January 27, 1995
LETTER ORDER
ORIGINAL ON FILE WITH CLERK OF THE COURT
Roger S. Antao, Esq.
Antao & Chuang
460 Bergen Boulevard
Palisades Park, NJ 07650
Attorney for Plaintiffs, Leon R. Dongelewicz, et als.
Mary Ellen Tully, Esq.
Ravin, Sarasohn, Cook, Baumgarten, Fisch & Baime
103 Eisenhower Parkway
Roseland, NJ 07068-1072
Attorney for Defendant First Eastern Bank
Gerard E. Hanlon, Esq.
50 South Street
Morristown, NJ 07960
Attorney for Defendants Oneida Water Company, Valley
Utilities Company, Ralph Conte and Arlene Reiness
Frank Hoegen, Esq.
c/o Paul & Miller
1847 Route 70E
Cherry Hill, NJ 08003
Attorney for Defendant C.B.G. Limited
Marisa Y. Paradiso, Esq.
Riverdale One
Route 23 North
P.O. Box 85
Riverdale, NJ 07457-0085
Attorney for Defendant MLA Management Associates, Inc.
Eric T. Bielawski, Esq.
306 W. Somersdale Road
Voorhees, NJ 08043
Attorney for Defendant Property owners Association of the
Valley of Lakes
Mr. Frank Cedrone
128 Monmouth Green
Marlton, NJ 08053
Re: Dongelewicz, et als. v.
First Fastern Bank, et als.
Civil Action 94-2883 (WHW)
Dear Counsel and Litigants:
On January 19, 1995, this Court heard oral argument in
this matter. Specifically at issue was the application of the
Plaintiffs for an order to show cause: (1) why a default judgment
should not be entered against the Defendants; and (2) why an
injunction should not be ordered to prevent this case from being
litigated, in a proceeding docketed 94-2669, before the Bankruptcy
Court, to which the defendants had purportedly "removed" it. In
reliance upon the parties' submissions and their oral arguments,
this Court, having deliberated since oral argument, has reached a
conclusion different from that then announced. For reasons set
forth below, the Plaintiffs' application for injunctive relief is
granted. However, default judgment will not be entered against the
Defendants.
Background
This case arises from events allegedly occurring over the
past approximately 20 years involving a Pennsylvania land tract
known as the "Valley of Lakes." In a 159-page complaint, the
Plaintiffs basically allege that they were fraudulently induced into
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investing in that land tract by a number of conspiring Defendants,
who misrepresented to them that the land in question was to be
developed into a premier resort community. The Plaintiffs complain
that the Valley of Lakes has not been developed as promised. The
Plaintiff's complaint was filed with the Clerk of the District Court
in June, 1994. The Defendants were served with process on various
dates in October, 1994. The Defendants have not yet answered
Plaintiff's complaint and default was entered by the Clerk of the
Court on November 16, 1994.
The Defendant's failure to answer may be the result of
their attempt to have the matter litigated in this Court's
Bankruptcy adjunct, rather than directly in the District Court. To
accomplish that, defendant First Eastern Bank, N.A. ("First
Eastern") filed a "notice of removal" with the Clerk of the District
Court on November 9, 1994, to remove the matter from the District
Court to the Bankruptcy Court. First Eastern states, in its notice,
that three of the Defendants are debtors-in-possession in Chapter
11 bankruptcy proceedings currently pending in the United States
Bankruptcy Court for the Middle District of Pennsylvania, and that
the subject matter of the Plaintiffs' complaint is directly relatcd
to the bankruptcy action. The notice further avers that upon
removal, First Eastern will promptly file a motion to transfer
Plaintiff's lawsuit to the United Stated Bankruptcy Court for the
Middle District of Pennsylvania, presumably for consolidation with
the currently pending action. Defendants CBG Ltd, Oneida Water
Company and Valley Utilities Company filed an identical notice of
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removal. Since the alleged removal, First Eastern has filed motions
in the Bankruptcy Court to dismiss the Plaintiffs' complaint and to
transfer the case to Pennsylvania, which are scheduled to be heard
in February, 1995.
However, counsel for the plaintiffs came to the District
Court on January 6, 1995, seeking ex parte emergent relief in the
form of a temporary restraining order to enjoin the Bankruptcy Court
proceedings and for an order to show cause why a default judgement
should not be entered against the Defendants for their failure to
defend this action in the District Court. This Court granted the
relief sought, with January 19, 1995 as the return date for argument
on Plaintiffs' application for a preliminary injunction.
Discussion/Analysis
At argument, the issue was whether the District Court or
the Bankruptcy Court is the appropriate venue for deciding First
Eastern't motions. Plaintiffs claimed that proper venue was with
the District Court, while Defendants claimed that such was in the
Bankruptcy Court. Resolution of this controversy requires the
proper construction of the Bankruptcy Removal Statute, Rule 9027,
which provides that any party to a civil action in state or federal
court may remove it to the bankruptcy court, provided that the
bankruptcy court has jurisdiction over the case.
Plaintiffs correctly refer to decisions which rule that
cases never may be removed directly from a District Court to the
Bankruptcy Court. See, e.g., Centrust Savings Bank v. Love, 131
B.R. 64 (S.D. Tex 1991); Helena Chemical Co. v. Manley, 47 B.R. 72
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(Bankr. N.D. Miss. 1985). First Eastern contends, on the contrary,
that cases properly may be removed from a District Court to its
Bankruptcy adjunct, merely by filing a notice of removal with the
Clerk of the District Court, such practice having been sanctioned
by the Court of Appeals for the Third Circuit in Pacor, Inc. v.
Higgins, 743 F.2d 984 (3d Cir. 1984), and followed by District
Courts within this Circuit. While this Court finds that the
Plaintiffs' analysis is more persuasive than that offered by First
Eastern, the Court also finds it unnecessary to reach the question.
In the hierarchy of our federal courts, the Bankruptcy
Court is a unit of the District Court, and Bankruptcy judges are
judicial officials of the District Court. The Supreme Court teaches
that neither Bankruptcy judeges nor Bankruptcy Courts constitute the
judicial power of the United States, found in Article III of the
Constitution. See, Northern Pipeline Construction Co. v. Marathon
Pipeline Co.., 458 U.S. 50, 60-61 (1982). Thus, the District Court
has the absolute power to refer cases to the Bankruptcy Court, and to
withdraw such referrals. See, 28 U.S.C. § 157. Defendant First
Eastern has asked, unilaterally, the Bankruptcy Court to determine
the merits of its motion to dismiss Plaintiffs' complaint and,
alternatively, to transfer this case to the Middle District of
Pennsylvania. While this Court disagrees with First Eastern that
it can "remove" Plaintiffs' lawsuit from the District Court to the
Bankruptcy Court without an order of reference, where no true
proceeding already existed in the Bankruptcy Court, this Court
nevertheless had announced at oral argument that it was referring
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the matter to the Bankruptcy judge for her report and recommendation
as to First Eastern's motions. However, such report and
recommendation would not bind this Court, and this Court's
obligation would, in fact, be to review the merits of such motions
de nove, in the event that either party is dissatisfied with the
Bankruptcy judge's conclusions. Rather than burden both this Court
and its adjunct with the same issues, this Court has determined that
the merits of First Eastern's motions will be adjudicated in the
District Court. Thus, the issue of whether the case was properly
"removed" to the Bankruptcy Court is irrelevant because it is well-
within the province of the District Court to determine what issues
shall be determined by its judicial adjunct, the Bankruptcy Court.
The Court hereby Orders that First Eastern's motions shall be
decided by the District Court.
Conclusion
The plaintifs' motion to enter default judgement against
the defendants is DENIED. The default entered by the Clerk of this
Court against the defendants is VACATED for good cause, pursuant to
Rule 55 of the Federal Rules of Civil Procedure.
The plaintiffs' motion for injunctive relief is GRANTED.
Adversary proceeding 94-2669 is hereby closed by Order of this
Court.
The return date of First Eastern's motions to dismiss and
transfer will be February 27, 1995, at which time oral argument will
be heard. First Eastern's briefs in support of those motions shall
be served by February 2, 1995. The Court understands that such
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briefs probably have been submitted to Bankruptcy Judge Winfield and
if First Eastern, to save expense and promote efficiency, would like
this Court to obtain such papers from Judge Winfield's chambers,
such accommodation would be made. Plaintiffs' briefs in opposition
to First Eastern's motions shall be served by February 14, 1995 and
First Eastern shall have until February 21, 1995 to respond thereto.
SO ORDERED:
/s/
William H. Walls, U.S.D.J.
/January 27, 1995/
Dated
