In Re Benny

44 B.R. 581, 53 U.S.L.W. 2298, 11 Collier Bankr. Cas. 2d 798, 1984 U.S. Dist. LEXIS 21627, 12 Bankr. Ct. Dec. (CRR) 495
CourtDistrict Court, N.D. California
DecidedNovember 29, 1984
DocketC-84-120 Misc. RHS
StatusPublished
Cited by28 cases

This text of 44 B.R. 581 (In Re Benny) is published on Counsel Stack Legal Research, covering District Court, N.D. California primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
In Re Benny, 44 B.R. 581, 53 U.S.L.W. 2298, 11 Collier Bankr. Cas. 2d 798, 1984 U.S. Dist. LEXIS 21627, 12 Bankr. Ct. Dec. (CRR) 495 (N.D. Cal. 1984).

Opinion

MEMORANDUM DECISION

SCHNACKE, District Judge.

I.

This bankruptcy case was commenced by the filing of a joint involuntary bankruptcy petition on May 19, 1982, against George I. Benny and Alexandra Benny, husband and wife. Thereafter, over their opposition, the Bankruptcy Court entered an order for relief. On July 23, 1984, Bankruptcy Judge Lloyd King held a hearing on Debtors’ motions to dismiss the bankruptcy case and for a rehearing of the order. During that hearing, Debtor Alexandra Benny challenged Judge King’s authority, ostensibly vested in him pursuant to the Bankruptcy Amendments and Federal Judgeship Act of 1984 (the “1984 Act”), to exercise jurisdiction over any bankruptcy matters. All motions were taken under submission. Debt- or Alexandra Benny, thereafter, filed for partial withdrawal of the reference of this case and, on July 27, 1984, this Court granted said motion.

On November 2, 1984, this Court held a hearing on Debtor Alexandra Benny’s motions to: (a) declare unconstitutional the 1984 Act, §§ 106 and 121, thereof; and (b) rescind the July 20, 1984 Order of the United States District Court for the Northern District of California, referring all bankruptcy proceedings to bankruptcy judges appointed pursuant to § 121 of the 1984 Act. The United States filed intervention papers and papers in support of Benny’s motion.

The bankruptcy trustee opposed the Benny motion. The following parties moved this Court to intervene and submitted their respective papers in opposition to Benny’s motion: (a) the United States Senate; (b) the Speaker and Bipartisan Leadership Group of the House of Representatives; (c) Bankruptcy Judges Lundin, McFeeley, Norton, Paine, Robinson and Votolato; and (d) the Unsecured Creditor’s Committee.

With the exception of the Bankruptcy Judges, this Court permitted all applicant/intervenors to intervene. The Bankruptcy Judges’ opposing papers were *584 deemed to be those of amici curiae and counsel was permitted to appear as such.

Initially, the Trustee argues that the Debtors do not have standing to challenge the constitutionality of the 1984 Act. No persuasive reason for this view is advanced. It seems self-evident that one, involuntarily brought before a tribunal, has the right to challenge the authority of that tribunal to act.

The constitutionality of the 1984 Act [P.L. 98-353, 98 Stat. 383], is challenged by the Debtors, whose sole ally is the Department of Justice of the United States (which purports to be appearing on behalf of the United States). They will both be included, hereinafter, in the term “Opponents”.

Constitutionality is supported by the Trustee, the Official Unsecured Creditors Committee, the United States Senate, the Speaker and Bipartisan Leadership Group of the House of Representatives, and, as amici curiae, certain sitting Bankruptcy Judges. They will be termed “Proponents”.

The basic simple question here, of course, is whether Judge King has any authority to act in this case; but the underlying question is whether any bankruptcy judge, now sitting, has authority to do so.

Opponents say “No”, and base their view on three propositions: first, that the term of all bankruptcy judges expired on June 27, 1984; second, that their successors can be appointed only in consonance with the Appointments Clause of Article II of the United States Constitution; and, third, that any attempt by Congress to rectify the situation constitutes retroactive legislation which, they contend, is constitutionally forbidden.

We find no support for any of the three propositions.

II.

We must begin our analysis by a review of where the bankruptcy laws were, what happened to them along the way, and where, in our view, they are now.

Pursuant to Section 34(a) of the old Bankruptcy Act, [11 U.S.C. § 62(a) (repealed) ], Congress vested the power to appoint bankruptcy judges (then called “referees”) in the district courts and fixed their terms of office at six years plus a “holdover” period — until a successor was appointed. Bankruptcy Judge Lloyd King was originally appointed to office by the district court in accordance with this statute on December 1, 1975. He has remained in office continuously since that date.

In 1978, after years of review and consideration, Congress enacted a comprehensive revision of the substantive law of bankruptcy and the structure of the bankruptcy court. The 1978 Act replaced the referee system with a bankruptcy court of substantially expanded jurisdiction. After a transition period, bankruptcy judges were to be appointed to 14-year terms by the nomination of the President and the advice and consent of the Senate, subject to removal from office by the Judicial Council of the Circuit for incompetence, misconduct, neglect of duty or physical or mental disability [28 U.S.C. §§ 151(a), 152, 153(a), 153(b), 1471(b) (1978) (repealed)].

The bankruptcy court structure enacted in 1978 did not take full effect immediately. The 1978 Act established a four-and-one-half year transition period during which the existing courts of bankruptcy were continued. Bankruptcy judges were granted expanded jurisdiction and authority and, of special relevance here, the terms of office of bankruptcy judges were extended to March 31, 1984 or “when their successors took office.” [P.L. No. 95-598, §§ 401-411, 92 Stat. 2682-88].

On June 28, 1982, the Supreme Court upset the comprehensive revisions in the 1978 Act, declaring unconstitutional the broad grant of jurisdiction under 28 U.S.C. § 1471 of Article III authority to non-Article III judges [Northern Pipeline Construction Co. v. Marathon Pipe Line Co., 458 U.S. 50, 102 S.Ct. 2858, 73 L.Ed.2d 598 (1982)]. The Supreme Court applied its holding prospectively and twice stayed its judgment to reduce disruption to the system while expecting Congressional enact *585 ment of remedial legislation [Id at 88, 102 S.Ct. at 2880; Northern Pipeline Construction Co. v. Marathon Pipeline Co., 459 U.S. 813, 103 S.Ct. 200, 74 L.Ed.2d 160 (1982) ].

When the second stay expired on December 24, 1982, the Judicial Conference of the United States recommended, and district courts promulgated, temporary emergency rules, authorizing continued reference of bankruptcy proceedings to the bankruptcy judges. 1

As the bankruptcy system continued under the patch-work repair of the local emergency rules, Congress continued to consider the appropriate legislative restructuring of the bankruptcy courts system. There was initial disagreement on the status of bankruptcy judges and their correlative authority to act. 2

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44 B.R. 581, 53 U.S.L.W. 2298, 11 Collier Bankr. Cas. 2d 798, 1984 U.S. Dist. LEXIS 21627, 12 Bankr. Ct. Dec. (CRR) 495, Counsel Stack Legal Research, https://law.counselstack.com/opinion/in-re-benny-cand-1984.