IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF ALASKA

Bankr. (Main) No. 3-84-00175 (HAR)
Bankr. (Adv.) No. 3-84-00175-001 (HAR)

O R D E R

Motion for Core/Non-Core Decision

By motion, plaintiff trustee in adversary proceedings on appeal to this court seeks a determination that the trustee's adversary action against Eric E. Wieler, et al., was a core proceeding.⁽¹⁾ The motion is opposed by Eric and Paul Wieler. Oral argument has been requested and is not deemed necessary.

The adversary proceedings which give rise to the instant motion were commenced by the trustee as plaintiff, asserting a claim to quiet title in the trustee as regards certain mining claims listed by Gold King Mines, Inc., as assets of the bankrupt. After a non-jury trial, the bankruptcy court, on July 24, 1996, entered      5 ABR 347 a memorandum decision containing findings of fact and conclusions of law by which the bankruptcy judge adjudicated the competing interests with respect to the mining claims in question.⁽²⁾ In that decision, the bankruptcy court determined that the trustee's quiet title action was a core proceeding under 28 U.S.C. § 157 (b) (2) (A) and (0). In further discussion of his core/non-core decision, the bankruptcy judge also relied upon 28 U.S.C. § 157(b) (2) (E).⁽³⁾ In reaching the decision that the adversary proceeding was a core proceeding, the bankruptcy court held:

The Mining Claims are the centerpiece of the chapter 11 case. In deciding the case, the court has determined property issues regarding Paul and Eric Wieler under federal judicial estoppel principles because they arose in the bankruptcy case (see, § 4.2 of this memorandum), applied bankruptcy law in determining the quiet title issue (see, § 4.4 of this memorandum, applying 11 USC §§ 108 (c) and 362 (a) analysis) and regarding the validity of the probate decree vis-a-vis the trustee (see, § 4.6 of this Memorandum, applying 11 USC §§ 544 (a) (3) analysis). These factors convince me that this is a core proceeding. [ ⁽⁴⁾]

In the course of scheduling conferences with counsel, this court became convinced of the necessity of deciding the core/non-core issue as a priority matter inasmuch as that decision will affect how this court will proceed. Appeal proceedings to this court are governed by Rule 8013, Federal Rules of Bankruptcy Procedure, and in such proceedings matters of law are reviewed de novo while findings of fact must be accepted unless clearly erroneous. In re Alsberg, 68 F.3d 312, 314 (9th Cir. 1995); In re Carie Corp.,

Some additional factual material will be useful in discussing the motion in question. The Gold King Mines, Inc., voluntary Chapter 11 proceedings were commenced in mid-1984. In November      5 ABR 349 of 1986, the plaintiff trustee was appointed. The adversary proceeding with respect to ownership of the mining claims was not commenced until May of 1993. This case was converted to Chapter 7 proceedings in July of 1996. The quiet title action involved, among others, Eric and Paul Wieler, who formed Gold King Mines, Inc., and who had quitclaimed the mining claims in question to that corporate entity. Subsequently, although before the bankruptcy proceedings, the Wieler brothers inherited additional fractional interests in the mining claims in question from their father. The Wieler sisters, Marianne Pliant and Lisa Rogers, also inherited fractional interests in the mining claims from their father. The Wieler siblings and other possible claimants or interest holders were named as defendants in the quiet title action brought by the trustee.

The Gold King Mines, Inc., petition suggests that the corporation owned the mining claims outright, even though, as suggested above, the Wieler brothers' conveyance to the corporation preceded their inheritance of additional interests in these claims. It was a principal view of the bankruptcy judge that the Wieler brothers so conducted their own affairs and those of Gold King Mines, Inc. (which they controlled), as to treat the corporation as sole owner of the claims. The bankruptcy judge found and concluded that the Wieler brothers were judicially estopped from claiming individual interests in the mining claims inconsistent with that position.

At the outset of his discussion of the instant motion, the trustee argues that the core/non-core issue has not been preserved for appeal. The court does not see it that way, for it is confronted with both an appeal and a report and recommendation made in the alternative. The court must either go forward as to both the appeal and the report and recommendation, or decide the core/non-core issue. That issue must be resolved quite apart from whether it has or has not technically been preserved through the appeal process.

It is argued by the trustee that Eric and Paul Wieler have consented to bankruptcy court jurisdiction for the entry of a final judgment as to the quiet title adversary proceeding. The court sees it differently. As noted above, the Wieler brothers twice attempted to withdraw the adversary proceedings to the district court. Such action is very much inconsistent with any theory of voluntary consent to proceed before the bankruptcy judge.

The trustee next argues that the court should adopt the bankruptcy judge's initial holding that the adversary proceeding was a core proceeding. For the reasons discussed below, the court concludes that the bankruptcy court properly concluded that the dispute over ownership of the mining claims was a core proceeding.

(b) (1) Bankruptcy judges may hear and determine ... all core proceedings arising under title 11, or arising in a case under title 11, referred under subsection (a) of this section, and may enter appropriate orders and judgments, subject to review under section 158 of this title.

(2) Core proceedings include, but are not limited to-

(A) matters concerning the administration of the estate;

....

(E) orders to turn over property of the estate;

....

(K) determinations of the validity, extent, or priority of liens;

....

(0) other proceedings affecting the liquidation of the assets of the estate or the adjustment of the debtor-creditor or the equity security holder relationship, except personal injury tort or wrongful death claims.

(3) The bankruptcy judge shall determine, on the judge's own motion or on timely motion of a party, whether a proceeding is a core proceeding under this subsection or is a proceed      5 ABR 352 ing that is otherwise related to a case under title 11. A determination that a proceeding is not a core proceeding shall not be made solely on the basis that its resolution may be affected by State law.

28 U.S.C. § 157(b) (emphasis supplied).

The trustee's action to quiet title to the mining claims in question does not fit neatly within any of the foregoing congressional examples of core proceedings. If it were permissible to construe subsections 157(b) (2) (A) and (b) (2) (0) broadly, they would surely embrace a quiet title action brought by a trustee. There is no dispute here but what the trustee has some interest in the mining claims or that such interests are property of the estate under 11 U.S.C. § 541. Where, as here, there are fractional interests in an asset scheduled by the bankrupt, and there is disagreement as to the extent of those interests, the trustee cannot well or effectively carry out his functions without knowing the nature and extent of his ownership interests in the property of the estate. Similarly, the trustee cannot very well liquidate an asset and hope to achieve its fair value without being able to demonstrate to a potential purchaser the nature and extent of the trustee' s ownership in the property.

Whether or not subsections 157(b) (2) (A) and (b) (2) (0) are broad enough to encompass the trustee's quiet title action is subject to some doubt. Doubt exists principally because the Ninth Circuit Court of Appeals has somewhat obscurely urged caution in making the core/non-core decision if characterizing a proceeding as "`core'. . . would raise constitutional problems." In re Castlerock Proper      5 ABR 353 ties, 781 F.2d 159, 162 (9th Cir. 1986). The Ninth Circuit makes a similar observation in In re Cinematronics, Inc., 916 F.2d 1444, 1450 (9th Cir. 1990), where we read:

The state law claims do not fit within one of the enumerated core categories, and trying to fit the claim into a catch-all category may cause constitutional problems.

Although Castlerock and Cinematronics provide general counsel to the court in reaching its decision, neither is analogous to the factual setting of this case. Both involve state law contract disputes. It is not entirely clear what the dispute was in Castlerock, although it is clear that the case involved contract counterclaims by the bankrupt. Cinematronics provides a bit more information about the factual setting, and there it is clear that the contract claim found to be a non-core proceeding was one brought against a non-debtor in his individual capacity by another party who was also not the debtor. Plainly, the connection to the Cinematronics bankruptcy proceeding was the sort of tenuous one which made it related to the bankruptcy proceeding but not a core proceeding.

Considerably more analogous to the facts of our case, and therefore more instructive, is In re Mankin, 823 F.2d 1296 (9th Cir. 1987), cert. denied sub nom,. Munn v. Duck, 485 U.S. 1006 (1988). In Mankin, a bankruptcy trustee sued to avoid a fraudulent conveyance under applicable state law as permitted by the Bankruptcy Act.      5 ABR 355 11 U.S.C. § 544 (b) . Because a state law fraud action was asserted, it was contended that the proceeding was non-core. The Ninth Circuit Court of Appeals rejected this notion on the basis of subsection 157(b)(2)(H), even in the face of the contention that a constitutional question was raised by allowing bankruptcy jurisdiction. We must recognize that the Ninth Circuit's decision in Mankin was made easier because subsection 157(b)(2)(H) expressly provides that recovery of fraudulent conveyances is a core proceeding. In reaching its decision in Mankin, the court emphasized that:

Section 157 (b) (2) does not set categorical limits on the jurisdiction of bankruptcy courts over core proceedings, but rather merely enumerates examples of proceedings falling within a bankruptcy court's core proceeding jurisdiction. That Congress did not intend to limit the bankruptcy courts' jurisdiction over core proceedings by enumerating examples of core proceedings in § 157 (b) (2) is apparent from the prefatory language of § 157 (b) (2): "Core matters include, but are not limited to . . . . " (emphasis added). 28 U.S.C.A. § 157(b)(2) (West Supp. 1987). Thus, in construing a bankruptcy court's jurisdiction over a particular action pursuant to § 157 (b) (1), the crucial consideration is not whether the action falls within one of the clauses of § 157 (b) (2), but rather whether the action is or is not in fact a core proceeding.

Here, as in Castlerock and Cinematronics, the circuit provides little guidance and begs the ultimate question of "what is a core proceeding?" Be that as it may, the court takes the foregoing discussion to state unequivocally that the list contained in subsection 157 (b) (2) is not exclusive, and that proceedings which go to the heart of a bankruptcy matter and which are analogous to one of      5 ABR 356 the enumerated core proceedings should also be treated as a core proceeding, even though not expressly enumerated.

In this case, the adversary proceeding in question was commenced by the trustee in bankruptcy, not some peripheral party. The adversary claim involves the principal asset of the estate, not some peripheral claim or disagreement. The Wieler brothers argue, as a part of their argument that the trustee's adversary proceeding was a non-core proceeding, that they are non-debtor, third parties who own the property which is the subject of the trustee's action. Here, the Wieler brothers fail to acknowledge or recognize that "the property" which is the subject of the trustee's quiet title action is a group of mining claims, and that the dispute is over fractional interests in each of the claims.

Although it is not entirely clear to the court that it would make any difference, this is not a case where some claims are asserted to be wholly owned by the trustee and others are asserted to be wholly owned by someone else. All of the claims are in dispute, and the dispute has to do with who owns what fraction of each claim. Although the adversary claim does not involve a matter of administration per se, and does not involve the liquidation of assets per se, the trustee could not effectively and completely carry out his duties of administration and/or liquidation of the estate for the benefit of creditors without a decision having been reached as to the nature and extent of the trustee's ownership of the mining claims in question.

     5 ABR 357 Congress has designated as core proceedings those which have to do with the turnover of property to the estate (subsection 157 (b) (2) (E) ) and proceedings for the determination of the validity, extent, and priority of liens (subsection 157 (b) (2) (K)). The trustee's quiet title action in this bankruptcy case is neither an application for a turnover order, nor does it directly involve the validity, extent, or priority of liens. Title 11, Section 541, expressly provides that the property of the estate includes "[ a] ny interest in property that the trustee recovers under section . . . 543 ... of this title." Section 543 deals with property of the debtor which is in the custody of a third party. Section 543 (a). If, as Section 157 (b) (2) (E) clearly provides, disputes over the turnover of a piece of property in the custody of a third party is a core proceeding, the trustee's pursuit of a decision with respect to the nature or extent of ownership of real property which the trustee presumably controls should also be a core proceeding. A determination of the nature and extent of the trustee's ownership interest in mining claims as to which there is disagreement or uncertainty involves the same kind of considerations insofar as parties, issues, and effect of the proceedings as do proceedings for a turnover order or the determination of the validity, extent, or priority of liens.

It is important in the court's view that an adversary proceeding such as that under consideration be characterized as a core proceeding for purposes of general policy. If disputes over the trustee's ownership of the estate are not core proceedings, then the bankruptcy court is deprived of the more efficient and less complex      5 ABR 358 process of adjudication which the Bankruptcy Act affords as to core proceedings as compared to non-core proceedings. If every dispute as to ownership of estate property must be the subject of non-core proceedings before the bankruptcy court, and, at the request of a disappointed party, subject to de novo review by the district court, the process of adjudication in bankruptcy proceedings would necessarily be significantly slowed. In this regard--and admittedly based upon anecdotal evidence only--it is the court's perception that bankruptcy appeals proceed through the courts more quickly and efficiently than do proceedings on reports and recommendations of the bankruptcy court. While it is certainly true that constitutional rights should not be sacrificed for the sake of judicial efficiency, where, as here, the dispute over ownership of the estate goes to the heart of the bankruptcy proceedings (indeed, here the quiet title proceeding casts a shadow over the principal asset of the estate), the purposes of the Bankruptcy Act of efficient administration of estates is diminished if such matters are non-core proceedings.

For the foregoing reasons, the court concludes that a trustee's quiet title action under the circumstances here involved is a core bankruptcy proceeding fairly and necessarily within the scope and intent of subsection 157 (b) (2) of the 1984 Bankruptcy Act.

DATED at Anchorage, Alaska, this 23^rd day of April, 1997.

H. Russel Holland, Judge
District of Alaska

1. 5 ABR 346      Clerk's Docket No. 17.

2. 5 ABR 346      Bankr. Docket No. 173.

3. 5 ABR 347      Id., Memorandum Decision at 19, 23.

4. 5 ABR 347      Id., Memorandum Decision at 23-24.

5. 5 ABR 347      Memorandum Decision at 24.

6. 5 ABR 347      Bankr. Docket No. 176.

7. 5 ABR 348      Bankr. Docket No. 174.

8. 5 ABR 353      The Wieler brothers contend, without much amplification, that their constitutional rights were violated by the bankruptcy court if the adversary proceeding commenced by the trustee is deemed a core proceeding. Implicit in this suggestion is the contention that the Wieler brothers are entitled to a decision by an Article III judge. The argument begs the question before the court of whether or not the trustee's quiet title action is or is not, under the circumstances of this case, a core proceeding. Because core proceedings are deemed to be bankruptcy matters, they are by act of Congress within the jurisdiction of the bankruptcy court if, as in this district, all bankruptcy proceedings are by general order referred to the bankruptcy court. On the other hand, if the trustee's action were not a core proceeding, then, by the 1984 Bankruptcy Act, the Wieler brothers are indeed entitled to have their case considered by an Article III court.