Massachusetts Ex Rel. Department of Public Welfare v. Dartmouth House Nursing Home, Inc. (In Re Dartmouth House Nursing Home, Inc.)

30 B.R. 56, 8 Collier Bankr. Cas. 2d 728

• Court: Bankruptcy Appellate Panel of the First Circuit
• Decided: June 15, 1983
• Docket: Appeal 82-9057
• Status: Published

Opinions

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 determine 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 section 241(a) of the Bankruptcy Reform Act of 1978 unconstitutional in its entirety. Bankruptcy Reform Act of 1978 § 241(a), 28 U.S.C.A. §§ 1471-1482 (Supp.1983).³ Section 241(a) contains 28 U.S.C.A. § 1482 (Supp.1983), the section of title 28 that grants jurisdiction to bankruptcy appellate panels.⁴ The debtors assert, therefore, that this panel lacks jurisdiction after Northern Pipeline. Although we grant the motion to dismiss for lack of subject matter jurisdiction, we conclude that the Supreme Court did not declare section 1482 unconstitutional in its Northern Pipeline decision. Instead, we hold that section 1482 unconstitutionally vests Article III judicial power in a non-Article III court. U.S. Const. art. III, § 1.

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 28 U.S.C. § 1471 to the bankruptcy judges to try cases which are otherwise relegated under the Constitution to Article III judges.... is an unconstitutional delegation of Article III judicial power to a nontenured Article I court.” Marathon Pipeline Co. v. Northern Pipeline Construction Co., 12 B.R. 946, 956 (D.Minn.1981) (emphasis added). A plurality of the Supreme Court stated that “[t]he question presented is whether the assignment by Congress to bankruptcy judges of the jurisdiction granted in § 241(a) of the Bankruptcy Act of 1978, 28 U.S.C. § 1471 (1976 ed., Supp. Ill), violates Art. III of the Constitution.” Northern Pipeline Construction Co. v. Marathon Pipe Line Co., - U.S. -, 102 S.Ct. 2858, 2862, 73 L.Ed.2d 598 (emphasis added). Indeed, the concurrence narrowed the issue even further to the constitutionality of the bankruptcy court’s exercise of jurisdiction in the case before the Court. Id. 102 S.Ct. at 2880-82 (Rehnquist, J., O’Connor, J., concurring). Thus, it is clear that the issue appealed and the question presented to the court was the constitutionality of section 1471 and not the constitutionality of all the sections added to title 28 by section 241(a) of the Bankruptcy Reform Act of 1978, including section 1482.

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. Ill district court, and has vested those attributes in a non-Art. Ill adjunct. Such a grant of jurisdiction cannot be sustained as an exercise of Congress’ power to create adjuncts to Art. Ill 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 § 241(a)” should be struck down in its entirety. Id. 102 S.Ct. at 2882 (Rehnquist, J., O’Connor, J., concurring).

This broad language has caused the ap-pellee, along with several courts, to conclude that Northern Pipeline found all the sections of title 28 added by section 241(a) of the Bankruptcy Reform Act of 1978 unconstitutional. See, e.g., Armco, Inc. v. Cherry Pond Coal Co. (In re Cherry Pond Coal Co.), 21 B.R. 592, 592-93 (S.D.W.Va.1982); In re Motion to Dismiss: Constitutionality of Jurisdiction of the Bankruptcy Court, 23 B.R. 334, 336 (Bkrtcy.N.D.Ga.1982); Hunter v. S.K. Austin Co. (In re Beck), 22 B.R. 778, 779 (Bkrtcy.N.D.Ohio 1982); Otero Mills, Inc. v. Security Bank & Trust (In re Otero Mills, Inc.), 21 B.R. 645, 647 (Bkrtcy.D.N.M.), aff’d, 25 B.R. 1018 (D.N.M.1982). After careful consideration of both the plurality and concurring opinions in Northern Pipeline, we conclude that the Supreme Court considered section 1471 only. See, e.g., Meeker v. Livengood Real Estate Co. (In re Meeker), 22 B.R. 745, 746 (S.D.Ohio 1982); Wyandotte Industries v. Morton Machine Works, Inc. (In re First Hartford Corp.), 25 B.R. 234, 235 (Bkrtcy.S.D.N.Y.1982); Zinker v. Levy (In re M.J.S. Apparel, Inc.), 22 B.R. 736, 737 (Bkrtcy.E.D.N.Y.1982); Schneider v. 2-Star Foods, Inc. (In re Cumberland Enterprises, Inc.), 22 B.R. 626, 630-31 (Bkrtcy.M.D.Tenn.1982). The Court did not declare section 1482 unconstitutional.

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. Ill 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. Ill 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. Ill, in the way that will best effectuate the legislative purpose.

Id. 102 S.Ct. at 2880 n. 40 (emphasis added). Thus, the plurality found that it could not sever the unconstitutional grant of jurisdiction to the bankruptcy courts over the state law contract claims at issue in Northern Pipeline from the bankruptcy courts’ possibly constitutional jurisdiction over other types of claims and, therefore, that the entire grant of jurisdiction to the bankruptcy courts under section 1471 must be held unconstitutional. See Rockwell International Corp. v. White Motor Corp. (In re White Motor Corp.), 24 B.R. 200, 203 (N.D.Ohio 1982); Schneider v. 2-Star Foods, Inc. (In re Cumberland Enterprises, Inc.), 22 B.R. 626, 630-31 (Bkrtcy.M.D.Tenn.1982).⁵

The language of the concurrence also focused on the jurisdiction given to bankruptcy courts by section 1471. In fact, the concurrence would limit the holding even further to find unconstitutional only the jurisdictional grant that allowed the bankruptcy court to act in the case before the Court. Northern Pipeline, 102 S.Ct. at 2882. The concurrence agreed, however, that the jurisdictional grant at issue could not be severed from the “remaining grant of authority to Bankruptcy Courts.” Id. Given the concurring justices’ refusal to condone the plurality’s broad statement of the issue, the justices certainly would not have concurred in an opinion finding section 1482, a section definitely not at issue, unconstitutional. See id. 102 S.Ct. at 2880-82.

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 (I960)). As acknowledged by the plurality, the question presented to the Court was the constitutionality of the jurisdiction granted to bankruptcy judges by section 1471. Id. 102 S.Ct. at 2862. We conclude that the court limited its holding to this question.⁶

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 1482 jurisdiction by bankruptcy judges sitting on bankruptcy appellate panels violates Article III of the United States constitution.

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 improper influence from other forces within government.” United States v. Will, 449 U.S. 200, 218, 101 S.Ct. 471, 482, 66 L.Ed.2d 392 (1980) (discussing English statute). These provisions also promote public confidence in our judicial system, attract qualified judges, and promote judicial individualism. Northern Pipeline, 102 S.Ct. at 2865 n. 10. Thus we must consider whether bankruptcy judges sitting on bankruptcy appellate panels are Article III judges and, if not, whether their Article I status violates Article Ill’s command that the judicial power of the United States must be vested in Article III courts.

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 28 U.S.C.A. § 160 (Supp.1983). Id. Section 160 allows the chief judge of each circuit to designate panels of bankruptcy judges to hear appeals from bankruptcy courts if the circuit council of the circuit orders application of the section to a district within the circuit.⁷

Once appointed, each bankruptcy appellate panel consists of three bankruptcy judges. Bankruptcy judges hold office for a term of 14 years. 28 U.S.C.A. § 153(a) (Supp.1983).⁸ The judicial council of the circuit can remove them during their term “for incompetency, misconduct, neglect of duty, or physical or mental disability.” 28 U.S.C.A. § 153(b) (Supp.1983). Salaries of bankruptcy judges are subject to adjustment under the Federal Salary Act of 1967. 28 U.S.C.A. § 154 (Supp.1983).⁹ Appointment to an appellate panel does not affect a bankruptcy judge’s term of office or compensation.

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 Pipeline, 102 S.Ct. at 2866 (bankruptcy judges not Article III judges).¹⁰

The question remains whether this statutory scheme violates Article Ill’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 28 U.S.C.A. § 1471(b)(c) (Supp. 1983).¹³ Thus, under section 1482, bankruptcy appellate panels hear appeals of the same broad range of issues that section 1471 allowed bankruptcy courts to hear pri- or to December 25, the effective date of the Supreme Court’s decision in Northern Pipe-lined.14

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 section 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 “impermissi-bly remove[s] most, if not all, of ‘the essential attributes of the judicial power’ from the Art. Ill district court, and [vests] those attributes in a non-Art. Ill [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:

(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.

(2) 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.

(3) 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.

(4) 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

1 . Pursuant to 28 U.S.C.A. § 2403(a) (1978), we certified to the United States Attorney General that this appeal questioned the constitutionality of a United States statute. Section 2403(a) provides:

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.

2 . The bankruptcy court entered an order permanently enjoining the Massachusetts Department of Public Welfare from setting off its claims against money owed to the debtors, Dartmouth House Nursing Home, Inc., Erlin Manor Nursing Home, Inc., and St. John’s Nursing Home, Inc. Massachusetts appealed.

3 . Section 241(a) amends title 28 of the United States Code by adding chapter 90. Chapter 90 includes section 1471, jurisdiction of bankruptcy courts, sections 1472 to 1477, venue of bankruptcy cases and proceedings, sections 1478 to 1479, removal to bankruptcy courts, section 1480, jury trials, section 1481, powers of bankruptcy courts, and section 1482, jurisdiction of bankruptcy appellate panels.

4 . Section 1482 provides:

(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.

28 U.S.C.A. § 1482 (Supp.1983). Although section 402(b) of the transitional provisions of the Bankruptcy Reform Act of 1978 gives section 241(a), and thus section 1482, an April 1, 1984 effective date, section 405(c)(2) provides that bankruptcy appellate panels shall exercise section 241(a) jurisdiction during the transition period. Bankruptcy Reform Act of 1978, Pub.L. No. 95-598, §§ 402(b), 405(c)(2), 1978 U.S.Code Cong. & Ad.News (92 Stat. 2682, 2685).

5 . We express no opinion on whether Northern Pipeline held section 1471 unconstitutional in its entirety or whether the Court limited its holding to section 1471(c). For decisions concluding that the Supreme Court did not invalidate subsections (a) and (b) of section 1471, see White Motor Corp. v. Citibank, N.A., 704 F.2d 254, 260 (6th Cir.1983); First National Bank v. Hansen (In re Hansen), 702 F.2d 728, 10 B.C.D. 280, 280 (8th Cir.1983); Braniff Airways, Inc. v. Civil Aeronautics Board (In re Braniff Airways, Inc.), 700 F.2d 214, 215 (5th Cir.1983).

6 . We express no opinion on the effect of Northern Pipeline on sections 1472-1481.

7 .Section 160 provides in full:

(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.

8 . During the transition period, the terms of bankruptcy judges are determined by section 404(b) of the 1978 Act. Bankruptcy Reform Act of 1978, Pub.L. No. 95-598, § 404(b), 1978 U.S.Code Cong. & Ad.News (92 Stat. 2683).

9 . During the transition period, the salaries of bankruptcy judges are determined by section 404(f) of the 1978 Act. Bankruptcy Reform Act of 1978, Pub.L. No. 95-598, § 404(f), 1978 U.S.Code Cong. & Ad.News (92 Stat. 2684).

10 . In his article on bankruptcy appellate panels, Bankruptcy Judge Lloyd George calls “the utilization of article I trial judges as appellate judges” one of the “[t]hree major weaknesses in the bankruptcy appellate panel experiment.” George, The Bankruptcy Appellate Panels: An Unfinished Experiment, 1982 B.Y.U.L.Rev. 205, 217.

11 . For the full text of section 1482, see supra note 4.

12 . This panel has been hearing appeals from judgments and orders entered by bankruptcy judges prior to the expiration of the Northern Pipeline stay on December 25, 1982, only. We have been hearing these appeals pursuant to a memorandum from the Administrative Office of the United States Courts stating that we may adjudicate such appeals but that we “may perform no function in respect to any orders or judgments entered by bankruptcy judges after December 24.” Memorandum from Milner Benedict to Dana H. Gallup (Dec. 15, 1982). The Administrative Office reasons that posi-December 24 orders and judgments are deemed orders or judgments of the district courts and, therefore, cannot be reviewed by bankruptcy appellate panels acting under section 1482. Id.

13 . During the transition period, the jurisdiction of bankruptcy courts is determined by section 405(b) of the 1978 Act. Bankruptcy Reform Act of 1978, Pub.L. No. 95-598, § 405(b), 1978 U.S.Code Cong. & Ad.News (92 Stat. 2685).

14 . The Northern Pipeline stay does not affect this panel’s jurisdiction because it applied to the jurisdiction of the bankruptcy courts under section 1471 only.

15 . We have recently been furnished with a copy of the order set forth in the appendix entered by the Judicial Council of the Ninth Circuit relating to appellate review of bankruptcy cases. This Circuit has entered no such order and we, of course, express no opinion as to the effect of the order.