Opposition Brief — Davis v. Turner, 114 S. Ct. 1061 (1994) (No. 93-956)
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Supreme Court of the Gnited States... ... ..
OCTOBER TERM, 1993
In re INVESTMENT BANKERS, INC., Debtor.
Davis, GILLENWATER & LYNCH; and GILBERT K. Davis,
individually and as a partner of
Davis, Gillenwater & Lynch,
Petitioners,
vs.
JAMES H. TURNER, TRUSTEE,
and SECURITIES INVESTOR PROTECTION CORPORATION,
Respondents.
On Petition For A Writ Of Certiorari
To The United States Court Of Appeals
For The Tenth Circuit
BRIEF OF RESPONDENTS IN OPPOSITION
TO THE PETITION FOR WRIT OF CERTIORARI
MARIA J. FLORA
GORSUCH, KIRGIS, CAMPBELL,
WALKER & GROVER
1401 Seventeenth Street
Suite 1100
Denver, CO 80217-0180
Telephone: (303) 299-8900
Attorneys for James H. Turner,
Trustee
THEODORE H. FocutT
General Counsel
Counsel of Record
Of Counsel: SECURITIES INVESTOR PROTECTION
CORPORATION
MICHAEL E. Don .
EE gy” rarer api ana Street, N.W.
JOSEPHINE WANG Washington, D.C. 20005-2207
Associate General Counsel Telephone: (202) 371-8300
pet ll
BEST AVAILABLE COPY i
a
—
PRESS OF BYRON 8. ADAMS, WASHINGTON. D.C. (202) 347-8203 Pre. «
COUNTERSTATEMENT OF THE QUESTION
PRESENTED FOR REVIEW
In July 1981, Investment Bankers, Inc. (“IBI’’), a se-
curities broker-dealer, remitted checks totalling $36,858 to
Gilbert K. Davis, Esquire, and his law firm, Davis, Gil-
lenwater & Lynch (“DG&L”). A couple of days before
receiving the checks, Mr. Davis and his firm had been
retained by IBI and two of its principals in connection
. with an impending suit against them by the Securities and
Exchange Commission (‘“‘SEC’’) for alleged stock manip-
ulation and failure to meet financial responsibility require-
| ments. The checks were remitted on the same day that
the SEC actually filed its complaint in district court against
) IBI and its principals, and were for services rendered over
the past two days and a retainer for future services. That
day, the SEC also obtained an order which prevented IBI
from doing business and limited its disbursement of funds.
Prior to the hearing resulting in the entry of that order,
Mr. Davis converted the checks received from IBI to cash-
ier’s checks.
Concurrently with the filing of the SEC complaint, the
Securities Investor Protection Corporation (‘‘SIPC’’) filed
; in district court an application for a customer protective
decree as to IBI, under the Securities Investor Protection
Act, 15 U.S.C. §78aaa et seg. (‘“SIPA’’). The application
was granted five days later, and resulted in IBI being
| placed in liquidation under SIPA, the appointment of James
H. Turner, Esquire, as trustee, and the removal of the
liquidation proceeding to the bankruptcy court under SIPA
section 78eee(b\(4).* In early January 1982, Mr. Turner
sued Mr. Davis and DG&L in bankruptcy court, to avoid
the payments to them as preferences or fraudulent con-
veyances under sections 547 and 548 of the Bankruptcy
Code, 11 U.S.C. §§547 and 548, and as having been made
in violation of sections 327 and 329 of the Code, 11 U.S.C.
§§327 and 329. Each of the foregoing sections of the Code
* For convenience, references herein to provisions of SIPA shall be
to the United States Code, and shall omit “15 U.S.C.”
applied by reason of SIPA section 78fff(b). While agreeing
that the transfers were otherwise avoidable and improper
under the Code, the Bankruptcy Court concluded that it
lacked jurisdiction over the dispute, in view of the Bank-
ruptcy Amendments and Federal Judgeship Act of 1984.
On appeal, both the District Court and Court of Appeals
disagreed with the Bankruptcy Court as to jurisdiction.
Thus, the issue is
Whether bankruptcy courts have jurisdiction to
consider adversary proceedings that are brought
within SIPA liquidation proceedings and that
arise under provisions of the Bankruptcy Code
where
1) SIPA section 78eee(bX4) requires removal of
the SIPA liquidation proceeding to the bank-
ruptcy courts;
2) the action in question arises under sections
327, 329, 547 and 548 of the Bankruptcy Code,
made applicable by SIPA section 78fff(b) which,
in relevant part, requires that to the extent con-
sistent with SIPA, the SIPA liquidation proceed-
ing ‘“‘be conducted in accordance with, and as
though it were being conducted” under specified
sections of the Bankruptcy Code, including sec-
tions 327, 329, 547 and 548, and there is no
inconsistency between those sections and SIPA;
and
3) the defendants filed a claim in the SIPA liq-
uidation proceeding before the Bankruptcy Court
and counterclaims in the instant adversary pro-
ceeding also before the Bankruptcy Court,
thereby consenting to that court’s jurisdiction.
LIST OF PARTIES
The parties to the proceeding are as stated in the
Petition for Writ of Certiorari, except as follows:
1) O’Connor and Hannan, and not O’Connor and Han-
non;** and
2) the Securities Investor Protection Corporation
(“SIPC”), and not the Securities Investment Protection
Corporation.
SIPC is created pursuant to a federal statute, and has
no parent companies or subsidiaries.***
** The law firm of O’Connor & Hannan was named as a co-defendant
in the suit, but has since fully satisfied its obligation to the Trustee.
*** SIPC’s participation in this matter has been pursuant to SIPA
section 78eee(d). In pertinent part, under that provision, SIPC is a
party in interest as to all matters arising in a SIPA liquidation pro-
ceeding, “with the right to be heard on all such matters.”
iv
RELEVANT STATUTORY PROVISIONS
There is no issue presented under the Seventh Amend-
ment to the United States Constitution in this case and
therefore, the petitioners’ citation of the Amendment at
page 3 of the Petition for Writ of Certiorari is inappro-
priate.
In addition to the other provisions of law identified by
the Petitioners, the following are applicable:
1) 15 U.S.C. §78bbb;
2) 15 U.S.C. §78eee(b\X4), prior to amendment (1978);
3) 15 U.S.C. §78fff(b);
4) 11 U.S.C. §547(b);
5) 11 U.S.C. §548(a);
6) 1 U.S.C. §204(a)
The foregoing provisions are set forth in the statutory
appendix to this brief.
TABLE OF CONTENTS
COUNTERSTATEMENT OF THE CASE ..................
SUMMARY OF ARGUMENT 00000... .ccccccsccccoseccocecesess,
ARGUMENT
ODO GO LGOSREDLERAE DESESOOGOUISS060000600006000060460408068600660
Nature of a SIPA Proceeding: Its History and
POR sade
mM DOD
Section 60(e) of the Bankruptcy Act .
SIPA and SIPA as Amended .............
SIPC and Its Funds ........cccccccccc000005...
Use of SIPC Funds to Satisfy Cus-
I NE hv
wnat 5 Nature of a SIPA
A hie
I. THE DECISION OF THE TENTH CIRCUIT IS
IN ACCORD WITH THE LEGISLATIVE HIS-
TORY OF, AND CASE LAW UNDER, SIPA. .
A.
B.
The Intended Meaning and Purposes of
Section 78eee(b\4) oo...eececccceccccsceeeesees.,
Fundamental Rules of erga! | Con-
struction Dictate That ection
78eee(b\X4) Not Be Deemed Repealed. .
1. The Removal Clause of Section
PR ii
2. The Powers, Duties, and Jurisdic-
tion Clause of Section 78eee(b\4) .
Il. SECTION 78fff(b) SUPPLIES AN ADDITIONAL
BASIS FOR JURISDICTION. .000....ccceccesceoseoees.
III. A SIPA LIQUIDATION PROCEEDING IS NOT
EXCLUSIVELY A “TITLE 15”
oie sccecseg gh TT EAA DATA
IV. THE
DECISION OF THE COURT OF
APPEALS IS NOT INCONSISTENT WITH
GRANFINANCIERA. ...0100.0ccecsssscsecsecsecsossesease.
22
aia,
A. The Cases Relied Upon by the
Petitioners Are Inapposite. ................ 23
B. The Bankruptcy Court Had Jurisdic-
tion Because the Petitioners Filed A
Claim and Counterclaims. ................... 27
1. The Consent to Jurisdiction ........... 28
2. Adjudication by a Non-Article III
PRR ae Te Seen ae teh 30
CASUTUEAIE cnniiensncsenenaeonssii¢inussiandiaainte sean 20
vii
TABLE OF AUTHORITIES
CASES: PAGE
In re Allied Companies, Inc., 137 B.R. 919 (Bankr.
ie Oe ND wicicntiat 29-30
Amrep Corp. v. F.T.C., 768 F.2d 1171 (10th Cir.
1985), cert. den., 475 U.S. 1034 (1986) .......... 15
Associated Press v. NLRB, 301 U.S. 103 (1937) ... 18
Bayless v. Crabtree Th Adams, 108 B.R. 299
a Okl. 1989), af'a., 930 F.2d 32 (10th Cir.
1991)
In re Bell & Beckwith, 54 B.R. 303 (Bankr. N.D.
We CE Wiiisennidibenn 20
In re Ben Cooper, Inc., 896 F.2d 1394 (2d Cir.),
vacated and remanded, 498 U.S. 964 (1990),
reinstated, 924 F.2d 36 (2d Cir.), cert. den.
aus Use ams, 213 8 Ch Sat 0 5 25
In re Blinder, Robinson & Co., 135 B.R. 899 (D.
5 ae rE aii 20,30
Brown v. General Services Administration, 425 U.S.
GT UT sbhcinicincrinieetinicibabniatiaitetces i 16
Bulova Watch Co. v. United States, 365 U.S. 753
PO iieaeihattitshiintuiianiniapitnenita ie 15
John E. Burns Drilling Co. v. Central Bank of Den-
ver, 739 F.2d 1489 (10th Cir. SE ctiahiintichiieoes 26
City Fire Equip. Co. v. Ansul Fire Protection, 125
B.R. 645 (ND. i 25
In re Committee of Unsecured Creditors of F S
Comm., 760 F.2d 1194 (11th Cir. 1985) ......... 26
Commodity Futures Trading Com’n v. Schor, 478
| SR a a 23
In re Davis, 899 F.2d 1136 (11th Cir. 1990), cert.
. sub nom., Gower v. Farmers Home Ad-
min., 498 U.S. 981 a al 26-27
Duel v. Holiins, 241 U.S. 523 RCE ee 5
Duignan v. United States, 274 U.S. 195 (1927) .... 28
Vili
Table of Authorities Continued
E.E.0.C. v. Commercial Office Products Co., 486
Se I icine ai heeaeseanainitaticdiinim iit 10
Exchange National Bank of Chicago v. Wyatt, 517
f € FF ££ eae 8,11,19-20
First National Bank & Trust Co. v. Beach, 301 U.S.
I ili ceiicnscnibaebpnntenstensnenniahnemnens 18
Fourco Glass Co. v. Transmirra Products Corp.,
es Se ID Nite nsdicccensdidnnetaiaceotnniniatsanns 16
Gemsco, Inc. v. Walling, 324 U.S. 244 (1945) ....... 10
Germain v. Connecticut Nat. Bank, 988 F.2d 1323
Se GG SE Wisnidectcasiisedcchiccanidtiibanadiabaiapienidanes 29
Gold v. Hyman, {1974-75 Transfer Binder] Fed. Sec.
L. Rep. (CCH) 495,043 (S.D.N.Y. 1975) ......... 8
In re Government Securities Corp., 972 F.2d 328
(11th Cir. 1992), cert. den., __ U.S.__, 113
a NE I pg dentrncnncitccaacimeaemetatondateais 19
Granfinanciera, S.A. v. Nordberg, 492 U.S. 33
SERA ERE RSE RAO es a ho oe en oer 5,24-26,30
In re Great American Manufacturing and Sales,
Inc., 129 B.R. 633 (C.D. Cal. 1991) ............... 25
Hill v. American Surety Co., 200 U.S. 197
EU -sciistslakciihbiiaieiancghisbiladciaiaiitiassinhlindinddiatndddidibinden 10
In re Hooker Investments, Inc., 937 F.2d 833 (2d
es UT caschinichsabnddn bccethdeeabanetniieida anil aiiiauadbi eh caediibdns 30
In re Jensen, 946 F.2d 369 (5th Cir. 1991) .......... 30
Johnson v. Home State Bank, __ U.S. —_, 111 S.
oc ME vesincielicticnidatsdihataaialniabiabiicaaltabiagsdiccciakas 29
Katchen v. Landy, 382 U.S. 323 (1966) ................. 27-29
Langenkamp v. Culp, 498 U.S. 42 (1990) .............. 30
In re Latimer, 918 F.2d 136 (10th Cir. 1990), cert.
den., __ U.S. __, 112 S. Ct. 186 (1991) ....... 26
In the Matter of Lewellyn, 26 B.R. 246 (Bankr. S.D.
IN SUED iicnscieernsiscicntietihabetbintipnsnieiitiiadntapiatssitieanaiions 8
In re Mankin, 823 F.2d 1296 (9th Cir. 1987), cert.
den., 485 U.S. 1006 (1988) ...........c.ccccccscssccceees 26
Table of Authorities Continued
Page
Mercantile National Bank at Dallas v. Langdeau,
ER Wt, GG CUBGDD sescensssccsnicatessesnesscrascscescs,,. 14
Morton v. Mancari, 417 U.S. 535 RU haat 15,16
Northern Pipeline Const. v. Marathon Pipe Line
Co., 458 U.S. 50 (1982) .......cceccoceceoceseeseee.,.... 3,23,24
In re Orion Pictures Corp., 4 F.3d 1095 (2d Cir.
a EN aE NTT eR ES 26
In the Matter of Perry, Adams and Lewis Securi-
ties, 30 B.R. 845 (Bankr. W.D. Mo. 1983) ..... 20
Posadas v. National City Bank, 296 U.S. 497
NE Mceeinntiaiibttidadceciccdeenaiiicin cues >, 14
In re Roppolo, 111 B.R. 113 (Bankr. W.D. La.
ns nO RE ETD 26
Rosenberg v. United States, 346 U.S. 273 (1953) .. 14
SEC v. Aberdeen Securities Co., 480 F.2d 1121 (3d
Cir.), cert. den. sub nom., Seligsohn v. SEC,
8 3 G.I eS 8
SEC v. Albert & Maguire Sec. Co., 560 F.2d 569
oe gS) ee ee LN EE 8,19,24
SEC v. American Bd. of Trade, Inc., 830 F.2d 431
_. = Sia 12
SEC v. Packer, Wilbur & Co., 498 F.2d 978 (2d
ch a, NEES Re 7
Singleton v. Wulff, 428 U.S. 106 I i a as 28
SIPC v. Ambassador Church Finance/Development
Group, Inc., 788 F.2d 1208 (6th Cir.), cert. den.
sub nom., Pine Street Baptist Church v. SIPC,
| OT ee 8,19
SIPC v. Associated Underwriters, Inc., 423 F.Supp.
ee
SIPC v. Barbour, 421 U.S. 412 SD Macphee 6
SIPC v. Bevill, Bresler & Schulman, Inc., Civil Ac-
tion No. 85-1715 (DRD) ° 6 Sa 16
SIPC v. Charisma Sec. Corp., 506 F.2d 1191 (2d
5 ea a 16
Table of Authorities Continued
Page
SIPC v. Christian-Paine & Co., 755 F.2d 359 (8d
Gas. SNEED anulieisciinsdncciensanenesconbevminsdshabinianshitones 8
In re Southern Indus. Banking Corp., 126 B.R. 294
Siiaeee MUNI. SUID siendhacacncnpscioncnnsbalieiaideintanenczenis 25
Stein v. Miller, 158 B.R. 876 (S.D. Fla. 1993) ..... 26
Stephan v. United States, 319 U.S. 423 (1943) ..... 22
Takao Ozawa v. United States, 260 U.S. 178
ITE idaitishinens dicate hnsddabnancisdandmadigeisaiaphahiptadedadisiness 10
Taylor v. Freeland & Kronz, __ U.S. —_, 112 S.
eh eee CII oscicdccineissiasicciethinscantixiniaidenlenensenidoanate 28
Tennessee Valley Authority v. Hill, 437 U.S. 153
NE pita anda tia aera oars ee er, 14
Thomas v. Union Carbide Agr. Products Co., 473
le ME I aula tacilictsisstoniclica eaiadandenis capiaiasanabe 23
United States v. Borden Co., 308 U.S. 188
ERUNIED siliacuonscnnacaededieuidebounpckaabaamiacadmdsammencie 14
United States v. Hansen, 566 F. a2 162 (DDC
1983), later proceedings, 464 U.S. 1042 (1984)
and 772 F.2d 940 (1985), cert. den., 475 U.S.
SO II senses aecicieciidladgupnieicta ksaiteics Ainisacbisaibameiicn 16
United States v. N.E. Rosenblum Truck Lines, 315
a 10
United States v. United Continental Tuna Corp.,
Me II eateries iondlilarushaiaccncennseasacs 14,16
United States v. Welden, 377 U.S. 95 (1964) ........ 22
Watt v. Alaska, 451 U.S. 259 (1981) ......0...... 10,14,16
Weinberger v. Hynson, Westcott & Dunning, 412
REas: MNT IEEE - Sossctbaseabeasanagiuctndbsdceuedasbisabosesons 10
Matter of Wood, 825 F.2d 90 (5th Cir. 1987) ....... 26
CONSTITUTION OF THE UNITED STATES:
BR Be. dintiericesernaibinatenaihanslddinidinesuiaiiacsians 22,27,28
SE Be Fe - ranlsoscncacind Ucadlivedadlidiaaiminidasédstetnansveabita 24
BR Far ee is Ae issn ciiencassicnnechananaitbedenaclntincaienaaans 24
I We eatin staeninkcaabipaiidcaaanandiiahasnlinsdbsnnsitiabinbass 25
xi
Table of Authorities Continued
Page
STATUTES AND RULES:
Securities Investor Protection Act of 1970, 15 U.S.C. §
EE ae 11
ilies htacipeessneasasvaciscsascnscsa sa... 11
RI it hitdapacecacsonsseonssosesotasanenenensionsscce...... 11
RI il eds ccscsscingneaecacisaciceac tc. 6
I vii iasiesstovasesassissinseeseraaiacsecsinie.o... 6
ME iiclcseeticthcstnnliticinsckinpinis aceon gcc a 5 6
Securities Investor Protection Act of 1970, as amended,
15 U.S.C. §
EE eis anadithsasctninnssesidseesovensineazctinansaossiass docs: 18,20
IID Aiscsnerairencsctrasenesicnsessstnteniateseseaccece <n... 7
MI ibs ccisecneinssacsnianenccinaninsasereeseiceic ee 7
_, _,_ SRSA SAI oa eae pene nna 7
ht tniainiitiiasinsihemcssiaiisdscsasionsii tego og. - 7,24
ei phecsninticassicceisbsosaabtcsidesinedscceiedccss cc, 7,24
BI Seth onsiepsitaicssscinasninisornincnshdcssischenssins ss. 8
TET EES, 15,17
CATON) is snsonssnsndecnssncenscessedseesevsassesdives,. 10,15
SIT Alanon cae snkatiomintchnesleitcashiscie ts 8,9
SIE sith iethiicti tniiictalsoniseaectodceuisé cites... 1-4,8-13,15-1
TE ibairsictadeniciniinstieninisitorvbinssrtassicuscicee cia 8
EE ei noinbsneciadicicseasisine cciscs ca ccoe ic, 2-5,8,18-21,29
CRE RENS cs ASEOIER AAR CR ERED ieee te ANE 9
.__ SRASESUICE ea e na R 8
. ESE an ena 1,9
TD Sitiiiesniinonasniviatdbanaiige ce ak 9,29
SI Bttinttiscenenetsccoccnscsicesiads seernaicrekic nck 7
.. ___ EERSARRE CARER Sele neve nia cn oak a 7,24
WN itr sis selbanbisbidesensdciensiseicdecces 6. Ju. 24
WITT escesinshonitsnedsbctesinitianckinriaiiatgnsciaie: ci... 20
Bankruptcy Act (repealed 1979), 11 U.S.C. §
2, CANE SAAT TTT 29
xii
Table of Authorities Continued
Page
Bankruptcy Code, 11 U.S.C. §
IEE sa isiackhciceieskitiiscnksnnihesnkunanlanipialdeuaacaiaaa 29
I Gicdn nus tasksciaclcceanitibid Sucdndeucieapuaadbsesagaaniciouanencane tka eiaae mall 19
INDY ‘sihiicstidicens hash dussibochaljulhnescbesctategdinaiak add ihaeuecabie edaaaeea ae 4,19
IN cic tals oa cia Suics csinhnsagineanacasdel ah ccantin ee eaaa me 8
SII. inchisccddactatasacaspaantomaceauyeeasa ued eeeas OL 22
II Sis cass ainsadddenntannitasatinakesesessuiguipunuadcngieameaaen 29
MET -Achuensdidadkinesdadedesisdidakentebantatsitadsaniennenaiaaaunilleaae 4,19
DN sah ted cdcansesitsanesousuxecencsaltcaginnssstcus omen 19
I iiiicesrdcd oieedientansinascrcecnoauadicaadaaan 4
UII Ras peeked dintlaicianicadascahvalanuaiickealssdnbameetaaae ae 9
Bankruptcy Rules
DOE ices tacteaniedinnciniinshedsatiie tpaniaecadinveasadbaanngieaemaaailiaaes 20
IIE Ancocacinaiamciaigienapinsidiinbeaebdeedaseneaeiiandtiapeeaans 26
Federal Rules of Civil Procedure
I kienakasiinsacisndadteedisieadaldantimsctsinsnmaneraenialeaae 26
Other Statutory Provisions
Ds ME do siatansdstdoescscisepisitcadeeaneaiadiate 21
eek SUD initentasisisesitnniccaaiovercoinsataonenamanaan 21
Re ee IIE Siiviisncisnisactsininnd dimsatisancideanneamenbaeadional 19
ee IEE beni bcsassiscscnsssnciasansonnaieapmabinsnmaine 2
eae I Sieeints sicisinindddnshonneddnandinsancninsanniloiaien 15
Fe Ae II ihn osisicciianaccnisemieanicuiadaaniehqemainibene 17
Be Raa IED Sditiiandnatrciosanaesansansaiacnanaaeanin 5,17,20
Be eA ID aisisiiscnkcastisccdakieicaidcacnnaetcuiae 18,19
Be Aes REF scscsnkscxsstesctisssisiviasatagaiana
Be ee IED sisedsccicciasnscscaccexernecvenenpanes 18,19,25
ED fs cisinchcns cidsnuaihaidiaassuviebonstanimenions 17
Be ee IE ishnsaskishivosinncesasuincciounanasdeatebomionaian 15,16,26
ee Mikshsiii catentucsvecebiintinasaaiaseammmnnnie 2
Be ee ND secisnsntstns.sntvesindccnacinianmineommaeaabns 13
Be ees EE sikitinnandccnsiciahoplicennisabaiutantidaasanstinaadion 26
Pub. L. No. 95-288, 92 Stat. 249 (1978) ............... 7
xiii
Table of Authorities Continued
Page
Pub. L. No. 95-283, 92 Stat. 257 a 13
Pub. L. No. 95-283, 92 Stat. 259 A 11
Pub. L. No. 95-598, 92 Stat. 2549 7
Pub. L. No. 95-598, 92 Stat. 2668 a 3
Pub. L. No. 95-598, 92 Stat. 2674 (1978) wo. 13
Pub. L. No. 95-598, 92 Stat. 2675 (1978) 11
Pub. L. No. 96-433, 94 Stat. 1855 (1980) ooo... 7
Pub. L. No. 97-303, 96 Stat. 1409 =a 7
Pub. L. No. 98-353, 98 Stat. 333 (1984) 3
Pub. L. No. 98-353, 98 Stat. 340 a 2,3
Pub. L. No. 100-181, 101 Stat. 1265 (1987) .......... 7
LEGISLATIVE MATERIALS:
H.R. Rep. No. 1613, 91st Cong., 2d Sess. (1970) . 21
S. Rep. No. 989, 95th Cong., 2d Sess. (1978) ....... 13
S. Rep. No. 763, 95th Cong., 2d Sess. (1978) ....... 13
130 Cong. Rec. H1848 (daily ed. March 21,
he 24
Comm. on Interstate and Foreign Commerce,
95th Cong., Ist Sess. (Aug. 1, 1977) 1]
PUBLICATIONS AND TREATISES:
3 Collier on Bankruptcy (14th ed. 1977)
ioe a 6
1 Collier on Bankruptcy (15th ed. 1992)
TO sess crssscssesssctcessseessn.. 26
Courts in Stockbrokerage Liquidations, 16 Sec.
Reg. L. J. 227 (Fall I Pa ascistscscidaseess... 12
so) cSt ROAR dal a
IN THE
Supreme Court of the Gnited States
OCTOBER TERM, 1993
No. 93-956
In re INVESTMENT BANKERS, INc., Debtor.
Davis, GILLENWATER & LYNCH; and GILBERT K. DAVIS,
individually and as a partner of
Davis, Gillenwater & Lynch,
Petitioners,
VS.
JAMES H. TuRNER, TRUSTEE,
and SECURITIES INVESTOR PROTECTION CORPORATION,
Respondents.
BRIEF OF RESPONDENTS IN OPPOSITION
TO THE PETITION FOR WRIT OF CERTIORARI
COUNTERSTATEMENT OF THE CASE
On July 15, 1981, upon an application by SIPC, the
United States District Court for the District of Colorado
(“District Court’’) placed Investment Bankers, Inc. (“IBI’”’
or “‘the Debtor’) in liquidation under SIPA, and appointed
James H. Turner, Esquire, as trustee to administer the
liquidation. Pursuant to SIPA section 78eee(b\4), the Dis-
trict Court removed the liquidation proceeding to the
Bankruptcy Court for the same district (“the Bankruptcy
Court’’).
Consistent with SIPA section 78fff-2(aX1) and with the
Bankruptcy Court’s permission, the Trustee caused notice
of the liquidation proceeding to be published, and had cop-
ies of the notice and claims materials maiied to customers
and other creditors of the Debtor. On September 1, 1981,
the Trustee received a claim from Petitioner Davis for a
cash credit balance and some securities. In the claim, he
disclosed that he was an attorney who had represented
the Debtor and its principals. Tne Trustee did not deter-
mine the claim. Instead, on January 19, 1982, based on
28 U.S.C. §1471 and SIPA section 78fff(b), the Trustee
commenced the instant adversary proceeding in the Bank-
ruptcy Court, based on the Debtor's transfer of $36,858
to the petitioners on the day that SIPC filed the appli-
cation to have the firm placed in liquidation. The petitioners
answered and counterclaimed. A8-A11.'
A trial was held in August 1984 and July 1985. On
December 10, 1985,? the Bankruptcy Court filed a Mem-
orandum Opinion and thereafter entered judgment. All,
A115.
The court concluded that it lacked jurisdiction in view
of the Bankruptcy Amendments and Federal Judgeship
Act of 1984 (“BAFJA’’). A139-A147. Under 28 U.S.C. sec-
tion 157 which is part of the BAFJA, Pub. L. No. 98-353,
98 Stat. 340 (1984), only Title 11 cases, and proceedings
arising under or in or related to cases under Title 11, may
be referred to bankruptcy judges. In the court’s view, the
adversary proceeding arose under SIPA, which is con-
tained in Title 15 and not Title 11 of the United States
Code. The court rejected SIPC’s contention that SIPA sec-
tion 78eee(bX4) provided a basis for removal to it of the
adversary proceeding. It also disagreed that section
78eee(bX4) should be interpreted so as to effectuate the
legislative intent. The bankruptcy judge stated:
It is further asserted that a literal interpretation of
present statutes would result in an absurdity of re-
1 References herein to pages of the Appendix shall be to “A...”
References to the Petition for Writ of Certiorari shall be to “‘Cert.
Pet.”
* The “reprint” of the Memorandum Opinion in the Petitioners’ Ap-
pendix incorrectly reflects the date as December 20, 1985. See A165.
A Reames SA Git el
A Pada BA Pc Mi la ns Des a AON ite SR pd th cs lle ae tt an
quiring district courts to “remove” SIPA cases to
themselves. ‘“... A literal application of a statute
which would lead to absurd consequences is to be
avoided whenever a reasonable application can be
given which is consistent with the legislative.”’ [Sic]
There are several difficulties with the proposition
advanced by SIPC. First, it must be observed that
much of what Congress promulgated in the 1984
BAFJA results in absurdity. This is but one example
.... [emphasis added and citation omitted]
A143. Finally, the court failed to consider the effect of
SIPA section 78fff(b) upon its jurisdiction.
Section 78eee(bX4) had been made unclear as a result
of the enactment of the BAFJA. In relevant part, the
SIPA section required removal to “the court of the United
States in the same judicial district having jurisdiction over
cases under title 11.” Under the Bankruptcy Reform Act
of 1978 (“1978 Reform Act”), the latter courts were the
bankruptcy courts. Pub. L. No. 95-598, 92 Stat. 2668
(1978); Northern Pipeline Const. v. Marathon Pipe Line
Co., 458 U.S. 50, 54 n.3 (1982) (“Marathon”). In that
context, the intent of section 78eee(b\4) was plain: SIPA
proceedings were to be removed from the district court
in which the SIPC application had been filed to the bank-
ruptcy court for the same district. However, in the after-
math of Marathon—with the substitution of the
jurisdictional provisions of the BAFJA for those of the
1978 Reform Act—the meaning of section 78eee(b\4) was
obscured. Because the courts with ultimate jurisdiction over
Title 11 cases were now the district courts, see Pub. L.
No. 98-353, 98 Stat. 333 and 340 (1984), a literal appli-
cation of section 78eee(bX4) would have required the dis-
trict court to remove the proceeding to itself.
Although section 78eee(b\4) had become facially mean-
ingless, the Bankruptcy Court refused to discern and apply
the legislative intent, stating that a provision requiring a
court to remove a proceeding from itself to itself is not
ambiguous:
Further, resorting to legislative history is only ap-
propriate where the language of a statute is ambig-
uous .... Where the language of a statute is clear,
use of committee reports, legislative comments, and
the like is unnecessary .... There is no ambiguity in
any of the language of statutes under consideration
here. [Emphasis added and citations omitted]
A144. In spite of the finding of lack of jurisdiction, the
_court proceeded to decide the merits of the case in the
event that it was mistaken as to its jurisdiction. It con-
cluded that a $25,000 retainer paid to the petitioners was
voidable as a fraudulent transfer under 11 U.S.C.
§548(aX2), and that a payment of $11,858 to them was
voidable as a preference under 11 U.S.C. section 547 and
as not in compliance with 11 U.S.C. section 329. A157-
A164.
On appeal, the finding as to jurisdiction was reversed.
Al1-A106.
SUMMARY OF ARGUMENT
This Court should not grant the petition for a writ of
certiorari for the following reasons:
1. There is no conflict between the decision of the Tenth
Circuit and of any other court. At bottom, SIPA liquidation
proceedings are ordinary bankruptcy proceedings with spe-
cial customer protection features. There is substantial au-
thority in SIPA for the removal of such proceedings to
the bankruptcy courts, and for the consideration by the
latter courts of adversary proceedings brought within them.
Thus, once the district court places the broker-dealer in
SIPA liquidation, it must remove the proceeding to the
bankruptcy court under SIPA section 78eee(b\X4). Fur-
thermore, SIPA section 78fff(b) mandates that the SIPA
proceeding be conducted not only in accordance with, but
as though it were being conducted under specified provi-
handing ther Hi ate! eeide ona ea anes
ee ee Ee ee in ee ca Ba
5
sions of the Bankruptcy Code, including those that are at
issue. Finally, 28 U.S.C. section 157(bX1) supplies another
basis for jurisdiction. The Bankruptcy Court had jurisdic-
tion under that section because the instant adversary pro-
ceeding not only is a core proceeding arising under
provisions of Title 11, made applicable by SIPA section
78fff(b), but because it arises in a case under Title 11.
The SIPA liquidation proceeding is a Title 11 and Title
15 case.
2. Petitioners never requested a jury trial in this case,
and accordingly, they inappropriately rely upon Granfi-
nancrera, S.A. v. Nordberg, 492 U.S. 38 (1989) (“Granfi-
nancrera”’). The authority of the Bankruptcy Court to
consider this adversary proceeding was reinforced by the
petitioners’ filing of a claim against the Debtor’s estate
and of counterclaims for payment from the estate. As a
result, the instant suit became an integral part of the
restructuring of the debtor-creditor relationship subject to
the jurisdiction of the Bankruptcy Court.
3. Petitioners raise no question worthy of review. The
issue is significant only to the parties involved, and has
no importance beyond the narrow confines of SIPA cases.
ARGUMENT
This adversary proceeding was brought within the con-
text of a SIPA liquidation proceeding. Because an under-
standing of the nature of the proceeding is critical to a
proper resolution of the petition, the history of SIPA, as
well as its purposes and relevant provisions, are examined
below. That examination shows that at bottom, the pro-
ceeding is no more than an ordinary bankruptcy liquidation
case, with special customer protection features.
Nature of a SIPA Proceeding: Its History and Purposes
Prior to 1938, customers of a bankrupt stockbroker were
considered as general creditors if they could not reclaim
cash or securities which they could trace into the broker’s
possession. Duel v. Hollins, 241 U.S. 523, 527-29 (1916).
Because serious inequities could and did result from this
method of reclaiming, Congress enacted section 60(e) of
the Bankruptcy Act in 1938.
A. Section 60(e) of the Bankruptcy Act
Section 60(e) of the former Bankruptcy Act, 11 U.S.C.
§96(e) (repealed 1979), permitted “‘cash customers,” as de-
fined therein, to reclaim fully paid securities which were
“specifically identifiable” as their property. Otherwise, cus-
tomers’ cash, securities or property of a similar character
(not “specifically identifiable”) constituted a “single and
separate fund” to be applied in satisfaction of customers’
claims (other than for specifically identifiable property) on
a pro rata basis, subject only to prior payment of certain
administrative expenses. As for the unpaid balance of their
“net equities,’’ customers shared with general creditors in
the general estate. See 3 Collier on Bankruptcy, 4460.71-
60.76 (14th ed. 1977).
Because of the usually inadequate single and separate
fund, section 60(e) did not prevent customer losses. Cus-
tomer exposure mounted when the rate of stockbroker
failures accelerated in the 1960s. Congress responded to
the crisis by enacting SIPA. SIPC v. Barbour, 121 U.S.
412, 415 (1975).
B. SIPA and SIPA as Amended
With some adjustments, SIPA expressly continued the
substantive scheme of section 60(e). Customers were still
entitled to the return of their “specifically identifiable
property,”” and to their share of the single and separate
fund. §78fff(cX2XA)—(C) (1970). The major impact of SIPA
on customer recoveries was to reduce losses by providing
a limited back-up through SIPC funds. In essence, SIPA
improved “‘collectability’”’ while adhering to the section 60(e)
philosophy of according customers limited preferential
rights based on their actual securities and cash positions
entrusted to the broker.
In 1978, SIPA was amended to provide greater flexi-
bility to SIPC in satisfying customer claims in an expe-
ee
ne ee te eee
7
ditious fashion.? The essential elements of a SIPA
proceeding remained unchanged.
C. SIPC and Its Funds
SIPC is a non-profit corporation whose members include
most interstate broker-dealers. §78ccc(aX2\A).
SIPA requires SIPC to establish a fund via assessments
upon its members. §78ddd(aX1). If the fund should become
inadequate, SIPA authorizes a borrowing against the U.S.
Treasury of up to one billion dollars. §78ddd(f)—(h). These
resources are available for the satisfaction of customer
claims within certain limits.
D. Use of SIPC Funds to Satisfy Customer Claims
SIPA requires the distribution of “a quasi-public fund.”
SEC v. Packer, Wilbur & Co., 498 F.2d 978, 980 (2d Cir.
1974). Under section 78fff-3(a), SIPC is authorized to ad-
vance to the trustee, in order to Satisfy net equity claims
of customers, up to $500,000 per customer of which no
However, SIPA does not attempt to make all customers
whole and SIPC’s role is carefully delineated. It contem-
plates that customers’ claims will be Satisfied to the max-
imum extent possible from the assets of the defunct
member firm. §78fff-2(cX1). To the extent of its advances,
SIPC is subrogated to the claims of such customers. §78fff-
3(a). See SIPC v. Associated Underwriters, Inc., 423
F.Supp. 168, 170-173 (D. Utah 1975).
E. Bankruptcy Nature of a SIPA Proceeding
It is useful to consider SIPA as an “engraftment of
insurance provisions upon the preexisting Section 60(e)
bankruptcy provisions applicable to stockbrokers. . . .” SEC
v. Aberdeen Securities Co., 480 F.2d 1121, 1123 (3d Cir.),
cert. den. sub nom., Seligsohn v. SEC, 414 U.S. 1111 (1973).
Thus, notwithstanding the special protection afforded cus-
tomers, a proceeding under SIPA essentially is a bank-
ruptcy liquidation. See, e.g., SIPC v. Ambassador Church
Finance/Development Group, Inc., 788 F.2d 1208, 1210 (6th
Cir.), cert. den. sub nom., Pine Street Baptist Church »v.
SIPC, 479 U.S. 850 (1986); SEC v. Albert & Maguire Sec.
Co., 560 F.2d 569, 572 (3d Cir. 1977); Exchange National
Bank v. Wyatt, 517 F.2d 453, 457-459 (2d Cir. 1975). In-
deed, one of the stated goals of the proceeding is ‘“‘to
liquidate the business of the debtor.”’ SIPA §78fff(a\4).
The application to commence a proceeding is filed by SIPC
in federal district court, §78eee(aX3), which puts into effect
the Bankruptcy Code’s automatic stay. 11 U.S.C. §362(a).
If the court grants the application, it appoints a trustee
to administer the liquidation and removes the proceeding
to the bankruptcy court for that district. §78eee(bX3) and
(bX4). To the extent consistent with SIPA, the SIPA pro-
ceeding is to “be conducted in accordance with, and as
though it were being conducted under chapters 1, 3, and
5 and subchapters I and II of chapter 7” of the Bankruptcy
Code. §78fff(b).
Because the SIPA proceeding effectively is a bankruptcy
proceeding, it looks not only to the disposition of claims
of customers, but also to the claims of general creditors.
In the Matter of Lewellyn, 26 B.R. 246, 253 (Bankr. S.D.
Iowa 1982); Gold v. Hyman, [1974-75 Transfer Binder] Fed.
Sec. L. Rep. (CCH) 495,043 at p. 97,657 (S.D.N.Y. 1975).
To enable the trustee to carry out his responsibilities not
only to customers but to the entire bankruptcy estate and
its creditors, the trustee is given the same powers and
title with respect to the debtor and its property as a trustee
in bankruptcy, as well as powers that will enable him to
perform the special functions of a SIPA liquidation. §78fff-
l(a). See SIPC v. Christian-Paine & Co., 755 F.2d 359,
361 (3d Cir. 1985). Estate property collected by the trustee
4
~
2
I ae DD GS te to ® ~
is distributed as specified in section 726 of the Bankruptcy
Code. §78fff(e).
A SIPA proceeding has elements that differ from those
of a bankruptcy proceeding. For example, the trustees and
their counsel, while appointed by the district courts, are
selected by SIPC. §78eee(bX3). The trustee is responsible
for mailing notices to customers and other creditors. §78fff-
2(aX1). Claims are submitted to the trustee instead of the
court. §78fff-2(a\2).
I. THE DECISION OF THE TENTH CIRCUIT IS IN
ACCORD WITH THE LEGISLATIVE HISTORY OF, AND
CASE LAW UNDER, SIPA.
Contrary to petitioners’ contention, Cert. Pet. at 11-31,
there is ample authority for bankruptcy judges to consider
suits arising under provisions of the Bankruptcy Code in
the context of a SIPA liquidation. As discussed below, the
decision of the Tenth Circuit is in accord with the pertinent
case law and with the legislative history of SIPA. Ac-
cordingly, there is no conflict that needs to be resolved
by this Court.
Notwithstanding the enactment of the BAFJA, two sec-
tions of SIPA, 78eee(bX4) and 78fff(b), supply a basis for
the exercise of jurisdiction by the bankruptcy courts in
SIPA cases. Each is considered in turn below.
Section 78eee(b\4) is headed “Removal to Bankruptcy
Court” and specifies that upon the issuance of the cus-
tomer protective decree and appointment of a trustee, the
district court “shall forthwith order the removal of the
entire liquidation proceeding to the court of the United
States in the same judicial district having jurisdiction over
cases under title 11.” The section also provides that the
“latter court shall thereupon have all of the jurisdiction,
powers, and duties conferred by” SIPA upon the district
court ordering the removal. Because the courts with ju-
risdiction over Title 11 cases are now the district courts,
a literal application of section 78eee(b\X4) requires the dis-
trict court entering the customer protective decree to re-
10
move the proceeding to itself. Although section 78eee(b\4)
appears facial'y meaningless as a result of the BAFJA,‘
to avoid an interpretation that results in a “self-nullifi-
cation” of the provision and produces an unreasonable re-
sult, as a court must, see Gemsco, Inc. v. Walling, 324
U.S. 244, 255 (1945), it is necessary to determine the
purposes of SIPA, and specifically of section 78eee(b\4),
and to apply the statute in a way which will effectuate
those purposes.
It is the duty of [the] Court to give effect to the
intent of Congress. Primarily this intent is ascertained
by giving the words their natural significance, but if
this leads to an unreasonable result plainly at variance
with the policy of the legislation as a whole, we must
examine the matter further. We may then look to the
reason of the enactment and inquire into its anteced-
ent history and give it effect in accordance with its
design and purpose sacrificing, if necessary, the literal
meaning in order that the purpose may not fail.
Takao Ozawa v. United States, 260 U.S. 178, 194 (1922).
See E.E.0.C. v. Commercial Office Products Co., 486 U.S.
107, 120-121 (1988) (court wili not countenance interpre-
tation of statutory language leading to absurd or futile
results); United States v. N.E. Rosenblum Truck Lines, 315
U.S. 50, 55 (1942); Hill v. American Surety Co., 200 U.S.
197, 203 (1906). Adducing the intended meaning of section
78eee(b\X4) is also necessary to determine whether a con-
flict exists between it and the BAFJA, and if so, which
statute must be enforced. See Watt v. Alaska, 451 U.S.
259, 265-67 (1981).
‘Inasmuch as all of the jurisdiction, powers, and duties which it
purports to confer already reside in the district court upon the filing
of the application to have the SIPC member placed in liquidation, see
SIPA §78eee(bX2XAXiii), the second clause of section 78eee(bX4) also
becomes meaningless or superfluous, in contravention of the rule that
no part of a statute is to be construed as to be rendered superfluous.
Weinberger v. Hynson, Westcott & Dunning, 412 U.S. 609, 633 (1973).
:
£
z
3
3
4
5
4
;
11
A. The Intended Meaning and Purposes of Section
78eee(b)(4)
The relevant case law under, and history of, SIPA bear
out the conclusion that Congress specifically intended that
the proceedings be considered by the bankruptcy courts.
Although, contrary to Petitioners’ contention, the original
version of SIPA did not expressly include a removal or
referral provision, Cert. Pet. at 13, the Second Circuit
concluded in Exchange National Bank of Chicago v. Wyatt,
517 F.2d 453 (2d Cir. 1975) (“Wyatt”), that referral of
the proceedings to the bankruptcy courts effectuated the
purposes of SIPA. In doing so, the court examined 1)
section 5(bX2) of SIPA, 15 U.S.C. §78eee(b\2) (1970), giv-
ing to the district courts exclusive jurisdiction over the
debtor and its property and the powers of a bankruptcy
court and of a court in a proceeding under chapter X of
the Bankruptcy Act;* 2) section 6(cX1), 15 U.S.C.
§78fff(cX1) (1970), providing that the SIPA proceeding
would be conducted “in accordance with, and as though
it were being conducted under,” specified provisions of the
Bankruptcy Act; and 8) section 6(c2), 15 U.S.C. §78fff(c\2)
(1970), setting forth provisions that were unique to a SIPA
liquidation. The court observed that since section 22 of
the Bankruptcy Act, providing for a general reference of
cases to referees in bankruptcy, was contained in a chapter
of the Act which was applicable to a SIPA proceeding,
reference of the SIPA proceeding would be proper. 517
F.2d at 456. The power of the district court to refer SIPA
proceedings to referees in bankrupicy was not only ‘“‘con-
*In 1970, while specifying that a debtor under SIPA would not be
reorganized, SIPA incorporated provisions of the Bankruptcy Act ap-
plicable to reorganization proceedings. In 1978, “since the aim of a
SIPA proceeding is the liquidation, not reorganization, of a member,”
Congress deleted the reference to the reorganization provisions and
expressly made the liquidation provisions applicable. Hearings on H.R.
8331 Before the Subcommittee on Consumer Protection and Finance of
the House Committee on Interstate and Foreign Commerce, 95th Cong.,
Ist Sess., at 175-76 (1977). See Pub. L. No. 95-283, 92 Stat. 259 (1978),
and Pub. L. No. 95-598, 92 Stat. 2675 (1978).
12
sistent with the purposes of SIPA but essential.”’ 517 F.2d
at 457. As the Second Circuit observed:
The process for the determination of [‘‘customer’’]
claims {in a SIPA proceeding] did not differ in any
significant respect from what would have been re-
quired in a large stockbroker bankruptcy before en-
actment of SIPA; the difference lies in the
supersession of § 60, sub. e of the Bankruptcy Act by
the somewhat altered Special Provisions of §6(cX2) of
SIPA and the entitlement of ‘“‘customers”’ as therein
defined to benefit from the SIPC Fund. This is the
kind of business for which bankruptcy judges have de-
veloped special expertness and administrative skills
and which Congress did not intend to dump on already
overburdened district courts without needed clerical
and other facilities. [emphasis added].
517 F.2d at 457-58.°
Congress’s intent that SIPA matters be heard by bank-
ruptcy courts was made clear twice in 1978, when it first
amended the statute to include section 78eee(bX4), and
when, several months later, it revised that section to its
current form. The provision initially authorized the district
court “at any stage of the [SIPA] proceeding, [to] refer
the proceeding to a referee in bankruptcy to hear and
determine any or all matters, or to a referee in bankruptcy
* The notion that the bankruptcy court is best-equipped to handle the
liquidation of financially failing securities broker-dealers continues to
find support. See S.E.C. v. Amerwan Bd. of Trade, Inc., 830 F.2d 431,
436-438 (2d Cir. 1987), and Anthony Michael Sabino, The Role of Bank-
ruptcy Courts in Stockbrokerage Liquidations, 16 Sec. Reg. L. J. 227
(Fall 1988). In American Board of Trade, the Second Circuit expressed
misgivings over the use of a district court equity receivership to ef-
fectuate the liquidation of insolvent entities, stating that the district
court had undertaken to oversee routine bankruptcy matters, ‘without
the aid of either the experience of a bankruptcy judge or the guidance
of the bankruptcy code.”’ 830 F.2d at 438. The Court of Appeals ad-
monished that in the future, such receiverships were not to be continued
“beyond the point necessary to get the estate into the proper forum
for liquidation—the bankruptcy court.’ Jd. at 437.
om
cite
13
as special master to hear and report generally or upon
specified matters.” Pub. L. No. 95-283, 92 Stat. 257 (1978).
In adding the section, Congress explained:
Authority for the existing practice of referring all or
part of a liquidation proceeding to a referee in bank-
ruptcy, thereby in many cases expediting liquidation
proceedings, is clarified. See, e.g., | Wyatt].
S. Rep. No. 763, 95th Cong., 2d Sess. 10 (1978). Subse-
quently, the 1978 Reform Act made certain amendments
to SIPA to conform it to the Bankruptcy Code. See S.
Rep. No. 989, 95th Cong., 2d Sess. 19 (1978), reprinted
wm 1978 U.S. CODE CONG. & AD. NEWS 5787, 5805.
Section 78eee(b\4) was amended to its present form, pro-
viding for removal to the “court of the United States in
the same judicial district having jurisdiction over cases
under title 11.” Pub. L. No. 95-598, 92 Stat. 2674 (1978).
The intended court was the bankruptcy courts because
under 28 U.S.C. §1471(¢) (1978), they would exercise all
of the jurisdiction of the district courts including jurisdic-
tion over Title 11 cases.
Although SIPA was thereby brought in line with the
broader jurisdiction and powers which the 1978 Reform
Act conferred upon bankruptcy courts, Congress already
independently had demonstrated its intent that SIPA lig-
uidation proceedings be considered by the bankruptcy
courts. Thus, in section 78eee(b\4), as originally enacted,
Congress expressly provided for referral of all or part of
the proceedings to bankruptcy referees to make clear its
intent, because such referrals would “expedite” the liq-
uidations. When considered with SIPA section 78fff(b), in-
fra, making Title 11 provisions applicable to a SIPA
proceeding, the intent of current section 78eee(b\4) is plain
that except for the special protection afforded customers,
SIPA liquidation proceedings are to be administered no
Congress has now repealed section 78eee(b\4) (which it
has not), that intent must be given effect.
14
B. Fundamental Rules of Statutory Construction Dic-
tate That Section 78eee(b)(4) Not Be Deemed Re-
pealed.
The petitioners cavalierly dismiss section 78eee(b\4).
Yet, neither the BAFJA nor its legislative history mention
SIPA, and there is nothing in them from which a repeal
of the provision may be implied.
It is a “cardinal” rule of statutory construction that
repeals by implication are not favored. Posadas v. National
City Bank, 296 U.S. 497, 503 (1936); United States v.
United Continental Tuna Corp., 425 U.S. 164, 168-69
(1976); Watt v. Alaska, supra, 451 U.S. at 267. Unless
there is a clear legislative intent to repeal, a repeal by
implication occurs only if there is a “manifest inconsis-
tency” or “positive repugnance” between two statutes.
Mercantile National Bank at Dallas v. Langdeau, 371 U.S.
555, 565 (1963). See Rosenberg v. United States, 346 U.S.
273, 294-295 (1953); Tennessee Valley Authority v. Hill,
437 U.S. 153, 189-190 (1978). Even in the latter circum-
stance, the repeal is only ‘“‘pro tanto, to the extent of the
repugnancy.” United States v. Borden Co., 308 U.S. 188,
199 (1939). Furthermore, regardless of the order in which
statutes are enacted, a general statute does not supersede
a specific one unless the congressional intent is clear.
[T]he Indian preference statute is a specific provision
applying to a very specific situation. The 1972 Act,
on the other hand, is of general application. Where
there is no clear intention otherwise, a specific statute
will not be controlled or nullified by a general one
regardless of the priority of enactment... .
The courts are not at liberty to pick and choose among
congressional enactments, and when two statutes are
capable of co-existence, it is the duty of the courts,
absent a clearly expressed congressional intent to the
contrary, to regard each as effective. ‘.... The in-
tention of the legislature to repeal ‘must be clear and
manifest.’ ”’
15
Morton v. Mancari, 417 U.S. 535, 550-51 (1974) (citations
omitted). See Bulova Watch Co. v. United States, 365 U.S.
753, 761 (1961); Amrep Corp. v. F.T.C., 768 F.2d 1171,
1175-76 (10th Cir. 1985), cert. den., 475 U.S. 1034 (1986).
There is obviously no “clearly expressed congressional in-
tent”’ to repeal section 78eee(b\4). Furthermore, under the
facts of this case, section 78eee(bX4) is fully consistent
with the BAFJA.
1. The Remova! Clause of Section 78eee(b)(4)
The removal portion of section 78eee(b\X4) is consistent
with the BAFJA. Initially, the BAFJA vests jurisdiction
over Title 11 cases, proceedings, and related proceedings,
in the district courts. The district courts may then refer
the cases and proceedings to the bankruptcy courts. 28
U.S.C. §157(a). To implement section 157(a), the District
Court adopted General Procedure Order No. 1984-3 (“GPO
1984-3’’), under which all Title 11 cases and proceedings,
and proceedings arising in or related to Title 11 cases, are
“automatically referred’ to the bankruptcy judges. GPO
1984-3, 42. In a similar vein, SIPA preliminarily vests
jurisdiction over SIPA cases in the district courts,
§78eee(bX2), and then requires the district courts to re-
move them to the bankruptcy courts. §78eee(b)\4).
The main distinction between section 157(a) and SIPA
is that referral under section 157(a) is discretionary with
the district courts, while removal under SIPA is manda-
tory. As a practical matter, the difference between an
automatic referral and a mandatory removal is insignifi-
cant, and plainly does not rise to the level of “manifest
inconsistency”’ warranting that only one of the statutes be
enforced. Furthermore, the district court’s authority to
withdraw a case or proceeding under section 157(d) can
be reconciled with removal under SIPA. While section
78eee(bX4) does not provide for a withdrawal, it does not
prohibit it. In light of the BAFJA, SIPA section
78eee(b\X2\AXiii) now means that the district court in a
SIPA case has the same powers and jurisdiction as a dis-
trict court in a Title 11 case, except as inconsistent with
16
SIPA.’ Thus, like the district court in an ordinary bank-
ruptcy case, the district court in a SIPA case, if necessary,
could also withdraw any portion or all of a SIPA case or
proceeding.®
The above interpretation is consistent with the rules of
statutory construction identified above. First, it effectuates
the legislative intent that bankruptcy judges consider SIPA
cases, at a minimum, to the same extent that they consider
Title 11 cases. Second, it reconciles statutory provisions,
as a court must. See United States v. Hansen, 566 F. Supp.
162, 165 (DDC 1983), later proceedings, 464 U.S. 1642
(1984) and 772 F.2d 940 (1985), cert. den., 475 U.S. 1045
(1986); Watt v. Alaska, supra, 451 U.S. at 267; Morton v.
Mancari, 417 U.S. 535, 551 (1974). Third, it does not
arbitrarily consider as repealed a “‘specific’”’ statute, 1.e.,
SIPA, which was designed to govern a SIPA liquidation
proceeding, in favor of a statute of more general appli-
cation, 2.e., BAFJA. See Brown v. General Services Admin-
istration, 425 U.S. 820, 834-35 (1976); United States v.
United Continental Tuna Corp., 425 U.S. 164, 168-69
(1976); Fourco Glass Co. v. Transmirra Products Corp.,
353 U.S. 222, 228-29 (1957) (statute applicable to specific
situation pre-empts general statute).
The removal aspect of section 78eee(bX4) neither con-
tradicts nor is inconsistent with the BAFJA. Section
7 A provision is inconsistent if it ‘‘conflicts with an explicit provision”
of SIPA or if its application ‘“‘would substantially impede the fair and
effective operation of SIPA without providing significant countervailing
benefits.”” SIPC v. Charisma Sec. Corp., 506 F.2d 1191, 1195 (2d Cir.
1974). Since withdrawal would treat a SIPA liquidation like a bank-
ruptcy case, as intended by Congress, there is no inconsistency.
* This was done, with SIPC’s concurrence, in SIPC v. Bevill, Bresler
& Schulman, Inc., Civil Action No. 85-1715 (DRD) (D.N.J.). After re-
moval and docketing of the case in bankruptcy court under section
78eee(b\X4), the district court used section 157(d) to withdraw the entire
proceeding. Several firms related to the debtor in that case were in-
volved in proceedings before the district court, and the SIPA liquidation
could be administered most efficiently if all of the firms, including the
debtor, were before the same court.
be tet Be eS
a ee ceil tb ee, he AD Oem aren 6 oe ~
17
78eee(bX4) is not impliedly repealed by the BAFJA and
supplies the basis for the removal of SIPA liquidations to
the bankruptcy courts.
2. The Powers, Duties, and Jurisdiction Clause of
Section 78eee(b)(4)
Section 78eee(bX4) also confers upon the bankruptcy
courts the powers, duties, and jurisdiction under SIPA of
the district courts. Under SIPA section 78eee(bX2), the
district court with which the application by SIPC is filed
has exclusive jurisdiction of the debtor and its property,
and exclusive jurisdiction of any suit against the trustee
with respect to a SIPA liquidation. Unless inconsistent
with SIPA, as mentioned above, the district court also has
the jurisdiction, powers, and duties of a court having ju-
risdiction over Title 11 cases.
Under the BAFJA, the bankruptcy court exercises the
district court’s jurisdiction with respect to all cases under
Title 11 and all “core” proceedings arising under Title 11,
or arising in a case under Title 11, referred by the district
courts. 28 U.S.C. §157(bX1). Consistent with the foregoing
section, the District Court has provided that “the bank-
ruptcy judges of this district shall exercise the jurisdiction
of this court in bankruptcy matters as provided in 28
U.S.C. §157(b).” GPO 1984-3, 42. The bankruptcy court’s
jurisdiction as to other matters is more limited. For ex-
ample, in “non-core” proceedings related to Title 11 cases,
absent the consent of the parties, the bankruptcy court
only may submit proposed findings and conclusions to the
district court for its consideration. 28 U.S.C. §157(cX1).
With respect to the facts at hand, there is nothing in
the BAFJA or in SIPA which would have limited the Bank-
ruptcy Court’s exercise of jurisdiction. Und-~ SIPA section
78eee(bX4), the bankruptcy court has the jurisdiction of a
court “having jurisdiction over cases under title 11.’’ Even
under the BAFJA, and as provided in GPO 1984-3, the
bankruptcy court would have considered, as here, pro-
ceedings to avoid preferences and fraudulent conveyances,
18
and those concerning the administration of the estate. 28
U.S.C. §§157(bX2\A), (F), and (H).
It bears emphasis that whether section 78eee(b\4) per-
mits bankruptcy courts to adjudicate what are essentially
non-core “related proceedings’’ under the BAFJA is not
at issue. The narrow question in this case, and the one
to which the Court must confine its consideration, is
whether SIPA provided authority for the Bankruptcy Court
to adjudicate the instant “core” matters. To consider
whether SIPA section 78eee(bX4) confers overly broad
powers on the bankruptcy courts, in some abstract situ-
ation, would be wholly improper. As stated in Associated
Press v. NLRB, 301 U.S. 103, 132 (1937):
[Petitioner] seeks to bar all regulation by contending
that regulation in a situation not presented would be
invalid. Courts deal with cases upon the basis of the
facts disclosed, never with nonexistent and assumed
circumstances.
See First National Bank & Trust Co. v. Beach, 301 U.S.
435, 438 (1937) (A court must “‘refuse to be led away from
the limitations of the concrete case.’’); Marathon, supra,
458 U.S. at 90 (Particularly in the area of Article III
courts, a court must “never ...anticipate a question of
constitutional law in advance of the necessity of deciding
it,” and ‘“‘never formulate a rule of constitutional law
broader than is required by the precise facts to which it
is to be applied.””) (Rehnquist, J., concurring). Under the
facts of this case, section 78eee(b\4) and the BAFJA are
not “manifestly repugnant,” and there is no implied re-
peal.
II. SECTION 78fff(b) SUPPLIES AN ADDITIONAL BASIS
FOR JURISDICTION.
Even assuming arguendo, that section 78eee(bX4) were
invalid, SIPA section 78fff(b) supplies an alternate basis
for jurisdiction. The fact that a provision of SIPA is held
invalid does not affect the enforceability of the other sec-
tions of the statute. Thus, SIPA section 78bbb specifies
’
———————— ee
19
that except as otherwise provided in SIPA, the provisions
of the Securities Exchange Act of 1934, 15 U.S.C. §78a
et seq. (“the 1934 Act”), apply as if SIPA were a section
of it. Under section 83 of the 1934 Act, 15 U.S.C. §78g¢,
the nullification of a provision of that act does not affect
the validity of the remainder of the act.
There are two operative requirements in the first sen-
tence of section 78fff(b). To the extent consistent with
SIPA, the SIPA liquidation proceeding is to be conducted
1) “in accordance with” and 2) “as though it were being
conducted under chapters 1, 3, 5 and subchapters I and
II of chapter 7 of title 11.” The provisions of Title 11
referred to in section 78fff(b) are all of the bankruptcy
liquidation provisions of the Code, except for the stock-
broker and commodity broker provisions. In order for the
SIPA liquidation to be conducted “in accordance with”
Title 11, sections 327, 329, 547, and 548 relied upon here,
must be held to apply in a SIPA liquidation. See In re
Government Securities Corp., 972 F.2d 328, 330-331 (11th
Cir. 1992), cert. den., __ U.S. __ , 113 S. Ct. 1366 (1993).
Furthermore, because the SIPA liquidation must be con-
ducted “as though it were being conducted” under the
straight bankruptcy provisions of Title 11, the procedures
that apply to Title 11 actions also must be deemed to
apply to actions in SIPA liquidations. In the context of
an ordinary bankruptcy case, this adversary proceeding
raises ‘‘core” matters under 28 U.S.C. §157(bX2\A), (F),
and (H), which automatically would be referred to the
Bankruptcy Court under General Procedure Order No.
1984-3, and heard and considered by that court. If the
second requirement of section 78fff(b) is to be imple-
mented, there can be no different outcome here merely
because the adversary proceeding is brought within a SIPA
liquidation. The fact that a SIPA liquidation is simply an
outright bankruptcy proceeding for all practical purposes
has been consistently recognized. See e. g., SIPC v. Am-
bassador Church Finance/Development Group, Inc., supra,
788 F.2d at 1210; SEC v. Albert & Maguire Securities Co.,
560 F.2d 569, 572 (3d Cir. 1977); Exchange National Bank
20
of Chicago v. Wyatt, supra, 517 F.2d at 457-59. And, the
conclusion that an adversary proceeding involving “‘core”
matters, brought in the context of a SIPA liquidation,
should be adjudicated no differently than the same pro-
ceeding in a bankruptcy case, comports with the result
reached in all other SIPA cases. See e.g., In the Matter of
Perry, Adams and Lewis Securities, 30 B.R. 845, 853-56
(Bankr. W.D. Mo. 1983); In re Bell & Beckwith, 54 B.R.
303, 306-308 (Bankr. N.D. Ohio 1985); In re Blinder, Ro-
binson & Co., 185 B.R. 899, 901 (D. Colo. 1992).
Ill. A SIPA LIQUIDATION PROCEEDING IS NOT
EXCLUSIVELY A “TITLE 15” LIQUIDATION.
Because the adversary proceeding arises under Title 11
provisions that apply under SIPA section 78fff(b), the
BAFJA itself supplies a basis of jurisdiction. Thus, 28
U.S.C. section 157(bX1) which is part of the BAFJA au-
thorizes bankruptcy judges to hear and determine core
proceedings such as this one, arising under Title 11. In
also providing that bankruptcy judges may hear and de-
termine core proceedings arising in a Title 11 case, the
BAFJA offers yet another basis for jurisdiction. Although
the petitioners argue that SIPA cases and proceedings
arise under Title 15 and not Title 11, and therefore, are
beyond the scope of section 157, Cert. Pet. at 18-19, in
fact, the SIPA liquidation proceeding is a Title 11 and a
Title 15 case.
The SIPA “liquidation proceeding,’ defined at SIPA
section 781/10), is the functional equivalent of the Title
11 “‘case.”” Within each may be brought adversary pro-
ceedings such as the one at hand, pursuant to various
provisions of the Bankruptcy Code. See Bankruptcy Rule
7001. In determining whether the petitioners correctly
characterize the liquidation proceeding or “case” as one
under Title 15, it is important again to consider SIPA
section 78bbb which makes SIPA a part of the 1934 Act,
“except as otherwise provided in [SIPA].” The 1934 Act
is contained in Title 15, and therefore, it stands to reason
that the codifier, which is the Office of the I aw Revision
21
Counsel of the House of Representatives, would include
SIPA in the same title.* But, in that regard, two points
are significant.
One, as made evident by section 78bbb, Congress rec-
ognized that SIPA appropriately could be included under
more than one title. The “{e}xcept as otherwise provided
in [SIPA]” clause of section 78bbb relates to section
78fff(b). By specifying that a SIPA proceeding is to “be
conducted in accordance with, and as though it were being
conducted under” the liquidation provisions of Title 11,
Congress recognized that the SIPA liquidation would pro-
ceed not only under Title 15, but under Title 11 as well.
It is noteworthy that if Congress had viewed the SIPA
liquidation proceeding as one only under Title 15, it could
have amended the 1934 Act, in 1970, to include SIPA.
Although various bills preceding H.R. 19333 (which was
enacted as SIPA) proposed such an amendment,” Congress
ultimately rejected these proposals. Instead, Congress
specified in H.R. 19333 that SIPA simply would be con-
sidered a part of the 1934 Act,” except as otherwise pro-
vided in SIPA.
Two, the conclusion that the SIPA liquidation proceed-
ing arises under Titles 11 and 15, also is supported by
the fact that although SIPA has been designated to Title
15 by employees of the House of Representatives (supra,
n.9), the title has never been enacted into positive law. In
that regard, SIPA in Title 15, is only prima facie evidence
of the statute as contained in the Statutes at Large. Under
1 U.S.C. section 204(a), unless enacted into positive law,
*That Office “‘classiflies] newly enacted provisions of law to their
proper positions in the Code where the titles involved have not yet
been enacted into positive law.” 2 U.S.C. §285b(4).
For example, Senate Bills 3988 and 3989 provided that the “Se-
curities Exchange Act of 1934 is amended by adding [SIPA].”" 116
Cong. Rec. 20334 (1970).
" See H. R. Rep. No. 1613, 91st Cong., 2d Sess. 4, reprinted in
1970 U.S. CODE CONG. & ADM. NEWS 5257. See also Pub. L. No.
91-598, 84 Stat. 1637 (1970).
22
matter contained in the United States Code establishes
prima facie the laws of the United States. Where Congress
has not enacted a codification into positive law, the statute
in the Statutes at Large is the legal evidence of the law.
In that situation, and in the event of a discrepancy be-
tween the statute in the United States Code and in the
Statutes at Large, it is the latter which prevails over the
former. United States v. Welden, 377 U.S. 95, 98 n. 4
(1964); Stephan v. United States, 319 U.S. 423, 426 (1943).
Since Title 15 has not been enacted into positive law (see
list of Titles following 1 U.S.C.A. §204), the decision to
place SIPA under Title 15 has not been approved by Con-
gress.!* As such, Congress has never expressed an intent
that SIPA be limited to that title. Because the instant
adversary proceeding arises in a case that is under Title
11, as well as Title 15, the Bankruptcy Court had juris-
diction.
IV. THE DECISION OF THE COURT OF APPEALS IS
NOT INCONSISTENT WITH GRANFINANCIERA.
Petitioners argue that in Marathon, this Court identified
the only three situations in which the judicial power may
be exercised by judges who have not been appointed under
Article III of the Constitution. U.S. CONST. art. III, §1.
In petitioners’ view, these consist of territorial courts, mil-
itary courts, and courts in which “public rights’’ questions
are adjudicated. Petitioners further maintain that in Gran-
financiera, this Court determined that fraudulent convey-
ance and preference cases involve private, and not public,
rights. Because the instant suit was based largely on a
preference and fraudulent conveyance, or assertedly ‘“‘pri-
vate” rights, the Bankruptcy Court, which is not an Article
III court, allegedly lacked jurisdiction. Cert. Pet. at 35-
2 Indeed, in section 362 of the Bankruptcy Code, Congress treats
the SIPA proceeding as one under Title 11. For example, section
362(aX2) provides that the filing of a bankruptcy petition or a SIPA
application for a customer protective decree stays enforcement of any
judgment “obtained before the commencement of the case under this
title.” “This title” refers to Title 11.
23
38. The position is meritless for at least two reasons. First,
Marathon and Granfinanciera do not stand for the broad
propositions advanced by the petitioners, and the decision
of the Tenth Circuit is not in conflict with them. Second,
the Tenth Circuit’s conclusion that the Bankruptcy Court
had jurisdiction in view of the petitioners’ submission of
a claim against the Debtor is consistent with the decisions
of this Court.
A. The Cases Cited By Petitioners Are Inapposite.
Marathon did not purport to define the entire breadth
of matters which non-Article III judges may decide. It
reflected the views of a divided court, with no majority
opinion being written in the case. Justice Brennan issued
a plurality opinion in which three of the Justices concurred.
Two of the Justices joined in the judgment, but not the
opinion, of the court. Three Justices dissented. Since the
issuance of Marathon in 1982, the Court has clarified the
intended application of its holding. It is now plain that
Marathon stands for the more narrow proposition stated
by the concurring Justices therein, and reiterated in the
dissent. Thus, in Thomas v. Union Carbide Agr. Products
Co., 473 U.S. 568, 584 (1985), the Court observed:
The Court’s most recent pronouncement on the
meaning of Article III is Northern Pipeline. A divided
Court was unable to agree on the precise scope and
nature of Article III's limitations. The Court’s holding
in that case establishes only that Congress may not
vest in a non-Article III court the power to adjudicate,
render final judgment, and issue binding orders in a
traditional contract action arising under state law,
without consent of the litigants, and subject only to
ordinary appellate review... .
See also id. at 585-586. This view was reaffirmed in Com-
modity Futures Trading Com’n v. Schor, 478 U.S. 833,
838-839 (1986).
In concurring in the Marathon judgment, Justice Rehn-
quist indicated that it would not be necessary for him to
24
decide whether ‘‘cases dealing with the authority of Con-
gress to create courts other than by use of its power under
Art. III ... in fact support a general proposition and three
tidy exceptions.”’ 458 U.S. at 91. In light of the Court’s
later clarification that is in line with that position, the
petitioners err in contending that Marathon reflects a
broader holding. Whether or not petitioners correctly as-
sert that public rights are not at issue in the instant pro-
ceeding brought within a SIPA case, Marathon did not
divest the bankruptcy court of jurisdiction.”
Likewise, Granfinanciera offers the petitioners no sup-
port. In response to Marathon, Congress reconstituted the
jurisdiction of the bankruptcy courts. In keeping with Mar-
athon, the BAFJA distinguished ‘‘core’’ from ‘‘non-core”’
proceedings. The former included those that were ‘“‘integral
to the core bankruptcy function of restructuring the ob-
, ligations of the debtor and his creditors.” 1380 Cong. Rec.
H1848 (daily ed. March 21, 1984) (statement of Repre-
sentative Kindness). The latter ‘“Marathon-type suits” were
concerned with ‘‘State law issues that did not arise in the
core bankruptcy function of adjusting debtor-creditor
rights.” Id.
3 In fact, public rights are at stake because this proceeding arises
within a SIPA case. Because SIPA is rooted not only in the bankruptcy
clause, but in the commerce clause, U.S. CONST. art. I, §8, cl. 3 and
4, “the power of Congress to modify substantial rights [by means of
SIPA] rests upon a broad and substantial base.”” SEC v. Albert &
Maguire Sec. Co., 378 F.Supp. 906, 911, 912 (E.D. Pa. 1974). This
Court has recognized that public rights arise when ‘Congress, acting
for a valid legislative purpose pursuant to its constitutional powers
under Article I, fhas] create[d] a seemingly ‘private’ right that is so
closely integrated into a public regulatory scheme as to be a matter
appropriate for agency resolution with limited involvement by the Ar-
ticle III judiciary.” Granfinanciera, 492 U.S. at 54. A trustee’s capacity
to recover monies owed to an estate is an integral part of the SIPA
scheme. To the extent such funds are not recovered, SIPC advances
monies to compensate for any shortfall to public investors and to satisfy
the administrative expenses of the liquidation. SIPA §78fff-3(a) and (b).
Should the SIPC fund become inadequate, the taxpayer’s monies are
used to meet those obligations. §78ddd(g) and (h). Thus, “public rights”
are directly implicated in this adversary proceeding.
25
In Granfinanciera, a trustee in bankruptcy had sued to
avoid an allegedly fraudulent conveyance under the Bank-
ruptcy Code. Having filed no claim in the underlying bank-
ruptcy case, the petitioners in that proceeding made a
timely request for a jury trial. The issue decided in Gran-
financiera was whether, under the circumstances, the Sev-
enth Amendment afforded the petitioners a right to a jury
trial notwithstanding that fraudulent conveyance actions
were denominated as ‘“‘core’’ proceedings in 28 U.S.C. sec-
tion 157(bX2\H). U.S. CONST. amend. VII.
Because the right to a jury trial is preserved in ‘Suits
at common law” in which legal, instead of equitable, rights
are to be determined, the Court initially considered whether
1) historically, the action had been brought at law or in
equity; and 2) the remedy sought was legal or equitable.
492 U.S. at 42. However, even if one concluded from that
inquiry that a jury trial was available, the right never-
theless could be denied if “public rights” were at stake.
Id. at 51. Although the Court determined that the fraud-
ulent conveyance in that case seemed “more accurately
characterized as a private rather than a public right,” id.
at 55, it declined to consider whether such suits could be
adjudicated by bankruptcy courts.“ Jd. at 64.
For purposes of the instant petition, it is important to
identify the precise issue in Granfinanciera. That issue,
which repeatedly has been identified solely as one of en-
titlement to a jury trial,® is not before this Court. The
petitioners in the case at hand never requested a jury trial.
‘* Indeed, if the Court had concluded that fraudulent conveyance suits
could not be determined by bankruptcy courts, it would not have left
open the possibility, as it did, that the jury trial might be held before
the bankruptcy court. 492 U.S. at 61-64.
* See In re Great American Manufacturing and Saies, Inc., 129 B.R.
633, 636 (C.D. Cal. 1991); In re Southern Indus. Banking Corp., 126
B.R. 294, 296-297 (E.D. Tenn. 1991); City Fire Equip. Co. v. Ansul
Fire Protection, 125 B.R. 645, 649 (N.D. Ala. 1989); In re Ben Cooper,
Inc., 896 F.2d 1394, 1401 (2d Cir.), vacated and remanded, 498 U.S.
964 (1990), reinstated, 924 F.2d 36 (2d Cir.), cert. den., ___ U.S. aanbel
111 S. Ct. 2041 (1991).
26
See Bankruptcy Rule 9015 (abrogated March 30, 1987);
Fed. R. Civ. Pro. 38(b). Nor did they request the District
Court to withdraw the reference to the Bankruptcy Court.
28 U.S.C. §157(d). Nor did they combine the two as would
have been necessary in order to be deemed not to have
waived the right. In re Latimer, 918 F.2d 136, 137 (10th
Cir. 1990), cert. den., __. U.S. __. , 112 S. Ct. 186 (1991).
The question which ts at hand, namely, whether bank-
ruptcy courts have jurisdiction over preference, fraudulent
conveyance, and administration matter suits, was not raised
or addressed in Granfinanciera. As to that question, the
decision of the Tenth Circuit is fully consistent with the
pertinent case law. Thus, the authority of bankruptcy
courts to consider such actions consistently has been rec-
ognized. See, e.g., John E. Burns Drilling Co. v. Central
Bank of Denver, 739 F.2d 1489, 1493-1494 (10th Cir. 1984);
In re Committee of Unsecured Creditors of F S Comm.,
760 F.2d 1194, 1199 (11th Cir. 1985); Matter of Wood, 825
F.2d 90, 97 (5th Cir. 1987); In re Mankin, 823 F.2d 1296,
1299-1310 (9th Cir. 1987), cert. den., 485 U.S. 1006 (1988);
Stein v. Miller, 158 B.R. 876, 879-880 (S.D. Fla. 1993); In
re Roppolo, 111 B.R. 113, 115 (Bankr. W.D. La. 1990).
See also 1 Collver on Bankruptcy, 43.01 at pp. 3-42—3-43
(15th ed. 1992) (‘[nJo constitutional infirmity to assigning
avoiding action jurisdiction to bankruptcy judges’’).
The cases relied upon by the petitioners do not suggest
otherwise. In re Orion Pictures Corp., 4 F.3d 1095 (2d
Cir. 1993), Cert. Pet. at 44, which involved the right to
a jury trial in a non-core pre-petition breach of contract
action, is irrelevant. Similarly, In re Davis, 899 F.2d 1136
(11th Cir. 1990), cert. den. sub nom., Gower v. Farmers
Home Admin., 498 U.S. 981 (1990), Cert. Pet. at 45-47,
raises no conflict. In that case, the trustee sued to avoid
a preferential transfer, and upon prevailing in the suit,
sought an award of attorneys’ fees under the Equal Access
to Justice Act, 28 U.S.C. §2412 (“EAJA”’). The jurisdiction
of the bankruptcy court to consider the asserted preference
was not challenged. The only question concerned the bank-
ruptcy court’s authority to determine the EAJA aspect of
27
the suit, a non-core matter committed by statute to con-
sideration by Article III courts. 899 F.2d at 1138-1139. In
dictum, the Davis court noted that this Court, in Gran-
financiera, had strongly suggested that fraudulent con-
veyance and preference suits involve private rights, but
had “specifically avoided holding’ that such suits must be
tried by Article III courts. The Eleventh Circuit observed
that the question was not before it, and accordingly, it
would express no opinion as to its merits.**
B. The Bankruptcy Court Had Jurisdiction Because the
Petitioners Filed a Claim and Counterclaims.
The Bankruptcy Court had jurisdiction not only because
this is a “core” proceeding, but because the filing of a
claim by Mr. Davis and of counterclaims by both of the
petitioners subjected them to that court’s jurisdiction. As
mentioned above, Mr. Davis filed a claim with the Trustee.
The Trustee issued no claim determination and instead,
instituted this adversary proceeding. Additionally, in their
Answer, Grounds of Defense, and Counterclaim, to the
complaint herein, the petitioners asserted two counter-
claims. Under the first, they sought repayment of certain
expenditures allegedly made in connection with their rep-
resentation of IBI. Under the second, they contended that
the Trustee had refused to release stock in Mr. Davis’s
name. The stock was the subject of the claim filed with
the Trustee. Petitioners requested that the Bankruptcy
Court enter judgment for them on both counterclaims.
Citing Katchen v. Landy, 382 U.S. 323 (1966)
(“Katchen”’), the Tenth Circuit concluded that the filing of
a claim against the estate in this case reinforced the con-
‘* Petitioners contend that the trial in this case should have been
held before the District Court because the subsequent review by that
court resulted in their receiving ‘‘only a second-hand determination”
of credibility and factfinding. Cert. Pet. at 41. It is curious that fact-
finding and observation of the demeanor of witnesses suddenly have
become important, when earlier in the case, in moving for summary
judgment, petitioners represented that ‘there [was] no genuine issue
as to any material fact.”
28
clusion that the Bankruptcy Court had jurisdiction. A19.
Petitioners now argue that the claim should be disregarded
because it was filed in a SIPA proceeding and in their
view, not in a Title 11 case, and that in any event, the
adversary proceeding should have been considered, as an
initial matter, by an Article III judge. Cert. Pet. at 48-
62. Petitioners’ arguments are made for the first time,
and should be disregarded as untimely. Taylor v. Freeland
& Kronz, ___ U.S. __. , 112 S. Ct. 1644, 1649 (1992); Sin-
gleton v. Wulff, 428 U.S. 106, 120 (1976); Duignan v.
United States, 274 U.S. 195, 200 (1927). Timeliness aside,
the arguments raise no issue worthy of review.
1. The Consent to Jurisdiction
In Katchen, this Court stated:
“By presenting their claims respondents subjected
themselves to all the consequences that attach to an
appearance. * * * :
*s* + & *& &
‘Respondents’ contention means that, while invok-
ing the court’s jurisdiction to establish their right to
participate in the distribution, they may deny its
power to require them to account for what they mis-
appropriated. In behalf of creditors and stockholders,
the receivers reasonably may insist that, before taking
aught, respondents may by the receivership court be
required to make restitution. That requirement is in
harmony with the rule generally followed by courts
of equity that, having jurisdiction of the parties to
controversies brought before them, they will decide
all matters in dispute and decree complete relief.’”’ ***
Our examination of the structure and purpose of
the Bankruptcy Act and the provisions dealing with
allowance of claims therefore leads us to conclude,
and we so hold, that the Act does confer summary
jurisdiction to compel a claimant to surrender pref-
erences that under §57, sub. g would require disal-
lowance of the claim. [Citation omitted].
29
382 U.S. at 335.1”
By filing a claim in the SIPA proceeding, for the reasons
discussed infra, Mr. Davis invoked the jurisdiction of the
Bankruptcy Court. The fact that the claim was filed in a
SIPA proceeding with the Trustee warrants no different
conclusion. SIPA §78fff-2(aX2). See Cert. Pet. at 49-51.
“Claim” is broadly construed and includes any “right to
payment,”’ such as that asserted by Mr. Davis. See 11
U.S.C. §101(5) and SIPA §78fff(b). See also Johnson v.
Home State Bank, __U.S.__, 111 S. Ct. 2150, 2154
(1991) (claim includes broadest possible definition). Even
assuming, arguendo, that the claim had to be filed with
the Bankruptcy Court, as Petitioners assert, the submis-
sion in the adversary proceeding of a counterclaim prem-
ised on Mr. Davis’s claim in the SIPA liquidation
proceeding amounted to the filing of a “claim” with the
court. See infra. The contention that the SIPA claim does
not imply consent because “the SIPA claims process is
not subject to the control and supervision of the bank-
ruptcy judge,”’ Cert. Pet. at 50-51, also is erroneous. In
fact, the Trustee sought and obtained approval from the
Bankruptcy Court with regard to his actions concerning
the claims process. Thus, on July 24, 1981, the Bankruptcy
Court issued an order governing the mailing of claim forms
to customers and other creditors, setting the period for
the filing of claims, and directing that claims be filed with
the Trustee.
By counterclaiming, Davis, Gillenwater & Lynch also
subjected itself to the jurisdiction of the Bankruptcy Court.
Thus, a counterclaim constitutes a “claim.” Bayless v.
Crabtree Through Adams, 108 B.R. 299, 305 (W.D. Ok.
1989), affd., 930 F.2d 32 (10th Cir. 1991); In re Allied
" Section 57g of the Bankruptcy Act, 11 U.S.C. §93g (repealed 1979),
was the predecessor to section 502(d) of the Bankruptcy Code, 11
U.S.C. §502(d). Under both sections, any preference or fraudulent trans-
fer issues asserted by a trustee against a claimant must be resolved
before the claim can be allowed. Germain v. Connecticut Nat. Bank,
988 F.2d 1323, 1327 n.5 (2d Cir. 1993).
30
Companies, Inc., 137 B.R. 919, 924-925 (Bankr. S.D. Ind.
1991).
2. Adjudication by a Non-Article III Court
The authority relied upon by the petitioners for their
contention that in any event, they were entitled to an
adjudication by an Article III judge, is confusing at best.
On the one hand, they assert that ’’Granfinanciera estab-
lishes conclusively that a matter involving private rights
ought not be adjudicated in a non-Article III Court.” Cert.
Pet. at 37. On the other, Granfinanciera is a “Seventh
Amendment [case],” that ‘‘simply [does] not address fully
the jurisdictional issue of whether petitioner is entitled to
an Article III adjudication in equity.”’ Jd. at 57-58. In fact,
Petitioners can point to no persuasive authority because
there is none. The law is clear that because the amounts,
if any, owed to the petitioners by the estate could not be
decided until the amounts owed by them had been deter-
mined, the Trustee’s action to recover those sums became
“Integral to the restructuring of the debtor-creditor rela-
tionship through the bankruptcy court’s equity jurisdic-
tron.”” Langenkamp v. Culp, 498 U.S. 42, 44 (1990)
(emphasis in original). See Granfinanciera, 492 U.S. at 57-
59; In re Blinder, Robinson & Co., 135 B.R. 899, 901-902
(D. Colo. 1992); In re Hooker Investments, Inc., 937 F.2d
833, 838-840 (2d Cir. 1991); In re Jensen, 946 F.2d 369,
373 (5th Cir. 1991).
This case presents no conflict between court decisions
and does not present the type of important question war-
ranting review. It is significant only to the parties in-
volved, and has no implications other than in the narrow
body of SIPA cases. In the end, the petition is no more
than an effort by the petitioners to prolong this matter
needlessly in the hope ultimately of escaping their obli-
gations under the Bankruptcy Code, at the expense and
to the detriment of the Debtor’s estate and its creditors.
CONCLUSION
For the foregoing reasons, the petition for a writ of
certiorari should be denied.
Bd atte ah
Of Counsel:
MICHAEL E. Don
Deputy General Counsel
JOSEPHINE WANG
Associate General Counsel
Respectfully submitted,
MARIA J. FLORA
GORSUCH, KIRGIS, CAMPBELL,
WALKER & GROVER
1401 Seventeenth Street
Suite 1100
Denver, CO 80217-0180
Telephone: (303) 299-8900
Attorneys for James H. Turner,
Trustee
THEODORE H. Focut
General Counsel
Counsel of Record
SECURITIES INVESTOR PROTECTION
CORPORATION
805 Fifteenth Street, N.W.
Suite 800
Washington, D.C. 20005-2207
Telephone: (202) 371-8300
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Section 2 of the Securities Investor Protection Act, 15
U.S.C. §78bbb (1988):
APPLICATION OF SECURITIES EXCHANGE ACT
OF 1934
Except as otherwise provided in [SIPA], the
provisions of the Securities Exchange Act of 1934
(15 U.S.C. 78a et seq.] (hereinafter referred to
as the “1934 Act”) apply as if [SIPA] constituted
an amendment to, and was included as a section
of, such Act.
Section 6(b) of the Securities Investor Protection Act,
15 U.S.C. §78fff(b) (1988):
APPLICATION OF TITLE 11
To the extent consistent with the provisions of
[SIPA], a liquidation proceeding shall be con-
ducted in accordance with, and as though it were
being conducted under chapters 1, 3, and 5 and
subchapters I and II of chapter 7 of title 11. For
the purposes of applying such title in carrying
out this section, a reference in such title to the
date of the filing of the petition shall be deemed
to be a reference to the filing date under [SIPA].
Section 5(bX4) of the Securities Investor Protection Act,
15 U.S.C. §78eee(b\X4), prior to amendment (1978):
REFERENCE TO REFEREE IN BANKRUPTCY—
If the court issues a protective decree and ap-
points a trustee under this section, such court
may, at any stage of the proceeding, refer the
proceeding to a referee in bankruptcy to hear
and determine any or all matters, or to a referee
in bankruptcy as special master to hear and re-
port generally or upon specified matters. Only
under special circumstances shall a reference be
made to a special master who is not a referee
in bankruptcy.
2a
Section 547(b) of the Bankruptcy Code, 11 U.S.C. §547(b)
(1988):
§547. Preferences
(b) Except as provided in subsection (c) of this
section, the trustee may avoid any transfer of an
interest of the debtor in property—
(1) to or for the benefit of a creditor;
(2) for or on account of an antecedent debt owed
by the debtor before such transfer was made;
(2) made while the debtor was insolvent;
(4) made—
(A) on or within 90 days before the date of
the filing of the petition; or
(B) between 90 days and one year before the
date of the filing of the petition, if such
creditor at the time of such transfer was
an insider; and
(5) that enables such creditor to receive more
than such creditor would receive if—
(A) the case were a case under chapter 7 of
this title;
(B) the transfer had not been made; and
(C) such creditor received payment of such
debt to the extent provided by the pro-
visions of this title.
eT
3a
Section 548(a) of the Bankruptcy Code, 11 U.S.C. §548(a)
(1988):
§548. Fraudulent transfers and obligations.
(a) The trustee may avoid any transfer of an in-
terest of the debtor in property, or any ob-
ligation incurred by the debtor, that was made
or incurred on or within one year before the
date of the filing of the petition, if the debtor
voluntarily or involuntarily—
(1) made such transfer, or incurred such ob-
ligation with actual intent to hinder, de-
lay, or defraud any entity to which the
debtor was or became, on or after the
date that such transfer was made or such
obligation was incurred, indebted; or
(2) (A) received less than a reasonably equiv-
alent value in exchange for such transfer
or obligation; and
(BX i) was insolvent on the date that such
transfer was made or such obligation was
incurred, or became insolvent as a result
of such transfer or obligation;
(ii) was engaged in business or a trans-
action, or was about to engage in business
or a transaction, for which any property
remaining with the debtor was_an _unrea-
sonably small capital; or
(ili) intended to incur, or believed that the
debtor would incur, debts that would be
beyond the debtor’s ability to pay as such
debts matured.
4a
1 U.S.C. Section 204(a) (1988): 4
United States Code.—The matter set forth in the S
edition of the Code of Laws of the United States
current at any time shall, together with the then
current supplement, if any, establish prima facie Re
the laws of the United States, general and per-
manent in their nature ... Provided, however,
That whenever titles of such Code shall have been
enacted into positive law the text thereof shall
be legal evidence of the laws therein contained,
in all the courts of the United States, the several
States, and the Territories and insular posses-
sions of the United States.
ILE NA AAR LATENT BRE MAE LTT DIY oP BERN BRD CT HSE RIE 2 SPIES URES
t ‘ ; ' tn 5 ; ae ire
This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.