Equitable Powers of a Bankruptcy Court Federal All Writs Act and 105 of the Code Part II 105 of the Bankruptcy Code

Journal Issue

Jul/Aug 2006

Column Name

Code to Code

Citation

ABI Journal, Vol. XXV, No. 6, p. 28, July/August 2006

Bankruptcy Code

105

Topic Tags

Venue/Jurisdiction

Journal HTML Content

Section 105 of the Bankruptcy Code provides in
part as follows: "The court may issue any order, process or
judgment that is necessary or appropriate to carry out the provisions
of this title."1 The utilization of a bankruptcy
court's equitable powers under §105(a) is discretionary and must be

"'carefully honed in light of the facts of the case, applicable
precedent and appropriate policy.'"2 The immediate
predecessor to §105 of the Code, §2a(15) of the Bankruptcy
Act of 1898, provided that courts of bankruptcy could "make such
orders, issue such process and enter such judgments in addition to those

specifically provided for, as may be necessary for the enforcement of
the provisions of this Act...."3 In turn, §2a(15)

of the Bankruptcy Act of 1898 derived from the federal All Writs
Act.4 Consequently, §105 of the Code can trace its
lineage directly to the All Writs Act. Indeed, the legislative history

to §105 expressly provides that it "is similar in
effect" to the All Writs Act, and was included in the Code
"for the sake of continuity from current law and ease of reference,

and to cover any powers traditionally exercised by a bankruptcy court
that are not encompassed by the All Writs [Act]."5 As
one commentator has noted, "§105 was originally intended to
operate as the bankruptcy-specific gap-filling power because it was
feared the general gap-filling powers of the All Writs Act might be
insufficient."6 As previously noted, the language of
§105 of the Code empowers a bankruptcy court to issue injunctive
relief.7 When determining whether to issue an injunction
under §105, courts generally require the moving party to satisfy
the four-prong standard for the issuance of a preliminary injunction
under Federal Rule of Civil Procedure 65.8 The traditional
pre-requisites for the issuance of a preliminary injunction are (1) a
substantial likelihood that the movant will prevail on the merits, (2)

a substantial threat that the movant will suffer irreparable injury if

the injunction is not granted, (3) that the threatened injury to the
movant outweighs the threatened harm an injunction may cause the party

opposing the injunction and (4) that the granting of the injunction
will not dis-serve the public interest.9 In In re G-I
Holdings Inc., the official committee of asbestos claimants of G-I
Holdings filed a motion seeking injunctive relief—namely, to
prevent the debtor's indirect, nondebtor subsidiary from paying
regularly scheduled debt instruments owed to other nondebtor parties.

Conclusions of In re G-I Holdings Inc. The U.S.
Bankruptcy Court for the District of New Jersey agreed with the
committee that it had the authority to issue the requested injunction
under either the All Writs Act or §105 of the Code, or
both;10 however, the bankruptcy court declined to issue the

injunction sought by the committee under either provision. With
respect to the All Writs Act, the bankruptcy court concluded that the
adversary proceeding initiated by the committee against BMCA and the
various noteholder defendants did not present an instance where the
bankruptcy court needed to act in order to protect the integrity of
its jurisdiction.11 As the court further determined, there
was no need to issue the injunction "to prevent the defeat or
impediment" of its jurisdiction to fully adjudicate the adversary
proceeding.12 In reaching this conclusion, the court
observed that there was no related or parallel state court proceeding
that could affect the committee's ability to prosecute its avoidance
action against BMCA and the noteholder defendants.13 In
addition, the court observed that the payment of BMCA's notes would not
affect the committee's ability to pursue its fraudulent conveyance
action.14 While the bankruptcy court noted that the payment

of the outstanding notes may provide the noteholders with an
affirmative defense of "mootness" against any future
liability, this potentiality was not a strong enough justification for

the bankruptcy court to exercise its equitable powers under the All
Writs Act.15 As the bankruptcy court specifically stated:
"A possible future, valid defense is simply too speculative a
concern to prompt this court to exercise its discretion and grant the
extraordinary remedy of enjoining a nondebtor's ordinary business
decisions...."16 With respect to the committee's
request for an injunction pursuant to §105 of the Code, the
bankruptcy court concluded that an injunction was not necessary to
protect the property and assets of the debtor, G-I
Holdings.17 Contrary to the situation where a debtor
undisputably has a property interest to be protected by the bankruptcy

court, the $150 million scheduled to be repaid by BMCA was not owned
by G-I Holdings, and it had not yet been "unquestionably"
established that G-I Holdings had any property interest in the $150
million.18 Further, because the notes were issued by BMCA,
a nondebtor entity, and the $150 million constituted a repayment of
debt in the ordinary course of business by a nondebtor—and not a

utilization of assets of G-I Holdings' bankruptcy estate—the
court declined to grant the committee its requested relief under
§105 of the Code.19 Moreover, recognizing that it could
only exercise its equitable powers under §105 within the confines

of the Code, the bankruptcy court also noted that "[w]hile the
committee invokes the avoidance powers contained within the Code as
the authority for the court to issue an injunction...substance over
form demonstrates otherwise."20 On this note, the
bankruptcy court stated as follows: "[t]he issuance of the
requested injunction under §105(a) is not 'necessary' for the
committee 'to carry out' the avoidance provisions of the Bankruptcy
Code. Rather, in essence the committee is asking this court to enjoin
a nondebtor entity from conducting normal business transactions by
preventing the repayment of regularly scheduled debt instruments to
nondebtor third parties."21 Does a Bankruptcy
Court Have Equitable Powers under Both §105 and the All Writs
Act? Although the bankruptcy court in In re G-I Holdings
Inc. acknowledged that it had the ability to fashion equitable
relief under both the All Writs Act and §105 of the Code, there
is presently a disagreement among authorities on this issue. Generally

speaking, the cause of this disagreement stems from the intersection
between the enactment of the Bankruptcy Reform Act in 1978, the
legislative history behind §105, and the subsequent amendments to
the Code through the Bankruptcy Amendments and Federal Judgeship Act
of 1984. The legislative history to the Bankruptcy Reform Act of 1978

contemplated that the bankruptcy courts were to be "brought
within the terms of the All Writs Statute" and given "full
injunctive power."22 Specifically, §213 of the
Bankruptcy Reform Act provided as follows: <blockquote> This section

amends §451 of title 28, Definitions. It amends the definitions

of court and judge of the United States to include bankruptcy courts and

bankruptcy judges. This will have the effect of making the generally

applicable provisions of title 28 applicable to bankruptcy courts
and to bankruptcy judges, the same as they apply to all other judges

and courts established under title 28.23

</blockquote>In turn, 28 U.S.C. §451 provides, in relevant
part, as follows: "[t]he term 'court of the United States'
includes the Supreme Court of the United States, courts of appeals,
district courts...and any court created by Act of Congress the judges
of which are entitled to hold office during good
behavior."24 In essence, the Bankruptcy Reform Act of
1978 amended 28 U.S.C. §451 by including bankruptcy courts in the

definition of "courts of the United States." As noted,
§105 was included in the Bankruptcy Reform Act of 1978 for
purposes of "continuity from current law and ease of reference,
and to cover any powers traditionally exercised by a bankruptcy court
that are not encompassed by the All Writs Statute."25
This jurisdictional grant was subsequently declared unconstitutional
by the U.S. Supreme Court in Northern Pipeline Construction Co. v.
Marathon Pipe Line Co.26 In response, Congress sought
to remedy the constitutional defect by passing the Bankruptcy
Amendments and Federal Judgeship Act of 1984.27
Significantly, the Bankruptcy Amendments and Federal Judgeship Act of
1984 repealed §213 of the 1978 Bankruptcy Reform
Act.28 As a result of the repeal of §213 of the
Bankruptcy Reform Act of 1978, one noted authority has concluded that
"[t]his took bankruptcy courts out of the All Writs Act, and left

§105 as the sole remaining authority for the exercise by the
court of the kinds of powers granted under the All Writs
statute."29 At least one bankruptcy court has agreed
with this analysis, stating that "§105 of the Bankruptcy
Code...exists as the sole authority for the exercise by the court of
the kinds of powers granted under the All Writs
Statute."30 In direct contrast, however, several
courts have concluded that a bankruptcy court still has the authority
to issue an injunction under both the All Writs Act and §105 of
the Code.31 Those courts finding that a bankruptcy court
can issue an injunction under the All Writs Act, in addition to
§105 of the Code, do not account for their conclusions in light
of the repeal of §213 of the Bankruptcy Reform Act in 1984. As
Profs. Steve H. Nickles and David G. Esptein aptly note, as a
result of the repeal of §213 of the Bankruptcy Reform Act in
1984, "the connection between 105 and the All Writs Statute is
completely empty."32 Other than the Eighth Circuit
Court of Appeals in EEOC v. Rath Packing Co.,33

which acknowledged a bankruptcy court's ability to issue equitable
relief under both the All Writs Act and §105 of the Code, no
other reported decision of a federal circuit court of appeals
addresses this issue. However, in a passing footnote in the dissenting

opinion of Justice Stevens in Celotex Corp. v.
Edwards,34 Justice Stevens noted that the "1984
amendments [to the Code] also repealed the authorization of bankruptcy

judges to act pursuant to the All Writs Act."35 And
although Justice Stevens's passing observation is entitled to great
deference, because the U.S. Supreme Court was not directly addressing
the intersection between §105, the All Writs Act and the effects
of the 1984 amendments upon a bankruptcy court's equitable powers, it
remains uncertain whether a bankruptcy court can utilize the All Writs
Act. The thorny intersection between §105, the All Writs Act and

the effects of the 1984 amendments upon a bankruptcy court's equitable

powers can be harmonized without offending statutory language or
congressional intent. It is safe to assume that the enactment of
§213 of the Bankruptcy Reform Act, which in turn amended 28
U.S.C. §451 to include a bankruptcy court as a "court of the

United States," was in furtherance of Congress's goal of providing

the bankruptcy courts with "pervasive jurisdiction over all
matters pertaining to bankruptcy cases and disputed matters arising in

pending bankruptcy cases."36 When Title II of the
Bankruptcy Reform Act of 1978 was declared unconstitutional by the
U.S. Supreme Court in Northern Pipeline Construction Co. v. Marathon

Pipeline Co., it was axiomatic that Congress needed to repeal
§213 through the 1984 amendments to the Code. However, while
the repeal of §213 of the Bankruptcy Reform Act negated the
amendment to 28 U.S.C. §451 (and the broad grant of jurisdictional

authority of a bankruptcy court), it is not necessarily true that this
caused the bankruptcy courts to be stripped of the ability to order
equitable relief under the All Writs Act. As the All Writs Act
specifically provides: "[t]he Supreme Court and all courts
established by Act of Congress may issue all writs necessary or
appropriate in aid of their respective jurisdictions and agreeable to
the usages and principles of law."37 Bankruptcy courts
are created under Article I of the Constitution pursuant to Congress's

substantive authority over bankruptcies.38 Clearly, then,
the creation of the bankruptcy courts is the result of an "Act of

Congress," and accordingly, the bankruptcy courts may use the All

Writs Act as well as §105 of the Code in fashioning equitable
relief.39 But the parameters of the All Writs Act and
§105 should be applied differently. That is, a bankruptcy court
should attempt to utilize §105 of the Code in the first instance
in granting relief, so long as the remedy sought can be attributed to
carrying out the provisions of the Code. If the remedy cannot be tied
to a provision of the Code, then secondarily a bankruptcy court should

be able to utilize the All Writs Act, such as in situations where
enjoining ongoing state court litigation is necessary to protect the
jurisdiction of the bankruptcy court or to help prevent the devolution

of the reorganization process.40 <hr><h3>Footnotes</h3>

1 11 U.S.C.A. §105(a) (West 2006). 2 In re Charles &
Lillian Brown's Hotel Inc., 93 B.R. 49, 55 (Bankr. S.D.N.Y. 1988)
(citing Lesser v. A-Z Assocs. (In re Lion Capital Group),

44 B.R. 690, 701 (Bankr. S.D.N.Y. 1984)). 3 The Bankruptcy Act
of 1898, §2a(15) (repealed 1978). 4 Bogart, supra
note 3 at 799. 5 H.R. Rep. No. 95-595, at 316-17 (1978), as
reprinted in 1978 U.S.C.C.A.N. 5963, 6273-6274. 6 Bogart,

supra note 3 at 802. See also 2 Collier on Bankruptcy
|105.01[2] (15th ed. rev. 2004) ("§105 gives the bankruptcy
court the power to fill in gaps and further the statutory mandates of
Congress in an efficient manner"). 7 Technologies
Int'l. Holdings Inc. v. Commonwealth of Ky. (In re Technologies

Int'l. Holdings Inc.), 234 B.R. 699, 715 (Bankr. E.D. Ky. 1999)
(citation omitted). See also Aimtree Co. v. AT&T Corp. (In

re Aimtree Co.), 202 B.R. 154, 157 n.2 (D. Kan. 1996)
("because a request for injunctive relief under §105 is akin

to a request for a preliminary injunction, the party seeking the
relief must satisfy the requirements of Fed. R. Civ. P. 65")
(citations omitted). But see Beck v. Fort James Corp. (In re

Crown Vantage Inc.), 421 F.3d 963, 975 (9th Cir. 2005) (holding
that the usual preliminary injunction standard does not apply to
injunctions issued by a bankruptcy court pursuant to §105 of the
Code). 8 See Am. Imaging Servs. Inc. v. Eagle-Picher Indus.
Inc. (In re Eagle-Picher Indus. Inc.), 963 F.2d 855, 858
(6th Cir. 1992). 9 Yukos Oil Co. v. Russian Fed'n. (In
re Yukos Oil Co.), 320 B.R. 130, 135 (Bankr. S.D. Tex. 2004)
(citation omitted). 10 Official Comm. of Asbestos Claimants of

G-I Holdings Inc. v. Bldg. Materials Corp. of Am. (In re G-I
Holdings Inc.), 327 B.R. 730, 743-44 (Bankr. D. N.J. 2005).

11 Id. at 742. 12 Id. 13 Id.
14 Id. 15 Id. at 743. 16 Id.

17 Id. at 744. In reaching this conclusion, the bankruptcy

court was guided by the following determination of the U.S. Court of
Appeals for the Third Circuit in In re International Power
Securities Corp.: "[bankruptcy courts] are empowered to issue

an injunction in a summary proceeding when necessary to prevent the
defeat or impairment of their exclusive jurisdiction or to protect the

property and assets of a bankrupt wherever situation. The power of a
bankruptcy court to protect by injunction the subject matter of its
jurisdiction is inherent in the court as a virtual court of equity and

exists as well by virtue of Sec. 2, sub. a(1) of the Bankruptcy Act,
11 U.S.C.A. §11, sub. a(15), and the 'all writs' provision of
Sec. 262 of the Judicial Code, 28 U.S.C.A. §377 [Revised Judicial

Code 28 U.S.C.A. §1651]." 170 F.2d 399, 402 (3d Cir. 1948).
18 327 B.R. at 744. 19 Id. 20 Id. at
745. 21 Id. 22 H.R. Rep. No. 95-595, at 12 (1978),
as reprinted in 1978 U.S.C.C.A.N. 5963, 5973. 23 H.R. Rep. No.
95-595, at 437 (1978), as reprinted in 1978 U.S.C.C.A.N. 5963, 6392.

24 28 U.S.C.A. §451 (West 2006). 25 H.R. Rep. No.
95-595, at 317 (1978), as reprinted in 1978 U.S.C.C.A.N. 5963, 6274.
26 458 U.S. 50, 102 S.Ct. 2858, 73 L.Ed.2d 598 (1982). 27
See Cain P'ship, Ltd. v. Pioneer Inv. Servs. Co. (In re
Pioneer Inv. Servs. Co.), 946 F.2d 445, 448 (6th Cir. 1991).
28 2 Collier on Bankruptcy |105.LH[4] (15th ed. rev.
2004). See also Pub. L. No. 98-353 (1984). 29 See 2
Collier on Bankruptcy |105.LH[3] (15th. ed. rev. 2004). 30

Gnidovec v. Alwan (In re Alwan Bros. Co.), 105 B.R. 886,
895 n.10 (Bankr. C.D. Ill. 1989). 31 See, e.g., EEOC v. Rath

Packing Co., 787 F.2d 318, 325 (8th Cir. 1986) ("§105
gives the bankruptcy court the power to issue orders necessary or
appropriate to carry out the provisions of Title 11. The All Writs
Act...authorizes bankruptcy courts to issue stays"); GATX
Terminals Corp. v. A. Tarricone Inc. (In re A. Tarricone
Inc.), 77 B.R. 430, 433 (Bankr. S.D.N.Y. 1987) ("pursuant to
11 U.S.C. §105(a), the bankruptcy court has the power to issue
orders necessary or appropriate to carry out the provisions of Title
11. The All Writs Act...also authorizes bankruptcy courts to issue
stays"); In re Mayhew, No. 90-60141, 1994 WL 16006013, at
*3 (Bankr. S.D. Ga. July 25, 1994) ("this court has the authority
under both 28 U.S.C. §1651...and the Bankruptcy Code §105 to

issue any order in aid of its jurisdiction"); In re Optical
Technologies Inc., 261 B.R. 781, 784 (Bankr. M.D. Fla. 2001).

32 Nickles, Steve H. and Esptein, David G., "Another Way of
Thinking About §105(a) and Other Sources of Supplemental Law
Under the Bankruptcy Code," 3 Chap. L. Rev. 7, 15 (2000).
33 787 F.2d 318 (8th Cir. 1986). 34 514 U.S. 300, 115
S.Ct. 1493, 131 L.Ed.2d 403 (1995). The specific issue in
Celotex was whether a §105 injunction issued by the
bankruptcy court could enjoin judgment creditors from immediate
execution against sureties on a supersedeas bond posted by the debtor
in another federal district court. 35 Id. at 328 n.16, 115

S.Ct. at 1509 n.16, 113 L.Ed.2d 403 (citing Collier's on
Bankruptcy). 36 1 Collier on Bankruptcy |1.02[2] (15th

ed. rev. 2004). 37 28 U.S.C.A. §1651 (West 2006). 38

Caldwell v. Unified Capital Corp. (In re Rainbow Magazine
Inc.), 77 F.3d 278, 283 (9th Cir. 1996). 39 See In re
Optical Technologies Inc., 261 B.R. 781, 784 (Bankr. M.D. Fla.
2001). 40 Compare Nickles & Epstein, supra note 32 at
15 ("we believe that the All Writs Statute still applies to
bankruptcy courts, but only indirectly or derivatively as units of the

federal district courts").

Journal Authors

Michael D. Sousa

Journal Date

Saturday, July 1, 2006 - 12:00

Bankruptcy Rule

2006

none