In re KAISER STEEL CORPORATION, Debtor. KAISER STEEL CORPORATION; Kaiser Coal Corporation, Plaintiffs-Appellees/Respondents, v. Joseph A. FRATES; Charles S. Holmes; Robert E. Merrick; Stan P. Doyle; and Perma/Frates Joint Venture, Defendants-Appellants/Petitioners.
No. 90-1013.
United States Court of Appeals, Tenth Circuit.
Aug. 10, 1990.
911 F.2d 380 | 59 USLW 2122 | 23 Collier Bankr.Cas.2d 745 | 18 Fed.R.Serv.3d 632 | 20 Bankr.Ct.Dec. 1418 | Bankr. L. Rep. P 73,570
SEYMOUR and TACHA, Circuit Judges, and BRATTON, Senior District Judge.
Craig A. Christensen (Daryle L. Uphoff, Carol T. Rieger, James P. McCarthy & Joseph A. Thomson, of Lindquist & Vennum, Minneapolis, Minn., and H. Thomas Coghill & David J. Richman, of Coghill & Goodspeed, Denver, Colo., with him on the brief), of Sherman & Howard, Denver, Colo., for plaintiffs-appellees/respondents.
Before SEYMOUR and TACHA, Circuit Judges, and BRATTON,* Senior District Judge.
TACHA, Circuit Judge.
1 This is an interlocutory appeal from an order of the district court 109 B.R. 968 (D.Colo.1989) affirming an interlocutory order of the bankruptcy court 95 B.R. 782 (D.Colo.1989) striking the appellants’ jury demands. Alternatively, defendants-appellants/petitioners petition for a writ of mandamus. They contend that the courts below erred in holding that: (1) by filing an indemnity counterclaim in an adversary bankruptcy proceeding, a defendant consents to bankruptcy court jurisdiction and consequently loses his seventh amendment right to jury trial; and (2) as a result of filing such proofs of claim or counterclaims, the resolution of all claims between the parties are core proceedings under
I.
2 On February 11, 1987, plaintiffs-appellees/respondents Kaiser Steel Corporation and Kaiser Coal Corporation (“Kaiser“) filed a voluntary petition for reorganization under chapter 11. Kaiser then commenced an adversary action in bankruptcy court challenging two transactions involving the transfer of millions of dollars in cash and property to two investor groups, the Frates and Perma groups, which owned and managed Kaiser between February 1984 and December 1986. The Frates group and the Perma/Frates Joint Venture (“PFJV“) (collectively “Frates defendants“) are the defendants-appellants/petitioners in this case. Kaiser seeks to recover either the assets transferred or their value pursuant to sections 544, 548 and 550 of the Bankruptcy Code. Kaiser also seeks recovery from the Frates group on the grounds that they breached their fiduciary duties as officers, directors, and controlling shareholders of Kaiser.
3 In June 1987, the Frates group filed an answer but did not demand jury trial. PFJV moved to dismiss. Several third party defendants also moved to dismiss or to withdraw the reference to the bankruptcy court. On October 12, 1988, the bankruptcy court denied some of the motions to dismiss and ordered all of the parties to file answers within twenty days, regardless of whether any motions to dismiss were still outstanding. On November 1, 1988, PFJV filed its answer, objected to the bankruptcy court‘s jurisdiction, and demanded a jury trial. On November 2 and 3, both the Frates group and PFJV moved to withdraw the reference.
4 Before the bar date for filing proofs of claim, various individual members of the Frates group filed proofs of claim in the underlying bankruptcy action. Joseph A. Frates and Stan P. Doyle filed contractual and statutory indemnity claims against Kaiser for any judgment entered against them in this adversary action. Robert E. Merrick and Charles S. Holmes filed proofs of claim based on alleged contractual obligations of Kaiser, which Kaiser was seeking to repudiate in a separate proceeding, Kaiser Steel Corp. v. Rial, No. 87-E-437 (Bankr.D.Colo.). After the bar date, the Frates group asserted additional counterclaims against Kaiser. PFJV never filed a proof of claim against Kaiser. In its answer, however, PFJV asserted an indemnity counterclaim.
5 On December 6, 1988, Kaiser filed a motion to strike the jury demands or, in the alternative, to sever the counterclaims. On January 16, 1989, the bankruptcy court granted Kaiser‘s motion, striking the jury demands and severing the counterclaims. The bankruptcy court held that: (1) because the Frates group had asserted or attempted to assert claims or counterclaims against Kaiser, they had consented to the jurisdiction of the bankruptcy court; and (2) the resolution of all claims would be core proceedings under
6 On appeal,2 the district court affirmed the bankruptcy court‘s ruling striking the jury trial demands. The district court held that under an admittedly “mechanical” reading of the Supreme Court‘s decision in Katchen v. Landy, 382 U.S. 323, 86 S.Ct. 467, 15 L.Ed.2d 391 (1966), filing a proof of claim or counterclaim in the bankruptcy court operates as “consent” to the bankruptcy court‘s jurisdiction. Accordingly, the district court held that neither the Frates group nor PFJV had a right to jury trial. The district court did not specifically address the question of whether PFJV‘s claim was a core proceeding. The district court then certified its ruling for immediate appeal under
II.
8 Initially, we must determine whether we have jurisdiction over this appeal. The Frates defendants contend that we have jurisdiction under
A.
9 Section 1292(b) of title 28 of the United States Code states:
When a district judge, in making in a civil action an order not otherwise appealable under this section, shall be of the opinion that such order involves a controlling question of law as to which there is substantial ground for difference of opinion and that immediate appeal from the order may materially advance the ultimate termination of the litigation, he shall so state in writing in such order. The Court of Appeals which would have jurisdiction of an appeal of such action may thereupon, in its discretion, permit an appeal to be taken from such order, if application is made to it within ten days after entry of the order.
10
11 Appeals from district court decisions in bankruptcy are governed in part by
12 (a) The district courts of the United States shall have jurisdiction to hear appeals from final judgments, orders, and decrees, and, with leave of the court, from interlocutory orders and decrees, of bankruptcy judges entered in cases and proceedings referred to the bankruptcy judges under section 157 of this title....
13 ....
14 (d) The courts of appeals shall have jurisdiction of appeals from all final decisions, judgments, orders, and decrees entered under subsections (a) and (b) of this section.
15
16 We begin our jurisdictional analysis by examining the order being appealed. The district court characterized its order as deciding an appeal from the bankruptcy court‘s ruling striking the jury demands. Although the district court‘s characterization of its order is not binding upon us, cf. Wheeler v. Hurdman, 825 F.2d 257, 258-59 (10th Cir.) (reviewing and accepting district court‘s characterization of motion as one for summary judgment under
17 Because we hold that the district court‘s order was entered in its appellate capacity pursuant to section 158(a), we must next determine whether section 158(d)‘s provision limiting the jurisdiction of the court of appeals to final orders overrides section 1292(b)‘s general provisions permitting interlocutory appeals. The circuits are split on this issue. The majority hold that section 158(d) ousts section 1292(b). See LTV Corp. v. Farragher (In re Chateaugay Corp.), 838 F.2d 59, 62-63 (2d Cir.1988) (“[W]e believe that section 158(d) remains the exclusive basis for jurisdiction for decisions entered under paragraphs (a) and (c) of section 158.“); In re First South Sav. Ass‘n, 820 F.2d 700, 708 (5th Cir.1987) (“[T]he bankruptcy appellate scheme in
19 We reach the same result even if we construe the district court‘s order as denying the Frates group‘s and PFJV‘s petitions for a writ of mandamus. First, the Supreme Court has repeatedly cautioned that the party seeking issuance of the writ must “have no other adequate means to attain the relief he desires.” Allied Chem., 449 U.S. at 35, 101 S.Ct. at 190. The broad scope of interlocutory appeal authorized by section 158(a) necessarily decreases the availability of the extraordinary writ. Consequently, mandamus is completely unavailable in most bankruptcy situations. Second, the power to issue a writ of mandamus flows from the court‘s exercise of its “revisory appellate power over the inferior court.” Ex parte Republic of Peru, 318 U.S. 578, 583, 63 S.Ct. 793, 796, 87 L.Ed. 1014 (1943); see also Ex parte Crane, 30 U.S. (5 Pet.) 190, 193, 8 L.Ed. 92 (1831). We conclude that the appellate nature of mandamus subjects it to the same limitations under section 158(d) as exist on our review of a district court‘s appellate decision under section 158(a). A party should not be able to evade section 158(d)‘s limitations on review in the court of appeals merely by characterizing his action as a petition for a writ of mandamus, and then seeking an appeal as of right from the writ‘s grant or denial. Even if a district court could grant a writ of mandamus under its original jurisdiction in bankruptcy, we hold that such a course is merged into the statutory power to withdraw the reference. Cf. Allied Chem., 449 U.S. at 35, 101 S.Ct. at 190 (mandamus not available where other remedy exists). Accordingly, we lack appellate jurisdiction under either sections 158(d) or 1291 to review the district court‘s order even if we construe it as denying a petition for a writ of mandamus.
20 We undertake a different analysis with respect to the Frates defendants’ motions to withdraw the reference. Unlike either the interlocutory appeal under section 158(a) or a writ of mandamus, the motion to withdraw the reference is clearly an interlocutory proceeding addressed to the district court‘s original jurisdiction in bankruptcy. As such, it is reviewable under section 1292(b). See 1 Collier on Bankruptcy p 3.01[e], at 3-64 & n. 113; cf. Bokum Resources Corp., 818 F.2d at 1524 (reviewing district court‘s original jurisdiction action under Sec. 1291); Dalton v. United States (In re Dalton), 733 F.2d 710, 714-15 (10th Cir.1984) (motion to withdraw reference interlocutory in nature but certifiable under Sec. 1292(b)). After examining the district court‘s memorandum opinion, however, we decline to construe the order as ruling on the motion to withdraw the reference. It is clear that the district court reviewed the bankruptcy court‘s order under an appellate standard of review. The district court did not purport to reach a decision under its original bankruptcy jurisdiction. Because we find that the district court did not rule on the motion to withdraw the reference, we decline the invitation to exercise appellate jurisdiction on that basis. In summary, we find no basis for exercising appellate jurisdiction under sections 158(d), 1291 or 1292(b) in this case; consequently, the appeal must be dismissed.
B.
21 The Frates defendants in their supplemental briefs requested that we construe their request for appellate review as a petition for a writ of mandamus. We have authority to treat a petition for permission to appeal as a petition for a writ of mandamus, State Farm Mutual Auto. Ins. Co. v. Scholes, 601 F.2d 1151, 1154 (10th Cir.1979), and find such treatment is appropriate in this case.
22 Mandamus “is a drastic [remedy], to be invoked only in extraordinary situations,” Allied Chem., 449 U.S. at 34, 101 S.Ct. at 190, and will issue only in those exceptional cases where the inferior court has acted wholly without jurisdiction or so clearly abused its discretion as to constitute a judicial usurpation of power, see id. at 35, 101 S.Ct. at 190. The requirements for seeking the writ were outlined in Allied Chemical as follows:
a party seeking issuance [must] have no other adequate means to obtain the relief he desires, ... and ... he [must] satisfy the “burden of showing that [his] right to issuance of the writ is ‘clear and indisputable.’ ”
23 Allied Chem., 449 U.S. at 35-36, 101 S.Ct. at 190 (citations omitted). In Dalton we adopted five nonconclusive guidelines to assist in determining the propriety of granting the writ:
First, the party seeking the writ has no other adequate means to secure the relief desired. Second, the petitioning party will be damaged or prejudiced in a way not correctable on appeal. Third, the district court‘s order constitutes an abuse of discretion.... Fourth, the district court‘s order represents an often repeated error and manifests a persistent disregard of federal rules. Fifth, the district court‘s order raises new and important problems or issues of law of the first impression.
24 Dalton, 733 F.2d at 717 (citations omitted).
III.
26 We thus turn to the Frates defendants’ entitlement to a jury trial as a matter of right.
A.
27 Kaiser contends that the Frates group‘s and PFJV‘s jury demands are untimely and that the right to jury trial has been waived. See Bankr.R. 9015(c) (abrogated Mar. 30, 1987);
28 PFJV initially filed a motion to dismiss. This motion was denied on October 12, 1988, and PFJV was given twenty days in which to file an answer. PFJV filed its answer and demand for jury trial on November 1, 1988. PFJV‘s demand for jury trial is timely.
29 The Frates group‘s initial answer, filed in July 1987, did not include a jury demand. The Frates group purports to rely on answers filed by other parties to establish the timeliness of their demand, filed on November 3, 1988 in a motion to withdraw the reference. The fact that no express motion was made for jury trial to the bankruptcy court is not determinative. Cf. FDIC v. Palermo, 815 F.2d 1329, 1333-34 (10th Cir.1987) (formal motion not required where pretrial memorandum called jury trial demand to attention of the court). With respect to the common issues between the Frates group and PFJV, we conclude that the Frates group has made a timely jury demand. See 9 Wright & Miller Sec. 2320, at 91-93 (for issues in which all multiple defendants are interested, time runs from service of last answer). With respect to the other issues, we can make no determination on this record. Because we find that timely demand was made as to at least some parties on some issues, we turn to the merits of PFJV‘s and the Frates group‘s jury trial claims.
B.
30 In our view the decision in Langenkamp v. Hackler (In re Republic Trust & Savings Co.), 897 F.2d 1041 (10th Cir.1990), petitions for cert. filed, 59 U.S.L.W. 3054, 3055 (Jul. 9, 1990) (Nos. 90-71, 90-93), establishes that PFJV and the Frates group are entitled to a jury trial for those issues for which a timely demand was made. Republic Trust holds:
Although some of the appellants did file claims against the estates because they continued to have monies invested in the debtors at the time of bankruptcy, we believe they likewise are entitled to a jury trial under Granfinanciera and Katchen. Despite these appellants’ claims, the trustee‘s actions to avoid the transfers, consolidated by the bankruptcy court, were plenary rather than a part of the bankruptcy court‘s summary proceedings involving the “process of allowance and disallowance of claims.”
31 Republic Trust, 897 F.2d at 1046-47 (citation omitted). Both the Frates group and PFJV are entitled to jury trials on the fraudulent conveyance and state law claims, at least where timely jury demands were made.
32 One final issue remains. We must determine the proper forum for the exercise of PFJV‘s and the Frates group‘s jury trial rights. As we noted above, two circuits have split on the question of a bankruptcy judge‘s power to conduct a jury trial, compare United Missouri Bank, 901 F.2d 1449 (8th Cir.1990) (no power exists) with Ben Cooper, 896 F.2d 1394 (2d Cir.1990) (power exists), cert. granted, 110 S.Ct. 3269 (1990) and the Supreme Court has expressly declined to address the issue, see Granfinanciera, 109 S.Ct. at 2802. We find the Eighth Circuit‘s position in United Missouri Bank to be better reasoned and hold that bankruptcy judges lack the power to conduct jury trials.
33 We reach our decision on statutory grounds, interpreted in light of the Supreme Court‘s decision invalidating the bankruptcy jurisdictional scheme established by the Bankruptcy Reform Act of 1978, Pub.L. No. 95-598, 92 Stat. 2549 [hereinafter 1978 Act], as violating article III, see Northern Pipeline Constr. Co. v. Marathon Pipe Line Co., 458 U.S. 50, 84-85, 102 S.Ct. 2858, 2878-79, 73 L.Ed.2d 598 (1982), and Congress‘s response in enacting the Bankruptcy Amendments and Federal Judgeships Act of 1984, Pub.L. No. 98-353, 98 Stat. 341 [hereinafter 1984 Act]. Although Congress may have granted bankruptcy judges the authority to conduct jury trials under the broad jurisdictional provisions of the 1978 Act, see Marathon, 458 U.S. at 55, 102 S.Ct. at 2863, we find that such authority does not exist under the 1984 Act.
34 The 1978 Act granted the bankruptcy courts the following jurisdiction and authority:
(a) Except as provided in subsection (b) of this section, the district courts shall have original and exclusive jurisdiction of all cases under title 11.
(b) Notwithstanding any Act of Congress that confers exclusive jurisdiction on a court or courts other than the district courts, the district courts shall have original but not exclusive jurisdiction of all civil proceedings arising under title 11 or arising in or related to cases under title 11.
(c) The bankruptcy court for the district in which a case under title 11 is commenced shall exercise all of the jurisdiction conferred by this section on the district courts.
35 1978 Act Sec. 241,
36 In Marathon, the Supreme Court held that the 1978 Act‘s jurisdictional provisions vested all “essential attributes” of judicial power in the bankruptcy courts, in violation of article III. Marathon, 458 U.S. at 84-85, 102 S.Ct. at 2878-79. The Court emphasized the fact that the bankruptcy courts exercised all ordinary powers of the district courts, including conducting jury trials and granting declaratory judgments, habeas corpus, etc. Id. at 85, 102 S.Ct. at 2878-79. The Court also noted that decisions were reviewable only under the “clearly erroneous” standard and did not depend on article III court confirmation. Id. at 85-86, 102 S.Ct. at 2878-79. Accordingly, the Court struck down the 1978 Act‘s jurisdictional provisions as violating article III.
37 In responding to the Court‘s Marathon decision, Congress substantially retailored the jurisdictional structure of the bankruptcy courts. Sections 1471 and 1481 were repealed. New section 151 states:
In each judicial district, the bankruptcy judges in regular active service shall constitute a unit of the district court to be known as the bankruptcy court for that district. Each bankruptcy judge, as a judicial officer of the district court, may exercise the authority conferred under this chapter with respect to any action, suit, or proceeding and may preside alone and hold a regular or special session of the court, except as provided by law or by rule or order of the district court.
38
hear and determine all cases under title 11 and all core proceedings arising under title 11, or arising in a case under title 11, referred under subsection (a) of this section, and may enter appropriate orders and judgments, subject to review under section 158 of this title.
39
Granfinanciera teaches that such proceedings, if legal in nature, are subject to the Seventh Amendment, but that opinion does not alter Congress’ intent that they be heard by a bankruptcy court with authority to issue final orders. Construing the Bankruptcy Code to allow jury trials in the bankruptcy court is the only way to reconcile these concerns.
41 Ben Cooper, 896 F.2d at 1402. The Second Circuit then rejected arguments that such trials would violate the seventh amendment and article III. See id. at 1403-1404.
42 The Eighth Circuit in United Missouri Bank took a different view. The Eighth Circuit noted that historically bankruptcy courts had never conducted jury trials except in two very narrow statutory exceptions. See United Missouri Bank, 901 F.2d at 1452. The court then found that the 1984 Act did not expressly confer authority to conduct jury trials, see id. at 1454, whereas Congress had expressly conferred such power on United States magistrates in
The Second Circuit‘s conclusion is premised upon the reasoning that since Congress could not deprive a private litigant of his Seventh Amendment right by designating an Article I forum to hear subject matter pertaining to private rights, Congress intended that Article I forum have the authority to conduct jury trials. We find this to be a faulty syllogism. We think it more plausible that Congress simply intended to transfer all proceedings relating to the bankruptcy estate to the sole jurisdiction of the bankruptcy court without regard to whether a party was entitled to a jury trial, or which forum would conduct the trial. In fact, it appears Congress did not even consider the need to provide jury trial authority.
43 United Missouri Bank, 901 F.2d at 1456 (footnote omitted). The court criticized the Second Circuit‘s finding of an implied power as contrary to the doctrine of statutory interpretation that implied powers “must be practically indispensable and essential in order to execute the power actually conferred.” Id. (citing 2A Sutherland Statutory Construction Sec. 55.03). The Eighth Circuit found no necessity existed to support an implied grant to bankruptcy courts of the power to conduct jury trials and noted that such a grant was unlikely given Congress‘s “wariness” of its authority to clothe article I courts with article III powers after Marathon. See id. Accordingly, the Eighth Circuit held that bankruptcy judges do not have the power to conduct jury trials.
44 We find the Eighth Circuit‘s analysis persuasive. Although bankruptcy judges may have had authority under the 1978 Act to conduct jury trials, we find that Congress‘s redrafting of bankruptcy court jurisdiction in the 1984 Act constituted a significant reduction in the independent authority of bankruptcy judges. Particularly significant, in our view, is the repeal of section 1481, which clothed bankruptcy judges with “the powers of a court of equity, law and admiralty.” See
45 We disagree with the Second Circuit‘s interpretation that the power to issue final orders necessarily includes the power to conduct jury trials. The plain language of section 157(b)(1) belies this interpretation:
Bankruptcy judges may hear and determine all cases under title 11 and all core proceedings arising under title 11, or arising in a case under title 11, referred under subsection (a) of this section, and may enter appropriate orders and judgments, subject to review under section 158 of this title.
47 We are also persuaded by the absence of any express provision authorizing jury trial before bankruptcy judges. Congress in the past has provided expressly for jury trials in the Article I context. See
48 We thus agree with the Eighth Circuit that Congress had no specific intent to vest bankruptcy judges with the authority to conduct jury trials. Until Granfinanciera, it was possible for Congress to presume that jury trial rights would not extend to core proceedings. As such, no authority to conduct such trials needed to be granted. Simply because Granfinanciera suggested the desirability of granting such power to bankruptcy judges does not permit us to find that power where Congress has not granted it. Accordingly, we hold that the Bankruptcy Code, as amended by the 1984 Act, does not authorize bankruptcy judges to conduct jury trials. Where the seventh amendment requires a jury trial to be held in bankruptcy, that trial must take place in the district court, sitting in its original jurisdiction in bankruptcy.
V.
49 We find that we lack appellate jurisdiction over this appeal. Accordingly, the appeal is DISMISSED. The petition for a writ of mandamus is GRANTED. The case is REMANDED for further proceedings in accordance with this opinion. The district court is directed to withdraw the reference and conduct a jury trial with respect to those petitioners and as to those issues for which a timely demand for jury trial was made.
DEANNELL REECE TACHA
UNITED STATES CIRCUIT JUDGE