Opinion ID: 434731
Heading Depth: 1
Heading Rank: 2

Heading: Bankruptcy Court Contempt Power

Text: 20 The fundamental question before us is the constitutionality of Congress's delegation in the 1978 Bankruptcy Reform Act of civil contempt powers to bankruptcy courts. The district court, in a thorough, analytical opinion found that exercise of the contempt power by the bankruptcy judge was unconstitutional. The core analysis of the district court's opinion was that the judicial power of the United States can be vested only in Article III judges, that bankruptcy judges are not Article III judges, and that the delegation of contempt power to bankruptcy judges is therefore unconstitutional. 21 We do not pass on the merits of the district court's analysis; we conclude that the district court erred in failing to give proper recognition to the prospective holding of Northern Pipeline Construction Co. v. Marathon Pipe Line Co., 458 U.S. 50, 102 S.Ct. 2858, 73 L.Ed.2d 598 (1982). In holding that the decision regarding the unconstitutionality of the Bankruptcy Reform Act of 1978 should not be applied retroactively, the Supreme Court stated: 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. We hold, therefore, that our decision today shall apply only prospectively. 458 U.S. at 88, 102 S.Ct. at 2880. 3 22 The question then arises whether the prospective application is limited to Sec. 1471 jurisdiction, which the Northern Pipeline concurrence argues was the only issue before the Court, or includes the entire Bankruptcy Act and thus Sec. 1481, which provides for the exercise of contempt powers by the bankruptcy judge. 4 The Second Circuit in Martin-Trigona v. Shiff, 702 F.2d 380, 384 n. 8 (2d Cir.1983), was faced with this question in a similar civil contempt proceeding. The Second Circuit reasoned that when the Supreme Court stated its decision would apply only prospectively, the Court intended for the decision not to affect bankruptcy court decisions pending on appeal before June 28, 1982, the date of the Supreme Court opinion. Id. (quoting Barnes v. Whelan, 689 F.2d 193, 196 n. 1 (D.C.Cir.1982)). This included contempt proceedings. 23 We agree with the Second Circuit's reasoning. The full import of the Supreme Court's prospective decree is that prior to Northern Pipeline, the bankruptcy court was vested with plenary jurisdiction to act in accord with the congressional grant. The congressional grant included the power of contempt. See 28 U.S.C. Sec. 1481; 18 U.S.C. Sec. 401. Were this reasoning not followed, pre-Northern Pipeline bankruptcy decisions would be subject to continuing ad hoc attacks on the various congressional grants of bankruptcy power under the Reform Act. The plurality opinion recognized this when it stated: 24 In these circumstances we cannot conclude that if Congress were aware that the grant of jurisdiction could not constitutionally encompass this and similar claims, it would simply remove the jurisdiction of the bankruptcy court over these matters, leaving the jurisdictional provision and adjudicatory structure intact with respect to other types of claims, and thus subject to Art. III constitutional challenge on a claim-by-claim basis. 25 458 U.S. at 87 n. 40, 102 S.Ct. at 2880 n. 40 (emphasis added). We view this statement and the prospective application of Northern Pipeline as precluding challenges to pre-Northern Pipeline bankruptcy decisions on a claim-by-claim basis. 26 This view is not altered by the Northern Pipeline concurrence. The position of the concurrence was that the decision should be limited to the constitutionality of Sec. 1471. However, the concurring opinion joined the majority with respect to the prospective application, and we read this as incorporating the views we derive from the plurality decision regarding the preclusion of ad hoc challenges to pre-Northern Pipeline bankruptcy decisions. 27 In addition, we take judicial note of the fact that the Judicial Conference and the Judicial Councils, in passing interim rules to give the bankruptcy courts jurisdiction via the district courts, did so assuming that other provisions under the Reform Act would not survive. These rules generally have been found constitutional. See, e.g., Oklahoma Health Services Federal Credit Union v. Webb, 726 F.2d 624, 625 (10th Cir.1984); In re Kaiser, 722 F.2d 1574, 1581 (2d Cir.1983); White Motor Corp. v. Citibank, N.A., 704 F.2d 254, 263 (6th Cir.1983). These interim rules presuppose that Northern Pipeline struck the entire Act, not just Sec. 1471, and that the prospective application thus applies to the entire Act. 5 28 We reach this conclusion cognizant of the fact that Congress is in the midst of restructuring the entire Bankruptcy Act. Whether the new Act may properly provide the bankruptcy courts with contempt power outside of Article III is of course not decided by either the district court in the decision below or the Supreme Court in Northern Pipeline. 29 Having concluded that Northern Pipeline mandates a finding of a constitutionally valid contempt power in bankruptcy courts, we must still decide if this power is limited by Bankruptcy Rule 920, 411 U.S. 989, 1100, 93 S.Ct. 3095, 3171, 37 L.Ed.2d xxxiii, lxxix (1973). 6 This rule, prescribed by the Supreme Court, gave contempt power to bankruptcy courts 7 but imposed a $250 limit on fines. Section 1481, on the other hand, states: A bankruptcy court shall have the powers of a court of equity, law, and admiralty, but may not enjoin another court or punish a criminal contempt not committed in the presence of the judge of the court or warranting a punishment of imprisonment. 28 U.S.C. Sec. 1481. 30 The powers of a court of equity, law, and admiralty are defined in 18 U.S.C. Sec. 401, which provides: 31 A court of the United States shall have power to punish by fine or imprisonment, at its discretion, such contempt of its authority, and none other, as(1) Misbehavior of any person in its presence or so near thereto as to obstruct the administration of justice; 32 (2) Misbehavior of any of its officers in their official transactions; 33 (3) Disobedience or resistance to its lawful writ, process, order, rule, decree, or command. 34 At least two district courts have read rule 920 as continuing to limit the contempt powers of bankruptcy courts even after the enactment of section 1481. Horace v. Moore, 24 B.R. 892 (D.C.N.D.Ill.1982); Martin-Trigona v. Shiff, 19 B.R. 1001, (D.C.Conn.1982). Several bankruptcy courts, on the other hand, have held that rule 920 is no longer applicable. See, e.g., In re Stacy, 21 B.R. 49, 52 (Bkrtcy.W.D.Va.1982); In re Gorin, 18 B.R. 151, 153 (Bkrtcy.D.Conn.1982); In re Lowe, 18 B.R. 20, 24 (Bkrtcy.N.D.Ga.1981); In re Eisenberg, 7 B.R. 683, 690-91 (Bkrtcy.E.D.N.Y.1980). But see In re Pal Transport, Inc., 13 B.R. 935, 940 (Bkrtcy.M.D.Fla.1981) (Since the Code is silent on this subject, there is no question that Bankruptcy Rule 920 still applies and still carries forward the limitations placed on the bankruptcy judge's power to punish for contempt.). 35 We agree with the majority of bankruptcy courts that rule 920 is no longer a limit to contempt power in view of section 1481. 8 Rule 920 was prescribed pursuant to 28 U.S.C. Sec. 2075. Both the rule and the statute were enacted before 28 U.S.C. Sec. 1481. If section 1481 is inconsistent with rule 920, section 1481 controls since it was enacted later in time. Moreover, section 405(d) of the Bankruptcy Reform Act also provides that section 1481 applies to the extent rule 920 is inconsistent. 9 36 The power of contempt is not unlimited, however, even if the contempt exercised is within the statutory grant. It has a due process limitation declared to be 'the least possible power adequate to the end proposed.'  Marshall v. Gordon, 243 U.S. 521, 541, 37 S.Ct. 448, 453, 61 L.Ed. 881 (1917) (quoting Anderson v. Dunn, 19 U.S. (6 Wheat) 204, 231, 5 L.Ed. 242 (1821)). The review by the district court therefore should have been limited to whether the contempt order was the least possible power adequate to the end proposed, and whether the findings by the bankruptcy court were clearly erroneous. The district court here made a de novo review. On the strength of the prospective application of Northern Pipeline, we find this to be error. We thus vacate the district court decision and remand for a proper review consistent with this opinion. 37 Each party shall pay its own costs.