372 F.3d 154 | 3rd Cir. | 2004
International, Inc. Litigation Trust SCIRICA, Chief Judge .
v. This appeal addresses the scope of “related to” jurisdiction of the bankruptcy PRICE WATERHOUSE & CO., LLP, court for post-confirmation claims brought Appellant on behalf of a litigation trust against an accounting firm. The trustee sued the accounting firm for p r ofe ssional
On Appeal from the negligence and breach of contract for work it performed for the trust. The Bankruptcy United States District Court for the Court declined to hear the claim, finding it District of New Jersey D.C. Civil Action 02-cv-01333 lacked subject matter jurisdiction. The District Court disagreed and reversed. We (Honorable Dickinson R. Debevoise) will reverse the order of the District Court and remand for proceedings consistent with this opinion.
Argued October 29, 2003
I.
Before: SCIRICA, Chief Judge , A. Overview of Affected Parties NYGAARD and AMBRO, Circuit Judges The underlying matter in this appeal is an accounting malpractice action. J. (Filed June 22, 2004) Louis Binder, the Trustee for the Resorts beneficiaries of the Litigation Trust, who International, Inc. Litigation Trust, brought were former creditors of the debtor’s a claim in excess of $500,000 against estate. accounting firm Price Waterhouse & Co.
Price Waterhouse responds that the for professional malpractice and breach of Litigation Trust, a legally distinct entity, is contract in connection with accounting not a continuation of the bankruptcy estate services performed for the Litigation for jurisdictional purposes. Moreover, Trust. The Trustee’s principal allegation is Price Waterhouse contends the debtor is that Price Waterhouse erroneously only tangentially affected by this reported in its audit that accrued interest malpractice action after it assigned away on Litigation Trust accounts belonged to its interests in the litigation claims, and the the debtor rather than to the Litigation Litigation Trust beneficiaries traded their Trust. Underlying this claim was a suit creditor status to attain rights to the Trust’s between the Litigation Trust and the assets. debtor, Resorts International, Inc., over entitlement to the accrued interest. B. Facts According to the T rustee , Price
On November 12, 1989, creditors of Waterhouse’s erroneous reports were Resorts International, Inc. [1] and Resorts relied on by the bankruptcy court to the International Financing, Inc. filed against Litigation Trust’s detriment. t h e m C h a p t e r 1 1 i n v o l u n t a r y The debtor, Resorts International, reorganization petitions in the United States Bankruptcy Court for the District of Inc., is not a party to the malpractice action. The debtor assigned to the New Jersey. On December 22, 1989, Litigation Trustee all its rights, title, and Griffin Resorts and Griffin Resorts Holding, Inc., affiliates of Resorts interest in the Litigation Trust’s primary asset, its claim against Donald Trump and International, filed separate voluntary affiliated entities. Because the Bankruptcy petitions under Chapter 11. All of the Court confirmed the Reorganization Plan, cases were consolidated. the debtor’s estate no longer exists.
On August 28, 1990, the Nonetheless, the Trustee alleges the Bankruptcy Court issued an Order confirming the Second Amended Joint debtor’s estate would still be affected by the malpractice suit because the Litigation Plan of Reorganization. On September 17, Trust is effectively a continuation of the bankruptcy estate. Furthermore, contends the Trustee, any recovery obtained in this [1] Resorts International, Inc. changed its action would necessarily become Trust name on June 30, 1995, to Griffin Gaming assets, available to cover any liability that & Entertainment, Inc. For sake of clarity, might arise in the accrued interest lawsuit we will continue to refer to it as Resorts or available for possible distribution to the International, Inc. 1990, the parties entered into a Final Plan the amount of $5,000,000 to the Litigation and Litigation Trust Agreement. The Final Trust to enable it to pursue the litigation Plan created a Litigation Trust for the claims. benefit of certain creditors. Section
On May 28, 1991, the Trustee 7.10(a) of the Plan provided: “Litigation entered into an agreement with Trump and Trustee shall retain and preserve the his affiliates and the debtor settling the Litigation Claims for enforcement, as litigation claims on behalf of the Trust’s representative of and successor to the Unitholders in the amount of $12,000,000, Reorganizing Entities in accordance with subject to approval by the Unitholders. Bankruptcy Code §§ 1123(b)(3)(B) and Approval was solicited and received by 1145(a).” The beneficial interests in the July 15, 1991. The Settlement Agreement Litigation Trust were divided into ten proceeds became assets of the Litigation million Litigation Trust Units and Trust. allocated to certain creditors, the Unitholders, [2] under a formula set forth in The Litigation Trust Agreement section 7.10(b) of the Plan. Under section contained several provisions affecting 7.10(d), each Unitholder was entitled to a Price Waterhouse, though it was never pro rata share of any distribution from the named in the document. Section 3.2 of the Litigation Trust. Litigation Trust Agreement provided that
“[t]he Trustee shall retain an independent The assets assigned to the Litigation public accounting firm to audit the Trust were claims originally held by the financial books and records of the Trust debtor, Resorts International, Inc., against and to perform such other reviews or Donald J. Trump and affiliated entities, audits as may be appropriate in the arising from Trump’s 1988 leveraged Trustee’s sole discretion,” and that the buyout of the Taj Mahal Resort. Upon Trustee “shall pay such accounting firm formation of the Litigation Trust, the reasonable compensation from the Trust litigation claims were assigned to the Assets” for its services. Section 5.5 of the Trustee. The Plan authorized the Trustee Litigation Trust Agreement required the to prosecute the claims against the Trump Trustee to report to all Unitholders the entities. The Plan and Litigation Trust details of the Trust’s transactions and Agreement also required the debtor to disbursements at least annually and to have provide an irrevocable letter of credit in these reports “audited by the independent accounting firm retained by the Trustee . . . not less frequently than annually.” [2] The Unitholders were the holders of allowed Class 3B Claims, allowed Resorts
On April 17, 1990, representatives International, Inc. Debenture Claims, and of the Litigation Trust’s Unitholders allowed Other Class 3C Claims as defined elected Kenneth R. Feinberg as Litigation by the Plan. In re Resorts Int’l, Inc. , 199
Trustee. On November 1, 1990, after B.R. 113, 115 n.2 (Bankr. D.N.J. 1996). confirmation of the Plan, the Trustee Trustee alleged that to the extent the retained Price Waterhouse to provide Bankruptcy Court approved the debtor’s auditing and tax-related services to the claim to the interest, it relied on Price Litigation Trust. Subsequently, under an Waterhouse’s audit reports, so that its order dated August 17, 1994, J. Louis “errors” injured the Litigation Trust. The Binder replaced Feinberg as Trustee. Trustee alleged that even though the Trust Shortly thereafter, the Trustee terminated partially prevailed in the interest dispute, the services of Price Waterhouse. On P r i c e W a t e r h o u s e ’ s e r r o n e o u s April 15, 1997, the Trustee filed this characterization caused the Trust to incur adversary proceeding against Price Waterhouse allegin g pro f e s s ional negligence and breach of contract.
$ 5 million deposit became a “Trust Asset” as defined by The Trustee allege d Price Article II of the Litigation Waterhouse committed professional Trust Agreement, and any malpractice by making several errors in its interest earned on such accounting and tax advice. His principal
“Trust Asset” also became a allegation is that Price Waterhouse “Trust Asset.” Accordingly, erroneously reported in its audit reports
the Litigation Trust is that certain accrued interest on the entitled to interest earned on Litigation Trust accounts belonged to the the balance of the initial $ 5 debtor rather than to the Trust. The
million deposit for the accrued interest was the subject of a period beginning May 28, dispute between the debtor and the 1991 through the present Litigation Trust—a dispute the Bankruptcy
date. To the extent that the Court decided in part in favor of the debtor Settlement Agreement dated and in part in favor of the Trust. See In re Resorts Int’l, 199 B.R. at 118-19. [3] The May 28, 1991 between the
former Litigation Trustee F e i n berg a nd Re sorts [3] The Bankruptcy Court allocated the provided for interest income interest between the Litigation Trust and earned on the Expense the debtor in the following manner: Account for the period
Interest income earned on March 16, 1991 through the Expense Account for the May 28, 1991 to be paid to period beginning on or Resorts, the Litigation about October 3, 1990 Trus t’s e ntitlemen t to through May 28, 1991 interest shall accrue from belongs to Resorts. Upon the post-settlement period settlement of the Litigation following May 28, 1991. Claims, the balance of the In re Resorts Int’l, 199 B.R. at 125.
unnecessary litigation costs in defending (internal quotations omitted). But the its entitlement. The Trustee also alleged Bankruptcy Court rejected “related to” certain errors in tax advice and auditing jurisdiction because the claims could not provided to the Trustee and faulted Price have had any “conceivable effect on the Waterhouse for failing to review and administration of the estate,” and because interpret certain Litigation Trust the dispute would not significantly affect documents. The Trustee sought damages consummation of the Reorganization Plan. and disgorgement of fees in excess of See id. at 29-32. It also found that none of $500,000. the Plan’s retention provisions were
intended to serve as a basis for jurisdiction C. Procedural History over the Litigation Trust and third-party On April 15, 1997, almost seven accountants; nor could the Plan language years af ter R eo rgan ization Pla n create jurisdiction greater than that granted confirmation, the Trustee filed the by Congress. Id. at 13-14. underlying professional malpractice action
The Trustee appealed to the District against Price Waterhouse in the United Court, which reversed and remanded. States Bankruptcy Court for the District of Binder v. Price Waterhouse & Co. (In re New Jersey. On January 4, 2002, the Resorts Int’l, Inc. ), No. 02-1333, slip op. at Bank r u p t c y C o urt gra nted P rice 19 (D.N.J. Dec. 18, 2002). The District Waterhouse’s motion to dismiss for lack of Court held “the terms on which the subject matter jurisdiction finding there Litigation Trust was created and its was no “related to” or “core” jurisdiction. practical role in the Plan lead to the Binder v. Price Waterhouse & Co. (In re conclusion that claims arising from Resorts Int’l, Inc.) , Adv. No. 97-2283, slip professional misconduct in the Trust’s op. at 22, 30, 35 (Bankr. D.N.J. Jan. 4, affairs are sufficiently related to the 2002). Disagreeing with the Trustee that bankruptcy case to be within the this was a “core” proceeding, the jurisdiction of the Bankruptcy Court.” Id. Bankruptcy Court characterized the matter at 7. The Court explained: as a post-confirmation dispute between two non-debtors involving state law claims [C]onfirmation did not that did not affect the “administration of terminate the estate with the estate, property of the estate, or respect to the property liquidation of assets of the estate.” Id. at vested in the Litigation 21. Although finding its post-confirmation Trus t; and th e Trust jurisdiction to be “extremely limited,” the r e p r e se n t e d a p a r t i a l Bankruptcy Court recognized that it continuation of the estate. retained post-confirmation jurisdiction C o n s e q u e n t l y , t h e over disputes that potentially “affect the j u r i s d i c t i o n o f t h e s u c c e s s f u l i m p l e m e n t a t io n a n d bankru ptcy court over consummation of the plan.” Id. at 28 proceedings arising from the
affairs of the Litigation Court’s order under 28 U.S.C. § 158. We Trust is not substantially have jurisdiction under 28 U.S.C. § d i f f e r e n t f r o m i t s 1292(b). Our review of the District jurisdiction over similar Court’s order on jurisdiction is de novo. matters pre-confirmation, Resolution Trust Corp. v. Swedeland Dev. and it should have the power Group (In re Swedeland Dev. Group) , 16
F.3d 552, 559 (3d Cir. 1994). [4] t o h e a r c l a i m s o f professional malpractice in
II.
the administration of the Both the Reorganization Plan and Trust.
Litigation Trust Agreement contain Id. at 12. But in light of the “uncertainties retention of jurisdiction provisions. surrounding the exercise of Bankruptcy Article XI of the Plan provides in part: Court jurisdiction post-confirmation,” the The Bankruptcy Court will District Court certified its ruling for immediate appeal under 28 U.S.C. § retain jurisdiction of the 1292(b). Id. at 17-18. Price Waterhouse Reorganizing Cases for the petitioned for leave to appeal. The Trustee following purposes: . . . (c) chose not to contest the petition. We T o e n s u r e t h a t t h e distribution of Holders of granted leave to appeal.
Claims and Interests are Price Waterhouse claims the [sic ] ac c omplished as District Court erred in upholding “related provided herein; . . . (h) To to” bankruptcy jurisdiction because there hear and determine disputes can be no conceivable effect on the arising in connection with administration of the estate. Furthermore, t h e P l a n o r i t s it contends, the District Court’s judgment, implementation including if permitted to stand, threatens unending disputes arising under jurisdiction in the Bankruptcy Court well agreements, documents or after dissolution of the debtor’s estate. instrument executed in The Trustee counters that this professional connection with this Plan; . malpractice cause of action involves . . (i) To construe and to parties, assets, and issues central to the take any action to enforce Reorganization Plan and is “related to” the bankruptcy, especially given the sweeping jurisdictional retention provisions in the [4] We agree with the District Court that Plan and Litigation Trust Agreement. the challenge is a facial attack regarding an issue of law rather than a factual attack The jurisdiction of the Bankruptcy and accordingly will assume the truth of Court is at issue. The District Court had the allegations in the Complaint. See jurisdiction to review the Bankruptcy Binder , No. 02-1333, slip op. at 7-8. the Plan and issue such according to the Agreement was “not only orders as may be necessary comprehensive it was exclusive .” for the implementation, Appellee’s Br. at 9 (emphasis in original). e x e c u t i o n , a n d
Retention of jurisdiction provisions consummation of the Plan; . will be given effect, assuming there is . . (o) To hear and determine bankruptcy court jurisdiction. But neither any other matters not the bankruptcy court nor the parties can inconsistent with Chapter 11 write their own jurisdictional ticket. of the Bankruptcy Code. Subject matter jurisdiction “cannot be Article VIII of the Litigation Trust conferred by consent” of the parties. Agreement provides: Coffin v. Malvern Fed. Sav. Bank , 90 F.3d
851, 854 (3d Cir. 1996). Where a court The Bankruptcy Court shall lacks subject matter jurisdiction over a retain exclusive jurisdiction dispute, the parties cannot create it by over the Litigation Claims a g r e e m e n t e v e n i n a p l a n of and Counterclaims, the reorganization. In re Continental Airlines, Trust, the Trustee, and the Inc. , 236 B.R. 318, 323 (Bankr. D. Del. Trust Assets, as provided for 1999), aff’d , 2000 WL 1425751 (D. Del. in the Plan, including, September 12, 2000), aff’d , 279 F.3d 226 without limitation, the (3rd Cir. 2002). Similarly, if a court lacks d e t e r m i n at i o n o f a l l jurisdiction over a dispute, it cannot create controversies and disputes that jurisdiction by simply stating it has a r i si n g u n d e r o r i n jurisdiction in a confirmation or other connection with this Trust order. Id. ; accord United States Trustee v. Agreement. Gryphon at the Stone Mansion , 216 B.R. The Trustee contends these 764, 769 (W.D. Pa. 1997) (“A retention of provisions confer bankruptcy court jurisdiction provision within a confirmed jurisdiction over this dispute because the plan does not grant a bankruptcy court Litigation Trust Agreement falls within the jurisdiction.”), aff’d , 166 F.3d 552 (3d Cir. definition of agreements, documents, or 1999). Bankruptcy courts can only act in instruments executed in connection with proceedings within their jurisdiction. the Plan. Furthermore, the Trustee Donaldson v. Bernstein , 104 F.3d 547, 552 contends the dispute involves the (3d Cir. 1997). If there is no jurisdiction performance of professionals whose under 28 U.S.C. § 1334 or 28 U.S.C. § retention was mandated and whose duties 157, retention of jurisdiction provisions in were specified by the Litigation Trust a plan of reorganization or trust agreement Agreement. The Trustee stresses that, are fundamentally irrelevant. But if there under the Agreement, the Bankruptcy is jurisdiction, we will give effect to Court’s retention over any dispute retention of jurisdiction provisions. Consequently, we will examine whether that any or all cases under title 11 and any this dispute falls within the Bankruptcy or all proceedings arising under title 11 or Court’s subject matter jurisdiction. arising in or related to a case under title 11
shall be referred to the bankruptcy judges
III.
for the district.” Id. The district courts’ Congress has vested “limited power to refer is discretionary, but courts authority” in bankruptcy courts. Bd. of “routinely refer” most bankruptcy cases to Governors v. MCorp Fin., Inc. , 502 U.S. the bankruptcy court. Torkelsen v. Maggio 32, 40 (1991). Bankruptcy courts fall (In re Guild & Gallery Plus, Inc.) , 72 F.3d outside of the constitutional authority of 1171, 1175 (3d Cir. 1996). Article III and derive their authority from
Bankruptcy court jurisdiction federal statutes. See N. Pipeline Constr. potentially extends to four types of title 11 Co. v. Marathon Pipe Line Co. , 458 U.S. matters, pending referral from the district 50, 60-87 (1982) (plurality opinion). court: “‘(1) cases under title 11, (2) There are significant restrictions on what proceeding arising under title 11, (3) functions can be constitutionally delegated proceedings arising in a case under title to these courts. See id. at 63-87. “[T]he 11, and (4) proceedings related to a case source of the bankruptcy court’s subject under title 11.’” In re Guild & Gallery matter jurisdiction is neither the Plus , 72 F.3d at 1175 (quoting In re Bankruptcy Code nor the express terms of Marcus Hook Dev. Park, Inc. , 943 F.2d the Plan. The source of the bankruptcy 261, 264 (3d Cir. 1991)). Cases under title court’s jurisdiction is 28 U.S.C. §§ 1334 11, proceedings arising under title 11, and and 157.” United States Brass Corp. v. proceedings arising in a case under title 11 Travelers Ins. Group, Inc. (In re United are referred to as “core” proceedings; States Brass Corp.) , 301 F.3d 296, 303 whereas proceedings “related to” a case (5th Cir. 2002). under title 11 are referred to as “non-core” 28 U.S.C. § 1334 grants jurisdiction proceedings. See 1 Collier on Bankruptcy , over bankruptcy cases and proceedings to P3.02[2], at 3-35 (15th ed. rev. 2003). the district court: the district courts “shall Congress vested the bankruptcy courts have original and exclusive jurisdiction of with full adjudicative power with regard to all cases under title 11,” and “original but “core” proceedings, subject to appellate not exclusive jurisdiction of all civil review by the district courts. 28 U.S.C. §§ proceedings arising under title 11, or 157(b)(1), 158(a), (c). At the same time, it arising in or related to cases under title provided that, for “non-core” proceedings 11.” Id. at (a)-(b). Procedurally, a district that are otherwise related to a case under court may refer all cases and proceedings title 11, the bankruptcy court “shall submit that fall within this section to the proposed findings of fact and conclusions bankruptcy court. 28 U.S.C. § 157(a) of law to the district court” subject to de provides: “Each district court may provide novo review by that court. 28 U.S.C. § 157(c)(1).
personal injury tort or A. Core Proceedings wrongful death claim s 28 U.S.C. § 157(b)(1) provides that against the estate for “[b]ankruptcy judges may hear and purposes of distribution in a determine all cases under title 11 and all case under title 11; (C) core proceedings arising under title 11, or counterclaims by the estate arising in a case under title 11, referred against persons filing claims under subsection (a) of this section, and against the estate; (D) orders may enter appropriate orders and in respect to obtaining judgments, subject to review under section credit; (E) orders to turn 158 of this title.” Id. 28 U.S.C. § over property of the estate; 157(b)(2) provides a non-exhaustive list of ( F ) p r o c e e d i n g s t o examples of core proceedings such as determine, avoid, or recover “matters concerning the administration of preferences; (G) motions to the estate,” “orders to turn over property of terminate, annul, or modify the estate,” or “other proceedings affecting the automatic stay; (H) the liquidation of the assets of the estate or proceedings to determine, the adjustment of the debtor-creditor or the avoid, or recover fraudulent equity security holder relationship, except c o n v e y a n c e s ; ( I ) personal injury tort or wrongful death determinations as to the claims.” Id. [5] We have held that a core dischargeability of particular debts; (J) objections to d i s c h a r g e s ; ( K ) [5] The full list of examples of core de ter mina tions of th e proceedings follows: validity, extent, or priority (A) matters concerning the of liens; (L) confirmations administration of the estate; of plans; (M ) orders ( B ) a l l o w a n c e o r approving the use or lease of disallowance of claims property, including the use against the estate or of cash collateral; (N) orders exemptions from property of approving the sale of the estate, and estimation of property other than property claims or interests for the r esulting f ro m claim s purposes of confirming a brought by the estate against plan under chapter 11, 12, or persons who have not filed 13 of title 11 but not the claims against the estate; liquidation or estimation of and (O) other proceedings contingent or unliquidated affecting the liquidation of
proceeding under section 157 is one that “core” proceeding. It is not a proceeding “‘invokes a substantive right provided by that invokes a substantive right provided title 11’” or one that “‘by its nature, could by title 11 or a proceeding that, by its arise only in the context of a bankruptcy nature, could arise only in the context of a case.’” In re Guild & Gallery Plus , 72 bankruptcy case. In re Guild and Gallery F.3d at 1178 (quoting In re Marcus Hook , Plus , 72 F.3d at 1178. 943 F.2d at 267).
Unlike in Southmark , this claim The Trustee argues this matter arose post-plan confirmation. It does not qualifies as a “core” proceeding, relying directly affect the debtor or the liquidation on Southmark Corp. v. Coopers & of the estate’s assets. Furthermore, the Lybrand (In re Southmark Corp.) , 163 accounting firm’s alleged malpractice in F.3d 925 (5th Cir. 1999). In Southmark , Southmark implicated the integrity of the the court concluded that a debtor’s suit entire bankruptcy process. Southmark’s against an accounting firm was a core bankruptcy arose out of its involvement in proceeding in bankruptcy, observing that Drexel Burnham Lambert, Inc.’s ill-fated the bankruptcy court must be able to junk bond investments. Southmark , 163 ensure “that court-approved managers of F.3d at 927-28. Southmark sought the the debtor’s estate are performing their appointment of an accounting firm to work cons cie n t i o u sl y, a nd cost- provide an objective, independent effectively.” Id. at 931. The court also assessment of potential legal claims noted that supervising court-appointed against third-parties. Id. Unbeknownst to professionals “bears directly on the Southmark, Drexel was one of the distribution of the debtor’s estate. If the accounting firm’s largest clients. Id. at estate is not marshaled and liquidated or 927-28. According to Southmark, the reorganized expeditiously, there will be far accounting firm committed malpractice by less money available to pay creditors’ failing to satisfactorily investigate claims.” Id. potential claims against Drexel. Id.
Southmark alleged the accounting firm’s Notwithstanding the Trustee’s breach of its court-appointed fiduciary arguments, it is difficult to see how this duty prevented the estate from recovering malpractice matter could be considered a from Drexel. Id. at 928. The accounting firms’s failure to investigate Drexel implicated the core of the bankruptcy
the assets of the estate or the process. Its alleged malpractice was adjustment of the debtor- inseparable from the bankruptcy context. creditor or the equity
Here, Price W aterho use’s a lleged security holder relationship, malpractice, erroneously reporting that except personal injury tort certain accrued interest belonged to one or wrongful death claims.
entity rather than to another and 28 U.S.C. § 157(b)(2). committing other errors in auditing and tax boundaries of “related to” jurisdiction in
Pacor , 743 F.2d at 994. [6] advice, even if true, is not a proceeding that could arise only in the bankruptcy
Under Pacor , bankruptcy courts context. have jurisdiction to hear a proceeding if Regardless, we need not resolve “the outcome of that proceeding could whether this is a “core” proceeding for conceivably have any effect on the estate subject matter jurisdictional purposes being administered in bankruptcy.” Id. In because “[w]hether a particular proceeding In re Marcus Hook , 943 F.2d 261, we is core represents a question wholly emphasized that a key word in this test is separate from that of subject-matter “conceivable” and that “[c]ertainty, or jurisdiction.” In re Marcus Hook , 943 even likelihood, is not a requirement.” Id. F.2d at 266. Under 28 U.S.C. § 157, a at 264. In Pacor , we observed: “[T]he bankruptcy court might have jurisdiction proceeding need not necessarily be against over a proceeding but still might not be the debtor or against the debtor’s property. able to enter final judgments and orders. An action is related to bankruptcy if the Id. Non-core “related to” jurisdiction is outcome could alter the debtor’s rights, the broadest of the potential paths to liabilities, options, or freedom of action bankruptcy jurisdiction, so we need only (either positively or negatively) and which determine whether a matter is at least in any way impacts upon the handling and “related to” the bankruptcy. Donaldson , administration of the bankrupt estate.” 104 F.3d at 552. 743 F.2d at 994. The Supreme Court has
explained that the critical component of B. Non-Core “Related To” Proceedings the Pacor test is that “bankruptcy courts 1. The Pacor Test With “related to” jurisdiction, [6] The Supreme Court effectively has Congress intended to grant bankruptcy overruled Pacor with respect to its holding courts “comprehensive jurisdiction” so that the prohibition against review of a that they could “‘deal efficiently and remand order in 28 U.S.C. § 1447(d) is not expeditiously’” with matters connected applicable in a bankruptcy case. See with the bankruptcy estate. Celotex Corp. Things Remembered, Inc. v. Petrarca , 516 v. Edwards , 514 U.S. 300, 308 (1995) U.S. 124 (1995). But Things Remembered (quoting Pacor, Inc. v. Higgins , 743 F.2d does not disturb the authority of Pacor on 984, 994 (3d Cir. 1984)). Nonetheless, a the points for which we cite it. In fact, the bankruptcy court’s “related to” jurisdiction Pacor test “has been enormously “cannot be limitless.” Id. We set forth the influential” as a “cogent analytical seminal test for determining the framework” relied upon by our sister circuits more than any other case in this area of the law. In re Guild & Gallery Plus , 72 F.3d at 1181.
have no jurisdiction over proceedings that confirmation of a reorganization plan, have no effect on the estate of the debtor.” retention of bankruptcy jurisdiction may be Celotex , 514 U.S. at 308 n.6. problematic. See Bank of La. v. Craig’s
Stores of Tex., Inc. (In re Craig’s Stores of 2. T h e P o s t - C o n f i r m a t i o n Tex., Inc.) , 266 F.3d 388, 391 (5th Cir. Context of the “Related To” 2001); In re Fairfield Cmtys., Inc. , 142 Inquiry F.3d 1093, 1095-96 (8th Cir. 1998). This As noted, Pacor and its progeny is so because, under traditional Pacor provide the analytical framework for analysis, bankruptcy jurisdiction will not determining “related to” jurisdiction. But extend to a dispute between non-debtors most of the cases decided under Pacor do unless the dispute creates “the logical not arise post-confirmation or even after possibility that the estate will be affected.” the creation of a litigation trust. Litigation In re Federal-Mogul Global, Inc. , 300 trusts, which serve a valid purpose in the F.3d 368, 380 (3d Cir. 2002) (internal bankruptcy process, may continue long quotations omitted), cert. denied 537 U.S. after a reorganization plan has been 1148 (2003). At the most literal level, it is confirmed and the debtor has emerged impossible for the bankrupt debtor’s estate from bankruptcy. And yet bankruptcy to be affected by a post-confirmation jurisdiction may still obtain if there is dispute because the debtor’s estate ceases sufficient connection to the bankruptcy. to exist once confirmation has occurred.
See In re Fairfield Cmtys. , 142 F.3d at The post-confirmation context of 1095 (holding that once a bankrupt this dispute affects our “related to” inquiry debtor’s plan has been confirmed the because bankruptcy court jurisdiction debtor’s estate ceases to exist). Unless “must be confined within appropriate otherwise provided by the plan or order limits and does not extend indefinitely, confirming the plan, “the confirmation of particularly after the confirmation of a plan and the closing of a case.” Donaldson , 104 F.3d at 553. [7] After
litigation trusts. See H & L Developers v. Arvida/JMB Partners (In re H & L [7] The District Court recognized that Developers) , 178 B.R. 71, 76 (Bankr. E.D. “special considerations dictate that the Pa. 1994) (“[O]nce a plan has been application of the Pacor test provides confirmed, the court’s jurisdiction begins jurisdiction over a narrower range of cases to weaken.”) (internal quotations omitted); post-confirmation than pre-confirmation.” Eastland Partners Ltd. v. Brown (In re Binder , No. 02-1333, slip op. at 10. Other Eastland Partners Ltd.) , 199 B.R. 917, courts have also recognized how 919-20 (Bankr. E.D. Mich. 1996) c o n f i r m a ti o n a f f e c t s b a n k r u p t c y (“Following confirmation of a chapter 11 jurisdiction, though they have not debtor’s plan, a bankruptcy court has a specifically done so in cases involving fairly narrow jurisdiction.”). a plan vests all of the property of the the bankruptcy court. See Gryphon , 166 estate” in the reorganized debtor. 11 F.3d at 555-56 (holding that the U.S.C. § 1141(b). See also NVF Co. v. bankruptcy court had post-confirmation New Castle County , 276 B.R. 340, 348 (D. jurisdiction because a trustee’s action to Del. 2002) (holding that the confirmation enforce a fee provision was related to and of a plan revests the estate’s property in arising in the bankruptcy); Donaldson , 104 the reorganized debtor, and accordingly, F.3d at 552-54 (upholding post- the bankruptcy estate “no longer existed”), confirmation bankruptcy court jurisdiction aff’d 2003 WL 328428 (3d Cir. Jan. 21, where the debtors failed to fund the 2003). reorganization plan and failed to pay
unsecured creditors as required by the But courts do not usually apply plan). And courts have upheld post- Pacor ’s “effect on the bankruptcy estate” confirmation jurisdiction in situations test so literally as to entirely bar post- involving trusts and similar entities. See confirmation bankruptcy jurisdiction. As Bergstrom v. Dalkon Shield Claimants the District Court correctly noted, though Trust (In re A.H. Robins Co.) , 86 F.3d 364, the scope of bankruptcy court jurisdiction 372-73 (4th Cir. 1996) (upholding diminishes with plan confirmation, bankruptcy jurisdiction over a professional bankruptcy court jurisdiction does not fees dispute between a claimants’ trust and disappear entirely. Binder , No. 02-1333, attorneys representing claimants on the slip op. at 9. Post-confirmation trust). [8] jurisdiction is assumed by statute and rule: 11 U.S.C. § 1142(b) authorizes the bankruptcy court to “direct the debtor and [8] Other courts have also upheld post- any other necessary party . . . to perform confirmation bankruptcy jurisdiction over any other act . . . that is necessary for the continuing trusts. See New Nat’l Gypsum consummation of the plan,” id. , and Fed. Co. v. Nat’l Gypsum Co. Settlement Trust R. Bankr. P. 3020(d) provides that
(In re Nat’l Gypsum Co.) , 219 F.3d 478, “[n]otwithstanding the entry of the order 479, 493 (5th Cir. 2001) (assuming of confirmation, the court may issue any bankruptcy court jurisdiction over a post- other order necessary to administer the
confirmation proceeding involving a estate.” Id. Although § 1142(b) assumes settlement trust where the court had to that post-confirmation jurisdiction exists
interpret the plan of reorganization in for disputes concerning the consummation order to resolve a dispute); Plotner v. of a confirmed plan, 28 U.S.C. § 1334 AT&T Corp. , 224 F.3d 1161, 1171 (10th remains the source of this jurisdiction. In
Cir. 2000) (holding that a post- re United States Brass Corp. , 301 F.3d at confirmation fraud action involving a plan- 306.
created trust was related to the bankruptcy Moreover, several courts have proceeding); United States v. Unger , 949 preserved post-confirmation jurisdiction in F.2d 231, 233-35 (8th Cir. 1991) (holding Courts have applied varying determine the “precise standard” to apply standards to determine whether “related post-confirmation. First W. SBLC, Inc. v. to” jurisdiction should be upheld post- Mac-Tav, Inc. , 231 B.R. 878, 882 (D.N.J. confirmation. We noted in Donaldson , 1999). Subsequently, in Gryphon , 166 104 F.3d 547, that some courts have held that the act of plan confirmation changes the Pacor test from “whether the outcome
with the Bankruptcy Court to the extent of the proceeding could conceivably have that those disputes might affect the any effe ct on th e estate bein g s u c c e s s f u l i m p l e m e n t a t i o n a n d administered” to “whether the outcome consummation of the confirmed plan.”); could ‘significantly affect[] consummation Eubanks v. Esenjay Petroleum Corp. , 152 of the plan as confirmed.’” Id. at 553 B.R. 459, 464 (E.D. La. 1993) (quoting Grimes v. Graue (In re Haws), (Bankruptcy courts maintain jurisdiction if 158 B.R. 965, 970 (Bankr. S.D. Tex. the proceeding has “a conceivable effect 1993)). [9] In Donaldson , we declined to on the debtor’s ability to consummate the confirmed plan.”). Some courts have been reluctant to apply such a broad standard
a bankruptcy court had post-confirmation post-confirmation but have nonetheless jurisdiction when a representative of the found that bankruptcy court jurisdiction creditors committee deposited trust funds continues post-confirmation. See In re into his personal account in contravention Craig’s Stores of Tex. , 266 F.3d at 391 of the plan); Mayor v. W. Va. (In re Eagle- (holding that a bankruptcy court has Picher Indus., Inc. ), 285 F.3d 522, 524 jurisdiction over a civil proceeding if the (6th Cir. 2002) (assuming without analysis litigated matter “bear[s] on the post-confirmation bankruptcy jurisdiction interpretation or execution of the debtor’s over a dispute involving a settlement plan”); I n re Dilbert’s Qu ality trust). Supermarkets, Inc. , 368 F.2d 922, 924 (2d [9] Other courts have applied similar tests Cir. 1966) (holding that bankruptcy court that assess whether the dispute could jurisdiction continues post-confirmation at conceivably affect the implementation or least “to protect its decree, to prevent consummation of the confirmed plan. See interference with the execution of the plan Trans World Airlines, Inc. v. Karabu and to aid otherwise in its operation”); In Corp. , 196 B.R. 711, 714 (Bankr. D. Del. re Leeds Bldg. Prod., Inc. , 160 B.R. 689, 1996) (“[T]his court has subject matter 691 (Bankr. N.D. Ga. 1993) (concluding jurisdiction over any proceeding that that the bankruptcy court’s role post- conceivably could affect [the debtor’s] confirmation “is limited to matters ability to consummate the confirmed involving the execution, implementation, plan.”); In re Walker , 198 B.R. 476, 482 or interpretation of the plan’s provisions, (Bankr. E.D. Va. 1996) (“Jurisdiction over and to disputes requiring the application of certain post-confirmation disputes remains bankruptcy law”). F.3d 552, we applied the Pacor test to jurisdiction, we found significant the fact resolve a claim for post-confirmation fees that the case did “not involve a dispute brought by a United States Trustee, essentially collateral to the bankruptcy querying whether the dispute “could case.” Id. Rather, the action “implicat[ed] conceivably have any effect on the estate the integrity of the bankruptcy process” being administered in bankruptcy” and because one party’s actions impaired the holding that the matter satisfies the Pacor other party’s ability to act in accordance test “because it directly relates to the with the plan. Id. The post-confirmation debtor’s liabilities— in fact it creates a fee dispute in Gryphon , 166 F.3d 552, also liability—and could impact the handling had a close nexus to the bankruptcy and administration of the estate.” Id. at proceeding because it involved a U.S. 556. And in Gryphon , we held that though Trustee’s action to enforce a post- 11 U.S.C. § 1142 [10] provides that the
confirmation fee provision and created a bankruptcy court may take action to ensure liability for the debtor. Id. at 555. At the the consummation of a confirmed plan, the post-confirmation stage, the claim must bankruptcy court may entertain other post- affect an integral aspect of the bankruptcy confirmation actions as well. 166 F.3d at process— there must be a close nexus to 556. the bankruptcy plan or proceeding.
Though courts have varied the Whether a matter has a close nexus standard they apply post-confirmation, the to a bankruptcy plan or proceeding is essential inquiry appears to be whether particularly relevant to situations involving there is a close nexus to the bankruptcy continuing trusts, like litigation trusts, plan or proceeding sufficient to uphold where the plan has been confirmed, but bankruptcy court jurisdiction over the former creditors are relegated to the trust matter. For example, in Donaldson , 104 res for payment on account of their claims. F.3d 547, we upheld bankruptcy court To a certain extent, litigation trusts by their jurisdiction because the trustee through the nature maintain a connection to the lawsuit was “basically . . . seeking to carry bankruptcy even after the plan has been out the intent of the reorganization plan.” confirmed. The question is how close a Id. at 553. We distinguished the matter connection warrants post-confirmation from other cases denying jurisdiction bankruptcy jurisdiction. Matters that because it had a “much closer nexus to the affect the interpretation, implementation, bankruptcy case.” Id. In upholding c o n s u m m a t i o n , e x e c u t i o n , o r
administration of the confirmed plan will typically have the requisite close nexus. [10] 11 U.S.C. § 1142(b) authorizes the Under those circumstances, bankruptcy bankruptcy court to “direct the debtor and court jurisdiction would not raise the any other necessary party . . . to perform specter of “unending jurisdiction” over any other act . . . that is necessary for the
continuing trusts. consummation of the plan.” Id. An example of a dispute in which jurisdiction, the court explained why the there was a sufficiently close nexus to the dispute was central to the bankruptcy plan or proceeding to uphold bankruptcy proceeding: “The Trust was created to court jurisdiction post-confirmation was an protect and pay those persons who had earlier proceeding involving the Resorts been damaged by use of the Dalkon International, Inc. bankruptcy. See In re Shield. The efforts of the Trust to settle Resorts Int’l , 199 B.R. 113. There, unlike the remaining claims could easily be here, the Bankruptcy Court was required to affected if the remaining claimants are construe and enforce provisions of the aware that any attorneys’ fees out of the Plan to resolve a post-confirmation dispute pro rata distribution will be limited to ten over whether the Litigation Trust or the percent.” Id. at 372. Accordingly, the debtor was entitled to accrued interest. Id. dispute integrally affected the bankruptcy at 120-25. The court correctly held that it plan and proceeding, and it was retained jurisdiction to enter appropriate appropriate for the district court, sitting in orders to enforce the intent and specific bankruptcy, to exercise jurisdiction over provisions of the Plan. Id. at 118-19. that proceeding.
Bergstrom , 86 F.3d 364, and Falise In contrast, this kind of close nexus v. Am. Tobacco Co. , 241 B.R. 48 to the bankruptcy plan or proceeding was (E.D.N.Y. 1999), are useful for illustrating absent in Falise , 241 B.R. 48. Falise when there is a sufficiently close nexus to involved a dispute between tobacco the bankruptcy plan or proceeding to manufacturers and a trust created as a uphold bankruptcy jurisdiction in post- result of the bankruptcy of an asbestos confirma tion situations invo lv ing products producer. Id. at 51. The trust continuing trusts. In Bergstrom , 86 F.3d sought to recover from the tobacco 364, the dispute implicated an integral companies for their role in contributing to aspect of the bankruptcy process. The asbestos-related illnesses. Id. Noting that plan-created trust intended to distribute the resolution of the dispute would require surplus funds to tort claimants on a pro more than merely interpreting the plan’s rata basis. Id. at 367. But certain terms, the court held that bankruptcy court attorneys claimed entitlement to contingent jurisdiction does not extend to a “major fees. Id. The district court, sitting in suit” brought by the trust against non- bankruptcy, limited attorneys’ fees to ten parties to the bankruptcy or to any closely percent of the amounts distributed. Id. To related proceeding. Id. at 52, 55. In resolve the dispute, it was necessary to Falise , the resolution of the dispute would interpret the pla n’s accom panying have had no impact on any integral aspect documents to determine whether it was of the bankruptcy plan or proceeding. unreasonable to charge standard attorneys’ Accordingly, it was appropriate to find no fees out of the pro rata distribution. See bankruptcy jurisdiction over that collateral id. at 368-71. In upholding “related to” matter.
In re Haws , 158 B.R. 965, similarly They brought suit, alleging Montana illustrates when a proceeding lacks a breached the agreement by hiring a sufficiently close nexus to the bankruptcy competitor to perform the reclamation plan or proceeding to uphold post- work. Id. The court upheld bankruptcy confirmation jurisdiction. There, the court jurisdiction because RSC’s failure, action was brought by a trustee for a and its inability to retain the debtors’ liquidating trust against a partner of the employees on account of Montana’s debtor for breach of fiduciary duty. Id. at breach, “undermine[d] the Plan’s 967-68. In holding the matter to be objectives for reorganization and the outside bankruptcy court jurisdiction, the payment of creditors.” Id. at 233-35. The court noted the plaintiff had failed to court held that the “facts demonstrate the demonstrate how any damages recovered necessary close nexus between appellees’ from the defendant were “necessary to tort and contract claims and the bankruptcy effectuate the terms of the” plan. Id. at proceeding.” Id. at 235. 971. The court recognized that “[n]owhere
As stated, the jurisdiction of the in the lawsuit is the bankruptcy court being non-Article III bankruptcy courts is limited asked to construe or interpret the after confirmation of a plan. But where confirmed plan or to see that federal there is a close nexus to the bankruptcy bankruptcy laws are complied with in the plan or proceeding, as when a matter face of violations.” Id. It concluded: “The affects the interpretation, implementation, only nexus to this bankruptcy case is that c o n s u m m a t i o n , e x e c u t i o n , o r the plaintiff in this matter is a liquidating administration of a confirmed plan or trustee representing a group of creditors incorporated litigation trust agreement, appointed pursuant to the confirmed plan retention of post-confirmation bankruptcy of reorganization.” Id. court jurisdiction is normally appropriate. Montana v. Goldin (In re Pegasus
IV.
Gold Corp.) , 296 B.R. 227 (D. Nev. 2003), is also instructive. A reclamation services We now assess whether the corporation (“RSC”) was created under a Bankruptcy Court can exercise “related to” reorganization plan for the purpose of jurisdiction over these malpractice claims. performing short-term reclamation work As noted, the Trustee’s principal allegation “in order to benefit the overall Plan goal of was that Price Waterhouse erroneously reported in its audit reports that accrued preserving the jobs of Debtors’ employees to thereby maximize the possibility of interest on Litigation Trust accounts creditor recovery.” Id. at 231. The belonged to the debtor rather than to the Litigation Trust. The Trustee also alleged Trustee and RSC contended the state of Montana had represented that RSC would other errors in auditing and tax advice. be given preference in the bidding for Price Waterhouse’s errors, according to long-term reclamation work. Id. at 232. the Trustee, constituted professional The Trustee argues the estate is negligence and breach of contract. affected because the Litigation Trust is a
continuation of the estate. The District The Trustee has made several Court agreed, reasoning that the affairs of arguments why the malpractice claims are post-confirmation trusts are “effectively sufficiently connected to the bankruptcy those of the estate (or at least analogous to process to uphold bankruptcy court those of the estate) for jurisdictional jurisdiction: the claims affect the purposes.” Binder , No. 02-1333, slip op. Litigation Trust, which is a continuation of at 12-13. Though the Litigation Trust’s the estate; the claims affect the debtor; the assets, the proceeds from the litigation claims affect the operation of the claims, were once assets of the estate, that Reorganization Plan; the claims affect the alone does not create a close nexus to the former creditors as beneficiaries of the bankruptcy plan or proceeding sufficient to Litigation Trust; and the jurisdictional confer bankruptcy jurisdiction. The retention provisions confer continued Litigation Trust’s connection to the jurisdiction. The jurisdictional import of bankruptcy is not identical to that of the these arguments is not easily resolved. estate. Under section 1.1 of the Litigation Nonetheless, we believe this Trust, the debtor “absolutely assigned to proceeding lacks a close nexus to the the Trustee and to its successors and bankruptcy plan or proceeding and affects assigns, all right, title and interest of the only matters collateral to the bankruptcy Reorganizing Entities in and to the process. The resolution of these Litigation Claims.” Moreover, the malpractice claims will not affect the Litigation Trust was created in part so that estate; it will have only incidental effect on the Plan could be confirmed and the debtor the reorganized debtor; it will not interfere freed from bankruptcy court oversight with the im plem entatio n of the without waiting for the resolution of the Reorganization Plan; though it will affect litigation claims. The deliberate act to the former creditors as Litigation Trust separate the litigation claims from the beneficiaries, they no longer have a close bankruptcy estate weakens the Trustee’s nexus to bankruptcy plan or proceeding claim that the Litigation Trust has the because they exchanged their creditor same jurisdictional nexus as that of the status to attain rights to the litigation estate. Given the limited jurisdiction of claims; and as stated, the jurisdictional non-Article III bankru ptcy cou rts, retention plans cannot confer jurisdiction jurisdiction does not extend necessarily to greater than that granted under 28 U.S.C. all matters involving litigation trusts. § 1334 or 28 U.S.C. § 157. For these
The Trustee also contends the reasons, the malpractice claims here lack resolution of the malpractice claim will the requisite close nexus to be within the affect the debtor, Resorts International, Bankruptc y C our t’s “rela ted to” Inc. The debtor is not a party to this jurisdiction post-confirmation. litigation because, as stated, under section “essential to the integrity of the Plan and 1.1 of the Litigation Trust Agreement, it its implementation.” Appellee’s Br. at 2. assigned away its right, title, and interest We disagree. It is true that accounting in the litigation claims. But the Trustee services are essential in administering argues Resorts would still be affected by trusts, and in certain circumstances, this dispute because it “is claiming to be a accounting errors could have a sufficiently continuing creditor of the estate” due to close nexus to the bankruptcy plan or the litigation over the accrued interest. proceeding to warrant exercising “related Oral Argument Transcript at 32. Should to” jurisdiction post-confirmation. But the Resorts prevail in that ongoing dispute, [11]
resolution of the claims here will have no the Trustee contends Resorts may have a substantial effect on the success of the claim against the Litigation Trust, and an Plan. award in the malpractice action could be
Resolution of this matter will not distributed back to Resorts to pay on that require a court to interpret or construe the claim. Such attenuated effect on the Plan or the incorporated Litigation Trust reorganized debtor does not create a close Agreement. Whether Price Waterhouse nexus to the bankruptcy plan or proceeding was negligent or breached its contract will sufficient to confer bankruptcy court not be determined by reference to those jurisdiction. After assigning away its documents. There is no dispute over their right, title, and interest in the Litigation intent. The Trustee’s claims are Trust’s litigation claims, the reorganized “ordinary” professional negligence and debtor would have no greater claim to the breach of contract claims that arise under proceeds from this malpractice action than state common law. Though the Plan and any other Litigation Trust creditor. Any Trust Agreement provide the context of funds eventually received by the debtor as the case, this bare factual nexus is a result of the malpractice dispute would insuf ficie nt to con fer ba nkru ptcy be incidental to the bankruptcy process. jurisdiction. The Trustee maintains that The malpractice action could result continuing jurisdiction over the matter is in an increase in the Litigation Trust’s finite assets. But the potential to increase assets of the Litigation Trust and its [11] Even though the Bankruptcy Court beneficiaries does not necessarily create a resolved the interest dispute in In re close nexus sufficient to confer “related Resorts Int’l , 199 B.R. 113, according to to” bankruptcy court jurisdiction post- the Trustee’s Complaint, the dispute is confirmation. The Trust beneficiaries here “ongoing” because Resorts International, no longer have the same connection to the Inc. and the Litigation Trust “remain bankruptcy proceeding as when they were engaged in negotiations over the form of creditors of the estate. For reasons they the order and settlement of other issues.” believed financially prudent, they traded Joint Appendix at 76. their creditor status as claimants to gain V. rights to the Litigation Trust’s assets.
For these reasons, there is no Thus, their connection to the bankruptcy “related to” jurisdiction over the plan or proceeding is more attenuated. malpractice dispute, and it cannot find a Furthermore, if the mere possibility of a home in the Bankruptcy Court. We will gain or loss of trust assets sufficed to reverse the order of the District Court and confer bankruptcy court jurisdiction, any remand for proceedings consistent with lawsuit involving a continuing trust would this opinion. fall under the “related to” grant. Such a result would widen the scope of bankruptcy court jurisdiction beyond what Congress intended for non-Article III bankruptcy courts. Accord ingly, resolution of these malpractice claims will n o t a f f e c t t h e i n t e r p r e t a t i o n , implementation, consummation, execution, or administration of the Plan. [12]
NOTES
[12] Price Waterhouse argues the matter turns in part on the fact that it was not explicitly named in the Litigation Trust Agreement or the Reorganization Plan and that the Bankruptcy Court did not approve its retention or dismissal. In some circumstances, these factors may affect the jurisdictional inquiry. But they are not significant here. Price Waterhouse also argues the lapse of time since confirmation factors against bankruptcy jurisdiction. The Bankruptcy Court issued an Order confirming the Plan on August 28, 1990. The Trustee filed this malpractice action belonged to the Debtor in 1992. on April 15, 1997. The Trustee responds Appellee’s Br. at 12-13. Though in some that Price Waterhouse’s malpractice circumstances, the lapse of time since “began barely after the ink dried on the confirmation may be relevant to whether a confirmation order,” and notes that Price matter has a “close nexus” to a bankruptcy Waterhouse released its allegedly plan or proceeding, we do not find it to be erroneous report that the interest income so here.
