Collins v. Sidharthan (In re KSRP, Ltd.)

• Decision Date: 15 December 2015
• Docket Number: No. 14–41226.,14–41226.
• Citation: 809 F.3d 263
• Parties: In the Matter of KSRP, LIMITED, Debtor. Robert L. Collins, Appellant v. A.S. Sidharthan, Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

809 F.3d 263

In the Matter of KSRP, LIMITED, Debtor.Robert L. Collins, Appellant

v.A.S. Sidharthan, Appellee.

No. 14–41226.

United States Court of Appeals, Fifth Circuit.

Dec. 15, 2015.

Daniel David Kistler (argued), Robert L. Collins, Christina Minshew Lewis, Houston, TX, for Appellant.

Christopher Scott Cheatham (argued), Villeda Law Group, McAllen, TX, Antonio Villeda, Villeda Law Group, McAllen, TX, for Appellee.

Appeal from the United States District Court for the Southern District of Texas.

Before JOLLY, HAYNES, and COSTA, Circuit Judges.

HAYNES, Circuit Judge:

Robert L. Collins appeals the district court's order and judgment dismissing his claims against A.S. Sidharthan, in which the district court adopted the report and recommendation of the bankruptcy court. Collins argues that the bankruptcy and district courts lacked "related to" jurisdiction over this case under 28 U.S.C. § 1334 because Sidharthan's cross-claims for indemnity and contribution against the debtor in bankruptcy, KSRP, Limited ("KSRP"), had no possibility of succeeding. For the reasons that follow, we AFFIRM.¹

I.²

This case arises out of an alleged power of attorney agreement between Collins and KSRP, which was signed by Sidharthan. Sidharthan is an officer and 50% owner of PYK Investments, LLC ("PYK"), and PYK is the general partner of the debtor, KSRP. KSRP owns and operates the Best Western Fiesta Isles hotel in South Padre Island, Texas, which maintains insurance against storm damage. Collins represents parties in making and litigating storm damage claims against insurance companies. In April 2008, Collins was contacted by the management of the Best Western Fiesta Isles hotel regarding an agreement to represent the hotel on any future insurance claims. The management informed Collins that Sidharthan had the authority to sign such an agreement, so Collins drafted the agreement and the hotel management forwarded it to Sidharthan. Later that month, Sidharthan signed the contingency-fee contract and sent it to Collins.

Collins performed under the contract, directing various professionals to make pre-loss inspections of the hotel's conditions. After Hurricane Dolly damaged the hotel in July 2008, Collins had the hotel inspected for damage attributable to the hurricane. Collins then attempted to pursue the claim with KSRP's insurers, but Collins discovered that Sidharthan contested his representation. Sidharthan had faxed a letter to KSRP's insurer asserting that Collins was not, in fact, a representative of KSRP. Collins attempted to contact Sidharthan to no avail, until August 2008, when Sidharthan's attorney sent Collins a letter requesting that he cease attempting to represent KSRP.

Collins sued Sidharthan and KSRP in state court for breach of contract, tortious interference with contract, punitive damages, and legal fees, among other claims. On January 11, 2010, the court granted a nonsuit as to KSRP, and only the claims between Collins and Sidharthan remained before the court. KSRP filed for bankruptcy on January 20, 2010. That same day, Sidharthan removed the case to the bankruptcy court. In his notice of removal, Sidharthan asserted for the first time a cross-claim of indemnity against KSRP.

The bankruptcy court determined that it had "related to" jurisdiction because, due to Sidharthan's indemnity claims, any damages awarded to Collins could potentially have been collected against KSRP's estate. But since the bankruptcy judge did not have the parties' consent to render a final judgment in the "related" proceeding as required by Stern v. Marshall, a report and recommendation was issued to the district court. In that report, the bankruptcy court founded its "related to" jurisdiction on Sidharthan's cross-claims for indemnity and contribution. Based on evidence presented at a two-day trial, the bankruptcy court declined to grant Sidharthan's indemnity and other cross-claims. The bankruptcy court found that Sidharthan was not a general or limited partner of KSRP and Collins had not relied on any representations to that effect, so the contract for Collins to represent the hotel bound only KSRP, and not Sidharthan personally. Because KSRP had been dismissed from the state court suit and Collins had not filed a claim against KSRP in bankruptcy court, Sidharthan's indemnity claims were considered "moot." The district court adopted the bankruptcy court's report and recommendation. Collins timely appealed from that order and judgment.

II.

We review whether a district or bankruptcy court possessed subject matter jurisdiction over a bankruptcy case de novo. Lone Star Fund V (U.S.), L.P. v. Barclays Bank PLC, 594 F.3d 383, 386 (5th Cir.2010). By statute, district courts have original jurisdiction over bankruptcy cases. See In re Stonebridge Techs., Inc., 430 F.3d 260, 266 (5th Cir.2005) ; 28 U.S.C. §§ 157, 1334. It is well established that "[f]ederal courts have ‘related to’ subject matter jurisdiction over litigation arising from a bankruptcy case if the ‘proceeding could conceivably affect the estate being administered in bankruptcy.’ " Lone Star Fund V, 594 F.3d at 386 (quoting In re TXNB Internal Case, 483 F.3d 292, 298 (5th Cir.2007) ). " ‘Related to’ jurisdiction includes any litigation where the outcome could alter, positively or negatively, the debtor's rights, liabilities, options, or freedom of action or could influence the administration of the bankrupt estate." Id. (citation omitted).

Collins challenges the bankruptcy court's jurisdiction because he claims it was based on illusory indemnity and contribution claims. In analyzing jurisdiction over cases that are purportedly "related to" a bankruptcy case, we apply a broad "conceivable effect" test. See Fire Eagle L.L.C. v. Bischoff (In re Spillman ), 710 F.3d 299, 304–05 (5th Cir.2013). Collins's assertions raise a unique issue regarding how the conceivable effect test should be applied. Collins does not challenge whether the claims would have any conceivable effect on the bankruptcy estate if they succeeded

; rather, he argues the claims could not possibly have any conceivable effect because they lacked merit and had no chance of succeeding. Thus, he sets up a dichotomy between potentially meritorious claims, over which there would be "related to" jurisdiction, and meritless claims, over which there would be no such jurisdiction.

We reject this dichotomy. Both the Supreme Court and this court have gravitated away from conflating jurisdiction and merits, and Collins's proposed standard results in exactly that conflation. See, e.g., Arbaugh v. Y & H Corp., 546 U.S. 500, 510–11, 515, 126 S.Ct. 1235, 163 L.Ed.2d 1097 (2006) ; Smith v. Reg'l Transit Auth., 756 F.3d 340, 346 (5th Cir.2014) (citing Arbaugh, 546 U.S. at 515, 126 S.Ct. 1235 ); ACS Recovery Servs., Inc. v. Griffin, 723 F.3d 518, 522–23 (5th Cir.2013) (en banc). Generally, courts should analyze their own authority to hear a case as a separate matter from whether that case involves a viable claim. See generally Carter v. Homeward Residential, Inc., 794 F.3d 806, 807, 809 (7th Cir.2015) (reasoning that "a complaint that fails to invoke federal jurisdiction is to be dismissed for want of jurisdiction [as ‘nonjusticiable’], while a complaint that invokes federal jurisdiction but pleads itself out of court (for example by making a claim expressly rejected in a Supreme Court decision) should be dismissed by the district court on the merits [as ‘groundless']"); Smith, 756 F.3d at 346–47 (remanding for consideration through "the proper procedural vehicle" of a Rule 12(b)(6) or 56 motion, rather than a Rule 12(b)(1) motion).

In the context of federal question jurisdiction, the Supreme Court in Arbaugh expressed a caveat to the general rule that courts should avoid merits analyses in determining jurisdiction. The Court observed that a claim that invokes federal jurisdiction may nonetheless be "dismissed for want of subject-matter jurisdiction if it is not colorable, i.e., if it is ‘immaterial and made solely for the purpose of obtaining jurisdiction’ or is ‘wholly insubstantial and frivolous.’ " Arbaugh, 546 U.S. at 513 n.10, 126 S.Ct. 1235 (quoting Bell v. Hood, 327 U.S. 678, 682–83, 66 S.Ct. 773, 90 L.Ed. 939 (1946), and Steel Co. v. Citizens for a Better Env't, 523 U.S. 83, 89, 118 S.Ct. 1003, 140 L.Ed.2d 210 (1998) ); see also Smith, 756 F.3d at 346.

To the extent the caveat from Arbaugh applies here in determining whether an indemnity claim against KSRP may conceivably effect KSRP's bankruptcy estate, we conclude Sidharthan's contractual indemnity cross-claim passes muster. Texas law allows for a principal to contractually indemnify its agent, including for the agent's negligent acts. See generally Quorum Health Res., L.L.C. v. Maverick Cty. Hosp. Dist., 308 F.3d 451, 454, 458–59, 463–64 (5th Cir.2002) (discussing Texas law regarding contractual indemnification provisions); cf. Enserch Corp. v. Parker, 794 S.W.2d 2, 4, 6–9 (Tex.1990) (holding that a contractor had to indemnify the owner of a natural gas pipeline based on contractual indemnity provisions). In turn, it is well established that "contractual indemnification rights may give rise to ‘related to’ jurisdiction." Lone Star Fund V, 594 F.3d at 387. Sidharthan's allegations in his notice of removal and the facts alleged in Collins's pleadings in state court sufficiently show that Sidharthan's contractual indemnity claim against KSRP was not "immaterial and made solely for the purpose of obtaining jurisdiction" or "wholly insubstantial and frivolous." Arbaugh, 546 U.S. at 513 n.10, 126 S.Ct. 1235. Therefore, these pleadings are sufficient to support "related to" jurisdiction.³

Sidharthan alleged in his notice of removal that he was "asserting an indemnity claim against Debtor [KSRP] which if proven will result in a substantial claim against Debtor [KSRP]." Later, in his cross-claims against KSRP, Sidharthan averred that he was entitled to, among other things, contractual indemnity...