In re DARTMOUTH HOUSE NURSING HOME, INC., Erlin Manor Nursing Home, Inc., St. John‘s Nursing Home, Inc. The COMMONWEALTH OF MASSACHUSETTS By its DEPARTMENT OF PUBLIC WELFARE, Plaintiff, Appellant. v. DARTMOUTH HOUSE NURSING HOME, INC., Erlin Manor Nursing Home, Inc., St. John‘s Nursing Home, Inc., Defendants, Appellees.
Appeal No. 82-9057
United States Bankruptcy Appellate Panel for the First Circuit.
June 15, 1983.
We recognize that Maine courts will not reform an instrument where to do so would extinguish rights of innocent third parties. See, e.g., Williams v. Libby, 118 Me. 80, 105 A. 855 (1919). Cf. Foster v. Kingsley, 67 Me. 152 (1877). However, as set forth above, the trustee as a prospective bona fide purchaser or encumbrance may not be deemed an innocent party. In Federal Land Bank of Springfield v. Smith, 129 Me. 233, 237, 151 A. 420, 421-422 (1930), the court quoted Louisville Joint Stock Land Bank v. Bank of Pembroke, 225 Ky. 375, 9 S.W.2d 113 (Ky.1928), as follows:
It is the general rule that, where a mortgage has been released or satisfied through accident or mistake, it may be restored in equity and given its original priority as a lien, provided the granting of such relief does not operate to the detriment of intervening rights of third persons who may have relied upon the release and who are not chargeable with notice of the mistake or who will not be prejudiced by reinstatement of the lien (emphasis supplied).
See also Whitman v. Weston, 30 Me. 285 (1849); and 59 C.J.S. Mortgages 348 (1949):7
Generally, where a mortgage has been released or satisfied through accident or a mistake, it may be restored in equity and given its original priority as a lien, but such relief cannot be obtained to the detriment of the intervening rights of an innocent third person who relied on such release unless he is chargeable with notice of the mistake (emphasis supplied) (footnotes omitted).
Therefore, any prospective creditor or purchaser, under Maine law, would have had actual notice of an inconsistency in the records of the Cumberland County Registry of Deeds as concerns the subject property. This notice holds the prospective creditor or purchaser chargeable with all that further inquiry as to the true state of the title would reveal. Here, further inquiry would have revealed that the bank was, in fact, the mortgagee of the property despite the recorded certificate of foreclosure. Thus, no purchaser or attaching creditor would have priority over the bank under Maine law as consistently applied by its courts. We hold, therefore, that the rights of the bank are superior to those of the trustee.8
Accordingly, the order of the bankruptcy court is reversed and the case is remanded to the bankruptcy court with instructions to enter judgment in accordance with this decision.
Frederick G. Fisher, Jr., C. Hall Swaim, Mark N. Polebaum, Hale & Dorr, Boston, Mass., for defendants, appellees.
Before VOTOLATO, Chief Judge, JOHNSON and GOODMAN, Bankruptcy Judges.
JOHNSON, Bankruptcy Judge.
The constitutionality of the jurisdictional grant to bankruptcy appellate panels has been questioned in this appeal.1 The debtors have filed a motion to dismiss the appeal of the Massachusetts Department of Public Welfare2 on the ground that the United States Supreme Court‘s decision in Northern Pipeline Construction Co. v. Marathon Pipe Line Co., ___ U.S. ___, 102 S.Ct. 2858, 73 L.Ed.2d 598 (1982), divested the Bankruptcy Appellate Panel of jurisdiction. We reluctantly conclude that we are without jurisdiction to hear the appeal. 24 B.R. 256.
Preliminarily, we must address the argument of the Department of Public Welfare that if the panel‘s jurisdictional grant is unconstitutional, then the panel no longer exists and cannot act to grant the motion to dismiss. This contention is without merit. In Chicot County Drainage District v. Baxter State Bank, the United States Supreme Court stated:
The lower federal courts are all courts of limited jurisdiction, that is, with only the jurisdiction which Congress has prescribed. But none the less they are courts with authority, when parties are brought before them in accordance with the requirements of due process, to deter
mine whether or not they have jurisdiction to entertain the cause and for this purpose to construe and apply the statute under which they are asked to act. Whatever the contention as to jurisdiction may be, whether it is that the boundaries of a valid statute have been transgressed, or that the statute itself is invalid, the question of jurisdiction is still one for judicial determination.
308 U.S. 371, 376-77, 60 S.Ct. 317, 319-20, 84 L.Ed. 329 (1940). The Court found this rule applicable to a district court sitting in bankruptcy with limited jurisdiction conferred by statute. Id. at 376, 60 S.Ct. at 319. Subsequent courts have applied the rule: “It is eminently clear that a federal court sitting in bankruptcy has the authority to pass upon its own jurisdiction....” Citibank, N.A. v. White Motor Corp. (In re White Motor Credit Corp.), 23 B.R. 276, 279 (N.D.Ohio 1982). As a federal bankruptcy court, this panel has authority to rule on its own jurisdiction.
The debtors contend that Northern Pipeline declared
Although the Supreme Court‘s holding in Northern Pipeline is not clear, we conclude that the Court did not consider section 1482. In Northern Pipeline, the court reviewed the district court‘s finding that “the delegation of authority in
The plurality phrased its holding in broad terms, however:
We conclude that
§ 241(a) of the Bankruptcy Act of 1978 has impermissibly removed most, if not all, of “the essential attributes of the judicial power” from the Art. III district court, and has vested those attributes in a non-Art. III adjunct. Such a grant of jurisdiction cannot be sustained as an exercise of Congress’ power to create adjuncts to Art. III courts.... [T]he broad grant of jurisdiction to the bankruptcy courts contained in§ 241(a) is unconstitutional....
Id. 102 S.Ct. at 2879-80 (4-2-3 decision). The plurality added that it would not sever the jurisdictional grant struck down in Northern Pipeline from the remaining grants of jurisdiction to the bankruptcy courts, which the court did not specifically consider. Id. 102 S.Ct. at 2880 n. 40. The concurring justices agreed that the “grant of authority to Bankruptcy Courts under
This broad language has caused the appellee, along with several courts, to conclude that Northern Pipeline found all the sections of title 28 added by
We reach this conclusion for two reasons. First, the language of both the plurality and concurring opinions, though broad, does not encompass the jurisdiction of bankruptcy appellate panels, but focuses entirely on the jurisdiction of bankruptcy courts. The plurality concluded that the broad grant of jurisdiction to “bankruptcy courts” was unconstitutional and that the “‘adjunct bankruptcy courts‘” were a facade. Northern Pipeline Construction Co. v. Marathon Pipe Line Co., ___ U.S. ___, 102 S.Ct. 2858, 2879-80, 73 L.Ed.2d 598 (1982). The plurality‘s discussion of severability clearly indicates that section 1482 was not at issue:
It is clear that, at the least, the new bankruptcy judges cannot constitutionally be vested with jurisdiction to decide this state-law contract claim against Marathon. As part of a comprehensive restructuring of the bankruptcy laws, Congress has vested jurisdiction over this and all matters related to cases under title 11 in a single non-Art. III court, and has done so pursuant to a single statutory grant of jurisdiction. In these circumstances we cannot conclude that if Congress were aware that the grant of jurisdiction could not constitutionally encompass this and similar claims, it would simply remove the jurisdiction of the bankruptcy court over these matters, leaving the jurisdictional provision and adjudicatory structure intact with respect to other types of claims, and thus subject to Art. III constitutional challenge on a claim-by-claim basis.... We think that it is for Congress to determine the proper manner of restructuring the Bankruptcy Act of 1978 to conform to the requirements of Art. III, in the way that will best effectuate the legislative purpose.
The language of the concurrence also focused on the jurisdiction given to bankruptcy courts by
Secondly, in concluding that the Supreme Court did not rule on section 1482, we note, as did the concurrence, the court‘s longstanding practice of “never [anticipating] a question of constitutional law in advance of the necessity of deciding it ... [and never formulating] a rule of constitutional law broader than is required by the precise facts to which it is to be applied.” Id. 102 S.Ct. at 2881 (quoting United States v. Raines, 362 U.S. 17, 21, 80 S.Ct. 519, 522, 4 L.Ed.2d 524 (1960)). As acknowledged by the plurality, the question presented to the Court was the constitutionality of the jurisdiction granted to bankruptcy judges by
Our conclusion that the Supreme Court did not consider section 1482 in Northern Pipeline does not end our inquiry. We must decide whether the exercise of
Section one of Article III provides:
The judicial Power of the United States, shall be vested in one supreme Court, and in such inferior Courts as the Congress may from time to time ordain and establish. The Judges, both of the supreme and inferior Courts, shall hold their Offices during good Behaviour, and shall, at stated Times, receive for their Services a Compensation, which shall not be diminished during their Continuance in Office.
As stated by the Supreme Court in Northern Pipeline, “[t]he inexorable command of this provision is clear and definite: the judicial power of the United States must be exercised by courts having the attributes prescribed in Art. III.” Id. 102 S.Ct. at 2865. The essential Article III attributes which must be possessed by judges exercising the judicial power of the United States are life tenure and protection against salary diminution. Id. These requirements were placed in the Constitution as institutional protections to guarantee an independent judiciary. Id. 102 S.Ct. at 2866. The framers recognized that “control over tenure and compensation of judges is incompatible with a truly independent judiciary, free of im-
Bankruptcy appellate panels did not exist prior to the enactment of the Bankruptcy Reform Act of 1978. Under the Reform Act, appeals from judgments, orders, and decrees of bankruptcy judges shall be heard by a panel of bankruptcy judges if the circuit council of a circuit so orders. Bankruptcy Reform Act of 1978, Pub.L. No. 95-598, § 405(c)(1)(A), 1978 U.S.Code Cong. & Ad.News (92 Stat. 2685). During the transition period before the Act takes full effect on April 1, 1984, the procedure for the appointment of appellate panels is the same as the post effective date procedure under
Once appointed, each bankruptcy appellate panel consists of three bankruptcy judges. Bankruptcy judges hold office for a term of 14 years.
On February 28, 1980, the Circuit Council for the First Circuit ordered application of section 160 to the districts of Maine, Massachusetts, New Hampshire, and Rhode Island to appeals filed after March 1, 1980. Circuit Council for First Circuit, Minutes for Feb. 28, 1980. At the same time, the council approved the order of Chief Judge Coffin appointing bankruptcy judges to the Bankruptcy Appeal Panels for the First Circuit. See 1st Cir., Order Establishing Bankruptcy Appeal Panels for First Circuit (Feb. 28, 1980); see also 1st Cir., Order Establishing Bankruptcy Appeal Panels for First Circuit (Jan. 22, 1982). Obviously the bankruptcy judges on this panel are not Article III judges: they do not hold office during good behaviour and their salaries are not protected from diminution during their continuance in office. See Northern
The question remains whether this statutory scheme violates Article III‘s command that the judicial power of the United States must be vested in Article III courts. We conclude that it does. Under section 1482, bankruptcy appellate panels have jurisdiction to hear appeals from judgments, orders, and decrees of bankruptcy courts.11 Prior to the expiration of the Northern Pipeline stay on December 24, 1982, bankruptcy courts retained jurisdiction over “all civil proceedings arising under title 11 or arising in or related to cases under title 11.”12
In Northern Pipeline, the Supreme Court ruled that Congress could not constitutionally establish non-Article III courts to exercise jurisdiction over the wide range of issues encompassed by section 1471. 102 S.Ct. at 2874. It is obvious that if Congress cannot constitutionally establish non-Article III courts to exercise jurisdiction over the wide range of issues encompassed by sec-
tion 1471 at the trial level, then it cannot establish non-Article III courts to hear the same issues at the appellate level. Appellate courts must have the judicial independence, integrity, quality, and individualism promoted by Article III.
We reluctantly conclude that section 1482 is unconstitutional because it “impermissibly remove[s] most, if not all, of ‘the essential attributes of the judicial power’ from the Art. III district court, and [vests] those attributes in a non-Art. III [appellate court].” Id. 102 S.Ct. at 2879-80.15
The appeal of the Commonwealth of Massachusetts is dismissed.
APPENDIX
JUDICIAL COUNCIL OF THE NINTH CIRCUIT
Order Establishing Appellate Review Procedures in Bankruptcy Cases
IT IS ORDERED that, at such time that the stay expires and judgment is filed by the United States Supreme Court in Northern Pipeline Construction Co. v. Marathon Pipe Line Co., ___ U.S. ___, 102 S.Ct. 2858 [73 L.Ed.2d 598] (1982) (Marathon), appellate review of bankruptcy cases shall be as follows:
The bankruptcy appellate panels shall consider and resolve all appeals in which the order or judgment to be reviewed has been entered by the bankruptcy judge before the filing of judgment in Marathon. - The bankruptcy appellate panels shall not consider or resolve any appeals in which the order or judgment to be reviewed is entered by the bankruptcy judge after the filing of judgment in Marathon.
- Appeals from orders, judgments, proposed orders, and proposed judgments entered or lodged by the bankruptcy judge after the filing of judgment in Marathon shall be before a district judge in the manner provided by the local bankruptcy reference rule of the district.
- Appeals from all judgments and orders of district judges in all cases under Title 11 and all civil proceedings arising under Title 11 or arising in or related to cases under Title 11 shall be to the Court of Appeals pursuant to Section 405(c) of the Bankruptcy Act of 1978, P.L. 95-598, 92 Stat. 2549.
FOR THE JUDICIAL COUNCIL:
/s/ James R. Browning
James R. Browning
Chief Judge
3385e
DEC 28 1982
VOTOLATO, Chief Judge, concurring in the result.
The Supreme Court in Northern Pipeline held that ”
For the reasons given in this concurrence, including the lack of uniformity prevailing throughout the bankruptcy system, and the likely consequences of the action which we take here, I would have preferred to stay this order, pending review by the Court of Appeals for the First Circuit.1 However, the majority has chosen not to issue a stay. Accordingly, I feel compelled to write separately, to state the reasons why a stay is imperative where an order has been issued by a Panel whose very existence has been questioned, and where other appellants with cases pending before this Panel presumably will find their cases summarily dismissed.
The majority is undoubtedly correct in stating the general proposition that a federal court has authority to rule on its own jurisdiction. However, those cases cited by the majority involve courts which have not been stripped of all jurisdiction, and deal
function, appellants in pending cases may well be denied any meaningful appellate review. With a stay of our order, however, whether this decision is reversed or affirmed, or whether legislative action is taken which authorizes the continuance of this Panel, then appellants of pre-December 25 orders and judgments will not have been deprived of review of their cases on the merits.
It should also be kept in mind that there are two Bankruptcy Appellate Panels in the First Circuit, and that the Panel which hears appeals from orders and judgments of Maine and Rhode Island bankruptcy courts continues to adjudicate pending appeals. Similarly, the Ninth Circuit Bankruptcy Appellate Panels are conducting business as usual under a December 28, 1982 order entered by the Judicial Council for that Circuit.3 A stay would avoid the anomalous situation in which appeals from Maine and Rhode Island bankruptcy courts continue to
Appellant contends that if this Panel no longer exists as a constitutionally authorized tribunal, it lacks even the authority to dismiss pending motions. I believe that such an argument, although novel, is not without merit, and that the power to authorize—or reauthorize—such panels lies with the Court of Appeals. See infra note 3 and appendix (Ninth Circuit order establishing bankruptcy appellate review procedures after Northern Pipeline).
The rationale of the Circuit Council for the First Circuit in promulgating the Emergency Rule was to ensure that in this “highly unusual set of circumstances”4 the bank-
ruptcy system would continue to function. Order (December 22, 1982). These exceptional circumstances and the general confusion in the wake of Northern Pipeline4 have caused other courts to stay their orders and judgments pending appeal.5 Given the equally unusual circumstances that currently exist with respect to appellate panels, a stay of our order, even in the absence of action by the Circuit Council for the First Circuit, would permit this Panel to continue to function.6
Notes
In any action, suit or proceeding in a court of the United States to which the United States or any agency, officer or employee thereof is not a party, wherein the constitutionality of any Act of Congress affecting the public interest is drawn in question, the court shall certify such fact to the Attorney General, and shall permit the United States to intervene for presentation of evidence, if evidence is otherwise admissible in the case, and for argument on the question of constitutionality.The Attorney General‘s office declined to intervene or to file a statement of interest. Certain of the jurisdictional issues discussed in this concurrence were raised during oral argument by appellant Massachusetts Department of Public Welfare. Because this proceeding involves novel questions of first impression, of obviously critical significance to taxpayers as well as other appellants of pre-December 24, 1982 orders, and of importance to bankruptcy practice in general, it appears certain that the Commonwealth will appeal our order to the Court of Appeals for the First Circuit.
Mindful of the possibility, however unlikely, that this order may not be appealed, and seriously concerned with the result should our order become final at the Bankruptcy Appellate Panel level, I sought, but in vain, to locate a method or vehicle by which to ensure that the First Circuit Court of Appeals would be able to provide appellate review of this matter on the merits. Not only has my research failed to produce any positive authority for such action—all that we have found on the subject militates against that idea.
Another bankruptcy judge concluded that after the expiration of the stay in Northern Pipeline, “neither this Court nor I as one of its judges may well have any existence or jurisdiction independent of the District Court‘s [Emergency] Rule.” The judge also concluded that he had no “power to pass on the validity of the orders of the District Court.” Lipman Bros., Inc. v. Lipman (In re Lipman Bros., Inc.), 27 B.R. 529, 529, 530 (Bkrtcy.D.Mass.1983). If this Bankruptcy Appellate Panel were to apply this reasoning to appellate panels, we would undoubtedly conclude that we may well have no “existence or jurisdiction.” Whereas the Emergency Rule provides for the continued operation of bankruptcy courts, it not only does not provide for appellate panels, but states explicitly that “bankruptcy judges may not conduct ... an appeal from a judgment, order, decree, or decision of a United States bankruptcy judge....” Rule § (d)(1)(C).
(1) The bankruptcy appellate panels shall consider and resolve all appeals in which the order or judgment to be reviewed has been entered by the bankruptcy judge before the filing of judgment in Marathon.By this action, Bankruptcy Appellate Panels in the Ninth Circuit are authorized to adjudicate appeals of orders and judgments of bankruptcy judges entered on or before December 24, 1982. A similar order by the Circuit Council for the First Circuit would provide a method for preserving the rights of parties with appeals pending before this Panel.
The Ninth Circuit order enabling Bankruptcy Appellate Panels to adjudicate appeals of pre-December 25 orders and judgments is reprinted in full in the appendix to this concurring opinion.
(A) Panels designated under section 160(a) of this title shall have jurisdiction of appeals from all final judgments, orders, and decrees of bankruptcy courts. (b) Panels designated under section 160(a) of this title shall have jurisdiction of appeals from interlocutory judgments, orders, and decrees of bankruptcy courts, but only by leave of the panel to which the appeal is taken.
Given the variety of interpretations of the implications of both Northern Pipeline and the Emergency Rule which was adopted as an interim measure until Congress acts, the following statement by the Judicial Conference of the United States is particularly puzzling:
There is no present crisis in the operation of the bankruptcy court system. Members of the Judicial Conference of the United States unanimously agree that the Model Rule for the Continued Operation of the Bankruptcy Court System is working well.Statement of the Judicial Conference (March 17, 1983).
(a) If the circuit council of a circuit orders application of this section to a district within such circuit, the chief judge of each circuit shall designate panels of three bankruptcy judges to hear appeals from judgments, orders, and decrees of the bankruptcy court of the United States for such district. Except as provided in section 293(e) of this title, a panel shall be composed only of bankruptcy judges for districts located in the circuit in which the appeal arises. The chief judge shall designate a sufficient number of such panels so that appeals may be heard and disposed of expeditiously. (b) A panel designated under subsection (a) of this section may not hear an appeal from a judgment, order, or decree entered by a member of the panel. (c) When hearing an appeal, a panel designated under subsection (a) of this section shall sit at a place convenient to the parties to the appeal.Bankruptcy appellate panels exist in the First and Ninth Circuits only.