United States Gypsum Co. v. National Gypsum Co. (In Re National Gypsum Co.)

145 B.R. 539, 1992 U.S. Dist. LEXIS 14155, 23 Bankr. Ct. Dec. (CRR) 295, 1992 WL 233633
CourtDistrict Court, N.D. Texas
DecidedJuly 10, 1992
DocketBankruptcy No. 390-37213-SAF-11, Civ. A. No. 3:91-CV-2437-G
StatusPublished
Cited by17 cases

This text of 145 B.R. 539 (United States Gypsum Co. v. National Gypsum Co. (In Re National Gypsum Co.)) is published on Counsel Stack Legal Research, covering District Court, N.D. Texas primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
United States Gypsum Co. v. National Gypsum Co. (In Re National Gypsum Co.), 145 B.R. 539, 1992 U.S. Dist. LEXIS 14155, 23 Bankr. Ct. Dec. (CRR) 295, 1992 WL 233633 (N.D. Tex. 1992).

Opinion

*540 MEMORANDUM ORDER

FISH, District Judge.

Before the court is the motion of United States Gypsum Company (“U.S. Gypsum”) to withdraw the order referring to the bankruptcy court its proof of claim and related filings in this case. For the reasons stated below, the motion is granted.

I. BACKGROUND

On November 12, 1991, U.S. Gypsum moved, pursuant to 28 U.S.C. § 157(d), for withdrawal of the order of reference of its Proof of Claim, filed March 15, 1991, its amended Proof of Claim, filed June 26, 1991, and the objection of the debtor National Gypsum Company (“National Gypsum”) to U.S. Gypsum’s claim, filed October 10, 1991, all of which are currently before the United States Bankruptcy Court for the Northern District of Texas, Dallas Division. U.S. Gypsum’s claims arise out of a patent infringement suit, United States Gypsum v. National Gypsum Company, Civil Action No. 89C7533, in the United States District Court for the Northern District of Illinois, Eastern Division. In that suit, U.S. Gypsum alleges, among other things, that National Gypsum infringed two patents U.S. Gypsum holds for a lightweight joint compound. In response, National Gypsum raises the defenses of best mode and prior art to the validity of U.S. Gypsum’s patents and an antitrust defense to the enforceability of those patents. On September 21, 1990, National Gypsum filed a motion for summary judgment, asserting that the patents are either invalid or unenforceable. The automatic stay has prevented further prosecution of the patent infringement suit.

II. LEGAL STANDARDS 1

Withdrawal of an order of reference to the bankruptcy court is permitted by 28 U.S.C. § 157(d):

The 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 determines 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.

(emphasis added). In creating a distinction between circumstances where the district court “may” and “shall” act, Congress has provided for both permissive and mandatory withdrawal of reference. The legislative history of the statute, as well as its clear and unambiguous language, indicate that “shall” is mandatory language, and should not be construed as the permissive “may.” See In re Combustion Equipment Associates, Inc., 67 B.R. 709, 711 (S.D.N.Y.1986), aff'd, 838 F.2d 35 (2d Cir.1988).

Section 157(d) serves a dual and interrelated purpose. It serves to insulate the 1984 bankruptcy legislation from constitutional attack, while according separate treatment to certain types of adversary proceedings. See In re Combustion, above, 67 B.R. at 711; 1 COLLIER ON BANKRUPTCY ¶ 3.01 (15th ed. 1992) at 3-63. In 1984, Congress amended the 1978 Bankruptcy Act in response to the Supreme Court’s decision in Northern Pipeline Construction Co. v. Marathon Pipe Line Co., 458 U.S. 50, 102 S.Ct. 2858, 73 L.Ed.2d 598 (1982). Constitutional concerns surrounding the grant of encompassing jurisdiction to non-Article III judges crystallized in Marathon, where the court concluded that:

[Section] 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’ *541 power to create adjuncts to Art. Ill courts.

Id. at 87, 102 S.Ct. at 2880.

Judicial derivation of the type of cases that warrant mandatory withdrawal, while informed by the dictates of Marathon, has also attempted to serve the purposes underlying Congress’ creation of bankruptcy courts. Bankruptcy courts provide the expertise and efficiency intended by Congress in adjudication of bankruptcy matters, and, as a result, withdrawal cannot be based on “speculation about ... issues which may or may not arise and may or may not be germane to resolution of ... [the] proceedings.” In re White Motor Corporation, 42 B.R. 693, 705 (N.D.Ohio 1984). To allow withdrawal upon mere speculation would create an “escape hatch through which most bankruptcy matters [could] be removed to a district court.” See In re Chateaugay Corporation, 86 B.R. 33, 36 (S.D.N.Y.1987) (quoting remarks of Rep. Kramer, 130 Cong.Rec. H1850 (daily ed. March 21, 1984)).

As a result, courts have generally held that a mandatory withdrawal of reference is warranted where “substantial and material consideration” of federal statutes other than the Bankruptcy Code is “necessary” to the resolution of a case or proceeding. See In re Johns-Manville Corporation, 63 B.R. 600, 602 (S.D.N.Y.1986); In re Combustion, 67 B.R. at 711; In re White Motor, 42 B.R. at 703, 705; 1 COLLIER, ¶ 3.01 at 3-69. Before withdrawing the reference, the district court must make an “affirmative determination” that the relevant non-code legal issues will require substantial and material consideration, and the court must be satisfied that consideration of these federal laws requires “significant interpretation” on the part of the court. In re Johns-Manville Corp., 63 B.R. at 602. Withdrawal of reference is not warranted, however, where it is a question of “straightforward application of a federal statute to a particular set of facts.” Id. A party making a motion for mandatory withdrawal must therefore

establish that the proceeding involves a “substantial and material” question of both Title 11 and non-Bankruptcy Code federal law and that the non-Code federal law has more than a de minimis effect on interstate commerce.

Sibarium v. NCNB Texas National Bank, 107 B.R. 108, 111 (N.D.Tex.1989).

III. ANALYSIS

This court must first consider whether the mandatory withdrawal provision of 28 U.S.C. § 157(d) can apply at all to claims under the patent laws. If it can, the court must then consider (a) whether this adversary proceeding involves a substantial and material question of both Title 11 and non-Bankruptcy Code federal law; (b) whether the non-Code federal law has more than a de minimis effect on interstate commerce; and (c) whether the motion for mandatory withdrawal was timely.

A.

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145 B.R. 539, 1992 U.S. Dist. LEXIS 14155, 23 Bankr. Ct. Dec. (CRR) 295, 1992 WL 233633, Counsel Stack Legal Research, https://law.counselstack.com/opinion/united-states-gypsum-co-v-national-gypsum-co-in-re-national-gypsum-co-txnd-1992.