Opinion ID: 692988
Heading Depth: 2
Heading Rank: 1

Heading: Bankruptcy Contribution Claim

Text: 18 Cadle argues that the district court erred in concluding that there was no cause of action for contribution under Sec. 362 of the Bankruptcy Code. Additionally, Cadle contends that the bankruptcy court had jurisdiction over its third-party claim against Svara through federal question jurisdiction, apparently based on the notion that its contribution claim is based on federal law. More specifically, Cadle asserts that the entire case, including the third-party demand against Svara, revolved around the application of 11 U.S.C. Sec. 362. According to Cadle, [i]f this third-party demand were brought as an independent indemnity action, it could be brought in federal court, as the primary issue to be determined would be whether a violation of Sec. 362 occurred. Therefore, Cadle posits that the district court had federal question jurisdiction under 28 U.S.C. Sec. 1331. Cadle's contention, however, is misplaced, as there is no contribution action in Sec. 362 of the Bankruptcy Code. 19 The Supreme Court has concluded that a right to contribution may arise in either of two ways: first, through the affirmative creation of a right of action by Congress, either expressly or by clear implication; or, second, through the power of federal courts to fashion a federal common law of contribution. Texas Indus. v. Radcliff Materials, 451 U.S. 630, 638, 101 S.Ct. 2061, 2066, 68 L.Ed.2d 500 (1981). 20 There is no express right to contribution in Sec. 362 of the Bankruptcy Code. Wieboldt Stores, Inc. v. Schottenstein, 111 B.R. 162, 167 (N.D.Ill.1990) (Nowhere does the Bankruptcy Code expressly provide for a right to contribution.); Barber v. Riverside Int'l Trucks, Inc. (In re Pearson Indus.), 142 B.R. 831, 848 (Bankr.C.D.Ill.1992) (same); see also Edward M. Fox & James Gadsden, Rights of Indemnification and Contribution among Persons Liable for Fraudulent Conveyances, 23 Seton Hall L.Rev. 1600, 1602-03 ([I]t is quite clear that no right of contribution exists under the Bankruptcy Code). Thus, as the Supreme Court noted, if a right to contribution exists, it must be by implication. Texas Indus., 451 U.S. at 639, 101 S.Ct. at 2066. The Court instructs that in discerning such an implication by Congress [o]ur focus ... is on the intent of Congress. Id. Moreover, we may divine congressional intent by looking at the legislative history and other factors: e.g., the identity of the class for whose benefit the statute was enacted, the overall legislative scheme, and the traditional role of the states in providing relief. Id. 21 Cadle cites no legislative history indicating congressional intent to create a cause of action for contribution. On the other hand, the purpose of the automatic stay provisions are clear. As the legislative history of Sec. 362 notes, the automatic stay is designed to protect debtors from creditors and creditors from each other. S.Rep. No. 989, 95th Cong., 2d Sess. 49-55 (1978), reprinted in 1978 U.S.C.C.A.N. 5787, 5835-41 (The automatic stay ... provides creditor protection.... The automatic stay is one of the fundamental protections provided by the bankruptcy laws.); see also Hunt v. Bankers Trust Co., 799 F.2d 1060, 1069 (5th Cir.1986) (discussing the goal of the automatic stay to prevent a chaotic and uncontrolled scramble for the debtor's assets (internal quotation omitted)); In re Prairie Trunk Ry., 112 B.R. 924, 928 (Bankr.N.D.Ill.1990) (noting that [t]he intent behind section 362 is principally to protect a debtor by giving him relief from creditors in accordance with the policy of the Bankruptcy Code of affording the debtor an effective fresh start.). There is nothing in the legislative history of Sec. 362 or in the case law interpreting that history to indicate that Sec. 362(h) is designed to protect creditors who ignore the automatic stay. Cf. Wieboldt Stores, 111 B.R. at 168 (noting, in the fraudulent conveyance context, that third-party plaintiffs are not members of the class for whose benefit the Bankruptcy Code was enacted). It is clear that here, as was evident for the petitioner in Texas Industries, Cadle is a member of the class whose activities Congress intended to regulate for the protection and benefit of an entirely distinct class. Texas Indus., 451 U.S. at 639, 101 S.Ct. at 2066 (internal quotation omitted). 22 The combination of these two factors--the absence of legislative history mentioning contribution and the fact that Sec. 362(h) was not enacted to protect violators of the automatic stay--indicates that Congress did not intend to create a cause of action for contribution in Sec. 362 of the Bankruptcy Code. As the Supreme Court made clear in deciding whether the antitrust law included an implied cause of action for contribution, [t]he absence of any reference to contribution in the legislative history or of any possibility that Congress was concerned with softening the blow on joint wrongdoers in this setting makes examination of other factors unnecessary. Texas Indus., 451 U.S. at 639, 101 S.Ct. at 2066. We, as other courts examining this issue, agree, and, consequently, we find no implied right of contribution in the Bankruptcy Code. See, e.g., Wieboldt Stores, 111 B.R. at 168; In re Pearson Indus., 142 B.R. at 848; Neill v. Borreson (In re John Peterson Motors), 56 B.R. 588, 591 n. 5 (Bankr.D.Minn.1986). 23 If, as in the instant case, a right to contribution is not affirmatively created by the statute, then such a right may exist only through federal common law. Texas Indus., 451 U.S. at 640, 101 S.Ct. at 2066. We do not wantonly use our power to fashion common-law remedies, for the Supreme Court has cautioned us to invoke the power of the federal common law only when either a federal rule of decision is necessary to protect uniquely federal interests, [or] ... Congress has given the courts the power to develop substantive law. Id. (internal quotation and citations omitted). This grant of power is very narrow, and although bankruptcy might seem to be a uniquely federal interest, the Court has stated that, the existence of congressional authority under Art. I [does not] mean that federal courts are free to develop a common law to govern those areas until Congress acts. Id. at 641, 101 S.Ct. at 2067. Instead, the Court has declared that absent some congressional authorization to formulate substantive rules of decision, federal common law exists only in such narrow areas as those concerned with the rights and obligations of the United States, interstate and international disputes implicating the conflicting rights of States or impairing our relations with foreign nations, and admiralty cases. Id. Simply put, bankruptcy is not an area where the courts have wide discretion to fashion new causes of action. As one lower court noted, in enacting the Bankruptcy Code Congress created a comprehensive legislative program providing for no right to contribution. Wieboldt Stores, 111 B.R. at 168. The Supreme Court spoke similarly, noting that, [t]he presumption that a remedy was deliberately omitted from a statute is strongest when Congress has enacted a comprehensive legislative scheme. Northwest Airlines, Inc. v. Transport Workers Union, 451 U.S. 77, 97, 101 S.Ct. 1571, 1583-84, 67 L.Ed.2d 750 (1981). Accordingly, like the court in Wieboldt Stores, we refuse[ ] to fashion a new remedy that might disturb this carefully considered legislative scheme. Wieboldt Stores, 111 B.R. at 168; see also In re John Peterson, 56 B.R. at 591 n. 5 (finding that third-party contribution claim was based in state law because federal common law did not provide for such a claim in Title 11); Fox & Gadsden, supra, at 1605 (concluding that there is simply no basis on which a right of indemnification or contribution can be found under federal common law). 24 Cadle correctly notes that the Supreme Court recognized a cause of action for contribution under Sec. 10-b of the Securities Exchange Act of 1934. See Musick, Peeler & Garrett v. Employers Ins., --- U.S. ----, 113 S.Ct. 2085, 124 L.Ed.2d 194 (1993). That case, however, is readily distinguishable from the case at bar. First, in Employers Insurance, the Court noted that because the private right of action under Rule 10b-5 was implied by the judiciary[,] ... [t]he federal courts have accepted and exercised the principal responsibility for the continuing elaboration of the scope of the 10b-5 right and the definition of the duties it imposes. Id. at ----, 113 S.Ct. at 2089. The Court also mentioned that its power to shape the contours of the 10b-5 cause of action was reinforced by obvious legislative consideration of that power in federal legislation. Id. Thus, the Court in Employers Insurance found that Congress had implicitly given courts the ability to develop 10b-5 law. That is not the situation under the automatic stay provisions; the remedies under 362(h) are not judicially created, and Cadle cites nothing to indicate congressional intent for courts to develop the cause of action for violations of the automatic stay. 2 25 Second, in Employers Insurance, the Court was persuaded by the existence of a right of contribution in parallel securities actions. Specifically, the Court found that these explicit provisions for contribution are an important, not an inconsequential, feature of the federal securities law and that consistency requires us to adopt a like contribution rule for the right of action existing under Rule 10b-5. Id. at ----, 113 S.Ct. at 2091. In the instant case, however, Cadle cites no bankruptcy provisions recognizing a third-party right of contribution. Accordingly, Employers Insurance does not support the creation of a cause of action for contribution under Sec. 362 of the Bankruptcy Code.