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In re Lemmons & Co.

August 24, 1984

IN RE: LEMMONS & COMPANY, INC., A/K/A WARRICK MINING CO., INC., DEBTOR. FRED GRABER AND FANNIE GRABER, PLAINTIFFS-APPELLANTS,
v.
FRANK J. FOLZ, RECEIVER FOR LEMMONS & COMPANY, INC., A/K/A WARRICK MINING CO., INC., DEFENDANT-APPELLEE



Appeal from the United States District Court for the Southern District of Indiana, Evansville Division. No. EV76-5-RA -- Gene E. Brooks, Judge.

Author: Reynolds

Before CUMMINGS, Chief Judge; BAUER, Circuit Judge; and REYNOLDS, Chief District Judge.*fn*

REYNOLDS, Chief District Judge. This is an appeal from a final judgment entered in an adversary proceeding commenced pursuant to Chapter XI of the Bankruptcy Act of 1898, ch. 541, 30 Stat. 544 (codified as amended at 11 U.S.C. §§ 1-1200 (1976) (repealed 1979)) ("Bankruptcy Act"). Lemmons & Company, Inc., a/k/a Warrick Mining Company, Inc. ("Lemmons"), the debtor, entered into a mining lease dated June 12, 1975, with Fred Graber and Fannie Graber ("the Grabers"), owners of land in Daviess County, Indiana. Lemmons filed a Chapter XI petition in bankruptcy in the United States District Court for the Southern District of Indiana, Evansville Division, on December 6, 1976, and Frank J. Folz was appointed as Lemmons' receiver.

The Grabers commenced the instant adversary proceeding on January 12, 1978, by filing a petition to declare forfeiture of the coal lease as against the receiver Folz. The petition was filed in the district court in which the Chapter XI proceeding was pending. A trial was held on January 17, 1979, the Honorable Gene E. Brooks presiding. On December 23, 1982, Judge Brooks entered findings of fact, conclusions of law, and judgment for Folz and against the Grabers, holding that the coal mining lease was enforceable. The Grabers filed a timely notice of appeal, over which this court has jurisdiction pursuant to 28 U.S.C. § 1293(b) (Supp. V 1981). We affirm the decision of the district court.

I.

On June 12, 1975, the Grabers leased certain in Daviess County, Indiana, to Lemmons for coal-mining purposes. Lemmons filed its petition in bankruptcy on December 6, 1976. Folz, as receiver, eventually commenced mining under the lease through his agent, Four Rivers Coal Company, Inc. Lemmons and Folz made advance and earned royalty payments to the Grabers from time to time between June 9, 1976 and October 21, 1977, pursuant to the terms of the lease. The Grabers accepted all royalties paid.

The Grabers petitioned Judge Brooks on January 12, 1979, to declare the coal-mining lease forfeited on the ground that Lemmons failed to abide by the terms of the lease. Following a trial to the court on January 17, 1979, Judge Brooks took the matter under advisement.

On January 6, 1981, Judge Brooks sua sponte transferred the entire Lemmons Chapter XI proceeding to the Honorable Michael Kearns, Bankruptcy Judge of the newly created United States Bankruptcy Court for the Southern District of Indiana. Nevertheless, on December 23, 1982, Judge Brooks himself entered findings of fact and conclusions of law in the instant adversary proceeding under signature as district court judge. He then entered judgment on the same date as bankruptcy judge. Judge Brooks denied the Grabers' petition to declare the lease forfeited, but provided in the judgment that the Grabers were entitled to royalties for coal mined under the terms of the lease.

II.

The issues presented on appeal are, first whether Judge Brooks retained subject matter jurisdiction over this adversary proceeding after transferring it sua sponte to the United States Bankruptcy Court, and, second, whether Judge Brooks' findings of fact are clearly erroneous under Rule 52 of the Federal Rules of Civil Procedure.

The Grabers contend that Judge Brooks' sua sponte transfer of the case to the bankruptcy court divested himself as district judge of subject matter jurisdiction over the proceeding. The Grabers compare this case to one which is reassigned to a new judge after the original judge has disqualified himself -- a circumstance that transfers all jurisdiction. According to the Grabers, by transferring the proceeding to Bankruptcy Judge Kearns, Judge Brooks became "disabled" from hearing the case, a "disability" comprehended by Rule 63 of the Federal Rules of Civil Procedure.*fn1

The argument of the Grabers on this jurisdictional point is without merit. The Grabers concede that the United States District Court for the Southern District of Indiana originally had jurisdiction over the Lemmons Chapter XI proceeding and the instant adversary proceeding pursuant to the Bankruptcy Act of 1898, as amended. See 11 U.S.C. § 46 (1976). Further, it is undisputed that the Bankruptcy Act governs this adversary proceeding even though the Bankruptcy Act of 1978, 11 U.S.C. §§ 101-1501 (1982), was enacted while the present action was pending. See 11 U.S.C. § 403(a) (1982) (earlier Bankruptcy Act applies during Bankruptcy Code's transition period from October 1, 1979 through March 31, 1984). The question, therefore, is not whether Judge Brooks had subject matter jurisdiction over the Grabers' forfeiture petition when it was filed, but whether Judge Brooks lost such jurisdiction upon transfer of the Chapter XI proceeding in bankruptcy to Judge Kearns.

District Judge Brooks did not divest himself of jurisdiction or in any way render himself "disabled" from hearing the merits of this adversary proceeding. Under the Bankruptcy Act and during the Bankruptcy Code's period of transition, the courts of bankruptcy comprised separate department of the district courts. See 11 U.S.C. § 404(a) (1981). When the Lemmons' Chapter XI proceedings were transferred by Judge Brooks, therefore, Judge Kearns' bankruptcy court was an administrative department of the District Court for the Southern District of Indiana and not a separate court altogether. In transferring the Chapter XI filing administratively to the bankruptcy division, Judge Brooks did not divest himself of jurisdiction over the adversary proceeding. He remained free to withdraw reference of the Grabers' petition from the bankruptcy court in much the same way a district court, at any time, could withdraw a case in whole or in part from a referee in bankruptcy under Rule 102 of the Bankruptcy Rules of Procedure.*fn2

Judge Brooks retained jurisdiction to enter judgment on the merits of the adversary proceeding. His withdrawal of the case from Judge Kearns was justified because it was Judge Brooks who had heard the testimony and had presided over the trial of the matter. Furthermore, the transfer was administrative in nature. Entry of an express order withdrawing the case from Judge Kearns with notice to the parties and an opportunity for them to be heard was unnecessary; the Grabers' due process ...


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