Opinion ID: 416587
Heading Depth: 2
Heading Rank: 1

Heading: White Motor's Contentions

Text: 7 White Motor challenges the District Court's ruling, 23 B.R. 276, on several grounds, and the Bank creditors find fault with much of the reasoning employed by the District Court. First, the debtor argues that the appointment order should stand because the Supreme Court specified that its decision in Northern Pipeline should be applied prospectively only. The plurality opinion states that it is plain that retroactive application would not further the operation of our holding, and would surely visit substantial injustice and hardship upon those litigants who relied upon the Act's vesting of jurisdiction in the bankruptcy courts. Northern Pipeline, supra, 102 S.Ct. at 2880. The concurring justices agree that the decision should not be applied retroactively. Id. 102 S.Ct. at 2882. White Motor interprets this holding to mean that any action, including actions establishing procedures for future adjudication of cases, taken by a Bankruptcy Court prior to the lifting of the stay, should be given full effect. In other words, the appointment order giving the special master adjudication authority should be upheld despite the fact that the special master would be trying the cases after December 24, 1982, because the authority itself was granted prior to the Northern Pipeline decision. 8 In the alternative, the debtor contends that the Northern Pipeline ruling does not affect the jurisdiction of Article III judges of the District Court as granted in 28 U.S.C. Secs. 1471(a) and (b) or, alternatively, in 28 U.S.C. Sec. 1334. 2 Their argument here is that the District Court, after the decision in Northern Pipeline, made a constitutionally valid general referral of cases, including the White Motor case, to the Bankruptcy Court. This referral was done under the authority of an interim rule adopted by the district court in the Northern District of Ohio, as outlined below. 9 Shortly after the Northern Pipeline decision was rendered, the Judicial Conference of the United States requested that William E. Foley, Director of the Administrative Office of the United States Courts, draft an interim rule to be recommended for adoption by the District Courts, a rule which would provide for the continuing operation of the bankruptcy system should Congress fail to act within the stay period. Judicial Conference Resolution (Sept. 23, 1982). This measure was taken to prevent the possible breakdown of existing institutional arrangements for debt collection and debtor protection nationwide. 10 Mr. Foley submitted a proposed rule to the Conference, which then circulated it to all of the bankruptcy, district and appeals court judges. Each of the eleven Judicial Councils of the Circuits ordered the district courts to adopt the interim rule with only minor modifications. In particular, the Judicial Council of the Sixth Circuit ordered on December 21, 1982, that each district court adopt the rule which would become effective as of the lifting of the stay on December 24, 1982. The district courts in this Circuit have all adopted the rule proposed by the Administrative Office without any modifications. 11 The interim rule essentially contains the institutional pattern for handling bankruptcy matters as it was under the Chandler Act (act of June 22, 1938, ch. 575, 52 Stat. 840, 75th Cong., 3d Sess.) The rule basically revives the old system under which federal district courts referred bankruptcy cases to the bankruptcy courts or referees. The rule provides for the initial adjudication of bankruptcy matters primarily in the bankruptcy courts, with significant involvement by the district courts. The rule provides for the automatic initial referral to the bankruptcy courts of all cases arising under the Bankruptcy Act and all civil proceedings arising in or related to cases brought under 11 U.S.C. Although automatic, the referral may subsequently be withdrawn by the district court for any reason at any time during the proceedings. The bankruptcy courts may issue orders which become effective upon entry in all traditional bankruptcy proceedings. In related cases, defined in part as claims brought by the estate against the parties who have not filed claims against the estate (the Northern Pipeline type case), only the district court may issue a final order unless the parties consent to disposition by the bankruptcy judge. Finally, all orders entered by the bankruptcy judges are subject to de novo review in the district courts. Orders issued in related matters must be reviewed by the district court, while orders entered in the standard or traditional proceedings may be reviewed upon the motion of a party or sua sponte by the district court. The full text of the interim rule is contained in the appendix to this opinion. 12 White Motor contends that the system embodied in the interim rule, which modifies the procedures established by the 1978 Act, gives the Bankruptcy Court jurisdiction to continue to conduct the White Motor reorganization proceedings. Under this jurisdiction, the debtor contends, the bankruptcy judge may appoint a special master to facilitate the reorganization process. Therefore, White Motor petitions this Court to have the order appointing a special master reinstated.