plaintiff
performed services under a contract with Gefendant, that defen-
Gant breached this contract, and that damages equal $14,986 plus
attorneys fees and interest. On November 2, defendant answered
the complaint and counterclaimed for negligence and breach of
contract, seeking damages of $28,600. Defendant also challenged
the jurisdiction of the bankruptcy court in light of Marathon.
On December 16, the jurisdiction of the bankruptcy court was
questioned again in a proposed pretrial order.

On December 24, as noted above, the Stay of judgment
expired, and on December 27, the district court entered the rule,
These events shifted the focus of inquiry from the bankruptcy
court to the district court. The parties agree, and the rule in
its preamble confirms, that the bankruptcy court no longer has
jurisdiction to try this case. The parties disagree, however, on
whether the district court has this authority, and if so, whether
it may be deflected to the bankruptcy judges through the rule.
Because of this disagreement, and in the face of an impending
trial date, the parties filed briefs on January 4, 1983, and
argument was heard January 5.

Plaintiff argues that the rule is valid because the district
court has jurisdiction over bankruptcy cases and proceedings
under Sections 147l(a) and 1471(b), either as amendments to title

28, or as implemented during transition under Sections 404 and
405.

-7=

This bankruptcy judge must address the validity of the rule
because it refers the entire proceeding, including issues of
jurisdiction, to him. The district court, under the rule, may
withdraw any reference, with issues of jurisdiction, from a
bankruptcy judge, but has not done go in this case. Nor has any
party sought in the district court a withdrawal of reference from
the bankruptcy judge in this case. Instead, they have made
arguments on jurisdiction here. thus, a decision is unavoidable.

| The rule is invalid insofar as it relies upon
jurisdiction under Sections 1471(a), 1471(b), and the transition

statutes. No other jurisdictional basis validates the rule in

this proceeding.2 Thus, the complaint must be dismissed.

Plaintiff has not asked whether the prospective character of
Marathon or whether federal question jurisdiction under 28 U.S.C.
Section 1331 salvages this proceeding, but these questions have
been answered elsewhere in the negative. See, e.g., In re
Richardson, C.P. No. 82PC-0746 (slip opinion) (Bky. D. Utah,

ebruary /, 1983). Nor has it argued that the counterclaim of
defendant confers jurisdiction by consent, an argument which, in
any event, would be unavailing. See, $i2°! SEN. REP. No. 95-989,
95th Cong., 24 Sess. 153 (1978)("The idea of possession and
consent as bases for jurisdiction is eliminated"); H.R. REP. Wo.
95-595, 95th Cong., lst Sess. 445 (1977)(same); In re Motion to
Dismiss: Constitutionality of Jurisdiction of the Bankruptc
ourt, oR. ° y. N. a. ° ut see,

In re The National Sugar Refining Com any, 22 B.R. 275, 280

y- &5.D.N.Y. ° ut cr. In re Cox Cotton Compan
3 C.B.C. 24 615, 625 (E.D. Ark. 1980); In re Hotel Keareiates
inc., 22 B.R. 964, 965 (Bky. E.D. Pa. 1 .

Plaintiff has argued that the district court has jurisdiction
under old 28 U.S.C. Section 1334. It is unnecessary to decide
whether old Section 1334 validates the rule because old Section
1334 conferred no more than “summary” jurisdiction on the
district court. See, e. +» 1 MOORE's PEDERAL PRACTICE q0.61[3)
(26 ed. 1982), 13°C. Wright, A. Miller, and E. Cooper, FEDERAL
PRACTICE AND PROCEDURE §3570 (1975). Since this proceeding is
“plenary” rather than “summary,” id., it would not be sustainable
in any event. Moreover, the survival of old Section 1334, in the
wake of the Reform Act, has been questioned. See, e.9., H.R.
REP. No. 97-807, 97th Cong., 24 Sess. 88-107 (1582)~

”

III. SECTIONS 1471(a) AND 1471(b)

Plaintiff argues that Marathon eliminated the jurisdiction
of bankruptcy courts under Section 1471(c) but did not disturb
the jurisdiction of district courts under Sections 1471l(a) and
1471(b). This residuum of power, it is said, may be delegated by
the district court to Others, bankruptcy judges in this case who
act as special masters. This argument is unconvincing, however,
for at least two reasons. First, Marathon held that Section
241(a) was nonseverable and struck the entire statute, leaving no
remnant of power in either bankruptcy or district courts. Second,
assuming that Section 24l(a) is severable, the mandatory refer-
ence of cases and Proceedings to bankruptcy courts under Section
1471(c) prevents the exercise of power by district courts under
Sections 147l(a) and 1471(b).

A. Nonseverability

Marathon expunged Section 241(a) which embraces all not
merely part of Section 1471. The Plurality opinion dia not parse
the statute making distinctions between district and bankruptcy
courts. Indeed, it refused to route proceedings to the district
court because the statute is nonseverable and "it is for Congress
to determine the proper manner of restructuring the Bankruptcy
Act of 1978 to conform to the requirements of Article III, in the
way that will best effectuate the legislative purpose.” Marathon,
Supra at 2679-2880 and n. 40. The concurring justices agreed,
citing footnote 40. Id. at 2882 (Justice Rehnquist, concurring
opinion).3 Justice white, in dissent, chides the majority for

3

The majority did not delineate acceptable from unacceptable
claims or legitimate from illegitimate forums because it feared

its "sweeping invalidation" of Section 241(a), Marathon, supra at
2884 n. 3 (Justice White, dissenting Opinion), acknowledging the

holding on nonseverability.4 The Chief Justice also may have

"the delay and expense of jurisdictional disputes," Marathon
Supra at 2880 n. 40, a fear which was prescient in ] ght o

4 recent events.

Justice White, joined by Chief Justice Burger and Justice
Powell, criticized the notion that non-Article ITI judges may

consider questions of federal but not state law, observing that
"clearly this ground alone cannot Support the court's
invalidation of $24l(a) on its face. The plurality concedes that
in adjudications and discharges in bankruptcy, ‘the manner in
which the rights of debtors and creditors are adjusted,' ante,

at 2878, n. 36, are matters of federal law. Under the
Plurality's own interpretation of the cases, tnerefore, these
matters could be heard and decided by Article 1 judges. But
because the bankruptcy judge is also given authority to hear a
case like that of petitioner against Marathon, which the Court
Says is founded on state law, the Court holds that the section
must be stricken down on its face. This is @ grossly unwarranted
emasculation of the scheme Congress has adopted. Even if the
Court is correct that such a state law claim cannot be heard by a
bankruptcy judge, there is no basis for doing more than declaring
the section unconstitutional as applied to the claim against
Marathon, leaving the section Otherwise intact. In that event,
cases such as this one would have to be heard by Article Ir
judges or by state courts--unless the defendant consents to suit
before the bankruptcy judge--just as they were before the 1978
Act was adopted. But this would remove from the jurisdiction of
the bankruptcy judge only a tiny fraction of the cases he is now
empowered to adjudicate and would not otherwise limit his
jurisdiction." "14, at 2883-2884,

AS an afternote to this observation, he remarks: "The
Plurality attempts to justify its Sweeping invalidation of
§241(a), berause of its inclusion of State-law claims, by
Suggesting tnat this Statutory provision is nonseverable. Ante,
atn. 40. The concurring Justices specifically adopt this
argument as the reason for their decision to join the judgment of
the Court. The basis for the conclusion of nonseverability,
however, is nothing more than a Presumption: ‘Congress has
vested jurisdiction over this and all matters related to cases
under title.11 in a single non-Art. III court, and has done so
pursuant to a single Statutory grant of jurisdiction. In these
circumstances, we cannot conclude that if Congress were aware
that the grant of jurisdiction could not constitutionally
encompass this and similar Claims, it would simply remove the
‘jurisdiction of the bankruptcy court Over these matters.’ rbid.
Although it is possible, as a historica) matter, to find cases of
this court Supporting this Presumption, see, e, ee Williams vy.
Standard Oil Co., 278 U.s. 235, 242, 49 5. cte- 15, ° °

e ¢ I had not thought this to be the contemporary
approach to the problem of severability, Particularly when
dealing with federal statutes. I would follow the approach taken

¢ -1U0-
recognized the implications of nonseverability since he invites
Congress, not the judiciary, to repair the damage wrought by the

judgment of the court. Marathon, Supra at 2882 (Chief Justice

Burger, dissenting opinion.)5
Moreover, nonseverance makes sense. If Section 1471(c)

and the bankruptcy court are excised from Section 24l(a), the
statute becomes dysfunctional. The district court, for example,
might have partial jurisdiction, viz., over cases and proceedings
under Sections 147l(a) and 1471(b), but the balance of juris-
diction, over property, reserved to the bankruptcy court under

Section 147l(e), is left in limbo.6 Sections 1478(a) and

by the Court in Buckley v. Valeo, 424 U.S. 1, 108, 96 S. Ct. 612,
677, 46 L. Ed. 20 659 eRNIE "Unless it is evident that the
Legislature would not have enacted those provisions which are

within its power, independently of that which is not, the invalid
part may be dropped if what is left is fully operative as a iaw.'
as ae { Co. v. Corporation Commission, 286

ee f

° ° ’ e ° e S presumption
seems particularly strong when Congress has @lready ‘enacted

those provisions which are within its power, independently of
that which is not' ~---i.e., in the older Bankruptcy Act. *
id. at 2885 n. 3. See also, infra note 16, at 26

5 Other authorities have opined that Marathon declared Section
<41(a) nonseverable and extirpated the statute. See, e.g.,
Friend, “League President Urges Elevation of Bankruptcy Courts to
Article Three Status at Congressional Subcommi ttee Eearings," 87
COM. L. J. 394, 396 (1982); Levit and Mason, "Where Do We Go Prom
Here? Bankruptcy Administration Post-Marathon," 87 COM. L.J.
353, 355-357 (1982); Note, “Tenure and Salary Clause Restrictions
on the Jurisdiction of Article IT Courts," 96 HARV. L. REV. 257,

260 (1982); In re Cherry Pond Coal Compan e 21 B.R. 592, 593
(S.D. W. Va. 1582); In re Motion to Dismiss: Constitutionalit
of Jurisdiction of the Bankrupt Court, 23 BR. 334, 330. (EB.
N.D. Ga. 1962); in re Otero mtITs Inc., 21 B.R. 645, 647 (Bky.
D.N.M. 1982); In re M.J.5. A ref Inc., 22 B.R. 736, 737 (Bky.
E.D.N.Y. 1982); In re Rapco Seca tnc., 22 B.R. 637, 640 (Bky.
W.D.N.Y. 1982); In re Jorges Carpet Hills Inc., Adv. Pro. No.

1-82-0638 (slip Opinion at 9- anvary 31, 1983);

In re Cumberland Enterprises, Inc., 22 BR. 626, 430-631 (By.
-D. Tenn. + Suk See, in the Matter of Northland Point
Partners, Adv. Nos. 62-2277-W and 83- » Mich.,

= ° er .
anuary 7, 1983); Moore v. White Motor Co ration, 24 B.R. 200,
202-203 (N.D. Ohio sIn re Braniff Airways Incor rated,

Misc. No. 4-22l-E (slip opinion) (N.D. exas, January ° 83);
In re Stillman, Adv. Pro. No. 82-0073A (slip Opinion) (Bky. D.

~¢ January 13, 1983). But cf. In re Vaniman International
« inc., 22 B.R. 166, 195-156 (Bky. £.D.8.¥. 1982).
The distinction between jurisdiction over cases and
ceedings, first to district courts, and then to bankruptcy

-ll-e
1478(b) would be unserviceable, since they contemplate removal
from district and state courts to a bankruptcy court,’ and under

appropriate circumstances, remand by a bankruptcy court. Venue,

courts, under Sections 147l(a), 1471(b), and 1471(c), and
jurisdiction over property of the debtor, conferred on bankruptcy
courts under Section 147l(e), has not gone unremarked. Collier,
for example, notes that "[w]hat subsections (a)-(c) of Section
1471 do for title 11 cases and civil proceedings, Section 1471(e)
does for property; that is, it leaves no doubt as to the juris-
Gictional reach of the bankruptcy court over property. Inter-
estingly this is the one type of jurisdiction as to which vesting
is not first in the district courts. As such, it may be that
subsection (e), which appeared in none of the proposed House or
Senate bills, and was added at the House-Senate conference, was
merely intended to make explicit that all property of the debtor,
which becomes property of the estate, is in custodia legis of the
bankruptcy court.” 1 COLLIER ON BANKRUPTCY 43.0119], at 3-55
(15th ed. 1982). See also, P. Murphy, CREDITORS' RIGHTS IN
BANKRUPTCY 42.02, at 2-4 and n. 1 (1981). Section 1471(e), among
other things, underpins the power of turnover found at 11 U.S.C.
Section 542, 1 COLLIER ON BANKRUPTCY, supra 13.01[9), at 3-56,
which if denied to the district court, acting under the rule,
would impede business reorganizations. See, e.g., United
States v. Whiting Pools, Inc., 674 F. 24 144 (26 Cir. 1982);

; In re Alpa Corp., II BR. 261 (Bky. D. Utah 1981).

The legislative history of Section 1478(a) indicates an intent
to deny removal jurisdiction in bankruptcy matters to the
district court. The Senate bill, Section 219(a), S. 2266, 95th
Cong., 2d Sess. (1978), like Sections 147l(a), 1471(b), and
1471(c), used a two step process in vesting removal jurisdiction,
first through the district court, and then to the bankruptcy
court. See, SEN. REP. No. 95-989, 95th Cong., 24 Sess. 156
(1978). This procedure, however, was rejected and replaced with
Section 1478(a). Collier observes that the Senate bill was
“truer” to the two step “vesting” process used in Section 1471:
"The word ‘truer’ was used ...for the following simple reason:
The section as passed ignores the fact that jurisdiction over
civil proceedings is vested first in the federal district courts
and then in the bankruptcy courts. The Senate version of section
1478 recognized this fact by providing for removal to the
Gistrict court; the House version and the section as enacted can
be said to have ignored or bypassed this two-step jurisdictional
grant by providing for direct removal to the bankruptcy court."

1 COLLIER ON BANKRUPTCY 43.01[2])[b], at 3-62 (15th ed. 1982).
Section 1478(a) thus “permits removal of a claim or cause of
action to one court only--the bankruptcy court for the district
in which the relevant civil action is pending. The language of
the statute permits no exception." Id. 93.01[f) (i), at 3-73.
See also, Kennedy, "The Bankruptcy Court Under The New
Bankruptcy Law: Its Structure, Jurisdiction, Venue, and
Procedure," 11 ST. MARY'S L. J. 251, 286 n. 142 (1979).

-12-

in cases and Proceedings, 28 U.S.C. Sections 1472-1477, pro-
visional remedies, 28 U.S.C. Section 1479(¢), jury trials, 28
U.S.C. Section 1480(b), the power to act in "equity, law, and
admiralty," 28 U.S.C. Section 1481, are keyed to the bankruptcy
not the district court.8 Severance, in short, would unhitch the
bankruptcy court from these procedural moorings. And since
Section 241(a) may not be rewritten by rule, see, e.g., Pub. L.
No. 95-598, Section 247, 92 Stat. 2672 (1975), amending 28 U.S.C.
Section 2075, Ford Motor Company v. Transport Indemnity Company,
12 B.R. 143, 145-146 (E.D. Mich 1981), the district court would

be left with a jurisdiction which is incomplete, rudderless, and
in substantial measure, powerless. It seems improbable that the
Supreme Court would expect district courts to handle bankruptcy
cases and proceedings, many Of which are complex and demanding,
with such infirm and uncertain jurisdictional tools.

Finally, the Stay of judgment, first to October 4, and then
to December 24, confirms these views; if the damage could be
Papered over by rule, there would be no need for a Stay. See, In

re Motion to Dismiss: Constitutionality of Jurisdiction of the

Bankruptcy Court, 23 B.R. 335, 337, 338 (Bky. N.D. Ga. 1982); In

re M.J.S. Apparel, Inc., 22 B.R. 736, 737 (Bky. E.D.N.Y. 1982).

Collier notes that the power to act in “equity, law,

and admiralty," conferred on the bankruptcy court under Section
1481, is instrumental respecting other substantive provisions of
the Code: “For example, entering an order for relief or an order
of discharge under title 11 determines a status, one of the
indicia of a decree in equity....The bankruptcy court may, under
11 U.8.C. §510(c)(1) subordinate claims ‘under principles of
equitable subordination.' Further, the ability of the court to
fashion decrees giving ‘adequate protection’ when required by 11
U.S.C. §§362-64, is totally equitable in nature.” 1 COLLIER ON

BANKRUPTCY 93.01[5) [b) [ii), at 3-102 (15th ed. 1982). (Emphasis
in original.)

-13-

The stay was deemed necessary to “afford Congress an opportunity
to reconstitute the bankruptcy courts or to adopt other valid
means Of adjudication without impairing the interim admini-
stration of the bankruptcy laws." Marathon, Supra at 2880,
(Emphasis supplied.)9 Indeed, the Supreme Court may have
rulemaking power under Section 410, and if so, did not need to
wait upon the district courts for an emergency resolution. See,
Pub. L. No. 95-598, Section 410, 92 Stat. 2687 (1978). The
failure to use this power may Suggest an awareness that, absent
legislative action, the bankruptcy system would face a juris-

dictional abyss.10

The Court realized that Section 24l1(a), in the words of
Justice White, had been "emasculated." Rebuilding the statute,
of necessity, means reallocation of judicial power over bank-
ruptcy matters. (Indeed, the district court has done this by
rule, reversing the mandate of Section 1471(c), and rechanneling
authority to the district court, which in turn, has delegated it
to the bankruptcy judges as special masters.) This reallocation
of judicial power may be a legislative rather than a judicial
prerogative. The holding of nonseverability may have been
intended to preclude judicial interference with a legislative
right. Cf. Finley, “Article III Limits On Article 1 Courts: The
hig tr rece. of the Bankruptcy Court," 1982 ANN. SURV. BANK.

10 L. 1, 24.

Section 410 provides: "The Supreme Court may issue such
additional rules of procedure, consistent with Acts of Congress,
as may be necessary for the orderly transfer of functions and
records and the orderly transition to the new bankruptcy court
System created by this Act." On its face, the “orderly transi-
tion" language may be broad enough to supply a cure for Marathon.
The legislative history, however, notes that rules promu ga
under Section 410 will "be of an internal, administrative nature,
and unlike the rules prescribed under 28 U.S.C. 2075, will not
ordinarily affect litigants or parties in pending cases." 48.R.
REP. No. 95-595, 95th Cong., lst Sess. 462 (1977). Whether the
phrase “not ordinarily" implies that in extraordinary circum-
stances, like the present, the Court may issue a rule affecting
parties in cases is uncertain. In any event, rules under Section
410 must be “consistent with Acts of Congress."

B. Section 1471(c)

Assuming that Section 24l(a) be severable, Section 147l(c),
which refers cases and Proceedings to the bankruptcy court,
precludes the exercise of jurisdiction by the Gistrict court,11
This construction of Section 1471 is Supported by the legislative

history and case law.

1. Legislative History

The Reform Act was designed to mend the fractured
jurisdiction of former law. Reformers, early on, targeted the

bifurcated jurisdiction of district courts and the courts of

11

There may be an exception to this rule. The Gistrict court
may have original jurisdiction over proceedings in bankruptcy to
enjoin another court or to punish certain criminal contempts.
This exception is derived by implication, in part, from Section
1481 which denies these powers to the bankruptcy court. See, P.
Murphy, CREDITORS' RIGHTS IN BANKRUPTCY 42.04, at 2-10 and $2.06,
at 2-13 (1981); Kennedy, "The Bankruptcy Court Under The New
Bankruptcy Law: Its Structure and Jurisdiction," 55 AM. BANK. L.
J. 63, 69-70 n. 24, 74 n. 49, 79, 89 n. 114, 90 ana n. 115
(1981). But see, 1 COLLIER ON BANKRUPTCY 97.05[l)[a}, at
7-58 (15th ed. 1982).

The exception for injunctions and contempts
likewise explains Section 1471(d) which "does not prevent" a
district court, under appropriate circumstances, from “abstaining
from hearing a particular Proceeding arising under title 11 or
arising in or related to a@ case under title 11." Some have
Suggested that Section 1471(d) demonstrates that the district
court has general, Original jurisdiction under Sections 1471(a) and
1471(b). This negative YHrevente, however F, 18 \tipersuasive for
at least two reasons. First, no negative inference may be drawn
respecting the jurisdiction of the district court over cases
under Section 1471(a), since Section 1471(d) governs proceedings
only. Abstention over cases is determined by the bankrupt.c
court under 11] U.8.C. Section 305(a), and is nonreviewable y the
Gistrict court under 11 U.S.C. Section 305(c). See, e.g.,

y. D. a - Becond, as discussed below, the legislative
history and case law shew that the district court may not
exercise general, original Jurisdiction over proceedings under
Section 1471(b). This legislative history and case law may be
reconciled with Section 1471(4), if at all, by reference to the
exception for injunctions and contempts which has been carved
out of Section 1471(c).

-]5-

bankruptcy for abolition. The Commission on the Bankruptcy Laws
of the United States, for example, noted that "a considerable
part of a trustee's litigation to recover assets of the estate
must be initiated in some court," including a district court,
“other than the bankruptcy court." REPORT OF THE COMMISSION ON
THE BANKRUPTCY LAWS OF THE UNITED STATES, H. DOC, No. 93-137, pt.
I, at 89 (1973). This "division of jurisdiction" was "objection-
able" because it caused Gelay: “Not only are the proceedings in
nonbankruptcy courts [such as the district court) likely to be
paced more slowly with longer intervals between successive steps,
but the dockets of the nonbankruptcy courts are likely to be more
crowded and commencement of the trials more l{kely to be post-
poned in such courts than in bankruptcy courts. Delay is
critical in cases under the Bankruptcy Act, particularly in the
business cases where litigation is most likely to occur. This is
true because of the prejudicial effect it might have on prospects
for rehabilitating an enterprise in financial distress and the
aggravated risk of deterioration of the estate in the course of
liquidation." Id. It was believed that "[a] comprehensive grant
of jurisdiction to the bankruptcy courts over all controversies
arising out of any bankruptcy or rehabilitation case would
greatly diminish the basis for litigation of jurisdictional
issues which consumes so much time, money, and energy of the
bankruptcy system and of those involved in the administration of
debtors affairs. It would foster the development of a more
uniform, cohesive body of substantive and procedural law which
would be applicable to the administration of estates under the

Bankruptcy Act. The withdrawal from state and federal district
re A A

courts of jurisdiction of the s0O-called plenary proceedings, when

coupled with the establishment of uniform federal standards and
rules, as proposed by the Commission for adoption and application
in lieu of the diverse state laws governing debtors’ and credi-
tors’ rights, should eliminate a source of uncertainty and
division of authority which has characterized bankruptcy law."
Id. at 90-91. (Emphasis supplied.)

The Commission views were reduced to legislation which,
after several years of Study and revision, evolved into H.R.
8200, 95th Cong., lst. Sess. (1977). H.R. 8200 would have
established bankruptcy courts independent of the district courts.
Assigning bankruptcy cases and Proceedings to the district courts
was considered but Gisapproved “for a variety of reasons";

The district courts are generally over-
burdened. Their caseload has increased
dramatically in recent years without a
corresponding increase in the number of
judges. Though a judgeship bill is presently
pending in both Houses of Congress, the
increased number of district judges proposed
in those bills probably would be inadequate
to absorb the bankruptcy caseload,

Second, the Speedy Trial Act requires that
criminal matters be given precedence on the
district court calendars. The Constitution
does not require a “speedy trial" for
bankruptcy matters as it does for criminal
cases. Thus, criminal matters would continue
to be accorded priority. However, the nature
of bankruptcy is such that it, too, for
practical reasons, requires expeditious
disposition. The original Bankruptcy Act in
1898 left many matters to the State courts
for disposition because often they were
speedier forums than the bankruptcy courts.
Today, however, the State courts are seri-
ously overburdened, although the bankruptcy
courts are nearly current with their dockets.
Such delays as there are in bankruptcy cases
often result from the need for a matter to
progees to decision in a State court. H.R.
200 does much to alleviate the problem, but

-17-

the change proposed would be to little avail
if bankruptcy disputes were required to fight
the judicial logjam caused by the Speedy
Trial Act and by the volume of litigation
pending in district courts. Assets would
Geteriorate; creditors would be delayed in
recovering money to which they are justly
entitled; and, to use the familiar medical
metaphor, in business reorganization cases,
the patient would die on the Operating table
while diagnosis slowly proceeded.

Third, assignment of bankruptcy disputes to
the district judges would be generally
unacceptable because district judges have
long made clear their lack of interest in
bankruptcy matters. In 1959, the Judicial
Conference recommended legislation that would
remove one of the last remaining functions of
the district judges in bankruptcy cases:
making an order of reference. The law now
requires automatic reference, and district
judges no longer have any involvement in
bankruptcy cases. More recently, the
Judicial Conference has made known its lack
of interest in bankruptcy cases by its
recommendation that they continue to be
handled by bankruptcy judges, and not by
Gistrict judges.

Finally, a generalist judge that only
occasionally handled bankruptcy cases would
not have a sufficient understanding of the
law and the fact situations that arise in
bankruptcy cases. He would be unable to make
the quick decisions that these cases so often
require. H.R. REP. No. 95-595, 95th Cong.,
lst Sess. 14-15 (1977)

The Senate, in a counterproposal, S. 2266, 95th Cong., 24
Sess. (1978), rejected the court structure of H.R. 8200, but
agreed that jurisdiction should not be Givided between district
and bankruptcy courts. S&S. 2266 established the bankruptcy court
as an “adjunct” of the district court, but commissioned the
bankruptcy court to exercise all of the jurisdiction of the
district court. This delegation of jurisdiction meant that

"[aletions that formerly had to be tried in the state court or in

-18-

the Federal district court, at great cost and delay to the
estate, may now be tried in the bankruptcy court," SEN. REP. No.
95-989, 95th Cong., 24 Sess. 153 (1978). (Emphasis supplied.)
See also H.R. REP. No. 95-595, Supra at 445. Moreover, the
“statutory scheme" of s. 2266 "[was) adopted [so that) the
totality of this jurisdiction....shall be exercised by the

bankruptcy court, which is Created as an adjunct of each U.S.
district court." SEN. REP. No. 95-989, supra at 153. (Emphasis
supplied.) Elsewhere the Senate Report emphasizes that the
"expanded jurisdiction vested in the U.S. district courts” is
"delegated by statute for exercise exclusively by bankruptcy
judges, subject always to review, as under present law, by the
Gistrict courts," id. at 16 (emphasis supplied), and reemphasizes
that "except where the bankruptcy court abstains from hearing an
action or Proceeding arising under or related to a case under

title 11, all cases under title 11 and all civil actions and

proceedings arising under or related to cases under title 11 are
to be before the bankruptcy judge....[The amendments on juris-

diction], while conferring expanded jurisdiction in bankruptcy
cases and related civil actions and proceedings Girectly upon the
district courts, Gelegate the exclusive exercise of that juris-
Giction at the trial level to bankruptcy judges." Id. at 18,
(Emphasis supplied.)

The Senate version of the legislation was adopted and
enacted as Section 1471 of the Reform Act. As noted above, it
confers jurisdiction on the bankruptcy court using a two step
process, first to the district court, and then to the bankruptcy

court. Floor leaders of the legislation explained, however, in

words which echoed the Commission, House, and Senate Reports,

that the jurisdiction initially vested in the Gistrict court was

“completely Gelegated to the bankruptcy court....The bankruptcy
court is thus given pervasive jurisdiction over all Proceedings
arising in or relating to bankruptcy cases. In addition, the
bankruptcy court is given exclusive jurisdiction of the Property
Of the estate in a case under title 11." 124 Cong. Rec. 817,424
(daily ed., October 6, 1978); 124 Cong. Rec. #11 ,107-11,108
(daily ed., September 28, 1978), (Emphasis supplied.)12 congress

12

Commentators have remarked upon the legislative
rationale for Section 1471(c). Judge Conrad Cyr, in 1978, while
the Reform Act was incubating in Congress, wrote that "it has
become an increasingly intolerable inefficiency to permit the
continued adulteration of bankruptcy court jurisdiction in
deference to overcrowded state and federal courts of general
jurisdiction," Cyr, "Structuring a New ankruptcy Court: A
Comparative Analysis," 52 AM. BANK. L. J. 171, 173 and n. 1
(1978). (Emphasis in Original omitted in part.) He did not
foresee any lessening of this problem: "The federal Gistrict
courts determine many of the more important and prominent issues
of our time. There seems little likelihood that either the
volume, scope or importance of the general jurisdiction of the
federal district courts will be restricted appreciably in the
foreseeable future. The prominence and importance universally
attributed to much of the litigation overcrowding the dockets of
the federal district courts cannot be compared to the much less
glamorous gruel of the bankruptcy court, It seems all too
predictable that the time and attention of the district judge of
the bankruptcy division would soon be diverted to nonbankruptcy
cases to such an extent that bankruptcy litigation would become a
distinctly secondary concern. The unremitting demands of the
enormous volume of large and smal) insolvency cases would then
require reference by the district judge of the bankr

circle--back to the referee system, with the probable additional
referees’ would be generalists,

the commitment required to develop or maintain expertise in
bankruptcy law an practice is likely to exist on the part of
most of the otherwise overburdened federal judges." Id. at 157.
Others have observed that "[t)he Act's jurisdictional” scheme

OO Ee ——E—E————
a

believed there was no time, expertise, or inclination in the

district courts, and therefore, vested jurisdiction "completely"

and “exclusively” in the bankruptcy courts.13

2. Case Law

The Supreme Court and several district courts, recognizing

the import of this legislative history, and in more contemplative

times, have read Sections 1471(a), 1471(b), and 1471(¢) to mean

that district courts have the shadow but not the substance of

power, all of which must be exercised by the bankruptcy courts.

13

take jurisdiction of an issue but had to await its resolution in
a@ nonbankruptcy forum, where proceedings are usually slower and
more likely to be postponed. Thus, commentators calling for
bankruptcy reform often complained that state courts or federal
Gistrict courts sitting at law or in equity heard far too many
ankruptcy matters because @ same results could be more
efficiently and speedily reached in one bankruptcy forum'",
Note, "Selective Exercise of Jurisdiction in Bankruptcy-Related
Civil Proceedings,” 59 TEX. L. REV. 325, 329 (1981) (emphasis
supplied), citing Drake, “The Judges' Bankruptcy Bill and the
Commission's Bill: A Question of Access to the Judicial Process,"
26 MERCER L. REV. 1009, 1011 (1975).

The Senate version, Section 216 of &S. 2266, which would have
amended old 28 U.S.C. Section 1334 and added a new paragraph
(d)(1), said that the bankruptcy court “may exercise" the
jurisdiction given to the district court. The Senate Report,
however, emphasized that “[t)he use of the term 'may' in this
section is not intended to imply that the district court has any
discretion whatsoever in withholding bankruptcy cases or civil
proceedings arising under title 11 or arising under or related to
a case under title 11 from the bankruptcy court." SEN. REP. No.
95-989, supra at 154. To remove any doubt however, Section
1471(c), as enacted, was changed to read the bankruptcy court
“shall exercise" the jurisdiction given to the district court.
Similarly, Pub. L. No. 95-598, as passed, amends title 28 by
adding a new Chapter 6. Section 151 of Chapter 6 creates and
composes the new “engage courts which are to be "adjuncts" of
the district courts. Section 151(3) provides for the designation
and assignment of judges from circuit and district courts to sit
on the new bankruptcy courts. See generally, Kennedy, “The
pment | Court Under The New Bankruptcy te: Its Structure and
Jurisdiction,” 55 AM. BANK. L. J. 63, 66-79 (1981). This
provision might be surplusage if these judges, who are otherwise
assignable throughout the federal system, could exercise juris-
Giction through the district court.

=2)<-

The plurality in Marathon, for example, gave this con-
struction to the statute, noting that Sections 147l(a) and
1471(b) are a “facade” because “the bankruptcy courts exercise
"all of the jurisdiction’ conferred by the act on the district
courts." Marathon, supra at 2879. (Emphasis in original.)24
Indeed, this view is necessary to their holding “that
§241(a)...has impermissibly removed most, if not all, of ‘the
essential attributes of the judicial power' from the Art. III
district court, and has vested those attributes in a non-Art. III
adjunct.” Id. at 2880. The concurring justices were likewise
“of the opinion that the extent of review by Art. III courts
provided On appeal from a decision of the Bankruptcy Court in a
case such as Northern's does not save the grant of authority to
the latter...All matters of fact and law in whatever domains of
the law to which the parties' dispute may lead are to be resolved
by the Bankruptcy Court in the first instance, with only tradi-
tional appellate review apparently contemplated by Art. III
courts. Acting in this manner the Bankruptcy Court is not an
‘adjunct’ of either the District Court or the Court of Appeals."
Id. at 2882.

Marathon Pipeline Company v. Northern Pipeline Construction
Company, CCH FED. BANK. L. REP. 468,268 (D. Minn., July 24,
1981), the district court opinion, also noted the two step

14

The “two step process" was a legislative "legerdemain,"
“circumlocution,"” “stratagem,” or “sleight of hand" to sidestep
constitutional problems. See, e.g., 1 COLLIER ON BANKRUPTCY
€2.01[{1)[c), at 3-36--3-37 (I5th ed. 1982); id. 43.0l[e), at
3-44; Kennedy, "The Bankruptcy Court Under The New Bankruptcy
Law: Its Structure and Jurisdiction," 55 AM. BANK. L. J. 63,
80-81 (1981); Lieb, “Jurisdiction and Venue in Bankruptcy
Litigation,” 1982 ANN. SURV. BANK. L. 69, 76, 78.

a

process of Section 1471, and observed that “the ultimate reposi-
tory of this jurisdiction is not the federal district court. 28
U.S.C. §1471(c) assigns the jurisdiction granted to the district
courts by subsections (a) and (b) to the bankruptcy courts. This
assignment or transfer of jurisdiction from the district courts
to the bankruptcy courts is mandatory, as the bankruptcy courts
‘shall exercise all the jurisdiction [so] conferred.' Thus, the
statutory scheme is constructed in such a manner as to remove
with one hand what was just previously bestowed by the other."
Id. at 79,491-79,492.

In Chamberlain Livestock Auction, Inc. v. Aberdeen Pro-

duction Credit Association, 22 B.R. 750 (D. S.D. 1982), the

bankruptcy court abstained from hearing a suit for conversion and
transferred the proceeding to the district court. The district
court dismissed the proceeding for want of diversity juris-
diction. Plaintiffs asked the district court to vacate the order
of dismissal, arguing that it had jurisdiction under Section
1471(b). The district court rejected this argument, stating that
it "ignores the intent of Congress when it passed the Bankruptcy
Code in 1978. Subsections (a) and (b) of 28 U.S.C. $1471 were
designed by Congress to ensure the constitutionality of the grant
of expansive jurisdiction to bankruptcy courts by making them
adjuncts of the district courts...The intent of Congress...was to
channel the bankruptcy proceedings to the bankruptcy courts.
There appears no indication that Congress intended that the
district courts have expanded jurisdiction to hear new kinds of
proceedings.” Id. at 751. The motion to vacate the order of

Gismissal was denied.

In In re Related Asbestos Cases, 23 B.R. 523 (N.D. Cal.

1982), plaintiffs had brought products liability actions against
several asbestos manufacturers in district court. Two manu-
facturers, Unarco and Johns-Manville, filed petitions under
Chapter 11 of the Bankruptcy Code. The automatic stay, found at
11 U.S.C Section 362(a), barred continuation of the suits against
Unarco and Johns-Manville, but it was questioned whether the stay
protected the nondebtor codefendants. These codefendants argued
that the district court was without jurisdiction to construe the
scope of Section 362(a) and that plaintiffs must obtain relief
from the stay from the bankruptcy courts. The codefendants, in
Support of this position, cited In re Coleman American Companies,
8 B.R. 364 (Bky. D. Kan. 1981), which held that a creditor must
obtain relief from the stay in the bankruptcy court where the

case is commenced. The district judge in Related Asbestos Cases

distinguished Coleman, noting that he was construing the scope of
the stay, but agreed that he had no power to grant relief from
the stay: "[T]he original bankruptcy courts alone would have
exclusive power to lift an actual stay under section 362. A
contrary conclusion would contravene the intention of Congress to
centralize litigation concerning the bankrupt's affairs in a
Single forum." In re Related Asbestos Cases, Supra at 526.

In In re Wolf, CCH BANK. L. REP. 467,947 (D. Mass,, February
9, 1981) creditors had filed a petition for involuntary bank-
ruptcy against a debtor under 11 U.S.C. Section 303. The debtor
moved to dismiss or abstain in the bankruptcy court. While this
motion was pending, debtor filed an action in district court,
seeking a declaratory judgment that the bankruptcy court should

-24-

dismiss the involuntary petition. The creditors sought dismissal
of the suit in district court on the ground that it lacked
subject matter jurisdiction. The Gistrict court agreed "that the
present posture of the...dispute does not permit the exercise of
either appellate or Original jurisdiction. Appellate jurisdiction
Goes not exist because the bankruptcy court has not yet issued an
order on the debtor's motion to dismiss...Until an order is
issued...there is nothing for this court to review. Original
jurisdiction is inappropriate because a party may not use an
action for declaratory relief as a substitute for appeal. The
debtor may not by pass [sic] the appellate procedures set out in
the 1978 Reform Act by bringing a declaratory notion. The
‘debtor's only recourse, therefore, was to await the decision of
the bankruptcy court on his motion to dismiss." Id. at
78,879-78,880. Wolf thus implies that district courts have
appellate but not original jurisdiction under the Reform Act.

In In re William 0. Petrusch, Jr. d/b/a B & L Distribution

Center, 8 B.C.D. 160 (N.D.N.Y¥. 1981), a bankruptcy court enjoined
a union from picketing a business which had filed a petition
under Chapter 13 of the Bankruptcy Code. The union, Claiming
that the injunction violated the Norris-LaGuardia Act, sought a
stay from the district court, pending appeal. The debtor argued
that the district court "has no authority to overturn... the
Bankruptcy Court's injunction since, in matters of bankruptcy,
the district courts and the bankruptcy courts have concurrent
jurisdiction under 28 U.S.C. §1471." Id. at 180 n. 1. The
Gistrict court rejected this argument, noting that it was acting

in an appellate not a trial capacity. Id. See also, Lieb,

-25-

"Jurisdiction and Venue in Bankruptcy Litigation," 1982 ANN.
SURV. BANK. L. 69, 101-102. Like Wolf, Petrusch implies that

district courts have appellate but not Original jurisdiction
under the Reform Act.

Bankruptcy court decisions, pre- and post- Marathon, have
concurred with this construction of Section 1471. See, e.g., In

re Motion to Dismiss: Constitutionality of Jurisdiction of the

Bankruptcy Court, Supra at 338,345; In the Matter of the Schear

Realty & Investment Co., Inc., 9 B.C.D. 1210, 1215 (Bky. S.D.

Ohio 1982); In the Matter of Century Entertainment Corp.,

20 B.R. 126, 128 (Bky. S.D. Ohio 1982); In re Jorges Carpet

Mills, Inc., Adv. Pro. No. 1-82-0638 (slip opinion at 8-10) (Bky.

E.D. Tenn., January 31, 1983). Other authorities are in accord.
See, e-.g-., W. Norton and R.Lieb, RECONSTITUTING THE BANKRUPTCY
COURT IN 1982: CONGRESSIONAL CONSTITUTIONAL OPTIONS 6-7, 13-14
(1982); Babitt, "The Bankruptcy Court, Its Judges, Their Juris-
diction and Powers, and Appeals, Under Title 11 of the 1978
Bankruptcy Reform Act: Transition and Beyond,” 1979 ANN. SURV.
BANK. L. 89, 92, 95; Clarkson, "A Brief Overview of the Con-
gressional Debate on the Bankruptcy Court System," 1979 ANN.
SURV. BANK. L. 63, 69; Finley, "Article III Limits on Article I
Courts: The Constitutionality of the Bankruptcy Court,” 1982 ANN.
SURV. BANK. L. 1, 6, 22-23; Krattenmaker, "Article III and
Judicial Independence: Why the New Bankruptcy Courts are Uncon-
stitutional,” 70 GEO. L. J. 297, 308 (1981); "Brief for the
United States of America in Support of the Constitutionality of
the Provisions of 28 U.S.C. §1471 Vesting in the United States

District Court and Delegating to Adjunct Bankruptcy Courts

+o oe oe Deen

Jurisdiction Over all Bankruptcy-Related Controversies,"

reprinted in 56 am. BANK. L. J. 97, 99,

108 (1982). But cf.

Kennedy, "The Bankruptcy Court Under The New Bankruptcy Law: Its

Structure and Jurisdiction," 55 AM. BANK. L. J. 63, 77 (1981),15

The rule is inconsistent with the language, history, and

Purpose of Section 1471l(c). District courts, before December

24, have disclaimed Original jurisdiction under Section 1471.

Plaintiff, to counter this history and these cases, argues that

the jurisdiction of the district court,

like a "springing use,"

was "revived" when the stay expired. This argument, however, in

effect, amends the Statute and invents

district court never possessed.16

15

| Jurisdiction which the

Three district court Opinions have disagreed with this
construction of Section 1471. In Moore v. White Motor Cor

ration, 24 B.R. 200 (N.D. Ohio 1983),

udge rich opines that

Strict courts may exercise trial jurisdiction under Section
1471. She admits, however, that the "issue is not specifi-
cally before this Court at this juncture." Id. at 203. (Indeed, she

asserts jurisdiction under Section 13

34 as an appellate court.

Id. at 201.) In In the Matter of Northland Point Partners, Adv.

OS. 82-2277-wW an - -

order De CNhe,
1983), Judge DeMascio remarks that "it appears to

power conferred by 28 U.S.C. $1471(a)

anuary 7,
us that the
and (b) was arguably not

affected by the Marathon decision. 14, at 3. Although unclear,
this conclusion may flow from a belie? that Section 24l1(a) is
severable. Id. In any event, the history and case law dealing

with Section 1471 are not discussed.

Incorporated, Misc. No. 4-221-E (N.D.
Judge wahoo, relying upon the severa
finds that district courts have trial

1471. The history and case law Geali

16 discussed.

In In re Braniff Airwa s
Tex., anuary ’ ’
bility of Section 241(a),
jurisdiction under Section
ng with Section 1471 are not

Plaintiff argues that Section 24l(a) is severable and that the
death of Section 1471(c) gives life to Sections 1471(a) and
1471(b). The rules of severance, however, do not allow a
“springing use," especially in the face of contrary legislative
intent or inadequate Statutory remainder.

Severance is impermissible where it is “evident that the
legislature would not have enacted those provisions which are
within its power, independently of that which is not" or where
the balance of a statute is not "fully operative as a law."

IV. TRANSITION STATUTES

Plaintiff points to the transition statutes as an alternate
basis for jurisdiction over bankruptcy matters in the district
court. It argues that Section 404(a) continues the court of
bankruptcy of former law, that this court of bankruptcy was the
district court, and therefore the district court may act in
bankruptcy mséeors. Plaintiff further argues that Section
405(a)(2) confirms this view. Section 405(a)(2) provides:
"Except as provided in subsection (c) of this section, any
proceeding in a court of bankruptcy in a case under title 11 of
the United States Code that is not before the United States
bankruptcy judge shall be before the judge of the court of
bankruptcy for the district in which such case is pending.” The

Buckley v. Valeo, 424 U.S. 1, 108 (1976). Even where a statute
contains a severability clause, it will not apply if the effect
"would be to create a program quite different from the one the
legislature actually adopted." Sloan v. Lemon, 413 U.S. 825, 834
(1973).
These tests underline the nonseverability of Section 241(a).
The plurality and concurrence were concerned with splitting
jurisdiction between forums, Thus, footnote 40 emphasizes that
"Congress has vested jurisdiction over this and all matters
related to cases under title 11 in a single non-Art. III court,
and has done so pursuant to a single statutor
diction," and that "one of the express purposes o

was to ensure adjudication of all claims in and to
avoid the delay and expense of jurisdiction dteputtaen eae this
reason, it would not be "Congress' choice...to have this case

‘routed to the United States district court of which the

bankruptcy court is an adjunct.'* Marathon, s

"judge of the court of bankruptcy” is the district judge, it is

said, and he may hear bankruptcy matters when the bankruptcy
judge may not. These arguments are unpersuasive, however, for

several reasons.17

This reading of legislative intent is consistent with the
Statutory scheme. Jurisdiction over cases and proceedings is
taken from the district courts and given to the bankruptcy
courts. Jurisdiction over property is given to the bankruptcy
courts. Removal jurisdiction and the option to remand are given
to the bankruptcy courts. Venue, provisional remedies, jury
trials, and the power to act in "equity, law, and admiralty” are
tied to the bankruptcy courts.

In short, the indivisibility of jurisdiction conferred on the
bankruptcy court is the reason for nonseverance. Severance of
Section 147l(c) from Section 241(a), far from atest a "revival"
of Sections 1471l(a) and 1471(b), offends legislative ntent, and
pod @ statutory remainder which is not “fully operative as a
aw.

The dissent, in the opinion of Justice White, argued that the
Court should sever the jurisdiction of the bankruptcy court over
Marathon-type proceedings. This, in its view, "would remove
rom the jurisdiction of the bankruptcy judge only a tiny
fraction of the cases he is now empowered to adjudicate and would
not otherwise limit his jurisdiction." Marathon, supra at
2684 (Justice White, dissenting opinion). The Ao did not
argue, however, that if the entire jurisdiction of the bankruptcy
court were stricken, the jurisdiction of the district court
nevertheless could be severed and revived. Put differently, the
Gissent argued that legislative intent would permit severance of
Marathon-type proceedings. It did not argue that legislative
ntent would allow severance of the bankruptcy court and its
replacement by the district court.

17

Plaintiff has not argued that Marathon worked a “revival,”
via Section 404(a), of jurisdiction under the old re had

ct. The revival argument, in any event, has been soundly
Giscredited. See, e.g., H.R. REP. No. 97-807,97th Cong., 24
Sess. 88-107 (1962).

First, the arguments beg the question of jurisdiction.
Assuming the district judge or district court may sit as the
court of bankruptcy continued under Section 404(a), what is the
source of its jurisdiction? The answer is in Section 405(b)
which makes Section 24l(a) applicable to the courts of bankruptcy
Guring transition. Hence, the source of jurisdiction for the
district judge or district court, qua district court or court of
bankruptcy, is the same, viz., Section 241(a). As noted above,
however, Section 241(a) is nonseverable and was stricken by
Marathon, leaving no jurisidiction for the district judge or
Gistrict court, acting in any capacity, to exercise. Indeed,
Marathon involved a transition case and its culing applied to the

transition statutes. See, In re Motion to Dismiss:

Constitutionality of Jurisdiction of the Bankruptcy Court,

supra at 345-346,18

18

The status of the district judge or district court as a court
of bankruptcy under Section 404(a), as noted in the text, adds
nothing to the debate over jurisdiction under the Reform Act.

The Court of bankruptcy during transition is a forum to
deal with cases still pending under and governed by the former
Bankruptcy Act. See, Pub. L. No. 95-595, Section 403(a), 92
Stat. 2683 (1978). Cf. Central Trust Co. v. Creditor’' Committee,
454 U.S. 354 (1982).

The court of bankruptcy, as such, serves no purpose under
the Reform Act. It is continued during transition, but "[e]ach
of the courts of bankruptcy so continued shall constitute a
separate department of the district court that is such court of
bankruptcy. Read literally, Section 404(a) says that the court
of bankruptcy is at once the district court and a separate
department of the district court. This confusion is compounded
by Section 405(b) which grants the court of bankruptcy juris-
diction under Section 241(a) where the bankruptcy and district
courts are functionally distinct entities. This view is
reinforced by Section 405(a)(2) and 405(c) which, as discussed
below, with narrow exceptions, confine the district judges and
district court to an appellate role.

In short, the bankruptcy system, under the transition
Statutes, is the analogue of the court structure and jurisdiction
post-transition. This is evidenced by the many parallels between

,
e

ila a a a

Moreover, assuming that Section 24l(a) be severable,
Section 405(a)(1), like Section 1471(c), mandates the reference
of all cases and proceedings in bankruptcy to the bankruptcy
judge and thereby prevents the exercise of jurisdiction by the
district judge. See, e.g., H.R. REP. No. 95-595, supra at
460; 1 COLLIER ON BANKRUPTCY 47.05 [l][a), at 7-55--7-59 (15th

ed. 1982). Cf. In re Jorges Carpet Mills, Inc., Adv. Pro.

No, 1-82-0638 (slip opinion at 11-12)(E.D. Tenn., January 31,

1982).

Section 405(a)(2), contrary to the contention of plaintiff,
does not alter this mandate if read with Sections 405(a)(1) and
405(c). Sections 405(a)(1)(A), (B), and (C) forbid bankruptcy
judges from hearing motions to enjoin another court, certain
criminal contempts, and appeals from a bankruptcy judge.
Sections 405(c)(1) and (2) make Section 1334 operative

Guring transition and constitute the district court as an appellate
tribunal. ples

titles II and IV of the Reform Act, as well as Pub. L. No.
95-598, Section 406, 92 Stat. 2686 (1978) which requires the
Administrative Office of United States Courts to make "continuing
studies and surveys of conditions in the judicial districts to
determine,” among other things, “the number of bankruptcy judges
of the United States bankruptcy courts established under Section
201 of this Act that will be needed after March 31, 1984, to
provide for the expeditious and effective administration of

ustice.” These prognostications would be

naccurate unless the transition system, from which measurements
are made, will be substantially the same as the post-transition
system. Indeed, the House Report notes that the transition
courts will operate “enough like the proposed new court system so
that the measurement process of case-load and judicial time
requirements will be accurate." H.R. REP. No. 95-595, supra at
459. See also, id. at 460; 1 COLLIER ON BANKRUPTCY 42. , at
2-30 (I5th ed. T5982); ia. 93.01 [1) [a], at 3-10; ia. ¢q 7.04[1),
at 7-25-~-7-27; id. 97.04[5], at 7-49--7-50; id, ¢ 7.05 (1)
7-55;In the Matter of Glover Inc., No. 82-1722 (slip opinion at
6)(10th Cir. 1983); In re Callister, 673 F.24 305, 306 (10th
Cir. 1982); In re Shannon 670 Toa 904, YO (loth Cir. Yby).

Section 405(a)(2) was Gesigned to mesh
405(a)(1) and 405(c).

with Sections
Section 405(a) (2) provides that where a
Proceeding is not before a bankruptcy judge,

enumerated in Section

meaning proceedings
405(a)(1)(A), (B), and (C), such as certain

criminal contempts, they may be heard by the district judge. See,
@.g.-, 1 COLLIER ON BANKRUPTCY, Supra 47.05[1)[5), at

7-59--7-61; W. Norton and R. Lieb, THE APTERMATH OF NORTHERN

PIPELINE: BANKRUPTCY JURISDICTION UNDER LOCAL COURT RULE 25
(1983); Kennedy "The Bankruptcy Court Under the New Bankruptcy
Law: Its Structure and Jurisdiction," Supra at 69 n. 24, 74 n.
49, 89 n. 114. Section
to emphasize that the di
in atrial ana appellate

405(a)(2) is made subject to Section 405(c) °
strict judge shall not function

simultaneously
capacity,

Plaintiff's construction ignores the harmonious relation of

Sections 405(a)(1), 405(a)(2), and 405(c). It would broaden the

matters triable before the district judge beyond those enumerated

in Sections 405(a)(1)(A), (B), and (C), in derogation of the

mandatory reference of Section 405(a)(1), in contravention of the

Proviso which precludes the Gistrict judge from wearing trial and

appellate hats in Section 405(a)(2), and in Opposition to the

legislative intent earlier describea.19

19

Section 405(a)(2) is not broad enough, in any event, to

validate the rule, since at most it permits the district judge to
hear proceedings not cases under title 11.

my

V. CONCLUSION

‘ The rule does not confer Power to hear this proceeding
because it rests upon faulty jurisdiction. If the rule dies
under law, equity cannot resuscitate it. Equity so employed would
become inequity to those who improvidently--or
involuntarily--relied. The complaint must be dismissed .20

Recognizing, however, that the law in this case may be, as
Justice Holmes suggested, “nothing more" than a “prophe[cy] of
what the [appellate] courts will Go in fact,” 0. Holmes THE PATH
OF THE LAW (1697), the judgment Gismissing the complaint is
stayed and certified to the district court for review under
paragraphs (4)(2) and (e)(2)(A)(ii) of the rule.

DATED this 7th day of Pebruary, 1983.

mee Me 4
United States nkruptcy Judge

Because of the disposition of this proceeding on juris-
Gictional grounds, it is unnecessary to determine whether the
Gistrict court has authority to promulgate the rule, and if so,
whether the rule has been issued consistent with that authority.
Nor is it necessary to decide whether, under the guidelines of
Marathon, or within other relevant restraints, the rule properly

e os es power from the district court to bankruptcy judges as
Special masters.

IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF UTAH

In re Bankruptcy Case No. 82C-00736

KENT D. RICHARDSON, and
F. NADINE RICHARDSON,

Debtors.

)
)
)
)
)
)
)
DUANE H. GILLMAN, Trustee of ) Civil Proceeding No. 82PC-0746
the estate of NENT D. and )
F. NADINE RICHARDSON, )
)
)
)
)
)
)
)
)
)
)

Plaintiff.

PRESTON FAMILY INVESTMENT
COMPANY, and FIRST INTERSTATE
BANK OF UTAH, MEMORANDUM OPINION ON
SUBJECT MATTER JURISDICTION

Defendants.

Appearances: Duane H. Gillman, Boulden & Gillman, Salt Lake
City, Utah, for plaintiff; Stephen T. Preston, Salt Lake City,
Utah, for defendant Preston Family Investment Company; Roy A.
Williams, Jones, Waldo, Holbrook & McDonough, Salt Lake City,
Utah, for defendant First Interstate Bank of Utah.

Preston Family Investment Company, defendant in a civil pro-
ceeding brought by a trustee in bankruptcy, arising under title
11, United States Code, and commenced before June 28, 1982,
requests dismissal for lack of subject matter jurisdiction. The

motion is granted.

Page 2
82PC-0746

FACTUAL AND PROCEDURAL BACKGROUND

Debtors filed a joint petition for relief under Chapter 7 on
March 25, 1982. On June 15, 1982, the trustee of the debtors’
estates filed this action to avoid a transfer of property under
11 U.S.C. §§ 544(a)(3), 544(b), and 548(a)(2). The trustee then
filed a motion for summary judgment which was granted in part and
denied in part by an order entered on October 2, 1982. It was
held, as a matter of law, that the trustee could not avoid the
transfer under Section 544(a)(3), that a summary judgment on the
trustee's cause of action under Section 544(b) was not then
appropriate, and that the trustee was entitled to a partial
summary judgment on his cause of action under Section 548(a)(2).

Gillman v. Preston Family Investment Co. (In re Richardson),

23 B.R. 434 (D. Utah 1982). Thus, the trustee's causes of action
under Sections 544(b) and 548(a)(2) were left for trial, which
was set for January 14, 1983. At trial, defendant Preston Family
Investment Co. moved to dismiss the trustee's complaint for lack

of subject matter jurisdiction.2 In support of its motion,
Preston relies on Northern Pipeline Construction Co. v. Marathon
Pipe Line Co., U.S. , 102 S. Ct. 2858 (June 28,
1982) (hereinafter, Marathon).

Marathon holds that the grant of subject matter jurisdiction

to the bankruptcy courts in Section 241(a) of the Bankruptcy

1

See Rule 712 Bankr. R. P. and Rule 12(b)(1) and (h)(3) Fed. R.
ve. P.

Page 3
82PC-0746

Reform Act of 1978, Pub. L. No. 95-598, § 241(a), 92 Stat. 2668
(codified at 28 U.S.C. §§ 1471-1482), violates Article III of the
Constitution of the United States. Marathon also holds Section
24l(a) invalid in its entirety. The Court refused to sever any
constitutional portions of the jurisdictional grant from those
portions which are not constitutional.2

The Supreme Court's judgment in Marathon did not take effect
until December 24, 1982. See page 7, below. On December 24, the
United States District Court for the District of Utah adopted a
rule which became effective December 25. That rule applies "to
all bankruptcy cases and proceedings not governed by the
Bankruptcy Act of 1898 as amended, and filed on or after
October 1, 1979." Section (h). The trustee's action falls
within this provision. Sections (c)(1) and (h) of the rule refer
this proceeding to this bankruptcy judge.

The trustee argues that either this court or the United
States district court for this district has subject matter
jurisdiction of this action. First, the trustee argues, this
court retains jurisdiction under Section 241(a) of the Bankruptcy
Reform Act. This action was filed on June 15, 1982, before the

date of the Marathon decision and before the Marathon judgment

became effective. In the trustee's view, because the Supreme

For a thorough discussion of the holding of Marathon, see In re
Color Craft Press, Ltd., B.R. , Bankr. No.
M- , Civ. Pro. No. 82PM-0974, slip Op. (D. Utah Feb. 7,
1983). I concur completely in the views expressed In re Color
Craft Press and adopt that opinion as a part of this Opinion.

Page 4
82PC-0746

Court ruled that its holding in Marathon would apply only

prospectively, this court retains subject matter jurisdiction
under Section 24l(a). Alternatively, the trustee argues that
this court retains jurisdiction under 11 U.S.C. § 105 and
Section 404(a) of the Bankruptcy Reform Act of 1978. The
trustee's final argument is that the United States district court
for this district derives jurisdiction from 28 U.S.C. § 1331 and
that the rule adopted in this district made a valid reference to
this bankruptcy judge of the trial of this action. These argu-

ments are analyzed below.

THIS COURT DOES NOT RETAIN SUBJECT MATTER
JURISDICTION OF THIS ACTION UNDER THE “PROSPECTIVE ONLY"
HOLDING OF MARATHON

"([O)ur decision today," the Court said in Marathon, “shall
apply only prospectively.” 102 S. Ct. at 2880. Appended to this
sentence is footnote 41, which cites portions of three cases:

Buckley v. Valeo, 424 U.S., at 142; Chicot County Drainage

District v. Baxter State Bank, 308 U.S. 371, 376-377 (1940);

Insurance Corp. v. Compagnie des Bauxites, U.S. °
e nm. 93 102 S. Ct. 2099, 2104 n. 9 (1982). The Court's

intention is illuminated, not only by the authorities cited in
footnote 41, but by the context in which its “prospective only”

holding was made.

Page 5
82PC-0746

Before reaching the issue of the possible retroactive
application of its decision, the Court “concluded that the broad
grant of jurisdiction to the bankruptcy courts contained in
§ 24l1(a) is unconstitutional.” 102 S. Ct. at 2880. Then, the
Court asked “whether [its] holding should be applied retro-
actively to the effective date of the Act,” October 1, 1979. Id.

The Court turned its attention to Marathon's effect on actions

taken pursuant to the jurisdictional grant of Section 241(a)
between October 1, 1979 and June 28, 1982, the date of the
Marathon opinion. ’

Analysis of the retroactivity question began with a review
of "the three considerations recognized by our precedents as
properly bearing upon the issue of retroactivity. They are,
first, whether the holding in question ‘decid[ed] an issue of
first impression whose resolution was not clearly foreshadowed’
by earlier cases, (citation omitted); second, ‘whether retro-
spective operation will further or retard [the] operation’ of the
holding in question (citation omitted); and third, whether
retroactive application ‘could produce substantial inequitable

results’ in individual cases (citation omitted)." 102 S. Ct. at
2880 (citing Chevron Oil v. Huson, 404 U.S. 97, 106-107 (1971)).

Next, the Court found that “in the present case, all of these
considerations militate against the retroactive application of
our holding today. It is plain that Congress‘ broad grant of
judicial power to non-Art. III bankruptcy judges presents an

unprecedented question of interpretation of Art. III. It is

Page 6
82PC-0746

equally plain that retroactive application would not further the
operation of our holding, and would surely visit substantial
injustice and hardship upon those litigants who relied upon the
Act's vesting of jurisdiction in the bankruptcy courts." Id. The
Court's reference to “litigants who relied upon the Act's vesting
of jurisdiction in the bankruptcy courts" leaves room for
speculation. Did the Court mean parties who had secured judg-
ments or orders by June 28, 1982? Did the Court refer to parties
to matters filed by June 28 who had not yet obtained dispositive
orders or judgments? Did the Court intend to include debtors
and petitioning creditors who filed bankruptcy petitions before
June 28 as well as parties to lawsuits, no matter when filed,
which might arise within the penumbrae of pre-June 28 bankruptcy
cases?2 A convincing answer to these questions has not yet been
given.

After holding “that our decision today shall apply only
prospectively,” the Court affirmed the judgment of the lower
court. Then, the Court stayed its judgment until October 4,
1982. In the Court's view, a limited stay would “afford Congress
an opportunity to reconstitute the bankruptcy courts or adopt
other valid means of adjudication, without impairing the interim
administration of the bankruptcy laws." 102 S. Ct. at 2880.

As will be seen below, because of the stay of the Marathon
judgment until December 24, references here and elsewhere to
June 28 are, in effect, equivalent to references to December 24.

Page 7
82PC-0746

Because the Court stayed its judgment until October 4, its
holding on retroactivity is fully applicable to the period
between June 28, 1982 and October 4, 1982. And because the Court
later extended the stay until December 24, 1982,4 the Court's
holding on retroactivity governs the period between October 4,
1982 and December 24, 1982. In other words, because of the stay
until after December 24, 1982, bankruptcy cases and civil
proceedings filed before June 28, 1982 stand on equal jurisdic-
tional footing with those filed after June 28, but before the
stay expired on December 24.

The Court's stay of its judgment in Marathon is a signifi-
cant key to the meaning of its holding on retroactivity.
Logically, the jurisdiction of the bankruptcy courts after
December 24 to act in cases and proceedings filed through
December 24 is the same as the jurisdiction of the bankruptcy
courts would have been after June 28 to act in cases and pro-
ceedings filed through June 28 had there been no stay. Thus, the
Court's view of what would have occurred after June 28 absent a
stay is of prime importance.

According to the Court, absent a stay of its Marathon
judgment, the interim administration of the bankruptcy laws would
have been impaired. 102 S. Ct. at 2880. While it may be that
the impairment the Court had in mind was limited to the absence

of subject matter jurisdiction to act in bankruptcy cases filed

a
U.S.

Page 8
82PC-0746

after June 28 and in lawsuits connected with those cases, the
Court did not qualify its statement. In any event, if the
Court's “prospective only” holding permitte@ the exercise of
Section 24l1(a) jurisdiction after June 28 in bankruptcy cases
filed before June 28 and in connected lawsuits, it would have
been unnecessary, at least for those bankruptcy cases and
lawsuits, for the Court to stay its judgment; the Court could
have entered its judgment on June 28 and in all filed bankruptcy
cases and in connected lawsuits, the bankruptcy courts could have
continued to exercise Section 24l(a) jurisdiction. Thus, the
"prospective only” holding may relate only to orders and
judgments which had become final when the Court's judgment in
Marathon went into effect. This inference is supported by the
cases cited in Marathon footnote 41.

In Buckley v. Valeo, supra, the Court held that some of the

powers granted by Congress to the Federal Election Commission
could not constitutionally be exercised by Commission members not
appointed by the President. At page 142, the citation appearing
in footnote 41 in Marathon, the Court said

It is also our view that the Commission's
inability to exercise certain powers because
of the method by which its members have been
Selected should not affect the validity of
the Commission's administrative actions and
determinations to this date, including its
administration of those provisions, upheld
today, authorizing public financing of
federal elections. The past acts of the
Commission are therefore accorded de facto
validity, just as we have recognized should
be the case with respect to legislative acts
performed by legislators held to have been

Page 9
82PC-0746

elected in accordance with an unconsti-
tutional apportionment plan.

Id. (emphasis supplied).

If the Marathon court meant, by its “prospective only”
holding, the same thing said in Buckley, “actions and deter-
minations to this date” and "past acts," orders and judgments
entered between October 1, 1979 and December 24, 1982, are
validated. Buckley is not authority for the exercise of juris-
diction after December 24,

In Chicot County Drainage District v. Baxter State Bank,

supra, a federal district court, acting pursuant to a juris-~-
Gictional grant in the 1934 Act of Congress providing for
municipal debt readjustments,” confirmed a plan of readjustment
for the Chicot County Drainage District which affected the rights
of bondholders. The order confirming the plan was entered in
March of 1936. About two months later, on May 25, 1936, the
Supreme Court held that the statute under which the district

court had acted was unconstitutional. Ashton v. Cameron County

Water Improvement District, 298 U.S. 513 (1936) .6

Act of May 24, 1934, 48 Stat. 798.

After the May 25, 1936 ruling there were pending in the circuit
courts several appeals from orders entered under the Act Ashton
held unconstitutional. The Supreme Court did not make its ruling
prospective and did not stay its judgment. The circuit courts
had no choice but to apply the Ashton decision to the cases
before them.

In cases where an objection to the constitutionality of the
Act had been made before the Ashton decision was rendered and
(Cont. Page 10) Le Wiig 825

Page 10
82PC-0746

the rulings on those objections were on appeal after the
Ashton decision, the circuit courts followed Ashton and
required dismissal of the proceedings. Adams v. City of
Sarasota, 83 F. 24 1005 (Sth Cir. June 6, 1936) (The city

ed a petition under the Act, certain bondholders intervened
in opposition to the petition and argued the unconsitution-
ality of the Act, and the lower court ruled against the
bondholders. The Fifth Circuit said, "On the authority of
Ashton... , the judgment is reversed and the case remanded,
with instructions to dismiss the proceeding."); Schaller v.
Board of Supervisors, 83 F. 24 1016 (8th Cir. June 26, 1936)
(A drainage ATatrict tiled a petition under the Act, the lower
court approved a plan of readjustment, a bondholder moved to
dismiss the petition on the ground that the Act was unconsti-
tutional, and the lower court denied the motion. The Eighth
Circuit said, “Subsequent to the ruling on the motion to
dismiss . .. the Supreme Court of the United States in the
case of C.L. Ashton .. . has held that section 80 of the
Bankruptcy Act as amended (11 U.S.C.A. §303) was invalid under
the Constitution. The holding is directly applicable here and
requires us to rule that the motion to dismiss should have
been sustained by the trial court."). Id. at 1017.

Even in cases on appeal when Ashton was decided in which no
objection to jurisdiction had been raised in the lower court,
at least as far as can be seen from the published opinions,
the appellate courts applied Ashton to require dismissal of
the pending bankruptcy cases. Covell v. Waterford Irrigation
District, 86 F. 24 22 (9th Cir. Oct. 19, 1936) cert. aontea

-S. 682 (1937). (An irrigation district filed a petition
under the Act, the lower court approved a fs» May Fg plan,
and bondholders of the district appealed. The Ninth Circuit
Court of Appeals ordered dismissal of the bankruptcy case:
"During the pendency of this appeal the Supreme Court has held
that the provisions of the Bankruptcy Act relied upon are
unconstitutional . . . (citing Ashton). For that reason the
order of the lower court must be reversed, and the case
remanded to the District Court for further action consistent
with this opinion."). In Bekins v. Merced iret ation District
89 F. 24 1002 (9th Cir. Apr » expla n In re
Merced Irrigation District, 25 F. Supp. 981, 986-987 (5.0.
Calif. 1535}, an irrigation district filed a petition under
the Act later held unconstitutional in Ashton. The district
court confirmed a plan of readjustment and a dissatisfied
group of investors appealed. Before the appeal was heard, the
Supreme Court decided Ashton. The Ninth Circuit Court of
Appeals ordered that "a decree be filed and entered reversing
the decree of [the] District Court, and remanding the cause
with instructions to dismiss the cause ...." 89 F. 2d
1002. (Cont. Page 11)

Page ll
82PC-0746

After the confirmation order became final, bondholders of the
drainage district sued the district in a collateral proceeding to
redeem their bonds. In defense, the drainage district pled the
res judicata effect of the order of confirmation. The bond-
holders argued, and the district court and court of appeals held,
that the order of confirmation was void because, after its entry,
the Supreme Court had declared unconstitutional the statute
authorizing the plan's confirmation. The theory of the lower
courts was that “the Act of Congress, having been found to be
unconstitutional, was not a law; that it’ was inoperative,
conferring no rights and imposing no duties, and hence no basis
for the challenged decree.” Chicot, supra at 374,

The Supreme Court, however, said that “such broad statements
as to the effect of a determination of unconstitutionality must
be taken with gualifications:”"

The actual existence of a statute, prior to
such a determination, is an operative fact
and may have consequences which cannot justly
be ignored. The past cannot always be erased
by a new judicial declaration. The effect of
the subsequent ruling as to invalidity may
have to be considered in various aspects,
“--with respect to particular relations,
individual and corporate, and particular
conduct, private and official. Questions of
rights claimed to have become vested, of

status, of prior determinations deemed to
have fina

poiicy g ure both
of the statute and of ike. previous appli-
cation, demand examination. These questions

These decisions were rendered in appeals from decisions made
under the unconstitutional Act. The appeals were pending or
perfected after Ashton. Chicot County Drainage District v.
Baxter State Bank, 306 U.
circumstances. See discussion of Chicot in text.

Page 12
82PC-0746

are among the most difficult of those which
have engaged the attention of the courts,
state and federal, and it is manifest from
numerous decisions that an all-inclusive
statement of a principle of absolute retro-
active invalidity cannot be justified.

Id. (emphasis supplied). After making these observations, the
Court found that with respect to the confirmation order, apart
from the question of the effect of the later decision as to
constitutionality, all the elements of the defense of
res judicata were present.

Next, the Court asked whether the district court, because

the statute under which it entered the order of confirmation was
later declared unconstitutional, was without jurisdiction to
entertain the readjustment proceeding and whether its order was
therefore subject to collateral attack. In response, the Court
gave the following answer at pages 376 to 377, the citations
given in footnote 41 of Marathon:

We think the argument untenable. The lower
federal courts are all courts of limited
jurisdiction, that is, with only the juris-
diction which Congress has prescribed. But
none the less they are courts with authority,
when parties are brought before them in
accordance with the requirements of due
process, to determine whether or not they
have jurisdiction to entertain the cause and
for this purpose to construe and apply the
statute under which they are asked to act.
Their determinations of such questions, while
open to direct review, may not be assailed
collaterally.

In the early case of M'Cormick v. Sullivant,
10 Wheat. 192, where it was contended that
the decree of federal district court did not
show that the parties to the proceedings were
citizens of different States and hence that
the suit was coram non judice and the decree

—_

Page 13
82PC-0746

void, this Court said: "But this reason |
proceeds upon an incorrect view of the |
character and jurisdiction of the inferior

Courts of the United States. They are all of

limited jurisdiction; but they are not, on

that account, inferior Courts, in the

technical sense of those words, whose

judgments, taken alone, are ‘o be disre-

garded. If the jurisdiction be not alleged

in the proceedings, their judgments and

decrees are erroneous, and may, upon a writ

of error, or appeal, be reversed for that

cause. But they are not absolute nullities.”

Id., p. 199. See, also, Skillern's Executors

v. May's Exe cutors. 6 Cranch 267; Des Moines

Navigation Co. Iowa Homestead Co.,

; we ate, 152
U. ‘s. 327, 340; ’ evers v. Watson, Fe o-5-'527,

533; Cutler v. Huston, 1568 U.S. 423, 430,
431. This rule applies equally to the
decrees of the District Court sitting in
bankruptcy, that is, purporting to act under
a statute of Congress passed in the exercise
of the bankruptcy power. The court has the
authority to pass upon its own jurisdiction
and its decree sustaining jurisdiction
against attack, while open to direct review,
is res judicata in a collateral action.
Stoll v. tlieb, 305 U.S. 165, 171, 172.

Whatever the contention as to jurisdiction
may be, whether it is that the boundaries of
a valid statute have been transgressed, or
that the statute itself is invalid, the
question of jurisdiction is still one for
judicial determination. If the contention is
one as to validity, the question is to be
considered in the light of the standing of
the party who seeks to raise the question and
of its particular application. In the
present instance it is suggested that the |
situation of petitioner, Chicot County

Drainage District, is different from that of

the municipal district before the court in

the Ashton case. Petitioner contends that it

is not a political subdivision of the State

of sebrigice fe stg an Ph dy of the abe, rede

owners within the District. See Drainage

District No. 7 of Poinsett Coun Vv.
Hutchins, 167 Ark. 521; 42 5. W. 24 556.

ootnote omitted). We do not refer to that
phase of the case as now determinative but

Page 14
82PC-0746

merely as illustrating the sort of question
which the District Court might have been
called upon to resolve had the validity of
the Act of Congress in the present appli-
cation been raised. As the question of
validity was one which had to be determined
by a judicial decision, if determined at all,
no reason appears why it should not be
regarded as determinable by the District
Court like any other question affecting its
jurisdiction. There can be no doubt that if
the question of the constitutionality of the
statute had actually been raised and decided
by the District Court in the proceeding to
effect a plan of debt readjustment in
accordance with the statute, that determi-
nation would have been final save as it was
open to direct review upon appeal. Stoll v.
Gottlieb, supra. (footnote omitted):

While some language in Chicot might support a broader holding,
Chicot involved an attack on a final order and its holding rests
on that fact. Chicot did not preserve proceedings which had not
been disposed of by a final order. Thus, Chicot stands only for
the proposition that orders which have become final prior to a
decision of the Supreme Court invalidating the jurisdictional
provisions under which the orders were entered are not open to
collateral attack.

Like Buckley, Chicot confirms the validity of orders and

judgments entered under the authority of Section 241(a) between
October 1, 1979 and December 24, 1982 which have become final.
Chicot is not authority for the proposition that after
December 24, 1982, bankruptcy courts possess any vestige of
subject matter jurisdiction.

In Insurance Corp. v. Compagnie des Bauxites, supra, the
Court held that a federal district court, as a sanction for

Page 15
82PC-0746

disobedience of a discovery order seeking facts related to
personal jurisdiction, could deem those facts established. In
making its ruling, the Court distinguished subject matter
jurisdiction from personal jurisdiction, and in so doing stressed
the source and import of the subject matter jurisdiction of
federal courts:

The validity of an order of a federal court
depends upon that court's having jurisdiction
over both the subject matter and the parties.
(citations omitted).

Federal courts are courts of limited juris-
diction. The character of the controversies
over which federal judicial authority may
extend are delineated in Article III, §2,
cl. 1. Jurisdiction of the lower federal
courts is further limited to those subjects
within a statutory grant of jurisdiction.
Again, this reflects the constitutional
source of federal judicial power. Apart from
this Court, that power only exists “in such
inferior Courts as the Congress may from time
to time ordain and establish.” Art. III, §1.

Subject matter jurisdiction, then, is an
Article III as well as a statutory require-
ment; it functions as a restriction on
federal power, and contributes to the
characterization of the federal sovereign.
Certain legal consequences directly follow
from this. For example, no action of the
parties can confer subject matter juris-
diction upon a federal court. Thus, the
consent of the parties is irrelevant,
(citation omitted), principles of estoppel do
not apply, (citation omitted), and a party
does not waive the requirement by failing to
oe jurisdiction early in the proceed-
ngs.

Similarly, a court, including an appellate
court, will raise lack of subject matter
jurisdiction on its own motion. “(T]he rule,
springing from the nature and limits of the
judicial power of the United States is
inflexible and without exception, which

Page 16
82PC-0746

requires this court, of its own motion, to
deny its jurisdiction, and, in the exercise
of its appellate power, that of all other
courts of the United States, in all cases
where such jurisdiction does not affir-
matively appear in the record.” Mansfield
Coldwater & Lake Michigan Ry. Co. v. Swan,

102 S. Ct. at 2104. This paragraph is followed by footnote 9,
cited in footnote 41 in Marathon:

A party that has had an opportunity to

litigate the question of subject matter

jurisdiction may not, however, reopen that

question in a collateral attack upon an

adverse judgment. It has long been the rule

that principles of res judicata apply to

jurisdictionl determinations -- both subject

matter and personal. See Chicot Count

Drainage Dist. v. Bank., 306 U.S. 371 (1940);

Stoll v. Gottlieb, 305 U.S. 165 (1938).
Footnote 9 adds nothing to Marathon except an explanation of
Chicot. Insurance Corp., as a restatement of the law of subject
matter jurisdiction, however, shows that reliance on consent as
the sole basis for jurisdiction, or on estoppel, or on failure
to object, is improper.’ The only legitimate source of subject
matter jurisdiction in the lower federal courts is an express
statutory grant from Congress. It may not be derived from the
Executive, from the Judiciary, or from litigants. If a federal

court finds itself without jurisdiction, it must so declare.

Under former law, the consent of a defendant sued by a trustee in
bankruptcy was sufficient to confer federal subject matter
jurisdiction, but only because a federal statute so provided.
Bankruptcy Act of 1898, § 23b, former 11 U.S.C. § 46b. That
statute has been repealed. Pub. L. No. 95-598, § 40l(a), 92
Stat. 2682 (1978).

Page 17
82PC-0746

Taken together, the authorities cited in Marathon foot-
note 41 legitimize only those orders and judgments of bankruptcy
courts entered pursuant to Section 24l(a)'s jurisdictional grant
which have become final, to which the principles of res judicata
apply, and which were entered before December 24, 1982. In
Marathon and in the cases cited in footnote 41, jurisdiction to
act after December 24, 1982, does not “affirmatively appear" and

for that reason must be denied.&®

"([T)he rule .. . is inflexible and without exception, which
requires this court... to deny jurisdiction . .. in all cases
where such jurisdiction does not affirmatively appear in the
record.” Mansfield, Coldwater & Lake Michigan Ry. Co. v. Swan,

111 U.S. ° » cite n Insurance Corp., supra at
2104.

Accord, Still v. First Bank of Newton (In re sorges carpet
Millis Inc.), No. 1-80-02516, Adv. Proc. No. 4 “Vv , & Pp
Oop. (Bkrtcy. E.D. Tenn. Jan. 31, 1983) ("On [December 25,
1982) it became the law of the United States that the bank-
ruptcy courts as bankruptcy courts do not have jurisdiction to
do anything in a case pending under the 1978 Act. The
argument that the ruling in Northern applies only to cases
filed after December 24, 1982, Is unconvincing . .. In the
Northern case, the Supreme Court said that its decision would
be prospective only. In other words, the court held that its
decision would not affect orders that were already final...
Bankruptcy court orders that became final between the date of
the Northern decision and the date it took effect were not
affected by the lack of jurisdiction because the Northern
order did not apply retroactively . .. Nothing in Northern
reasonably leads to the conclusion that it affects juris-
diction only in cases and proceedings filed after it took
effect . . . The Supreme Court delayed the effect of Northern
to preserve jurisdiction not just for cases and proceedings
not yet filed but also for cases and proceedings already
pending . . . Furthermore, the cases cited by the Supreme
Court dealt with the effect of a decision like Northern on
orders that were final or actions that were taken without
challenge before the decision . . . This court must conclude
that beginning on December 24, 1982, the bankruptcy courts as
bankruptcy courts ceased to have jurisdiction to make any
orders in cases or proceedings under the 1978 Act.").

(Cont. Page 18)

Page 18
82PC-0746

In Walter E. Heller and Co. v. Matlock Trailer Corp., (In re
Matlock Trailer Corp.), Bk. No. - , Adv. No. 382-0755,
Slip op. (M.D. Tenn. Jan. 26, 1983), the bankruptcy court for
the Middle District of Tennessee ruled that it retained
"§ 24l1(a) jurisdiction to adjudicate all bankruptcy cases
filed prior to December 24, 1982, including all adversary
proceedings and related matters to those cases, whenever
filed.” Id. at 2.

In reaching this conclusion, the court followed three lines of
reasoning. First, citing Supreme Court decisions on the
retroactive effect of rulings on criminal procedure, the court
noted that "in the criminal area, the Court has often allowed
cases to continue despite constitutional questions and
infirmities concerning underlying issues . . . on the theory
that justice is better served when cases begun in reliance on
a particular constitutional interpretation are allowed to
continue to completion.” Id. at 10. Second, the court
reasoned that any holding not permitting the continued
exercise of jurisdiction in filed bankruptcy cases would not
give "meaning and effect to the Court's concern for fairness,
equity and the prevention of hardship which motivated their
decision to apply [Marathon] prospectively,” and would "create
an inequitable travesty. Litigants would be treated differ-
ently based solely on the date a particular proceeding was
completed." Id. at 11. The court found nothing in Marathon
"to indicate that the Court intended to promote a Trace to
judgment' so that parties who received judgments prior to
December 24 would be protected and those whose cases could not
be accomodated by the court's schedule or were taken under
advisement would be prejudiced.” Id. Third, the court found
that, given the Supreme Court's concern for injustice and
hardship, a ruling denying jurisdiction in cases filed before
December 24 and connected proceedings would be inconsistent,
for "the administration of all bankruptcy cases would come to
a halt... , [bankruptcy would be reduced] to a meaningless
concept . .. , [and] bankruptcy cases pending before this
court would disappear with consequent unimaginable waste and
prejudice to the parties involved.” Id. at 13.

The Supreme Court, one week before its decision in Marathon,
concluded that “retroactivity must be rethought," and went on
to analyze the issues involved in giving retroactive effect to
one of its criminal procedure decisions. United States v.
Johnson, U.S. , 102 S. Ct. 2579, 25606 (June 21,

. Johnson specifically notes the distinction between
civil and criminal retroactivity: "all questions of civil
retroactivity continue to be governed by the standard enun-
ciated in Chevron Oil Co. v. Huson, 404 U.S. 97, 106-107
(1971)." {02 5. Ct. at 2594-2595. Significantly, Marathon
did not cite Johnson or any other opinion on the retroactivity
(Cont. Page 19)

Page 19
82PC-0746

THIS COURT DOES NOT RECEIVE SUBJECT MATTER
JURISDICTION OF THIS ACTION FROM 11 U.S.C. § 105(a)
AND SECTION 404(a) OF THE BANKRUPTCY REFORM ACT

The trustee argues that the bankruptcy courts derive subject
matter jurisdiction over actions arising under title 11, such as
this action, from the combination of two provisions of the

Bankruptcy Reform Act of 1978, Pub. L. 95-598, 92 Stat. 2549:

of criminal procedure decisions. Because "'prospective' has
no single meaning,” Matlock, supra at 6, Marathon's "pros-
pective only” holding is best measured by the guideposts found
in Marathon itself, not by those found elsewhere.

Arguments based on the resulting inequities if filed bank-
ruptcy cases cannot be continued may stem more from consider-
ations of expedience than from analysis of Marathon and the
authorities cited in footnote 41. To the extent that expe-
dience, practicality, and the like are proper measures of the
prospective effect of Marathon, they may recommend denying
jurisdiction to act after December 24, 1982. If there is room
for error in interpreting the prospective effect of Marathon,
it may be worse to err by finding jurisdiction to act after
December 24 than to err by denying jurisdiction. If the Court
holds in some future opinion that its “prospective only"
holding was limited to the validation of past acts, the
post-December 24 exercise of nonexistent jurisdiction will be
more damaging to those who rely on orders and judgments of the
bankruptcy courts than the postponement of action pending
curative legislation or further guidance from the Court.

While it may be argued that the Court did not mean to cut off
the exercise of jurisdiction in pending cases because other-
wise great hardship would result, this argument is not
supported by the authorities cited in Marathon footnote 41.
Moreover, as noted in the text, this argument makes the
Court's imposition of a stay of its judgment, at least with
respect to cases filed before June 28, meaningless.

Page 20
82PC-0746

Section 404(a) and ll U.S.C. § 105(a).9 Section 404(a) of the

Bankruptcy Reform Act provides that

The courts of bankruptcy, as defined unger
section 1(10) of the Bankruptcy Act, [+]
created under section 2a of the Bankruptcy
Act,[++] and existing on September 30, 1979,

10

ll

The trustee does not argue that after Marathon, bankruptcy
jurisdiction reverts to its pre-Reform Act status. Others have
theorized that Section 404(a)'s continuance of the court struc-
ture existing on September 30, 1979 during the transition period
between October 1, 1979 and April 1, 1984, coupled with Marathon,
revive the jurisdictional provisions of former law.

Section 40l(a) of the Reform Act, however, repealed all of the
jurisdictional grants found in former law, permitting their use
only in cases commenced under former law. Section 404(a),
entitled "Courts During Transition,” retained the courts, not
their jurisdiction. Section 405, entitled "Jurisdiction and
Procedure During Transition,” provides that Section 241(a) is the
sole source of jurisdiction over bankruptcy matters for the
courts continued by Section 404(a).

Section 1(10) of the Bankruptcy Act supplied the definition of
courts of bankruptcy: “'courts of bankruptcy’ shall include the
United States district courts and the district courts of the
Territories and possessions to which this Act is or may hereafter
be applicable."

Section 2a of the Bankruptcy Act provided for the creation of
courts of bankruptcy and their jurisdiction: "The courts of the
United States hereinbefore defined as courts of bankruptcy are
hereby created courts of bankruptcy and are hereby invested,
within their respective territorial limits as now established or
as they may be hereafter changed, with such jurisdiction at law
and in equity as will enable them to exercise original juris-
diction in proceedings under this Act, in vacation, in chambers,
and during their respective terms, as they are now or may be
hereafter held, to -- [then follows a list of actions which may
be taken]."

Page 21
82PC-0746

shall continue through March 31, 1984, to be
the courts of bankruptcy for the purposes of
this Act and the amendments made by this Act.
Each of the courts of bankruptcy so continued
shall constitute a separate department of the
district court that is such court of bank-
ruptcy under the Bankruptcy Act.

11 U.S.C. § 105(a) provides that

The bankruptcy court may issue any order,

process, or judgment that is necessary or

appropriate to carry out the provisions of

this title.
Under Section 404(b) of the Bankruptcy Reform Act, bankruptcy
judges serve in the courts of bankruptcy continued under Section
404(a). Pub. L. No. 95-598, ‘ 404(b), 92 Stat. 2683. The
existence of the courts of bankruptcy, which constitute separate
departments of the United States district courts, is not affected

by Marathon, which invalidates the jurisdiction granted in

Section 24l(a), but does not dissolve the courts of bankruptcy.
From these premises, the trustee concludes that the courts of
bankruptcy continued under Section 404(a) derive subject matter
jurisdiction from 11 U.S.C. § 105.

Disregarding the problems of statutory construction raised

by the trustee's argument,12 the argument fails because 11 U.S.C.

12

Arguments can be made on both sides of the question of Section
105's availability during the transition period between
October 1, 1979 and April 1, 1984. Section 105(a) “became
effective on October 1, 1979, under sec. 402(a) of Public Law No.
95-598, and since the bankruptcy court created by 28 U.S.C.
§ 151(a) does not come into existence under sec. 402(b) of Public
Law No. 95-598 until April 1, 1984, there appears to be no
statutory recognition of the power of the court of bankruptcy
continued through the transitional period by Public Law No.
95-598, sec. 404(a), to ‘issue any necessary order, process, or
judgment." Subsections (a)(1) and (b) of sec. 405, however,
(Cont. Page 22)

Page 22
82PC-0746

§ 105 does not confer subject matter jurisdiction. Instead, it
is an investiture of broad powers to act after subject matter
jurisdiction is established.

Section 105 of the Bankruptcy Reform Act is identical to
proposals made in H.R. 8200, 95th Cong., lst Sess. (Sept. 8,
1977) and S. 2266, 95th Cong., 2d Sess. (May 17, 1978). The
House and Senate reports on those bills clarify the function of
Section 105. House Report 95-595, 95th Cong., lst Sess. 316
(1977), explained that

Section 105 is derived from section 2a(15) of
present law,[{13 ] with two changes. First, the
limitations on the power of a bankruptcy
judge (powers that were reserved to the
district judge) are removed as inconsistent
with the separation of the two courts and the
increased powers and jurisdiction of the new
court .. . . Second, the bankruptcy judge is
prohibited from appointing a receiver in a
case under title 11 under any circum-
stances. [14 ]

authorize the bankruptcy judges of the continued court of
bankruptcy to exercise the jurisdiction and powers of the
bankruptcy courts created by 28 U.S.C. § 151 and those powers
surely include the power granted by 11 U.S.C. § 151(a)." Kennedy,
"The Bankruptcy Court Under the New Bankruptcy Law: Its
Structure, Jurisdiction, Venue, and Procedure,” 11 ST. MARY'S L.
13 J. 251, 279 n. 110 (1979).
Section 2a(15) provided that the courts of bankruptcy were
invested with such jurisdiction as would enable them to exercise
original jurisdiction in proceedings under the Bankruptcy Act to
"make such orders, issue such process, and enter such judgments,
in addition to those specifically provided for, as may be
necessary for the enforcement of the provisions of this Act:
Provided, however, that an injunction to restrain a court may be
14 Issued by the judge only.”
Section 105(b) provides that “notwithstanding subsection (a) of
this section, a bankruptcy court may not appoint a receiver ina
case under this title."

Page 23
82PC-0746

Section 105 is similar in effect to the All
Writs Statute, 28 U.S.C. 1651, under which
the new bankruptcy courts are brought by an
amendment to 28 U.S.C. 451. H.R. 8200 § 213.
The section is repeated here for the sake of
continuity from current law and ease of
reference, and to cover any powers tradi-
tionally exercised by a bankruptcy court that
are not encompassed by the All Writs
Statute.

Senate Report 95-989, 95th Cong., 2d Sess. 29 (1978),
gave a briefer but consistent interpretation:

Section 105 is derived from section 2a(15) of

present law, with two changes. First, the

limitation on the power of a bankruptcy judge

(the power to enjoin a court being reserved

to the district judge) is removed as incon-

sistent with the increased powers and

jurisdiction of the new bankruptcy court.

Second, the bankruptcy judge is prohibited

from appointing a receiver in a case under

title 11 under any circumstances.
These reports emphasize Section 105 as a source of powers
commensurate with the expanded jurisdiction of the bankruptcy
courts.

Section 105 is derived from Section 2(a)(15) of the former
Bankruptcy Act. “The use of section 2(a)(15) of the Act,”
according to one commentator, “[was] not to expand the court's
jurisdiction, but to give it the right to issue orders in aid of
the jurisdiction -- subject to legal principles -- which it
already had." Levine, "An Enhanced Conception of the Bankruptcy
Judge: From Case Administrator to Unbiased Adjudicator," 84 W.

VA. L. REV. 637, 653 (1982).

Page 24
82PC-0746

Section 105 is “similar in effect" to 28 U.S.C. § 1651.15
Section 1651 "does not operate to confer jurisdiction ... No
new grant of judicial power is contemplated by the statute;
§ 165l1(a) is rather only an incident of jurisdiction. An order
may issue pursuant to this statute to preserve jurisdiction
already lawfully acquired, but a court may not, by said order,
acquire jurisdiction over an individual or property not otherwise
subject to its jurisdiction." Commercial Security Bank v. Walker
Bank & Trust Co., 456 F. 24 1352, 1355 (10th Cir. 1972) (foot-
notes omitted). .

Although Section 105(a) is broader than Section 1651(a)
because Section 105(a) covers “any powers traditionally exer-
cised by a bankruptcy court that are not encompassed by the All
Writs Statute," House Report, supra, there is no hint in the
legislative history or in the Reform Act itself that Section
105(a) is a source of subject matter jurisdiction. Instead,
Section 105(a) was placed in the Reform Act “for the sake of
continuity from current law," “for ease of reference," and to
broaden the powers granted by Section 165l(a). Subject matter
jurisdiction was provided for in Section 1471 of the Bankruptcy
Reform Act of 1978.

15

28 U.S.C. § 1651 provides that "(a) The Supreme Court and all
courts established by Act of Congress may issue all writs
necessary or appropriate in aid of their respective jurisdictions
and agreeable to the usages and principles of law. (b) An
alternative writ or rule nisi may be issued by a justice or judge
of a court which has jurisdiction."

Page 25
82PC-0746

Section 105(a) endows the bankruptcy courts with a broad
range of powers they may exercise, within the bounds of necessity
and propriety, to carry out the provisions of bankruptcy law.
Section 1471 identifies the matters respecting which the bank-
ruptcy courts, applying those and other powers, may issue binding
decrees. Without Section 1471, or some other source of subject
matter jurisdiction which would permit cases or proceedings to
come before the bankruptcy courts for disposition, those powers
granted by Section 105(a) are useless.

THE UNITED STATES DISTRICT COURT DOES NOT
HAVE SUBJECT MATTER JURISDICTION OF
THIS ACTION UNDER 28 U.S.C. § 1331

Section 1331 of title 28, United States Code, provides that

The district courts shall have original

jurisdiction of all civil actions arising

under the Constitution, laws, or treaties of

the United States.
The trustee maintains that because his complaint alleges causes
of action under title 11, Sections 544(b) and 548(a)(2), subject
matter jurisdiction lies in the United States district court for
this district under Section 1331 and, under the emergency rule

adopted by the district court, the trial of his complaint has

Page 26
82PC-0746

properly been referred to this court.!® Section 1331, however,

does not vest jurisdiction of this action in the district court.17

l.

28 U.S.C. § 1331 was not intended to grant subject matter

jurisdiction of actions arising under the bankruptcy laws of the

United States.

16

17

The trustee does not argue that the district court derives
jurisdiction of this action from 28 U.S.C. § 1334. In light of
the analysis in Color Craft Press, supra note 2 at 7 xn. 2,
Section 1334 is not a valid source of subject matter jurisdiction
of this action. But see In re Northland Partners, Case No.
82-05387-W, unpublished order (E. D. Mich. Jan 7, 1963) (District
Judge Demascio) ("Congress carefully kept in effect, until 1984,
[28 U.S.C. § 1334, which gives] the federal district courts
‘original jurisdiction, exclusive of the courts of the states, of
all matters and proceedings in bankruptcy.'"); see also Blue v.
Mathena, 259 F. Supp. 926, 927 (1966) (former law -- although

headnotes suggest the court relied on Section 1334, the court's

language and rationale show it relied instead on former 11 U.S.C.
§ 107(e)). see also In re Jorges Carpet Milles Inc., supra note 8
(leaving open the question o ection as a source of
bankruptcy jurisdiction post-Marathon).

Thus, the issue of the validity of the district court's rule is
not reached. If the district court had jurisdiction over this
action, the referral of this action to this court under the
emergency rule would raise difficult questions. For example, was

there authority to adopt the rule? Does the rule conflict with
Marathon? Does the rule conflict with those provisions of the

Bankruptcy Reform Act not invalidated by Marathon?

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82PC-0746

The lower federal courts are courts of limited, not general,
jurisdiction. They have no subject matter jurisdiction except
that given them by Congress. Because they are courts of limited
jurisdiction, it has long been the law in the federal courts that
"the fair presumption is (not as with regard to a court of
general jurisdiction, that a cause is within its jurisdiction
unless the contrary appears, but rather) that a cause is without

jurisdiction till the contrary appears." Turner v. Bank of North

America, 4 U.S. ( 4 Dall.) 8, 11 (1799). Thus, “there

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385010_0488%3A3. Public record. Not legal advice.