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. e du/thir dc ir c uit_1999/2Filed January 6, 1999

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

NO. 98-5093

IRWIN HALPER,

Appellant

v.

BARRY HALPER

On Appeal From the United States District Court For the District of New Jersey (D.C. Civil Action No. 97-cv-02616) District Judge: Honorable Garrett E. Brown, Jr.

Argued October 26, 1998

BEFORE: STAPLETON, LEWIS and MAGILL,*

Circuit Judges

(Opinion Filed January 6, 1999)

Colin M. Danzis Dennis J. Drasco (Argued) Donald B. Frazer, Jr. Lum, Danzis, Drasco, Positan & Kleinberg, LLC 103 Eisenhower Parkway Roseland, NJ 07068-1049

Attorneys for Appellant

___________________________________________________ ______________

*Honorable Frank J. Magill, Senior United States Ci rcuit Judge for the Eighth Circuit, sitting by designation.William S. Katchen (Argued)

Tina Niehold Moss Amy R. Bitterman

Lowenstein Sandler PC 65 Livingston Avenue Roseland, NJ 07068

Attorneys for Appellee

OPINION OF THE COURT

STAPLETON, Circuit Judge:

Irwin Halper appeals the District Court's order aff irming the Bankruptcy Court's order determining that a Gua ranty in favor of Irwin was void as against public policy because it was part of an illegal stock redemption and a fr audulent conveyance under New Jersey and federal bankruptcy law. We conclude that the District Court erroneously app lied New Jersey's contract principles in the course offi nding this to be a stock redemption. We further conclude that the Bankruptcy Court lacked core proceeding jurisdictio n to enter a final judgment regarding the Guaranty's enforceability.

I. FACTUAL AND PROCEDURAL BACKGROUND

Irwin Halper and his three cousins, Barry, Jeffrey and Robert, were the sole owners of Halper Bros. Inc. ( "HBI"), a New Jersey corporation that distributed wholesale p aper and janitorial supplies. Each cousin owned 25% of H BI's stock and participated in HBI's management and oper ation. In the spring of 1990, each shareholder contributed $300,000 to HBI's Employee Stock Ownership Plan ("ESOP"). In 1989 and into 1990, HBI began to suffe r financial difficulty. Barry, interested in restruct uring to continue running HBI on his own, began negotiating a buyout of his cousins' stock. On February 13, 1991, the cousins entered an agreement ("February Agreement") whereby Barry agreed to purchase personally each of his cousins' 25% HBI stock holdings for $300,000 apiece with $25,000 down. Barry paid Irwin's $25,000 down payme nt

2by personal check. The February Agreement was not

consummated, however, because Citibank, a creditor of HBI's, refused to approve the buyout.

Further buyout negotiations ensued in which Barry suggested that the transaction be structured as a s tock redemption by HBI. The three selling cousins, howev er, rejected the redemption format because they were concerned that HBI's insolvency would render it an illegal redemption and a fraudulent transfer under New Jers ey law. Instead, Irwin and the other selling cousins i nsisted that the buyout take place either (i) through a per sonal purchase by Barry, or (ii) by an entity formed by B arry.1 Barry's accountants and lawyers, on the other hand, advised Barry that if the transaction included an employment agreement for each of the cousins giving up his stock, the compensation provided for his servic es would provide HBI with a significant tax deduction. This raised further concerns for the selling cousins who feared that HBI's financial condition might prevent it from hon oring an employment arrangement.

The parties reached a compromise, which they memorialized in four agreements on September 5, 199 1 ("September Transaction"): (i) Letter Agreement, (i i) Employment Agreement, (iii) Guaranty and Indemnity Agreement, and (iv) Voting Trust Agreement. (Pa. 52 7-89). There were three parties to each set of documents: (i) the selling cousin involved, (ii) Barry Halper, and (ii i) HBI represented by Barry Halper as President. This appe al involves only the rights of the parties to the agre ements executed by Irwin Halper.

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1. An August 2, 1991 letter from the law firm repre senting Irwin, Robert and Jeffrey illustrates their position:

The possibility of insolvency involved litig ation as to the redemption of our client's stock by [HBI] strongly argu es in favor of a direct purchase by Barry or an entity created and f unded by him for such purpose. . . . [A]ll [HBI] stock owned by [I rwin, Jeffrey and
Robert] must be purchased and all of the purchase pr ice paid either by Barry Halper or an entity controlled by him, and not[HBI].

(Pa. 524).

3The Agreements are integrated. This is evident from (i) the Letter Agreement's summary of the transaction a nd description of the other three documents' significa nce, and (ii) the other three documents' numerous cross refe rences to one another. The Employment Agreement provides, inter alia, that HBI would pay Irwin a $300,000 signing b onus less the $25,000 he received in connection with the failed February Agreement, with the remaining $275,000 to be paid in 12 equal monthly installments commencing January 31, 1992.2 The Guaranty and Indemnity Agreement ("Guaranty") provided that Barry personal ly guaranteed HBI's payment of Irwin's signing bonus; Barry and Irwin signed it in their individual capacities. The Guaranty accommodated the selling cousins' concerns that HBI's financial troubles might prevent it from hono ring its signing bonus obligation. The Voting Trust Agreemen t provided that Irwin's HBI shares would be immediate ly transferred to a voting trust with Barry as trustee , giving Barry the irrevocable right to vote Irwin's shares. Finally, Paragraph 9 of the Letter Agreement provided that I rwin granted a three year irrevocable option to purchase his HBI stock for $1.00 consideration to (i) Barry personal ly, (ii) an entity created by Barry for the purchase, or (iii) HBI.

The parties agree that the September Transaction's objective was to vest Barry with total ownership an d control of HBI. Indeed, the September Transaction gave Barr y absolute control over HBI on September 5, 1991, as trustee under the Voting Trust. The only thing left to comp lete the buyout was for Barry to decide how to exercise the option to transfer beneficial ownership of the shares.

That decision was made in January, 1992, when Barry 's attorney, Mr. Gladstone, advised him that he should exercise the Paragraph 9 option. On January 15, 199 2, Gladstone's firm drafted a letter which Barry signe d ("Purchase Letter") stating:

Pursuant to paragraph 9 of the Letter Agree ment you are hereby notified that I elect to exercise my option to acquire all of the shares of stock in [HBI] which are

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2. The Employment Agreement also provided that Irwi n would continue as a HBI salesman and granted him a car, insurance and other benefits.

4held by the Voting Trustee pursuant to the V oting

Trust Agreement.

I hereby request that the Voting Trustee ta ke immediate steps in order to effectuate the t ransfer of

said shares of stock to me.

(Pa. 526). Barry signed the letter in his personal capacity,

not as HBI's President.

On January 17, 1992, two days after Barry exercised the option, HBI's creditors filed an involuntary bankru ptcy petition. Not surprisingly, HBI did not honor its s igning bonus obligations under the Employment Agreement, a nd Irwin resorted to his rights under the Guaranty. Af ter several unsuccessful demands for payment from Barry
, Irwin instituted an action in New Jersey Superior C ourt to enforce the Guaranty on January 24, 1993. Two days earlier, on January 22, 1993, Barry had filed a com plaint in Bankruptcy Court. Barry's complaint provides in pertinent part:

Barry seeks a declaration from this Court (1 ) that the underlying obligation from HBI to Irwin is v oid as a redemption by a corporation while insolvent, and a further declaration that Barry's personal gu aranty does not extend to this void agreement and (2) th at the obligation arising out of the "signing bonus " is void as

a fraudulent transfer.

* * *

WHEREFORE, plaintiff Barry Halper demands judgment against Irwin Halper as follows:

(a) declaring that the signing bonus to be paid by [HBI] to Irwin Halper is void as (1) a redem ption made by an insolvent corporation; and (2) that th e obligation is a fraudulent transfer under Bankruptcy Co de S 548(a)(2)

(b) declaring that Barry Halper's obligatio n to Irwin Halper does not include the void redemption or fraudulent transfer by [HBI] . . . .

(Pa. 1243-44). Alternatively, Barry sought a declar atory judgment that (i) if the signing bonus is a valid o bligation

5of HBI, then HBI's obligation thereunder is limited to

$75,000 under Bankruptcy Code S 502(b)(7); and (ii) that Barry's liability under the Guaranty should similar ly be limited to $75,000.3

Barry successfully removed Irwin's state court acti on to the Bankruptcy Court, and the actions were consolid ated for trial over Irwin's objection that the Bankruptc y Court lacked jurisdiction over his suit. Four years later , on February 21, 1997, the Bankruptcy Court rendered judgment in favor of Barry declaring the Guaranty unenforceable as against New Jersey's public policy because it was part of an illegal stock redemption under New Jersey law and constituted a fraudulent transfe r under New Jersey and federal bankruptcy law. Irwin appeal ed the Bankruptcy Court's order to the District Court, whi ch affirmed.4 Irwin now appeals the District Court's o rder affirming the Bankruptcy Court's judgment.

We exercise plenary review over the decision of a D istrict Court sitting as an appellate court in a bankruptcy proceeding. See In re Swedeland Dev. Group, Inc., 1 6 F.3d 552, 559 (3d Cir. 1994). In turn, this court review s the Bankruptcy Court's findings of fact under the clear ly

erroneous standard and conclusions of law under a d e novo standard. See In re Sharon Steel Corp., 871 F.2d 12 17, 1222-23 (3d Cir. 1989).

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3. Bankruptcy Code S 502(b)(7) limits employee clai ms for damages arising from the debtor's termination of an employm ent contract.

4. The Bankruptcy Court's judgment order grants Bar ry's request for declaratory judgment stating:

1) The transaction memorialized in the serie s of agreements entered into by and between the parties on September 5, 1991 constitutes an (i) illegal stock redemption by the Debto r while insolvent and (ii) a fraudulent conveyance pursuant to 11 U.S.C . S 548 and N.J.S.A. 25:2-20, et seq.; and

2) The Guaranty is void and unenforceable; a nd

3) Judgment is hereby entered in favor of Ba rry Halper, and against Irwin Halper, in the above captioned matters

.

(Pa. 35). The District Court's order simply states that it affirms. (Pa. 21).

6II. JURISDICTION

The Bankruptcy and District Courts determined that the Bankruptcy Court had core proceeding jurisdiction u nder 28 U.S.C. S 157(b) giving it the power to issue fin al judgment on all claims in this action. Irwin challe nges this determination, claiming that the Bankruptcy Court e ntirely lacked jurisdiction to entertain the claims between Barry and himself. He objects on the grounds that HBI was not a party and that, in his view, the adjudication of th eir disputes could not affect HBI's creditors. He concl udes that this entire proceeding is therefore not "related to " the bankruptcy as required to support non-core jurisdic tion under 28 U.S.C. S 157(c).

We conclude that the Bankruptcy Court had jurisdict ion over all claims asserted in the Bankruptcy Court, b ut that the character of its jurisdiction varied among the claims. We find that the Bankruptcy Court had only non-core jurisdiction over the Guaranty claims and that, as a result, it lacked the power to issue a final judgment on th at matter. Accordingly, we will reverse the District C ourt's judgment affirming the exercise of core jurisdictio n over the Guaranty claims.

Bankruptcy Court jurisdiction has been the subject of heated controversy in recent decades. See In re Gui ld & Gallery Plus, Inc., 72 F.3d 1171, 1176-79 (3d Cir. 1996)(discussing Bankruptcy Courts' history); Phar- Mor, Inc. v. Coopers & Lybrand, 22 F.3d 1228, 1234-35 (3 d Cir. 1994)(same). In 1978, Congress attempted to central ize bankruptcy jurisdiction by granting District and Bankruptcy Courts expanded jurisdiction over cases arising under title 11. In re Guild, 72 F.3d at 1177 (quoti ng Thomas S. Marion, Core Proceedings and "New" Bankru ptcy Jurisdiction, 35 DePaul L. Rev. 675, 678 (1986)). U nder this scheme, Article I bankruptcy judges possessed full power to adjudicate not only cases arising directly under ti tle 11, but also a wide range of other claims merely "related t o" the title 11 proceedings. Id. In Northern Pipeline Cons t. Co. v. Marathon Pipeline Co., 458 U.S. 50 (1982), however, the Supreme Court held the 1978 jurisdictional reform unconstitutional because its grant of judicial powe r to Article I Bankruptcy Courts violated the separation of

7powers doctrine by undermining Article III's establ ishment

of an independent judiciary. Id. at 84-85.

In Marathon, the debtor had filed a chapter 11 peti tion in Bankruptcy Court and subsequently initiated an adve rsary proceeding against Marathon for various pre-petitio n violations of state law including breach of contrac t. The parties to the adversary proceeding were not divers e, and the dispute involved pure questions of state law pr esenting no federal question. The only basis for federal jur isdiction was the fact that one party was a chapter 11 debtor in bankruptcy. Id. at 90. Distinguishing "the restruct uring of debtor-creditor relations, which is at the core of the federal bankruptcy power . . . from the adjudication of sta tecreated private rights, such as the right to recove r damages that is at issue in this case," Justice Brennan con cluded

that the statute violated Article III because it unconstitutionally vested "all `essential attribute s' of the judicial power of the United States in the `adjunct ' [Article I] bankruptcy courts." Id. at 71, 84-85 (emphasis a dded).

In 1984, Congress responded to Marathon and established the current bankruptcy jurisdiction reg ime

codified at 28 U.S.C. S 1334 and 28 U.S.C. S 157. S ection 1334 vests broad primary jurisdiction over bankrupt cy proceedings in the District Courts.5 District Court s may, however, refer bankruptcy matters falling within th eir jurisdiction to the Bankruptcy Courts under 28 U.S. C. S 157(a). District Courts have exercised this power by "routinely refer[ing] most bankruptcy cases to the bankruptcy court[s]." In re Guild, 72 F.3d at 1175.

Upon referral, "[s]ection 157 provides the bankrupt cy

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5. Section 1334 of title 28 states in pertinent par t:

(a) Except as provided in subsection (b) of this section, the

district court shall have original and exclusive juri sdiction of all cases

under

title 11.

(b) Notwithstanding any Act of Congress that confers exclusive jurisdiction on a court or courts other than the district courts,

the district courts shall have original but not exclusive jurisdiction

of all civil proceedings arising under title 11, or arising in or related

to

cases under title 11.8court with two levels of judicial power, depending upon the

type of proceeding before it." In re Marcus Hook, 9 43 F.2d 261, 266 (3d Cir. 1991). First, in "core" proceedin gs, the Bankruptcy Court assumes the role of a court of fir st instance with comprehensive power to hear, decide a nd enter final orders and judgments. See 28 U.S.C. S 1 57(b)(1). Appellate review of the Bankruptcy Court's judgment is available initially in the District Court and then in the Court of Appeals. See 28 U.S.C. S 158. Second, in " noncore" proceedings, the Bankruptcy Court's adjudicat ory power is limited to hearing the dispute and submitt ing "proposed findings of facts and conclusions of law to the district court." Id. S 157(c)(1). 6 The District Co urt, after considering the Bankruptcy Court's proposed finding s and conducting a de novo review of any matter objected to therein, enters final orders and judgments in "non- core" proceedings. See id. at S 157(c)(1). Section 157's distinction between "core" and "non-core" proceedings mirrors J ustice Brennan's distinction in Marathon, and the jurisdic tional variance between the two types of proceedings was i ntended "to satisfy the concerns of Marathon." Phar-Mor, 22 F.3d at 1234; see In re Wood, 825 F.2d 90, 96 (5th Cir. 1987)(discussing congruence between Marathon and S 157's jurisdictional regime).

Thus, a proceeding's core or non-core nature is cru cial in bankruptcy cases because it defines both the extent of the Bankruptcy Court's jurisdiction, and the standard b y which the District Court reviews its factual findings. To determine whether a proceeding is a "core" proceeding, courts of this Circuit must consult two sources. First, a court mu st consult S 157(b). Although S 157(b) does not precis ely define "core" proceedings, it nonetheless provides an illu strative list of proceedings that may be considered "core." See id. S 157(b)(2)(A)-(O). Second, the court must apply th is court's test for a "core" proceeding. Under that test, " `a proceeding is core [1] if it invokes a substantive right provi ded by title 11 or [2] if it is a proceeding, that by its nature , could arise

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6. The District Court may, upon consent of the part ies, expand the Bankruptcy Court's power to adjudicate "non-core" p roceedings to include the power to issue final orders and judgmen ts. 28 U.S.C. S 157(c)(2).

9only in the context of a bankruptcy case.' " In re Guild &

Gallery Plus, Inc., 72 F.3d 1171, 1178 (3d Cir. 1996)(quoting Marcus Hook, 943 F.2d at 267); see In re: Continental Airlines, 125 F.3d 120, 131 (3d Cir. 19 97); cf. Beard v. Braunstein, 914 F.2d 434, 444 (3d Cir. 199 0). This Court and other courts of appeals have relied on th is test to ensure that S 157(b) "core" proceeding jurisdict ion is

exercised in a manner consistent with Marathon.7

Non-core proceedings include the broader universe o f all proceedings that are not core proceedings but are nevertheless "related to" a bankruptcy case. See 28 U.S.C. S 157(c)(1). "[T]he test for determining whether a civil proceeding is related to bankruptcy is whether the outcome of that proceeding could conceivably have any effec t on the estate being administered in bankruptcy." Pacor v. Higgins, 743 F.2d 984, 994 (3d Cir. 1984) (emphasis omitted) ; see In re Guild, 72 F.3d at 1180-81.8 "[T]he proceeding ne ed not

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7. See, e.g., Sanders Confectionary Prod's v. Helle r Fin., 973 F.2d 474, 483 (6th Cir. 1992)("A core proceeding either invok es a substantive right created by federal bankruptcy law or [is] one which could not exist outside of the bankruptcy."); In re United States B rass Corp., 110 F.3d 1261, 1268 (7th Cir. 1997)("Core proceedings are ac tions by or against the debtor that arise under the Bankruptcy Code in the strong sense

that the Code itself is the source of the claimant' s right or remedy . . . "); Specialty Mills, Inc. v. Citizens State Bank, 51 F. 3d 770, 773 (8th Cir. 1995)("Core proceedings under 28 U.S.C. S 157 are t hose which arise only in bankruptcy or involve a right created by fe deral bankruptcy law."); Security Farms v. International Brh'd of Te amsters, Chauffeurs, Wharehouseman & Helpers, 124 F.3d 999, 1008 (9th Ci r. 1997) ("Actions that do not depend on bankruptcy laws for their exi stence and that could proceed in another court are considered `non- core.' "); In re Gardner, 913 F.2d 1515, 1518 (10th Cir. 1990)("Acti ons which do not depend on the bankruptcy laws for their existence a nd which could proceed in another court are not core proceedings." ).

8. The Supreme Court has effectively overruled Paco r with respect to its holding that the prohibition against review of a re mand order in 28 U.S.C. S1447(d) does not apply to a bankruptcy case . See Things Remembered Inc. v. Petrarca, 116 S.Ct. 494 (1995). The Supreme Court's ruling, however, did not disturb Pacor's holding re garding what constitutes a non-core proceeding. See Donaldson v. Bernstein, 104 F.3d 547, 554 n.1 (3d Cir. 1997). In fact, the Pacor non -core test has been widely followed by our sister circuits.

10necessarily be against the debtor or against the de btor's

property." In re Guild, 72 F.3d at 1180-81. " `A ke y word in [this test] is conceivable. Certainty, or even like lihood, is not a requirement. Bankruptcy jurisdiction will exi st so long as it is possible that a proceeding may impact on the debtor's rights, liabilities, options, or freedom o f action or the handling and administration of the bankrupt est ate.' " Id. at 1181 (quoting In re Marcus Hook, 943 F.2d at 264) (emphasis omitted).

Barry and Irwin's consolidated action presented the Bankruptcy Court with five claims:

1. Barry sought a declaratory judgment that HBI's signing bonus is unenforceable because it wa s (a) part of an illegal stock redemption under N.J.S.A . 14A:7- 14.1; (b) a fraudulent transfer under N.J.S. A. 25:2-20 et seq.; and (c) a fraudulent transfer under 11 U.S.C.

S 548.

2. Barry sought a declaratory judgment that his personal Guaranty of the signing bonus is unenforceable because HBI's underlying oblig ation was

void.

3. Conversely, Irwin sought a coercive judgm ent enforcing Barry's personal Guaranty.

4. Barry sought a declaratory judgment that, if th e signing bonus is enforceable, then HBI's obl igation is limited to $75,000 under 11 U.S.C. S 502(b)( 7).

5. Barry sought a declaratory judgment that his liability under the Guaranty should be coext ensive with HBI's underlying signing bonus obligation as limited by S 502(b)(7).

To determine the extent of the Bankruptcy Court's jurisdiction in this case we must examine each of t he five claims presented to ascertain if it is core, non-co re, or wholly unrelated to a bankruptcy case. Barry's firs t claim, that HBI's signing bonus obligation is void as part of an illegal stock redemption or fraudulent conveyance, is a core matter that the Bankruptcy Court was empowered to resolve by a final judgment. This claim appears tof it within two of S 157(b)'s illustrative examples. Section 15 7(b)(2)(B)

11states that core proceeding jurisdiction exists to determine

the "allowance or disallowance of claims against th e estate or exemptions from property of the estate . . ." 28 U.S.C. S 157(b)(2)(B). The claim seeks a declaration that any claim by Irwin against HBI under the Employment Agreement is unenforceable. Section 157(b)(2)(H) states that "pr oceedings to determine, avoid, or recover fraudulent conveyan ces" are core. Id. S 157(b)(2)(H). Barry specifically allege s that HBI's granting of Irwin's signing bonus was a fraudulent transfer under New Jersey and federal bankruptcy law. More importantly, Barry's claim to declare HBI's signing bonus obligation unenforceable satisfies this court's cor e proceeding test because it invoked the trustee's po wer to avoid fraudulent conveyances under S 548, a substan tive provision of the bankruptcy code. Thus, we conclude that Barry's first claim "arises in a bankruptcy" and is a core claim.

The same cannot be said, however, for Barry's and Irwin's "reciprocal claims" concerning the Guaranty 's enforceability. Irwin's claim is a state law claim for breach of a pre-bankruptcy contract to which the debtor wa s not a party. Similarly, Barry's claim for a declaratory judgment that he is not personally liable for a breach of th at contract is predicated upon state law. Neither claim satisfi es this Court's core proceeding test because neither invoke s a substantive provision of the bankruptcy code and ne ither is the type of claim that can only be entertained in bankruptcy. Rather, these claims involve a dispute between two parties, neither of whom is the debtor, over a prepetition contract between them. They must be resolv ed under New Jersey guaranty and contract law and coul d have been brought in state court. While Barry asser ts that New Jersey would not enforce the Guaranty if HBI's underlying obligation is void under federal bankrup tcy law, this does not render these claim core proceedings.

These claims are nonetheless "non-core" and therefo re fall within the Bankruptcy Court's jurisdiction bec ause their resolution could "conceivably affect" HBI's e state in bankruptcy. For instance, finding the Guaranty to b e enforceable would provide Irwin, a creditor of HBI under the Employment Agreement, with an alternative sourc e of

12recovery effectively diverting his claims from the bankrupt

estate. Because these claims are non-core, however, the Bankruptcy Court lacked the power to issue final ju dgment, but rather was limited to submitting proposed findi ngs of

fact and conclusions of law to the District Court.

Barry's alternative claim seeking to limit HBI's li ability to $75,000 if HBI's signing bonus obligation is not fo und to be an illegal stock redemption or a fraudulent transfe r is also a core proceeding. This claim appears to fall withi n S 157(b)(2)(B)'s example of "core" matters relating to the allowance and estimation of claims against the esta te. 28 U.S.C. S 157(b)(2)(B). Moreover, this claim is brou ght by Barry as HBI's trustee in bankruptcy and invokes 11 U.S.C. S 502(b)(7), a substantive provision of the bankrup tcy code. If the Court on remand finds the signing bonus to b e an enforceable obligation of HBI, then the Bankruptcy Court would have core jurisdiction to entertain Barry's c laim to limit HBI's liability under S 502(b)(7) and issue f inal judgment thereon.

Barry's related claim, that his personal liability under the Guaranty should similarly be limited to $75,000 to be coextensive with HBI's underlying obligation, however , is a non-core matter. This claim does not appear to fit within any of S 157(b)(2)'s examples and it does not invok e a substantive provision of the bankruptcy code; nor i s it the type of proceeding that can only arise in bankruptc y. Rather, this claim, like Barry's claim that the Gua ranty is entirely unenforceable, depends upon New Jersey's guaranty and contract law, not the bankruptcy code, and could be resolved in state court. This claim does, however, fall within the Bankruptcy Court's non-core jurisdi ction because it could conceivably affect HBI's bankruptc y estate.

As our discussion illustrates, this case presented the Bankruptcy Court with a mixture of core and non-cor e claims. This court has not yet addressed how to det ermine a Bankruptcy Court's jurisdiction where it is prese nted with mixed claims. Several courts have employed a claim by claim analysis to determine the extent of a Bankrup tcy Court's jurisdiction. See, e.g., In re N. Parent, I nc., 221 B.R. 609, 626 (Bankr.D.Mass. 1998)("[E]ach of Debtor's f ourteen causes of action will have to be separately analyze d to

13determine whether it falls within the bankruptcy co urt's

core jurisdiction."); In re Best Reception Systems, Inc., 220 B.R. 932, 946 (Bankr. E.D. Tenn. 1998)("[T]he court must examine each cause of action separately to determin e if it is core or non-core."); In re 610 W. 142 Owners Cor p., 219 B.R. 363, 367 (Bankr. S.D.N.Y. 1998)(employing clai m by claim analysis); Ralls v. Docktor Pet Ctr's Inc., 1 77 B.R. 420, 425 n.6 (D. Mass. 1995)("A district court must scru tinize each count and each asserted right for relief to de termine which ones were [core and] properly before the bank ruptcy judge for final resolution and which ones [were non -core and] must receive de novo review.").

The Bankruptcy and the District Courts determined t hat the entire proceeding could be characterized as a c ore proceeding under S 157(b)(2)(B) and (O).9 The Distr ict Court

reasoned:

On November 29, 1993, the Bankruptcy Court e ntered an Order providing Barry with standing to br ing an action to avoid or reduce claims against the debtor's estate under the trustee powers of 11 U.S.C. S 548. The adversary proceeding filed by Barry requeste d, inter alia, a declaratory judgment that HBI's obli gations created by the September 5, 1991 agreements were void as an illegal stock redemption of an in solvent corporation, and constituted a fraudulent co nveyance under the Bankruptcy Code and New Jersey sta te law. Resolution of these proceedings thus require d that the

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9. These subsections provide:

(b)(2) Core proceedings include, but are not limited to- . . .

(B) allowance or disallowance of claims aga inst the estate or exemptions from property of the estate, and estimation of claims or interests for the purposes of confirming a p lan under chapter 11, 12, or 13 of title 11 but not the liquidatio n or estimation of contingent or unliquidated personal injury t ort or wrongful death claims against the estate for purposes of di stribution in a case under title 11;

(O) other proceedings affecting the liquida tion of the assets of

the estate or the adjustment of the debtor-credi tor or the equity security holder relationship, except personal injury tort or wrongful death

claims.

14Bankruptcy Court adjudicate not only a claim against a guarantor of the debtor's obligation, but also an analysis of the extent of the debtor's oblig ation from which the guarantor's obligation arose.

(Pa. 9-10). We believe the District Court's analysi s reflects an alternative approach to determining the extent o f a Bankruptcy Court's jurisdiction in mixed claims proceedings. It resembles the view of those courts which hold that "when a proceeding is in part a core proc eeding and in part non-core, the courts may determine that the entire proceeding is core if the core aspect heavil y predominates and the non-core aspect is insignifica nt." In re Blackman, 55 B.R. 437, 443 (Bankr. D.C. 1985); s ee In re Hughes-Bechtol Inc., 141 B.R. 946, 949 (Bankr. S .D. Ohio 1992); In re Cinematronics Inc., 111 B.R. 892, 901 (Bankr. S.D.Cal. 1990); In re Sibarium, 107 B.R. 10 8, 115 (N.D. Tex. 1989); In re GWF Investment, Ltd., 85 B. R. 771, 778 (Bankr.S.D.Ohio 1988). Other courts have expres sly rejected or declined to follow the "predominantly c ore" approach. See, e.g., In re Best, 220 B.R. at 950; 6 10 W. 142 Owners Corp., 219 B.R. at 370; Glinka, 1994 WL 9057 14,

at *10 & n.14.

We adopt the claim-by-claim approach as the only on e consistent with the teachings of Marathon. This cas e well illustrates the point. In Marathon, as we have note d, a debtor in bankruptcy sued for breach of a pre-petit ion

contract. The Court held that it would violate Arti cle III for an Article I Bankruptcy Judge to adjudicate finally the tendered state law claim even though the plaintiff was a debtor in bankruptcy. Here, if we followed the appr oach of the Bankruptcy and District Courts, we would be req uired to sanction the entry of judgment by an Article I J udge on a pre-petition state law contract claim where neith er party is in bankruptcy.

In sum, we conclude that the only core matters befo re the Bankruptcy Court were Barry's claims (i) that H BI's signing bonus obligation was unenforceable as an il legal stock redemption or fraudulent conveyance, and (ii) that, if HBI's signing bonus obligation was enforceable, HBI 's obligation should be limited to $75,000 under S 502 (b)(7). We agree with the District Court's conclusion that the

15Bankruptcy Court had jurisdiction to enter a final order or

judgment on these claims. However, the remaining cl aims regarding the Guaranty's enforceability and the ext ent of Barry's liability thereunder are non-core proceedin gs. The Bankruptcy Court did not have the power to issuefin al judgment on these claims, but rather was limited to submitting proposed findings of fact and conclusion s of law to the District Court under S 157(c). Thus, the Dis trict Court erred in affirming the Bankruptcy Court's exe rcise of core proceeding jurisdiction to declare the Guarant y unenforceable as a violation of public policy.

III. ERRONEOUS APPLICATION OF CONTRACT

PRINCIPLES

Having affirmed the District Court's determination that the Bankruptcy Court had core proceeding jurisdicti on to enter a final judgment on Barry's claim that HBI's signing bonus obligation was unenforceable as part of an il legal stock redemption or a fraudulent conveyance, we now

consider the District Court's decision on the merit s of that

claim.

The Bankruptcy Court and District Courts employed substantially similar modes of analysis. The initia l task was to determine the parties' intent utilizing traditio nal principles of contract law. After finding the text of the September Transaction documents ambiguous, the Bankruptcy Court considered the extrinsic evidence tendered at trial and made a factual finding that t he parties' minds met on a redemption of Irwin's stock by HBI,

and that the Purchase Letter effectuated this inten ded redemption.10 Next, it considered whether the redem ption

___________________________________________________ ______________

10. We read the Bankruptcy Court's conclusion that a stock redemption was intended on September 5, 1991, and effectuated on April 15, 1992, to rest exclusively on its factual finding that thi s was what the parties

intended. This is thus not a case where a court ack nowledges that the parties intended one form of transaction, but treat s the transaction in a different manner for reasons unrelated to the parti es' intent. Compare Sedbrook v. Zimmerman Group, Ltd., 526 N.W.2d 758 ( Wis. Ct. App. 1994)("de facto" merger); Fenderson v. Athey Prod's Corp. Kolman Div., 581 N.E.2d 288 (Ill. App. Ct. 1991)(same).

16thus accomplished was consistent with New Jersey la w.

Based on its finding that HBI was insolvent at the time of the redemption, it held that the transaction violat ed N.J.S.A. 14A:7-14.1. The Bankruptcy Court then turn ed to consider whether the September Transaction constitu ted a fraudulent conveyance under 11 U.S.C. S 548 and N.J .S.A. 25.2-20, et seq. It was undisputed that the Agreeme nt for redemption of Irwin's stock was entered within a ye ar of the Bankruptcy Court's order of relief and at a time wh en the HBI was insolvent. The Bankruptcy Court focused upo n the only remaining fraudulent transfer element: whether HBI "received less than reasonably equivalent value whe n it entered into the redemption agreement." Slip. 36. B ecause it was undisputed that the stock had a value of $1. 00 or less, the Court concluded that HBI's obligation to pay Irwin $300,000 was a fraudulent conveyance. Finally, the Bankruptcy Court held that Barry's personal guarant y was unenforceable because it was a part of an integrate d transaction involving an illegal stock redemption.

Tracing the steps of the Bankruptcy Court's analysi s demonstrates that the foundation of its ultimate le gal conclusions was its finding that the parties contra cted for a stock redemption. We must respectfully disagree w ith this foundational premise. We find no ambiguity in the t ext of

the documents and all of the extrinsic evidence rel evant under New Jersey law is entirely consistent with th e express and unambiguous intent reflected in those t erms. While the parties intended that Irwin would grant a n option to HBI that could result in a redemption, they did not intend for that option to be exercised at a time wh en HBI was insolvent. Moreover, all of the relevant eviden ce indicates that no redemption occurred.

We begin with basic principles of New Jersey contra ct

law:

Evidence of the circumstances is always admi ssible in aid of the interpretation of an integrated a greement.

This is so even when the contract on its fac e is free from ambiguity. The polestar of construction is the intention of the parties to the contract as revealed by the language used, taken as an entirety; and , in the quest for the intention, the situation of th e parties, the

17attendant circumstances, and the objects the y were

thereby striving to attain are necessarily t o be regarded. The admission of evidence of extri nsic facts is not for the purpose of changing the writi ng, but to secure light by which to measure its actual significance. Such evidence is adducible onl y for the purpose of interpreting the writing -- not f or the purpose of modifying or enlarging or curtail ing its terms, but to aid in determining the meaning of what

has been said. So far as the evidence tends to show, not the meaning of the writing, but an inten tion wholly unexpressed in the writing, it is irrelevant . The judicial interpretive function is to consider what wa s written in

the context of the circumstances under which it was written, and accord to the language a ration al meaning in keeping with the expressed general purpos e.

Atlantic Northern Airlines, Inc. v. Schwimmer, 12 N .J. 293, 301 (N.J. 1953).

We next turn to the documents. The four simultaneou sly executed documents spell out carefully, and in grea t detail, the terms of an integrated transaction, the primary objectives of which were (1) to vest Barry with imm ediate control of HBI, (2) to provide Barry with the oppor tunity of becoming the sole stockholder of HBI and (3) to ter minate any relationship between HBI and Irwin other than h is employment relationship. To accomplish these object ives, the documents unambiguously provide, inter alia, fo r (a) the immediate transfer of Irwin's stock to Barry as vot ing trustee, (b) the granting of an irrevocable three y ear option to purchase Irwin's HBI stock exercisable by Barry, HBI, or an entity to be organized by Barry, (c) the employm ent of Irwin by HBI in a sales capacity, (d) the payment b y HBI of a $300,000 signing bonus to Irwin, (e) Irwin's agre ement to

a restrictive covenant of non-disclosure and noncompetition, (f) Irwin's resignation as an officer and director of HBI, and his release of all his rights under HBI 's stockholder agreement and executive compensation pl an, (g) the exchange of releases between Irwin on the o ne hand and Barry and HBI on the other, and (h) Barry's gua ranty of HBI's signing bonus obligation. The Letter Agree ment provided that Irwin's rights under the Employment

18Agreement (including the signing bonus) were being given

to him in consideration for his agreement to enter the overall transaction (e.g., his commitments to trans fer his stock to the voting trust, to grant the irrevocable option, to provide services, to release his rights, etc.).

Barry signed the Letter Agreement, both individuall y and as HBI's president. (Pa. 533) On January 15, 1992, Barry exercised the stock buyout option by sending a lett er signed in his individual capacity, to himself, as voting t rustee, and to Irwin stating: "[Y]ou are hereby notified that I elect to exercise my option to acquire all of the shares of stock in Halper Bros., Inc., which are held by the Voting Tr ustee pursuant to the Voting Trust Agreement." (Pa. 526)(emphasis added).

Discussing the preamble of the Letter Agreement, th e Bankruptcy Court noted:

The plain language of [statement (i)] fails to delineate

whether the transaction is a sale of stock b y an individual shareholder or a redemption of th e Debtor's stock by the Company. The text also fails to stipulate who is the purchaser of the stock, the Debto r, or Barry or an entity controlled by Barry. The signat ure portion of the Letter Agreement also offers no assis tance to the Court as it was executed by Barry, individua lly, and Barry in his capacity as president of the De btor.

(Pa. 51)

While the above statements are true, these facts do not make the Letter Agreement ambiguous or inconsistent

. Rather, the precise language of the Letter Agreemen t creates the unambiguous possibility of either a sal e or a redemption of the stock to any one of the three pot ential purchasers. Because Barry assumed sole control of H BI immediately upon the agreements' execution, this me ant that Barry had a choice: he could purchase the stoc k individually, acquire the stock through an entity c ontrolled by him, or cause HBI to redeem the shares. Any of t he three methods would accomplish the undisputed prima ry objective of making Barry HBI's sole shareholder. T he fact

that a choice of method existed does not create an ambiguity by itself. If Barry or an entity controll ed by Barry

19exercised the option to purchase Irwin's shares, th e

transaction would constitute a personal purchase an d sale of stock between shareholders. However, if, and onl y if, HBI exercised this option, the transaction would consti tute a redemption. Because Barry signed the Purchase Lette r in his individual capacity and stated that he elected to exercise his option, this transaction constituted a personal purchase of the stock, not a redemption by HBI.

Moreover, an examination of all of the extrinsic ev idence confirms, rather than conflicts with, the intent ev idenced in the documents. The cousins had previously declined to

enter a transaction in which the benefit to them ca me solely through a redemption of their stock because they were aware that such an agreement would be unenforceable during any period of insolvency. This rejection as well as Barry's desire to secure a tax deduction for HBI resulted in a compromise. To appease the se lling cousins, their stock could be purchased by Barry or a new Barry-created entity. These potential purchasers--u nlike HBI--could exercise their options while HBI was ins olvent. To accommodate Barry's tax concern, payment for thi s option would come through HBI as a deductible signi ng bonus. Finally, the selling cousins' concerns regar ding HBI's ability to pay the signing bonus were allayed by Barry's personal guaranty thereof.

In short, based on the September Transaction documents, the extrinsic evidence, and the unambigu ous terms of the Purchase Letter, we conclude that (1) Irwin granted an option to HBI that could be exercised if Barry infused capital and turned the business around, but which all recognized could not be exercised during insolv ency, (2) Irwin granted Barry an option to purchase his share s which Barry exercised, and (3) there was no stock redempt ion.

In reaching this conclusion we are not unmindful of the fact that the Bankruptcy Court credited the testimo ny of Barry and his lawyer that they intended the Purchas e Letter to be an exercise of HBI's option to buy Irw in's stock. We accept that factual finding for present purposes . Under New Jersey law, however, Barry's subjective intent is not legally relevant. The undisclosed subjective intent of a participant in a transaction cannot be used to alte r the

20intent clearly manifested in the documents to which he

subscribed. See Atlantic Northern, 12 N.J. at 301. The Bankruptcy Court's reliance on that evidence was th erefore

error.

As we have earlier noted, the Bankruptcy Court's

erroneous determination that the transaction consti tuted a stock redemption was the basis for its judgment tha t the stock transfer was illegal and that the Guaranty wa s unenforceable. It follows that we must reverse the District Court's judgment and remand with instructions that there be further proceedings.

IV. THE REMAND

Our conclusion does not, of course, resolve this controversy. A number of issues remain to be resolv ed on remand. The first of these is Barry's claim that th e signing bonus was a fraudulent conveyance under 11 U.S.C. S 548. We have held only that the $300,000 signing bonus w as not a fraudulent transfer as consideration paid by HBI to Irwin for stock found by the Bankruptcy Court to be worth $1.00 per share or less in a stock redemption. The Bankruptcy Court's focus was upon the value of Irwi n's stock. On remand, it must focus on the value of the consideration to be given by Irwin under the terms of the September Transaction as we have interpreted them a nd on the extent to which HBI, rather than Barry, was to receive

that consideration. As we have heretofore also held , this fraudulent transfer claim is a core proceeding beca use Barry as trustee invokes 11 U.S.C. S 548. Thus, it may be entertained by the District Court or it may be refe rred to the Bankruptcy Court for adjudication under 28 U.S. C. S 157(a).

Second, the Guaranty's enforceability must be consi dered on remand to resolve Barry's claim for a declarator y judgment of unenforceability and Irwin's reciprocal claim for a coercive judgment enforcing the Guaranty. Fur ther consideration is required for two reasons. First, w e have determined that the Bankruptcy Court was without jurisdiction to enter judgment and further proceedi ngs are required before the District Court to resolve this "non-core"

21matter. Second, it may be necessary on remand to

reevaluate the circumstances in which the transacti on was entered in the light of our reading of the relevant documents. As we have indicated, the Bankruptcy Cou rt viewed the September Transaction as intended to syp hon off $300,000 in corporate funds in return for virtu ally

worthless stock while HBI was insolvent. It would s eem permissible to us, however, for a fact finder to de termine on this record that the September Transaction was not entered for the purpose of defrauding creditors. The transa ction gave Barry a variety of options, each of which, dep ending on the circumstances that unfolded, could be execut ed in a manner consistent with public policy. The parties k new that if Barry chose to infuse capital these arrange ments would be wholly consistent with the rights of HBI's creditors. They may also have intended that if Barr y decided not to make the necessary capital infusion, the signing bonus would not be paid by HBI, but rather the

consideration for Irwin's various commitments would come personally from Barry's pocket under the Guaranty w ithout prejudice to creditors.

We do not here decide that the intention of the par ties in September of 1991 is relevant to the enforceability of the Guaranty under New Jersey law. We leave it to the D istrict Court (with the assistance of the Bankruptcy Court if it so chooses) to determine the applicable New Jersey law including the significance, if any, of the parties' intent at the time the Guaranty was made. We note, however, t hat there is some New Jersey case law supporting the proposition that unconditional guarantees that exte nd a guarantor's responsibility beyond that of the prima ry obligor are enforceable. The Superior Court in Nati onal Westminster Bank NJ v. Lomker, 649 A.2d 1328 (N.J. Super. Ct. App. Div. 1994), for example, held that a guarantor's liability may exceed that of the princi pal under New Jersey law. See id. at 1332 ("The liability of a guarantor is measured by that of the principal, unl ess the agreement explicitly provides otherwise."). In dict a, the court even entertained the possibility that a guara ntor could explicitly waive the defenses of bad faith, f raud or conspiracy. See id.; see also Nation Wide, Inc. v. Scullin, 256 F. Supp. 929, 932 (D.N.J. 1966)("However harsh a

22bargain it may seem in retrospect, the defendants'

obligation was voluntarily assumed and made absolut e by its terms."); Midatlantic Bank, N.A. v. Strong, 199 6 WL 697940, *5 (E.D.N.Y. 1966)("[E]ven absolute, uncond itional guarantees are upheld and enforced by New Jersey courts."); Lenape State Bank v. Winslow Corp., 523 A.2d 223, 231 (N.J. Super. Ct. App. Div. 1987)(upholding unconditional guaranty under New Jersey law); cf. Interchange State Bank v. Rinaldi, 696 A.2d 744, 74 8 (N.J. Super. Ct. App. Div. 1997)(finding guaranty uncondi tional even in absence of term "unconditional"). Here, Bar ry's Guaranty explicitly provided that Barry waived:

any and all defenses of HBI and [Barry], inc luding, without limitation, any and all defenses now or hereafter arising or asserted by reason of ( a) any lack of power, capacity or authority of HBI with respect to the Employment Agreement, the Letter Agreeme nt or the Obligations or any part thereof; (b) the unenforceability of the Employment Agreement , the Letter Agreement or the Obligations against HBI

* * * * *

Notwithstanding anything else contained in t his [Guaranty] Agreement, [Irwin]'s rights and [ Barry]'s obligations under this Agreement shall be re instated and revived, and the enforceability of this Agreement shall continue, with respect to any amount a t any time prior to or after the date of this Agreement paid on account of the Obligations which thereafter shall be required to be restored or returned by [Irwi n] under any bankruptcy, fraudulent conveyance, insol vency or reorganization laws or for any other reason all as though such amount had not been paid.

(Pa. 535-36). The court on remand should consider w hether this express language is enforceable under New Jers ey law

under the circumstances of this case.11

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11. The Bankruptcy Court, in the course of holding that the Guaranty was unenforceable against public policy, concluded that the Guaranty was not "severable" from the September Transaction' s other documents. Irwin did not challenge this conclusion on his appe al to the District

23Finally, if the court determines that HBI's signing bonus

obligation was not a fraudulent conveyance, the cou rt must then consider Barry's alternative claim that 11 U.S .C. S 502(b)(7) limits HBI and Barry's liability under the Guaranty to $75,000. The claim that HBI's obligatio n is limited to this amount is a core proceeding because it invokes a substantive provision of the bankruptcy c ode and may be decided in the first instance by the Distric t Court or the Bankruptcy Court. Barry's derivative claim that his Guaranty liability should be similarly limited, how ever, is a non-core claim upon which only the District Court c an issue final judgment. Nonetheless, the District Cou rt may refer the claim to the Bankruptcy Court for propose d findings of fact and conclusions of law.

V. CONCLUSION

The judgment of the District Court will be reversed and this matter will be remanded to it for further proc eedings consistent with this opinion.

A True Copy:

Teste:

Clerk of the United States Court of Appeals

for the Third Circuit

___________________________________________________ ______________

Court and Barry insists that he thereby waived any claim that the Guaranty was enforceable even if HBI's commitment t o pay the signing bonus was unenforceable. We are unpersuaded. Irwin consistently maintained before the District Court, and before us , that the Guaranty, including the above-quoted portions, should be enfo rced in accordance

with its literal terms.

24