Quincy Medical Center v. Gupta
858 F.3d 657
| 1st Cir. | 2017Background
- Debtors (Quincy Medical Center entities) agreed to sell substantially all assets to Steward via an Asset Purchase Agreement (APA); sale approved by bankruptcy court and closed in 2011.
- APA contained provisions requiring Steward to offer employment to certain employees and to pay transferred employees base wages for at least three months and to be liable for severance/retention pay on termination.
- Appurv Gupta and Victor Munger (former senior executives) were terminated effective at closing and sought severance: they filed administrative-expense motions in the bankruptcy court and alternatively sought an order directing Steward to pay under the APA.
- The bankruptcy court treated the motions as claims against Steward, interpreted the APA, and entered judgment for the appellants based on its retained-jurisdiction language in the Sale Order/Plan.
- The district court vacated the bankruptcy-court judgments, holding the bankruptcy court lacked subject-matter jurisdiction over the appellants’ state-law breach-of-contract severance claims against Steward; the First Circuit affirmed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether bankruptcy court had jurisdiction over appellants’ severance claims against purchaser | Gupta/Munger: claims “arise in” the bankruptcy because APA and Sale Order (approved in bankruptcy) created the rights; retention clause preserves jurisdiction | Steward: claims are state-law contract breaches that do not arise under, in, or relate to the bankruptcy; retention clauses cannot create §1334 jurisdiction | Held: No jurisdiction — claims are state-law contract disputes that do not fall within §1334(a)/(b) as arising under, arising in, or related to the bankruptcy; retention language cannot confer jurisdiction the statute lacks |
| Whether retention-of-jurisdiction provisions in Sale Order/Plan can expand §1334 jurisdiction | Plaintiffs: retention language gives bankruptcy court authority to interpret/enforce APA and thus hear claims | Steward: retention cannot create statutory jurisdiction where none exists under §1334 | Held: Retention provisions cannot expand or create §1334 jurisdiction; a court cannot retain jurisdiction it never had |
| Whether appellants’ claims “arise in” the bankruptcy because they exist only due to the sale in bankruptcy | Plaintiffs: but-for the Chapter 11 sale approval, claims would not exist, so they "arise in" bankruptcy | Steward: “but-for” test is insufficient; “arising in” requires matters that by nature have no existence outside bankruptcy | Held: The “but-for” test is rejected; “arising in” applies only to claims that could exist only in bankruptcy, which these could not |
| Whether the bankruptcy court’s interpretation/enforcement of its prior Sale Order could justify jurisdiction | Plaintiffs: interpreting/enforcing the Sale Order supports jurisdiction | Steward: appellants’ claims rest on APA/state law, not on interpreting substantive provisions of the Sale Order itself | Held: Bankruptcy courts may interpret/enforce their orders, but only when the matter falls within §1334 jurisdiction; here the dispute required only state-law contract analysis, not interpretation of the Sale Order |
Key Cases Cited
- Celotex Corp. v. Edwards, 514 U.S. 300 (statutory limits on bankruptcy-court jurisdiction)
- Pacor, Inc. v. Higgins, 743 F.2d 984 (test for "related to" jurisdiction)
- In re Middlesex Power Equip. & Marine, Inc., 292 F.3d 61 (distinguishing "arising under"/"arising in" and sale-order interpretation)
- Stoe v. Flaherty, 436 F.3d 209 ("arising in" requires claims that could only exist in bankruptcy)
- Travelers Indem. Co. v. Bailey, 557 U.S. 137 (courts have jurisdiction to interpret/enforce their own prior orders)
- In re U.S. Brass Corp., 301 F.3d 296 (retention clauses cannot create §1334 jurisdiction)