IMPROVING JURISDICTION AND PROCEDURE

PROPOSAL #6: CONTEMPT POWER

Background

No explicit statutory authorization exists for the exercise of contempt power by a bankruptcy judge. Under the current statutory scheme, the arguable bases for bankruptcy judge contempt power are (1) section 105(a) which authorizes a bankruptcy court to "issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of this title"; [ FN: 11 U.S.C. §105(a) (1994).] (2) section 157(b)(1) providing bankruptcy judges with jurisdiction to enter final orders in all "core" bankruptcy matters; [ FN: See , e,g, , Mountain America Credit Union v. Skinner (In re Skinner), 917 F.2d 444, 448 (10th Cir. 1990) ( "Civil contempt proceedings arising out of core matters are themselves core matters. ")] and (3) specific statutory grants of sanction power, such as section 362(h) authorizing damages (including punitive damages) for violations of the automatic stay, section 303(I) authorizing damages (including punitive damages) for bad faith filing of involuntary petitions, and Bankruptcy Rule 9011 (the bankruptcy counterpart to Fed. R. Civ. P. 11 providing for sanctions).

In 1987, Bankruptcy Rule 9020 was amended considerably in order to correspond to the jurisdictional changes as a result of the BAFJA amendments. Whereas before the 1987 amendments, bankruptcy judges had the power to "punish" acts of contempt committed in the presence of the court, after the amendments the bankruptcy judge only has the power to "determine" acts of contempt committed in the presence of the court. [ FN: Fed. R. Bankr. P. 9020 (1994).] The revisions further provide that once the contempt has been determined by the judge, and served by the clerk, the order becomes effective within ten days of its issuance the same as if it had been issued by a district court judge unless the contemnor serves and files objections prepared in the same manner as provided in Rule 9033(b). [ FN: Id.] If timely objections to the bankruptcy court’s findings are made, the district judge reviews de novo only those findings to which objection has been made. [ FN: Id. .]

Proposal

Bankruptcy judges should be given the power to punish civil contempts as well as the power to punish criminal contempts committed in the presence of the court. Bankruptcy judges should not have the power to incarcerate the contemnor for either civil or criminal contempt.

Reasons for the Change

In order to maintain control of its cases as well as its courtroom, bankruptcy judges must be able to enforce compliance with its orders. The courts are divided whether contempt power is (i) an inherent Article III power that may only be exercised by an Article III tribunal or (ii) a power that may be authorized by statute and may be properly exercised by a bankruptcy judge. The Judicial Conference’s Long Range Plan for the Federal Courts recommends that Congress enact legislation to grant contempt power to bankruptcy judges along the same lines as the contempt proposal. [ FN: Long Range Plan for the Federal Courts of the Judicial Conference of the United States, Recommendation 27b, at 52-53 (December 1995)(urging "Congress to clarify bankruptcy judges ’ authority to conduct the proceedings before them, including express authority to deal directly with civile contempt and limited power to punish criminal contempt. ")]

The vast majority of courts resolve this issue by holding that bankruptcy courts have the power to punish for civil contempt but not for criminal contempt. [ FN: See, e.g. , Eck v. Dodge Chemical Co. (In re Power Recovery Systems. Inc.), 950 F.2d 798, 802 (1st Cir. 1991) ( "well-settled law that bankruptcy courts are vested with contempt power "; but bankruptcy courts lack power to hold persons in criminal contempt); Griffith v. Oles ( In re Hipp Inc.), 895 F.2d 1503, 1509 (5th Cir. 1990) (with the exception of contempts "in (or near) its presence ", bankruptcy courts lack criminal contempt power); Mountain America Credit Union v. Skinner (In re Skinner), 917 F.2d 444 (10th Cir. 1990) (delegation of civil contempt power to bankruptcy courts proper and does not offend separation of powers portion of constitution); Hicks v. Pearlstein (In re Magwood), 785 F.2d 1077 (D.C. Cir. 1986) (bankruptcy courts lack criminal contempt power unless exercised within the limitations provided by (now revoked) section 1481); Burd v. Walters (In re Walters), 868 F.2d 665, 668 (4th Cir. 1989) (plain-meaning of section 105(a) gives bankruptcy court civil contempt power); Utah State Credit Union v. Skinner (In re Skinner), 90 B.R. 470, 476 (D. Utah 1988) ( "the current version of the Bankruptcy Code implicitly recognizes the inherent contempt powers of the bankruptcy court in Section 105(a). "); Stock-Schalaeder & McDonald v. Kittay (In re Stockbridge Funding Corp.), 145 B.R. 797, 804 (Bankr. S.D.N.Y. 1992, aff ’d in part and rev ’d in part , 158 B.R. 914 (S.D.N.Y. 1993) ( "A bankruptcy court ’s contempt power is recognized by statute . . . and has been acknowledged or simply assumed to exist in various non-Article III tribunals. "); In re Galvez , 119 B.R. 849, 850 (Bankr. M.D. Fla. 1990) ( "[t]his Court . . . is satisfied that non-Article III courts have inherent power to enforce the lawful court orders issued in a proceeding over which the court had jurisdiction, even absent specific statutory authorization . . . . However . . . this Court . . . finds such authority in §105 of the Bankruptcy Code. "); In re McLean Indus. Inc. , 68 B.R. 690, 695 (Bankr. S.D.N.Y. 1986) ( "the power of the bankruptcy court to issue an order of civil contempt derives from three sources: the inherent power of a court, including an Article I court, the reference of the inherent power of the district court, and the statutory grant contained in 11 U.S.C. §105. ") .] The only circuit court that had previously held that bankruptcy courts lack any contempt power, [ FN: Plastiras v. Idell (In re Sequoia Auto Brokers, Ltd. Inc.), 827 F.2d 1281, 1283-84 (9th Cir. 1987) (vacating bankruptcy judge ’s civil contempt order; article III grants judiciary inherent power to punish for contempt, therefor bankruptcy courts lack all contempt power and may only issue contempt orders if they have a direct statutory basis for the exercise of the power).] recently overruled its priordecision in light of the 1987 amendments to Rule 9020. [ FN: Caldwell v. Unified Capital Corp. (In re Rainbow Magazine Inc.), 77 F.3d 278, 284 (9th Cir. 1996) (upholding sanctions imposed by bankruptcy judge under Rule 9011 and section 105(a); "Congress gave bankruptcy courts the power of contempt through Rule 9020 but placed certain explicit restrictions on that power. . . . The subsequent adoption of Rule 9020 by Congress and the subsequent opinion of the Supreme Court in Chambers supersedes our opinion in Sequoia . " )] At the other end of the spectrum, a few courts have held that bankruptcy courts have both criminal and civil contempt powers. [ FN: Brown v. Ramsay (In re Ragar), 3 F.3d 1174, 1177-78 (8th Cir. 1993) (bankruptcy court had authority to enter criminal contempt order in accordance with review provisions contained in Rule 9020); Graham v. U.S. (In re Graham), 981 F.2d 1135, 1142 (10th Cir. 1992) (holding that principles of sovereign immunity prohibited bankruptcy court from awarding attorney ’s fees against federal government; in dicta, court noted that bankruptcy court had authority to issue criminal or civil contempt orders against "recalcitrant government attorneys "); see also In re Rainbow Magazine Inc. , supra note 9, 77 F.3d at 283 (affirming criminal contempt sanctions imposed by bankruptcy judge; bankruptcy judge contempt power authorized under section 105(a) and Rule 9020).]

The edge of the contempt envelope reached by these courts is that bankruptcy courts have (i) inherent and statutory civil contempt powers, and (ii) criminal contempt powers to the extent they are exercised in accordance with the provisions of Bankruptcy Rule 9020.

Competing Considerations

It may be argued that contempt power is a uniquely judicial function and therefore Article I judges may not constitutionally exercise that function. Magistrate judges, for example, may not enter contempt orders and must certify facts to the district court for determination and entry of a contempt order, but this is by statutory fiat. [ FN: 28 U.S.C. §636(e) (1989). Section 636(e) lists the types of conduct that shall constitute a contempt of the district court where the magistrate is sitting. It further provides that [u]pon the commission of any such act or conduct, the magistrate shall forthwith certify the facts to a judge of the district court . . . . A judge of the district court shall thereupon, in a summary manner, hear the evidence as to the act or conduct complained of and, if it is such to warrant punishment, punish such person in the same manner and to the same extent as for a contempt committed before a judge of the court, or commit such person upon the conditions applicable in the case of defiance of the process of the district court or misconduct in the presence of a judge of that court. Id.]