Of Precedents and Bankruptcy Court Independence Is a Bankruptcy Court Bound by a Decision of a Single District Court Judge in a Multi-judge District

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Jul/Aug 2003

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This article explores whether bankruptcy courts are bound by decisions of a single district court judge in a
multi-judge district. While there is a split of authority on this issue, the majority of courts hold that a bankruptcy
court is not bound by the decision of a single district court judge in a multi-judge district.

In large part, the debate focuses on the doctrine of stare decisis, which means that "inferior" courts are bound to
follow the decisions of higher courts. See <a href="http://www.westlaw.com/find/default.wl?rs=CLWD3.0&vr=2.0&cite=7… v. United States, 764 F.2d 759, 761 (11th Cir. 1985)</a> ("Stare
decisis means that like facts will receive like treatment in a court of law. This panel may not disregard binding
precedent absent an intervening Supreme Court or en banc circuit decision.").

Application of the doctrine of stare decisis has no practical problems in the non-bankruptcy context where the lines
of demarcation in the federal court system are clear. District courts act as trial courts and are bound by decisions of
their respective circuit courts of appeals; both the district and circuit courts are bound by decisions of the Supreme Court. The issue becomes less clear in the bankruptcy
context, in which district courts (or bankruptcy appellate panels (BAPs) in the circuits that employ them) are given
the jurisdiction to review bankruptcy court decisions, but the bankruptcy court is not necessarily considered an
"inferior" court because <a href="http://www.westlaw.com/find/default.wl?rs=CLWD3.0&vr=2.0&cite=2… U.S.C. §151</a> provides that a bankruptcy court acts as a "unit" of the district court—i.e.,
bankruptcy courts exercise the district courts' powers and therefore operate on an equal (as opposed to an inferior)
basis. Based on §151 and the fact that district court decisions are not binding on other district court judges in the
same district,<a href="#1" name="1a">1</a> and when considered in the context that with the exceptions of the District of Guam and the
Northern Mariannas Islands,<a href="#2" name="2a">2</a> all other federal judicial districts in the United States are multi-judge districts, the
authors believe that the majority rule is correct. Recent decisions provide insight into the split of authority on this
issue and the reasoning behind each viewpoint.<a href="#3" name="3a">3</a>

<h3>Recent Decisions</h3>

In <a href="http://www.westlaw.com/find/default.wl?rs=CLWD3.0&vr=2.0&cite=2… re Shunnarah, 268 B.R. 657, 661 (Bankr. M.D. Fla. 2001)</a>, Bankruptcy Judge George Proctor adopted the
majority rule and held that the doctrine of stare decisis did "not compel it to follow a decision of a single district
court in a multi-judge district." <a href="http://www.westlaw.com/find/default.wl?rs=CLWD3.0&vr=2.0&cite=2…; 268 B.R. at 661</a> (citations omitted). In so holding, Judge Proctor
recognized that there has been "much debate" over the issue of whether bankruptcy courts are bound by decisions of
individual district courts in multi-judge districts. <a href="http://www.westlaw.com/find/default.wl?rs=CLWD3.0&vr=2.0&cite=2…; The modern trend of finding district court decisions
persuasive, as opposed to binding authority, apparently began with former Bankruptcy Judge Arthur Spector's
opinion in <a href="http://www.westlaw.com/find/default.wl?rs=CLWD3.0&vr=2.0&cite=1… of America Bank v. Gaylor (In re Gaylor), 123 B.R. 236, 241-43 (Bankr. E.D. Mich. 1991)</a>.<a href="#4" name="4a">4</a>

"Precedent and the Assertion of Bankruptcy Court Autonomy" at 191. Judge Proctor recognized that the "leading
argument...that bankruptcy courts are not so bound is that bankruptcy courts operate as a unit of the district court,
but on a different level." <a href="http://www.westlaw.com/find/default.wl?rs=CLWD3.0&vr=2.0&cite=2…; 268 B.R. at 661</a> (citing In re Shattuc Cable Corp., 138 B.R. 557, 565
(Bankr. N.D. Ill. 1992)); <a href="http://www.westlaw.com/find/default.wl?rs=CLWD3.0&vr=2.0&cite=2… U.S.C. §151</a> ("In each judicial district, the bankruptcy judges in regular active service
shall constitute a unit of the district court to be known as the bankruptcy court for the district.").

Judge Proctor quoted from Shattuc for the proposition that "[a]lthough the district court does hold appellate
jurisdiction [<a href="http://www.westlaw.com/find/default.wl?rs=CLWD3.0&vr=2.0&cite=2… U.S.C. §158(a)</a>], it is not a 'higher court' in the sense that the Supreme Court or the courts
of appeal are higher courts." <a href="http://www.westlaw.com/find/default.wl?rs=CLWD3.0&vr=2.0&cite=2…; 268 B.R. at 661</a>. Finally, Judge Proctor cited the lead circuit court
authority for the proposition that there is no law of the district—that is, district court judges are not bound
to follow the decisions of other district court judges within the same district—Threadgill, <a href="http://www.westlaw.com/find/default.wl?rs=CLWD3.0&vr=2.0&cite=9… F.2d at
1371</a>, which led to his conclusion that "bankruptcy courts are not bound by a single district decision that
would not be binding on the district court as a whole." <a href="http://www.westlaw.com/find/default.wl?rs=CLWD3.0&vr=2.0&cite=2…; 268 B.R. at 661</a> (citations omitted). In
other words, "[s]ince no decision of a single district court judge binds other judges within the district, it
follows that co-equal bankruptcy judges are similarly not bound." "Precedent and the Assertion of
Bankruptcy Court Autonomy" at 196-97.

<blockquote>
However, the view of the bankruptcy court as a co-equal unit of the district court has not been universally accepted.
Critics argue that the purpose of the "unit" designation was to ensure that Article III district courts supervised the
development of bankruptcy law to comply with the separation of power concerns espoused by the Supreme Court in
<a href="http://www.westlaw.com/find/default.wl?rs=CLWD3.0&vr=2.0&cite=4… [Northern Pipeline Constr. Co. v. Marathon Pipe Line Co., 458 U.S. 50 (1982)</a>]. Thus, to accord
bankruptcy courts co-equal status would undermine the intent of the legislation, which was intended to cure these
constitutional defects. Furthermore, one critic argues that even if the designation argument is accepted, there is
nothing inherently illogical about coordinate courts binding one another.
</blockquote>

<a href="http://www.westlaw.com/find/default.wl?rs=CLWD3.0&vr=2.0&cite=4…; at 197</a> (internal quotations omitted). On appeal, District Court Judge Harvey Schlesinger reversed Judge
Proctor's holding that the bankruptcy court was not bound by a decision of a single district court judge in a
multi-judge district. <a href="http://www.westlaw.com/find/default.wl?rs=CLWD3.0&vr=2.0&cite=2… Services Credit Union v. Shunnarah (In re Shunnarah), 273 B.R. 671, 672-73
(M.D. Fla. 2001)</a>. District Judge Schlesinger stated that "[b]ecause a bankruptcy court is an Article I court,
and appeals from such court are taken to the Article III courts, this court agrees with the reasoning in <a href="http://www.westlaw.com/find/default.wl?rs=CLWD3.0&vr=2.0&cite=2…
v. IRR Supply Centers Inc., 217 B.R. 427 (Bankr. W.D.N.Y. 1998)</a>, that bankruptcy courts are 'inferior'
courts for purposes of stare decisis." <a href="http://www.westlaw.com/find/default.wl?rs=CLWD3.0&vr=2.0&cite=2…; 273 B.R. at 672</a>. In Phipps, Bankruptcy Judge Michael J.
Kaplan reasoned in part, as follows:

<blockquote>
This writer has deep respect for the scholarship contributed by others to the effect that (1) bankruptcy judges exercise
the jurisdiction of the district court in bankruptcy matters and (2) the bankruptcy courts, consequently, are not
inferior courts for purposes of stare decisis analysis, and therefore (3) a bankruptcy judge is free to differ with an
earlier decision of a district court judge as would be a different district judge of that district. Even if I were not
required to differ with that scholarship, as discussed later, I would differ for reasons no less doctrinaire than the
underpinnings of that view. My own view (a dogmatic view, perhaps) is that any court whose decisions (even if
unanimous) are subject to reversal by a single judge of another court is "inferior" to the reversing court for stare
decisis purposes. Furthermore, whatever else the 1984 jurisdictional amendments did or did not do, they did not
make this writer a judge of the district court for purposes of <a href="http://www.westlaw.com/find/default.wl?rs=CLWD3.0&vr=2.0&cite=2… U.S.C. §132(b)</a> and (c). Therefore, I do not sit in
the stead of a district judge even in "core" bankruptcy matters, see <a href="http://www.westlaw.com/find/default.wl?rs=CLWD3.0&vr=2.0&cite=2… U.S.C. §157</a>, and, in my view, no reading of
the statutory structure establishes otherwise. For this reason as well, I find unpersuasive the argument that a
bankruptcy judge is not bound by the decision of one district judge because district judges are not bound by
decisions of other district judges.

</blockquote>

<a href="http://www.westlaw.com/find/default.wl?rs=CLWD3.0&vr=2.0&cite=2…; 217 B.R. at 430</a> (footnotes omitted; italics in original), aff'd. on other grounds, 98-CV-0294 C
(W.D.N.Y. July 16, 1999). Judge Kaplan reaffirmed this view in a subsequent decision, <a href="http://www.westlaw.com/find/default.wl?rs=CLWD3.0&vr=2.0&cite=2…. Nat'l. Bank v. Reid
(In re Reid), 237 B.R. 577, 588-89 (Bankr. W.D.N.Y. 1999)</a>, although he noted two decisions issued subsequent to
Phipps that adopted the majority approach—<a href="http://www.westlaw.com/find/default.wl?rs=CLWD3.0&vr=2.0&cite=2… re Raphael, 230 B.R. 657, 665 (Bankr. D. N.J. 1999)</a>, and <a href="http://www.westlaw.com/find/default.wl?rs=CLWD3.0&vr=2.0&cite=2…
v. Jamesway Corp. (In re Jamesway Corp.), 235 B.R. 329, 336 n.1 (Bankr. S.D.N.Y. 1999)</a>. <a href="http://www.westlaw.com/find/default.wl?rs=CLWD3.0&vr=2.0&cite=2…; 237 B.R. at
589</a>. In his opinion in Reid, Judge Kaplan cited to <a href="http://www.westlaw.com/find/default.wl?rs=CLWD3.0&vr=2.0&cite=2… v. Mt. St. Mary's Hosp. (In re Arway), 227 B.R. 216,
219 n.3 (Bankr. W.D.N.Y. 1998)</a>, noting that "some courts have described the failure of an inferior court to apply
hierarchical stare decisis as 'anarchy.'" <a href="http://www.westlaw.com/find/default.wl?rs=CLWD3.0&vr=2.0&cite=2…; 237 B.R. at 589 n.16</a>. Likewise, "[c]ritics chastise the bankruptcy
courts as having an air of arrogance and lawlessness, and conclude that bankruptcy courts should be bound by
district court precedent." "Precedent and the Assertion of Bankruptcy Court Autonomy" at 188.

In a subsequent decision, <a href="http://www.westlaw.com/find/default.wl?rs=CLWD3.0&vr=2.0&cite=2… re Fox, 274 B.R. 909 (Bankr. M.D. Fla. 2002)</a>, Judge Proctor acknowledged that his
decision in Shunnarah had been reversed and followed the district court's decision in <a href="http://www.westlaw.com/find/default.wl?rs=CLWD3.0&vr=2.0&cite=2… Credit Union v.
Kalter (In re Kalter), 257 B.R. 93 (M.D. Fla. 2000) (holding that vehicle repossessed pre-petition is not property
of the estate subject to turnover on motion by debtor), aff'd., 292 F.3d 350 (11th Cir. 2002)</a>, that he declined to
follow in Shunnarah. Judge Proctor again acknowledged the reversal in Shunnarah in <a href="http://www.westlaw.com/find/default.wl?rs=CLWD3.0&vr=2.0&cite=2… re Woolum, 279 B.R.
865, 871 (Bankr. M.D. Fla. 2002)</a>, and stated that it was bound to follow the decision in <a href="http://www.westlaw.com/find/default.wl?rs=CLWD3.0&vr=2.0&cite=8…. v. Murphy., 850 F.
Supp. 987 (M.D. Fla. 1994)</a>, which dealt with the issue of whether a constructive trust or a resulting trust arose in
favor of one who had not paid part of the purchase price of a property. However, Judge Jerry Funk, another
bankruptcy judge in the Middle District of Florida, has adopted the majority rule in <a href="http://www.westlaw.com/find/default.wl?rs=CLWD3.0&vr=2.0&cite=2… v. Health Services Credit
Union (In re Baker), 264 B.R. 759 (Bankr. M.D. Fla. 2001)</a>, which was cited to and relied upon by Judge Proctor
in his decision in <a href="http://www.westlaw.com/find/default.wl?rs=CLWD3.0&vr=2.0&cite=2…; 268 B.R. at 661</a>.

<blockquote><blockquote>
<hr>
<big><center>
Until the Supreme Court rules on this issue, the split of authority will continue, although it is clear that the courts holding that bankruptcy courts are not bound by decisions of a single-district judge in a multi-judge district are in the majority.
</center></big>
<hr>
</blockquote></blockquote>

In Baker, Judge Funk stated as follows: "The court agrees with the modern trend and finds that a bankruptcy court
is not bound by stare decisis to follow the decision of a single district judge in a multi-judge district." <a href="http://www.westlaw.com/find/default.wl?rs=CLWD3.0&vr=2.0&cite=2…; 264
B.R. at 762</a> (citations omitted). Judge Funk noted that "for a court to be bound by another court under the doctrine
of stare decisis, it must be 'inferior' to the court that issued the purportedly binding decision." <a href="http://www.westlaw.com/find/default.wl?rs=CLWD3.0&vr=2.0&cite=2…; at 763</a> (citing <a href="http://www.westlaw.com/find/default.wl?rs=CLWD3.0&vr=2.0&cite=1…
re Shattuc Cable Corp., 138 B.R. 557, 564 (Bankr. N.D. Ill. 1992)</a>). Relying upon the language in <a href="http://www.westlaw.com/find/default.wl?rs=CLWD3.0&vr=2.0&cite=2… U.S.C.
§151</a>, which provides that a bankruptcy court constitutes a "unit" of the district court, Judge Funk concluded that
therefore a bankruptcy court was not "'inferior' to a district court in its district; it is itself a division of and therefore
an equal to a district court in its district." <a href="http://www.westlaw.com/find/default.wl?rs=CLWD3.0&vr=2.0&cite=2…; Judge Funk, like Judge Proctor in Shunnarah, relied on the
well-established rule that district judges are not bound by decisions of other district judges in the same district such
that there is no law of the district. <a href="http://www.westlaw.com/find/default.wl?rs=CLWD3.0&vr=2.0&cite=2…; Accord, <a href="http://www.westlaw.com/find/default.wl?rs=CLWD3.0&vr=2.0&cite=2… re Brown, 244 B.R. 62, 64 (Bankr. D. N.J. 2000)</a> ("Nevertheless,
the decisions of a district court on questions of law are not binding on the bankruptcy courts in the district because
'there is no such thing as the law of the district.'" (quoting <a href="http://www.westlaw.com/find/default.wl?rs=CLWD3.0&vr=2.0&cite=2… re Raphael, 238 B.R. 69, 77 (D. N.J. 1999)</a>).

Bankruptcy Judge Judith Wizmur, the author of <a href="http://www.westlaw.com/find/default.wl?rs=CLWD3.0&vr=2.0&cite=2… re Raphael, 230 B.R. 657, 664 (Bankr. D. N.J. 1999), rev'd. on
other grounds, 238 B.R. 69 (D. N.J. 1999)</a>, sided with the majority rule and, in so doing, stated that she could not
"reconcile the concept that district court judges are not bound by earlier district court opinions with the notion that
bankruptcy court judges, whose decisions are appealable to other district court judges, are bound by such opinions
on the same subject." <a href="http://www.westlaw.com/find/default.wl?rs=CLWD3.0&vr=2.0&cite=2…; 230 B.R. at 664</a>. Judge Wizmur stated that she agreed with the analysis in Shattuc
that "requiring bankruptcy judges to be bound by a district court opinion in a multi-judge district 'would result in
allowing the random assignment of cases to a judge to dictate which judge ruled first on any issue and thereby made
the binding 'law of the district,' even if all other judges in the district strongly disagreed with the holding.'" <a href="http://www.westlaw.com/find/default.wl?rs=CLWD3.0&vr=2.0&cite=2…; at
665</a> (quoting <a href="http://www.westlaw.com/find/default.wl?rs=CLWD3.0&vr=2.0&cite=1… re Shattuc Cable Corp., 138 B.R. 557, 567 n.10 (Bankr. N.D. Ill. 1992)</a>). Accord, <a href="http://www.westlaw.com/find/default.wl?rs=CLWD3.0&vr=2.0&cite=2… re Stafford
Pool & Fitness Center, 252 B.R. 627, 631 (Bankr. D. N.J. 2000)</a> ("Although decisions of the district court are
entitled to substantial deference [citation omitted], such decisions are not binding in other cases because 'there is no
such thing as 'the law of the district.'" (quoting <a href="http://www.westlaw.com/find/default.wl?rs=CLWD3.0&vr=2.0&cite=9…, supra, 928 F. 2d at 1371</a>)).

<h3>Conclusion</h3>

Commentators, like the courts, disagree on this issue. David Levine takes the position that in circuits that do not
employ BAPs, "bankruptcy courts must be free to depart from district court precedent when the existing rule of law
is contrary to the intent and purpose of the Bankruptcy Code. The autonomy of bankruptcy courts is necessary to
promote the sound development of a uniform body of bankruptcy law without sacrificing the objectives served by
the stare decisis doctrine." "Precedent and the Assertion of Bankruptcy Court Autonomy" at 217. John Maddock,
however, argues that the "[f]ailure of bankruptcy judges to abide by decisions of district courts in their district not
only renders the law less predictable, but also disregards the district court as a valuable resource and serves to hinder
attorneys in their efforts to counsel clients and negotiate settlements." "Stemming the Tide of Bankruptcy Court
Independence" at 515-16. The foregoing authorities demonstrate the reasoning applied by courts on both sides of the
issue. Until the Supreme Court rules on this issue, the split of authority will continue, although it is clear that the
courts holding that bankruptcy courts are not bound by decisions of a single-district judge in a multi-judge district
are in the majority.

<hr>
<h3>Footnotes</h3>

<a name="1">1</a> <a href="http://www.westlaw.com/find/default.wl?rs=CLWD3.0&vr=2.0&cite=9… v. Armstrong World Indus. Inc., 928 F.2d 1366, 1371 (3d Cir. 1991)</a>; <a href="http://www.westlaw.com/find/default.wl?rs=CLWD3.0&vr=2.0&cite=8… States v. Articles
of Drugs Consisting of 203 Paper Bags, 818 F.2d 569, 572 (7th Cir. 1987)</a>. <a href="#1a">Return to article</a>

<a name="2">2</a> Information obtained through the Office of Public Affairs at the Administrative Office of the United States
as of June 2002. <a href="#2a">Return to article</a>

<a name="3">3</a> There is commentary on this issue. See, e.g., Levine, David A., "Precedent and the Assertion of
Bankruptcy Court Autonomy: Efficient or Arrogant," 12 Bank. Dev. J. 185 (1995) (hereafter, "Precedent and the
Assertion of Bankruptcy Court Autonomy"); Maddock III, John H., "Stemming the Tide of Bankruptcy Court
Independence: Arguing the Case for District Court Precedent," <a href="http://www.westlaw.com/find/default.wl?rs=CLWD3.0&vr=2.0&cite=2… Am. Bankr. Inst. L. Rev. 507 (Winter, 1994)</a>
(hereafter, "Stemming the Tide of Bankruptcy Court Independence"); Bussell, Daniel J., "Power, Authority and
Precedent in Interpreting the Bankruptcy Code," <a href="http://www.westlaw.com/find/default.wl?rs=CLWD3.0&vr=2.0&cite=4… U.C.L.A. L. Rev. 1063 (April 1994)</a>. <a href="#3a">Return to article</a>

<a name="4">4</a> In Gaylord, Judge Spector noted practical problems with a rule requiring bankruptcy courts to be bound by
decisions of a single district court in a multi-judge district. For example, Judge Spector stated that it is problematic
for bankruptcy judges to look to the decisions of multiple district judges and that that problem is "particularly acute
where...the purportedly binding opinion is unpublished." <a href="http://www.westlaw.com/find/default.wl?rs=CLWD3.0&vr=2.0&cite=1…; 123 B.R. at 242 n. 8</a>. In other words, if
bankruptcy courts are to be bound by the decision of a single district court in a multi-judge district, bankruptcy
courts will have to determine if there are unpublished decisions that are contrary to a published decision on a
particular issue, a process Judge Spector characterized as "unwieldy and haphazard." Id. (The authors note that
Arthur Spector became a member of Berger Singerman P.A. in April 2001 when he left the bench; this article was
well underway before then.) Moreover, it is undisputed that district court judges are not bound by the opinion of
fellow district court judges. Note 1, supra. Thus, if bankruptcy courts were bound by the opinions of district courts
in multiple judge districts, and in such districts two or more judges followed opinions reaching different legal
conclusions on the same or similar point of law, bankruptcy courts would be skating on thin ice trying to determine
which opinion to follow. <a href="#4a">Return to article</a>

Journal Authors

Paul A. Avron

Paul Steven Singerman

Journal Date

Tuesday, July 1, 2003 - 12:00

Bankruptcy Rule

2003