Abramowitz v. Palmer

• Decision Date: 27 August 1993
• Docket Number: No. 91-3851,91-3851
• Parties: Bankr. L. Rep. P 75,364 James ABRAMOWITZ, D.D.S., Appellee, v. Toni PALMER, Appellant.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 1274

999 F.2d 1274

Bankr. L. Rep. P 75,364

James ABRAMOWITZ, D.D.S., Appellee, v. Toni PALMER, Appellant.

No. 91-3851.

United States Court of Appeals Eighth Circuit.

Submitted Jan. 12, 1993.

Decided July 29, 1993.

Rehearing Denied Aug. 27, 1993.

Craig Alden Smith, Springfield, MO, argued, for appellant.

Timothy J. Sear, Kansas City, MO, argued (Timothy J. Sear and Thomas M. Franklin, on the brief), for appellee.

Before MAGILL, LOKEN, and HANSEN, Circuit Judges.

HANSEN, Circuit Judge.

Toni Palmer appeals the district court's ¹ order affirming the decision of the bankruptcy court, ² which held Toni Palmer and her husband, Dr. Ken Palmer, jointly and severally liable for a $175,201 judgment in favor of Dr. James Abramowitz. The bankruptcy court also found that because the Palmers' residence had been purchased in part with funds they obtained fraudulently from Dr. Abramowitz, the Palmers held the house in constructive trust for Dr. Abramowitz. Toni Palmer appeals on the sole ground that the bankruptcy court lacked jurisdiction over the adversary claims Dr. Abramowitz brought against her. We affirm.

I.

In 1988, Dr. Ken Palmer sold his dental practice to Dr. Abramowitz for $150,000. Dr. Palmer and his wife, Toni Palmer, who had been Dr. Palmer's office manager, moved to Missouri and used $27,500 of the proceeds from the sale of the practice to purchase a home. The Palmers held title to the Missouri home as tenants by the entirety.

After taking over the newly purchased practice, Dr. Abramowitz discovered irregularities in the financial and patient records. Upon closer examination, he began to suspect that Dr. Palmer had overcharged patients for services, imposed multiple charges for single procedures, and overdiagnosed patients' conditions in order to justify specialized, and more costly, procedures. On March 16, 1989, Dr. Abramowitz filed a lawsuit against Dr. Palmer in Colorado state court, alleging breach of contract and fraud in the sale of the dental practice.

Before the state court action went to trial, Dr. Palmer filed a Chapter 7 bankruptcy petition in Missouri. Toni Palmer did not join in the petition. Dr. Abramowitz then filed a four-count adversary proceeding against both Dr. and Toni Palmer. In Count I, Dr. Abramowitz incorporated his state court complaint and specifically sought judgment against both defendants for fraud. Dr. Abramowitz also sought a declaration that the debt underlying any judgment he was awarded was nondischargeable pursuant to 11 U.S.C. §§ 523(a)(2), (4), and (6) and requested that any assets purchased with proceeds from the sale of the dental practice be considered held in constructive trust for him. The bankruptcy court dismissed with prejudice Counts II, III, and IV, which included allegations of fraud and conspiracy and a request for punitive damages. No party appeals the dismissal of these three counts.

After trial, the bankruptcy court entered judgment against both Dr. and Ms. Palmer on the fraud claim, finding that the debt established by the judgment for the fraud was nondischargeable and that the Palmers held the Missouri home in constructive trust for Dr. Abramowitz. Both of the Palmers appealed the judgment to the district court. Toni Palmer asserted that when the bankruptcy court dismissed Count II of the adversary complaint, which alleged fraud on the part of Ms. Palmer, it dismissed with prejudice the only claim for money damages Dr. Abramowitz asserted against her. Ms. Palmer argued that the bankruptcy court therefore lacked jurisdiction to enter a money judgment against her. Finding that the remaining Count I included both a claim for money damages and a constructive trust, the district court affirmed the bankruptcy court's order.

On appeal to this court, Toni Palmer has abandoned her previous arguments and asserts for the first time only that the bankruptcy court lacked subject matter jurisdiction over the claims against her. Ms. Palmer contends that any claim against her, a non-debtor, by Dr. Abramowitz was a non-core proceeding unrelated to Dr. Palmer's bankruptcy proceedings and, specifically, that the Missouri home was not within the jurisdiction of the bankruptcy court. Ms. Palmer appeals no other finding by the bankruptcy court and Dr. Palmer filed no appeal at all. Thus the sole issue before this court is one of jurisdiction. On appeal, we review the bankruptcy court's findings of facts under the clearly erroneous standard and its conclusions of law de novo. In Re Joseph Herman Hale, 980 F.2d 1176, 1178 (8th Cir.1992) (citations omitted).

II.

We first must determine whether the bankruptcy court had subject matter jurisdiction over the claims brought against Dr. Palmer in the adversary proceeding. If the bankruptcy court lacked jurisdiction over the claims against the debtor, the claims against Toni Palmer would be outside the jurisdiction of the bankruptcy court as well. Dr. Abramowitz's claims against Dr. Palmer, however, amounted to a core proceeding. See 28 U.S.C. § 157(b)(2); see also In re Cassidy Land and Cattle Co., Inc., 836 F.2d 1130, 1132 (8th Cir.) ("The statute does not define core proceedings; however, 28 U.S.C. § 157(b)(2) does provide a nonexclusive list of proceedings designated as 'core'...."), cert. denied, 486 U.S. 1033, 108 S.Ct. 2016, 100 L.Ed.2d 603 (1988). Dr. Abramowitz filed an adversary proceeding specifically to determine the dischargeability of the debt resulting from the sale of the dental practice that Dr. Palmer allegedly owed him. See 28 U.S.C. § 157(b)(2)(I) ("Core proceedings include ... (I) determinations as to the dischargeability of particular debts). In addition, he was able to trace a portion of the money he lost from the sale directly to the down-payment Dr. Palmer gave for the Missouri home. See In re Johnson, 960 F.2d 396, 402 (4th Cir.1992) ("The finding of a constructive trust by the bankruptcy court and a determination of the proper distribution of that trust are intimately tied to the traditional bankruptcy functions and estate, and, therefore, are core matters within the clear jurisdiction of the bankruptcy court."). This adversary proceeding falls squarely within the bankruptcy court's statutory grant of jurisdiction. See 28 U.S.C. § 157(b)(2)(I); 28 U.S.C. § 1334; see also In the Matter of Nelson Grant Hallahan, 936 F.2d 1496, 1504 (7th Cir.1991).

Ms. Palmer asserts, however, that because the bankruptcy trustee failed to object to the exemption of the home from the bankruptcy proceedings the home effectively "fell out" of the estate. We agree. In Taylor v. Freeland & Kronz, --- U.S. ----, 112 S.Ct. 1644, 118 L.Ed.2d 280 (1992), the Supreme Court held that failure to object to a debtor's claim of exemption within the 30-day time limit prescribed by Bankruptcy Rule 4003(b) precludes trustees and creditors from challenging the exemption of that property after the 30 days have expired. In this case, Dr. Palmer claimed the Missouri home as exempt and thus it did not remain part of the bankruptcy estate for distribution as neither the trustee nor any creditor filed an objection. We agree that the trustee is now precluded from including the Missouri home in Dr. Palmer's bankruptcy estate.

Ms. Palmer next argues that if the home is not an asset of Dr. Palmer's bankruptcy estate, any claim regarding the home is outside the bankruptcy court's jurisdiction. We disagree. The jurisdiction of the federal bankruptcy courts is governed by 28 U.S.C. §§ 157 and 1334. Pursuant to this statutory authority, the bankruptcy courts, upon delegation from the district courts, have jurisdiction of all cases filed pursuant to the bankruptcy code as well as "all civil proceedings arising under title 11, or arising in or related to cases under title 11." 28 U.S.C. § 1334; 28 U.S.C. § 157(a) (authorization for district courts to refer to the bankruptcy judges any or all bankruptcy cases and any or all related proceedings). In addition, the bankruptcy court's jurisdiction includes all property of the debtor and of the bankruptcy estate. Specifically, section 1334(d) provides:

The district court in which a case under title 11 is commenced or is pending shall have exclusive jurisdiction of all of the property, wherever located, of the debtor as of the commencement of such case, and of property of the estate.

28 U.S.C. § 1334(d). Dr. Palmer, the debtor, held legal title to the Missouri home at the time he filed for bankruptcy under title 11. The fact that the home was exempt does not divest the bankruptcy court of jurisdiction over it. See In re Jackson, 102 B.R. 82 (Bkrtcy.N.D.Tex.1988) (bankruptcy court has jurisdiction to determine validity of lien on exempt homestead); In re Gibbs, 44 B.R. 475 (Bkrtcy.D.Minn.1984) (same); cf. Merchants & Farmers Bank of Dumas, Ark. v. Hill, 122 B.R. 539, 547 (E.D.Ark.1990) (one of the purposes of § 1334(d) was to establish both in personam and in rem jurisdiction) (citation omitted). We hold that the bankruptcy court had subject matter jurisdiction over the entire adversary proceeding Dr. Abramowitz filed against Dr. Palmer, including the Missouri home. As a result, we must now address whether the bankruptcy court properly exercised subject matter jurisdiction over Toni Palmer.

III.

A. "Related to" Jurisdiction

Civil proceedings in a bankruptcy case are divided into two categories: (1) core proceedings and (2) non-core, related proceedings. The claims brought against Toni Palmer are not core proceedings, see 28 U.S.C. § 157(b)(2); In re Marine Iron & Shipbuilding Co., 104 B.R. 976, 980 (D.Minn.1989) ("In general, a core proceeding is a legal dispute between parties in interest to a bankruptcy case, one of whom is almost always the debtor."), and neither party contends that they are. Therefore, if the bankruptcy court properly exercised subject matter jurisdiction over the claims against Toni Palmer, the basis for that jurisdiction was that the claims were "related to" the...