Opinion ID: 451645
Heading Depth: 2
Heading Rank: 1

Heading: Bankruptcy Subject Matter Jurisdiction

Text: 7 Hyatt argues that Northern Pipeline struck down 28 U.S.C.A. Sec. 1471 in its entirety. 2 8 In 1978, Congress enacted a comprehensive revision of the bankruptcy laws, the Bankruptcy Reform Act of 1978 (the Act). 3 The jurisdictional provision of the Act is found at section 241(a), 28 U.S.C.A. Sec. 1471. Section 1471(b) vests in the district courts original but not exclusive jurisdiction over all civil proceedings arising under title 11 [the bankruptcy title] or arising in or related to cases under title 11. 28 U.S.C.A. Sec. 1471(b). The ultimate repositor[ies] of the Act's broad jurisdictional grant, however, were the bankruptcy courts, Northern Pipeline, 458 U.S. at 54 n. 3, 102 S.Ct. at 2862 n. 3: 9 The bankruptcy court for the district in which a case under title 11 is commenced shall exercise all of the jurisdiction conferred by this section on the district courts. 10 28 U.S.C.A. Sec. 1471(c). 11 In Northern Pipeline the Supreme Court was presented with the question of whether the assignment by Congress to bankruptcy judges of the jurisdiction granted in 28 U.S.C. Sec. 1471 violated article III of the Constitution. 458 U.S. at 53, 102 S.Ct. at 2862 (emphasis added). Specifically, the Court was concerned that section 1471 conferred upon bankruptcy courts jurisdiction over all civil proceedings arising under the bankruptcy code and jurisdiction over issues merely related to bankruptcy proceedings. 4 12 The Court concluded that this all-encompassing grant of jurisdiction to bankruptcy courts, coupled with the broad supervisory powers conferred upon bankruptcy courts by the Act, provided no protection against the broad legislative discretion that could effectively eviscerate [article III's] constitutional guarantee of an independent judiciary. 458 U.S. at 74, 102 S.Ct. at 2873. 13 Article III operates to preserve the independence of the judiciary by requiring that the judicial power of the United States be exercised by judges having certain clearly prescribed attributes. See 458 U.S. at 59, 102 S.Ct. at 2865. Article III provides: 14 The Judges both of the supreme and inferior Courts, shall hold their Offices during good Behaviour, and shall, at stated Times, receive for their Services a Compensation, which shall not be diminished during their Continuance in Office. 15 U.S. Const. art. III, Sec. 1. 16 The Bankruptcy Reform Act of 1978 conferred upon bankruptcy courts all the essential attributes of article III courts and thereby conferred upon bankruptcy judges the judicial power of the United States. Bankruptcy judges, however, are not article III judges. 458 U.S. at 61, 102 S.Ct. at 2866. Northern Pipeline concluded, therefore, that the grant of jurisdiction to bankruptcy courts found in section 1471 was unconstitutional. 17 In concurring, Justice Rehnquist emphasized that only so much of the Act as enabled a bankruptcy court to entertain and decide the state law claims at issue violated article III. The dissenting opinions of both Chief Justice Burger and Justice White agreed that the effective basis, 458 U.S. at 94 n. 2, 102 S.Ct. at 2883 n. 2 (White, J., dissenting), of the plurality's decision was limited, 458 U.S. at 92, 102 S.Ct. at 2882 (Burger, C.J., dissenting), to the proposition that, absent the consent of the parties, a traditional state common-law action cannot be heard by a non-article III court, 458 U.S. at 92, 102 S.Ct. at 2882 (Burger, C.J., dissenting). As the Chief Justice acknowledged: 18 This limited holding, of course, does not suggest that there is something inherently unconstitutional about the new bankruptcy courts; nor does it preclude such courts from adjudicating all but a relatively narrow category of claims 'arising under' or 'arising in or related to cases under' the Bankruptcy Act. 19 458 U.S. at 92, 102 S.Ct. at 2882 (Burger, C.J., dissenting). 20 The grant of authority to bankruptcy courts to adjudicate state law claims could not be severed from the remaining grant of authority to the bankruptcy courts. The plurality concluded, therefore, that the entire jurisdictional grant to the bankruptcy courts was unconstitutional. 458 U.S. at 91-92, 102 S.Ct. at 2881-2882 (Rehnquist, J., concurring). 21 Only subsection (c) of section 1471 impermissibly removed, most if not all, of 'the essential attributes of the judicial power' from the article III district court[s], and vested those attributes in non-article III adjuncts. 458 U.S. at 87, 102 S.Ct. at 2880. Only subsection (c) of section 1471 removed jurisdiction over state law matters merely related to bankruptcy proceedings from article III district judges and assigned that jurisdiction to non-article III bankruptcy judges. 22 District courts are article III courts. The grant of bankruptcy subject matter jurisdiction to the district courts under subsections (a) and (b) of section 1471 in no way threatens the constitutional guarantee of an independent judiciary. 23 Furthermore, Hyatt's position that Northern Pipeline invalidated section 1471 in its entirety is untenable from a practicable standpoint. If Northern Pipeline had obliterated the bankruptcy subject matter jurisdiction of both the bankruptcy courts and the district courts, bankruptcy litigants would have had no forum in which to seek redress of their federally-created statutory rights. Clearly, the Supreme Court could not have intended such a result. 24 Hyatt makes a final argument that if the Supreme Court had intended to leave intact the bankruptcy subject matter jurisdiction of the district courts, it would merely have remanded Northern Pipeline to the district court, rather than staying its judgment to afford Congress an opportunity to rectify the situation. While this argument has some appeal, we conclude that the Supreme Court stayed its judgment in Northern Pipeline and expressly invited Congress to act on this issue merely to provide an impetus for Congress to act quickly. This disposition of the case did not reflect upon the Court's understanding of the bankruptcy subject matter jurisdiction of the district courts. 25 We hold, therefore, that Northern Pipeline rendered unconstitutional only subsection (c) of section 1471 and left intact the bankruptcy subject matter jurisdiction of the district courts. 26 The district court had jurisdiction over this action under 28 U.S.C.A. Secs. 1471(a) and (b). Therefore, we do not address the issues of whether bankruptcy subject matter jurisdiction is conferred upon district courts by 28 U.S.C.A. Secs. 1331 and 1334.