Land-O-Sun Dairies, Inc. v. Florida Supermarkets, Inc. (In Re Finevest Foods, Inc.)

143 B.R. 964, 6 Fla. L. Weekly Fed. B 195, 27 Collier Bankr. Cas. 2d 1021, 1992 Bankr. LEXIS 1287, 23 Bankr. Ct. Dec. (CRR) 569, 1992 WL 204283
CourtUnited States Bankruptcy Court, M.D. Florida
DecidedAugust 19, 1992
DocketBankruptcy Nos. 91-614-BKC-3P1 to 91-619-BKC-3P1, Adv. No. 91-3303
StatusPublished
Cited by1 cases

This text of 143 B.R. 964 (Land-O-Sun Dairies, Inc. v. Florida Supermarkets, Inc. (In Re Finevest Foods, Inc.)) is published on Counsel Stack Legal Research, covering United States Bankruptcy Court, M.D. Florida primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Land-O-Sun Dairies, Inc. v. Florida Supermarkets, Inc. (In Re Finevest Foods, Inc.), 143 B.R. 964, 6 Fla. L. Weekly Fed. B 195, 27 Collier Bankr. Cas. 2d 1021, 1992 Bankr. LEXIS 1287, 23 Bankr. Ct. Dec. (CRR) 569, 1992 WL 204283 (Fla. 1992).

Opinion

MEMORANDUM OPINION

GEORGE L. PROCTOR, Bankruptcy Judge.

On December 20, 1991, plaintiff filed a complaint to recover money or property *965 from defendant. Defendant responded by filing a Motion to Dismiss challenging the constitutionality of 28 U.S.C. § 157(b). This Court issued an Order on February 25, 1992, certifying the challenge of 28 U.S.C. § 157 to the United States Attorney General as required under 28 U.S.C. § 2403(a). An Order Granting the United States’ Motion to Intervene was entered on April 13, 1992. A hearing on defendant’s Motion to Dismiss was heard on July 15, 1992, and, upon the evidence and argument, the Court enters the following Memorandum Opinion:

FACTS

Debtor Land-O-Sun filed this adversary proceeding seeking payment for the sale of dairy products by plaintiff to defendant. The transactions at issue occurred prior to the filing of plaintiff’s chapter 11 petition. The complaint consists of four counts: (1) an action for turnover of a $558,629.76 debt; (2) goods sold and delivered; (3) goods sold on open account; and (4) goods sold on account stated. Defendant has not answered but has moved to dismiss the complaint on various grounds including lack of jurisdiction. The United States intervened to address defendant’s challenge to the constitutionality of 28 U.S.C. § 157.

The sole issue before the court is whether 28 U.S.C. § 157 violates Article III of the United States Constitution by allowing a bankruptcy judge, sitting as an adjunct to an Article III court, to adjudicate pre-petition contract claims asserted by the debtor.

DISCUSSION

I. Statutory Background

A. The Bankruptcy System Before 1978

The Constitution empowers Congress to establish “uniform Laws on the subject of Bankruptcies.” U.S. Const, art. I, § 8, cl. 4. Congress passed the first federal bankruptcy act in 1800. See 2 Stat. 19 (1800). The federal bankruptcy system in effect throughout most of this century was based upon the Bankruptcy Act of 1898, 30 Stat. 544 (“1898 Act”).

Under the 1898 Act, district courts served as “courts of bankruptcy” and possessed original jurisdiction over bankruptcy cases. 30 Stat. 544, 546. Although the district courts were the repositories of bankruptcy jurisdiction, the courts generally referred bankruptcy matters to referees for initial adjudication. 1 Id. at 555-56. Referees’ final orders were appealable to the district courts. Bankruptcy Rule 801 (superseded). The district courts retained the power “at any time” to withdraw the bankruptcy case in whole or in part from the referee. Bankruptcy Rule 102(b) (superseded). Finally, both the appointment and the removal of the referees were in the hands of the district court. 30 Stat. 544, 555.

The 1898 Act, as amended, vested the district courts with “summary” jurisdiction over controversies involving property in the actual or constructive possession of the court. See Katchen v. Landy, 382 U.S. 323, 327, 86 S.Ct. 467, 471, 15 L.Ed.2d 391 (1966). Summary jurisdiction meant that the court and/or its referee could deal with the matter in “summary fashion,” (i.e., without a jury trial). Id. Controversies regarding creditors who did not file a claim, and where the property in dispute was not within the actual or constructive possession of the court, were adjudicated as “plenary action[s]” (ie., with full procedural and jury trial rights). Id. at 327-28, 86 S.Ct. at 471-72.

B. The Bankruptcy Reform Act of 1978

In 1978, Congress passed the Bankruptcy Reform Act of 1978, Pub.L. No. 95-598, 92 Stat. 2549 (“Reform Act”). This comprehensive revision of the bankruptcy laws eliminated the referee system. Id. at 2682-83. Under the Reform Act, bankruptcy jurisdiction was conferred upon the district courts. Id. at 2668. However, the jurisdictional grant to the district courts was immediately followed by a provision which delegated all bankruptcy jurisdiction *966 to the new United States Bankruptcy Courts. Id. The district courts had no power to recall or assign bankruptcy cases and were to function purely in an appellate capacity. Id; see also id. at 2682-87 (transition period).

The Reform Act not only delegated to the district courts jurisdiction over bankruptcy cases but also stripped the district courts of their administrative powers over the bankruptcy judges. While under the 1898 Act bankruptcy referees were appointed and removed solely by the district court, the judges of the new bankruptcy courts were to be appointed for 14 year terms by the President with the advice and consent of the Senate. Id. at 2657.

C. Marathon and the Emergency Reference Rule

The bankruptcy court system contemplated by the Reform Act was never realized. In Northern Pipeline Constr. Co. v. Marathon Pipe Line Co., 458 U.S. 50, 102 S.Ct. 2858, 73 L.Ed.2d 598 (1982), the Supreme Court held that Congress’ broad grant of jurisdiction to the new bankruptcy courts unconstitutionally conferred too much of the Article III judicial power on non-Article III officers. Because the Court could not divide the jurisdictional grant to the new bankruptcy courts into constitutional and unconstitutional components, it struck down the grant in its entirety. Id. at 87-88 n. 40, 102 S.Ct. at 2880 n. 40.

In order to keep the bankruptcy system functioning after Marathon, the district courts adopted a model “Emergency Rule” for referring bankruptcy cases and proceedings to bankruptcy judges. The Emergency Rule substantially revived the adjunct system in existence before the Reform Act. The Rule assumed that all subject matter jurisdiction vested in the Article III district courts and none was relegated exclusively and finally to bankruptcy judges. The Rule permitted the district courts to refer all bankruptcy matters to bankruptcy judges, but the district courts retained the power to withdraw the reference “at any time” either sua sponte or on motion by a party. Emergency Rule (c).

The Emergency Rule distinguished between traditional bankruptcy matters and those only “related” to a bankruptcy case for purposes of defining the scope of the bankruptcy courts’ adjudicatory power. Emergency Rule (d)(3)(A).

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143 B.R. 964, 6 Fla. L. Weekly Fed. B 195, 27 Collier Bankr. Cas. 2d 1021, 1992 Bankr. LEXIS 1287, 23 Bankr. Ct. Dec. (CRR) 569, 1992 WL 204283, Counsel Stack Legal Research, https://law.counselstack.com/opinion/land-o-sun-dairies-inc-v-florida-supermarkets-inc-in-re-finevest-flmb-1992.