Estate of Jackson v. Schron (In Re Fundamental Long Term Care, Inc.)
2017 U.S. App. LEXIS 20468
| 11th Cir. | 2017Background
- THI/THMI operated a nationwide nursing-home network that faced numerous wrongful-death suits, resulting in over $1 billion in empty-chair judgments.
- In March 2006, THI/THMI assets were moved into newly formed entities (FLTCH, FLTCI, etc.) in a transaction allegedly designed to strip liabilities from THMI while preserving operations (the “2006 Transaction”); Grunstein and Forman directed the deal.
- The Estates (judgment creditors) filed supplementary state actions and an involuntary Chapter 7 bankruptcy for FLTCI and pursued an adversary proceeding to avoid the transfers as fraudulent.
- Rubin Schron was named as a defendant but the complaints alleged only tenuous, mostly conclusory connections (agency, options, or alleged ‘‘Schron’s entities’’) and did not plead specific acts by Schron in the 2006 Transaction.
- The bankruptcy court dismissed all claims against Schron with prejudice for failure to state plausible claims; remaining defendants settled for ~$23.7M conditioned on a permanent injunction barring the Estates from pursuing claims against Schron arising from the same nucleus of facts.
- The district court affirmed; the Eleventh Circuit affirmed both the dismissal with prejudice and the issuance of the permanent injunction.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether bankruptcy court had jurisdiction to enjoin state-law claims against Schron related to the 2006 Transaction | Estates: state claims (e.g., proceedings supplementary, real-party-in-interest, §1983) are independent of the debtor’s estate and thus outside §1334 related-to jurisdiction | Schron: claims arise from transfers that passed through debtor/estate and could conceivably affect estate administration | Court: jurisdiction exists under §1334(b) because outcomes could conceivably affect the FLTCI/THMI estate; AFFIRMED |
| Whether permanent injunction was authorized under All Writs Act given Anti‑Injunction Act limits | Estates: injunction exceeded authority; could not bar claims not litigated in bankruptcy (Potential Claims) | Schron: injunction necessary to protect bankruptcy judgments and the settlement and to prevent collateral actions that would impair estate administration | Court: injunction valid—relitigation exception covers dismissed claims; second Anti‑Injunction Act exception (necessary in aid of jurisdiction) covers Potential Claims given complexity, settlements conditioned on injunction; AFFIRMED |
| Whether Second Amended Complaint sufficiently pleaded direct or derivative claims against Schron arising from the 2006 Transaction (alter-ego, aiding/abetting, fraudulent transfer) | Estates: alleged agency/alter-ego theories and that Grunstein/Forman acted as Schron’s agents or that Schron benefited (options, ‘‘Schron’s entity’’) | Schron: pleadings lack specific acts, agency allegations are conclusory and internally inconsistent; discovery had already been available | Court: allegations were too vague, speculative, and internally inconsistent; failed Twombly/Iqbal plausibility standard; dismissal with prejudice proper; AFFIRMED |
| Whether other claims (2012 settlement fraudulent conveyance; abuse of process) were plausibly pleaded | Estates: 2012 assignment of THI claims to defendants (Schron paid $200k) was a fraudulent conveyance given huge asserted value; defendants’ control of THMI defense constituted abuse of process | Schron: valuation allegations speculative; complaint ignored litigation risk and probability of success; defense of THMI—even if unauthorized—was the normal use of process and not primarily for an improper immediate purpose | Court: 2012 transfer valuation implausible (no facts to show $700k was less than reasonably equivalent value); abuse-of-process claim lacked allegation that process was used for an immediate improper purpose (and litigation privilege issues); AFFIRMED |
Key Cases Cited
- In re Brown v. Gore, 742 F.3d 1309 (11th Cir. 2014) (standards for appellate review of bankruptcy rulings)
- Celotex Corp. v. Edwards, 514 U.S. 300 (U.S. 1995) (scope of bankruptcy "related-to" jurisdiction)
- Pacor, Inc. v. Higgins, 743 F.2d 984 (3d Cir. 1984) ("conceivably could affect the estate" test for related-to jurisdiction)
- In re Lemco Gypsum, Inc., 910 F.2d 784 (11th Cir. 1990) (adopting Pacor related-to formulation)
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (U.S. 2007) (plausibility pleading standard)
- SFM Holdings, Ltd. v. Banc of Am. Secs., LLC, 764 F.3d 1327 (11th Cir. 2014) (All Writs Act and Anti‑Injunction Act framework)
- Juris v. Inamed Corp., 685 F.3d 1294 (11th Cir. 2012) (state proceedings that threaten manageability of complex federal litigation may be enjoined)
- Battle v. Liberty Nat’l Life Ins. Co., 877 F.2d 877 (11th Cir. 1989) (injunction to protect complex, hard-won federal settlement)