In re Middlesex Power Equipment & Marine, Inc.

• Decision Date: 11 June 2002
• Docket Number: No. 01-2314.,01-2314.
• Citation: 292 F.3d 61
• Parties: In re MIDDLESEX POWER EQUIPMENT & MARINE, INC., Debtor. New England Power & Marine, Inc., Appellant, v. Town of Tyngsborough, Massachusetts, Appellee.
• Court: U.S. Court of Appeals — First Circuit

292 F.3d 61

In re MIDDLESEX POWER EQUIPMENT & MARINE, INC., Debtor.

New England Power & Marine, Inc., Appellant, v. Town of Tyngsborough, Massachusetts, Appellee.

No. 01-2314.

United States Court of Appeals, First Circuit.

Heard March 4, 2002.

Decided June 11, 2002.

COPYRIGHT MATERIAL OMITTED

Gregory D. Oberhauser for appellant.

David G. Baker for appellee.

Before LYNCH, Circuit Judge, CAMPBELL and MAGILL,^* Senior Circuit Judges.

LYNCH, Circuit Judge.

This case involves a dispute over payment of taxes owed to a town on real estate sold by a trustee in bankruptcy. The purchaser of the debtor's property attempted to have the bankruptcy court resolve the tax matter by filing a motion to reopen. The bankruptcy court demurred, preferring to abstain in favor of allowing the Massachusetts Land Court, which was hearing the tax foreclosure proceedings, to resolve the issue. The federal district court, hearing the appeal from the bankruptcy court, held that the bankruptcy court acted within its power and discretion. On appeal to this court, the purchaser argues that the federal court had exclusive jurisdiction and was required to act, and that, in the alternative, it abused its discretion by abstaining. We affirm.

I.

On October 15, 1992, Middlesex Power Equipment & Marine, Inc., filed a voluntary Chapter 11 petition with the United States Bankruptcy Court for the District of Massachusetts. On November 8, 1993, the bankruptcy court authorized the sale of Middlesex Power's "building, and various items of equipment, machinery and inventory used in connection with its business activities." This sale included the real estate that the business occupied, which consisted of four parcels of land in the town of Tyngsborough, Massachusetts. In the trustee's unopposed Motion for Authorization of Sale, which was allowed by the court by endorsement order, the trustee stated that the sale was pursuant to 11 U.S.C. § 363(b), and that "[t]he business assets will be sold free and clear of liens, with liens attaching to the proceeds of sale." That broad wording from the trustee's court endorsed motion was to be the cause of later mischief. On January 11, 1994, NEPM purchased Middlesex Power's assets, including the real estate, for $750,000. On June 1, 1994, the case was converted to a Chapter 7 bankruptcy, and on March 11, 1997, the bankruptcy case was closed.

NEPM, the new owner of the land, refused to pay real estate taxes levied prior to the sale to the Town of Tyngsborough. NEPM reasoned that because it purchased the land "free and clear of liens, with liens attaching to the proceeds of the sale," it did not need to pay back taxes on the property. In addition, NEPM stopped making payments on the post-sale real estate taxes in September 1994, because it claimed that the Town improperly applied current tax payments to pre-sale taxes owed by Middlesex Power.

The Town brought actions under Massachusetts law, Mass. Gen. Laws ch. 60, § 65 (2000), to foreclose tax liens on NEPM's four parcels of land on August 26, 1997, in Massachusetts Land Court. The Land Court held a one-day trial on February 14, 2000.

While the Land Court still had the case under advisement, on November 28, 2000, NEPM filed a motion with the bankruptcy court to reopen the bankruptcy case for the purpose of hearing a motion for civil contempt. NEPM argued that the Town was in contempt because of its refusal to comply with the bankruptcy court's 1993 sale order which, it said, "carv[ed] out from the proceeds of the sale the sum of $10,000 for the benefit of the creditors of the estate of Middlesex Power Equipment and Marine," and stated that the property in question would be sold "free and clear of liens, with liens attaching to the proceeds of sales."

The bankruptcy court denied NEPM's motion to reopen on January 4, 2001, reasoning that

the issues raised by the contempt motion can adequately be adjudicated in the pending Land Court proceeding between the parties, a tax taking action by the Town against NEPM. The Bankruptcy Court's jurisdiction over the scope and effectiveness of the 1993 sale order is not exclusive, so the Land Court has jurisdiction to decide the matter. Issues relating to the 1993 sale order should have been raised (and, I understand, were raised) by NEPM as a defense in the tax taking action. Moreover, the Land Court action has already been fully litigated and taken under advisement. Comity, and the courts' shared interest in the avoidance of forum shopping, favor leaving the matter to the Land Court ... the [bankruptcy] Court would, in the interest of comity, abstain from adjudicating the matter. 28 U.S.C. § 1334(c)(1).

In re Middlesex Power Equip. & Marine, Inc., No. 92-20482-CJK, slip op. at 1-2 (Bankr.D.Mass. Jan. 4, 2001) (footnote omitted).

On March 15, 2001, the Land Court entered judgment in the Town's favor. Town of Tyngsborough v. New England Power & Marine, Inc., Tax Lien Case Nos. 114858, 114859, 114860, 114861, slip op. (Mass. Land Ct. Mar. 15, 2001). In its decision, the Land Court considered and rejected NEPM's argument that the bankruptcy court's sale order, with its "free and clear of liens" provision, prevented the Town from collecting back taxes on the land from NEPM. It stated that the "free and clear" language in the sale order "was overbroad in its intended scope and that [it] consequently had no force and effect regarding the real estate taxes owed by [the debtor]." Id. at 11. The Land Court, citing to 11 U.S.C. § 523(a), also said that "the Bankruptcy Court is without authority to discharge an individual debtor from any debt arising from property taxes." Id. at 11 n. 14. Thus, the Land Court ordered NEPM to pay the Town over $168,000 in unpaid taxes.

On March 26, 2001, NEPM filed an appeal from the Land Court decision. On April 9, NEPM filed a motion with the Land Court for stay of judgment pending appeal, which the Land Court denied a day later. NEPM then petitioned the Massachusetts Appeals Court for relief pending appeal, and the Massachusetts Appeals Court granted a temporary restraining order on April 13. The TRO was lifted on April 24, after the Town submitted its brief to the Massachusetts Appeals Court.

On April 13, 2001, NEPM filed motions to reopen the case with the bankruptcy court, for the court to rule on a motion for contempt and to stay the Land Court's judgment. On April 27, the bankruptcy court once again denied the motion stating that "[i]n denying the [first] motion to reopen, [it] effectively abstained from determining the significance of the sale order" and "[t]he fact that the state court has ruled in favor of the Town is not cause for the bankruptcy court to revisit its decision to abstain." In re Middlesex Power Equip. & Marine, Inc., No. 92-20482-CJK, slip op. at 2 (Bankr.D.Mass. Apr. 27, 2001). In addition, the bankruptcy court stated that under the Rooker-Feldman doctrine, it, as a lower federal court, could not review the final judgment of a state court, and that even had it not abstained, "the Land Court's ruling on the scope and effect of the Bankruptcy Court's sale order... would be entitled to preclusive effect." Id. at 3.

NEPM appealed the bankruptcy court's decision to the federal district court. In response, the Town moved to dismiss the appeal. In a written opinion issued on August 14, 2001, the district court granted the Town's motion to dismiss the appeal. New England Power & Marine, Inc. v. Town of Tyngsborough (In re Middlesex Power Equip. & Marine, Inc.), No. 01-10886-DPW, slip op. (D.Mass. Aug. 14, 2001). The district court reasoned that because the bankruptcy court's jurisdiction over the matter was not exclusive, its decision to abstain "fell squarely within the discretion afforded to the federal courts under [28 U.S.C.] § 1334(c)(1)." Id. at 9. The district court also agreed with the bankruptcy court's reliance on the Rooker-Feldman doctrine and issue preclusion as additional reasons for denying the motion to reopen. Id. at 9-14.

NEPM now appeals the district court's decision. NEPM argues that the federal courts had exclusive jurisdiction over the § 363 sale order and so the bankruptcy court could not abstain. In the alternative, it argues that even if the bankruptcy court had concurrent jurisdiction, it abused its discretion in abstaining. NEPM also asserts that the Rooker-Feldman doctrine does not apply to this case because this case involved a federal and not a state claim.

We affirm the district court's order because we conclude that the bankruptcy court had concurrent jurisdiction over this proceeding and was acting well within its discretion under 28 U.S.C. § 1334(c)(1) to abstain.¹

II.

A. Exclusive or Concurrent Jurisdiction

NEPM's argument is that the bankruptcy court, as a federal court, had exclusive jurisdiction in this case, and so had no discretion to abstain and defer to the Massachusetts Land Court.

The federal courts' jurisdiction over bankruptcy cases is governed by 28 U.S.C. § 1334 (2000). Celotex Corp. v. Edwards, 514 U.S. 300, 307, 115 S.Ct. 1493, 131 L.Ed.2d 403 (1995). Section 1334 sets up two main categories of bankruptcy cases over which the district court has jurisdiction: "cases under title 11," over which the district court has original and exclusive jurisdiction, 28 U.S.C. § 1334(a), and "proceedings arising under title 11, or arising in or related to cases under title 11," over which the district court has original, but not exclusive jurisdiction, 28 U.S.C. § 1334(b). See also Donaldson v. Bernstein, 104 F.3d 547, 552 (3d Cir.1997).² Section 1334(a) states that the only cases over which the district court has exclusive jurisdiction are "cases under title 11." A case under title 11 is the bankruptcy petition itself, such as a Chapter 11 reorganization. 1 Collier on Bankruptcy ¶ 3.01[3], at 3-12 to 3-13 (L. King et al. eds., 15th rev. ed. 2001) ("The `case' referred to in section 1334(a) is the umbrella under which all of the...