Noletto v. Nationsbanc Mortgage Corp. (In Re Noletto)Noletto v. Nationsbanc Mortgage Corp. (In Re Noletto)
ORDER CONCLUDING THAT DISTRICT COURT AND BANKRUPTCY COURT HAVE SUBJECT MATTER JURISDICTION AND THAT MATTERS ARE CORE PROCEEDINGS
These matters are all class action suits against the named defendants for alleged violations of federal bankruptcy law. Plaintiffs request that each suit be certified as a nationwide class. Each complaint consists of the following four counts:
1. Fees and charges assessed by the defendants postpetition are not reasonable, authorized, or allowable under the Bankruptcy Code and defendants’ claims for any of these fees or charges should be disallowed and any of these fees or charges actually collected by defendants should be reimbursed with interest.
2. Fees and charges assessed by defen-' dants postpetition are assessable only with specific bankruptcy court approval pursuant to § 506(b) of the Bankruptcy Code, defendants failed to obtain such approval, and thesefees and charges collected by defendants after the filing of a bankruptcy petition, which would not have been claimed absent bankruptcy, should be disallowed, and any of these fees or charges collected should be reimbursed with interest where defendants have failed to obtain specific approval of the bankruptcy court as required by law.
3. Defendants violated the automatic stay of § 362 of the Bankruptcy Code by assessing and/or collecting postpetition, fees or charges which would not have been claimed absent bankruptcy, without specific approval of the. bankruptcy court and these fees or charges should be disallowed and any of these fees or charges actually collected should be reimbursed with interest where the defendants have failed to obtain specific approval of the bankruptcy court.
4. Plaintiffs are entitled to an order declaring defendants’ acts and practices to be in violation of bankruptcy law, an order permanently enjoining the defendants from engaging in such acts and practices in the future with respect to any debtor who is, or could become, a member of the class, and an order requiring the defendants to disgorge all amounts collected by defendants as a result of such illegal fees and charges with interest.
The facts pertaining to each case differ in some respects, but those differences are not being considered for purposes of these motions to dismiss for lack of subject matter jurisdiction. To the extent the facts of each individual case of the named plaintiff might impact on the broad ruling in this order, those facts will be considered at another time.
The defendants have filed motions to dismiss their adversary proceedings under Fed. R. Bankr.P. 7012. For purposes of this ruling, the Court assumes that all of the plaintiffs’ allegations, other than jurisdiction, are true.
Rainwater v. State of Alabama (In re Rainwater),
I.
A.
The jurisdiction of the district courts (from which the bankruptcy court’s jurisdiction is derivative) over bankruptcy matters is established in 28 U.S.C. § 1334.
Continental Nat. Bank of Miami v. Sanchez (In re Toledo),
The plain meaning of the words used in the statute gives a district court jurisdiction over suits such as these in which the issues relate only to federally created bankruptcy law.
United States v. Ron Pair Enterprises, Inc.,
This reading is consistent with the legislative history to the Bankruptcy Code. H.R.Rep. No. 595, 95th Cong., 1st Sess. 445 (1977), U.S.Code & Cong. & Admin. News pp. 5963, 6401 (“The phrase ‘arising under’ has a ... broad meaning in the jurisdictional context”).
2
Section 1334(b) was intended to give broad jurisdiction to the district courts over bankruptcy matters.
Id.
(“Subsection (b) is the broadest grant of jurisdiction to dispose of proceedings that arise in bankruptcy cases or under the bankruptcy code. Actions that formerly had to be tried in State court or in Federal district court, at great cost and delay to the estate, may now be tried in the bankruptcy courts.”). The Bankruptcy Code, unlike its predecessor, the Bankruptcy Act, gives the district courts
in personam
as well as
in rem
jurisdiction.
Id.
A court no longer is restricted to dealing only with assets under its control; it also has the ability to deal with other matters affecting debtors. This broader jurisdictional scope is clearly apparent in the grant of “related to” jurisdiction to the courts. 28 U.S.C. § 1334(b). Pursuant to this grant, bankruptcy jurisdiction may even extend to litigation between nondebt- or parties if it “could conceivably have any effect on the estate being administered in bankruptcy.”
Miller v. Kemira, Inc. (Matter of Lemco Gypsum, Inc.),
To the extent that the defendants argue that there is not subject matter jurisdiction because these suits (as they relate to debtors in other courts) are not “related to” the individual debtors in this Court, they ignore the language “arising under” or “arising in” a case under title 11. Section 1334(b) is phrased disjunctively. The three categories offer alternative bases of bankruptcy jurisdiction.
Section 1334(b) must be read this way as well in order to give meaning to another part of title 28 — the venue provisions covering the most appropriate place for bankruptcy proceedings to be filed.
See,
BlaCKS Law Dictionaey 795 (7th ed.1999) (statutes on the same subject matter may be construed together to avoid inconsistencies pursuant to the cannon of statutory construction
in pari
materia). Both the venue provisions and section 1334(b) are found in chapter IV of title 28. If there were not nationwide jurisdiction over bankruptcy cases, there would be no need for the venue provisions. Richard A. Gibson,
Home Court, Outpost Court: Reconciling Bankruptcy Case Control With Venue Flexibility in Proceedings,
62 Am. BaNKR. L.J. 37, 42 (Winter 1988) (citing
Littleton National Bank v. Coleman American Companies, Inc. (In re Coleman American Companies, Inc.),
B.
Defendants assert that pursuant to 28 U.S.C. § 1334(e), only the bankruptcy court for the district in which a debtor’s case is pending has jurisdiction over a cause of action owned or brought by that debtor. Section 1334(e) provides: “The district court in which a case under title 11 is commenced or is pending shall have exclusive jurisdiction of all the property, wherever located, of the debtor as of the commencement of such case, and of property of the estate.” The Court concludes that defendants’ view fails to take into account other provisions of title 28, in particular, §§ 1452, 1334(c) and 1409, all of which will be discussed below.
Defendants cite as authority for their position the case of
Williams v. Sears, Roebuck & Co. (In re Williams),
CV199-168 (S.D.Ga. January 19, 2000). [Editor’s Note:
Williams v. Sears, Roebuck & Co.
appears at
Section 1334(e) provides the “home court” with “exclusive jurisdiction ... of property of the estate.” These class actions involve claims of each debtor against the defendants. If the causes of action are not property of each debtors’ estate, then § 1334(e) is not applicable. Courts have varying opinions as to whether property acquired by a chapter 13 debtor postpetition is property of the estate, at least after confirmation of a plan.
Compare, In re Petruccelli,
To the extent that the class action claims are not property of the debtors’ estates because they arose postconfirmation, § 1334(e) does not control this motion to dismiss for lack of jurisdiction. To the extent that they are property of the estates, either because the claims arose before confirmation or because the court has concluded that all property of a debtor remains property of the estate until discharge or other order of the court, then this Court and any other court must determine if § 1334(e) vests the “home court” with exclusive jurisdiction.
Judge Alaimo concludes that the meaning of § 1334(e) is clear. The plain meaning of the Bankruptcy Code
Section 1334(e) is found in Part IV of title 28 of the United States Code, §§ 1261-1631, which deals with jurisdiction and venue. 28 U.S.C. § 1452(a) provides: “A party may remove any claim or cause of action in a civil action ... to the district court for the district where such civil action is pending, if such district court has jurisdiction of such claim or cause of action under section 1334 of this title.” Thus, removal pursuant to § 1452 is proper only to a court with jurisdiction pursuant to § 1334. If § 1334(e) gave exclusive jurisdiction over all proceedings involving estate property to the “home court,” then most bankruptcy proceedings pending in an “outpost” district could not be removed. Section 1452’s limited applicability “to the district court for the district where such civil action is pending” would rarely have any meaning because only one district would have jurisdiction, the “home court” district.
In
Cook v. Cook,
Judge Spector’s rationale seems arguably to contradict itself. First, he consoled the defendant-debtor by noting that § 1334(e) not only precluded Judge Spec-tor from exercising jurisdiction, but also precluded the state court in which the suit was initially filed from exercising jurisdiction. Id. at 920. Later, he stated:
there is no obvious reason to suppose that “exclusive” jurisdiction can never be surrendered by the court which has it. Indeed, acceptance of that proposition would mean that § 1412 is an all-but-useless provision: it could only be invoked on those infrequent occasions when the dispute does not involve property of the estate or debtor. The most sensible conclusion, then, is that exclusivity does not preclude a court from transferring a proceeding to a different court.
Id.
at 922. Thus, Judge Spector ruled that § 1334(e) precluded the state court from exercising jurisdiction, but then found that, although exclusive, a court may in essence convey its exclusive jurisdiction to state courts. The jurisdiction he envisioned for the district and bankruptcy courts is both exclusive and concurrent. Judge Spector’s view, even though allowing transfer of ven
A broad reading of § 1834(e)’s scope is also inconsistent with § 1334(c). Subsection (c) of 1334, the mandatory and discretionary abstention provision, permits, and under some circumstances requires, a district court to abstain from hearing a proceeding even if it falls within the scope of its jurisdiction under 1334(b).
5
Thus, a district court may decline to hear proceedings with unsettled state law issues or issues that would more properly be heard in another forum, without infringing upon its “exclusive and non-delegable control over the administration of an estate within its possession.”
Thompson v. Magnolia Petroleum Co.,
Judge Alaimo’s interpretation of § 1334(e) creates an even greater inconsistency with the bankruptcy venue provisions. Like § 1334, these provisions are found in Part IV of title 28. Section 1409(b) provides that the district in which the defendant resides is the only venue for proceedings “arising in” or “related to” a bankruptcy case brought by a trustee “to recover a money judgment of or property worth less than $1,000 or a consumer debt of less than $5,000.” Under § 1409(d), a trustee may commence a bankruptcy proceeding arising postpetition from the operation of the business of the debtor only in the district in which, “under applicable nonbankruptcy venue provisions, an action on such claim may have been brought.” There are situations when a proceeding is estate property and also subject to 1409(b) or (d).
See, e.g., Appel v. Gable (In re B & L Oil Co.),
Based on the scheme of the applicable statutes, this Court finds that § 1334(e) does not clearly define the scope of its exclusive jurisdiction of property of the estate. Does it include all proceedings involving property of the estate, only proceedings to administer and distribute estate property? Does it only grant exclusive “control” of estate property or something else? The Court finds that this ambiguity, and the inconsistencies between Part IV of title 28 and an expansive interpretation of § 1334(e) permit the Court to refer to the legislative history to clarify § 1334(e).
A major impetus of the 1978 Code was “to enlarge the jurisdiction of the bankruptcy court in order to eliminate the serious delays, expense and duplications associated with the ... dichotomy between summary and plenary jurisdiction.” 5.Rep. No. 989, 95th Cong., 2d Sess. 17-18 (1978), U.S.Code & Cong. Admin. News pp.5787, 5803. In general, summary jurisdiction included actions relating to estate administration or estate property in the possession of the court. J. Ferriell, Core Proceedings In Bankruptcy Court, 56 UMKC L. Rev. 47, 83-84 (1987). Plenary actions included complaints against parties who had not consented to the bankruptcy court’s authority or where the property was not in the actual or constructive possession of the court. Id. Bankruptcy referees under the 1898 Bankruptcy Act were not permitted to hear plenary actions. Id. They could exercise most of the district court’s summary jurisdiction. Id. Section 1334 was intended to “eliminate entirely” the summary/plenary jurisdictional dichotomy. Id. Section 1334(b) extends bankruptcy jurisdiction to include in personam jurisdiction. H.R.Rep. No. 95-595, supra, at 445, U.S.Code & Cong. Admin. News at 6401. Bankruptcy jurisdiction over property within its constructive or actual possession, i.e., in rem jurisdiction, continued as well under § 1334. Id. (“The bankruptcy court is given in personam as well as in rem jurisdiction ....”). 6
Section 1334(e) went a step further and designated the “home court” the exclusive jurisdiction for resolving
in rem
claims against estate property. It overrides the general conflict of jurisdiction rule that the first court to assert jurisdiction has exclusive jurisdiction over an
in rem
claim.
Penn General Casualty Co. v. Commonwealth of Pennsylvania,
This interpretation of § 1334(e) does not leave it without any meaning.
See, Cook,
Defendants’ reading of § 1334(e) would leave bankruptcy courts in gridlock. This Court alone has granted many motions for relief from stay to liquidate claims in state court and has abstained to allow parties to proceed in state court for the same purpose. These proceedings often involve estate property. Once liquidated, the property is required to be turned over to the court, trustee, or debtor-in-possession. Defendants’ view of § 1334(e) would compel this Court to hear these matters, even if nonbankruptcy law controls or the matter is ready to be tried in state court. This Court holds that § 1334(e) does not have such a far-reaching effect. Although its language is admittedly not expressly limited to in rem jurisdiction, this Court finds that based on the statutory scheme, the legislative history and the nature of bankruptcy practice, § 1334(e) is limited to giving the “home court” exclusive jurisdiction over in rem matters.
With the foregoing analysis in mind, the Court finds that § 1334(e) does not make the “home court” the exclusive forum to hear debtor complaints regarding violations of the Bankruptcy Code. Such proceedings are not in rem matters. See, U.S. Brass, supra, at 1267-68 (§ 1334(d) 7 does not deprive “outpost court” of jurisdiction over debtor’s complaints regarding scope of insurance policies). These proceedings seek to impose liability on various corporations for actions taken (or not taken) by them. These proceedings have nothing to do with a specific item of property held by a debtor or all debtors.
II.
The defendants raise other issues as to why nationwide jurisdiction over bankruptcy proceedings is not appropriate. Their arguments are:
A. This Court is not the proper venue for proceedings in cases of debtors not filed in this district.
B. This action is not a core proceeding.
C. This Court should abstain from hearing these proceedings as they pertain to debtor cases not filed in this district.
D. Exercising jurisdiction will require this Court to collaterally attack other court’s final orders.
Admittedly, some of these issues loom very large in the future of these actions. They are roadblocks which may limit the size of any class or the scope of the issues covered. However, this Court is unwilling to conclude that its jurisdiction is limited by these issues. They are separate from jurisdiction and need to be recognized as such. The Court will address each of these issues only to the extent appropriate at this time.
A.
As stated above, the venue statute does not preclude nationwide jurisdiction; it, in fact, supports it or there is no need for the venue provisions. However, the defendants assert that if that is true, the appropriate venue for each debtor is where the debtor’s case is filed. This argument is premature. Class certification issues include “the interest of members of the class in individually controlling the prosecution
B.
Defendants assert that the class action suits are not core proceedings under 28 U.S.C. § 157(b). Therefore, this Bankruptcy Court cannot hear and determine these motions or any part of these proceedings. Defendants assert that the District Court should withdraw the reference or this Court should certify findings and conclusions to the District Court for its ruling. The defendants want to avoid multiple appellate layers if possible, while also disputing the Bankruptcy Court’s and District Court’s jurisdiction over these proceedings. The issue would be premature to the extent that the Court has before it solely the issue of jurisdiction at this time.
In re Toledo,
Through the District Court’s jurisdiction over bankruptcy matters, this Court also has jurisdiction as the District Court’s “unit.” 28 U.S.C. § 151. Section 157(a) of title 28 refers all proceedings “arising under title 11 or arising in ... a case under title 11” to the bankruptcy judges for the district. The Order of Reference of this District dated July 20, 1984 (effective July 10,1984) clearly makes that reference.
In the mass of referred matters, bankruptcy judges can hear and determine all “core proceedings.” Core proceedings include matters which relate to the administration of bankruptcy cases, matters concerning property of the estate and avoiding actions. 1 COLLIER ON BANKRUPTCY ¶3.02[3] (15th ed.1999). There is no definition of a core proceeding in title 28. The defendants argue that core proceedings are only matters connected to bankruptcy cases over which this bankruptcy judge or the judges in this district have control. Plaintiffs assert that this interpretation is too narrow a reading of “core proceedings.”
The scheme of core and noncore proceedings was established as a result of the
Marathon
decision of the U.S. Supreme Court.
Northern Pipeline Construction Co. v. Marathon Pipe Line Co.,
Based on this decision, Congress passed 28 U.S.C. §§ 157(a) and (b) which gives core jurisdiction to bankruptcy courts over the cases and proceedings which
Marathon
did not take away. Section 157(c) gives noneore jurisdiction over
Marathon
type proceedings. The plaintiffs in this case have structured their complaints so
only
federally created bankruptcy issues are involved. No state created rights are at issue. Therefore, the class action suits are core proceedings. Even if defendants are correct in their assertion that these proceedings are not connected to bankruptcy cases over which the judges in this District have control, the core nature of these proceedings is not changed.
See,
The Supreme Court further explained its view of core versus noncore jurisdiction in
Granfinanciera, S.A. v. Nordberg,
It is true that the language of § 157(b)(2) speaks of “the estate” and “a case” and does not speak of them collectively. However, § 157(b)(2) is not an exclusive listing of core proceedings.'It uses the words “includes, but are not limited to.” Second, as to each matter in the class, the language is correct. For example, a proceeding is core if it concerns administration of the estate of a debtor, notwithstanding the pendency of the debt- or’s bankruptcy case in another district. 28 U.S.C. § 157(b)(2)(A).
28 U.S.C. § 1334(e), supra, also casts doubt on defendants’ interpretation of § 157. This provision essentially limits in rem claims against estate property to the district in which a debtor’s “case under - title 11 is commenced or is pending.” Thus, Congress knew how to limit jurisdiction over specific matters to the district in which the debtor’s bankruptcy case is pending. Congress chose not to do so with respect to all bankruptcy proceedings. To the contrary, district courts have jurisdiction over bankruptcy proceedings, regardless of where the debtor’s case is pending, and these proceedings “shall be referred to the bankruptcy judges for the district,” once again, regardless of whether the district is the one in which the debtor’s bankruptcy case is pending. 28 U.S.C. §§ 157(a) and 1334(b). 8
Therefore, the matters are core proceedings and this Court has the authority to enter a final order.
C.
Abstention is an action a court can take to dismiss a case even if it has jurisdiction. 28 U.S.C. § 1334. This motion is premature. Class certification includes consideration of issues such as “the interest of members of the class in individually controlling the prosecution ... of separate actions ... [and] the extent and nature of any litigation concerning the controversy already commenced by or against members of the class.” Fed. R. Bankr.P. 7023(b)(3). This matter should be taken up in conjunction with that ruling.
D.
The defendants assert that the Court should dismiss the actions or abstain from them because the relief sought could modify or overrule final orders already made by other bankruptcy courts. The defendants are correct that courts should not allow parties to use this Court or any court to collaterally attack other courts’ orders.
Celotex Corp. v. Edwards,
Additionally, the definition of the class may exclude this issue. Perhaps some or all of the class members will not have final orders precluding these suits; .perhaps section 502(j) is expansive enough to allow review; perhaps the class is only cases in this district or a limited number of districts; perhaps only injunctive relief will be sought. Until these matters are determined, this issue cannot be addressed.
Ill-
Defendants assert that the relevant jurisprudence other than Judge Alaimo’s opinion discussed in Part I supports dismissal of these actions for lack of subject matter jurisdiction. They rely primarily on the three opinions by Bankruptcy Judge Jack B. Schmetterer for the Northern District of Illinois. Although Judge Schmetterer did dismiss three actions brought by a class of bankruptcy debtors, his decisions were based on more than a mere lack of subject matter jurisdiction. The matters before him included state law claims which changes the issues and jurisdictional posture.
Wiley v. Mason (In re Wiley),
In Aiello, Judge Katz found core subject matter jurisdiction to hear a complaint composed of a nationwide class of debtors. The class complaint involved alleged automatic stay violations. The defendants in Aiello conceded that the named plaintiffs claim was a core proceeding, but argued that the court did not have jurisdiction to enforce the automatic stay on behalf of class members whose bankruptcy cases were not pending in Judge Katz’s district. Id. at 703-704. Judge Katz disagreed because the cause of action “invokes a substantive bankruptcy right which could only arise in the bankruptcy context.” Id. at 704. These matters are core. Id. The defendants “related to” argument was found to be irrelevant. Id. at 705. This reasoning applies equally to the class actions before this Court.
Although Judge Katz found that he had core subject matter jurisdiction over the class action, he found several deficiencies under Fed.R.Civ.P. 23 and granted the defendants’ motion to strike the class allegations. Id. at 716-17. This Court agrees with Judge Katz that jurisdiction is an issue separate from the class certification matters. Abstention, collateral attack and transfer of venue are also separate and distinct from jurisdiction.
CONCLUSION
The Court concludes that it has subject matter jurisdiction over the issues raised in these proceedings pursuant to 28 U.S.C. §§ 1334(b) and 157 and the Order of Reference of the District Court. These matters are also core proceedings pursuant to
IT IS ORDERED that the defendants’ motions to dismiss these proceedings for lack of subject matter jurisdiction are DENIED and the remaining issues will be carried for further consideration at a later date to be set by the Court;
IT IS ALSO ORDERED that a further pretrial hearing will be held in these proceedings on March lk, 2000 at 10:30 a. to. to determine a schedule for discovery and to set a class certification hearing.
Notes
. The Court previously held in an oral ruling on October 22, 1999 that it has jurisdiction over the individual named debtors’ proceedings. For the same reasons, the Court has jurisdiction over any class members' proceedings who are debtors in the Southern District of Alabama.
. The 1977 House Report addresses former 28 U.S.C. § 1471 which was repealed by Pub.L. No. 98-353 § 122 (1984). Current 28 U.S.C. §§ 1334(a) and (b), enacted by § 101 of the Bankruptcy Amendments and Federal Judgeship Act of 1984, Pub.L. No. 98-353, repeal former §§ 1471(a) and (b) verbatim.
. “Home court” refers to the district in which the bankruptcy case was filed or is pending. “Outpost court” refers to any other district. Gibson, supra, at 38.
. Judge Spector cited and disagreed with a line of cases supporting the view that § 1452 does not require removal to the "home court” district notwithstanding § 1334(e). Included was an opinion by Judge John V. Singleton which was based on this Judge's report and recommendations while sitting in the Bankruptcy Court for the Southern District of Texas.
Gabel v. Engra, Inc. (In re Engra, Inc.),
. Jurisdiction over bankruptcy proceedings is nonexclusive under § 1334(b).
. In rem proceedings are those under which an obligation is to be enforced against a thing, or item of property, regardless of the persons involved. An in personam action seeks to impose an obligation on a person. See, Black's Law Dictionary 856-57 (7th ed.1999) (defining jurisdiction in rem and in person-am ).
. Former § 1334(d), was redesignated as current § 1334(e) by § 104(b) of the Bankruptcy Reform Act of 1994, Pub.L. No. 103-394.
. A bankruptcy court can exercise jurisdiction over a lawsuit which is not filed in the “home court.”
See, e.g., A.B. Real Estate, Inc., SNA v. Bruno's, Inc. (In re Bruno's),