Section 2.8 Bankruptcy Courts (Core/Non-Core Matters)

• Library: Bankruptcy Practice (2007 Ed. + 2015 Cum Supp)

2. (§2.8) Bankruptcy Courts (Core/Non-Core Matters)

In an effort to satisfy the reasoning in Northern Pipeline Construction Co. v. Marathon Pipe Line Co.,458 U.S. 50 (1982), and based on the Emergency Rule, the 1984 Amendments authorize, but do not require, each district court to “refer” bankruptcy cases and proceedings to the bankruptcy court.
28 U.S.C. § 157(a). This has been upheld as constitutional. In re Global Int’l Airways Corp., 81 B.R. 541 (W.D. Mo. 1988). Thus, bankruptcy courts are not directly “vested” with any jurisdiction, and a district court theoretically may choose to exercise all jurisdiction without a bankruptcy court. The District Courts for the Western and Eastern Districts of Missouri, like virtually all other district courts, have adopted local rules automatically referring all bankruptcy cases and proceedings to the bankruptcy courts.

A bankruptcy court may hear and determine all “cases” under the Bankruptcy Code, and all “core proceedings” that are “arising under” the Bankruptcy Code, 11 U.S.C. §§ 101 et seq., or that are “arising in” a case under the Bankruptcy Code, subject to appellate review by a district court or the bankruptcy appellate panel. 28 U.S.C. §§ 157(b)(1) and 158(b)(1). If a particular proceeding is determined not to be a “core proceeding,” the bankruptcy court may only conduct a hearing and submit to the district court proposed findings of fact and conclusions of law that will be subject to de novo review by the district court on “those matters to which any party has timely and specifically objected” unless the parties consent to entry of final orders by the bankruptcy court. Section 157(c). If the parties so consent, the consent must be express; it cannot be inferred from the failure to timely contest the bankruptcy court’s jurisdiction.

Counsel must be careful to quickly determine whether to raise this issue, probably in the first responsive pleading. Curiously, one survey indicates that parties who want meaningful district court review of a bankruptcy court action in a non-core matter should consent to entry of a final order by the bankruptcy court instead of seeking de novo review of a bankruptcy court’s recommendations. Karen Gross et al, Perception and Reality: American Bankruptcy Institute Survey on Selected Provisions of the 1984 Amendments to the Bankruptcy
Code 84 (Am. Bankr. Inst. 1987). Apparently, a district court acting in its appellate capacity is more likely to reverse a bankruptcy court action than when the district court is reviewing recommended findings and conclusions. Federal Rule of Bankruptcy Procedure 9033 specifies certain procedures for reviewing proposed findings of fact and conclusions of law.

Whether a particular proceeding is a core proceeding is determined by the bankruptcy court, and the determination may not be made solely on the basis that resolution of the proceeding may be affected by state law. Section 157(b)(3). “Core proceedings are those which arise only in bankruptcy or involve a right created by federal bankruptcy law.” Specialty Mills, Inc. v. Citizens State Bank, 51 F.3d 770, 773 (8^th Cir.1995) (citations omitted). “Non-core, related proceedings are those which do not invoke a substantive right created by federal bankruptcy law and could exist outside of a bankruptcy, although they may be ‘related to’ a bankruptcy.” Id. at 773–74.

The Eighth Circuit, in In re Tranel, 940 F.2d 1168 (8^th Cir. 1991), affirmed a bankruptcy court order denying the debtors’ motion for authority to file a state court action against a bank because the contemplated action was a “core proceeding” over which the bankruptcy court would have jurisdiction to enter a final order. Similarly, in In re Samford, 125 B.R. 230 (E.D. Mo. 1991), the district court affirmed a bankruptcy court order directing the debtors’ counsel to turn over fees received from the debtors...