NOTE: Criminal Resource Manual articles 185 through 197 are adapted from the September 2001 monograph "Bankruptcy Jurisdiction and Sovereign Immunity" prepared by:
J. Christopher Kohn
Commercial Litigation Branch
P.O. Box 875
Ben Franklin Station
Washington, D.C. 20044
Telephone: (202) 514-7450
John T. Stemplewicz
Senior Trial Counsel
Commercial Litigation Branch
P.O. Box 875
Ben Franklin Station
Washington, D.C. 20044
Telephone: (202) 307-1104
The district courts have original and exclusive jurisdiction over all bankruptcy "cases." 28 U.S.C. § 1334(a).
The district courts have original but not exclusive jurisdiction over all "civil proceedings" arising under the Code, or arising in or related to a bankruptcy case. 28 U.S.C. § 1334(b).
a. "arising under" the Code: proceeding seeking relief affordable only under a substantive Bankruptcy Code provision (e.g., a preference action under § 547). Bethlahmy, IRA v. Kuhlman (In re ACI-HDT Supply Co.), 205 B.R. 231 (B.A.P. 9th Cir. 1997); Ehrlich v. Am. Express Travel Related Servs.
Co. (In re Guilmette), 202 B.R. 9 (Bankr. N.D.N.Y. 1996); Artra Group, Inc. v. Salomon Bros. Holding Co. (In re Emerald Acquisition Corp.), 170 B.R. 632, 640 (Bankr. N.D. Ill. 1994).
b. "arising in" a case under the Code: proceeding involving the administration and structuring of the estate (e.g., attorney fee application; order confirming plan; borrowing order) that would have no existence but for the bankruptcy case. See In re Wood, 825 F.2d 90, 97 (5th Cir. 1987); Dall v. Bank One, Chicago (In re Dally), 202 B.R. 724 (Bankr. N.D. Ill. 1996).
c. "related to" a case under the Code: most courts hold that a case is related to bankruptcy if "the outcome of that proceeding could conceivably have any effect on the estate being administered in bankruptcy. . . . An action is related to bankruptcy if the outcome could alter the debtor's rights, liabilities, options, or freedom of action (either positively or negatively) and which in any way impacts upon the handling and administration of the bankrupt estate." Pacor, Inc. v. Higgins, 743 F.2d 984, 994 (3d Cir. 1984) (emphasis in original); accord New Horizon of New York LLC v. Jacobs, 231 F.3d 143 (4th Cir. 2000), cert. denied, 121 S. Ct. 2192 (2001); In re Munford, Inc., 97 F.3d 449 (11th Cir. 1996); Specialty Mills, Inc. v. Citizens State Bank, 51 F.3d 770, 774 (8th Cir. 1995); Walker v. Cadle Co. (In re Walker), 51 F.3d 562, 568-69 (5th Cir. 1995); Mich. Employment Sec. Comm'n v. Wolverine Radio Co. (In re Wolverine Radio Co.), 930 F.2d 1132 (6th Cir. 1991); Robinson v. Mich. Consol. Gas Co., 918 F.2d 579, 583- 584 (6th Cir. 1990); Gardner v. United States (In re Gardner), 913 F.2d 1515, 1518 (10th Cir. 1990); Miller v. Kemira, Inc. (In re Lemco Gypsum, Inc.), 910 F.2d 784, 788 and n.19 (11th Cir. 1990); Fietz v. Great W. Sav. (In re Fietz), 852 F.2d 455, 457 (9th Cir. 1988); A.H. Robins Co. v. Piccinin, 788 F.2d 994, 1002 n.11 (4th Cir. 1986); see also In re G.S.F. Corp., 938 F.2d 1467, 1475 (1st Cir. 1991) (recognizing Pacor as the "usual articulation" of the related to jurisdiction without expressly adopting it for all cases).
The Second and Seventh Circuits have adopted slightly different tests. See Pettibone v. Easley, 935 F.2d 120, 123 (7th Cir. 1991); Elscint, Inc. v. First Wis. Fin. Corp. (In re Xonics, Inc.), 813 F.2d 127, 131 (7th Cir. 1987) (both requiring that resolution of the case "affects the amount of property available for distribution or the allocation of property among the creditors"); Turner v. Ermiger (In re Turner), 724 F.2d 338 (2d Cir. 1983) (litigation must have a "significant connection" with bankruptcy proceeding). Compare Boco Enters., Inc. v. Saastopankkien Keskus-Osake-Pankki (In re Boco Enters.), 204 B.R. 407 (Bankr. S.D.N.Y. 1997) (action by creditor against guarantor of debtor's obligation was within "related to" bankruptcy jurisdiction) with Freeland v. HPA Asset, L.L.C. (In re White Trailer Corp.), 222 B.R. 322 (Bankr. N.D. Ind. 1998) ("related to" jurisdiction requires direct effect upon either assets of the estate or their distribution to creditors; nexus between dispute and bankruptcy case is insufficient), and City of Joliet v. Bank One, Chicago (In re Green), 210 B.R. 556 (Bankr. N.D. Ill. 1997) (court lacks "related to" jurisdiction over city's action against bank even though chapter 11 debtor was guarantor of letter of credit bank allegedly wrongfully dishonored).
In Celotex Corp. v. Edwards, 514 U.S. 300 (1995), after noting the two seemingly different approaches found in the above-cited cases decided by the courts of appeals, the Court concluded that "whatever test is used, these cases make clear that bankruptcy courts have no jurisdiction over proceedings that have no effect on the debtor." Id. at 308 n.6. However, the Court further opined that the jurisdiction of a bankruptcy court "may extend more broadly" in a chapter 11 case than in a chapter 7 case, id. at 310, and held that an injunction proceeding, which admittedly did not directly involve the debtor, was "related to" the bankruptcy case and, thus, within the bankruptcy court's jurisdiction where the injunction was found necessary to prevent "a direct and substantial adverse effect on [the debtor's] ability to undergo a successful reorganization." Id.; see Spartan Mills v. Bank of Am. Ill., 112 F.3d 1251 (4th Cir. 1997) (court had "related to" jurisdiction to resolve lien dispute between two creditors where it was essential to reorganization [one creditor, a bank, would not finance reorganization without resolution of its lien position on the property]). But see In re Fedpak Sys., Inc., 80 F.3d 207 (7th Cir. 1996) (rejecting Pacor's "conceivable effect" standard as overly broad despite Celotex, noting that Supreme Court appears to favor but has not mandated such an approach). A majority of courts continue to apply the Pacor standard. See, e.g., IRS v. Kaplan (In re Kaplan), 104 F.3d 589 (3d Cir. 1997) (individual debtors being "responsible persons" brought corporation's tax liability dispute under bankruptcy jurisdiction); In re Munford, Inc., 97 F.3d 449 (11th Cir. 1996); Bergstrom v. Dalkon Shield Claimants Trust (In re A.H. Robins Co.), 86 F.3d 364 (4th Cir. 1996).
Examples of courts rejecting "related to" jurisdiction: In re Rickel Home Ctrs., Inc., 209 F.3d 291 (3d Cir.) (suits between purchasers of property from the bankruptcy estate and third parties are not within court's jurisdiction), cert. denied, 531 U.S. 873 (2000); Presidential Gardens Assocs. v. United States ex rel. Sec'y of HUD, 175 F.3d 132 (2d Cir. 1999) (refusal to reopen case was proper because dispute was between equity holders and HUD, not between debtors and HUD); Black v. United States Postal Serv. (In re Heath), 115 F.3d 521 (7th Cir. 1997) (trustee's action to recover payment for debtor that would not benefit estate); Torkelson v. Maggio (In re Guild & Gallery Plus, Inc.), 72 F.3d 1171 (3d Cir. 1996) (action against trustee in individual capacity for value of goods owned by nondebtor misplaced during administration of bankruptcy case); United States v. Zellers (In re CNS, Inc.), 255 B.R. 198 (N.D. Ohio 2000) (no "related to" jurisdiction to determine non-debtor, alleged responsible person's tax liability where such liability could have no effect on debtor corporation's bankruptcy estate even if non-debtor's and debtor's liability might involve common issues of fact); Green v. LifeUSA Ins. Co., 259 B.R. 295, 299 (N.D. Ill. 2001) (no jurisdiction over chapter 7 debtor's counterclaims where trustee had rejected insurance policy and counterclaims would not have affected estate); In re O'Malley, 252 B.R. 451 (Bankr. N.D. Ill. 1999) (court lacks jurisdiction to consider claims by debtor's non-filing husband against non-debtors for fraudulently inducing him to convey property to debtor because they do not involve administrative matters or substantive bankruptcy rights and would not affect the amount of property available for distribution); Stevens v. IRS (In re Stevens), 210 B.R. 200 (Bankr. M.D. Fla. 1997) (bankruptcy court lacks jurisdiction to determine tax liability in no-asset case involving only debtor and the IRS).
d. The question of bankruptcy jurisdiction, i.e., whether a proceeding is one "arising under," "arising in," "related to," or none of the foregoing, is analytically distinct from the question of the bankruptcy judges' authority to enter final orders, i.e., whether a proceeding is "core" or "non- core." [The latter issue is discussed below in section I.B of this outline.] However, core proceedings are defined in 28 U.S.C. § 157(b)(1) as "proceedings arising under title 11, or arising in a case under title 11." Non-core proceedings are "otherwise related to a case under title 11." Id. § 157(b)(3); see Cont'l Nat'l Bank of Miami v. Sanchez (In re Toledo), 170 F.3d 1340, 1345 n.6 (11th Cir. 1999); Tate v. NationsBanc Mortgage Corp. (In re Tate), 253 B.R. 653 (Bankr. W.D.N.C. 2000).
e. "Section 1334(b) concerns the allocation of jurisdiction between bankruptcy courts and other 'courts,' and, of course, an administrative agency such as the [Federal Reserve] Board is not a 'court.'" Board of Governors of Fed. Reserve Sys. v. MCorp Fin., Inc., 502 U.S. 32, 41- 42 (1991) (emphasis in original); see also FCC v. NextWave Pers. Communications, Inc. (In re NextWave Pers. Communications, Inc), 200 F.3d 43, 54 (2d Cir. 1999) (courts of appeals have exclusive jurisdiction over claims against FCC in its regulatory capacity; thus, bankruptcy and district courts lacked jurisdiction to decide whether regulatory conditions FCC imposed upon debtor to obtain license created a constructively fraudulent obligation), cert. denied, 531 U.S. 924 (2000). But see FCC v. GWI PCS 1, Inc. (In re GWI PCS 1, Inc.), 230 F.3d 788 (5th Cir. 2000) (bankruptcy court has jurisdiction to determine whether regulatory conditions FCC imposed upon debtor to obtain license created a constructively fraudulent obligation), cert. denied, 121 S. Ct. 2632 (2001); ACME Music Co. v. IRS (In re ACME Music Co.), 208 B.R. 838 (Bankr. W.D. Pa. 1997) (in determining tax liability, bankruptcy court could also determine claim for costs in underlying administrative proceeding).
f. May bankruptcy courts exercise "supplemental jurisdiction" under 28 U.S.C. § 1367, which codifies the district court's ancillary and pendent jurisdiction? See, e.g., Walker v. Cadle Co. (In re Walker), 51 F.3d 562, 570-73 (5th Cir. 1995); Boyajian v. DeLuca (In re Remington Dev. Group, Inc.), 180 B.R. 365, 371-74 (Bankr. D.R.I. 1995) (both holding § 1367 inapplicable to bankruptcy courts and collecting cases); see also Cumberland Farms, Inc. v. Fla. Dep't of Envtl. Prot., 116 F.3d 16 (1st Cir. 1997) (State's administrative expense claim for penalties for violating underground storage tank regulations did not authorize bankruptcy court to determine debtor's compliance with liability insurance program regulations).
g. Bankruptcy courts have jurisdiction to enforce their own orders. Volvo White Truck Corp. v. Chambersburg Beverage, Inc. (In re White Motor Credit Corp.), 75 B.R. 944, 948 (Bankr. N.D. Ohio 1987).
The district court "shall have exclusive jurisdiction of all of the property, wherever located, of the debtor as of the commencement of [the] case, and of property of the estate." 28 U.S.C. § 1334(e).
"Property of the estate," see 11 U.S.C. § 541, is broad in scope, United States v. Whiting Pools, Inc., 462 U.S. 198 (1983), and in any given case, comprises most if not all "property of the debtor." However, some property might be included in one category but not the other.
For example, property of the estate would include property acquired by the estate after commencement of the case though not acquired by the debtor personally. See 11 U.S.C. § 541(a)(7); In re Osborn, 176 B.R. 217 (Bankr. E.D. Okla. 1994) (malpractice claim acquired by debtor in possession during chapter 11 case), aff'd mem., 83 F.3d 433 (10th Cir. 1986). Also, property of the debtor that became property of the estate upon commencement of the case but that the trustee subsequently abandons, see 11 U.S.C. § 554, passes back to the debtor. Bennett v. Commercial Credit Plan (In re Bennett), 13 B.R. 643 (Bankr. W.D. Mich. 1981). Nevertheless, 28 U.S.C. § 1334(e) provides that bankruptcy jurisdiction extends to both categories of property.
Note: Forfeiture actions. The "relation back" doctrine under common law and certain statutes, e.g., 21 U.S.C. § 881(h), whereby title to forfeited property vests in the United States upon the commission of acts giving rise to a judgment of forfeiture, could keep such property out of the bankruptcy estate even where the judgment of forfeiture is entered after commencement of the bankruptcy case. See United States v. Klein (In re Chapman), 264 B.R. 565 (B.A.P. 9th Cir. 2001) (on appeal to the 9th Circuit); see also United States v. Pelullo, 178 F.3d 196 (3d Cir. 1999). Although § 1334(e) grants the district court sitting in bankruptcy exclusive jurisdiction over property which may be located in foreign countries, exercising control over such property could be precluded without the assistance of foreign courts. See 1 Collier on Bankruptcy § 3.01 (15th ed. 2001).
[cited in JM 4-4.410]