587 B.R. 43
Bankr. D. Del.2018Background
- PennySaver USA and affiliates filed chapter 7 on May 29, 2015; Don A. Beskrone was appointed chapter 7 trustee.
- Trustee sued International Education Corporation (IEC) in an adversary proceeding seeking at least $96,858.65 for unpaid prepetition advertising invoices.
- IEC moved to dismiss under Fed. R. Civ. P. 12(b)(1), arguing the bankruptcy court lacks subject-matter jurisdiction; its motion raised both factual and facial challenges.
- The Trustee opposed; the court held factual challenges were intertwined with the merits and deferred them, focusing on the facial jurisdictional question.
- Central legal question: whether a chapter 7 trustee’s pre-closing suit to recover prepetition accounts receivable is within the bankruptcy court’s "related to" jurisdiction.
- The court denied the motion, finding the suit conceivably could affect administration of the estate and thus falls within non-core "related to" jurisdiction.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether bankruptcy court has subject-matter jurisdiction over trustee's suit to recover prepetition accounts receivable | Trustee: prepetition receivables are causes of action owned by the debtor and a recovery would benefit the estate; thus the action "conceivably" affects the estate under Pacor/Celotex | IEC: recovery only increases creditor dividend; applying post-confirmation or chapter 11 post-plan tests would bar jurisdiction and limit chapter 7 trustee suits | Court: "related to" jurisdiction exists—the suit conceivably affects estate administration; facial challenge denied |
| Whether the proceeding is a "core" matter | Trustee pleaded it as core | IEC disputed core status; both parties later agreed it is non-core | Court: proceeding is non-core; core characterization rejected |
| Whether factual jurisdictional disputes should be resolved on Rule 12(b)(1) | Trustee: factual disputes go to merits and should await discovery/trial | IEC: raised factual challenges to amount and invoices as jurisdictional | Court: factual challenges are intertwined with merits and are deferred for later resolution |
| Whether Celotex/Resorts Int'l limit "related to" jurisdiction in chapter 7 liquidations | Trustee: Celotex and Resorts do not categorically strip jurisdiction in pre-closing chapter 7 cases; Pacor "conceivable effect" test still applies | IEC: Celotex/Resorts support narrowing jurisdiction and treating such suits as outside bankruptcy jurisdiction in liquidation | Court: Celotex/Resorts do not bar jurisdiction here; pre-closing chapter 7 trustee suits to recover estate assets fall within "related to" jurisdiction |
Key Cases Cited
- Chicot Cty. Drainage Dist. v. Baxter State Bank, 308 U.S. 371 (federal court authority to determine its own jurisdiction)
- Pacor, Inc. v. Higgins, 743 F.2d 984 (3d Cir.) (established the "conceivable effect" test for "related to" jurisdiction)
- Celotex Corp. v. Edwards, 514 U.S. 300 (Sup. Ct.) (discussed scope of bankruptcy jurisdiction and noted differences between chapter 11 and chapter 7 contexts)
- Northern Pipeline Const. Co. v. Marathon Pipe Line Co., 458 U.S. 50 (Sup. Ct.) (limits on bankruptcy adjudicatory power over certain claims)
- Binder v. Price Waterhouse & Co. (In re Resorts Int'l, Inc.), 372 F.3d 154 (3d Cir.) (post-confirmation/close-of-case "close nexus" test narrowing "related to" jurisdiction)
- Czyzewski v. Jevic Holding Corp., 137 S. Ct. 973 (Sup. Ct.) (commentary recognizing the value of lawsuit claims to an estate despite potential futility)