Source: http://www.chanrobles.com/usa/us_supremecourt/454/354/case.php
Timestamp: 2019-10-18 23:26:42
Document Index: 275900936

Matched Legal Cases: ['§ 403', '§ 701', '§ 101', '§ 403', '§ 403', '§ 405', '§ 403', '§ 403', '§ 101', '§ 403', '§ 403', '§ 403', '§ 403', '§ 403']

CENTRAL TRUST CO. V. CREDITORS' COMM., 454 U. S. 354 (1982) - US SUPREME COURT DECISIONS ON-LINE
US Supreme Court Decisions On-Line> Volume 454 > CENTRAL TRUST CO. V. CREDITORS' COMM., 454 U. S. 354 (1982)
CENTRAL TRUST CO. V. CREDITORS' COMM., 454 U. S. 354 (1982)
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Held: The Court of Appeals' decision conflicts with § 403(a)'s plain meaning as well as its legislative history. Section 403(a) makes no exception for petitions to be refiled under the New Code. Nor does Rule 11-42(a) provide authority for the procedure. That Rule's language clearly contemplates a voluntary dismissal which results in an adjudication of bankruptcy or revests title of all property in the debtor and removes from it the protection of the bankruptcy laws. It does not contemplate a dismissal, such as the one here, which neither declares the debtor bankrupt nor restores the creditors' rights against the debtor's property, but simply holds matter in abeyance while the debtor files a petition under the New Code.
Certiorari granted; 635 F.2d 106, reversed. chanroblesvirtualawlibrary
On August 15, 1979, Geiger Enterprises, Inc. (Geiger), filed a petition in the United States District Court for the Western District of New York seeking relief under Chapter XI of the Bankruptcy Act of 1898 (formerly 11 U.S.C. § 701 et seq.) (Bankruptcy Act). Geiger continued operating its business as a debtor-in-possession, and numerous creditors filed claims, including a claim by the United States for $2,075,674.64 in unpaid taxes. Respondent Official Creditors' Committee was established by the Bankruptcy Court to represent the interests of creditors with relatively small claims.
On October 1, 1979, the Bankruptcy Reform Act of 1978, Pub.L. 95-598, 92 Stat. 2549, 11 U.S.C. § 101 et seq. (1976 ed., Supp. IV) (New Code), became effective. Thereafter, several of Geiger's wholly owned subsidiaries and affiliate corporations filed petitions for relief under Chapter 11 of the New Code. On January 9, 1980, Geiger moved to dismiss its Chapter XI petition on the representation that, if dismissal were granted it too would immediately file a petition under Chapter 11 of the New Code and would seek substantive consolidation of its proceedings with the proceedings of its subsidiary and affiliate corporations.
Id. at A-19.
On appeal, the District Court's decision was, in turn, reversed by the United States Court of Appeals for the Second Circuit. In re Geiger Enterprises, Inc., 635 F.2d 106 (1980). The Court of Appeals held "that Rule 11-42(a) must be read chanroblesvirtualawlibrary
in conjunction with section 403(a)" to permit dismissal and refiling in certain cases, and that "[t]he operative test is whether the estate's best interest will be served by" such procedure. Id. at 109. The Court of Appeals qualified this test by holding that dismissal and refiling would be improper if they prejudiced the claims of the creditors, and remanded the case so that the Bankruptcy Court and District Court could consider the existence of actual prejudice.
The language of § 403(a) is unequivocal. It provides that cases filed under the Bankruptcy Act "shall be conducted and determined under such Act as if [the New Code] had not been enacted." It makes no exception for petitions to be refiled under the New Code; indeed, it expressly provides that petitions such as Geiger's "shall continue to be governed" by the Bankruptcy Act. Any exception to this mandate recognized by the Court of Appeals is of wholly judicial creation, supported by neither the language of the New Code nor its legislative history. [Footnote 1] chanroblesvirtualawlibrary
Nor does Rule 11-42(a) provide authority for the procedure. The language of the Rule clearly contemplates a voluntary dismissal which results in an adjudication of the debtor's bankruptcy or one which revests title of all property in the debtor and removes from it the protection of the bankruptcy laws. It does not contemplate a dismissal, such as the one in this case, which neither declares the debtor bankrupt nor restores the creditors' rights against the debtor's property, but simply holds matters in abeyance while the debtor files its petition under a new law. [Footnote 2] Even if it were chanroblesvirtualawlibrary
possible to so interpret Rule 112(a), the Rule would not modify the clear command of § 403(a). The Rules of Bankruptcy Procedure are applicable under the New Code only "to the extent not inconsistent with the amendments made by [the New Code]." [Footnote 3] Transitional Rules § 405(d), 92 Stat. 2685. As interpreted by the Court of Appeals, Rule 112(a) clearly conflicts with § 403(a).
Caminetti v. United States, 242 U. S. 470, 242 U. S. 485 (1917). While the Court of Appeals may have reached a practical result, it was a result inconsistent with the unambiguous language used by Congress. Accordingly, the petition for a writ of certiorari is granted, and the judgment is reversed.
14 W. Collier, Bankruptcy ¦ 11-42.07 (14th ed.1976).
If a bankruptcy judge, with the consent of all parties to a proceeding commenced prior to October 1, 1979, correctly concluded that the best interest of the estate and all its creditors and the judiciary would be served by permitting the voluntary dismissal of that proceeding and the immediate commencement of a new proceeding under the New Code, would that action be prohibited by § 403(a) of the Bankruptcy Reform Act of 1978, Pub.L. 95-598, 92 Stat. 2683, note preceding 11 U.S.C. § 101 (1976 ed., Supp. IV)? I think not. Although two creditors objected to the dismissal in this case, the Court today leaves no doubt about its answer to this question. Despite its recognition that "the Court of Appeals may have reached a practical result," ante this page, and that "consolidation of Geiger's petition with those of its subsidiaries and affiliates would serve the best interests of the estate [and] would conserve judicial resources," ante at 454 U. S. 359, the Court holds that Congress expressly forbade such a result when it enacted § 403(a).
It seems most unlikely that Congress would have commanded the result the Court reaches today if it had contemplated the set of facts confronting the Bankruptcy Court in this case. The purpose of the New Code was to modernize the bankruptcy laws and to make the system more workable and efficient. H.R.Rep. No. 95-595, pp. 3, 52 (1977). Permitting chanroblesvirtualawlibrary
Moreover, I believe that the Court of Appeals' holding is faithful to the language of § 403(a). That provision contains two commands relating to proceedings commenced prior to the effective date of the New Code; one command is procedural and the other is substantive. The procedural command requires that proceedings commenced prior to October 1, 1979, be conducted under the Bankruptcy Act. [Footnote 2/1] The substantive command requires that the rights of the parties in such proceedings continue to be governed by that statute. [Footnote 2/2]
The procedural command was followed in this case. The original petition was filed on August 15, 1979, and was dismissed pursuant to Rule 11-42(a) of the Rules applicable to cases commenced under the Bankruptcy Act. That Rule expressly authorizes a voluntary dismissal based upon a finding that such action is "in the best interest of the estate." [Footnote 2/3] As chanroblesvirtualawlibrary
the Court of Appeals noted, "the best interests of the estate must be interpreted to mean those of the creditors, as well as the debtor," [Footnote 2/4] and whether dismissal of the original petition and refiling under the New Code is in the best interest of the creditors in this case is not clear from the record. The Court of Appeals instructed the Bankruptcy Court to consider on remand whether a refiling under the New Code and consolidation of the bankruptcy petitions of Geiger and its affiliates and subsidiaries would affect the creditors' substantive rights. If substantive rights of the creditors "are in fact materially prejudiced," In re Geiger Enterprises, Inc., 635 F.2d 106, 109 (CA2 1980), then dismissal of the original petition will not be permitted. If dismissal is determined to be in the best interest of all parties, then such action is permitted by Rule 11-42(a); the procedural command of § 403(a), therefore, will have been satisfied.
Likewise, the Court of Appeals' disposition assures that the substantive command of § 403(a) will be followed. If dismissal s in the best interest of the estate, meaning in this case that the creditors' substantive rights are not materially prejudiced, then dismissal of the original petition is authorized by the Bankruptcy Act. In such a case, the creditors' chanroblesvirtualawlibrary
Even if I were persuaded that Congress intended to enact the inflexible rule the Court enforces today, I still would not decide that issue in this case. It is probable that the question raised by the certiorari petition would become moot if the Court were to follow its normal practice of declining to review interlocutory orders. [Footnote 2/5] The United States, which has a $2,075,674.64 tax claim at stake, while agreeing with this Court's reading of § 403(a), recognizes that the question is of "limited administrative importance," and does not merit review by this Court. [Footnote 2/6] The only practical consequence of the Court's holding is to impose unnecessary work on busy federal judges. The Bankruptcy Court and three Circuit Judges recognized that it would be more efficient to conduct a single consolidated proceeding, rather than separate proceedings for a group of affiliated bankruptcy petitioners. Meanwhile, this Court expends its scarce time and energy in a case that at best involves an error that is harmless to the parties and the law.
Considering only one creditor, the United States, given the differences in treatment accorded tax claims under the two statutes, see 635 F.2d 109, it is unlikely that the Bankruptcy Court would find that it is in the best interest of the Government to proceed under the New Code.