In Re: Specialty Hospital of Washington, LLC, Civil Action No. 2016-0090

Capitol Hill Group (landlord) sued its tenants (DCA Capitol Hill LTAC, LLC and DCA Capitol Hill SNF, LLC) in D.C. Superior Court for withholding > $1,200,000 in rent under a December 16, 2014 Amended and Restated Lease (2014 Lease).
Specialty Hospital (the prior lessee) went bankrupt, and its assets (and an amended lease) were sold/assigned to defendants’ parent company pursuant to an Asset Purchase Agreement and a Bankruptcy Court Sale Order entered June 30, 2014.
Before the sale, the plaintiff and the buyer’s parent executed a Sale Support Agreement (SSA) that conditioned the buyer’s deal on landlord funding of certain HVAC and construction work; the 2014 Lease, executed later, contains an integration clause superseding prior agreements and specifies remedies and processes for HVAC/repair issues.
Defendants began withholding rent in September 2015 claiming plaintiff failed to install a fully functioning HVAC system as required by the SSA/Lease; plaintiff filed suit for unpaid rent and declaratory relief about the landlord’s obligations.
Defendants removed the action to bankruptcy court asserting jurisdiction under 28 U.S.C. § 1334(b) (arising in/related to the Specialty Hospital bankruptcy); the Bankruptcy Court recommended withdrawal/remand for lack of bankruptcy jurisdiction, and the district court adopted that recommendation.

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether federal "arising under" bankruptcy jurisdiction exists	No — claims arise under the 2014 Lease, not the Bankruptcy Code	Defendants did not press "arising under" jurisdiction	Held: No arising-under jurisdiction; claims are contract-based under state law
Whether "arising in" bankruptcy jurisdiction exists	No — dispute could exist outside bankruptcy and does not affect administration of the estate	Yes — resolution requires interpreting/enforcing the Sale Order/SSA tied to the bankruptcy sale	Held: No arising-in jurisdiction; dispute is not bankruptcy-specific and Sale Order/SSA do not control the parties’ present obligations because the 2014 Lease supersedes prior agreements
Whether "related to" bankruptcy jurisdiction exists	No — outcome will not affect administration of Specialty Hospital’s estate	Yes — assignment/entry of the 2014 Lease occurred because of the bankruptcy sale, so dispute is related to the bankruptcy	Held: No related-to jurisdiction; parties failed to show any conceivable effect on the bankruptcy estate
Whether remand/removal was proper and fees warranted	Remand to Superior Court and denial of fees (removal was not objectively unreasonable)	Removal justified by asserted bankruptcy jurisdiction; requested oral argument	Held: Case remanded; withdrawal of reference granted; plaintiff's request for fees denied (removal not objectively unreasonable given unsettled precedent)

Gupta v. Quincy Med. Ctr., 858 F.3d 657 (1st Cir.) (describing limits of "arising in" bankruptcy jurisdiction)
Stoe v. Flaherty, 436 F.3d 209 (3d Cir.) (defining "arising in" proceedings as those that could only exist in bankruptcy)
Pacor, Inc. v. Higgins, 743 F.2d 984 (3d Cir.) (test for "related to" jurisdiction: conceivable effect on the estate)
Luan Inv. S.E. v. Franklin 145 Corp. (In re Petrie Retail, Inc.), 304 F.3d 223 (2d Cir.) (permitting bankruptcy-jurisdiction over post-sale disputes when rights derive from sale order or enforcement of its injunction)
Capitol Hill Group v. Pillsbury, Winthrop, Shaw, Pittman, LLC, 569 F.3d 485 (D.C. Cir.) (discussion of "arising in" jurisdiction and proceedings that exist only in bankruptcy)
Things Remembered, Inc. v. Petrarca, 516 U.S. 124 (U.S.) (limitations on appellate review of remand orders)
Martin v. Franklin Capital Corp., 546 U.S. 132 (U.S.) (standard for awarding fees on remand: objectively unreasonable removal)
In re Guild & Gallery Plus, Inc. (Torkelsen v. Maggio), 72 F.3d 1171 (3d Cir.) (bankruptcy jurisdiction requires more than coincidence that conduct occurred during a bankruptcy)