In re Import & Mini Car Parts, Ltd., Inc.
| Decision Date | 09 April 1996 |
| Docket Number | No. 1:96-CV-55.,1:96-CV-55. |
| Citation | 203 BR 124 |
| Parties | In re IMPORT & MINI CAR PARTS, LTD., INC., Debtor. Ward W. MILLER, Appellant/Plaintiff, v. Samuel S. CONTE, Appellee/Defendant, and Samuel S. Conte, Carol S. Conte, Peter Conte, and Cedar Creek Farms, Inc., Garnishee Defendants. |
| Court | U.S. District Court — Northern District of Indiana |
This is an appeal from a decision of the Fort Wayne Division of the United States Bankruptcy Court for the Northern District of Indiana, which was entered on January 5, 1996, in Adv.Proc. No. 88-1084. The appeal was docketed in this court on February 7, 1996. Appellant filed his brief on February 16, 1996, and Appellee filed his brief on March 5, 1996. The parties filed no reply briefs or response briefs, and so this matter is deemed ripe for consideration by this court. For the reasons set forth below, the decision of the bankruptcy court is AFFIRMED.
Import & Mini Car Parts, Ltd., Inc. ("Debtor") filed a petition for relief under Chapter 11 of the United States Bankruptcy Code on April 28, 1983. Dcn. p. 1.1 On March 22, 1989, the case was converted to a Chapter 7 proceeding. Id. On September 6, 1990, the bankruptcy court entered judgment in favor of the bankruptcy trustee and against defendant Samuel S. Conte ("Conte" or "Appellee"), a former principal of the debtor, in the amount of $50,224.81. Id. The bankruptcy trustee then assigned this judgment to Ward W. Miller ("Miller" or "Appellant"), as trustee for the benefit of administrative creditors of the bankruptcy estate. Id. The bankruptcy court entered a garnishment order against Conte's wages on September 11, 1992, which is still in effect. Appellant's brief p. 3. However, according to the appellant, only about $12,000.00 of this judgment has actually been paid. Id. p. 4. Consequently, Miller filed a Verified Motion for Proceeding Supplemental to Execution ("Pro Supp Motion") on June 22, 1995, in which he named Conte and three others as garnishee defendants. Dcn. p. 2. In his motion, Miller asks the bankruptcy court to set aside an allegedly fraudulent transfer by Conte, designed to avoid execution on those assets by Miller. Id. Specifically, Miller contends that Conte transferred non-exempt assets into a parcel of real estate in which Conte and his wife hold a one-half interest as tenants by the entirety, with the other one-half interest held by Peter Conte. Pro Supp Motion p. 2. Additionally, Miller alleges that "defendant Cedar Creek Farms, Inc., holds a pretended mortgage against the parcel, to secure a non-existent debt, which mortgage should be voided as fraudulent as to existing creditors." Id.
The bankruptcy court, Judge Grant, dismissed the motion, holding that he lacked subject matter jurisdiction to hear the suit. Miller appeals, and it is the single issue of the bankruptcy court's jurisdiction that is presently before this court.
This court has jurisdiction to hear this appeal pursuant to 28 U.S.C. § 158(a). Furthermore, the Federal Rules of Bankruptcy Procedure provide the applicable standard of review. Rule 8013 states:
On an appeal the district court . . . may affirm, modify or reverse a bankruptcy court\'s judgment, order, or decree or remand with instructions for further proceedings. Findings of fact shall not be set aside unless clearly erroneous, and due regard shall be given to the opportunity of the bankruptcy court to judge the credibility of the witnesses.
This high standard of review has been followed by district courts. See, e.g., In re Clarkson, 767 F.2d 417, 419 (8th Cir.1985); In re Tesmetges, 47 B.R. 385, 388 (E.D.N.Y. 1984). District courts review factual findings of bankruptcy courts under the "clearly erroneous standard." Matter of Newman, 903 F.2d 1150 (7th Cir.1990). The "clearly erroneous" language of the rule tracks the language found in Fed.R.Civ.P. 52(a), and cases construing the standard under 52(a) are equally applicable to bankruptcy cases. Matter of Louisiana Industrial Coatings, Inc., 53 B.R. 464, 467 (E.D.La.1985). The U.S. Supreme Court reaffirmed its long-standing definition of this standard: "A finding is `clearly erroneous' when although there is evidence to support it, the reviewing court on the entire evidence is left with the definite and firm conviction that a mistake has been committed." Anderson v. City of Bessemer City, N.C., 470 U.S. 564, 573, 105 S.Ct. 1504, 1511, 84 L.Ed.2d 518 (1985) (quoting United States v. United States Gypsum Co., 333 U.S. 364, 395, 68 S.Ct. 525, 542, 92 L.Ed. 746 (1948)). Finally, the standard of review of legal conclusions of a bankruptcy court is de novo. In re Bonnett, 895 F.2d 1155, 1157 (7th Cir.1990); In re Global Western Development Corp., 759 F.2d 724, 726 (9th Cir.1985).
The essence of Judge Grant's holding was that "bankruptcy jurisdiction is more circumscribed" than that of the district court, and the jurisdiction conferred on the bankruptcy court by 28 U.S.C. § 1334(b)2 does not give that court the power to preside over a proceeding unless "there is a bankruptcy purpose for doing so." Dcn. p. 4. Section 1334(b) governs a bankruptcy court's jurisdiction over proceedings that are beyond the bankruptcy proceeding itself. That section provides, in relevant part, that "the district courts shall have original but not exclusive jurisdiction of all civil proceedings arising under title 11, or arising in or related to cases under title 11." At first blush, the broad sounding language of that statute, "arising under . . . arising in or related to," might seem to encompass the present case. However, as Judge Grant pointed out, that language, when discussed in relation to a bankruptcy court, has been interpreted by the courts as not being as broad and general a grant of ancillary jurisdiction as it may at first seem.
As Judge Grant explained, the phrase "arising under . . . arising in or related to" does not mean that the bankruptcy court has jurisdiction to hear any case, however remotely connected to a bankruptcy proceeding it may be:
"It is the relation of the dispute to estate, and not of party to estate, that establishes jurisdiction." Matter of Xonics, Inc., 813 F.2d 127, 131 (7th Cir.1987). To come within the scope of the court\'s "related to" jurisdiction, "the plaintiff\'s claims must affect the estate, not just the debtor." Matter of Wood, 825 F.2d 90, 94 (5th Cir.1987). Under the test adopted by the Seventh Circuit, a dispute is related to a case under title 11 only when its resolution affects the property of the estate available for distribution to creditors, the manner in which that property is to be distributed or the administration of the estate. (Citations omitted.) "Overlap between the bankrupt\'s affairs and another dispute is insufficient. . . ." Home Ins. Co. v. Cooper & Cooper, Ltd., 889 F.2d 746, 749 (7th Cir. 1989). . . . Jurisdiction requires something "more than the hovering shadow of an earlier bankruptcy. . . ." Langella v. Weisz, 39 B.R. 615, 619 (E.D.N.Y.1984).
As to the present case, Judge Grant held that:
it is, in reality, nothing more than a garden variety fraudulent conveyance action, governed by state law, brought by a creditor in an effort to collect an outstanding debt. Its only connection with the bankruptcy court is that the debt in question happens to be represented by a judgment which this court issued in favor of a bankruptcy trustee. This, however, is not enough. The bankruptcy trustee no longer owns that judgment. It passed out of the estate when it was assigned to Mr. Miller. Once the judgment left the estate, the court needs a new source of jurisdiction if further disputes involving it are to remain in federal court.
Dcn. pp. 4-5 (citations omitted).
The appellant argues that the bankruptcy court does indeed have jurisdiction to hear the present suit, since jurisdiction to enforce its own orders is inherent, and necessary in order for the court to function properly. In support of this position, appellant cites the case of Riggs v. Johnson County, 73 U.S. 166, 18 L.Ed. 768 (1868), wherein the Supreme Court recognized the ancillary or supplemental jurisdiction of the federal courts, holding that "process subsequent to judgment is as essential to jurisdiction as process antecedent to judgment." Appellant's brief p. 11 (quoting Riggs, 73 U.S. at 187). Appellant also states that "after a judgment, the bankruptcy court has the continuing ancillary jurisdiction to enforce . . . a judgment." Appellant's brief p. 22 (citing Vukadinovich v. McCarthy, 59 F.3d 58 (7th Cir. 1995)). Indeed, the U.S. Supreme Court recently wrote that:
We have reserved the use of ancillary jurisdiction in subsequent proceedings for the exercise of a federal court\'s inherent power to enforce its judgments. Without jurisdiction to enforce a judgment entered by a federal court, "the judicial power would be incomplete and entirely inadequate to the purposes for which it was conferred by the Constitution." Riggs v. Johnson County, 6 Wall. 166, 187, 18 L.Ed. 768 (1868). In defining that power, we have approved the exercise of ancillary jurisdiction over a broad range of supplementary proceedings involving third parties to assist in the protection and enforcement of federal judgments — including attachment, mandamus, garnishment, and the prejudgment avoidance of fraudulent conveyances."
Peacock v. Thomas, ___ U.S. ___, ___, 116 S.Ct. 862, 868, 133 L.Ed.2d 817 (1996).
In his decision, Judge Grant noted in a footnote on page five, referring to the Vukadinovich case, that the issue of a district court's subject matter jurisdiction over garnishment actions against third parties "has been laid to rest in the Seventh Circuit." That statement was correct at the time it was written. However, in Peacock v. Thomas (...
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