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denying motion to withdraw reference of an administrative claim that required a determination of whether a copyright had been violated
Summary of this case from In re Global Aviation Holdings Inc.Opinion
No. 88 CV 2662 (ERK).
November 14, 1988.
Allowance of Claims — Objections — Mandatory Withdrawal. — A creditor's motion to withdraw reference of a proceeding instituted by the debtors to disallow the creditor's proof of claim was denied. Withdrawal was mandatory only if the case required "substantial and material consideration of non-Title 11 laws." Under the circumstances, it was likely that the copyright laws and laws concerning unfair competition would be interpreted by the bankruptcy court. However, since the statute was not new and a large body of law already existed, a bankruptcy judge would be as capable as a district judge in analyzing the copyright laws. The proceeding did not require substantial consideration of the copyright laws and the denial of the creditor's motion would not lead to prejudice. Therefore, the motion was denied.
See 28 U.S.C. § 157 at ¶ 4030.
The application of Animal Fair, Inc. ("Animal Fair"), for an order (1) withdrawing the reference to the Bankruptcy Court of a portion of the Chapter 11 proceeding of Amfesco Industries, Inc., et al. (the "Debtors"), and (2) transferring the venue of such portion of this proceeding to the United States District Court for the District of Minnesota, Fourth Division (Judge McLaughlin), is denied for the following reasons.
I.
On December 15, 1986, Animal Fair timely filed a proof of claim in Debtors' Chapter 11 proceeding in an unliquidated amount estimated to be $650,000. A year and a half later, and after a plan of reorganization had been confirmed by the Bankruptcy Court, the Debtors moved under 28 U.S.C. § 502 to disallow and expunge Animal Fair's proof of claim. According to the Debtors, Animal Fair's claim should be disallowed because there is no legal basis for the claims of copyright infringement and unfair competition asserted by Animal Fair against Amfesco Industries, Inc., in an action brought in the Minnesota District Court in April, 1985. Application, Debtor's Motion to Expunge Claim of Animal Fair Inc., at 2-4. Animal Fair contends that in this case it is improper for the Bankruptcy Court to adjudicate whether Animal Fair's claim is to be disallowed.
Animal Fair bases its challenge to the Bankruptcy Court's adjudication of the § 502 motion on 28 U.S.C. § 157(d) (1984). Section 157(d) reads in relevant part:
The district court shall, on timely motion of a party, so withdraw a proceeding if the court determines that resolution of the proceeding requires consideration of both title 11 and other laws of the United States regulating organizations or activities affecting interstate commerce.Id. (emphasis added). Because any determination whether to disallow Animal Fair's claim would necesarily involve an inquiry into "federal copyright law and laws concerning unfair competition," Animal Fair asserts that § 157(d) mandates that this court withdraw the reference of the Chapter 11 proceeding, to the extent it relates to the Debtor's § 502 motion, from the Bankruptcy Court. Animal Fair, Inc.'s Memorandum of Law in Support of Motion to Withdraw Reference and Transfer Venue, at 5-6. Because the relevancy of federal copyright law to the determination of the § 502 motion is not disputed, the sole issue here is the construction to be given the mandatory withdrawal language of § 157(d).
Neither party to this action disputes that, when considering a § 157(d) mandatory withdrawal motion, the applicable standard is that articulated in In Re White Motor Corp., 42 B.R. 693 (D.C. 1984). After an extensive discussion of the legislative history of § 157(d), the court there concluded that in light of the narrow construction of § 157(d) urged by Congress, mandatory withdrawal should only be ordered if the court "can make an affirmative determination that resolution of the claims will require substantial and material consideration" of nonTitle 11 laws. Id. at 705 (emphasis added). Thus, the inquiry here is whether the Debtor's § 502 motion will require substantial and material consideration of the federal copyright laws.
The cases decided in this jurisdiction indicate the difficulty of applying the "material and substantial consideration" standard in a manner compatible "with congressional intent to provide a rational structure for the assertion of bankruptcy claims." In re Johns-Manville Corp., 63 B.R. 600, 602 (S.D.N.Y. 1986); see In re Texaco Inc., 84 B.R. 911, 921 (S.D.N.Y. 1988). As Judge Level pointed out, this intent would be frustrated were the district courts to withdraw from the Bankruptcy Courts "each case involving the straightforward application of a federal statute to a particular set of facts." In re Johns-Manville, 63 B.R. at 602. Because in such a case an Article III judge has no particular expertise that distinguishes his ability to resolve the case, to invoke § 157(d) to withdraw the case from the Bankruptcy Court would be to provide the "escape hatch . . . to the district court" that Congress expressly intended not to provide. House Debate on § 157(d), 130 Cong. Rec. S6081 (daily ed. June 19, 1984) (quoted in In re White Motor Corp., 42 B.R. 693, 704 (D.C. 1984)). Rather, withdrawal by a district judge should be ordered only where a case raises "issues requiring significant interpretation of federal laws. . .," presumably an area where an Article III judge has developed a degree of expertise that renders him more able than a bankruptcy judge to hear and resolve the case. In re Johns-Manville, 63 B.R. at 602 (emphasis in original); see In re Texaco, 84 B.R. at 921.
Here, whether the Debtor's motion to disallow Animal Fair's claim will succeed turns wholly on whether Animal Fair's cause of action grounded in copyright law is viable. While it is arguable that any determination of whether a copyright has been violated requires an interpretation of the copyright laws, such an argument could be raised when any statute is being applied; language must always be interpreted. This is not the kind of interpretation at the heart of Judge Leval's analysis in In re Johns-Manville. Rather, Judge Level was considering interpretation of a new federal statute for which "[n]either the language of the statute nor existing interpretive precedents provide[d] clear answers. . ." to the issues raised there. 63 B.R. at 603; see American Tel. Tel. Co. v. Chateaugay Corp., 88 B.R. 581 (S.D.N.Y. 1988); In re Combustion Equipment Associates, Inc., 67 B.R. 709 (S.D.N.Y. 1986).
The copyright laws at issue here are not new; there is a large body of interpretive law which may be read and analyzed as readily by a bankruptcy judge as by a district court judge. Indeed, the very copyright laws at issue here were at issue before Judge McLaughlin in Animal Fair's 1985 application for a preliminary injunction. There, Judge McLaughlin had no difficulty in reaching "clear answers" based on an application of the relevant laws and "existing interpretive precedents." See Animal Fair, Inc. v. Amfesco Industries, Inc., No. 85 CV-4-490 (D.Minn. 1985).
Finally, the denial of Animal Fair's application does not prejudice Animal Fair's right to challenge any decision rendered by the bankruptcy judge relating to this matter. Pursuant to 28 U.S.C. § 158 any decision rendered by the bankruptcy judge in the Debtors' motion to disallow Animal Fair's claims is appealable.
II.
Because Animal Fair's motion for a withdrawal of the reference of the § 502 proceeding is denied, it is not necessary to reach either the transfer of venue issue raised in Animal Fair's application or the Debtors' challenge to the timeliness of the present application.
SO ORDERED: