Court Opinion

ID: 9480674
Source: CourtListenerOpinion
Date Created: 2023-08-05 07:55:01.73893+00
Date Added: 2024-06-11T17:47:50.004377
License: Public Domain

MANSMANN, Circuit Judge,
concurring.
While I concur with the majority in its result, I do not agree with the extent to which it would allow a district court to withdraw the reference sua sponte pursuant to 28 U.S.C. § 157(d) after the bankruptcy court has dismissed the bankruptcy petition. I interpret section 157(d) and the relevant caselaw to limit a district court’s discretion to withdraw the reference from the bankruptcy court sua sponte not only by requiring “cause” to be shown but by placing a timeliness restriction on such withdrawals.
There is no question that in the case before us, the bankruptcy court’s order of dismissal of the debtor’s bankruptcy petition was final. The withdrawal of the reference by the district court occurred after an appeal was taken, but prior to any ruling on that appeal by the district court. It is the withdrawal of the reference after the dismissal of the bankruptcy petition and while the appeal is pending that is disturbing.
Congress has clearly erected a structure within the bankruptcy court system which allows for the district courts to supervise the bankruptcy courts in two different capacities. Withdrawal of the reference from the bankruptcy court and the reinstatement of the district court’s original jurisdiction is one way the district court may exercise control over the proceedings in the bankruptcy court. 28 U.S.C. § 158(d). The second is through the appellate process established in section 157(a). For the reasons which follow, I believe that allowing the withdrawal of the reference to occur at any time, and especially after the appeal process has begun, would seriously disturb the statutory objective of “preserving the appellate processes provided by the Bankruptcy Act.” Matter of Powelson, 878 F.2d 976, 983 (7th Cir.1989).
I.
The jurisdictional relationship between the district courts and the bankruptcy *1170courts has been narrowly defined by the Bankruptcy Amendments of 1984 in response to Northern Pipeline Construction Co. v. Marathon Pipe Line Co., 458 U.S. 50, 102 S.Ct. 2858, 73 L.Ed.2d 598 (1982) (invalidated jurisdictional provisions of 1978 Act under which bankruptcy judges were permitted to decide state-law actions). The Amendments were intended by Congress, however, “to retain as much as possible of the bankruptcy court structure created by the 1978 Act, within the constitutional constraints spelled out in Marathon." In re White Motor Corp., 42 B.R. 693, 697 (N.D.Oh.1984).
Unfortunately, the congressional legislative history shows little in regard to reconciling the appellate responsibilities of district courts over bankruptcy courts of section 157(a) and the withdrawal of the reference of section 157(d). See, e.g., id. at 699. Nevertheless, remarks by legislators indicate that although the bankruptcy courts are to be- considered “adjuncts” of the district court, “ ‘CORE’ bankruptcy cases continue to be determined by Article I bankruptcy judges_” Id. (quoting 130 Cong. Rec. S6085 (daily ed. May 21, 1984) (remarks of Sen. Heflin) (capitalization in the original). Congressional intent to preserve the bankruptcy court structure of the 1978 Act is evidenced by the Amendments, S.Rep. No. 55, 98th Cong., 1st Sess., and the legislative debate, constrained only by the jurisdictional limits set forth in Marathon. Id. Finally, during the Senate debate, a narrow reading of section 157(d) was suggested to the extent that “[t]he district court should refuse withdrawal if withdrawal would unduly delay administration of the case, considering the status of the case, the importance of the proceeding to the case, and the relative caseloads of the district court and bankruptcy judge.” Id. at 700 (quoting 130 Cong.Rec. S6081 (daily ed. June 19, 1984) (remarks of Sen. DeConcini) (emphasis added).
Accordingly, it is evident that although Congress intended to avoid the jurisdictional problems evinced by Marathon, it did not intend for the indiscriminate withdrawal of the reference from the bankruptcy courts. Conversely, Congress intended to develop a means to reduce the caseload of the district courts, to create a specialized court to handle core bankruptcy proceedings efficiently and to preserve the specialized authority of the Article I bankruptcy judges over core bankruptcy proceedings while protecting the district courts’ supervisory powers.
After carefully researching the issue of discretionary withdrawal of the reference sua sponte after dismissal of the petition by the bankruptcy court, I have found that there is little authority directly on point. There may be little because district courts do not withdraw the reference under these circumstances. Indeed the United States District Court for the Northern District of Illinois stated that it was only “common sense” that withdrawal must occur prior to dismissal of the bankruptcy proceeding. In re Mandalay Shores Cooperative Housing Ass’n, Inc., 58 B.R. 586, 587 (N.D.Ill.1986). The Court of Appeals for the Fifth Circuit has clearly implied that upon the final disposition of a core proceeding, a district court must proceed under its appel-' late jurisdiction. Carlton v. Baww, Inc., 751 F.2d 781, 788 n. 10 (5th Cir.1985). This proposition in Carlton was recently noted by the Court of Appeals for the Seventh Circuit in Powelson. Indeed, the majority cites this with approval.
The Court of Appeals for the Fifth Circuit has recognized these same objectives espoused by Congress in suggesting that judicial economy should affect the decision to withdraw the reference as well as “the goals of promoting uniformity in bankruptcy administration, reducing forum, shopping and confusion, fostering the economical use of the debtors’ and creditors’ resources, and expediting the bankruptcy process.” Holland America Ins. Co. v. Succession of Roy, 777 F.2d 992, 999 (5th Cir.1985). The Court of Appeals for the Seventh Circuit has also expressed concern about the withdrawal of the reference in circumstances similar to the facts here with the following language:
The timing of the court’s withdrawal of the reference here (after the final order, but prior to the resolution of the appeal), *1171even if not improper, seems to be in conflict with the statutory objectives of utilizing the expertise of bankruptcy judges, reducing forum shopping and preserving the appellate processes provided by the Bankruptcy Act.
Powelson, 878 F.2d at 983.
District courts have also commented on the need to restrict withdrawal of the reference from the bankruptcy courts. A district court’s “own motion to withdraw the reference should be made as promptly as possible in light of the developments in the bankruptcy case or proceeding and when no substantial prejudice will result to any party.” In re American Community Services, Inc., 86 B.R. 681, 685-86 (D.Utah 1988) (citing e.g. Burger King Corp. v. B-K of Kansas, Inc., 64 B.R. 728 (D.Kan.1986); Interconnect Telephone Services, Inc. v. Barren, 59 B.R. 397 (S.D.N.Y.1986); In re Baldwin-United Corp., 57 B.R. 751 (S.D.Ohio 1985)). Certainly, the withdrawal of the reference once the petition has been dismissed would be prejudicial to a party relying upon the bankruptcy court’s final judgment.
II.
I recognize that 28 U.S.C. § 157(d) requires that motions made by parties to withdraw the reference must be “timely,” but does not expressly require the court’s own motion to be timely. “Conceivably, the court could withdraw the reference of a case or adversary proceeding at any time if ‘cause’ is shown.” In re American Community Services, Inc., 86 B.R. 681, 685 (D.Utah 1988) (citing White Motor Corp., 704 F.2d at 265). I am not comforted in my unease with this assault to the system by the obvious fact that cause to withdraw the reference will be present in “only a narrow set of circumstances,” Id. at 686, nor that permissive withdrawal lies within the sound discretion of the court, “predicated upon ‘cause’ shown on a case by case basis.” Id.
One commentator has noted that “it would seem that the district court would be unlikely to find cause to withdraw the reference at a late stage in a civil proceeding, e.g., when trial is a short time away_ [A] motion to withdraw is timely ‘if it was made as promptly as possible in light of the developments in the bankruptcy proceeding.’ ” 1 Collier on Bankruptcy ¶ 3.01[2][e], at 3-63 (15th ed. 1990). Interestingly, while Collier notes that the case-law disfavors withdrawal “when trial is a short time away,” the circumstances here would appear to present a stronger argument against withdrawal at any time once an appeal has been taken, “in light of the developments in the bankruptcy proceeding.” Id.
In a concurring opinion in Powelson, Senior District Judge Will, sitting with the Court of Appeals for the Seventh Circuit by designation, commented on this issue by asserting that “[ojnce a plan has been approved by a bankruptcy judge, unless there are extraordinary circumstances, I believe the Bankruptcy Act contemplates an appeal from that approval and not a withdrawal and substitution by the district judge of a de novo plan while ostensibly staying the appeal.” Id. at 985 (Will, D.J., concurring). The majority makes a similar broad statement in footnote 9; however, I am at a loss to discover even one such “extraordinary case.” On the other hand, Judge Will appeared to make this statement in regard to cases where “a plan has been approved by the bankruptcy judge,” where the bankruptcy petition is still pending before the bankruptcy court. In the case before us, the petition is no longer pending since it has been dismissed. If we are to accept the language of Powelson, it is evident that we must resolve the issue before us on timeliness constraints.
III.
In light of the foregoing, it is clear to me that withdrawing the reference once an appeal has been taken would only create confusion for all parties in bankruptcy proceedings, diminish the uniformity of bankruptcy administration, and evidence a total disregard for the bankruptcy appellate process established by section 157(a). Holland, 777 F.2d at 999. I believe a clear articulation of a timeliness restriction for *1172withdrawal of the reference sua sponte by the district courts would be. beneficial in avoiding prejudice to any party and to furthering “the statutory objectives of utilizing the expertise of bankruptcy judges, reducing forum shopping and preserving the appellate processes provided by the Bankruptcy Act.” Powelson, 878 F.2d at 983.
Such a restriction should limit the withdrawal to any time prior to the dismissal of the matter by the bankruptcy court. If the matter has been dismissed, the district court must proceed in its appellate capacity under 28 U.S.C. § 158(a). The district court may, in its own discretion, withdraw the reference only after the bankruptcy court’s order dismissing the matter has been reversed. This formulation would preserve the balance between appellate procedures established for the bankruptcy courts in section 158(a) and the procedures set forth in 28 U.S.C. § 157(d) for withdrawal of the reference. Furthermore, the district courts, though limited in terms of “when” withdrawal of the reference sua sponte may occur, would not be limited in their supervisory capacity of the bankruptcy courts since the reference may be withdrawn either prior to the dismissal of the matter by the bankruptcy court or after the reversal of the dismissal properly appealed to the district court under section 158(a).
Although the majority correctly held that the district court had failed to show cause for withdrawing the reference, I believe the reasoning must reach the timeliness of the withdrawal as well. Based on the above rationale, I concur with the majority’s decision to vacate and remand the case for further disposition of Pruitt’s appeal, not only for failing to show cause, but also for the lack of timeliness of the withdrawal post-dismissal.