# Opposition Brief — Davis v. Turner, 114 S. Ct. 1061 (1994) (No. 93-956)

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Opposition Brief
- **Published:** January 1, 1994

## Text

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 : at he
a i rs eet 4 De ee SR ae rae ore f eghe ~ ee :
; Is Be 0 A r = sag och rad Veit “t
“wt ey aie th bs ad Ue ta 2
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ait We * ¥ ;

STATUTORY APPENDIX

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eve Fae ie “Were “ ai
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la

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

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