Appeal from the United States District Court for the District of New Jersey
Before: ALDISERT, HIGGINBOTHAM and SLOVITER, Circuit Judges
This is an appeal from an order by the United States District Court for District of New Jersey directing the defendant-appellant to pay the remainder of the amount due under a settlement agreement with the plaintiff-appellee, and rejecting defendant's claims that it was entitled to set off a claim it had asserted in bankruptcy against the amount due.
In June, 1979, the appellant, Central Transport, Inc., a common carrier, contracted to buy certain operating rights granted by the Interstate Commerce Commission (ICC) and owned by appellee Cooper-Jarrett, Inc. for $150,000. Thereafter, Congress deregulated the trucking industry, enabling any common carrier to obtain operating authority directly from the ICC, which dramatically reduced the value of existing operating rights.
When Central refused to close the purchase, Cooper-Jarrett sued it in the United States District Court for the District of New Jersey. In December, 1981, while the contract action was pending, Cooper-Jarrett filed a Petition for Reorganization under Chapter 11 of the Bankruptcy Code, 11 U.S.C. § 101 et seq. (1982). The New Jersey Bankruptcy Court, by order dated February 17, 1982, lifted the automatic stay provided under the Code and permitted Cooper-Jarrett's contract action to proceed. In the bankruptcy proceedings, Central filed a claim in the amount of $19,165.75 for pre-petition unpaid freight charges allegedly owed by Cooper-Jarrett to Central. Central did not, however, raise this claim as a counterclaim in Cooper-Jarrett's district court action.
In December, 1982, after lengthy negotiations, the parties settled Cooper-Jarrett's contract claim for an agreed upon payment by Central to Cooper-Jarrett of $70,000 in return for dismissal of the lawsuit. The district court action was accordingly dismissed by Order filed December 20, 1982.
Central's claim in bankruptcy was never mentioned during the settlement negotiations. After the district court action had been dismisssed, Central asserted the right, pursuant to 11 U.S.C. § 553, to credit the $19,000 freight charge debt allegedly owed by Cooper-Jarrett to Central against the $70,000 owed by Central to Cooper-Jarrett under the settlement agreement. Central filed in the bankruptcy court a Complaint to Permit Entry of Settlement Less Setoff. Cooper-Jarrett moved the district court to enforce the settlement agreement or, in the alternative, to vacate the dismissal and to reopen the case. The district court held that the settlement agreement was a post-petition obligation and thus could not be the subject of a setoff under the Bankruptcy Code. It granted Cooper-Jarrett's motion to enforce the settlement, denied Central's setoff claim and directed Central to pay the full balance of the settlement. This order is the subject of the appeal.
Central contends that the district court had no jurisdiction to determine its setoff claim because its Complaint to Permit Entry of Settlement Less Setoff, filed with the bankruptcy court in February, 1983, was a civil proceeding arising under Title 11 and thus was subject to automatic initial referral to the bankruptcy court under the applicable court rule. General Rule 47 of the District Court for the District of New Jersey was adopted pursuant to the directive of the Third Circuit Judicial Council. It tracks the Resolution of the Judicial conference of the United States of September 23, 1982 which was proposed as an interim rule following the decision in Northern Pipeline Construction Co. v. Marathon Pipe Line Co., 458 U.S. 50, 73 L. Ed. 2d 598, 102 S. Ct. ...