Petition — American Airlines, Inc. v. Braniff Airways, Inc., 103 S. Ct. 2122 (1983) (No. 82-1623)

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Office-Supreme Court, U.S.

iLE D

82-1628 APR 4 1983

No.

ALEXANDER L. STEvs Ss,

CLERK

IN THE

Supreme Court of the United States

October Term, 1982

In re BRANIFF AIRWAYS, INCORPORATED, et al.,

Debtors.

AMERICAN AIRLINES, INC.,

Petitioner,

VS.

BRANIFF AIRWAYS, INCORPORATED, ef al.,

Respondents.

PETITION FOR WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT.

RONALD S. Orr,

ROBERT FORGNONE,*

BENNETT L. SILVERMAN,

DaAvip H. KENNEDY,

GIBSON, DUNN & CRUTCHER,

333 South Grand Avenue,

Los Angeles, Calif. 90071,

(213) 229-7000,

and

STEPHEN L. TAYLOR,

Post Office Box 61616,

Dallas/Fort Worth Airport,

Texas 75261,

(817) 355-1262,

Attorneys for Petitioner,

American Airlines, Inc.

*Counsel of Record.

Parker & Son, Inc., Law Printers, Los Angeles. Phone 724-6622

Questions Presented.

1. Do the United States District Courts, after entry of

the judgment in Northern Pipeline Construction Co. v.

Marathon Pipe Line Co., _— U.S. ——, 102 S.Ct. 2858

(1982), have jurisdiction over all cases and proceedings

commenced under Title 11 of the United States Code?

2. May a United States District Court, by local rule or

by specific order, validly refer an entire bankruptcy case

to a bankruptcy judge and delegate thereto authority to enter

final orders and judgments?

3. May non-Article III judges constitutionally enter

final crders and judgments in proceedings which involve

the adjudication of rights created under state law and of con-

gressionally-created rights not public in nature?

List of Parties.

Petitioner is American Airlines, Inc., a Delaware cor-

poration with its principal place of business in Texas.

American Airlines, Inc. is a wholly-owned subsidiary of

AMR Corporation, a Delaware corporation. The following

are affiliates of American Airlines: AA Development

Corporation; AA Energy Corporation, American Airlines

Training Corporation, and Flagship International, Inc.

In addition to the Petitioner, Braniff Airways, Incorpo-

rated, and the Civil Aeronautics Board were parties to the

proceeding below. It should be noted, however, that Pacific

Southwest Airlines, Inc., filed a brief in the Court of Ap-

peals in which it identified itself as an appellee even though

Petitioner believes it was not a party to the proceeding in

the District Court and Bankruptcy Court with respect to the

issues presented by this Petition. Petitioner also is serving

certain other participants in the Braniff Chapter 11 case,

although Petitioner believes such participants were not par-

ties to the proceedings below with respect to the issues

presented by this Petition.

TABLE OF CONTENTS

Page

EE coc cake ccs adubdosvestendshisidsersesetee i

RECEP A re ee ee i

EE Ficskcccapacevensnsavasesrsadtcivercececoisess l

Statement of Jurisdiction .................ccccc ccc e cece eee e es 2

Constitutional Provisions, Statutes and Rules Involved 2

IE CN ME cs cpcnacscaverscsnanscescsessvecescoses 2

A. Basis for Federal Jurisdiction ..................... 2

ee EE SE EUMOOD sccndncisedvcscnsccecccccecssecns 3

C. Course of Proceeding and Disposition in Court

RMU dre oceupnchevnedsdbintsesedesesceesses 5

NE ME IE WUUEE coc secsicsinsesdcncovcesesesteess 9

A. The Court of Appeals for the Fifth Circuit Has

Decided an Important Question of Federal Law

Which Has Not Been, but Should Be, Settled

EIN. cdl cbtrcescvbpeverttheradstersneievevien 9

B. The Court of Appeals for the Fifth Circuit Has

Decided an Important Question of Federal Law

in a Way That Conflicts With This Court's De-

IIE ccdvnch ds paccsscinssccsenséensencs |

1. The Marathon Decision Invalidates the En-

tire Jurisdictional Grant Contained in the

Bankruptcy Reform Act ............c0c0c0e0es 12

2. The Local Rule Conflicts With the Mandate

of Article III Recognized by Marathon .... 14

3. The Local Rule and Reference Order Con-

flict With the Mandate of Marathon That

Only Congress May Remedy the Present

IIE WEEE. cicdeokstchesecsdasseceseese 16

4. The Local Rule and Reference Order Con-

travene the Congressional Intent Recog-

Mized in Marathon ...........ccscccccccecseceses 17

iii

Page

C. The District Court Is Without Jurisdiction Over

NG SAE ca ssietacadstndeideragececagintes 18

1. Section 1331 Does Not Grant the District

Court Jurisdiction Over Bankruptcy Cases

sopsseasuintuahaanihasisapmanutuateieieenecieeests 18

2. Old Section 1334 Is Not a Presently Effec-

tive Grant to the District Court of Bank-

SUICY TUTIOTICTION: oo csdetse sc cnvesaierccrnesess 21

D. The District Court Was Without Authority to

Promulgate the Local Rule or Order the Specific

MIEN. <. c cciucnsutiutidianddembicncseradaeenavesess 23

1. Rule 83 Does Not Authorize Promulgation

EB I a dias doc ce bids vscrenvaceseas 24

(a) The Local Rule Exceeds the Scope of

Authority Conferred by Fed. R. Civ.

PM cs ee cuMaloucs bavees cue eeuen nanos 24

(b) The Local Rule Is Inconsistent With

DEEN <co cecccessaudscedenkadvalasatessans 25

2. The District Court Had No Inherent Au-

thority to Promulgate the Local Rule or

Order the Specific Reference ................ 26

(a) The Rule and the Reference Order Are

Beyond the Inherent Power of the Dis-

ao aisanahe 27

(b) Rule 53 Limits the Inherent Power of

ee ee anu), c cer cenvacavasts 28

I irs ee eee ee 28

Appendix A.

eee een nee

Appendix B.

Appendix C.

Appendix D.

Appendix E.

Appendix F.

Page

INDEX TO APPENDICES

Decision of the Court of Appeals ......

pagdeussidebdicUewauadcavncegenpxidieess App. p. |

IN cari susasusacaslsdentspertinveiniassenss 2

Memorandum Opinion ................6+ 5

Order of Certification .............:00eee 18

GUGOT GE FUTINGICTION~ ccs ivicescccscccess. 20

Test of Constitutional Provisions, Stat-

SINE 7 calc sencbarskcvadsnvuaedianeausdescasesess 22

TABLE OF AUTHORITIES CITED

Cases Page

American Construction Co. v. Jacksonville T&K.W.R.

Cg PO Mises SIS CERIO) i cvesivccccsiacicncvacareconaes 10

Arthur Murray, Inc. v. Oliver, 364 F.2d 28 (8th Cir.

ao Sia dinate soapencnanchoelassiodotisesissecncienhs 25

Brown, In re, 9 Bankr. Ct. Dec. 1276 (Bankr. W.D.

i Ci EEE: sscolnechwnanieanscserncsscerscevecess’ 9

Callister, In re, 673 F.2d 305 (10th Cir. 1982) ........ 22

Colgrove v. Battin, 413 U.S. 149 (1973) ...........0.8. 24

Color Craft Press Ltd., In re, No. 82 PM-0974 (Bankr.

D. Utah Feb. 7, 1983), rev'd No. 83-0140J (D. Utah

ES BUEN sakcdhaixedevecanssssseensovansscsaseeveress 9

Conley, In re, No. 382-990 (Bankr. M.D. Tenn. Jan.

NE occketeitesenitasiniaskessiasnevankueneseensennsds 9

Continental Grain Co. v. Borge FBL-585, 364 U.S. 19

Nichi dalencbanukeKesenesawprisesischiissisieteneies 10

Fortnightly Corp. v. United Artists Television, 392 U.S.

SET ct5cnachadehextveskescesseckerenneanensaeresaasess 10

Isis Foods, Inc., In re, 9 Bankr. Ct. Dec. 1291 (Bankr.

DE: CU hy: WIP. sosscoseecnssssddececstonasnsess 9

Jermoo’s Inc., Inre, No. 83-C-174-C (W.D. Wis. March

ITT ctlcclinianssehatsssiscecesetededssnsbcuswensnes )

Johns-Manville Corp., In re, No. 82-6221A (Bankr.

ESA, WEly WIROD <cessiccscnsrsanactencssascecsenss w)

Kutner, In re, 656 F.2d 1107 (Sth Cir. 1981), cert.

Genied, 455 U.S. 94S (19B2) ..........ccccercecscscsses 22

LaBuy v. Howes Leather Co., Inc., 352 U.S. 249

a tall aie deals ven gens cutbadsnesupegesassheatss Sac ae

Land v. Dollar, 330 U.S. 731 (1947) .........cecceee eee 10

Page

Larson v. Domestic and Foreign Commerce Corp., 337

EE EE Coc ducdécejavishravcaseteverssadesboavines

Lehigh Mining and Manufacturing Co. v. Kelly, 160

MEE sce chica rsesthvactadsseucseecdertdeceses¢s

Maiorino v. Branford Sav. Bank, 691 F.2d 89 (2nd Cir.

READE aS ecb es tess vtidenhubiadenén sess vucssees

Matlock Trailer Corp., In re, No. 382-02778 slip op.

at 20-21 (M.D. Tenn. Feb. 23, 1983) ................

Meyers v. Bethlehem Shipbuilding Corp., 303 U.S. 41

ESM EU cL cadaselinceuntuusesrsnkeheesssssiatescinsase

Miner v. Atlass, 363 U.S. 641 (1960) ................085

New York State Higher Education Services Corp. v.

Adamo, 619 F.2d 216 (2d Cir. 1989) ............ 21,

Northern Pipeline Construction Co. v. Marathon Pipe

Line Co., __ U.S. —, 102 S.Ct. 2858 (1982).......

Da iparaGhdaasubdabthucentaunecnee ay a, Ty Oe ey fe

disiistsenisedaniatnassssie 13, 14, 15, 16, 17, 18, 24,

Northland Point Partners, In re, Nos. 82-2277-W & 82-

2332-W (E.D. Mich. Jan. 7, 1983) .............ss008

Owen Equipment & Electric Co. v. Kroger, 437 U.S.

SEE: UGA TSEU AEA Seka iushipeainvevhicesvsdasoevscessses

Peterson, Ex Parte, 253 U.S. 300 (1920) .......... 27,

Richardson, In re, No. 82 PC-0746 (Bankr. D. Utah

Feb. 7, 1983), rev’d No. 83-0139J (D. Utah Feb. 22,

I Ne Seka bie cheba a hankiacinapyanspsciéndésnctas

Romero v. International Terminal Operating Co., 358

NII vvclnccnspochctcstiinctedesessbersesscevecse

Schear Realty & Investment Co., In re, 1983 Bankr. L.

Rep. (CCH) 968,949 (Bankr. S.D. Ohio (1982) ....

Vii

Page

Schnell v. Peter Eckrich & Sons, 365 U.S. 260

GED <2 i cpcc sabaeapesecsdecis sos apudansaniacaxioriaaornse 10

Trac Records, In re, 9 Bankr. Ct. Dec. 1011 (Bankr.

Pe, NINE: cikcadi cn cecansaeie conus crankocssetebes 9, 14

Turner v. Bank of North America, 4 U.S. (4 Dall.) 8

RP i duicencedunccdavoshusccudiccaaumeransesbekccvewecderts 19

United States v. General Motors Corp., 323 U.S. 373

SUE A nicl cu haduan tase Sons chuet cares oc catvisaecasvdeaee 10

United States v. Sherwood, 312 U.S. 584 (1941) ..... 25

Wolf, In re, Bankr. L. Rep. (CCH) 967,947 (Bankr.

i Nc WUE D inedacccckevecuckecaiacidagee ss bercotuaksens 22

Wilver v. Fisher, 387 F.2d 66 (10th Cir. 1967) ....... 26

Constitution

United States Constitution, Art. III, Sec. 1 ............. 2

Miscellaneous

H.R. Rep. No. 807, 97th Cong., 2d Sess., 2, 60

SEDs aannsvnidnatetecaeuelusbexkervuesareapebeseeeeesinaneh )

Rules

Federal Rules of Bankruptcy Procedure, Rule 927 ....

Fras Ceawanaeonehe bana tml oes s TNA ORR DLauiuaere 2,235.0"

Federal Rules of Civil Procedure, Rule 3 ............... 19

Federal Rules of Civil Procedure, Rule 53 ..... p a Pa

Federal Rules of Civil Procedure, Rule 53(a) ........... 25

Federal Rules of Civil Procedure, Rule 53(b) ..... 25, 26

Federal Rules of Civil Procedure, Rule 53(e) ........... 26

Federal Rules of Civil Procedure, Rule 53(e)(2) ....... 26

Federal Rules of Civil Procedure, Rule 82 .............. 25

Federal Rules of Civil Procedure, Rule 83 ..... 2, 24, 25

Rules of District Court, Rule (e)(2)(B) ..............006. 26

Rules of United States Supreme Court, Rule 17 ....... 2

Vill

Page

Statutes

Bankruptcy Act of 1898, Sec. 2(a)(15) ...........0eeeees 24

Bankruptcy Code, Sec. 105 ...........ssscceecees 15, 23, 24

Bankruptcy Code, Sec. 363(D) .....ccccccccccsccvcsceseess 16

Bankruptcy Code, Sec. 363(m) ..........csssscccscscsceeee 16

Bankruptcy Reform Act of 1978, Pub. L. No. 95-598,

ls IE -secesscsswuashantdseascedeusnsnesnsbianeeeneimeins 2

Bankruptcy Reform Act of 1978, Pub. L. No. 95-598,

Rs: HOME « sacvirnshdderapepibbascnssataainoneeres 2, 14, 24

Bankruptcy Reform Act of 1978, Pub. L. No. 95-598,

BE: SIO UED . vninassnccsncachaticanstevacniaacignveaieenmion 2

Bankruptcy Reform Act of 1978, Pub. L. No. 95-598,

Bs SPUD cceisonuchsoanckeiaderanennesbensukansconeaianens 2

Bankruptcy Reform Act of 1978, Pub. L. No. 95-598,

Ss ME Soi nbopnscnncvncedcsbecxansenapsaninailaanaanaaens 2

Bankruptcy Reform Act of 1978, Pub. L. No. 95-598,

OR: SED sane rranscaiontsensvicheheariminindentecasmeaeels 2

Bankruptcy Reform Act of 1978, Pub. L. No. 95-598,

NG. GROOMED choc cobinuiidnanencsntconscmcesapsvouneinedls 22

Bankruptcy Reform Act of 1978, Pub. L. No. 95-598,

PE GD Ss cudtwcacnsavduciduereneserssaheenenaneeonns 22

Bankruptcy Reform Act of 1978, Pub. L. No. 95-598,

SNE. THOU Sescidvrviskiichdevcevantswnritbnekesstapastennes 24

Federal Aviation Act of 1958, Sec. 401(g)(3) .......... 5

> NN TE ERD, Di SEG a siivccveseetkhip cas cdipcevdaenes 19

PR NS TE CMI B88) ios snisctegvcorsivacececaccates 19

BD DUNES OF LAI DB. SIO i. cose cinccseseenccsccsscicess 19

30 Statutes at Large, pp. S45, S52 ..........cccesecevenee 19

0b DARMNG ME LOGO, P. GIS oo. cocscevevesiarsvenprevereses 19

92 Statutes at Large, p. 2668 ............:cccssceeseeeeeees 19

Page

94 Statutes at Large, p. 23GD .....cccserossccsssscsseeveees 19

United States Code, Title 11, Sec. 105 .................. 2

United States Code, Title 11, Sec. 502(b)(1) ........... 19

United States Code, Title 11, Sec. 510 .................. 19

United States Code, Title 11, Sec. 541 .................. 19

United States Code, Title 11, Sec. 544 .................. 19

United States Code, Title 11, Sec. 545 .................. 19

United States Code, Title 11, Sec. 546 .................. 19

United States Code, Title 28, Sec. 332 .................. 24

United States Code, Title 28, Sec. 332(d) .............. 2

United States Code, Title 28, Sec. 1254(1) ............. 2

United States Code, Title 28, Sec. 1292(b) ...... 6,7, 10

United States Code, Title 28, Sec. 1331 ................

United States Code, Title 28, Sec. 1332(c) ............. 23

United States Code, Title 28, Sec. 1334 ................

MUNMARKEnGataddenaataevesscinns Bie Ba ty WO, hg eee

United States Code, Title 28, Sec. 1471 ....... ~ a

United States Code, Title 28, Sec. [471 (a) .... 7, 11, 13

United States Code, Title 28, Sec. 1471(b) .... 7, 11, 13

United States Code, Title 28, Sec. 1471(c) ........ 12, 13

United States Code, Title 28, Sec. 2071 ....... aa ae

Treatise

1 Collier on Bankruptcy, {2.61 (14th ed. 1974) ....... 24

No.

IN THE

Supreme Court of the United States

October Term, 1982

In re BRANIFF AIRWAYS, INCORPORATED, et al.,

Debtors.

AMERICAN AIRLINES, INC.,

Petitioner,

Vs.

BRANIFF AIRWAYS, INCORPORATED, et al.,

Respondents.

PETITION FOR WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT.

OPINIONS BELOW.

The Decision of the Court of Appeals dated February 28,

1983, not yet reported, appears in Appendix A. The Order

of the United States District Court for the Northern District

of Texas dated January 14, 1983, not yet reported, appears

in Appendix B, and the Memorandum Opinion dated Jan-

uary 20, 1983, reported at Jn re Braniff Airways, Inc., 10

Bankr. Ct. Dec. 30(N.D. Texas 1982), appears in Appendix

C. The Order of the District Court dated January 21, 1983,

not reported, appears in Appendix D, and the Order of the

Bankruptcy Court dated January 15, 1983, not reported,

appears in Appendix E.

wee

STATEMENT OF JURISDICTION,

The Order of the Court of Appeals was entered on Feb-

ruary 28, 1983. This petition was timely filed within ninety

days of that date. Section 1254(1) of Title 28 of the United

States Code confers on this Court jurisdiction to review the

decree in question.

CONSTITUTIONAL PROVISIONS, STATUTES AND RULES

INVOLVED.

U.S. Const., art. Ill, § 1

Bankruptcy Reform Act of 1978, Pub. L. No. 95-598:

§ 238

§ 241(a)

§ 401(a)

§ 404(a)

§ 405

11 U.S.C. § 105

28 U.S.C. § 332(d)

28 U.S.C. § 1331

28 U.S.C. § 1332

28 U.S.C. § 1334

28 U.S.C. § 2071

Sup. Ct. R. 17

Fed. R. Civ. P. 53

Fed. R. Civ. P. 83

Fed. R. Bankr. P. 927

Local Rule of the Northern District of Texas Concerning

Bankruptcy Cases and Proceedings

The text of the above-listed provisions is reproduced in

Appendix F.

STATEMENT OF THE CASE.

A. Basis for Federal Jurisdiction.

The alleged basis for federal jurisdiction in the court of

first instance are Sections 241(a) and 405(b) of the

Bankruptcy Reform Act of 1978, Pub.L.No. 95-598 (the

cities

**Bankruptcy Reform Act’’), or, in the alternative, Sections

1331, 1332 and 1334 of Title 28 of the United States Code

(the ‘Judicial Code’’). Petitioner contends that neither as-

serted basis confers jurisdiction over the bankruptcy matters

and proceedings below.

B. Statement of Facts.

The failure of Congress to enact remedial legislation prior

to the December 25, 1982 entry of this Court’s judgment

in Northern Pipeline Construction Co. v. Marathon Pipe

Line Co., _ U.S. —_, 102 S.Ct. 2858 (1982) has created

significant confusion about the propriety of the exercise of

bankruptcy jurisdiction by district court judges and bank-

ruptcy judges. Nevertheless, transactions involving enor-

mous sums of money and actions substantially affecting the

rights of numerous parties are continuing to be considered

by a court whose statutory grant of jurisdiction was found

unconstitutional by this Court in Marathon. Marathon held

that the jurisdictional grant to bankruptcy courts under Sec-

tion 241(a) of the Bankruptcy Reform Act violated Article

III of the Constitution. This Court initially stayed its ruling

in Martahon until October 4, 1982, to ‘‘afford Congress an

opportunity to reconstitute the bankruptcy courts or to adopt

other valid means of adjudication, without impairing the

interim administration of the bankruptcy laws.’’ 102 S.Ct.

at 2880. Although this Court later extended the stay until

December 24, 1982, it denied a December 23, 1982 request

to further extend the stay. On December 25, 1982, the

Marathon judgment was entered.

The Judicial Conference of the United States, in response

to the absence of curative legislation and the expiration of

the stay of judgment in Marathon, proposed a local rule to

be adopted by all United States District Courts (the ‘* District

Courts’’) to govern the conduct of bankruptcy cases pending

the adoption of curative legislation. At the instruction of the

Fifth Circuit Judicial Council, the proposed rule was adopted

in the Northern District of Texas as the Local Rule of the

Northern District of Texas Concerning Bankruptcy Cases

and Proceedings (the *‘Local Rule’’). A substantially similar

local rule has been adopted in virtually every District Court.

The Local Rule automatically refers all bankruptcy cases,

and all proceedings arising out of or related thereto, to the

existing bankruptcy judges. In proceedings denominated

‘‘core’’ matters, the bankruptcy judge is authorized to enter

a final judgment or order that is effective upon entry, unless

stayed pending appeal. In the case of ‘‘related proceed-

ings’’, the bankruptcy judge may not enter a judgment or

dispositive order, but must submit findings, conclusions and

a proposed judgment or order to the District Court Judge.

A party aggrieved by an order of the bankruptcy judge

in a core matter must timely appeal to the District Court.

The standard of review of judgments entered in core matters

and of proposed judgments lodged in related proceedings

is within the discretion of the District Court. The District

Court Judge is not required to give deference to the findings

of the bankruptcy judge and may accept, reject or modify

the judgment of the bankruptcy judge.

The decision below deals directly with the issues raised

by entry of the Marathon judgment — the Court of Appeals

held that the District Courts have bankruptcy jurisdiction

and may validly delegate jurisdiction to the bankruptcy

judges to enter final orders and judgments. This decision

affects several adversary actions brought by Braniff against

third parties, as well as the interests of thousands of share-

holders, creditors and other parties in interest. Because the

issues presented in this case concern whether the District

Courts have bankruptcy jurisdiction and whether the Local

Rule, which has been adopted in substantially the same form

throughout the nation, constitutionally aii validly delegates

such jurisdiction, this case will determine the integrity of

the entire bankruptcy system.

a te

C. Course of Proceeding and Disposition in Court

Below.

On May 13, 1982, Braniff and two of its affiliated com-

panies filed petitions for reorganization under Chapter 1! 1

of Title 11 of the United States Code (the *‘Bankruptcy

Code’’) in the United States Bankruptcy Court for the North-

ern District of Texas, Fort Worth Division (the ‘Bankruptcy

Court’’).' On September 27, 1982, Braniff commenced an

adversary proceeding (the ‘* Adversary Proceeding’’) against

the Civil Aeronautics Board (the ‘‘CAB’’) in the Bankruptcy

Court seeking to enjoin the CAB from revoking, uider

§ 401(g)(3) of the Federal Aviation Act of 1958, as

amended, Braniff’s certificate of public convenience and

necessity to engage in air transportation over the Dallas/Fort

Worth-London route and to require the CAB to designate

Braniff as the sole United States flag carrier on that route.

On December 29, 1982, Petitioner, which had been granted

authority by the CAB to serve the Dallas/Fort Worth-

London route in place of Braniff, filed a motion to intervene

in the Adversary Proceeding. The motion was granted by

a December 29, 1982 order of the Bankruptcy Court.

On January 11, 1983, Petitioner filed a motion in the

District Court to revoke the Local Rule’s automatic refer-

ence of the Adversary Proceeding to Bankruptcy Judge

Flowers. On January 14, 1983, the District Court entered

an order which: (1) held the Local Rule constitutional and

valid in all respects; (2) held the District Court to have

jurisdiction over bankruptcy matters and proceedings pur-

suant to Sections 1331, 1332, 1334 and 1471 of Title 28

of the United States Code; (3) revoked the reterence effected

'The Braniff Chapter 11 case, consolidated for administrative pur-

poses with the Chapter || case of its affiliate Braniff International

Corporation, was assigned to The Honorable John Flowers, United

States Bankruptcy Judge. Braniff is the only major U.S. airline to have

filed Chapter 11 proceedings. Braniff has approximately $460 million

in assets and $1.2 billion in debts. Braniff is a publicly-held corporation

with more than 75,000 creditors and shareholders.

iiien

under the Local Rule; and (4) referred the entire Chapter

11 case of In re Braniff Airways, Incorporated, et al., in-

cluding all civil proceedings arising therein or related

thereto, to Bankruptcy Judge Flowers with instructions to

exercise powers and carry out functions identical to those

delineated in the Local Rule. The January 14, 1983 order

was certified for interlocutory appeal pursuant to 28 U.S.C.

§ 1292(b) by order of District Court Judge Mahon on Jan-

uary 18, 1983. On Jamuary 20, 1983, Judge Mahon issued

a Memorandum Opinion in support of the January 14, 1983

order.

A hearing in the Adversary Proceeding was held February

16, 1983. Supplemental briefing was requested by Bank-

ruptcy Judge Flowers, and he is expected to enter his order

shortly.

During the pendency of the Adversary Proceeding, Bran-

iff has brought numerous other matters and proceedings

t .ore Bankruptcy Judge Flowers, including the December

23, 1982 ‘‘Application For Order Setting Hearing to Con-

sider Agreement with Pacific Southwest Airlines.’’ The

application sought approval by the Bankruptcy Court of a

multi-million dollar lease, sale and loan agreement between

Pacific Southwest Airlines (‘‘PSA’’) and Braniff dated

December 22, 1982 (the ‘‘Agreement’’), which required

Braniff, inter alia, to transfer or cause to be transferred to

PSA certain airport landing rights (‘‘slots’’). In addition,

Braniff sought approval of a comprehensive compromise

and settlement by and among Braniff, its secured creditors,

and its unsecured creditors (the ‘‘Memorandum’’).

On January 14, 1983, at the commencement of the hearing

before Bankruptcy Judge Flowers to consider approval of

the Agreement and Memorandum, Petitioner and numerous

other parties objected to the Bankruptcy Court’s jurisdiction

to approve the Agreement and the Memorandum. On Jan-

uary 15, 1983, Bankruptcy Judge Flowers entered an order

overruling the objections to the jurisdiction of the Bank-

ruptcy Court. On appeal, District Judge Mahon, by order

dated January 21, 1983, affirmed the January 15, 1983

order of Bankruptcy Judge Flowers and concurrently

certified the January 21, 1983 order for interlocutory appeal

pursuant to 28 U.S.C. § 1292(b).

On January 25, 1983, Petitioner, seeking appeal of the

January 21, 1983 order and the January 14, 1983 order,

filed a Petition for Leave to Appeal Pursuant to 28 U.S.C.

§ 1292(b), which was granted by the United States Court

of Appeals for the Fifth Circuit on January 31, 1983. On

February 28, 1983, the Court of Appeals, in a per curiam

opinion, affirmed the judgment of the District Court essen-

tially for the reasons stated in the January 20, 1983 District

Court opinion, and specifically held that 28 U.S.C. §§ 1471(a)

and (b) were not invalidated by Marathon and, in any case,

28 U.S.C. § 1334 remained a presently effective

jurisdictional grant.

On February |, 1983, after eleven days of hearing, Bank-

ruptcy Judge Flowers entered an order approving the Agree-

ment and the Memorandum. On February 18, 1983, after

conducting a three-day de novo review hearing, the District

Court affirmed the February |, 1983 order of Bankruptcy

Judge Flowers.

The February 18, 1983 order approving the Agreement

and Memorandum was appealed to the United States Court

of Appeals for the Fifth Circuit by Petitioner and numerous

other parties. On March 2, 1983, the Court of Appeals for

the Fifth Circuit reversed the February 18, 1983 order of

the District Court and remanded the case for further pro-

ceedings consistent with its opinion. Braniff has filed a

petition for rehearing in banc with the Court of Appeals for

the Fifth Circuit.

Petitioner seeks a writ of certiorari to review the February

28, 1983 order of the Court of Appeals for the Fifth Circuit

affirming the District Court’s jurisdiction over the entire

Braniff Chapter 11 case, and the delegation of all such

jurisdiction to the Bankruptcy Court.

snlican

REASONS FOR GRANTING WRIT.

A. THE COURT OF APPEALS FOR THE FIFTH CIRCUIT

HAS DECIDED AN IMPORTANT QUESTION OF FED-

ERAL LAW WHICH HAS NOT BEEN, BUT SHOULD BE,

SETTLED BY THIS COURT.

The questions presented in this case are of the utmost

national importance. At stake is the administration of over

500,000 pending bankruptcy cases, involving billions of

dollars,’ in which orders are being entered by District Court

judges and bankruptcy judges pursuant to the local rules

without a jurisdictional foundation. The questionable valid-

ity of the local rules and the exercise of bankruptcy juris-

diction by the District Courts has created great uncertainty

in the administration of the nation’s bankruptcy laws. One

District Court and several bankruptcy courts have held in-

valid local rules similar to the one at issue herein, while

other District Courts and bankruptcy courts have upheld the

validity of the local rules.’ Notwithstanding the questionable

validity of the local rules, the promulgation of the rules has

"H.R. Rep. No. 807, 97th Cong. 2d Sess. 2, 60 (1982).

‘In In re Matlock Trailer Corp., No. 382-02778 slip op. at 20-21

(M.D. Tenn. Feb. 23, 1983), the district court held the respective local

rule invalid because it did not meet the standards of Fed. R. Civ. P.

53 and because it effected an unconstitutional delegation of judicial

wer. Holding local rules invalid on the basis that no bankruptcy

jurisdiction exists in either the district courts or the bankruptcy courts

are: In re Schear Realty & Investment Co., 1983 Bankr. L. Rep. (CCH)

{ 68,949 (Bankr. S.D. Ohio 1982). In re Conley, No. 382-990 (Bankr.

M.D. Tenn. Jan. 26, 1983) (not reported). See also In re Trac Records,

9 Bankr. Ct. Dec. 1011 (Bankr. N.D. Ga. 1982). Two bankruptcy court

decisions finding a lack of bankruptcy jurisdiction in the district courts

have been reversed on appeal. See In re Color Craft Press Ltd., No.

82 PM-0974 (Bankr. D. Utah Feb. 7, 1983), rev'd No. 83-0140) (D.

Utah Feb. 22, 1983); In re Richardson, No. 82 PC-0746 (Bankr. D.

Utah Feb. 7, 1983), rev'd No. 83-0139) (D, Utah Feb. 22, 1983).

Holding that there is an existing grant of bankruptcy jurisdiction to

the district courts are: Jn re Jermoo's, Inc., No. 83-C-174-C (W.D.

Wis. March 7, 1983); In re Northland Point Partners, Nos, 82-2277-

W & 82-2332-W (E.D. Mich. Jan. 7, 1983) (not reported); /n re Johns-

Manville Corp., No. 82-6221A (Bankr. $.D.N.Y. Jan. 10, 1983) (not

reported); /n re Isis Foods, Inc., 9 Bankr, Ct. Dec. 1291 (Bankr. W.

D. Mo. Jan. 5, 1983); In re Brown, 9 Bankr. Ct. Dec. 1276 (Bankr.

W.D. Mo. Jan. 4, 1983).

abeliiNiion

lulled Congress into believing a legitimate basis currently

exists for the exercise of bankruptcy jurisdiction and that,

accordingly, there is no urgent need for it to enact a leg-

islative remedy to the jurisdictional void created by Mar-

athon.

A prompt decision by this Court is required in order to

resolve the current uncertainty.‘ If this Court finds that the

District Courts have bankruptcy jurisdiction and that the

Local Rule properly delegates such jurisdiction to a non-

Article III tribunal, certainty will be restored to the admin-

“The interlocutory nature of the orders below should not deter this

Court from granting a writ of certiorari to review the important questions

presented in this case. Review of the subject orders is proper at the

present stage of the proceeding because the important jurisdictional and

constitutional questions presented are fundamental to the further conduct

of this case. See United States v. General Motors Corp., 323 U.S. 373

(1945); Land v. Dollar, 330 U.S. 731 (1947); Larson v. Domestic and

Foreign Commerce Corp., 337 U.S. 682 (1949). Similarly, this Court

has reviewed interlocutory orders by a writ of certiorari where *‘there

was an insuperable objection to the maintenance of the suit in xY of

jurisdiction,’’ Meyers v. Bethlehem Shipbuilding Corp., 303 U.S. 41

(1938), and where a case presented a novel and important question

affecting the administration of justice in the Court of Appeals, the

resolution of which in favor of the petitioner would render void the

decree of the Circuit Court, American Construction Co. v. Jacksonville

T & K.W.R. Co., 148 U.S. 372 (1893). These principles are equally

— to the issues presented in the instant case.

courts below, having certified the subject orders under Section

1292(b) of the Judicial Code, found the questions of law presented

herein to involve controlling issues, the resolution of which would

materially advance the termination of litigation. This Court has not

hesitated to grant a writ of certiorari to review interlocutory orders that

have been certified for interlocutory appeal under § 1292(b) where

important and novel questions of federal law have been presented. See,

e.g., Fortnightly Corp. v. United Artists Television, 392 U.S. 390

(1968); Schnell v. Peter Eckrich & Sons, 365 U.S. 260, 261 n. 2 (1961);

a Grain Co. v. Barge eee ‘ Se eeiard (1960).

ivil proceedings arising in or related to raniff Chapter 11 case

are continuin ‘obo adjudicated by the bankruptcy judge below. De-

laying consideration of the fundamental issues presented in this case

until a later stage of the proceeding would cause ey oF injury to

petitioner and numerous other parties to proceedings being conducted

in Braniff's Chapter 11 case, as well as to parties to the 500,000 other

— bankruptcy cases. Clearly, review by a writ of certiorari at this

stage of the ng is necessary ‘‘to prevent extraordinary incon-

venience embarassment in the conduct of the cause.’’ American

Construction Co. v. Jacksonville T & K.W.R. Co., 148 U.S. at 384.

istration of the nation’s bankruptcy system, thereby dis-

posing of the numerous challenges to the local rules that are

now being made throughout the country. If this Court holds

that the jurisdictional void created by Marathon cannot be

cured by judicial fiat and that the Local Rule unconstitu-

tionally delegates the essential attributes of judicial power

to non-Article III judges, Congress surely will enact a leg-

islative remedy to the jurisdictional void promptly.

B. THE COURT OF APPEALS FOR THE FIFTH CIRCUIT

HAS DECIDED AN IMPORTANT QUESTION OF FED-

ERAL LAW IN A WAY THAT CONFLICTS WITH THIS

COURT’S DECISION IN MARATHON.

Although the important question decided by the Court of

Appeals has not been expressly settled by this Court, the

order affirming the existence of a statutory grant of bank-

ruptcy jurisdiction to the District Court and the constitu-

tionality and validity of the Local Rule is plainly in conflict

with this Court’s decision in Marathon in four respects.

First, although Marathon invalidated the entire grant of

bankruptcy jurisdiction contained in the Bankruptcy Reform

Act, the Court of Appeals held that subsections (a) and (b)

of Section 1471 of the Judicial Code are an existing source

of bankruptcy jurisdiction exercisable by the district courts.

Second, Marathon held unconstitutional the exercise of the

essential attributes of judicial power — the entering of final

orders — by the Article I bankruptcy judges where the

claims being adjudicated arise under state law. The plurality

opinion of Justice Brennan also made clear that even with

respect to congressionally created rights, only those rights

which are inherently public in nature may be initially ad-

judicated by a non-Article III forum. The Local Rule, how-

ever, permits bankruptcy judges to enter enforceable final

orders in cases which involve the adjudication of rights

created under state law and of congressionally-created rights

not public in nature, clearly violating the Article III precepts

on ven

recognized in Marathon, Third, promulgation of the Local

Rule conflicts with the mandate of Marathon that the re-

structuring of the bankruptcy laws is for Congress, not the

judiciary, to undertake. Fourth, the two-tiered system cre-

ated by the Local Rule conflicts with the recognition in

Marathon that Congress intended trial court jurisdiction in

bankruptcy matters be exercised in a single forum.

1. The Marathon Decision Invalidates the Entire

Jurisdictional Grant Contained in the Bankruptcy

Reform Act.

The Marathon decision held unconstitutional the juris-

dictional grant in 28 U.S.C. § 1471, which in subsection

ary jurisdiction in bankruptcy cases. Because the exercise

of bankruptcy power by bankruptcy judges was an integral

and non-severable part of a statutory scheme to eliminate

the distinction between plenary and summary jurisdiction

and to have all matters tried before the non-Article III

bankruptcy judges, the plurality, joined by the concurring

opinion of Justices Rehnquist and O’Connor, declined to

transfer the Marathon proceeding to the civil docket of the

District Court. In recognizing the non-severability of the

three subsections of § 1471, Justice Brennan stated:

It is clear that, at the least, the new bankruptcy judges

cannot constitutionally be vested with jurisdiction to

decide this state-law contract claim against Marathon.

As part of a comprehensive restructuring of the bank-

ruptcy laws, 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. /n these circumstances

we cannot conclude that if Congress were aware that

the grant of jurisdiction could not constitutionally en-

compass this and similar claims, it would simply re-

move the jurisdiction of the bankruptcy court over these

matters, leaving the jurisdictional provision and ad-

judicatory structure intact with respect to other types

of claims, and thus subject to Art. Ill constitutional

challenge on a claim-by-claim basis. Indeed, we note

that one of the express purposes of the Act was to

ensure adjudication of all claims in a single forum and

to avoid the delay and expense of jurisdictional dis-

putes. See H.R. Rep. No. 95-595, supra, pp. 43-48;

S. Rep. No. 95-989, p. 17 (1978). Nor can we assume,

as the Chief Justice suggests, post, at 2, that Congress’

choice would be to have this case ‘routed to the United

States district court of which the bankruptcy court is

an adjunct.’ We think that it is for Congress to deter-

mine the proper manner of restructuring the Bank-

ruptcy Act of 1978 to conform to the requirements of

Art. Ill, in the way that will best effectuate the

legislative purpose.

102 S.Ct. at 2880 n. 40 (emphasis added).°

Although the Marathon decision did not have a majority

opinion, six justices of this Court: (1) agreed that Marathon

should be dismissed and not transferred to the civil docket

of the District Court; (2) recognized that subsections

1471(a), (b) and (c) constituted a unitary and non-severable

grant of jurisdiction to bankruptcy courts; and (3) held that

it was for Congress, not the courts, to restructure the bank-

ruptcy court system in a manner consistent with Article III

and the legislative purposes of the Bankruptcy Reform Act.

These determinative aspects of Marathon compel the con-

clusion that there remains under 28 U.S.C. §§ 1471(a) and

‘The concurring opinion of Justice Rehnquist, with whom Justice

O'Connor joined, concluded as follows:

Because | agree with the plurality that this grant of authority is

not readily severable from the remaining grant of authority to

Bankruptcy Courts under § 241(a), see ante at 2880 n. 40, |

concur in the judgment.

102 S.Ct. at 2882.

ae vee

(b) no effective grant of bankruptcy jurisdiction to the Dis-

trict Courts.°

Because the power of the bankruptcy judge to hear and

decide bankruptcy cases and proceedings derives from the

Local Rule and the January 14, 1983 order incorporating

the Local Rule, and because the District Court which pro-

mulgated the Local Rule and made the January 14, 1983

order is without jurisdiction over the bankruptcy case, the

bankruptcy judge is without power to consider matters and

proceedings arising in the /n re Braniff Airways, Incorpo-

rated, et al. Chapter 11 case. The decision of the Court of

Appeals must therefore be reversed.

2. The Local Rule Conflicts With the Mandate of

Article III Recognized by Marathon.

Under the Local Rule, bankruptcy judges may enter final

orders, effective upon entry, in those matters not denomi-

nated ‘‘related proceedings.’ Included within those matters

in which the bankruptcy judges are authorized to enter final

orders are claims, counterclaims, fraudulent conveyances,

preferences and other private rights involving matters in

which the state law provides the rule of decision or signif-

icantly impacts the rule of decision.’ Because these matters

“In contrasting the adjunct schemes upheld in prior decisions with the

judicial power vested in the “adjunct”’ bankruptcy court, Justice Bren-

nan stated that the ‘* ‘adjunct’ bankru ce pa courts created by the Act

exercise jurisdiction behind a facade o rant to the district courts.’

102 S.Ct. at 2879. Justice Brennan earlier had noted that ‘‘the ultimate

repository of the Act's broad jurisdictional grant is the bankruptcy

courts."’ 102 S.Ct. at 2862. See also In re Trac Records, 9 Bankr. Ct.

Dec. 1011, 1019 (Bankr. N.D. Ga. 1982) (entire grant of jurisdiction

in Section 241(a) of the Bankruptcy Reform Act invalidated by Mar-

athon, and no post-Marathon bankruptcy jurisdiction is retained by the

district courts).

"The distinction maintained between related proceedings and core

proceedings under the Local Rule does not parallel the Bankruptcy Act

distinction of plenary and sum jurisdiction. With respect to straight

bankruptcy cases, summary jurisdiction under the Bankruptcy Act did

not include fraudulent conveyances, preferences, and other matters

which are encompassed within the ‘‘core’’ proceedings definition. Jus-

tice Justice Brennan suggested in Marathon that even the exercise of

summary jurisdiction wu the Bankruptc picy Act was of questionable

constitutionality. See 102 S.Ct. at 2876 n. 31 (broad powers exercised

by referees under the Bankruptcy Act “‘have never been oreeny

endorsed by this court’’). See also In re Trac Records, 9 B

Dec, 1011, 1019 (Bankr. N.D. Ga. 1982).

involve private rights created under state law, the authority

conferred by the Local Rule to enter a final judgment which

is enforceable unless stayed pending appeal violates Article

Ill.

In affirming the constitutionality of the Local Rule, the

Court of Appeals necessarily found that Marathon sanctions

the entry of orders by bankruptcy judges in core proceedings

because (1) the restructuring of debtor-creditor relations is

a public right the adjudication of which may be assigned

by Congress to an Article I judge; and (2) core proceedings

as defined under the Local Rule involve the adjudication

only of congressionally-created public rights. This finding

is defective in two respects. First, the plurality in Marathon

declared only that the core of bankruptcy power — the

restructuring of debtor-creditor relations* — may be a public

right.” The plurality opinion of Justice Brennan provided

no further guidance on what part of the bankruptcy power

may involve ‘‘public rights.’ Second, even assuming the

term ‘‘public rights’? encompasses certain fundamental

rights created by the Bankruptcy Code, it is clear that the

rights which may be adjudicated by the Article I bankruptcy

judges in core matters fall well outside the realm of any

such congressionally-created public rights.'°

*The discussion was in the narrow context of an argument that a

discharge in bankruptcy is a public right. See 102 S.Ct. at 2871.

*102 S.Ct. at 2871. Later the plurality makes clear that it did not,

contrary to the suggestion of Justice White in dissent, concede that all

rights and duties created under federal law may be initially adjudicated

by Article I courts, 102 S.Ct. at 2876 n. 32. Thus, it simply reaffirmed

an earlier holding that some adjudicatory functions respecting federally

created rights may be assigned to non-Art. III forums. /d.

"The Court of Appeals implicitly found that the Bankruptcy Court's

consideration of the Agreement and Memorandum and whether to enjoin

the CAB involve only that part of the restructuring of debtor-creditor

relations that lies at the core of the federal bankruptcy power. This

obviously is not so. Approval of the Agreement and Memorandum

required the Bankruptcy Court to, among other things, construe con-

tracts, adjudicate state-created property rights, and approve the settle-

ment of state-created causes of action. Moreover, to the extent state law

was not at issue, the rights created under the Bankruptcy Code involved

whether to approve a transfer of assets between private parties, mani-

festly not something ‘‘public’’ in nature. Similarly, the issue in the

Adversary Proceeding — whether to enjoin the CAB under Bankruptcy

Code Section 105 from revoking a certificate that assertedly is property

of the estate — in no sense involves the adjudication of public rights.

De novo determination by the District Court does not cure

the Article III defect which exists under the Local Rule.

Marathon makes clear that where a final judgment is entered

by a non-Article III judge, with the burden on the appellant

to obtain a stay pending appeal, the essential attributes of

judicial power have been delegated irrespective of the scope

of review accorded on appeal.''

3. The Local Rule and Reference Order Conflict With

the Mandate of Marathon That Only Congress May

Remedy the Present Jurisdictional Void.

The Local Rule and the specific order of reference dated

January 14, 1983 (the ‘‘Reference Order’) do by judicial

fiat what this Court in Marathon expressly declined to do:

judicially legislate a solution to the constitutional impedi-

ment to the pervasive jurisdiction granted to the Article |

bankruptcy judges under the Bankruptcy Reform Act. In

Marathon, Justice Brennan stated unequivocally that ‘it is

for Congress to determine the proper manner of restructuring

the Bankruptcy Act of 1978."’ 102 S.Ct. at 2880 n. 40.

This Court attempted to prevent the present jurisdictional

void by holding that its decision in Marathon would only

apply prospectively as well as taking the unusual step of

staying its judgment until October 4, 1982 **. . . to afford

"Justice Brennan noted in Marathon that *‘the constitutional require-

ments for the exercise of judicial power must be met at all stages of

adjudication, and not only on appeal." 102 S.Ct. at 2879 n. 39.

In the proceedings below, Bankruptcy Judge Flowers’ February 1,

1983 order approving the Agreement and Memorandum became etfec-

tive immediately upon entry. Although Judge Flowers denied Peti-

tioner’s application for a stay, the parties, fortuitously, agreed not to

close the transaction pendig review by the District Court. Bankruptcy

Code Section 363(m) provides that unless stayed during appeal, the

reversal on appeal of an authorization under Section 363(b) to sell or

lease property of the estate does not affect the validity of such sale or

lease to an entity that purchased or leased such property in good faith,

whether or not such entity knew of the pendency of the appeal. Thus,

absent the agreement not to close the transaction, Petitioner would have

been foreclosed from any effective exercise of the *‘essential attributes

of judicial power’’ by an Article III court.

eT on

Congress an opportunity to reconstitute the bankruptcy

courts or to adopt other valid means of adjudication, without

impairing the interim administration of the bankruptcy

laws.’’ 102 §.Ct. at 2880. When Congress had not enacted

a legislative solution to the problem, but appeared to be

close, this Court took the extraordinary step of extending

the stay until December 24, 1982. When this Court declined

to further extend the stay, it fully realized the effect that

entry of the Marathon judgment would have on the bank-

ruptcy system. This Court undoubtedly determined that the

judicial branch 0. government had done all it could to allow

the legislative branch to painlessly remedy the problem

caused by the unconstitutional jurisdictional grant in the

Bankruptcy Reform Act, and it was unwilling to jeopardize

its institutional credibility by granting yet another extension

of the stay. The courts below have ignored the clear mandate

of this Court to leave the solution to Congress.

4. The Local Rule and Reference Order Contravene

the Congressional Intent Recognized in Marathon.

Assuming, arguendo, that Congress intended the district

court to be vested with trial court jurisdiction in the event

the grant of bankruptcy court jurisdiction in the Bankruptcy

Reform Act was found unconstitutional, the Local Rule

plainly is inconsistent with such Congressional intent. As

recognized in Marathon, the legislative history makes clear

that a primary objective of the Bankruptcy Reform Act was

to eliminate the summary/plenary jurisdiction distinction by

centralizing all bankruptcy jurisdiction in a single forum."

The Rule recreates the very same jurisdictional disputes and

"Justice Brennan noted in Marathon that *‘one of the express pu ses

of the Act was to ensure adjudication of all claims in a single forum

and to avoid the delay and expense of jurisdictional disputes.’* 102

S.Ct. at 2880 n. 40.

inefficiencies which Congress intended to eliminate by en-

acting the Bankruptcy Reform Act."”

C. THE DISTRICT COURT IS WITHOUT JURISDICTION

OVER BANKRUPTCY CASES.

The Court of Appeals found that even if Marathon in-

validated the entire jurisdictional grant contained in the

Bankruptcy Reform Act, the following statutory sections

provide an alternative source of bankruptcy jurisdiction ex-

ercisable by the District Courts: Sections 1331, 1332 and

1334 of the Judicial Code. These statutes provide no basis

for asserting jurisdiction over bankruptcy cases.

1. Section 1331 Does Not Grant the District Court

Jurisdiction Over Bankruptcy Cases.

The lower federal courts are courts of limited, not general,

jurisdiction, and courts have consistently construed Section

1331 narrowly to accomplish the legislative purpose of re-

stricting the availability of federal tribunals. Because federal

courts are courts of limited jurisdiction, this Court has long

recognized 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’’.

"In reviewing the approval by Bankruptcy Judge Flowers of the

Agreement, District Judge Mahon gave no deference to Judge Flowers’

findings. Thus, the parties were forced to pre for and undergo two

separate lengthy de novo hearings with the initial trial in effect serving

no adjudicatory purpose with respect to the findings made in the second

trial. On the other hand, Petitioner must rely on Judge Mahon’s state-

ment that in the short time available to him he reviewed the entire record

before the Bankruptcy Judge, eleven full days of trial. The validity of

the Local Rule necessarily requires reliance on a presumption that all

district judges will read the entire record on de novo review. Such

reliance is, as demonstrated above, insufficient grounds to find that

District Courts have not delegated the essential attributes of judicial

power to the bankruptcy judges.

Turner v. Bank of North America, 4 U.S. (4 Dall.) 8, 11

(1799)."*

Federal question jurisdiction, Section 1331 of the Judicial

Code, grants District Courts jurisdiction over all ‘‘civil ac-

tions arising under... laws . . . of the United States.”’

The federal question jurisdiction granted in Section 1331

has, except for changes in the amount in controversy re-

quirement, been defined the same way since 1875.'° Federal

question jurisdiction granted under Section 1331 and its

predecessor was never intended to include a grant of juris-

diction over bankruptcy matters and proceedings.'® Every

bankruptcy law enacted by Congress has included an express

and carefully delineated grant of bankruptcy jurisdiction to

the District Court.'’ Bankruptcy matters are sui generis,

involving a supervisory process over the estate of the debtor

that combines judicial and administrative functions in a

manner wholly inconsistent with the prerequisite for invo-

cation of federal question jurisdiction — the filing of a

‘‘civil action.’’'* If Congress had intended federal question

jurisdiction under Section 1331 to encompass jurisdiction

over bankruptcy matters, it would not have enacted express

“Thus, ‘‘the a in my stage of a cause [is] that it is

without the jurisdiction of a court of the United States.’’ Lehigh Mining

and Manufacturing Co. v. Kelly, 160 U.S. 327, 337 (1895).

"See 94 Stat. 2369; 72 Stat. 415; 18 Stat. 470.

"Federal question jurisdiction plainly could not have provided a

sufficient basis for bankruptcy jurisdiction prior to the 1980 elimination

y-! _ amount in controversy requirement effected by Pub. L. No. 96-

5 Stat. 446; 14 Stat. 517; 30 Stat. 545, 552: 92 Stat. 2668.

"See 28 U.S.C. § 1331; Fed. R. Civ. P. 3.

Moreover, federal question jurisdiction exists only where federal law

provides the rule of decision. Many aspects of bankruptcy law apply

state rules of decision. For example, a court determining the allowability

of claims (11 U.S.C. § 502(b)(1)), the enforceability of subordination

agreements (11 U.S.C. § 510), the validity of security interests (11

S.C. $§ 544, 545, 546), and what constitutes property of the estate

1 ncn § 541), wholly or primarily applies state law for the rule

0 ision.

ae ee

grants of bankruptcy jurisdiction in each bankruptcy law it

has enacted.

This Court in Romero v. International Terminal Oper-

ating Co., 358 U.S. 354 (1959), unequivocally answered

in the negative an assertion that federal question jurisdiction

under Section 1331 includes every claim which arises under

federal law, irrespective of the existence of other specifically

applicable sources of jurisdiction. There, the plaintiff had

urged that federal question jurisdiction included maritime

claims which arose under federal law. In rejecting the con-

tention that federal question includes admiralty jurisdiction,

this Court stated:

But neither the aim of the act of 1875 [the predecessor

of present 28 U.S.C. Section 1331] to provide a forum

for the vindiction of new federally created rights, nor

the pressures which led to its enactment, suggest, even

remotely, the inclusion of maritime claims within the

scope of that statute. The provision of the act of 1875

with which we are concerned was designed to give a

new content of jurisdiction to federal courts, not to

reaffirm one long-established, smoothly functioning

since 1789.

358 U.S. at 368.

Thus, this Court found it dispositive that Congress, as

with bankruptcy jurisdiction, had always enacted separate

statutory grants of admiralty jurisdiction, both before and

after the creation of federal question jurisdiction in 1875.

The rationale that prevented this Court in Romero from

finding that federal question jurisdiction encompassed ad-

miralty jurisdiction is equally applicable to the argument

that federal question jurisdiction encompasses bankruptcy

jurisdiction. Romero compels the conclusion that federal

question jurisdiction does not include, and has never

included, bankruptcy jurisdiction.

ede ains

2. Old Section 1334 Is Not a Presently Effective Grant

to the District Court of Bankruptcy Jurisdiction.

The Court of Appeals specifically found that the District

Court currently has jurisdiction under old Section 1334 of

the Judicial Code. This holding ignores the structure of the

court system created under the Bankruptcy Reform Act.

Old Section 1334 conferred upon the District Courts

“‘original jurisdiction, exclusive of the courts of the states,

of all matters and proceedings in bankruptcy.’’ 28 U.S.C.

§ 1334 (1976). The Court of Appeals found that Congress

intended this grant of ‘‘summary jurisdiction’’ to apply to

cases commenced under the Bankruptcy Code (‘‘Code

Cases’’) during the transition period. Not surprisingly, not

a single citation to the legislative history of the Bankruptcy

Reform Act has been or can be produced in support of this

assertion. The reason is clear: Congress could not have

intended Code Cases be subject to summary jurisdiction.

Moreover, there is no support or logic in the position that

Congress intended the summary jurisdiction conferred upon

bankruptcy courts under the Bankruptcy Act of 1898 to

apply in Code Cases alongside the wholly inconsistent pro-

visions of the Bankruptcy Reform Act which vest plenary

trial court jurisdiction in the bankruptcy courts and appellate

jurisdiction in the District Courts.

Courts have found that the transition provisions of the

Bankruptcy Reform Act regarding the effective date of par-

ticular enactments should not be construed in an overly

technical manner where to do so would subvert the intent

of Congress. In analyzing a gap in the effective dates of

Statutes governing the dischargeability of student loans, the

court in New York State Higher Education Services Corp.

v. Adamo, 619 F.2d 216 (2d Cir. 1980), stated:

We conclude that the hiatus between [the repeal of

the former statute and the effective date of its successor]

was purely a manifestation of congressional inadvert-

ence and that to follow blindly the plain meaning of

pe enis

the statute without regard to the obvious intention of

Congress would create an absurd result in accord with

neither established principles of statutory construction

nor common sense. . . .

Analysis of the legislative histwry of the [Bankruptcy

Reform Act] supports appellant’s contention that the

failure of the effective dates of the repeal and replace-

ment statutes to coincide resulted from a mistake of

Congress.

619 F.2d at 219. In language which is equally applicable

to a purported intention of Congress to continue during the

transition period the summary jurisdiction granted district

courts under old Section 1334, the court, holding that it

would not follow a construction which produced an unin-

tended result, stated that:

There is no indication in the history of the [Bankruptcy

Reform Act] that Congress intended to legislate such

an inconsistency or that it sought for some unexpressed

reason to create an approximately eleven month hiatus.

619 F.2d at 220.

New Section 1334 respecting appellate jurisdiction of the

District Court is presently effective under Section 405(c)(2)

of the Bankruptcy Reform Act. Several courts have noted

that during transition the only bankruptcy jurisdiction that

can be exercised by District Courts with respect to cases

commenced on or after October 1, 1979 is that found in the

new Section 1334."

"See, e.g., Maiorino v. Branford Sav. Bank, 691 F.2d 89 (2d Cir.

1982) ($ 405(c)(2) of the Bankruptcy Reform Act grants to the District

Courts the same jurisdiction over appeals from decisions of bankruptcy

judges that will apply after the transition period; although certain tran-

sition provisions which were hastily drawn during an eleventh hour

compromise produced ntly inadvertent inconsistencies in the stat-

ute, construction of § 405(c)(1) that would lead to incongruous and

anomalous result should be avoided absent some evidence that Congress

deliberately intended such result). Accord In re Callister, 673 F.2d 305

(10th Cir, 1982); In re Kutner, 656 F.2d 1107 (Sth Cir. 1981), cert.

denied, 455 U.S. 945 (1982); In re Wolf, Bankr. L. Rep. (CCH)

{ 67,947 (Bankr. D. Mass. 1981).

~~,

Congress plainly could not have intended the grant of

summary jurisdiction” under old Section 1334 to apply to

Code Cases alongside the plenary grant of trial court juris-

diction to the bankruptcy judges and the grant of appellate

jurisdiction to the District Courts. The existence of a juris-

dictional void does not grant to the judiciary a license to

override Congressional intent. Old Section 1334 clearly is

not a presently effective grant to the District Courts of

jurisdiction over bankruptcy matters and proceedings.’!

D. THE DISTRICT COURT WAS WITHOUT AUTHORITY TO

PROMULGATE THE LOCAL RULE OR ORDER THE SPE-

CIFIC REFERENCE,

Several sources were asserted by the courts below as

authority for the promulgation of the Local Rule and the

entry of the Reference Order.” As will be demonstrated,

none of these sources permit the District Court to promulgate

the Local Rule or to specifically refer an entire Chapter 11

case with instructions to exercise powers and carry out func-

tions identical to those delegated under the Local Rule.

“Even if old Section 1334 applies to Code Cases, the jurisdiction is

limited to summary jurisdiction, At least a portion of the relief sought

by the Respondent in the Bankruptcy Court is not within the summary

jurisdiction of old Section 1334, Landing rights at airports (‘‘slots’’)

are not property in the ‘‘actual or constructive possession’’ of Braniff;

instead, the slots are an intangible over which the FAA makes a sub-

stantial adverse claim. While a panel of the Fifth Circuit has held that

slots are not property of the estate, Respondent has not yet exhausted

its appellate remedies with respect to this finding.

For those proceedings not arising under federal law, the District

Court in its Memorandum Opinion relies on the diversity jurisdiction

granted under 28 U.S.C. § 1332 for a basis of rounding out the juris-

diction of the District Court to make it consistent with the broad in-

validated jurisdictional grant of 28 U.S.C. § 1471. Diversity jurisdiction

requires complete diversity between all plaintiffs and all defendants, No

diversity exists between the Petitioner and Respondent, both of which

have their principal place of business in Texas. 28 U.S.C. § 1332(c).

"The Opinion of the District Court identified Section 105 of the

Bankruptcy Code, Bankruptcy Rule 927, Section 2071 of the Judicial

Code, and the inherent power of the District Court as sources of authorit

for promulgation of the Local Rule or for issuance of the order specif-

ically referring the entire Chapter 11 case.

i en

1. Rule 83 Does Not Authorize Promulgation of the

Local Rule.

(a) The Local Rule Exceeds the Scope of Authority Conferred by

Fed. R. Civ. P. 83.

One asserted basis for the promulgation of the Local Rule

is Rule 83 of the Federal Rules of Civil Procedure.” Rule

83 authorizes each district court to ‘‘make and amend rules

governing its practice not inconsistent with these rules.”’

Fed. R. Civ. P. 83. In Miner v. Atlass, 363 U.S. 641 (1960),

this Court addressed the validity of a local rule adopted by

a District Court that provided for the taking of depositions

in admiralty cases. In striking down the local rule, this Court

held that ‘‘basic procedural innovations’’ are beyond the

local rule-making power.” A delegation to Article I judges

of ultimate decision-making authority in connection with

a blanket reference of all bankruptcy cases and proceedings

Bankruptcy Rule 927 has also been urged as a source of authority

for the Local Rule. The following discussion of Rule 83 is —_

applicable to Bankruptcy Rule 927, except that with respect to Bank-

ruptcy Rule 927 there is an additional issue of whether it is of continuing

vitality. See Pub. L. No. 95-598, § 405(d).

Section 2071 of the Judicial Code, which authorizes courts to ‘*pre-

scribe rules for the conduct of their business,’’ and Section 332 of the

Judicial Code, which authorizes the Judicial Councils of the Circuits

to ‘‘make all necessary and appropriate orders for the effective and

expeditious administration of justice,’’ provide no authority for pro-

mulgation of the Local Rule for reasons substantially similar to those

set forth in the following discussion of Rule 83.

Section 105 of the Bankruptcy Code has also been asserted as a

possible source of authority. Its purpose is to permit courts to make

orders in specific cases, primarily to protect its custody of the estate

and to aid its administration of the estate. Cf. | Collier on Bankruptcy,

{ 2.61 (14th ed. 1974) (discussing predecessor to § 105, § 2(a)(15) of

the Bankruptcy Act of 1898). Section 105 has absolutely no application

to the promulgation of the Local Rule.

“In Colgrove v. Battin, 413 U.S. 149 (1973), this Court noted that

a ‘basic procedural innovation’’ was one that bore on the ultimate

outcome of the litigation. If the delegation to a non-Art. III judge of

the authority to enter final orders does not bear on the ‘‘ultimate outcome

of the litigation,’’ this Court in Marathon would not have held that

Section 241(a) of the Bankruptcy Reform Act unconstitutionally dele-

ated the essential attributes of judicial power in giving ultimate

ision-making authority to the Art. | bankruptcy judges.

manifestly is a ‘‘basic procedural innovation’’ beyond the

scope of the authority conferred by Rule 83.”

(b) The Local Rule Is Inconsistent With Rule 53.

Local rules that are inconsistent with the Federa! Rules

of Civil Procedure are invalid under Rule 83. Rule 53 applies

to references of the kind contemplated in the Local Rule.

Under the Local Rule, a bankruptcy judge exercises pre-

cisely the powers contemplated by the definition of master

contained in Rule 53(a), which ‘‘includes a referee, an

auditor, and an examiner, a commissioner, and an asses-

sor.’’ Fed. R. Civ. P. 53(a) (emphasis added). In Arthur

Murray, Inc. v. Oliver, 364 F.2d 28, 32 (8th Cir. 1962),

the court stated as follows:

It will be noted that [Rule 53] is directed at the use of

reference as a procedural vehicle in general. Every

reference to a master, no matter what the litigation

incident involved may be, and regardless of what may

be the form or scope of the task sought to be referred,

is within the application of the Rule.

However, the grounds for a reference enumerated in Fed.

R. Civ. P. 53(b) are limited:

A reference to a master shall be the exception and not

the rule. . . . [I]n actions to be tried without a jury,

save in matters of account and of difficult computation

of damages, a reference shall be made only upon a

showing that some exceptional condition requires it.

The authority to order a reference under Rule 53 was

narrowly circumscribed in LaBuy v. Howes Leather Co.,

Inc., 352 U.S. 249 (1957), where the District Court ap-

pointed a master in two related antitrust cases involving 87

“Cf. Fed. R. Civ. P. 82 (**[t}hese rules shall not be construed to

extend or limit the jurisdiction of the United States district courts’);

Owen Equipment & Electric Co. v. Kroger, 437 U.S. 365, 370 (1978)

(*‘it is axiomatic that the Federal Rules of Civil Procedure do not create

or withdraw jurisdiction’’); United States v. Sherwood, 3\2 U.S. 584,

589-90 (1941) (this Court has no authority to prescribe rules which

enlarge or diminish the jurisdiction of federal courts).

plaintiffs and 6 defendants. In affirming the issuance of a

writ of mandamus requiring the District Court to vacate its

order of reference, this Court declared that calendar conges-

tion, unusual complexity of issues, and the great length of

time required for trial did not constitute exceptional grounds

warranting the reference to a master. 352 U.S. at 259.”

Plainly, the exceptional grounds sufficient to warrant a ref-

erence of an entire Chapter II case have not been demon-

strated here.

Not only does the Local Rule violate the limitations of

Rule 53(b), it is also inconsistent with Rule 53(e). Under

Rule 53(e)(2) the court in non-jury actions *‘shall accept the

master’s findings of fact unless clearly erroneous.’’ Local

Rule Section (e)(2)(B) provides for de novo review by the

District Court, which need not give deference to the bank-

ruptcy judge’s findings. More importantly, under Rule

53(e), a master only makes a report to the District Court,

which is exclusively authorized to enter final orders and

judgments. Under the Local Rule, bankruptcy judges enter

final orders enforceable upon entry unless stayed pending

appeal. This plainly conflicts with this Court’s declaration

in LaBuy that ‘‘[t}he use of masters is ‘to aid judges in the

performance of specific judicial duties, as they may arise

in the progress of a cause’ ... and not to displace the

court.’’ 352 U.S. at 256.

2. The District Court Had No Inherent Authority to

Promulgate the Local Rule or Order the Specific

Reference.

Another possible source of support for the Local Rule or

the Reference Order is the inherent authority of the District

Court to appoint auditors or experts. In order for the Local

**See also Wilver v. Fisher, 387 F.2d 66 (10th Cir. 1967) (delay on

the of defendants, and the variety, number and complicated nature

of the problems and issues involved, did not amount to an exceptional

circumstance to justify an appointment of a master to supervise answers

to interrogatories).

a, ae

Rule or the Reference Order to be within the inherent power

of the District Court, the Rule or the Order must (1) be

within the scope of the inherent authority; and (2) not be

contrary to legislation. Ex Parte Peterson, 253 U.S. 300,

312-13 (1920). Neither condition is satisfied here.

(a) The Rule and the Reference Order Are Beyond the Inherent

Power of the District Court.

The inherent authority recognized in Peterson provides

no basis for the promulgation of a rule effecting a blanket

reference to bankruptcy judges of all bankruptcy cases and

proceedings nor an order specifically referring an entire

Chapter 11 case and all proceedings arising in or related

thereto. In Peterson, this Court recognized the inherent au-

thority of a District Court to appoint an auditor to conduct

a preliminary hearing for the purpose of reviewing lengthy

records, identifying items in dispute, and expressing an

opinion upon the items found to be in dispute, but not finally

determining any of the issues, the final determination of

which was to be made by the jury at trial.

In discussing the court’s inherent power, this Court stated:

Courts have (at least, in the absence of legislation to

the contrary) inherent power to provide themselves

with appropriate instruments required for the perfor-

mance of their duties. This power includes authority

to appoint persons unconnected with the court to aid

judges in the performance of specific judicial duties

as they may arise in the progress of a cause... . ‘It

is a reference to’ ‘auditors,’’— a term which designates

agents or officers of the court, who examine and digest

accounts for the decision of the court. They do not

decree but prepare materials on which a decree is to

be made.’

253 U.S. at 312-13 (citations omitted).

Peterson and the cases relying on it involve the inherent

power of a trial court to appoint agents to make preliminary

findings and to provide expert guidance to the court. None

of the cases discussing the inherent authority of the court

involve the delegation of ultimate judicial decision-making

that is effected under the Local Rule. A delegation of au-

thority to the bankruptcy judge to enter final orders and

judgments is not within the inherent authority recognized

in Peterson.

(b) Rule 53 Limits the Inherent Power of the District Court.

This Court in Peterson expressly recognized that inherent

power is subject to limitations imposed by legislation.

Because Fed. R. Civ. P. 53 governs references of the kind

contemplated by the Local Rule and the Reference Order,

it is an express limitation on the inherent power of the

District Court. The District Court may not rely on inherent

power to create a system that differs from, yet parallels, the

Rule 53 treatment of masters.

CONCLUSION,

Marathon’s invalidation of the non-severable jurisdic-

tional grant of the Bankruptcy Reform Act and the absence

of curative Congressional action have closed the doors of

the federal courts to bankruptcy matters. This Court rec-

ognized and postponed that result by staying its judgment

as long as it could. When the stay expired, so did the judicial

power of the courts of the United States to postpone the

result. Now Congress must take full responsibility for all

the resulting disruption. When Congress realizes that it must

act, presumably it will. But no parade of horribles can justify

destroying the basic cornerstone of our Constitutional

system of government — separation of powers.

For the foregoing reasons, the Court should grant this

Petition for Writ of Certiorari and should reverse the Order

affirming the validity and constitutionality of the Local

Rule.

Dated: April 1, 1983.

Respectfully submitted,

RONALD S. Orr,

ROBERT FORGNONE,*

BENNETT L. SILVERMAN,

Davip H. KENNEDY,

GIBSON, DUNN & CRUTCHER

and

STEPHEN L. TAYLOR,

Attorneys for Petitioner.

*Counsel of Record.

APPENDIX A.

Decision of the Court of Appeals.

United States Court of Appeals for the Fifth Circuit.

No. 83-1048.

In the Matter of: Braniff Airways, Inc., et al., Debtor.

Braniff Airways, Inc., et al., Plaintiffs-Appellees, versus

Civil Aeronautics Board, Defendant, American Airlines,

Inc., Intervenor-Appellant.

Appeal from the United States District Court for the

Northern District of Texas.

(FEBRUARY 28, 1983).

Before GEE, GARZA and POLITZ, Circuit Judges.

PER CURIAM:

We affirm the judgment of the District Court, essentially

for the reasons stated in its memorandum opinion. We add,

in particular, that we conclude that 28 United States Code

§§147(a) and (b) were not invalidated by the Marathon

decision,' but if they were, nevertheless, the jurisdictional

grant of 28 United States Code §1334 remains effective

during the transitional period.

'The Northern Pipeline Construction Co. v. Marathon Pipeline Co.,

— U.S. ——, 102 S.Ct. 2858, 73 L.Ed.2d 598 (1982).

niin

APPENDIX B.

Order.

In the United States District Court for the Northern Dis-

trict of Texas Fort Worth Division.

In re: Braniff Airways, Incorporated, et al.

Braniff Airways, Incorporated, et al. vs. Civil Aeronau-

tics Board.

Miscellaneous No. 4-221-E. (Fort Worth Bankruptcy No.

4-82-00369).

Filed: January 14, 1983.

This case came before the Court on a motion to revoke

the reference to United States Bankruptcy Judge John Flow-

ers of Jn re Braniff Airways, Inc., et al., Fort Worth Bank-

ruptcy Division Case No. 4-82-00369. After considering

the motion, brief and oral argument of counsel, the Court

makes the following rulings:

1. The Local Rule of the Northern District of Texas

Concerning Bankruptcy Cases and Proceedings adopted by

the United States District Court for the Northern District of

Texas on December 21, 1982, is constitutional and valid.

2. The Court has jurisdiction over bankruptcy matters

and proceedings, including this case, pursuant to sections

1331, 1332, 1334 and 1471 of Title 28 of the United States

Code.

3. To avoid any possible jurisdictional attack based on

the adoption and promulgation of the Local Rule, and in

order to provide certainty in the resolution of this exceptional

and complicated case, the reference of this case to Bank-

ruptcy Judge Flowers is hereby withdrawn.

4. The Court finds that there are exceptional conditions

and circumstances in /n re Braniff Airways, Inc., including,

but not limited to the following:

The case was filed on May 13, 1982, and has been

through eight (8) months of proceedings before the

Honorable John Flowers.

aaaiions

Braniff is the only major airline to go into Chapter

11 bankruptcy reorganization.

The debtor, Braniff, has approximately $460 million

in assets and $1.2 billion in debts.

Some of this debt is publicly-held. Braniff is a pub-

licly-held corporation. In fact, Braniff has more than

75,000 creditors and shareholders.

More than 100 lawyers are already involved in these

proceedings.

There is much equipment, formerly used by the

debtor, now sitting idle.

The most exceptional circumstance is that Judge Flowers

has dedicated eight months of work to this case. Thus, he

has singular knowledge and expertise as to the facts and law

in this most complicated case.

Although each of these facts was not specifically pre-

sented in the motions, briefs and arguments before this

Court, the Court has taken judicial knowledge of these and

other matters on file in the Bankruptcy Clerk’s Office.

5. It would be a travesty of justice for this Court to

leave unprotected the rights of creditors, shareholders and

interested parties. Justice demands that this case quickly

proceed to an orderly and final conclusion.

6. Therefore, pursuant to this Court’s statutory and gen-

eral equitable powers, and the Federal Rules of Civil Pro-

cedure, and due to the exceptional circumstances in this

case, the Court hereby ORDERS that the entire matter of

In re Braniff Airways, Inc., et al., to the extent this Court

has jurisdiction, is referred to the Honorable John Flowers,

Bankruptcy Judge for the Northern District of Texas, Forth

Worth Division. The powers and functions to be exercised

by Judge Flowers under this reference are identical to those

delineated in the Local Rule of the Northern District of

Texas Concerning Bankruptcy Cases and Proceedings,

adopted on December 21, 1982.

a on

The Court reserves the right to enter further findings on

this matter.

Signed this 14th day January, 1983.

/s/ Eldon B. Mahon

UNITED STATES DISTRICT JUDGE

APPENDIX C.

Memorandum Opinion.

In the United States District Court for the Northern Dis-

trict of Texas, Fort Worth Division.

In re: Braniff Airways, Incorporated, et al.

Braniff Airways, Incorporated, et al. vs. Civil Aeronau-

tics Board.

Miscellaneous No. 4-221-E. (Ft. Worth Bankruptcy No.

4-82-00369).

A hearing was held on January 13, 1983, concerning a

**Motion to Revoke Reference of Adversary Proceedings”’

filed on January 11, 1983 by American Airlines, Inc., a cor-

poration and an intervenor in the above-captioned proceed-

ing pending before the Fort Worth Bankruptcy Division of

this Court. The Court entered an Order on January 14, 1983

holding that the Local Rule of the Northern District of Texas

Concerning Bankruptcy Cases and Proceedings adopted by

the United States District Court for the Northern District of

Texas on December 21, 1982,' is constitutional and valid, and

further holding that the Court has jurisdiction over bank-

ruptcy cases and proceedings, including the one presently

before it, pursuant to sections 1331, 1332, 1334, and 1471 of

Title 28 of the United States Code. In support of that Order,

the Court will now elaborate on its reasons by addressing:

(1) The Court’s Jurisdiction, (2) Marathon’s Effect on the

**Structure’’ of the Bankruptcy System, (3) The Court’s

Statutory and Equitable Powers, and (4) The Referral of the

Braniff Bankruptcy Proceeding to the Bankruptcy Judge.

'The stay of the United States Supreme Court of the effect of its

decision in Northern Pipeline Constr. Co. v. Marathon Pipe Line Co.,

102 S.Ct. 2858 (1982), expired on Dec. 24, 1982. Thus, the Local Rule

became effective on December 25, 1982.

I. The Court's Jurisdiction

A. 28U.S.C. § 1471.

The United States Supreme Court invalidated at least a

portion of 28 U.S.C. § 1471 in Northern Pipeline Construc-

tion Co. v. Marathon Pipe Line Co., 102 S.Ct. 2858 (1982)

(hereinafter called Marathon). In his plurality opinion, Jus-

tice Brennan states:

We conclude that § 241(a) of the Bankruptcy Act of

1978 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. Such a grant of jurisdiction

cannot be sustained as an exercise of Congress’ power

to create adjuncts to Art. III courts.

Marathon at 2879-80.’ By stating that the power was ‘‘im-

permissibly removed’’ from the district court, the Supreme

Court clearly indicates that jurisdiction was first vested in

the Art. III district court pursuant to § 1471(a), and it ex-

presses no disapproval of this grant of jurisdiction to the

district court.

The next sentence and footnote of the plurality opinion,

however, have led to some confusion over what parts of

§ 1471 were invalidated. Justice Brennan continues:

Having concluded that the broad grant of jurisdiction

to the bankruptcy courts contained in § 241(a) is un-

constitutional, we must now determine whether our

holding should be applied retroactively to the effective

date of the Act.

Marathon at 2880.

In his use of the words *‘bankruptcy courts’’ in Marathon,

Justice Brennan makes a distinction between bankruptcy

*Section 241(a) of the mira a | Reform Act of 1978 includes not

pa fl jurisdictional grants in 28 U.S.C. § 1471, butalso venue, removal

procedural matters. The Supreme Court decision in Marathon

HET caly the jurisdictional grants of § 1471, which is included in

(a)

pn, Ee

courts and district courts. This should not be confused with

the bankruptcy laws which define ‘‘courts of bankruptcy’”’

to include the district courts. See Bankruptcy Reform Act

of 1978, Pub. L. No. 95-598, § 404(a), 92 Stat. 2549, 2683

(1978). Thus, the ‘broad grant of jurisdiction to the bank-

ruptcy courts’’ does not refer to the grant of jurisdiction to

the district courts. Furthermore, in footnote 40, he states:

It is clear that, at the least, the new bankruptcy

judges cannot constitutionally be vested with jurisdic-

tion to decide this state-law contract claim against

Marathon. As part of a comprehensive restructuring

of the bankruptcy laws, Congress has vested jurisdic-

tion 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.

Marathon at 2880 n.40 (emphasis added). This Court in-

terprets the phrase ‘‘single statutory grant of jurisdiction’’

as referring to the words ‘‘all of the jurisdiction’’ in

§ 1471(c). This grant of jurisdiction under § 1471(c) en-

compasses not only bankruptcy ‘‘cases’’ (see § 1471(a)) but

also ‘‘all civil proceedings arising under title 11 or arising

in or related to cases under title 11.’’ 28 U.S.C. § 1471(b)

(emphasis added). The Supreme Court’s conclusion that at

least some of the ‘‘related to’’ matters must be heard by an

Art. III court meant that the words ‘‘ail of the jurisdiction”’

contain both constitutional and unconstitutional grants of

jurisdiction to the bankruptcy courts. Thus, an attempt to

separate and remove the unconstitutional part of the bank-

ruptcy court’s jurisdiction from the constitutional part of its

jurisdiction would be no easy feat. Facing such a difficulty,

and examining the intent of Congress in § 1471(c), Justice

Brennan continues his footnote:

In these circumstances we cannot conclude that if Con-

gress were aware that the grant of jurisdiction could

not constitutionally encompass this and similar claims,

it would simply remove the jurisdiction of the bank-

ruptcy court over these matters, leaving the jurisdic-

“a ee

tional provision [in the bankruptcy court] and adju-

dicatory structure intact with respect to other types of

claims, and thus subject to Art. III constitutional chal-

lenge on a claim-by-claim basis. Indeed, we note that

one of the express purposes of the Act was to ensure

adjudication of all claims in a single forum and to avoid

the delay and expense of jurisdictional disputes.

Marathon at 2880 n.40 (emphasis added).

Finally, Justice Brennan concludes the footnote:

Nor can we assume, as THE CHIEF JUSTICE sug-

gests, post, at 2, that Congress’ choice would be to

have this case ‘‘routed to the United States district

court of which the bankruptcy court is an adjunct.”

We think that it is for Congress to determine the proper

manner of restructuring the Bankruptcy Act of 1978

to conform to the requirements of Art. III, in the way

that will best effectuate the legislative purpose.

Marathon at 2880 n.40 (emphasis added). The difficulty

was not in separating § 1471(c) from § 1471(a) and (b), but

in separating jurisdiction over ‘‘this case,”’ i.e. a case like

Marathon, requiring an Art. III court, from the other ap-

propriate jurisdiction of the bankruptcy court over non-Art.

III matters, all of which were combined in the words ‘‘all

of the jurisdiction’ in 28 U.S.C. § 1471(c). Therefore, this

Court concludes that the Supreme Court never intended to

invalidate, nor did it invalidate 28 U.S.C. § 1471(a) and

(b), and that Marathon only held 28 U.S.C § 1471(c) un-

constitutional.’

B. 28 U.S.C § 1334, § 1331, and § 1332.

In light of the debate surrounding the continued validity

of 28 U.S.C. § 1471(a) and (b), the Court will also address

the question of its jurisdiction over bankruptcy cases and

‘See United States v. One 1974 Rockwell Aerocommander, Civ. No.

4-80-289-E, at 5 n.2 (N.D. Tex. Jan. 11, 1982), where, in an unpub-

lished union, this Court held subsection (c) to be the ‘‘fatal flaw’’ in

section 1471.

proceedings assuming arguendo that 28 U.S.C. § 1471 is

no longer valid. During the transition period (from October

1, 1979, through March 31, 1984), Congress clearly in-

tended for both the old and new versions of 28 U.S.C.

§ 1334 to exist simultaneously. See Bankruptcy Reform Act

of 1978, Pub. L. No. 95-598, §§ 402, 403, 404, 92 Stat.

2549, 2682-83 (1978). The old § 1334 stated: *‘The district

courts shall have original jurisdiction, exclusive of the courts

of the States, of all matters and proceedings in bankruptcy.”’

28 U.S.C. § 1334. It may be argued that Congress, in writ-

ing the new version of 28 U.S.C. § 1334 (making district

courts the courts of appeals for final judgments, orders, and

decrees of bankruptcy courts absent an appointed bank-

ruptcy judge panel), intended that the old § 1334 would

only apply to cases filed before October 1, 1979.

However, if the new grant of original and exclusive ju-

risdiction in 28 U.S.C. § 1471(a) — which was meant to

repeal and replace the old § 1334 for cases filed after Oc-

tober 1, 1979 — is unconstitutional and no longer valid,

the Court must now read the bankruptcy laws as if the new

§ 1471 had not been written. See Frost v. Corporation

Comm’ n of Oklahoma, 278 U.S. 515, 526-27 (1929); Davis

v. Wallace, 257 U.S. 478, 485 (1922). In so doing, the

Court finds that the old § 1334 places the original and ex-

clusive jurisdiction over bankruptcy matters and proceedings

in the district court.

This jurisdiction under the old § 1334 was ‘‘summary

jurisdiction’’ only. The Court must now look to 28 U.S.C.

§ 1331 and § 1332 for those cases which would have orig-

inated in the federal district court because of either a federal

question involved or the diversity of citizenship of the par-

ties. Those cases, now properly in the district court’s ju-

risdiction, may be combined with the bankruptcy cases in

which they arise or to which they are related for the purpose

of referring both the bankruptcy ‘‘matters and proceedings’’

(in this court’s jurisdiction under the old § 1334) and the

oe a

*‘arising in or related to’’ matters (in this court’s jurisdiction

under 28 U.S.C. § 1331 or § 1332) to the bankruptcy

judge.‘

II. Marathon’s Effect on the ‘‘Structure’’

of the Bankruptcy System

Next, the Court turns to the question of what adjudicatory

structure’ remains intact after Marathon. During the tran-

sition period from October 1, 1979, through March 31,

1984, Congress intended the old structure (under the 1898

Bankruptcy Act) to exist concurrently with the new structure

(under the 1978 Bankruptcy Reform Act).° Assuming ar-

guendo that Marathon rendered the new bankruptcy struc-

ture unusable, the Court nevertheless has available an entire

structure, left intact by Congress and Marathon and in exis-

tence through March 31, 1984, which may be used for the

adjudication of bankruptcy cases and proceedings.

Counsel for American Airlines suggest that the Court, in

promulgating the ‘‘Local Rule of the Northern District of

Texas Concerning Bankruptcy Cases and Proceedings’’ is

creating a subsidiary court (‘‘Memorandum of Points and

Authorities in Support of Motion to Revoke Reference of

“The Court is aware of the assertion that the word ‘‘case’’ in 28

U.S.C. § 1471(a) is narrower than ‘‘all matters and proceedings in

bankruptcy’’ in the old § 1334. See 1 Collier Bankruptcy Manual

q 3.01 Ifa) (3d ed. 1982). However, either by combination of

§ 1471(a) and (b) — giving this court jurisdiction over both *‘cases

under title 11° [§ 1471(a)] and ‘‘all civil proceedings arising under title

11 or arising in or related to cases under title 11°’ [§ 1471(b) or by the

combination of bankru **matters and proceedings’’ (old § 1334)

and federal questions ($} 1331) and diversity suits (§ 1332), the Court

concludes that it has jurisdiction over the matters now before it, as a

basis for referring these matters to the bankruptcy judge. The parties

in any civil proceedings which are ‘‘related to’ basknaptcy cases, and

which involve purely state law questions in which there is no diversity

74 raise such jurisdictional questions on a case by case basis (and only

if § 1471(a) and (b) are no longer valid).

*See note 40 in Marathon.

bag ge Bee of 1978, Pub. L. No. 95-598, §§ 404 & 405, 92

Stat. ee continues the old bankruptcy structure through

Adversary Proceedings’’ page 14). On the contrary, the

Court is not ‘‘creating’’ anything, but is instead relying on

and making use of an entire structure created by Congress,

which will remain in existence through March 31, 1984,

and which is already being used for the adjudication of cases

filed before October 1, 1979. Furthermore, the Court dis-

agrees with the suggestion that such a local rule, by using

the presently existing bankruptcy structure, is in any way

an ‘“‘innovation’’ beyond the Court’s local rule-making

power. See Miner v. Atlass, 363 U.S. 641 (1960).

Ill. The Court's Statutory and Equitable Powers

Having found an existing bankruptcy court structure,’ the

Court will now address its authority to use this existing

structure to adjudicate bankruptcy cases and proceedings.

A. Statutory Authority.

Title 11 of the United States Code, as amended by the

Bankruptcy Reform Act of 1978, provides that the ‘‘bank-

ruptcy court may issue any order . . . necessary or appro-

priate to carry out the provisions of this title.” 11 U.S.C.

§ 105(a), as amended by Bankruptcy Reform Act of 1978,

Pub. L. No. 95-598, § 101, 92 Stat. 2549, 2555 (1978).

As defined in section 404(a) of the same Act, federal district

courts are included in the definition of bankruptcy courts.

Id. § 404(a), 92 Stat. at 2683.

The Local Rule, promulgated in an attempt to carry out

congressional intent, would be clearly valid if based solely

on this congressional grant of authority. The Order estab-

lishing the local rule was ‘‘necessary . . . to carry out’’ the

congressional intent expressed by the whole statutory

scheme, and is an ‘‘appropriate’’ means of carrying out the

expressed intent.

Bankruptcy Rule 927, continued at least for the ‘‘interim

period,’’ October 1, 1979, through March 31, 1984, see

"See Il. supra.

ae)

Bankruptcy Reform Act of 1978, Pub. L. No. 95-598,

§§ 402(b) & 404, 92 Stat. 2549, 2682-83 (1978), also au-

thorizes adoption of local rules establishing court proce-

dures. See also Fed. R. Civ. P. 83. The local rule adopted

on December 21, 1982, would be, under this rule, a valid

exercise of the Court’s power to control procedure in the

trial court.*

Finally, section 2071 of Title 28 of the United States

Code allows courts the discretion to enact the rules under

which they will conduct their business. As under the other

statutory grants of authority mentioned above, this Court

recognizes it is not legislating a solution to the bankruptcy

problem, but merely implementing congressional intent un-

der specific grants of authority.

B. Equitable Powers.

Since the murky beginnings of English jurisprudence, the

common law courts have sought to provide justice. More

recently, Roscoe Pound observed that our law has been

guided by the principle that ‘‘all legal institutions and all

legal rules [are] . . . measured by reason and. . . nothing

could stand in law that could not maintain itself in reason.”’

R. Pound, The Spirit of the Common Law 81. Pound con-

cludes that the development of Law will be effected through

a theory of ‘‘right and justice and [a] conscious attempt to

‘Bankruptcy Rule 927 and Fed. R. Civ. P. 83 both require that rules

made under their authority are not to be ‘inconsistent with these rules.”’

ea in the Local Rule is inconsistent with either the Federal Rules

of Civil Procedure or the Bankruptcy Rules.

make the law conform to ideals.’’ /d. at 84.” The practical

application of this Court's attempts at justice, however,

must be guided by the equity' jurisprudence of the United

States.

Early decisions of the United States Supreme Court de-

termined that ‘‘[t}here are certain powers inherent in the

judicial office.’’ Nudd v. Burrows, 91 U.S. (1 Otto) 426,

442 (1875). There is yet some doubt as to Congress’ power

to ‘‘trench upon the common-law powers’’ with which the

judge is clothed. Indianapolis & St. Louis R.R. vy. Hors,

93 U.S. (3 Otto) 291, 300 (1876). See also Grimes Dry

Goods Co. v. Malcolm, 164 U.S. 483, 490 (1896); Mutual

Accident Assoc. v. Barry, 131 U.S. 100, 120 (1889). In

*Although the Constitution and laws of the United States define spe-

cific legal es equitable application of these principles depends

on the application of common sense. Such common sense is reflected

in the everyday events of the People. For example, the Court recalls

the 1954 Cotton Bowl — involving the Universities of Rice and

Alabama. As Dick Moegle of Rice sped along the sideline, heading for

a certain score, Tommy Lewis leaped from the Alabama bench to tackle

his opponent. Such interference was not covered by the collegiate rule-

book, but the referee carried the ball to the goal line and awarded Rice

a touchdown. This action illustrates the wisdom of the People in allow-

ing officials to interpret the rules to result in a just decision. The referee

**may enforce any penalty he considers equitable’’ to remedy unfair

acts not covered by specific rules. See D. Nelson, //lustrated Football

Rules 174 (Doubleday & Co. 1976).

The Court does not put sporting events on the same level as complex

bankruptcy matters, but the wiedons reflected in this simple event il-

lustrates the concept of ‘Natural Equity,’* defined as:

equivalent to justice, honesty, or morality in business relations,

or man's innate sense of right dealing and fair play. . . . the term

**natural equity’’ may be understood to denote, in a general way,

that which strikes the ordinary conscience and sense of justice as

being fair, right, and equitable... . .

Black's Law Dictionary 635 (4th ed. 1968).

"Equity is defined as

Justice administered according to fairness as contrasted with

the strictly formulated rules of common law . . . an alternative

to the harsh rules of common law and . . . based on what was

fair in a particular situation. . . . the spirit and habit of fairness,

justness, and right dealing . . . . the object of which is to render

the administration of justice more complete, by affording relief

where the court of law are incompetent to give it... .

Black's Law Dictionary 484 (Sth ed. 1979).

ovale

dispensing justice, this Court must be limited to its consti-

tutional role — reaching neither into the legislative nor

executive branches in its exercise of power. Nevertheless,

the Court cannot shrink from its constitutional duty because

of a lack of precise guidelines. See Landwehr v. United

States (In re Miller), 485 F.2d 74 (Sth Cir. 1973), cert.

denied, 415 U.S. 990 (19...).

Congress has provided an intricate scheme within which

bankruptcy disputes can be brought to just conclusions."

Congress has authorized the courts to make provisions for

procedural matters. The inherent equitable power of the

courts is in itself a demand that substantial justice be done.

Therefore, pursuant to its equitable power the United States

District Court for the Northern District of Texas adopted

the Local Rule Concerning Bankruptcy Cases and Proceed-

ings to achieve substantial justice. Pursuant to this Local

Rule and, alternatively, pursuant to its inherent equitable

powers, this Court referred /n re Braniff to the bankruptcy

judge.

In the courtroom of the United States Court of Appeals

for the Fifth Circuit in Fort Worth, where this Court makes

its attempt at dispensing substantial justice, one quote is

inscribed in gold behind the bench of the Court:

REASON IS THE LIFE OF THE LAW

NAY, THE COMMON LAW ITSELF IS NOTHING

ELSE BUT REASON

If ever a case came before this Court commanding that

Reason be sought and that Reason be applied to the ends

of Justice — this is that case.

IV. Referral of the Braniff Bankruptcy

Proceeding to the Bankruptcy Judge

The referral of the case involved in this dispute occurred

immediately upon expiration of the Supreme Court's stay

of Marathon."* Having determined the validity of the Local

"'See note 6 supra.

"See note | supra.

a, os

Rule adopted by the judges of the Northern District of Texas,

it was not necessary to take any further action to have this

case referred to the bankruptcy judge. Counsel for American

Airlines, however, questioned the validity of the manner

by which the judges adopted the Rule and the validity of

the Rule’s all-encompassing effect. In light of this challenge

to the Rule, the Court chose to take additional action to

protect the Braniff proceedings.

In re Braniff is an exceptional case,'’ and this Court

determined that no effort should be spared in providing for

a speedy and valid conclusion. Therefore, the Court with-

drew the case, pursuant to the Local Rule," found excep-

tional circumstances in this case, then referred the case to

the Honorable E. John Flowers, Bankruptcy Judge for the

Northern District of Texas, both under the provisions of the

Local Rule and in the alternative, under the Court’s equitable

powers.'° Judge Flowers is limited in his conduct of the case

by provisions identical to those set forth in the Local Rule.

Thus, any matter which could not constitutionally be de-

cided by a non-Art. III judge, see Marathon, will not be

decided by Judge Flowers.'°

Continued validity of section 1471(a) and (b) would grant

broad jurisdiction to the federal district court. Only matters

that may be decided by a non-Art. III judge, however, were

referred by the Court to the bankruptcy judge for final de-

termination. This Court will make the final determination

in all other matters. This action corrects the constitutional

problem encountered in Marathon. If jurisdiction is based

a In re Braniff, Misc. No. 4-221-E, at 2 (N.D. Tex. Jan. 14,

1983).

“Were the Local Rule invalid, the case would have been properly

in this Court. See 1. Supra.

"See IL. supra.

“Local Rule of the Northern District of Texas Concerning Bankruptcy

Cases and Proceedings, Dec. 21, 1982, sec. (d)(3)(B).

x”

solely on sections 1331, 1332 and 1334," the jurisdiction

of this Court would not be as broad as under section 1471.

The reference to the bankruptcy judge would include at least

‘all matters and proceedings in bankruptcy.’’ Any case

‘‘related to’’ the bankruptcy proceeding, although referred

to the bankruptcy judge, will receive final determination in

this Court, as clearly set forth in the limits on Judge Flowers’

authority. See In re Braniff, Misc. No. 4-221-E, at 3 (N.D.

Tex. Jan. 14, 1983); Local Rule, sec. (d)(3)(B).

It would be grossly unfair to all parties involved in bank-

ruptcy matters if no Court exercised jurisdiction over these

cases. Billions of dollars, as well as thousands of potential

jobs may be lost, and the congressional intent to provide

bankruptcy protection would be subverted, if all bankrupt-

cies were abruptly halted. Clearly, Congress has not only

shown its intent to create a two-tiered bankruptcy system,

but also has provided the legislation by which this Court

can allow the bankruptcy judge to exercise some of this

Court’s jurisdiction. In addition, equity demands, and

makes provision for reference of cases in a posture similar

to Braniff.

Judge Flowers has invested innumerable hours in review-

ing the facts, circumstances and arguments in this case. To

bring the case into the District Court now would mean the

Court would start in the middle of the case without the

benefit of Judge Flowers’ admittedly unique expertise, ob-

tained in the past eight months of /n re Braniff proceedings.

Although this Court could reserve the entire /n re Braniff

bankruptcy for its own determination, to do so would inev-

itably lead to some delay while the Court reviews the case

"The automatic stay provision enacted by Congress, 11 U.S.C. § 3...

still operates to halt most proceedings against debtors. Arguably, any

ote the stay is a federal question and cognizable under 28 U.S.C.

merely to obtain the knowledge that Judge Flowers already

possesses.'*

Therefore, in order to protect the rights of creditors,

stockholders, and all other parties who have depended on

the bankruptcy laws’ protection, and in order to provide

speedy resolution of bankruptcy disputes, the Court has

exercised its powers under congressional authority and un-

der its inherent equitable power so that congressional intent

may be implemented. This provision for bankruptcy cases

(under the Local Rule) and for Braniff in particular (under

the Local Rule and the inherent equitable powers of this

Court) will allow orderly and final conclusion of all bank-

ruptcy cases and proceedings."

Signed this 20th day of January, 1983.

/s/ Eldon B. Mahon

UNITED STATES DISTRICT JUDGE

'*The excellent consideration of this case by Judge Flowers is reflected

in the speedy and orderly manner in which the case has proceeded at

all levels. That this matter came before the Court on a motion filed on

January 11, 1983, which the Court heard on January 13 and disposed

of by its Order of January 14 indicates that no undue delay has resulted

from district court review of bankruptcy matters. Even /n re Braniff

— which certainly has a potential above the vast majority of bankruptcy

matters to cause problems — has not been unduly delayed.

"During oral argument before this Court on Jan. 13, 1983, counsel

for American Airlines also raised questions concerning the power of a

bankruptcy court to make rulings affecting Civil Aeronautics Board

proceedings. That issue was not addressed by counsel for American

Airlines in the brief submitted to this Court, was not addressed by

ing counsel during oral argument, and is not addressed by this

ourt’s opinion.

APPENDIX D.

Order of Certification.

In the United States Bankruptcy Court for the Northern

District of Texas, Fort Worth Division.

In re: Braniff Airways, Incorporated, et al. Misc. BK 4-

83-1-E.

Filed: January 21, 1983.

On January 15, 1983, the Honorable John Flowers,

United States Bankruptcy Judge entered an ‘‘Order on Ju-

risdiction’’ and on January 18, 1983, Judge Flowers signed

an order stating his opinion that the question determined by

that Court in its ‘‘Order on Jurisdiction’’ was ‘‘one over

which a question of controlling law exists as to which there

are substantial grounds for differences of opinion and that

an immediate appeal from the Order may materially advance

the ultimate termination of the litigation.’’ See ‘‘Order on

Jurisdiction’’ page 4. Those Orders were filed in this Court

on January 20, 1983, and this Court has reviewed said

Orders pursuant to Local Rule (e)(3) of the Local Rule of

the Northern District of Texas Concerning Bankruptcy

Cases and Proceedings.

The Court has determined that the questions of law ad-

dressed in the ‘‘Order on Jurisdiction’ signed by Judge

Flowers, were foreclosed by the decision rendered by this

Court in an Order on January 14, 1983, holding that the

United States Supreme Court’s decision in Northern Pipe-

line Construction Company v. Marathon Pipe Line Co., 102

S.Ct. 2858 (1982) does not destroy the jurisdiction of the

United States District Courts over bankruptcy cases and

proceedings.

This Court’s Order of January 14, 1983, also held the

Local Rule of the Northern District of Texas Concerning

Bankruptcy Cases and Proceedings to be constitutional and

valid. Furthermore, on January 18, 1983, this Court signed

an Order pursuant to 28 U.S.C. § 1292(b) stating that in

its opinion, its Order signed on January 14, 1983, involved

a controlling question of law as to which there is substantial

ground for difference of opinion and that an immediate

appeal from the Order may materially advance the ultimate

termination of the litigation. Then, on January 20, 1983,

this Court entered its ‘“‘Memorandum Opinion’’ giving a

more detailed explanation of its conclusions in its Order of

January 14, 1983.

The Court, pursuant to Local Rule (e)(3) of the Local

Rules of the Northern District of Texas Concerning Bank-

ruptcy Cases and Proceedings, now having reviewed the

‘‘Order on Jurisdiction’’ entered by the Bankruptcy Judge,

hereby affirms that ‘‘Order on Jurisdiction’’ and concludes

that the same question of law is involved in that ‘‘Order on

Jurisdiction’’ which was involved in this Court’s Order of

January 14, 1983. Thus, this Court is of the opinion that

the ‘‘Order on Jurisdiction’’ involves a controlling question

of law as to which there is substantial ground for difference

of opinion and that an immediate appeal from the Order

may materially advance the ultimate termination of the lit-

igation, and the Court hereby CERTIFIES this Order for

Interlocutory Appeal pursuant to 28 U.S.C. § 1292(b).

Signed this 21st day of January, 1983.

/s/ Eldon B. Mahon

UNITED STATES DISTRICT JUDGE

APPENDIX E.

Order on Jurisdiction.

In the United States Bankruptcy Court for the Northern

District of Texas, Fort Worth Division.

In re Braniff Airways, Incorporated, et al., Debtors.

In Proceedings for » Reorganization Under Chapter 11.

Case No. 482-00369.

This Court has received objections to its jurisdiction to

consider some or all matters in the above-captioned pro-

ceedings including specifically the Debtor’s request for an

order (i) approving an Agreement dated December 22, 1982

between Debtor and Pacific Southwest Airlines; (ii) ap-

proving a proposed settlement and compromise of all claims

by and among Debtor, the Committee of Unsecured Cred-

itors and Unofficial Committee of Secured Creditors; (iii)

authorizing Debtor to implement its obligations under the

PSA Agreement; and (iv) making certain other findings and

orders, all as specified in the Notice of Hearing Dated De-

cember 30, 1982. Each of the objections is to the effect that

this Court lacks jurisdiction as a result of the Supreme

Court’s decision in Northern Pipeline.

Such objections have been filed by American Airlines;

Continental Airlines; Delta Airlines; Northwest Airlines;

Pan American World Airways; Muse Air; Southwest Air-

lines; United Airlines; Air Line Pilots Association; Asso-

ciation of Flight Attendants; International Association of

Machinests; International Brotherhood of Teamsters, Air-

line Division; Dallas/Fort Worth Regional Airport Board;

Aviall; International Air Transport Association; Committee

of Unsecured Creditors; Secured Bondholders Committee;

Chemical Bank as Indenture Trustee for 10% Notes; and

U. S. Trust as Indenture Trustee for 94% Debentures and

The Bank of New York as Indenture Trustee for 5%4%

Debentures.

This Court has considered the briefs and arguments of

counsel for all listed parties, and has concluded that those

arguments are foreclosed by the decision rendered by the

United States District Court for the Northern District of

Texas on January 14, 1983. That decision, which this Court

concludes is the law of the case in these proceedings upheld

the constitutionality of this Court’s jurisdiction.

it is therefore ORDERED that the objections to jurisdic-

tion based upon Northern Pipeline are hereby overruled.

/s/ John Flower

U. S. Bankruptcy Judge

Fort Worth, Texas

January 15, 1983

APPENDIX F.

Text of Constitutional Provisions,

Statutes and Rules.

U.S. Const., art. III, § 1 provides:

Section |. The judicial Power of the United States,

shall be vested in one supreme Court, and in such

inferior Courts as the Congress may from time to time

ordain and establish. The Judges, both of the supreme

and inferior Courts, shall hold their Offices during good

Behaviour, and shall, at stated Times, receive for their

Services, a Compensation, which shall not be dimin-

ished during their continuance in Office.

Bankruptcy Reform Act of 1978, Pub. L. No. 95-598:

Section 238(a) provides: Section 1334 of title 28 of the

United States Code is amended to read as follows:

‘*§ 1334. Bankruptcy appeals

‘*(a) The district courts for which panels have not

been ordered appointed under section 160 of this title

shall have jurisdiction of appeals from all final judg-

ments, orders, and decrees of bankruptcy courts.

‘*(b) The district courts for such districts shall have

jurisdiction of appeals from interlocutory orders and

decrees of bankruptcy courts, but only by leave of the

district court to which the appeal is taken.

‘“*(c) A district court may not refer an appeal under

that section to a magistrate or to a special master.’’.

(b) The table of sections of chapter 85 of title 28 of the

United States Code is amended by striking out the item

relating to section 1334 and inserting in lieu thereof the

following:

**1334. Bankruptcy appeals.’’.

Section 241(a) provides in relevant part:

Title 28 of the United States Code is amended by inserting

immediately after chapter 89 the following:

§$ 1471. Jurisdiction

(a) Except as provided in subsection (b) of this

section, the district courts shall have original and ex-

clusive jurisdiction of all cases under title 11.

(b) Notwithstanding any Act of Congress that con-

fers exclusive jurisdiction on a court or courts other

than the district courts, the district courts shall have

original but not exclusive jurisdiction of all civil pro-

ceedings arising in or related to cases under title 11.

a case under title 11 is commenced shall exercise all

of the jurisdiction conferred by this section on the dis-

trict courts.

Section 401 provides in relevant part:

Sec. 401(a). The Bankruptcy Act is repealed.

Section 404(a) provides in relevant part:

COURTS DURING TRANSITION

Sec. 404(a) The 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, shall continue through March

31, 1984, to be the courts of bankruptcy for the pur-

poses 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 bankruptcy under the Bank-

ruptcy Act.

Section 405 provides:

(a)(1) All cases commenced under title 11 of the

United States Code during the transition period shall

be referred to the United States bankruptcy judges. The

United States bankruptcy judges may exercise in such

cases the jurisdiction and powers conferred by subsec-

tion (b) of this section on the courts of bankruptcy

continued by section 404(a) of this Act, and all pro-

ceedings in such cases shall be before the United States

bankruptcy judges, except —

(A) a proceeding to enjoin a court;

stuns

(B) a proceeding to punish a criminal contempt

(i) not committed in the bankruptcy judge’s

actual presence; or

(ii) warranting a punishment of imprison-

ment; or

decision of a United States bankruptcy judge.

(2) 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.

(b) During the transition period, the amendments

made by sections 241, 243, 250, and 252 of this Act

shall apply to the courts of bankruptcy continued by

section 404(a) of this Act the same as such amendments

apply to the United States bankruptcy court established

under section 201 of this Act.

(c)(1) During the transition period, an appeal from

a judgment, order, or decree of a United States bank-

ruptcy judge shall be—

(A) if the circuit council of the circuit in which

the bankruptcy judge sits so orders for the district

in which the bankruptcy judge sits, then to a panel

of three bankruptcy judges appointed in the manner

prescribed by section 160 of title 28 of the United

States Code, as added by section 201 of this Act;

(B) if the parties to the appeal agree to a direct

appeal to the court of appeals for such circuit, then

to such court of appeals; or

. (C)_ to the district court for the district in which

the bankruptcy judge sits.

(2) During the transition period, the jurisdiction

of the district courts, the courts of appeals, and panels

of bankruptcy judges to hear appeals shall be the same

as the jurisdiction of such courts and panels granted

under the amendments made by sections 236, 237,

238, and 241 of this Act to hear appeals from the

judgments, orders, and decrees of the bankruptcy

courts established under section 201 of this Act.

(d) The rules prescribed under section 2075 of title

28 of the United States Code and in effect on September

30, 1979, shall apply to cases under title 11, to the

extent not inconsistent with the amendments made by

this Act, or with this Act, until such rules are repealed

or superseded by rules prescribed and effective under

such section, as amended by section 248 of this Act.

11 U.S.C. § 105, provides in relevant part:

The bankruptcy court may issue any order, process,

or judgment that is necessary or appropriate to carry

out the provisions of this title.

28 U.S.C. § 332(d) provides:

(1) Each judicial council shall make all necessary

and appropriate orders for the effective and expeditious

administration of justice within its circuit. Each council

is authorized to hold hearings, to take sworn testimony,

and to issue subpoenas and subpoenas duces tecum.

Subpoenas and subpoenas duces tecum shall be issued

by the clerk of the court of appeals, at the direction

of the chief judge of the circuit or his designee and

under the seal of the court, and shall be served in the

manner provided in rule 45(c) of the Federal Rules of

Civil Procedure for subpoenas and subpoenas duces

tecum issued on behalf of the United States or an officer

or agency thereof.

(2) Ali judicial officers and employees of the cir-

cuit shall promptly carry into effect all orders of the

judicial council.

(3) Unless an impediment to the administration of

justice is involved, regular business of the courts need

not be referred to the council.

28 U.S.C. § 1331 provides:

The district courts shall have original jurisdiction of

all civil actions arising under the Constitution, laws,

or treaties of the United States.

pan, ee

28 U.S.C. § 1332 provides in relevant part:

(a) The district courts shall have original jurisdic-

tion of all civil actions where the matter in controversy

exceeds the sum or value of $10,000, exclusive of

interest and costs, and is between—

(1) citizens of different States;

(2) citizens of a State, and foreign states or cit-

izens or subjects thereof; and

(3) citizens of different States and in which for-

eign states or citizens or subjects thereof are addi-

tional parties.

28 U.S.C. § 1334 [referred to as old 28 U.S.C. § 1334],

provides:

The district courts shall have original jurisdiction

exclusive of courts of the States, of all matters and

proceedings in bankruptcy.

28 U.S.C. § 2071 provides:

The Supreme Court and all courts established by Act

of Congress may from time to time prescribe rules for

the conduct of their business. Such rules shall be con-

sistent with Acts of Congress and rules of practice and

procedure prescribed by the Supreme Court. As amended

May 24, 1949, c. 139, § 102, 63 Stat. 104.

Rule 17 of the Rules of the Supreme Court provides:

.1. A review on writ of certiorari is not a matter

of right, but of judicial discretion, and will be granted

only when there are special and important reasons

therefor. The following, while neither controlling nor

fully measuring the Court’s discretion, indicate the

character of reasons that will be considered.

(a) When a federal court of appeals has rendered

a decision in conflict with the decision of another

federal court of appeals on the same matter; or has

decided a federal question in a way in conflict with

a state court of last resort; or has so far departed

from the accepted and usual course of judicial pro-

ceedings, or so far sanctioned such a departure by

a lower court, as to call for an exercise of this Court’s

power of supervision.

(b) When a state court of last resort has decided

a federal question in a way in conflict with the de-

cision of another state court of last resort or of a

federal court of appeals.

peals has decided an important question of federal

law which has not been, but should be, settled by

this Court, or has decided a federal question in a

way in conflict with applicable decisions of this

Court.

.2. The same general considerations outlined above

will control in respect of petitions for writs of certiorari

to review judgments of the Court of Claims, of the

Court of Customs and Patent Appeals, and of any other

court whose judgments are reviewable by law on writ

of certiorari.

Rule 53 of the Federal Rules of Civil Procedure provides

in relevant part:

(b) Reference. A reference to a master shall be

the exception and not the rule. In actions to be tried

by a jury, a reference shall be made only when the

issues are complicated; in actions to be tried without

a jury, save in matters of account and of difficult com-

putation of damages, a reference shall be made only

upon a showing that some exceptional condition re-

quires it.

(e)(2) In Non-Jury Actions. In an action to be

tried without a jury the court shall accept the master’s

findings of fact unless clearly erroneous. Within 10

days after being served with notice of the filing of the

report any party may serve written objections thereto

upon the other parties. Application to the court for

action upon the report and upon objections thereto shall

be by motion and upon notice as prescribed in Rule

6(d). The court after hearing may adopt the report or

may modify it or may reject it in whole or in part or

ine

may receive further evidence or may recommit it with

instructions.

Rule 83 of Federal Rules of Civil Procedure provides in

relevant part:

Each district court by action of a majority of the

judges thereof may from time to time make and amend

rules governing its practice not inconsistent with these

rules. Copies of rules and amendments so made by any

district court shall upon their promulgation be furnished

to the Supreme Court of the United States. In all cases

not provided for by rule, the district courts may regulate

their practice in any manner not inconsistent with these

rules.

Rule 927 of the Rules of Bankruptcy Procedure provides:

Each district court by action of a majority of the

judges thereof may from time to time make and amend

rules governing practice and procedure under the Act

not inconsistent with these rules. Copies of rules and

amendments so made shall upon their promulgation be

furnished to the Administrative Office of the United

States Courts. The clerk of each court shall make ap-

propriate arrangements, subject to the approval of the

Director of the Administrative Office of the United

States Courts, for making copies of such rules available

to members of the public who may request them. In

all cases not provided for by rule, the district court

may regulate its practice in any manner not inconsistent

with these rules.

The Local Rule of the Northern District of Texas Con-

cerning Bankruptcy Cases and Proceedings provides:

In the United States District Court for the Northern

District of Texas.

(a) Emergency Resolution

The purpose of this rule is to supplement existing

law and rules in respect to the authority of the bank-

ruptcy judges of this district to act in bankruptcy cases

and proceedings until Congress enacts appropriate re-

medial legislation in response to the Supreme Court’s

decision in Northern Pipeline Construction Co. v.

Marathon Pipe Line Co., _— U.S. ——, 102 S. Ct.

2858 (1982), or until March 31, 1984, whichever first

occurs.

The judges of the district court find that exceptional

circumstances exist. These circumstances include: (1)

the unanticipated unconstitutionality of the grant of

power to bankruptcy judges in section 241(a) of Public

Law 95-598; (2) the clear intent of Congress to refer

bankruptcy matters to bankruptcy judges; (3) the spe-

cialized expertise necessary to the determination of

bankruptcy matters; and (4) the administrative diffi-

culty of the district courts’ assuming the existing bank-

ruptcy caseload on short notice.

Therefore, the orderly conduct of the business of the

court requires this referral of bankruptcy cases to the

bankruptcy judges.

(b) Filing of bankruptcy papers

The court of bankruptcy constituted by §4/% of Pub-

lic Law 95-598 shall continue to be known as the

United States Bankruptcy Court of this district. The

Clerk of the Bankruptcy Court is hereby designated to

maintain all files in bankruptcy cases and adversary

proceedings. All papers in cases or proceedings arising

under or related to Title 11 shall be filed with the Clerk

of the Bankruptcy Court regardless of whether the case

or proceeding is before a bankruptcy judge or a judge

of the district court, except that a judgment by the

district judge shall be filed in accordance with Rule

921 of the Bankruptcy Rules.

(1) All cases under Title 11 and all civil proceed-

ings arising under Title 11 or arising in or related to

cases under Title 11 are referred to the bankruptcy

judges of this district.

(2) The reference to a bankruptcy judge may be

withdrawn by the district court at any time on its own

~~ =

motion or on timely motion by a party. A motion for

withdrawal of reference shall not stay any bankruptcy

matter pending before a bankruptcy judge unless a spe-

cific stay is issued by the district court. If a reference

is withdrawn, the district court may retain the entire

matter, may refer part of the matter back to the bank

ruptcy judge, or may refer the entire matter back to the

bankruptcy judge with instructions specifying the pow-

ers and functions that the bankruptcy judge may ex-

ercise. Any matter in which the reference is withdrawn

shall be reassigned to a district judge in accordance

with the court’s usual system of assigning civil cases.

(3) Referred cases and proceedings may be trans-

ferred in whole or in part between bankruptcy judges

within the district without approval of a district judge.

(d) Powers of Bankruptcy Judges

(1) The bankruptcy judges may perform in referred

bankruptcy cases and proceedings all acts and duties

necessary for the handling of those cases and proceed-

ings except that the bankruptcy judges may not con-

duct:

(A) a proceeding to enjoin a court;

(B) a proceeding to punish a criminal contempt—

(i) not committed in the bankruptcy judge’s actual

presence; or

(ii) warranting a punishment of imprisonment;

decision of a United States bankruptcy judge;

(D) jury trials.

Those matters which may not be performed by a bank-

ruptcy judge shall be transferred to a district judge.

(2) Except as provided in (d)(3), orders and judg-

ments of bankruptcy judges shall be effective upon

entry by the Clerk of the Bankruptcy Court, unless

stayed by the bankruptcy judge or a district judge.

sd en

(3)(A) Related proceedings are those civil pro-

ceedings that, in the absence of a petition in bank-

ruptcy, could have been brought in a district court or

a state court. Related proceedings include, but are not

limited to, claims brought by the estate against parties

who have not filed claims against the estate. Related

proceedings do not include: contested and uncontested

matters concerning the administration of the estate;

allowance of and objection to claims against the estate;

courterclaims by the estate in whatever amount against

persons filing claims against the estate; orders in re-

spect to obtaining credit; orders to turn over property

of the estate; proceedings to set aside preferences and

fraudulent conveyances; proceedings in respect to lift-

ing of the automatic stay; proceedings to determine

dischargeability of particular debts; proceedings to ob-

ject to the discharge; proceedings in respect to the

confirmation of plans; orders approving the sale of

property where not arising from proceedings resulting

from claims brought by the estate against parties who

have not filed claims against the estate; and similar

matters. A proceeding is not a related proceeding

merely because the outcome will be affected by state

law.

(B) In related proceedings 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.

(e) District Court Review

(1) A notice of appeal from a final order or judg-

ment or proposed order or judgment of a bankruptcy

judge or an application for leave to appeal an inter-

locutory order of a bankruptcy judge, shall be filed

within 10 days of the date of entry of the judgment or

order or of the lodgment of the proposed judgment or

order. As modified by sections (e) 2A and B of this

rule, the procedures set forth in Part VIII of the Bank-

ruptcy Rules apply to appeals of bankruptcy judges’

judgments and orders and the procedures set forth in

Bankruptcy Interim Rule 8004 apply to applications

for leave to appeal interlocutory orders of bankruptcy

judges. Modification by the district judge or the bank-

ruptcy judge of time for appeal is governed by Rule

802 of the Bankruptcy Rules.

(2)(A) A district judge shall review:

(i) an order or judgment entered under paragraph

(d)(2) if a timely notice of appeal has been

filed or if a timely application for leave to

appeal has been granted;

(ii) an order or judgment entered under paragraph

(d)(2) if the bankruptcy judge certifies that

circumstances require that the order or judg-

ment be approved by a district judge, whether

or not the matter was controverted before the

bankruptcy judge or any notice of appeal or

application for leave to appeal was filed; and

(iii) a proposed order or judgment lodged under

paragraph (d)(3), whether or not any notice

of appeal or application for leave to appeal has

been filed.

(B) In conducting review, the district judge may

hold a hearing and may receive such evidence as ap-

propriate and may accept, reject, or modify, in whole

or in part, the order or judgment of the bankruptcy

judge, and need give no deference to the findings of

the bankruptcy judge. At the conclusion of the review,

the district judge shall enter an appropriate order or

judgment.

(3) When the bankruptcy judge certifies that cir-

cumstances require immediate review by a district

judge of any matter subject to review under paragraph

(e)(2), the district judge shall review the matter and

enter an order or judgment as soon as possible.

(4) It shall be the burden of the parties to raise the

issue of whether any proceeding is a related proceeding

prior to the time of the entry of the order or judgment

of the district judge after review.

(f) Local Rules

In proceedings before a bankruptcy judge, the local

rules of the bankruptcy court shall apply. In prc -eed-

ings before a judge of the district court, the local rules

of the district court shall apply.

(g) Bankruptcy Rules and Title IV of Public Law 95-

598

Courts of bankruptcy and procedure in bankruptcy

shall continue to be governed by Title IV of Public

Law 95-598 as amended and by the bankruptcy rules

prescribed by the Supreme Court of the United States

pursuant to 28 U.S.C. § 2075 and limited by SEC [sic.]

405(d) of the Act, to the extent that such Title and

Rules are not inconsistent with the holding of Northern

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

—— U.S. ——, 102 S. Ct. 2858 (1982).

(h) Effective Date and Pending Cases

This rule shall become effective December 25, 1982,

and shall apply to all bankruptcy cases and proceedings

not governed by the Bankruptcy Act of 1898 as

amended, and filed on or after October 1, 1979. Any

bankruptcy matters pending before a bankruptcy judge

on December 25, 1982 shall be deemed referred to that

judge.

This rule supersedes the previous rule of this court

entered and filed on the 4th day of October, 1982,

which prior rule is here canceled.

This order has been executed by the Chief Judge of

the United States District Court for the Northern Dis-

trict of Texas after consent to the entry of the order

was obtained from each district judge and a majority

of the bankruptcy judges of the district.

ENTERED this the 21st day of December, 1982.

/s/ Halbert O. Woodward

HALBERT O. WOODWARD

Chief Judge

Northern District of Texas

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