Still v. First Bank of Newton (In Re Jorges Carpet Mills, Inc.)

27 B.R. 333, 1983 Bankr. LEXIS 6926, 10 Bankr. Ct. Dec. (CRR) 1
CourtUnited States Bankruptcy Court, E.D. Tennessee
DecidedJanuary 31, 1983
DocketBankruptcy No. 1-80-02516, Adv. No. 1-82-0638
StatusPublished
Cited by14 cases

This text of 27 B.R. 333 (Still v. First Bank of Newton (In Re Jorges Carpet Mills, Inc.)) is published on Counsel Stack Legal Research, covering United States Bankruptcy Court, E.D. Tennessee primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Still v. First Bank of Newton (In Re Jorges Carpet Mills, Inc.), 27 B.R. 333, 1983 Bankr. LEXIS 6926, 10 Bankr. Ct. Dec. (CRR) 1 (Tenn. 1983).

Opinion

RALPH H. KELLEY, Bankruptcy Judge.

The trustee in bankruptcy for Jorges Carpet Mills brought this suit against, among others, the First Bank of Newton, Kansas, to recover from it a preferential or fraudulent transfer in the amount of $400,000.

The bank has filed a motion to dismiss or stay this proceeding or at least to transfer it to the bankruptcy court in Kansas. The bank has made several arguments in support of its motion. More than one of the arguments focuses on the jurisdictional problem resulting from the Supreme Court’s decision in Northern Pipeline Construction Company v. Marathon Pipe Line Company, - U.S. -, 102 S.Ct. 2858, 73 L.Ed.2d 598, 9 B.C.D. 67, 6 C.B.C.2d 785 (1982).

As a practical matter, it would be unwise for the court to address the bank’s other contentions while jurisdiction is still in doubt. Any decision on the other issues might be void for lack of jurisdiction.

In the Northern case, the Supreme Court ruled that the bankruptcy courts could not exercise the subject matter jurisdiction given them by 28 U.S.C. § 1471, which was enacted as part of the Bankruptcy Reform Act of 1978. Pub.L. No. 95-598, § 241(a) & §§ 404(a) & 405(b). The Supreme Court’s ruling applied to all the jurisdiction of the bankruptcy courts under § 241(a) of the 1978 Act. 1

If the ruling had taken effect immediately, severe problems were likely to result. The Supreme Court concluded that the best way to deal with the problems that might arise was to delay the effect of its ruling so that Congress would have an opportunity to pass curative legislation. The Supreme Court eventually allowed Congress about six months, but Congress failed to act within that time. The Supreme Court refused to delay the effect of its ruling past December 24, 1982. Thus, on December 25, 1982, the bankruptcy courts apparently ceased to have any jurisdiction in cases under the 1978 Act.

The United States Court of Appeals for the Sixth Judicial Circuit and the United States District Court for this district attempted to avoid a complete collapse by •enacting an emergency rule that became effective on December 25, 1982. Appendix A. The emergency rule in effect assumes *335 that the district court has the bankruptcy jurisdiction under 28 U.S.C. § 1471 and appoints the bankruptcy judges special masters or “referees” to exercise that jurisdiction, subject to some supervision by the district court.

This court can exercise jurisdiction in this proceeding only if (1) the Supreme Court’s ruling in the Northern case does not apply even though the ruling has become effective or (2) the emergency rule validly confers jurisdiction.

(1)

The ruling in Northern became effective on December 25, 1982. On that day it became the law of the United States that the bankruptcy courts as bankruptcy courts do not have jurisdiction to do anything in a case pending under the 1978 Act. The argument that the ruling in Northern applies only to cases filed after December 24, 1982, is unconvincing. But see Walter E. Heller & Co. v. Matlock Trailer Corp., 27 B.R. 318 (Bkrtcy.M.D.Tenn.1983). (In re Matlock Trailer Corp., Bkrtcy.M.D.Tenn., 27 B.R. 318).

Most appellate court decisions are necessarily prospective only. However, when a decision strikes down a lower court’s jurisdiction, the problem is whether the lack of jurisdiction should affect all orders previously entered by the lower court, since an order entered without subject matter jurisdiction is generally said to be void. 20 Am.Jur.2d, Courts § 97 (1965). In the Northern case, the Supreme Court said that its decision would be prospective only. In other words, the court held that its decision would not affect orders that were already final.

Having concluded that the broad grant of jurisdiction to the bankruptcy courts contained in § 241(a) is unconstitutional, we must now determine whether our holding should be applied retroactively to the effective date of the Act. Our decision in Chevron Oil Co. v. Huson [404 U.S. 97, 92 S.Ct. 349, 30 L.Ed.2d 296] [citation omitted], sets forth three considerations recognized by our precedents as properly bearing upon the issue of retroactivity.... In the present case, all of these considerations militate against retroactive application of our holding today.... We hold, therefore, that our decision today shall apply only prospectively. 102 S.Ct. 2880 (emphasis added).

The effect of the Supreme Court’s delay of the effective date of its order in Northern was essentially the same as if it did not decide the case until its order became effective. Bankruptcy court orders that became final between the date of the Northern decision and the date it took effect were not affected by the lack of jurisdiction because the Northern order did not apply retroactively. Cf. United States v. Security Industrial Bank, - U.S. -, 103 S.Ct. 407, 410, 74 L.Ed.2d 235, note 5 (1982). 2

Nothing in Northern reasonably leads to the conclusion that it affects jurisdiction only in cases and proceedings filed after it took effect. The Supreme Court delayed the effect of Northern to preserve jurisdiction not just for cases and proceedings not yet filed but also for cases and proceedings already pending.

The judgment of the District Court is affirmed. However, we stay our judgment until October 4, 1982. This limited stay will afford Congress an opportunity to reconstitute the bankruptcy courts or to adopt other valid means of adjudication, without impairing the interim administration of the bankruptcy laws .... 102 S.Ct. 2880 (emphasis added).

Furthermore, the cases cited by the Supreme Court dealt with the effect of a decision like Northern on orders that were final or actions that were taken without challenge before the decision. 102 S.Ct. *336 2880, note 9, citing Insurance Corp. v. Compagnie des Bauxites, - U.S. -, 102 S.Ct. 2099, 2104, note 9, 72 L.Ed.2d 492 (1982); Buckley v. Valeo, 424 U.S. 1, 142, 98 S.Ct. 612, 692, 46 L.Ed.2d 659 (1976); Chicot County Drainage District v. Baxter State Bank, 308 U.S. 371, 376-371, 60 S.Ct. 317, 319-320, 84 L.Ed. 329 (1940).

The Supreme Court was obviously concerned with protecting orders that were already final and with temporarily continuing the bankruptcy court’s jurisdiction to enter orders.

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27 B.R. 333, 1983 Bankr. LEXIS 6926, 10 Bankr. Ct. Dec. (CRR) 1, Counsel Stack Legal Research, https://law.counselstack.com/opinion/still-v-first-bank-of-newton-in-re-jorges-carpet-mills-inc-tneb-1983.