Met-Al, Inc. v. Hansen Storage Co.

157 B.R. 993, 1993 U.S. Dist. LEXIS 11831, 1993 WL 325778
CourtDistrict Court, E.D. Wisconsin
DecidedJune 22, 1993
Docket93-C-479, Adv. No. 92-2304
StatusPublished
Cited by2 cases

This text of 157 B.R. 993 (Met-Al, Inc. v. Hansen Storage Co.) is published on Counsel Stack Legal Research, covering District Court, E.D. Wisconsin primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Met-Al, Inc. v. Hansen Storage Co., 157 B.R. 993, 1993 U.S. Dist. LEXIS 11831, 1993 WL 325778 (E.D. Wis. 1993).

Opinion

ORDER

WARREN, Senior District Judge.

Before the Court is the defendants’ motion for mandatory withdrawal of reference and their demand for a jury trial.

I. BACKGROUND

The plaintiff in the above-captioned matter, Met-Al, Inc. (“Met-Al”), is a Wisconsin corporation which sells aluminum ingots produced from scrap aluminum. For approximately one year, beginning in October, 1991, Met-Al contracted to sell millions of dollars worth of aluminum ingots with people purporting to be representatives of the Emerson Electric Company and General Electric. In reality, the aluminum was received by Metal Brokers International, Inc. (“MBI”). MBI did not pay for much of the metal it received, and eventually, Met-Al discovered the subterfuge. On August 17, 1992, Met-Al filed for protection under Chapter 11 of the Bankruptcy Code. On the same day, it moved to enjoin defendant Hansen Storage Company (“Hansen”) from releasing aluminum ingots stored in its warehouse to MBI, which was allegedly the owner of those ingots. *996 The bankruptcy court granted the injunction, and many of Met-Al’s creditors have subsequently asserted claims against the aluminum.

On October 20, 1992, MBI’s creditors filed a petition for involuntary bankruptcy against MBI, and the bankruptcy court entered its order for relief on November 13, 1992. 1 In the meantime, Met-Al had filed an amended complaint against Hansen and defendant Distribution Express, Inc. (“DEI”) 2 for the conversion of 201 truckloads of aluminum ingots. Specifically, the complaint alleged that Met-Al’s ingots were shipped under bills of lading naming Emerson Electric or General Electric as cosignee. However, the complaint continued, the aluminum was diverted to MBI through the unauthorized actions of Hansen and DEI.

Hansen and DEI answered the amended complaint and raised affirmative defenses. The bankruptcy court conducted hearings on the complaint and on March 3, 1993, and set the matter for trial on June 24, 1993. At approximately the same time, Met-Al moved for summary judgment pursuant to the Federal Bill of Lading Act (“FBLA”). Hansen and DEI both responded, but neither defendant raised any issues relevant to the bankruptcy court’s jurisdiction. On April 29, 1993, Met-Al filed a second amended complaint which stated the same facts alleged in the earlier complaints, but pleaded its cause of action under the FBLA with respect to its lawsuit against DEL The claim against Hansen was still based upon common law and Wisconsin’s Uniform Commercial Code. This complaint was served on opposing counsel on or about May 6, 1993.

On May 11, 1993, DEI and the trustee for MBI filed the instant motion in district court. Hansen joined in this motion on May 14, 1993. The defendants argue that Met-Al’s claim against DEI is governed exclusively by the FBLA and that the claims against Hansen arise under the Wisconsin Uniform Commercial Code and common law theories of negligence and conversion. Because these are all claims that are independent of bankruptcy law, the defendants submit that district court, not bankruptcy court, is the proper forum in which to resolve these disputes. In addition, the defendants have requested a jury trial, to which they claim they are entitled under the Seventh Amendment of the United States Constitution. 3

II. LEGAL FRAMEWORK

In 1982, the Supreme Court recognized that Congress had erroneously assigned certain non-delegable judicial functions of Article III courts to Article I bankruptcy courts. Northern Pipeline Construction Corp. v. Marathon Pipeline Co., 458 U.S. 50, 102 S.Ct. 2858, 73 L.Ed.2d 598 (1982). To correct the unconstitutionality of the current law, Congress amended the Bankruptcy Act in 1984 and provided district courts with original jurisdiction over all bankruptcy matters. See 28 U.S.C. § 1334(b). Once a bankruptcy proceeding is filed, the district court will automatically refer it to the bankruptcy court pursuant to 28 U.S.C. § 157(a). However, the court is permitted by 28 U.S.C. § 157(d) to withdraw its reference to bankruptcy court if the matter involves law that should or must be adjudicated by an Article III judge.

Section 157(d) provides that:

[t]he district court may withdraw, in whole or in part, any case or proceeding referred under this section, on its own motion or on timely motion of any party, for cause shown. The district court shall, on timely motion of a party, so withdraw a proceeding if the court deter *997 mines that resolution of the proceeding requires consideration of both title 11 and other laws of the United States regulating organizations or activities affecting interstate commerce.

In other words, a district court is permitted to withdraw its reference “for cause shown,” but must withdraw its reference if it will have to consider both bankruptcy law and other federal law in order to resolve a proceeding.

In deciphering the somewhat ambiguous provisions of the “mandatory withdrawal” section of § 157(d), many courts have found the legislative history instructive. See e.g., In re Contemporary Lithographers, Inc., 127 B.R. 122 (M.D.N.C.1991); In re American Solar King Corp., 92 B.R. 207 (W.D.Tex.1988); In re Baker, 86 B.R. 234 (D.Colo.1988). Several Senators indicated that the provision concerning mandatory withdrawal should be construed very narrowly, and the district courts should exercise their powers “only if [they] determine[ ] that ... other laws regulating organizations or activities affecting interstate commerce are in fact likely to be considered.” 130 Cong.Rec. § 6081 (daily ed. June 19, 1984). Section 157(d) was not intended to provide an “escape hatch” which parties would use to remove cases to district court; rather, it was intended only to apply to cases related to bankruptcy which involved application of federal laws such as the National Labor Relations Act, civil rights laws, and the Securities and Exchange Act of 1934. Id. at 1849-50 (daily ed. March 21, 1984). However, where the non-title 11 laws were not material to the resolution of the proceedings, the bankruptcy court was meant to retain its jurisdiction. Id. at 6081 (daily ed. June 19, 1984).

Although most courts have read the legislative intent into § 157(d)’s application, see e.g., In re White Motor Car Corp., 42 B.R. 693 (N.D.Ohio 1984), others choose to interpret it literally, which results in a withdrawal of reference every time a federal non-bankruptcy issue is implicated. In re Anthony Tammaro, Inc., 56 B.R. 999 (D.N.J.1986).

Free access — add to your briefcase to read the full text and ask questions with AI

Related

Cite This Page — Counsel Stack

Bluebook (online)
157 B.R. 993, 1993 U.S. Dist. LEXIS 11831, 1993 WL 325778, Counsel Stack Legal Research, https://law.counselstack.com/opinion/met-al-inc-v-hansen-storage-co-wied-1993.