Contempt Proceedings in Bankruptcy Court
| Publication year | 1993 |
| Pages | 515 |
| Citation | Vol. 22 No. 3 Pg. 515 |
1993, March, Pg. 515. Contempt Proceedings in Bankruptcy Court
One of the least understood areas of bankruptcy law arises in the unpleasant context of requests for contempt sanctions. Case law regarding jurisdiction, procedural requirements and standards for imposing contempt sanctions is contradictory. Even the procedural practices of the Bankruptcy Court for the District of Colorado vary widely between divisions.
This article examines the authority of the bankruptcy court to issue contempt orders, distinguishes criminal and civil contempt and reviews the appropriate procedures required to obtain sanctions in commonly encountered situations.
The authority of the bankruptcy court to enforce its own orders has been the subject of much debate. The bankruptcy court's limited jurisdiction as a non-Article III tribunal creates a constitutional morass, especially when it exercises "judicial powers" to coerce compliance.
In the 1982 case of Northern Pipeline Construction Company v. Marathon Pipeline Company,(fn1) the U.S. Supreme Court held that Congress may not create a court by statute which has the "essential attributes" of judicial power reserved for Article III courts. As such, the existing bankruptcy court system was deemed unconstitutional. In response to Marathon, Congress enacted the Bankruptcy Amendments and Federal Judgeship Act of 1984 ("BAFJA")(fn2) and structured the bankruptcy court as a "unit" of the district court, to which the district court may refer core and noncore bankruptcy matters.(fn3) The revised statutory scheme theoretically preserves for district courts, as Article in tribunals, the "judicial power" provided for by the U.S. Constitution.(fn4)
The constitutional problems which led to the Marathon decision continue to arise in the context of contempt proceedings in the bankruptcy arena. There is currently a split in the circuits regarding the authority of bankruptcy courts, as non-Article III tribunals, to enter contempt orders.(fn5)
The Tenth Circuit addressed the question of authority in Mountain America Credit Union v. Skinner (In re Skinner).(fn6) In Skinner, a credit union sold a repossessed vehicle in violation of the automatic stay. The debtors petitioned the court to hold the credit union in contempt pursuant to 11 U.S.C. § 362(h). Using guidelines of statutory interpretation, the Tenth Circuit held that 11 U.S.C. § 105(a) conferred sufficient statutory latitude to permit bankruptcy courts to issue contempt orders and impose sanctions. The Skinner court held that proceedings commenced to enforce core proceedings were themselves core. Therefore, the court reasoned, the Jurisdictional structure created under BAFJA permits adjudication of contempt matters subject to normal appellate review.
However, the court went on to hold that Bankruptcy Rule ("B.R.") 9020, by providing for de novo review, preserves the essential attributes of the judicial power of Article III tribunals for the district court.(fn7) By adding language regarding B.R. 9020 to bolster its conclusion, the Tenth Circuit created an internal inconsistency: either contempt proceedings are subject to adjudication by non-Article III courts (such that normal appellate review with the clear and convincing standard is appropriate(fn8)), or the heightened de novo review standard of 28 U.S.C. § 157(c)(1) as provided for by B.R. 9020 is required to satisfy constitutional concerns.(fn9)
While Skinner affirmed the bankruptcy court's finding of contempt based on a clear and convincing standard, the U.S. District Court for the District of Colorado post-Skinner appears to require compliance with the strict requirements of B.R. 9020.(fn10) Thus, while the authority of the bankruptcy court to enter contempt orders has been upheld by the Tenth Circuit, the reasoning behind the holding and the procedure to be followed are unclear.(fn11) The safest course, therefore, appears to be to follow B.R. 9020 strictly.
Contempt has been defined as a willful disregard or disobedience of a public authority.(fn12) An important distinction must be made between civil and criminal contempt, which differ according to the purpose and character of the sanctions imposed.(fn13) Civil contempt orders
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