United States Court of Appeals, Second Circuit.: No. 259, Docket 90-5036
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59 USLW 2511, 21 Bankr.Ct.Dec. 467, Bankr.
L. Rep. P 73,801
In the Matter of AXONA INTERNATIONAL CREDIT &
COMMERCE
LIMITED (FORMERLY BANCOM INTERNATIONAL
LIMITED), Debtor.
CHEMICAL BANK, Appellant,
v.
Albert TOGUT, as Chapter 7 Trustee of Axona International
Credit & Commerce Limited, and Michael J. Johnson and
Eoghan
M. McMillan, as Hong Kong Liquidators of Axona
International
Credit & Commerce Limited, Appellees.
No. 259, Docket 90-5036.
United States Court of Appeals,
Second Circuit.
Argued Sept. 10, 1990.
Decided Jan. 18, 1991.
Henry L. Goodman, New York City (Harold N. Schwinger, Andrew D.
Gottfried and William H. Schrag, Zalkin Rodin & Goodman, of counsel),
for appellant.
Melvin A. Brosterman, New York City (Daniel H. Golden and Nancy
Hirschmann, Strook & Strook & Lavan, of counsel), for appellee Togut.
Mark P. Friedman, New York City (Thomas J. Moloney and Joseph
Lamport, Cleary, Gottlieb, Steen & Hamilton, of counsel), for appellees
Johnson and McMillan.
Before PRATT, MAHONEY and WALKER, Circuit Judges.
WALKER, Circuit Judge:
As briefed and at oral argument, a principal issue presented was our jurisdiction
to hear this appeal and, more specifically, whether and to what extent 11 U.S.C.
Sec. 305(c)'s prohibition of review of a bankruptcy court's order to dismiss or
suspend a United States bankruptcy proceeding under 11 U.S.C. Sec. 305(a)
survived the Supreme Court's decision in Northern Pipeline Construction Co. v.
Marathon Pipeline Co., 458 U.S. 50, 102 S.Ct. 2858, 73 L.Ed.2d 598 (1982).
Marathon seriously questioned the constitutionality of the exercise of federal
judicial power by non-Article III courts such as the bankruptcy courts without
review by Article III courts. While this case was sub judice, however, Congress
amended 11 U.S.C. Sec. 305(c) as part of the Judicial Improvements Act of
1990, Pub.L. 101-650, to meet with Marathon's concerns. Section 305(c) now
permits district court review of a bankruptcy court's Sec. 305(a) dismissal or
suspension order, while specifically prohibiting further review by the courts of
appeals and the Supreme Court. Under the new amended statute we are
expressly deprived of appellate jurisdiction and we dismiss the appeal
accordingly.
BACKGROUND
2
Axona International Credit and Commerce Ltd., a Hong Kong registered
deposit taking company, suffered financial collapse in November 1982 due to
the demise of Dollar Credit Co., a larger deposit taking company, that cut off
lines of credit to Axona as well as other smaller unrelated deposit taking
companies. Upon learning of Axona's plight, several United States creditors,
including appellant Chemical Bank, took steps to improve their positions. Some
moved in state court to attach Axona's United States bank accounts. Chemical
promptly engaged in a transaction with Axona whereby a three million dollar
loan outstanding to Chemical Hong Kong was "sold" to Chemical New York,
which then "deemed itself insecure" and set off its claim against a three million
dollar cash collateral account provided by Axona to Chemical New York after
its financial collapse.
In February 1983, bankruptcy proceedings commenced in Hong Kong, Michael
Johnson and Eoghan McMillan were appointed to liquidate the company
pursuant to the Hong Kong Companies Ordinance. Realizing they would have
to commence a United States bankruptcy proceeding to recover assets held by
creditors in this country, they filed an involuntary Chapter 7 action against
Axona in the Bankruptcy Court of the Southern District of New York pursuant
to 11 U.S.C. Sec. 303(b)(4). That provision authorizes a foreign representative
of an estate in an ongoing foreign proceeding to commence a full involuntary
case in the United States. A United States trustee, Albert Togut, was appointed,
and he commenced adversary proceedings against creditors, including
Chemical, under 11 U.S.C. Secs. 542, 547 and 553 to avoid the preferential
transfers made to them and to recover money for Axona's estate. Chemical
eventually settled with the trustee, agreeing to pay the estate 2.7 million dollars,
but reserved its right to challenge the bankruptcy court's jurisdiction over
Axona's estate.
4
In 1986 the trustee and the Hong Kong liquidators jointly petitioned the
bankruptcy court to suspend the proceedings in the Southern District of New
York under 11 U.S.C. Sec. 305(a), and to transfer the accumulated estate to the
Hong Kong liquidators for distribution to Axona creditors registered in the
Hong Kong proceeding. Over Chemical's opposition, the bankruptcy court
ordered the suspension and transfer. See Matter of Axona International Credit
& Commerce Ltd., 88 B.R. 597 (Bankr.S.D.N.Y.1988). Chemical appealed the
suspension order to the district court, and the trustee and liquidators moved to
dismiss on the ground that under Sec. 305(c) the order was not reviewable. The
district court ruled the order appealable and affirmed the bankruptcy court's
suspension and distribution order. Chemical's appeal to this court followed,
accompanied by the trustee and liquidators' continued objection to our
jurisdiction to hear it.
DISCUSSION
5
11 U.S.C. Sec. 305(a) allows a court after notice and a hearing to dismiss or
suspend a United States bankruptcy case at any time if such action would better
serve the interests of creditors or the debtor, or if it would assure the estate's
expeditious administration in a pending foreign proceeding.1 At the time this
appeal was filed 11 U.S.C. Sec. 305(c) stated that orders under Sec. 305(a),
either granting or refusing such dismissals and suspensions, are "not reviewable
by appeal or otherwise."2 The question originally posed to us, then, was
whether we should enforce the seemingly straight-forward language of Sec.
305(c) and dismiss for want of appellate jurisdiction Chemical's appeal to this
court from the district court's review of the bankruptcy court's suspension
order, and indeed, conclude that the district court should not have reviewed it,
notwithstanding the Supreme Court's decision in Northern Pipeline
Construction Co. v. Marathon Pipeline Co., 458 U.S. 50, 102 S.Ct. 2858, 73
L.Ed.2d 598 (1982), which called into question the section's blanket prohibition
of review by Article III courts of final bankruptcy court decisions.
Section 305(c) was enacted as part of the Bankruptcy Reform Act of 1978,
Pub.L. 95-598, 92 Stat. 2549. That Act ushered in sweeping changes in
bankruptcy jurisdiction, effectively removing jurisdiction of cases arising under
Title 11 and any related civil proceedings from the district courts in favor of
newly created "independent" bankruptcy courts. Marathon, 458 U.S. at 80 n.
31, 102 S.Ct. at 2876 n. 31, (quoting H.R.Rep. No. 95-595, at 7, U.S.Code
Cong. & Admin.News 1978, p. 5968). The Act's jurisdictional structure was
challenged in Marathon on the ground that it unconstitutionally vested
jurisdiction of "all 'essential attributes' of the judicial power of the United
States," 458 U.S. at 84-85, 102 S.Ct. at 2878 (citations omitted), in non-Article
III judges--that is, judges who are not appointed for life and whose salaries can
be lowered by Congress. The Supreme Court agreed, noting, among other
things, that although judicial functions such as fact finding had been
permissibly delegated to non-Article III courts and personnel in the past--such
as in the Federal Magistrates Act upheld in United States v. Raddatz, 447 U.S.
667, 100 S.Ct. 2406, 65 L.Ed.2d 424 (1980)--such functions were always
subject to de novo review by the district courts. "In short the ultimate
decisionmaking authority respecting all pretrial motions clearly remained with
the district court." Marathon, 458 U.S. at 79, 102 S.Ct. at 2875-76. By contrast
the Bankruptcy Reform Act vested "all essential attributes" of the judicial
power of the United States in the bankruptcy courts, including jurisdiction over
civil proceedings related to bankruptcy cases and the power to issue orders and
judgments appropriate for the enforcement of Title 11, including final
judgments "which are binding and enforceable even in the absence of an
appeal." Id. at 84-86, 102 S.Ct. at 2878-79.
7
In response to Marathon, Congress passed the Bankruptcy Amendments and
Federal Judgeship Act of 1984, Pub.L. No. 98-353, codified in part at 28 U.S.C.
Secs. 157 and 158. Section 157(c) responds to the specific facts of Marathon,
requiring bankruptcy courts to submit findings of fact and conclusions of law
for de novo review by the district court in proceedings only "related" to title 11
bankruptcy proceedings. Section 158(a) accords regular appellate jurisdiction to
the district courts over final and certified interlocutory orders, judgments and
decrees entered by the bankruptcy courts. Section 158(d) confers jurisdiction
over appeals from final decisions entered by district courts pursuant to Sec.
158(a) to the courts of appeals. However, Sec. 305(c)'s non-reviewability
provision was left untouched by Congress in its overhaul of the 1978 Act's
jurisdictional structure, leaving bankruptcy court decisions to dismiss cases
under Sec. 305(a) not subject to any review by Article III courts either at the
district or appellate level.
This state of affairs, seemingly at odds with the plurality opinion in Marathon,
was resolved by some bankruptcy and district courts interpreting "court" in Sec.
305(a) to mean "district court," thereby overcoming the Article III problem
while avoiding application of 28 U.S.C. Sec. 158, which governs appeals from
bankruptcy courts. See In re Aaronics Equip. Rentals and Sales, Inc., 56 B.R.
297 (Bankr.M.D.La.1985); In re Pankau, 65 B.R. 204 (Bankr.N.D.Ill.1986); In
re Colorado Industrial Bank of Loveland, 85 B.R. 855 (D.Colo.1988). The
problem with this approach, however, was that there was never any indication
from Congress that it did not intend for bankruptcy courts to issue Sec. 305(a)
orders.
9
Congress has now acted to ensure Article III review of Sec. 305(a) decisions by
bankruptcy courts. Section 309(a) of the Judicial Improvements Act of 1990,
P.L. No. 101-650, signed into law on December 1, 1990, amended Sec. 305(c)
as follows:
10
(c) An order under subsection (a) of this section dismissing a case or
suspending all proceedings in a case, or a decision not so to dismiss or suspend,
is not reviewable by appeal or otherwise by the court of appeals under section
158(d), 1291, or 1292 of this title or by the Supreme Court of the United States
under section 1254 of this title (amendment emphasized)
11
The enactment of this section has thus limited non-reviewability to the court of
appeals and the Supreme Court and, by implication, left intact the possibility of
district court review of Sec. 305(a) decisions when made by the bankruptcy
court. Such Article III review of bankruptcy court decisions removes any
constitutional concerns presented by the predecessor section. Further review by
the court of appeals and the Supreme Court is not constitutionally required. See
United States v. MacCollom, 426 U.S. 317, 323, 96 S.Ct. 2086, 2090-91, 48
L.Ed.2d 666 (1976). In view of the enactment of this amendment, we must
dismiss the case for want of appellate jurisdiction.
12
While we find the application of 11 U.S.C. Sec. 305(c), as amended, to be
straightforward, we do question whether the section's drafters have carefully
considered the full implications of Sec. 305(c) non-reviewability in the context
of cases such as this one. Section 305 appears to have been originally conceived
as an abstention provision. The Senate report accompanying Sec. 305 states:
"This section recognizes that there are cases in which it would be appropriate
for the court to decline jurisdiction. Abstention under this section, however, is
of jurisdiction over the entire case" S.Rep. No. 95-989 at 35, U.S.Code Cong.
& Admin.News 1978, pp. 5787, 5821. Such abstention provisions in the
bankruptcy context also appear at 28 U.S.C. Secs. 1334(c) and 1452(b). These
provisions permit a judge to refuse to assert jurisdiction over a case in favor of
a proceeding in an alternate forum. Such abstention decisions are normally
made at the outset of a case, before the abstaining court has acted to affect any
of the parties' substantive rights and are, appropriately, unreviewable because
they would place an unwarranted burden on scarce appellate resources and
because the merits will be adjudicated elsewhere, from which an appeal will
presumably then follow. See 28 U.S.C. Secs. 1334(c)(2), 1452(b) (decisions to
abstain not reviewable by courts of appeals by appeal or otherwise). See also 28
U.S.C. Sec. 1447(d) (order remanding cases to state courts for lack of subject
matter jurisdiction unreviewable). Despite Congress' apparent intent in enacting
Sec. 305(a) to create an abstention statute, together with accompanying nonreviewability, that section goes beyond what is commonly viewed as
abstention--that is where a judge refuses at the outset of the case to assert
jurisdiction. It allows a bankruptcy court to dismiss "at any time" any case
"under this title", that is, any case under title 11, or any bankruptcy case, if such
action would better serve the interests of a debtor or a creditor. Therefore Sec.
305(a) permits a bankruptcy court to dismiss a full bankruptcy proceeding such
as the one filed by Axona's trustee under Sec. 303(b)(4) at any time, including
after substantial rights of creditors such as Chemical have been affected by the
gathering of assets into an estate and the setting aside of preferential transfers.
In this case the court acting under Sec. 305(a) effectively ordered a distribution
of the estate by accompanying its dismissal with orders transferring the estate to
Hong Kong for distribution in the ongoing proceeding there. If such a
distribution order had occurred in a context outside Sec. 305(a), for example
under 11 U.S.C. Sec. 726, it would have been appealable not only to the district
court, but to the court of appeals as a "final" order in a bankruptcy case under
28 U.S.C. Sec. 158(d). However, since such an order occurred in the context of
a Sec. 305(a) dismissal, Sec. 305(c) as now amended makes the order
unreviewable by the court of appeals. While this result, at least in the context of
this case, appears anomalous, we are not empowered to rewrite the language of
Sec. 305(c) as amended. In the face of Sec. 305(c)'s clear language and because
the section avoids constitutional difficulties by permitting review of bankruptcy
court decisions under Sec. 305(a) to the district courts, the appeal must be
dismissed. Appeal dismissed.
11 U.S.C. Sec. 305(a) and (b) read as follows:
(a) The court, after notice and a hearing, may dismiss a case under this title, or
may suspend all proceedings in a case under this title, at any time if-(1) the interests of creditors and the debtor would be better served by such
dismissal or suspension; or (2)(A) there is pending a foreign proceeding; and
(B) the factors specified in section 304(c) of this title warrant such dismissal or
suspension.
(b) A foreign representative may seek dismissal or suspension under subsection
(a)(2) of this section.
11 U.S.C. Sec. 304(c), referenced in Sec. 305(a)(2)(B), reads:
In determining whether to grant relief under subsection (b) of this section, the
court shall be guided by what will best assure an economical, and expeditious
administration of such estate, consistent with-(1) just treatment of all holders of claims against or interests in such estate;
(2) protection of claim holders in the United States against prejudice and
inconvenience in the processing of claims in such foreign proceeding;
(3) prevention of preferential or fraudulent dispositions of property of such
estate;
(4) distribution of proceeds of such estate substantially in accordance with the
order prescribed by this title;
(5) comity; and
(6) if appropriate, the provision of an opportunity for a fresh start for the
individual that such foreign proceeding concerns.
2
11 U.S.C. Sec. 305(c), until recently amended, read as follows:
An order under subsection (a) of this section dismissing a case or suspending
all proceedings in a case, or a decision not so to dismiss or suspend, is not
reviewable by appeal or otherwise.
