Source: http://ny.findacase.com/research/wfrmDocViewer.aspx/xq/fac.20140616_0001405.SNY.htm/qx
Timestamp: 2016-12-09 04:26:57
Document Index: 99012324

Matched Legal Cases: ['§ 157', '§ 157', '§ 157', '§ 1334', '§ 157', '§ 1334', '§ 157', '§ 1334', '§ 157']

In re NEW YORK SKYLINE, INC., Debtor. NEW YORK SKYLINE, INC., Appellant,v.EMPIRE STATE BUILDING TRUST COMPANY L.L.C. and EMPIRE STATE BUILDING ASSOCIATES, L.L.C., Appellees
For Appellant: James Wilson Perkins, Esq., Greenberg Traurig, LLP, New York, NY; Charles Addison Stewart, III, Esq., Stewart Occhipinti, LLP, New York, NY.
For Appellees: David Scott Tannenbaum, Esq., Stern, Tannenbaum & Bell, L.L.P., New York, NY.
Appellant New York Skyline Inc. (" Skyline" ) operates " SkyRide," a helicopter simulator on the second floor of the Empire State Building (the " Building" ). Skyline and appellees[1] are parties to Lease and License agreements entered into in February 1993, amended from time to time, and assumed by Skyline pursuant to section 365 of the Bankruptcy Code (" section 365" ) during its chapter 11 bankruptcy case.[2]
Skyline appeals from an Order and Final Judgment issued by Bankruptcy Judge Stuart M. Bernstein on September 11, 2013 (the " Judgment" ) in a pre-confirmation adversary proceeding.[3] As a threshold matter, Skyline contends that under Stern v. Marshall ,[4] Judge Bernstein lacked constitutional authority to enter a judgment in the adversary proceeding.[5] On the merits, Skyline argues that Judge Bernstein committed reversible errors with respect to (1) ESB's claim that Skyline breached a provision of a 2005 Lease and License amendment (the " 2005 Agreement" ) which prohibited Skyline from paying commissions or sales incentives to Skyline representatives working in certain areas; and (2) Skyline's claim that Article 42 of the Lease " requires ESB to bill Skyline based on a survey that estimates Skyline's actual consumption, as opposed to its estimated overall capacity to consume electricity." [6] For the reasons set forth below, the Judgment is vacated and this case is remanded.
A. The 2005 Agreement
In April 2005, ESB moved the ticket office for the Observation Decks to the second floor of the Building and reversed the direction of the " West Escalators" leading to SkyRide.[7] Skyline brought an action against ESB in state court seeking declaratory, injunctive, and monetary relief relating to its right to access the West Escalators under the Lease.[8] Prior to a hearing on Skyline's motion for a preliminary injunction, the parties executed the 2005 Agreement, and stipulated to discontinue the action with prejudice. The 2005 Agreement permitted Skyline access to its premises through the West Escalators and addressed some, but not all, of the many disputes between the parties.[9] One issue was ESB's concern " about Skyline representatives selling tickets in the Building and Skyline and other vendors clogging" entrances.[10] In response, the parties agreed to a protocol provision requiring Skyline employees or representatives working in areas " of or near the building" to wear uniforms approved by ESB and prohibited them from being paid commissions or sales incentives.[11]
In July 2008, ESB served Skyline with a Notice to Cure demanding Skyline pay $431,000 in Building security fees claimed Page 164
under the 2005 Agreement.[12] On August 18, 2008, Skyline filed an action in state court (the " Skyline Action" ).[13] The action was referred to the same judge that presided over the 2005 lawsuit.[14]
B. Skyline's Bankruptcy
1. Skyline's Chapter 11 Filing and the Removal of the Skyline Action
On January 12, 2009, Skyline filed a voluntary petition for relief under chapter 11 of the Bankruptcy Code. Skyline's largest creditor by far was its secured lender, which held a claim of over $24 million as of the petition date.[15] Roughly ninety trade creditors held unsecured claims totaling $130,000.[16] In addition, ESB asserted claims based on the disputes under the parties' agreements.
ESB filed an adversary proceeding against Skyline on March 4, 2009 (the " ESB Action" ),[17] and removed the Skyline Action to the bankruptcy court on March 30, 2009.[18] The Notice of Removal states that the bankruptcy court has jurisdiction over the Skyline Action pursuant to Title 28, United States Code, sections 1334(b) and 1452(a) because the Skyline Action is " related to" Skyline's bankruptcy case.[19] The Notice of Removal also states that " [u]pon removal, the [Skyline Action] will be a 'non-core' matter, see 28 U.S.C. § 157(b)(2), and ESB does not consent to entry of final orders or a judgment by the Bankruptcy Court in the [Skyline Action]." [20]
2. The April 28, 2009 Hearing
On April 7, 2009, Skyline filed a motion requesting that Judge Bernstein either remand the Skyline Action or abstain, arguing that state law predominated and the proceeding was non-core.[21] The next day, Skyline filed a motion in its bankruptcy case for a ninety-day extension of time to assume or reject the Lease under section 365 of the Bankruptcy Code.[22] Judge Bernstein considered both motions at a hearing on April 28, 2009.[23] Page 165
He granted the ninety-day extension under section 365, and denied the motion to remand or abstain reasoning that " the issues were intertwined with the issues raised by Skyline's anticipated motion to assume some or all of its agreements with ESB." [24] Specifically, he determined that the claims were core insofar as they related to the Lease assumption and " arguably" core to the extent they related to the allowability of ESB's proof of claim.[25] Judge Bernstein later entered a stipulation and order which fast-tracked claims in the adversary proceedings believed to be relevant to Skyline's decision to assume or reject the Lease under section 365.[26]
3. The Adversary Proceedings, the First Motions for Summary Judgment, and the Assumption of the Lease and License
The ESB Action asserted eleven claims.[27] Count I sought a declaratory judgment that the 2005 Agreement was part of the Lease and the License and therefore would need to be assumed along with the Lease and the License.[28] Counts II through X sought declaratory relief, injunctive relief, and specific performance in connection with conduct by Skyline alleged to violate provisions of the Lease.[29] Count XI sought attorneys' fees under the Lease for ESB's expenses in connection with bringing the ESB Action.[30] ESB alleged that its claims were " core matters pursuant to 28 U.S.C. § 157(b)(2)(A), (B) and (O), among others." [31] In its Answer, Skyline stated that the allegation was a legal conclusion to which no response was necessary, but in any event denied knowledge as to the truth or falsity of the allegation.[32]
Skyline filed a Second Amended Complaint on May 1, 2009, and a Third Amended Complaint (the " Complaint" ) on July 29, 2009.[33] The Complaint asserts claims for rescission of the 2005 Agreement, declaratory judgment, injunctive relief, breach of specific provisions of the Lease and License, unjust enrichment, prima facie tort, and tortious interference with contract. In addition, Count Nineteen asserts claims for turnover and violations of the automatic stay pursuant to sections 542 and 362 of the Bankruptcy Code in connection with breaches of the Lease and License agreements.
The Complaint alleges that jurisdiction is proper because the claims either arise in title 11, under title 11, or are related to the pending chapter 11 case.[34] It also states that " [f]or the reasons articulated by the Hon. Stuart M. Bernstein on April 28, 2009 in connection with the denial of Skyline's motion to remand, the causes of action alleged in this Complaint are " core" matters pursuant to 28 U.S.C. § 157(b)(2)." [35] On September 15, 2009, ESB filed an answer Page 166
and asserted nine counterclaims.[36]
On July 17, 2009, in connection with the order expediting claims relevant to Skyline's decision to assume or reject the Lease, the parties cross-moved for partial summary judgment. In its motion, Skyline sought a determination that Article 42 of the Lease, relating to electricity charges, is ambiguous. ESB moved with respect to five of Skyline's claims, including the Third Claim, which was to rescind the 2005 Agreement. Just after the motions were filed, Skyline moved to assume the Lease.[37] On July 28, 2009, during oral argument on the motions for summary judgment, Skyline indicated it would seek assumption of the Lease regardless of whether it could rescind the 2005 Agreement. On September 17, 2009, Judge Bernstein granted Skyline's motion to assume over ESB's objection.[38] Pursuant to the assumption order, Skyline assumed both the Lease and License, paid $306,991.02 to ESB in undisputed cure amounts, and was directed to escrow $768,120.76 for disputed cure amounts.[39] Among the disputed items were " security charges, access fees, electrical charges, late fees, and attorneys' fees." [40]
Judge Bernstein issued his decision on the parties' cross-motions on June 21, 2010. He dismissed Skyline's rescission claim in part because the Lease, License, and 2005 Agreement were a single, indivisible agreement for purposes of assumption under section 365.[41] Judge Bernstein concluded that by assuming the 2005 Agreement, Skyline had ratified it, which barred a claim for rescission.[42] He denied Skyline's request for a determination that Article 42 is ambiguous, holding that it was " not appropriate to use summary judgment as a vehicle for fragmented adjudication of non-determinative issues." [43]
On August 13, 2010, Skyline filed a Fourth Amended Chapter 11 Plan of Reorganization (the " Plan" ),[44] which was confirmed on October 12, 2010.[45] Article 11 of the Plan is a retention of jurisdiction provision. It states in relevant part that the court retained jurisdiction " (b) To determine any and all adversary proceedings, applications, and contested matters that are pending on the Effective Date" ; " (i) To hear and determine all Claims, controversies, suits and disputes against the Debtor to the full extent permitted under 28 U.S.C. § 1334 and 28 U.S.C. § 157" ; and " (j) To hear, determine and enforce all Claims and causes of action which may exist on behalf of the Debtor or the Debtor's Estate, including, but not limited to, any right of the Debtor or the Debtor's Estate to recover assets pursuant to the provisions of the Bankruptcy Code." [46] On February 28, 2011, Judge Bernstein entered a Final Decree after determining that the Plan had been substantially consummated, and closed Skyline's bankruptcy Page 167
case.[47] The Final Decree provided that " the Bankruptcy Court shall retain jurisdiction over the pending adversary proceedings" between Skyline and ESB.[48]
5. The Parties' Remaining Claims, ESB's Motion for Partial Summary Judgment, and the Authority Decision
On June 17, 2011, the parties filed a Joint Final Pretrial Order in which each side agreed to voluntarily dismiss a number of claims.[49] As a result of the parties' agreements and Judge Bernstein's earlier summary judgment ruling, Skyline's five remaining claims were the Fourth Claim, but only to the extent it sought a declaration that ESB breached certain contractual duties; the Twelfth Claim, for damages and declaratory relief in connection with the electricity charges; the Fourteenth Claim, for damages for breach of the covenant of good faith and fair dealing; the Fifteenth Claim, for prima facie tort; and the Eighteenth Claim, for tortious interference with contract. Of the twenty claims or counterclaims brought by ESB, eight were submitted for trial -- the cause of action for attorneys' fees, and seven counterclaims requesting declaratory relief, specific performance, and injunctive relief relating to various disputes under the parties' agreements, including the protocol provision.[50]
On July 15, 2011, ESB filed a motion for partial summary judgment.[51] Prior to its time to file opposition, Skyline raised concerns based on Stern v. Marshall and asked for an extension of time to brief the issue.[52] Judge Bernstein's memorandum endorsement and order stated that:
It is not clear whether the limitation on a bankruptcy court's jurisdiction to 'hear and determine' a non-core matter would be implicated by the Empire State Building's motion for partial summary judgment. Regardless of the disposition, the Court will not make any findings of fact or enter a final judgment. Furthermore, it appears that the parties have consented to the Court's authority to 'hear and determine' all of the issues, at least in adversary proceeding 09-1145. [Skyline] alleged in its Third Amended Complaint . . . that the causes of action alleged in the complaint were core, and [ESB] admitted the allegation in its Answer . . . .[53]
Nonetheless, Judge Bernstein permitted the parties to make the argument that the bankruptcy court lacked " the power to 'hear and determine' the motion or the adversary proceedings, or that it lack[ed] the subject matter jurisdiction even to make a 'report and recommendation' to the District Court . . . ." [54] In addition, he directed each party " to advise the Court[] in writing[] . . . whether it expressly consents to the bankruptcy court's authority to 'hear and determine' and enter final judgments in these adversary proceedings." [55] Judge Bernstein concluded that " [i]n the event the parties do not expressly consent, or are not deemed to have impliedly Page 168
consented, the Court will proceed in accordance with Rule 9033 of the Federal Rules of Bankruptcy Procedure." [56] ESB filed a letter indicating that it consented to the bankruptcy court's authority, and Skyline filed a letter indicating that it did not.[57]
In its opposition to ESB's motion for partial summary judgment, Skyline questioned the bankruptcy court's jurisdiction and authority to enter a final judgment and sought remand to the state court.[58] Skyline stated that it never conceded that its claims were core and that its section 157(b)(2) allegation in the Complaint indicated only that the claims were core " '[f]or the reasons articulated by the Hon. Stuart M. Bernstein on April 28, 2009 . . . .'" [59] On the issue of consent, Skyline argued that " [a]ny such consent would surely have been by implication, but based on the mandate of the Bankruptcy Court after it had rejected Skyline's efforts to return these matters to state court." [60] Skyline further argued that its consent could not have been " unequivocal or free of duress" because it " had no immediate appeal rights once remand and abstention were denied." [61]
ESB argued that for the most part Stern was not relevant to the issues before Judge Bernstein because Stern did not address subject matter jurisdiction.[62] However, ESB stated that Stern confirmed that Judge Bernstein had authority to resolve Skyline's claims against ESB because they are " part of the allowance or disallowance of ESB's claims against the estate." [63] ESB further argued that Skyline expressly consented to allowing Judge Bernstein to enter final orders in the adversary proceedings as part of the Plan. In this regard, ESB noted that the Plan " uses bankruptcy terms of art regarding the Court's authority to 'hear' and to 'determine' certain matters." [64]
On May 11, 2012, Judge Bernstein issued the Authority Decision. He stated that at the time the Skyline Action was removed and the ESB Action was commenced " the claims and counterclaims asserted, at a minimum, 'related to' or were non-core claims in Skyline's bankruptcy case." [65] He reasoned that because jurisdiction is determined at the time an action is commenced, " [n]either the confirmation of Skyline's plan nor anything else that subsequently occurred deprived this Court of its subject matter jurisdiction over those Page 169
claims and counterclaims." [66] Judge Bernstein held that he could enter a final judgment on the parties' claims because both parties had expressly consented to such authority -- ESB in its letter, and Skyline in the Plan.[67] He noted that " nothing compelled Skyline to include these provisions in the Plan" and that the provisions, " [s]eparately and in combination, . . . reflect Skyline's consent to this Court's authority to hear and determine, and enter final judgments in connection" with the parties' claims.[68] With respect to ESB's claim for attorneys' fees, Judge Bernstein held that it was core, and therefore consent was not required, because Skyline was required to cure defaults when it assumed the Lease pursuant to section 365.[69] On the merits, Judge Bernstein granted ESB's motion as to three of Skyline's claims, leaving only the Twelfth Claim, relating to the electricity charges, and the Fourth claim, relating to other alleged breaches. In addition, Judge Bernstein granted partial summary judgment in favor of ESB on its claim for attorneys' fees asserted in the ESB Action, but held that ESB was not entitled to pursue a counterclaim for attorneys' fees in the Skyline Action.[70]
Trial was held on the electricity claim in the Skyline Action on September 24 and October 24, 2012.[71] Following the trial, ESB moved for judgment on partial findings. On February 22, 2013, Judge Bernstein issued the Electricity Decision, which granted ESB's motion and dismissed Skyline's Twelfth Claim. A second trial was held on May 6 and 7, 2013, relating to, among other things, the use of independent contractors to sell tickets in areas " of or near the Building." [72] On August 20, 2013, Judge Bernstein issued the Protocol Decision, noting at the outset that " [b]oth sides have consented to the Court's authority to enter a final judgment in this matter." [73] He found that ESB was entitled to a declaration that a specified area between 36th Street and 31st Street was " of or near the Building" and thus Skyline breached the 2005 Agreement by paying independent contractors working within that area.[74] Judge Bernstein permanently enjoined Skyline from paying commissions to any employees or representatives working within a specified area.[75] Skyline's subsequent motion for a stay of the injunction pending this appeal was denied on October 10, 2013.[76] Skyline appeals the issuance of the injunction, but not the denial of the stay pending appeal.[77]
A district court functions as an appellate court in reviewing judgments rendered by bankruptcy courts.[78] Findings of fact are reviewed for clear error,[79] whereas findings that involve questions of law, or mixed questions of fact and law, are reviewed de novo.[80] A district court " may affirm, modify, or reverse a bankruptcy judge's judgment, order, or decree or remand with instructions for further proceedings." [81]
A. Bankruptcy Jurisdiction and Bankruptcy Court Authority
Section 1 of Article III of the United States Constitution provides that
Under Article III, Congress cannot
withdraw from judicial cognizance any matter which, from its nature, is the subject of a suit at the common law, or in equity, or admiralty. . . . At the same time there are matters, involving public rights, which may be presented in such form that the judicial power is capable of acting on them, and which are susceptible of judicial determination, but which congress may or may not bring within the cognizance of the courts of the United States, as it may deem proper.[82]
Since the enactment of the first federal bankruptcy law in 1800, Congress has permitted the initial adjudication of certain bankruptcy issues by non-Article III officials, subject to review by the district court.[83] For example, prior to the Bankruptcy Act of 1978 (the " Act" ),
federal district courts served as bankruptcy courts and employed a " referee" system. Bankruptcy proceedings were generally conducted before referees, except in those instances in which the district court elected to withdraw a case from a referee. The referee's final order was appealable to the district court. The bankruptcy courts were vested with " summary jurisdiction" -- that is, with jurisdiction over controversies involving property in the actual or constructive possession of the court. And, with consent, the bankruptcy court also had jurisdiction over some " plenary" matters -- such as disputes involving property in the possession of a third Page 171
person.[84]
As explained in the Senate Report, a central purpose of the Act was to eliminate the " great cost and delay to the estate" that resulted from the inability of bankruptcy courts to adjudicate plenary matters without consent.[85] To accomplish this goal without running afoul of the Constitution, many, including the House, advocated giving bankruptcy judges Article III status, but this effort was unsuccessful. Instead, the Act " eliminat[ed] the distinction between 'summary' and 'plenary' jurisdiction, [and] grant[ed] the new [bankruptcy] courts jurisdiction over all civil proceedings arising under title 11 or arising in or related to cases under title 11." [86]
The plurality opinion in Northern Pipeline Construction Co. v. Marathon Pipe Line Co., invalidated this broad grant of authority. The Supreme Court held that a bankruptcy court did not have constitutional authority to enter a final judgment adjudicating a contract claim against a party not otherwise a part of the bankruptcy proceedings. As explained by Justice Brennan:
[T]he restructuring of debtor-creditor relations, which is at the core of the federal bankruptcy power, must be distinguished from the adjudication of state-created private rights, such as the right to recover contract damages that is at issue in this case. The former may well be a " public right," but the latter obviously is not. Appellant Northern's right to recover contract damages to augment its estate is " one of private right, that is, of the liability of one individual to another under the law as defined." [87]
By entering a judgment, the Article I bankruptcy court improperly exercised the " judicial Power of the United States," which is vested in Article III courts where judges have life tenure and salary protections. In response, Congress enacted the 1984 amendments to the Judicial Code, which are contained in the Bankruptcy Amendments and Federal Judgeship Act of 1984.[88] The 1984 Amendments addressed the concerns raised in Marathon by making a distinction between proceedings that are " core" and those that are considered " noncore," [89] and limiting the role of the bankruptcy court with respect to the latter.
Section 1334 of title 28 of the United States Code addresses bankruptcy jurisdiction, and section 157, which permits the district courts to refer bankruptcy matters to bankruptcy courts,[90] delineates the division of labor between the district court and the bankruptcy court.[91] While Page 172
sections 1334 and 157 serve different purposes, the language of each tracks the other. Section 1334(b)[92] states that the district courts have original, but not exclusive, " jurisdiction of all civil proceedings[93] arising under title 11, or arising in or related to cases under title 11." [94] Section 157 permits bankruptcy courts to enter final judgments in " core" proceedings,[95] which are defined, using the same terms as in section 1334, as proceedings " that arise in a bankruptcy case or under Title 11." [96] Thus, bankruptcy courts retain the same powers with respect to core matters as they had under the Act.[97]
However, section 157 limits a bankruptcy judge's authority in " related to" proceedings. Under section 157(c)(1)
[a] bankruptcy judge may hear a proceeding that is not a core proceeding but that is otherwise related to a case under title 11. In such proceeding, the bankruptcy judge shall submit proposed findings of fact and conclusions of law to the district court, and any final order or judgment shall be entered by the district judge after considering the bankruptcy judge's proposed findings and conclusions . . . .
Significantly, a bankruptcy judge may also enter a final judgment on non-core claims if the parties consent.[98] Pursuant to section 157(b)(3), " [t]he bankruptcy judge shall determine . . . whether a proceeding is a core proceeding . . . or is a proceeding that is otherwise related to a case under title 11." [99] As explained by the Supreme Page 173
Court, " [t]he terms 'non-core' and 'related' are synonymous." [100]
In Stern , the Supreme Court held that the current statutory regime failed to remedy all the constitutional infirmities identified in Marathon. Specifically, a bankruptcy court improperly exercised the " judicial Power of the United States" by entering a final judgment on a common law counterclaim by the estate against a creditor for tortious interference, despite the fact that such a claim is characterized by the Bankruptcy Code as a " core" claim under section 157(b)(2)(C).[101] Thus, " bankruptcy courts must define the core/non-core distinction on a case by case basis by evaluating both the form and the substance of the particular proceeding." [102]
B. Bankruptcy Jurisdiction Beyond Section 1334
" The jurisdiction of the bankruptcy courts, like that of other federal courts, is grounded in, and limited by, statute." [103] Nonetheless, courts have held that bankruptcy courts have inherent or ancillary jurisdiction to enforce their own orders.[104] According to the Supreme Court, federal courts may assert ancillary jurisdiction for two separate, though sometimes related, purposes: " (1) to permit disposition by a single court of claims that are, in varying respects and degrees, factually interdependent; and (2) to enable a court to function successfully, that is, to manage its proceedings, vindicate its authority, Page 174
and effectuate its decrees." [105]
The Second Circuit has also held that bankruptcy courts may exercise supplemental jurisdiction.[106] However, some lower courts have questioned the exercise of such jurisdiction.[107] As explained by one court
the jurisdictional grant in 28 U.S.C. § 1334(b) and 28 U.S.C. § 157, by implication, negates a bankruptcy court's exercise of jurisdiction of a supplemental non-federal claim in instances where that claim has no impact on the bankruptcy estate. The carefully crafted conferral of jurisdiction under 28 U.S.C. § 1334 and 28 U.S.C. § 157 would be undermined if bankruptcy courts were authorized to exercise supplemental jurisdiction.[108]
In addition, the Second Circuit has held that a bankruptcy court may retain jurisdiction over an adversary proceeding even after the bankruptcy case has been dismissed provided that the exercise of jurisdiction would be consistent with the principles of pendent jurisdiction.[109] In that case, the adversary proceeding was core because it was brought under section 502 of the Bankruptcy Code to " determine the validity of the claims and the amount allowed." [110] Prior to the debtor's election to voluntarily dismiss his case, the bankruptcy court " had conducted a trial on all contested issues and had issued a decision, and the matter awaited only the filing of findings of fact and conclusions of law and the entry of a judgment." [111] The Second Circuit held that the Bankruptcy Court had authority under section 502 to enter a money judgment[112] and further that " the exercise of a court's equitable powers to enter judgment is particularly appropriate where the court's decision would have preclusive effect in any subsequent proceedings." [113] Page 175
Although a bankruptcy court's jurisdiction shrinks following confirmation of a plan, a bankruptcy court may retain post-confirmation jurisdiction pursuant to the plan.[114] A party seeking post-confirmation relief must satisfy two requirements:
First , the party must establish that the matter has a close nexus to the bankruptcy plan or proceeding, as when a matter affects the interpretation, implementation, consummation, execution, or administration of the confirmed plan. Second , the party must show that the plan provides for the retention of jurisdiction over the dispute. Courts have found the requisite nexus where adjudication of the post-confirmation dispute will affect the interests of creditors or requires interpretation of the reorganization plan. However, where the case has been fully administered and the interests of creditors will be unaffected by the resolution of the dispute, bankruptcy courts have declined to exercise post-confirmation subject matter jurisdiction.[115]
The scope of post-confirmation jurisdiction following the entry of a final decree and closure of a case has not been well defined,[116] although courts agree that such jurisdiction is more limited.[117]
A. Skyline Did Not Consent to the Bankruptcy Court's Entry of a Final Judgment
Pursuant to section 157(b)(3), Judge Bernstein was required to determine whether the adversary proceedings were core or non-core. He addressed the status of the claims on April 28, 2009, in the context of Skyline's remand motion and request under section 365, and determined that the claims were core insofar as they related to the Lease assumption and " arguably" core to the extent they related to the allowability of ESB's proof of claim.[118] There is no indication in the record that Judge Bernstein modified or revisited his determination under section 157(b)(3) between the hearing on April 28, 2009, and August 13, 2010, when Skyline filed the Plan. In addition, Judge Bernstein determined that the claims were core relying in part on In re CBI Holding Co., Inc., which held that certain state-law counterclaims were core under section 157(b)(2)(C).[119] As discussed, however, the Supreme Court subsequently held in Stern that section 157(b)(2)(C) was unconstitutional. Thus, " before Stern , [Skyline] had little reason to believe" that it had a viable challenge to the determination that the claims were core or that Judge Bernstein " was not Page 176
constitutionally empowered to enter 'judgment'" on its claims.[120]
" [A] waiver of important rights should only be found where it is fully knowing." [121] Based on Judge Bernstein's determination that the claims were core, it would be difficult to find that Skyline had voluntarily and knowingly consented to the entry of judgment on non-core claims absent express language in the Plan indicating such consent.[122] If the claims were core, then Judge Bernstein could enter a final judgment whether or not Skyline consented, and there would be no reason for Skyline's Plan to either mention non-core claims or indicate consent under section 157(c)(2). However, the Plan makes no mention of consent, non-core claims, section 157(c)(2), or entry of final judgments.
Instead, Article 11 of the Plan is a jurisdiction retention provision.[123] However, " [j]urisdiction retention language from a Plan, by itself, does not confer upon a bankruptcy court authority to enter final orders." [124] The fact that the Plan
contains language authorizing the bankruptcy court to 'hear and determine' these claims is [ ] unavailing. This order confirmed the bankruptcy court's subject matter jurisdiction; it did not Page 177
address the bankruptcy court's authority to enter final judgments under Article I.[125]
In addition, Bankruptcy Rules 7008(a) and 7012(b) provide a far more direct means for litigants to indicate their express consent to the entry of final judgment in non-core adversary proceedings.[126] As the language in these rules suggests, express consent implies both an acknowledgment that a proceeding is non-core and assent to the bankruptcy court's entry of a final judgment notwithstanding the right to have the claim determined by an Article III judge. A general statement that jurisdiction is retained to " hear and determine" an adversary proceeding does not, without more, indicate such consent because section 157(b)(1) uses the same terms to refer to a bankruptcy court's authority to enter final judgments on core claims -- and a bankruptcy judge can exercise that authority without consent.
As discussed, the Plan language must be considered in the context of Judge Bernstein's determination that the proceeding was core and in light of Stern .[127] For example, section 11.1(p) of the Plan states that the court retains jurisdiction to " hear and determine," inter alia , fraudulent conveyance actions. Fraudulent conveyance actions " arise under" section 548 of the Bankruptcy Code and are listed as core in section 157(b)(2), but following Stern , courts have held that bankruptcy judges may not enter final judgments in such cases absent the consent of the parties.[128] Although " hear and determine" is used in both sections 11.1(j) and 11.1(p), it cannot seriously be argued that section 11.1(p) indicates express consent under section 157(c)(2). Page 178
Following Stern , and absent express consent, the bankruptcy court would be required to issue proposed findings of fact and conclusions of law on either pre- or post-confirmation fraudulent conveyance actions brought by Skyline.[129] Accordingly, I find that Skyline did not consent to the entry of a final judgment on non-core claims and the Judgment is vacated.[130]
B. Authority Under Section 157
There is an additional problem that requires remand of this appeal for further proceedings. Judge Bernstein relied on cases that stand for the proposition that jurisdiction is determined at the time of the filing of an adversary proceeding and concluded that " [a]t the time that the [Skyline] Action was removed and the ESB Action was commenced in this Court, the claims and counterclaims asserted, at a minimum, ' related to' or were non-core claims in Skyline's bankruptcy case." [131] While jurisdiction may continue to exist, it does not follow that the adversary proceedings continued to be " related to" the bankruptcy case for purposes of section 157.[132] The nature of the claims that went to trial,[133] the confirmation of the Plan, and the issuance of the Final Decree, strongly suggest that the claims were no longer related to Skyline's bankruptcy case. The issue, then, is not solely whether Skyline consented to the court hearing a non-core matter. If the claims are not " related to" the bankruptcy case, then even consent might not permit the bankruptcy court to hear the matter.[134] Thus, if section 157(c) Page 179
does not apply, the issuance of proposed findings of fact and conclusions of law may exceed the scope of the reference under section 157(a). It is for this reasons that I cannot simply treat Judge Bernstein's rulings as proposed findings of fact and conclusions of law pursuant to section 157(c)(1). Accordingly, this case is remanded for the limited purpose of asking the esteemed bankruptcy judge to consider the basis for issuing proposed findings of fact and conclusions of law pursuant to section 157(c)(1) or other authority. In addition, the bankruptcy court should determine which claims were core when decided and, if necessary, enter a separate judgment with respect to only those claims. Upon receiving the bankruptcy court's decision explaining the basis for his authority to issue proposed findings of fact and conclusions of law, this Court will make a final determination of whether to request such findings and conclusions or to withdraw the reference for further proceedings.[135]
Accordingly, I hold that: (1) Sky line did not consent to the bankruptcy court's power to enter a final judgment over non-core matters; (2) Skyline's claims are not core; and (3) there is a need for a further explanation as to whether the bankruptcy court had the power to hear the Sky line claims and to issue proposed findings of fact and conclusions of law with respect to those claims. The Judgment is hereby vacated and this case is remanded to the bankruptcy court for the limited purposes just described.