Bank United v. Manley

• Decision Date: 29 November 2001
• Docket Number: No. CV-00-N-2149-W.,No. CV-00-N-2141-W.,No. CV-00-N-2150-W.,No. CV-00-N-2151-W.,CV-00-N-2141-W.,CV-00-N-2149-W.,CV-00-N-2150-W.,CV-00-N-2151-W.
• Citation: 273 B.R. 229
• Parties: BANK UNITED, Appellant, v. Jessie M. MANLEY, Appellee. Fleet Mortgage Group, Inc., Appellant, v. Johnny T. Little, Appellee. Mary E. Morrow, Appellant, v. Countrywide Home Loans, Inc., Appellee. GE Capital Mortgage Services, Inc., Appellant, v. Wilburn B. Hager, et al., Appellee
• Court: U.S. District Court — Northern District of Alabama

Page 229

273 B.R. 229

BANK UNITED, Appellant, v. Jessie M. MANLEY, Appellee.

Fleet Mortgage Group, Inc., Appellant, v. Johnny T. Little, Appellee.

Mary E. Morrow, Appellant, v. Countrywide Home Loans, Inc., Appellee.

GE Capital Mortgage Services, Inc., Appellant, v. Wilburn B. Hager, et al., Appellee

No. CV-00-N-2141-W.

No. CV-00-N-2149-W.

No. CV-00-N-2150-W.

No. CV-00-N-2151-W.

United States District Court, N.D. Alabama, Western Division.

November 29, 2001.

Jeffrey J. Hartley, Helmsing, Leach, Herlong, Mewman & Rouse, PC, Mobile, AL, Robert J. Prattle, Briggs & Morgan, Minneapolis, MN, Alan Hall Maclin, Mark G. Schroeder, Briggs & Morgan, PA, St. Paul, MN, for Bank United.

Donald J. Stewart, Cabaniss, Johnston, Gardner, Dumas & O'Neal, Mobile, AL, Steven L. Nicholas, Stephen C. Olen, Olen & Nicholas, PC, Mobile, AL, for Jessie M. Manley.

C. David Cottingham, Tuscaloosa, AL, Chapter 13 Standing Trustee.

Memorandum of Opinion

EDWIN L. NELSON, District Judge.

1. Introduction and Background

The court has for consideration the consolidated appeals of four creditor-parties to separate adversary proceedings in bankruptcy. The appeals present the common question of whether a bankruptcy court has the authority to exercise subject matter jurisdiction over a debtor class action alleging violations of the Bankruptcy Code by a creditor in its proof of claim.¹

On 19 March 1999 the appellee Jessie M. Manley ("appellee") petitioned for Chapter 13 bankruptcy and scheduled appellant Bank United ("appellant") as a creditor holding a mortgage on her home with an arrearage of $586.47. See Mem. of Dec., 30 June 2000, at 1-2 (Stilson, B.J.). Concurrently with the petition, appellee filed a Chapter 13 plan in which she proposed to pay the appellant a stipulated amount over a period of 36 months, and pay current mortgage payments directly to the appellant. See id. at 1-2. This plan was confirmed by order on 3 May 1999 without objection from the appellant, and directed appellee to commence payment on the arrears upon the appellant's filing of a properly perfected proof of claim. See id. at 2. On 28 June 1999, the appellant filed a secured prepetition claim in the amount of $902.76. The claim described $563.91 as arrearage on debt; and $338.85 as bankruptcy attorneys fees, uncollected late charges, and other charges. See id.

Appellee filed her adversary proceeding the very next day. She appeared on behalf of herself and a class of persons similarly situated, and averred said fees as violating several provisions of the Bankruptcy Code and its related rules. Specifically, she contended that the fees (1) were unreasonable, unauthorized and prohibited by the Code; (2) required bankruptcy court approval, of which there was none; (3) violated the automatic stay provision of the Code; and (4) violated the Code and the Federal Rules of Bankruptcy Procedure generally. See id. at 3. Appellant moved pursuant to Federal Rule of Civil Procedure 12(b) to dismiss each of the counts in the complaint as to appellee individually and as to the putative class. As grounds for the dismissal of the putative class action, the appellant argued both the absence of subject matter jurisdiction over the claims as well as the inadequacy of appellee as class representative. See id. at 4-5. The bankruptcy court denied this motion. See id. at 31.²

In finding subject matter jurisdiction over the putative class action, the bankruptcy court held that the putative class claims were core bankruptcy proceedings arising under the Bankruptcy Code. See id. at 23-26, 31; see also 28 U.S.C. §§ 157(b), 1334(b). The putative class claims invoked "a cause of action or right or duty specifically created by the Bankruptcy Code," specifically 11 U.S.C. §§ 506(b)³ and 362,⁴ as well as Federal Rule of Bankruptcy Procedure 7065.⁵ See Mem. of Dec., at 3, 23, 25. The bankruptcy court rejected the idea that the putative class claims needed to impact the underlying bankruptcy estate for jurisdiction to exist. The court found this requirement relevant only in the context of a bankruptcy court's "related to" jurisdiction. For core proceedings arising under the code, like the putative class claims, the test was "irrelevant." Id. at 27.

The court also rejected the argument that the jurisdictional provision of the bankruptcy statutes designating a "home court" precluded the maintenance of a class action such as the appellee's. See 28 U.S.C. § 1334(e).⁶ The court acknowledged that § 1334(e) provided "home courts" with exclusive jurisdiction over the estate property of a debtor. See Mem. of Dec., at 28. Nevertheless, the court construed the jurisdictional limitation as applying only when a claim has been resolved and "judgment converts the disputed claim into a finite unit of estate property ...." Id. at 30. Until then, jurisdiction is shared among the bankruptcy courts, and certain claims — the disposition of which affects issues of liability — can be heard by bankruptcy courts other than the home court. See id. at 28-29.⁷

The appellant subsequently sought leave to appeal this decision, and on 11 November 2000 it was granted appropriate relief by this court. See Doc. # 1, 6 (Guin, J.).⁸ The issue underlying appellant's claim for interlocutory relief is whether the bankruptcy court erred in asserting subject matter jurisdiction over the putative class action. The parties have submitted briefs, and oral argument took place on 14 November 2001. The issue is thus ripe for decision.

2. Standard

The appellate jurisdiction of the district courts extends to decisions of the bankruptcy courts, including the one now pending before this court. See 28 U.S.C. 158(a)(3); see also Ohio Cas. Group of Ins. Cos. v. Professional Ins. Mgmt. (In re Professional Ins. Mgmt.), 130 F.3d 1122, 1125 (3d Cir.1997); Green Tree Acceptance, Inc. v. Calvert (In re Calvert), 907 F.2d 1069, 1071 (11th Cir.1990). Factual findings of the bankruptcy court are properly reviewed by this court under the clearly erroneous standard. See In re Professional Ins. Mgmt., supra, see also Fed. R. Bankr.P. 8013; Bush v. Balfour Beatty Bahamas, Ltd. (In re Bush), 62 F.3d 1319, 1322 (11th Cir.1995). Conclusions of law, however, are reviewed de novo. See In re Professional Ins. Mgmt., supra; Meehan v. Wallace (In re Meehan), 102 F.3d 1209, 1210 (11th Cir.1997).

3. Discussion

A. The Arguments of the Parties

The appellant challenges the decision of the bankruptcy court on several fronts.⁹ Its most legally grounded argument avers error on the part of the bankruptcy court for failing to follow Eleventh Circuit precedent and require a jurisdictional "nexus" between the putative class action claims and appellee's bankruptcy estate. See Appellant Br. at 7-19. Appellant also offers a facially compelling argument sounding in both law and policy. This argument essentially maintains that the holding of the bankruptcy court improperly divests other home bankruptcy courts of their "exclusive jurisdiction" over the property and estates of the absent class members, as that jurisdiction is envisioned by the relevant statutory scheme and particularly the 28 U.S.C. § 1334(e). See id. at 20-24.

Rather than responding point by point to appellant's arguments, the appellee proffers her restatement of bankruptcy law, all at once attempting to rebut the defendant's positions while shoring up the decision now on appeal. She first draws the court's attention to the differences between the jurisdictional power granted to the district courts as opposed to the bankruptcy courts. See Appellee Br. at 3-6; see also 28 U.S.C. §§ 157 & 1334. Where the former is a true grant of subject matter jurisdiction, the latter is characterized as one of referral jurisdiction. See Appellee Br. at 4; see also U.S. v. ILCO, Inc., 48 B.R. 1016, 1020 (N.D.Ala.1985); N.D. Ala. R. Bankr.P. 1001-1 & App. A. The relevance of this distinction appears to be the following: if the district courts have jurisdiction over the bankruptcy case or proceeding, they can refer it to the bankruptcy courts. See Appellee Br. at 4-6. The appellee is somewhat unwilling to wed herself to this position though, for she claims that the bankruptcy courts are independently authorized by statute to adjudicate these class actions, because they are core proceedings arising under title 11. See id. at 5.

The appellee also directs the court to the venue and referral statutes applicable in bankruptcy cases. See id. at 6-8; see also 28 U.S.C. §§ 1408-1410, 1412, 1452. She contends that these statutes empower district courts with both procedural and substantive powers that necessarily render the district courts' bankruptcy jurisdiction plenary. See Appellee Br. at 7. The relevance of this plenary district court jurisdiction, according to appellant, is twofold. First, by the derivative reference of § 157, the bankruptcy courts are equally empowered with such plenary jurisdiction. Second, the plenary scheme envisioned by the referenced venue and removal statutes renders appellant's home court, exclusivity argument, an impossibility. See id. at 7-8.

B. An Overview of Bankruptcy Court Jurisdiction

The jurisdiction of the bankruptcy courts is not unlike the jurisdiction of the district courts, in that both are controlled by statute. See Celotex Corp. v. Edwards, 514 U.S. 300, 307, 115 S.Ct. 1493, 131 L.Ed.2d 403 (1995). The means by which these statutes control jurisdiction differs greatly between the adjudicative bodies though, as the jurisdiction of the bankruptcy courts is a derivative of the jurisdiction of the district courts. The jurisdictional statutes empower the district courts with original and exclusive jurisdiction of all cases under title 11 of the United States Code (the Bankruptcy Code); and original, but not exclusive, jurisdiction of all civil proceedings arising under title 11, all civil proceedings arising in cases under title 11, and all civil proceedings related to cases under title 11. Se...