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B. Core Versus Non-Core Distinction
Bankruptcy courts may exercise plenary powers only over "core" bankruptcy matters. Over
matters that are not core, bankruptcy courts may not enter final judgment, but may only issue proposed
findings of fact and conclusions of law. These are reviewed
de novo by the district court, which thenenters final judgment. The bankruptcy court determined that Vickie’s counterclaim is a core matter.
Pierce disputes this determination.
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Initially, Pierce argues that 28 U.S.C. § 157(b), which identifies certain types of proceedings as
core, is not "jurisdictional." The word "jurisdiction," which is used in different ways in different
contexts, has three relevant meanings or applications in the bankruptcy context. First, a characteristic
that would deprive all federal courts of subject matter jurisdiction, such as the probate exception,
deprives bankruptcy courts of subject matter jurisdiction. Second, bankruptcy courts, as adjuncts to the
district courts, may only exercise "jurisdiction" over the matters given to them by statute.
See 28 U.S.C.§ 1334. Jurisdiction in this second sense of the word is quite broad, covering all core matters and all
non-core, "related" matters, but some matters may involve the debtor or the bankruptcy proceeding so
tangentially that they are not even "related to" the bankruptcy case. Third, in so far as the word
"jurisdiction" is used to mean the bankruptcy court’s power to enter a final judgment, the bankruptcy
court does not have "jurisdiction" to enter final judgments in non-core matters. However, while a
bankruptcy court may not enter final judgment in a non-core matter, it may certainly exercise
"jurisdiction" over the matter in the sense of hearing and presiding over the matter up to the point when
it presents proposed findings of fact and conclusions of law to the district court.
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Any discussion of the distinction between core and non-core matters must start with the Supreme
Court’s decision in
Marathon. In this case, the Supreme Court considered the constitutionality of theBankruptcy Act of 1978, the precursor to the modern bankruptcy code. A plurality of the Court held that
it was unconstitutional to vest full and final authority over any matter conceivably related to a
bankruptcy case in non-Article III judges, because under the Constitution, the "judicial power" of the
United States, if vested in lower federal courts at all, must be vested in courts with Article III safeguards.
Marathon, 458 U.S. at 84-87, 102 S. Ct. at 2878-80. Because of its Article I power to determine the
substantive components of bankruptcy law, Congress may provide that bankruptcy judges can exercise
full authority over those bankruptcy proceedings that are so closely related to substantive bankruptcy law
and procedures that they can be said to be "core" bankruptcy matters.
Id. However, Congress may not,through statutory enactments, give Article I bankruptcy judges the power to render final judgments over
matters that are not directly connected to the bankruptcy code.
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In the Matter of Wood, 825 F.2d at 97; see also Collier, supra ¶ 3.01[4][c][iv] (referring to actions
"arising in" as a "residual category").
Both "arising under" and "arising in" proceedings can be distinguished from proceedings that are
only "related to" the bankruptcy case. "Related to" proceedings are substantive claims for relief based
upon non-bankruptcy law that could have been the subject of an independent lawsuit absent the filing of
a bankruptcy case. Collier, supra ¶ 3.01[4][c][iv]. In general, the distinction is stated as follows: if a
cause of action is not dependant on the bankruptcy code for its existence, but could have been asserted as
an independent lawsuit absent the filing of a bankruptcy case, it is a non-core, related matter. In the
Matter of Woods, 825 F.2d at 96-97. This distinction stems from the constitutional requirements set
forth in Marathon.
Considering these general definitions of "core" and "arising under" and "arising in," Vickie’s
counterclaim appears to be non-core. Substantively, the counterclaim is based entirely on state law. If
she had not filed for bankruptcy, she could have asserted the counterclaim in an independent lawsuit
against Pierce. Her counterclaim is not based on a right granted by bankruptcy law.
The analysis cannot end here, however. Many of the claims that are litigated in a bankruptcy
case could have been separate lawsuits if no bankruptcy petition had ever been filed. This alone does
not render the claims non-core, because such a result would eviscerate most of bankruptcy law itself. As
stated by Representative Kastenmeier in the legislative history:
State law rights arising in core bankruptcy proceedings are functionally
equivalent to congressionally created rights, because Congress has the
power to modify State law rights in bankruptcy proceedings. Unlike the
States, Congress may impair the obligations of contracts through the
bankruptcy clause. Indeed, the very purpose of bankruptcy is to modify
the rights of debtors and creditors, and the bankruptcy code authorizes the
bankruptcy court to abrogate or modify State-created obligations in many
ways.
130 Cong. Rec. H1110 (daily ed. Mar. 20, 1987) (quoted in Collier, supra ¶ 3.02[2]). Thus, in
determining whether a claim is core or non-core, courts must consider both the substantive nature of the
claim and the procedural posture whereby it is asserted. For example, the filing of a proof of claim
creates a bankruptcy core proceeding even though the underlying state law claim would not have been.
In re Bellucci, 119 B.R. 763 (Bankr. E.D. Cal. 1990).
In making this analysis of both the substantive and procedural aspects of the proceedings at issue,
courts look to 28 U.S.C. § 157(b)(2), in which Congress set forth a list of specific matters it viewed as
core.18 The only provision of § 157(b)(2) that is relevant to Vickie’s counterclaim is § 157(b)(2)(C),
which states that "counterclaims by the [debtor’s] estate against persons filing claims against the
[debtor’s] estate" are core proceedings.19 Counterclaims can be core under this definition when they