MEMORANDUM OPINION & ORDER
The plaintiff trustee’s trust is designed specifically to wind up the extinct debtor’s affairs in the aftermath of its bankruptcy, including its causes of action. In fact, some of the causes of action here were specifically assigned to the trust to pursue on behalf of the debtor’s unsecured creditors. And all of the causes of action seek to redress conduct that purportedly led to the debtor’s bankruptcy or occurred in the context of the bankruptcy. These claims therefore “relate to” the underlying bankruptcy case, and so the Court has the jurisdiction necessary to refer this case to the bankruptcy court.
BACKGROUND
Harold Sergent was the founder of both the Black Diamond coal company and Global Energy Holdings. R. 1, Attach. 1 (“Complaint”) at 7, 11. Some time in 2006, he caused the former to enter a Consulting and Sales Agreement with the latter. Under that agreement, Black Diamond agreed to pay Global Energy $.25 per ton of coal Black Diamond mined or sold, with a minimum monthly payment of $30,000. Id. at 11. And in May of that same year, Sergent purportedly led Black Diamond to enter a Royalty Agreement with one of its lenders, under which the lender would receive a $.13 royalty for every ton of coal mined or sold. Id. at 12. Sergent himself would receive $.04 of that per-ton royalty. Id. Succumbing to the consequent incentive to produce or sell a lot of coal, Sergent then allegedly committed to sell more coal than Black Diamond could possibly produce — leading to Black Diamond’s financial troubles. Id.
The lender, CIT, insisted that Black Diamond retain Alvarez & Marsal North America, LLC, as a financial advisor.
Id.
at 14. But the company’s financial condition continued to worsen, and CIT joined others to file involuntary Chapter 11 petitions against Black Diamond.
Id.
at 14. At the urging of CIT, the bankruptcy court then appointed two A
&
M representatives, Ira Genser and Larry Tate, as the company’s Chief Restructuring Officer and Chief Financial Officer.
Id.
at 14-15. In furtherance of their duties, the appointees secured the bankruptcy court’s permission to reject the Sales Agreement and Royalty Agreement, prompting Sergent to file a proof of claim for damages suffered as a result — entering a new role as a Black Diamond creditor. R. 44 at 9. The Trustee
The unsecured creditors pursued claims against Harold Sergent and the A & M defendants. To permit confirmation of a bankruptcy plan, the unsecured creditors and the A & M defendants entered a settlement agreement, and the claims against the A & M defendants were to be assigned to an Unsecured Creditors Trust. R. 26, Attach. 1 at 4. The bankruptcy plan incorporated this agreement, R. 26, Attach. 2 at 137, further transferred all the unsecured creditors’ other “rights, title and interest in the Contributed Assets” to the trust— including potential claims against Sergent, see R. 44 at 10; R. 26, Attach. 2 at 76, and purported to “retain such jurisdiction over [the case] ... as is legally permissible,” R. 26, Attach. 2 at 152.
The plaintiff filed a complaint in state court lodging several claims against the A & M defendants and Harold Sergent relating to their management of the Black Diamond business. The A & M defendants removed the entire “action” to this Court, R. 1, and Harold Sergent joined, R. 55. The plaintiffs filed a motion to remand or abstain. R. 26. The defendants ask the Court to either deny the motion or refer it to the bankruptcy court.
DISCUSSION
The Court’s initial inclination was to resolve this motion to remand rather than refer it to the bankruptcy court. But a closer look reveals difficult issues which the bankruptcy court’s familiarity with the case may help resolve: For example, consider the plaintiffs non-jurisdictional argument that the Court must abstain under 28 U.S.C. § 1334(c)(2) from hearing the state law claims against Harold Sergent.
See Robinson v. Mich. Consol. Gas Co., Inc.,
I. This Court must confirm its own jurisdiction before referring the case to the bankruptcy court
Yet the Court must confirm its own jurisdiction before sending it to bankruptcy.
Muratore v. Darr,
Confirming the need to decide this Court’s jurisdiction first is the text of the referral statute. To begin, it says that district courts can only refer eases that arise under one of the three categories of bankruptcy jurisdiction — that is, proceedings “arising under title 11 or arising in or related to a case under title 11.” 28 U.S.C. § 157(a);
cf. Marotta Gund Budd & Dzera, LLC v. Costa,
Sure, other courts do not see it this way. Some simply refer cases to bankruptcy as a matter of course,
see, e.g., Mkt. St. Props. Palm Beach, LLC v. Nola Dev. Partners, LLC,
No. 10-00951,
In response, defendant Harold Sergent argues that most courts allow parties to remove bankruptcy cases directly to bankruptcy courts — the implication being that if cases can be removed directly to bankruptcy court, there is no reason this Court could not simply refer the matter there automatically. R. 44 at 4. This is indeed a common practice.
See, e.g., In re Stewart,
These are all fair points. But the theory supporting direct removal — and, by extension, automatic referral — is a stretch. Bankruptcy courts only have jurisdiction upon discretionary referral from district courts. A case that begins in bankruptcy court is “on discretionary referral” from the district court in only the technical sense, though it is true the district court is free to then withdraw the “referral.” More importantly, the Court is hesitant to read 28 U.S.C. § 1452(a)’s requirement that parties remove to the “district court” to authorize removal directly to bankruptcy courts because an earlier version of the statute expressly permitted just that — -an allowance that was changed as part of an effort to reign in the independence of Article I bankruptcy courts.
See Sharp Elecs. Corp. v. Deutsche Fin. Servs. Corp.,
II. This Court has jurisdiction and can thus refer the case to the bankruptcy court
The key question, then, is whether the Court has bankruptcy jurisdiction over these claims. Recall that there are three types of matters over which the Court has jurisdiction — core matters “arising under” title 11, core matters “arising in” a case under title 11, or non-core matters “related to” a case under title 11. 28 U.S.C. § 1334(b). Any one of these will suffice to permit referral to the bankruptcy court. 2
At the very least, the Court has jurisdiction insofar as these claims are “related to cases under title 11.” 28 U.S.C. 1334(b). Though it has not addressed the scope of related-to bankruptcy jurisdiction where, as here, the bankruptcy court has already confirmed the final bankruptcy plan and thus largely played its part, the Sixth Circuit has nonetheless held that the “related to” clause is a “broad” basis for jurisdiction.
In re Salem Mortg. Co.,
B. Other courts’ narrow view of “related-to” jurisdiction and post-confirmation jurisdiction are no cause for concern here
The Seventh Circuit, which disagrees with the Sixth’s broad reading of related-to jurisdiction, might object to this conclusion.
In re Xonics, Inc.,
This position is no cause for concern here. First, it is unclear why the Seventh Circuit takes such a constricted view of bankruptcy jurisdiction. It is possible the decision turned on an earlier version of the statute,
see In re Xonics,
More specifically, the Seventh Circuit’s view that bankruptcy jurisdiction lapses once property leaves the estate cannot mean that jurisdiction always evaporates post-confirmation. The case the
Xonics
court cites to support its jurisdiction-lapsing theory says only that third parties who buy property from the bankrupt cannot be brought back into bankruptcy court.
In re Chicago, Rock Island & Pac. R.R. Co.,
Though not as strident as the Seventh Circuit, other courts have similarly concluded that “related-to” jurisdiction narrows after plan confirmation. They explain it is technically impossible for post-confirmation claims to meet the ordinary test for pre-confirmation-related-to jurisdiction — whether the claims could have any conceivable effect on the estate — because the estate ceases to exist post-confirmation.
In re Resorts Int’l,
But these holdings are also of no concern. To begin, it is unclear the suggested rule is really controlling here. There is good reason to be skeptical it is
truly
a jurisdictional, rather than prudential, rule. The bankruptcy jurisdictional statute makes no distinction between pre- and post-confirmation jurisdiction,
In re Boston Reg’l,
410
F.3d
at 106 (“On its face, section 1334 does not distinguish between pre-confirmation and post-confirmation jurisdiction.”), and so it may be that these courts actually mean to say that judges should be more inclined to exercise permissive abstention in the post-confirmation context.
See
28 U.S.C. § 1334(c)(1) (authorizing permissive abstention). What’s more, the view that courts should be hesitant to exercise jurisdiction once the estate no longer exists has little purchase where, as here, the estate is replaced by a liquidating litigation trust, which essentially “represents the estate by assuming the obligations to prosecute the instant claims for the benefit of unsecured creditors.”
In re Railworks Corp.,
Even if the “close nexus” test does apply, however, the Court would still have jurisdiction. While the “close nexus” courts have said that cases involving interpretation, implementation, consummation, execution, or administration of the confirmed plan are paradigmatic “close-nexus” matters,
In re Resorts Int’l,
If the “close-nexus” test does allow claims beyond those which involve interpretation, implementation, consummation, execution, or administration of the confirmed plan, the claims in this case clearly qualify. Recall that the liquidating trusts’ “sole purpose is to wind up [the debtor’s] affairs,” liquidate its assets, “including Causes of Action assigned to it” under the plan, and pay the creditors,
In re Boston Reg’l,
And yet
even if
related-to claims
can
only share a “close nexus” with bankruptcy proceedings if they involve interpretation, implementation, consummation, execution, or administration of the confirmed plan, the plaintiffs claims here would qualify. The trust is asserting claims that do not belong to it personally but were transferred to it as part of the bankruptcy plan—and so “the ‘implementation’ and ‘execution’ of the confirmed Plan are directly at issue.”
In re Refco, Inc. Secs. Litig.,
C. The plaintiffs procedural arguments for depriving this Court of jurisdiction are unpersuasive
Despite this, the plaintiff poses two more unconvincing theories for depriving this Court of jurisdiction. First, he says that the bankruptcy court and
Rather than looking at the specificity with which the plan preserved claims as a question of jurisdiction, the Sixth Circuit instead views it as a question on the merits. In
Browning v. Levy,
Nor is the plaintiff correct that the defendants’ removal was incurably procedurally defective. He argues that Harold Sergent did not timely consent to removal of this case. But while the general removal statute requires defendants’ unanimous consent to remove,
Harper v. AutoAlliance Int’l, Inc.,
CONCLUSION
Having concluded that the Court has jurisdiction over this case, it is REFERRED to the bankruptcy court for further proceedings. See 28 U.S.C. § 157.
Notes
. Of all the issues raised in the motion, the Court has decided only those addressed in this opinion. Its prior discussions with the parties about the other issues — including whether it has core jurisdiction over either defendant — are in no way binding on the bankruptcy court.
. Even though Harold Sergent is a Kentucky citizen, the defendants alternatively argue
. This Bankruptcy Appellate Panel’s decision is not binding on this Court.
Phar-Mor, Inc. v. McKesson Corp.,