Opposition Brief — Baker v. Minerex Erdoel, Inc., 109 S. Ct. 57 (1988) (No. 87-1789)

No. 87-1789

BAKER, SMITH & MILLS, P.C.

f/k/a BAKER, MILLER, MILLS & Murray, P.C.,

MINEREX ERDOEL, INC., KARL-HEINZ KRUEGER

AND OTTO HACKOBER,

On Petition for a Writ of Certiorari to the

United States Court of Appeals

for the Fifth Circuit

BRIEF FOR RESPONDENTS IN OPPOSITION

Of Counsel:

REED L. VON MAUR

Leopis C. MATTHEWS

O’ HAIRE, FIORE & VON MAUR

Kaiserstrasse 12

6000 Frankfurt/Main 1

West Germany

011-49-69-29-10-91

ROBERT T. MOWREY

WAYNA M. MARSHALL

LOCKE PURNELL RAIN Harren, Counsel for Respondents Minerex

First RepublicBank Center

3600 Tower IT

Dallas, Texas 75201-3989

(214) 754-7400

SEE SE EEE CE SEL AN DRG T TERE RTE PEI TOMES ER LM TIRE

Witson - Eres Printine Co., Inc. - 789-0096 - WASHINGTON, D.C. 20001

IN THE

Supreme Court of the United Stater

OCTOBER TERM, 1988

“YOSERH E. SPANIOL, am,

ERK

Petitioner,

v.

Respondents.

JAMES K. STEWART

Counsel of Record

KEITH R. ANDERSON

DOUGLAS C. MCALLISTER

SCHWALB, DONNENFELD, BRAY

& SILBERT, P.C.

Suite 300 East

1025 Thomas Jefferson Street, N.W.

Washington, D.C. 20007

(202) 965-7910

Erdoel, Inc., Karl-Heinz Krueger

and Otto Hackober

AX

$

¥.

:

QUESTION PRESENTED

Whether, under the circumstances of this case, the

United States Court of Appeals for the Fifth Circuit cor-

rectly concluded that a United States District Court may

not refer the appeal of a decision of a United States

Bankruptcy Court to a United States Magistrate for a

determination not subject to further review by the Dis-

trict Court.

(i)

il

LIST OF PARTIES

The parties to the proceeding below were as follows:

Minerex Erdoel, Inc.

Karl-Heinz Krueger *

Otto Hackober

Baker, Smith & Mills, P.C., formerly known as

Baker, Miller, Mills & Murray, P.C.

Sina, Inc.

Sina 77-78, Ltd.

Sina 78-79, Ltd.

Sina 79-80, Ltd.

Sina 80-81, Ltd.

LIST OF AFFILIATED CORPORATIONS

Respondent Minerex Erdoel, Inc., has no parent com-

panies, subsidiaries, or affiliates to list pursuant to Su-

preme Court Rule 28.1.

* Mr. Krueger’s name is misspelled in the caption of the case on

the cover and first page of Petitioner’s Petition for a Writ of Cer-

tiorari. A List of Parties is included to apprise the Court of this

error in the caption.

Iii.

IV.

TABLE OF CONTENTS

Page

I 1

STATEMENT OF THE CASE...WW0002000.. 2

IRE Ee AIRE RS rar oC 4

A. The Petition For Certiorari Should Be De-

nied Because The Decision Of The Fifth Cir-

cuit Is Not In Conflict With Any Decision Of

This Court Or Any Other Court of Appeals

And Because The Question Presented Does

Ue FAT caste 4

B. The Case Below Was Correctly Decided........

or

NE i osiccevsaateshcaciehosbananaaciccebeopiina acta bileheide 10

(ili)

iv

TABLE OF AUTHORITIES

Cases: Page

Califano v. Yamasaki, 442 U.S. 682 (1979) ............ 10

Crowell v. Benson, 285 U.S. 22 (1982) -........222022222... 10

In re Elcona Homes Corp., 810 F.2d 136 (7th Cir.

it ee Si alia ceutiinlille 4,6

Jean v. Nelson, 472 U.S. 846 (1985) -........2..002220000. 10

Mathews v. Weber, 423 U.S. 261 (1976) ................ 8

Northern Pipeline Construction Co. v. Marathon

Pipeline Co., 458 U.S, 50 (1982) —............. eau 6

United States v. CIO, 335 U.S. 106 (1948) ............. 10

Woods v. City National Bank & Trust Co., 312 U.S.

I sl arabe sidepimcsndoonses 2

U.S. Constitution:

a ITER OOM Fen 2 nN SOE OM 6

Statutes and Public Laws:

28 U.S.C. § 158 (Supp. III 1985) ............2000 2. 2

28 U.S.C. § 636 (1982 & Supp. III 1985) _.....02.... passim

28 U.S.C. §§ 631-639 (1982 & Supp. III 1985) _........ 6

28 U.S.C. § 1334 (Supp. ITI 1985) ........02.. 6

Bankruptcy Amendments and Federal Judgeship

Act of 1984, Pub. L. No. 98-353, 98 Stat. 333

RNIN cc scichadatesanacens shdhioniniataicicdaadiatubinckadauaeaiendnenanil passim

Congressional Record:

130 Cong. Rec. S6080 (daily ed. May 21, 1984).. 8

130 Cong. Rec. S6089 (daily ed. May 21, 1984). 6

130 Cong. Rec. S6107, S6111 (daily ed. May 21,

| RSE ERE care ER al NOS IIT OR, We FD RE inthe FBR x

Other Authorities:

Marrion, Core Proceedings and the “New” Bank-

ruptcy Jurisdiction, 35 De Paul L. Rev. 675

tions for Non-Article III Courts and Judges:

A Comment on Commodities Futures Trading

Commission v. Schor, 20 Creighton L-Rev. 11

SIREN Gstaiinstceenssbecipiatsenacaste

Vv

TABLE OF AUTHORITIES—Continued

Page

Note, The Boundaries of Article III: Delegation of

Final Decisionmaking Authority to Magistrates,

GE UCaet, Ba OW. BO CEU) nina nsec 9

Note, The Constitutionality of th. Feaeral Magis-

trate System After the Northern Pipeline Deci-

sion, 29 Vill. L. Rev. 745 (1984) ......00... 9

IN THE

Supreme Court of the United States

OCTOBER TERM, 1988

No. 87-1789

BAKER, SMITH & MILLS, P.C.

f/k/a BAKER, MILLER, MILLS & Murray, P.C.,

Petitioner,

Vv.

MINEREX ERDOEL, INC., KARL-HEINZ KRUEGER

AND OTTO HACKOBER,

Respondents.

On Petition for a Writ of Certiorari to the

United States Court of Appeals

for the Fifth Circuit

BRIEF FOR RESPONDENTS IN OPPOSITION

The Respondents, Minerex Erdoel, Inc., Karl-Heinz

Krueger and Otto Hackober (hereinafter “Respond-

ents’), respectfully request that the Court deny the Peti-

tion of Baker, Smith & Mills, P.C., for a Writ of Cer-

tiorari seeking review of the opinion of the United States

Court of Appeals for the Fifth Circuit reported at 838

F.2d 781.

I. JURISDICTION

Contrary to the jurisdictional statement contained in

the Petition for Writ of Certiorari, jurisdiction in the

United States District Court for the Northern District

of Texas did not lie pursuant to 28 U.S.C. § 636 (1982 &

Supp. III 1985). Jurisdiction was proper in the District

Court pursuant to 28 U.S.C. $158 (Supp. III 1985) and

28 U.S.C. § 13834 (Supp. III 1985).

2

Il. STATEMENT OF THE CASE

This action arises out five cases pending the United

States Bankruptcy Court for the Northern District of

Texas (hereinafter “Bankruptcy Court’”).' During the

course of those cases, the Bankruptcy Court partially

granted an application for attorneys’ fees and expenses

filed by Petitioner Baker, Smith & Mills, P.C. (herein-

after “Baker, Mills”). Respondents appealed that deci-

sion to the United States District Court for the Northern

District of Texas (hereinafter “District Court”). The

District Court referred that appeal to a United States

Magistrate who affirmed the District Court’s decision.

The court below vacated and remanded the District

Court’s decision on the ground that referral of the ap-

peal of the Bankruptcy Court’s Order to a United States

Magistrate was improper.

In October, 1984, Baker, Mills submitted to the Bank-

ruptcy Court its final application for fees and expenses

based upon its services as counsel in cases before the

Bankruptcy Court. On behalf of the estates in bank-

ruptcy, Respondents, in reliance upon Woods v. City Na-

tional Bank & Trust Co., 312 U.S. 262, 268 (1941), con-

tested the award of fees on the ground that conflicts of

the interests of the five debtors represented by Baker,

Mills in underlying cases barred payment of compensa-

tion to Baker, Mills. After an evidentiary hearing and

argument, the Bankruptcy Court entered an order award-

ing Baker, Mills most of the fees requested in its applica-

tion and all requested expenses.

Pursuant to 28 U.S.C. §158 (Supp. III 1985), Re-

spondents appealed the Bankruptcy Court’s decision to

the District Court. In accordance with 28 U.S.C. § 636 (c)

1 The five cases are In re Sina 77/78 Ltd., No. 383-00530-A, In re

Sina 78/79 Ltd., No. 383-00531-A, In re Sina 79/80 Ltd., No. 383-

00532-A, In re Sina 80/81 Ltd., No. 383-00533-A, and Jn re Sina,

Inc., No. 383-00535-A.

3

(1982), the parties consented to referral of the appeal to

a United States Magistrate,? and the District Court en-

tered an order effecting a referral. Pet. App. at p. A-12.

In an order and opinion, the Magistrate upheld the Bank-

ruptcy Court’s decision, except as to a portion of the

fee award that was disallowed because of a lack of proof.

Pet. App. at p. A-13-A-23.

Respondents appealed the Magistrate’s decision to the

United States Court of Appeals for the Fifth Circuit.

That appeal addressed the merits of the fee award to

Baker, Milis.* While the case was pending, the court

requested, and the parties submitted, supplemental briefs

addressing the issue of whether 28 U.S.C. § 636(c) au-

thorized a United States District Court to refer to a

United States Magistrate an appeal from the decision

of a United States Bankruptcy Court.

On March 8, 1988, the Court of Appeals held that the

District Court’s referral of the appeal to the Magistrate

was erroneous. The Court of Appeals therefore ordered

the case remanded to the District Court for its consider-

ation of the merits of Respondent’s appeal from the

Bankruptcy Court’s Order.

Petitioners subsequently filed a Petition for a Writ of

Certiorari with this Court.

* See Appendix to Petition for Writ of Certiorari (hereinafter

“Pet. App.”) at p. A-24. .

3 Baker, Mills also filed a cross-appeal with the Fifth Circuit in

which it asserted that the Magistrate’s reduction of the fee award

was erroneous.

Ill. ARGUMENT

A. The Petition For Certiorari Should Be Denied Be-

cause The Decision Of The Fifth Circuit Is Not In

Conflict With Any Decision Of This Court Or Any

Other Court Of Appeals And Because The Question

Presented Does Not Frequently Arise

The sole question presented in the petition for cer-

tiorari is whether a United States District Court may,

with the consent of the parties, refer an appeal of a de-

cision of a United States Bankruptcy Court to a United

States Magistrate for a determination not subject to fur-

ther review by the District Court. The decision of the

Court below is not at odds with any decision of this Court

and there is no conflict among the Circuits regarding the

question presented. Furthermore, the question presented

seldom arises. There is, therefore, no compelling reason

for the Court to grant certiorari at this time.

Other than the decision below, only one other Court of

Appeals has decided in a published opinion the question

here presented. In that case, the United States Court of

Appeals for the Seventh Circuit held, as did the court

below, that a District Court may not, even with consent

of the parties, refer to a Magistrate an appeal of a

Bankruptcy Judge’s decision. In ve Elcona Homes Corp.,

810 F.2d 136, 139 (7th Cir. 1987). The Llcona court

considered the same factual situation as that occurring

in the case below. The parties had, pursuant to 28 U.S.C.

§ 636(c) (1), stipulated to the referral of an appeal of a

decision of a Bankruptcy Court to a Magistrate. The

Court of Appeals for the Seventh Circuit held that such

a referral was not proper under the provisions of the

Bankruptcy Amendments and Federal Judgeship Act of

1984 (hereinafter “BAFJA”) Pub. L. No. 98-353, 98

Stat. 333 (1984). The Elcona case is identical in its

holding to the in the case below; indeed, the court below

relied upon Elcona in deciding the issue presented below.

ny

re, 73

Furthermore, a revi¢w of the decision below would

commit the resources of this Court to review an issue

which, as the paucity of authority regarding the issue

illustrates, seldom arises. In the four years since the

effective date of the BAFJA, only two reported cases have

decided the issue presented by Petitioner. In the ab-

sence of the likelihood of a substantial impact upon the

administration of justice by a decision of this Court, a

grant of a writ of certiorari is inappropriate in this

case,

In a case such as this, the primary functions of a

grant of certiorari are the harmonization or resolution

of splits of authority between the various circuits or the

resolution of an important question of federal law which

has not been decided by this Court. Sup. Ct. Rule 17.1.

Those reasons for a grant of certiorari do not exist

here. In light of the absence of any conflict among the

Circuits on this issue and the infrequency with which the

issue arises, review by this Court at this time is un-

warranted.

B. The Case Below Was Correctly Decided

The decision of the Court below is in accordance with

the language and purpose of the BAFJA and the Fed-

* That Rule provides in pertinent part as follows:

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 de-

cision in conflict with the decision of another federal

court of appeals on the same matter. . .

* * * *

(c) When a state court or a federal court of appeals 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 deci-

sions of this Court.

6

eral Magistrates Act, 28 U.S.C. §§ 631-639 (1982 & Supp.

III 1985). The primary purpose of the BAFJA was to

amend the Bankruptcy Code to provide for direct super-

vision of the Bankruptcy Courts by District Court judges

appointed pursuant to Article III of the United States

Constitution. The decision below was correctly decided

as it furthers the important policies of the BAFJA and

the Federal Magistrates Act. In addition, the decision be-

low is not contrary to any precedent cited by Petitioner.

Although the legislative history of the BAFJA is ad-

mittedly sparse, Eclona, 819 F.2d at 139 n.6, what

legislative history exists clearly demonstrates Congress’

intent to bring the United States Bankruptcy Courts under

the direct supervision of Article III District Court judges.

See 130 Cong. Rec. S6080 (daily ed. May 21, 1984) (re-

marks of Senator Heflin). Indeed, Section 101(a) of the

BAFJA, 98 Stat. at 333, declares that United States Dis-

trict Courts “shall have original and exclusive juris-

diction of all cases under title 11,” and that a District

Court “shall have original but not exclusive jurisdiction

of all civil proceedings arising under . . . or arising in

or related to cases under title 11.” ° 28 U.S.C. §§ 1334 (a)-

(b). Congress’ concern for direct supervision of Bank-

ruptcy Courts by Article III District Court judges was

prompted by this Court’s decision in Northern Pipeline

Construction Co. v. Marathon Pipeline Co., 458 U.S. 50

(1982). Although Marathon did not deal with the ques-

tion, as formulated by Petitioner, presented in this case,

Congress reacted to the concerns expressed in Marathon

by effecting an overall “strengthening of the judiciary’s

5 The BAFJA did not grant District Courts exclusive jurisdiction

of all civil proceedings arising under or relating to Title 11 cases be-

cause Congress, in accordance with this Court’s decision in Northern

Pipeline Construction Co. v. Marathon Pipeline Co., 458 U.S. 50

(1982), recognized that courts of the various states also would

have jurisdiction of these civil cases. 130 Cong. Rec. S6089 (daily

ed. May 21, 1984) (remarks of Senator Hatch).

7

control over bankruptcy judges, to make the latter

truly adjuncts of the courts.” Elcona, 810 F.2d at

139. This policy would be undermined if appeals

lay in the first instance to another Article I offi-

cer, a United States Magistrate. Jd. at 139-40. See

130 Cong. Ree. S6080 (daily ed. May 21, 1984) (re-

marks of Senator Heflin) (intent of the BAFJA is to “re-

structure[] the jurisdiction of the bankruptcy court as

an adjunct of the U.S. District Court’).

Petitioner ignores these important policy considera-

tions leading to the enactment of the BAFJA in its at-

tempt to persuade this Court to grant certiorari. But it is

this policy which was the engine behind the enactment of

the BAFJA and upon which the courts deciding the issue

here presented have relied. See Elcona, 810 F.2d at 139.

To rule otherwise would be to neutralize the reasons for

the BAFJA’s enactment. Rather than a system in which

Bankruptcy Courts are under the direct supervision of

Article III District Court judges, Petitioner’s reading of

the applicable statutes would provide a system in which

review of a bankruptcy judge’s decision would, in the

first instance, be by another Article I officer, and review

of the decision of a bankruptcy judge by Article III judges

would not occur unless an appeal were taken to a Court of

Appeals. Such a reading of the applicable statutes would

be absolutely contrary to the congressional intent in the

enactment of the BAFJA. Elcona, 810 F.2d at 139-40.

Additionally, Congress provided an elaborate framework

for bankruptcy appeals when it enacted the BAFJA.®

28 U.S.C. § 158. The lack of any reference within the

® Section 104 of the Act, 98 Stat. at 341, provides that bankruptcy

appeals shall be heard by “district courts” or, if the circuit in which

the court sits has established a bankruptcy appellate panel, all par-

ties consent, and the district judges for the district in which the

bankruptcy court sits, by majority vote approve, a bankruptcy

appellate panel composed of bankruptcy judges.

8

elaborate statutory framework to the power of Magis-

trates to hear appeals strongly supports the proposition

that Congress did not intend to grant Magistrates that

power. See Elcona, 810 F.2d at 139.

Moreover, the cases upon which Petitioner relies in argu-

ing that the decision is wrongly decided are inapposite. A

ease chiefly relied upon by the Petitioner, Mathews v.

Weber, 423 U.S. 261 (1976), relates to a United States

Magistrate’s jurisdiction. and powers under 28 U.S.C.

§ 636(b), which expressly provides for the review by a Dis-

trict Court judge of a recommendation of a United States

Magistrate. That case neither discusses nor decides any

issues relating to magisterial referrals under Section

636(¢c), which does not provide for review of a United

States Magistrate’s decisions by a District Court judge

before appeal to a Court of Appeals.*?. The Mathews court

specifically referred to the supervisory powers of, and the

possibility of de novo review by, a District Court judge

in upholding the provisions of Section 636(b). However,

these supervisory powers cannot justify the use of Magis-

trates under Section 636(c), where the District Court has

no power of supervision or review of a Magistrate’s

decision.

Although Petitioner makes much of the fact that a

failure to grant certiorari and reverse the decision of

the court below would place an excessive strain upon

7 At first glance, the legislative history of the BAFJA might sug-

gest that the repeal of prior Section 1334 was intended to give a

greater role to Magistrates to assist District Court judges in the dis-

position of bankruptcy cases. See 130 Cong. Rec. S6080 (daily ed.

May 21, 1984) (remarks of Senator Thurmond). However, those

remarks evidently deal with a proposed section 121 of H.R. 5174,

which was not included in the bill as finally enacted. See Amend-

ment 3083 to H.R. 5174, § 121, reprinted at 130 Cong. Rec. S6107,

$6111 (daily ed. May 21, 1984) (unpassed amendment allowing mag-

istrates to exercise “powers granted magistrates” in bankruptcy

proceedings).

9

the fabric of the federal court system,® Petitioner ignores

the fact that the BAFJA added 61 District Court

judges to the federal bench. Pub. L. No. 98-353 § 202(e),

98 Stat. at 348. Congress, in enacting the BAFJA, rec-

ognized that, although the additional judgeships were not

created specifically for the additional work created by

BAFJA, these additional judges would “be very useful

in handling the additional burden placed on the district

courts in the bankruptcy area.” 130 Cong. Rec. $6083

(daily ed. May 21, 1984) (statement of Senator Thur-

mond). Therefore, the section of BAFJA creating addi-

tional district court judgeships itself provides an answer

to the concern expressed by Petitioners, and the consid-

eration of judicial strain advanced by Petitioners must

be rejected.

Finally, Petitioner does not raise the issues of the con-

stitutionality under Article III of the Constitution of

referrals to United States Magistrates under 28 U.S.C.

§ 636(c), or the constitutionality of the BAFJA amend-

ments concerning bankruptcy judges. Both of those is-

sues have been the subject of lively scholarly debate.

See, e.g., Marrion, Core Proceedings and the “New”

Bankruptcy Jurisdiction, 35 De Paul L. Rev. 675 (1986) ;

Whitten, Consent, Caseload, and Other Justifications for

Non-Article III Courts and Judges: A Comment on Com-

modities Futures Trading Commission v. Schor, 20

Creighton L. Rev. 11 (1986); Note, The Boundaries of

Article III: “Delegation of Final Decisionmaking Au-

thority to Magistrates, 52 U. Chi. L. Rev. 1032 (1985) ;

Note, The Constitutionality of the Federal Magistrate

System After the Northern Pipeline Decision, 29 Vill. L.

Rev. 745 (1984).

The determination of those issues was not, however,

necessary to the decision of the court below, which re-

lied, correctly, upon the terms of the BAFJA in holding

8 Petitioner cites no empirical data or authority for its assertion,

and it seems unlikely that the hearing of bankruptcy appeals has, or

would, excessively strain the resources of tthe federal judiciary.

10

that the reference of the bankruptcy appeal to a Magis-

trate is improper. In deciding a case in which both

statutory and constitutional questions are presented, this

Court has consistently held that the statutory question

should be considered before passing upon the constitu-

tional question. Califano v. Yamasaki, 442 U.S. 682, 692

(1979) ; United States v. Congress of Industrial Organi-

zations, 335 U.S. 106, 110 (1948). Likewise, if a con-

struction of a statutory scheme is possible by which a

serious doubt of constitutionality may be avoided, a court

should adopt that construction. Jean v. Nelson, 472 U.S.

846, 854 (1985); Califano, 442 U.S. at 693; Crowell

v. Benson, 285 U.S. 22, 62 (1932). In this case, the

court below properly decided the issue presented refer-

ring solely to the statutory scheme, and any issues

relating to the constitutionality of either the powers of

United States Magistrates under 28 U.S.C. § 636(c) or

the present scheme of bankruptcy jurisdiction should not

have been decided by the court below, and need not be

decided by this Court in this case.

IV. CONCLUSION

For the foregoing reasons, Respondents respectfully

submit that the Petition for Writ of Certiorari should be

denied.

Respectfully submitted,

Of Counsel: JAMES K. STEWART

REED L. VON MAUR Counsel of Record

Leopis C. MATTHEWS KEITH R. ANDERSON

O’HAIRE, FIORE & VON MAUR DOUGLAS C. MCALLISTER

Kaiserstrasse 12 SCHWALB, DONNENFELD, BRAY

6000 Frankfurt/Main 1 & SILBERT, P.C.

West Germany Suite 300 East

011-49-69-29-10-91 1025 Thomas Jefferso:. Street, N.W.

Washington, D.C. 20007

ROBERT T. MOWREY (202) 965-7910

WAYNA M. MARSHALL .

LOCKE PURNELL RAIN HARRELL Counsel for Respondents Minerex

First RepublicBank Center Erdoel, Inc., Karl-Heinz Krueger

3600 Tower II and Otto Hackober

Dallas, Texas 75201-3989

(214) 754-7400

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