Bass, In re
| Decision Date | 15 April 1999 |
| Docket Number | No. 2,No. 98-10213,2,98-10213 |
| Citation | 171 F.3d 1016 |
| Parties | In the Matter of R. Daniel BASS, Jr., Debtor. Richard D. Bass; Harry W. Bass, Jr.; Harry M. Whittington; Fred R. Deaton, Jr., Trustee, on Behalf of Richard D. Bass Trust; Corporate & Trustee Services, Inc., Appellants, v. George Denney; Joyce Denney, Appellees. |
| Court | U.S. Court of Appeals — Fifth Circuit |
Peter James Riley, Thompson & Knight, Dallas, TX, for Debtor and Appellants.
James R. Prince, Thompson & Knight, Dallas, TX, for Appellants.
Steven W. Call, Ray Quinney & Nebeker, Salt Lake City, UT, Robert G. Richardson, Jackson & Walker, Dallas, TX, for Appellees.
Appeal from the United States District Court for the Northern District of Texas.
Before HIGGINBOTHAM, JONES * and WIENER, Circuit Judges.
This appeal arises from the efforts of Appellees George and Joyce Denney ("the Denneys") to collect an agreed non-dischargeable judgment that they obtained against R. Daniel Bass, Jr. ("the Debtor") in his Chapter 7 bankruptcy proceedings in Utah. After the Debtor's Utah bankruptcy proceeding was completed, the Denneys filed the instant garnishment and injunction suit against the Appellants (collectively, "the Trustees") in the Bankruptcy Court for the Northern District of Texas, where the Denneys had registered their Utah judgment. The Trustees ask us to vacate a mandatory injunction entered against them by the Bankruptcy Court in Texas which commands the Trustees henceforth to furnish the Denneys and their counsel written and oral notice 72 hours in advance of each intended discretionary distribution to the Debtor, who is the primary beneficiary of the Trust. The Trustees attack that ruling on two fronts: (1) The bankruptcy court in Texas does not have jurisdiction to enforce collection of the subject judgment; and (2) the injunction is invalid as a matter of law. Agreeing with both contentions, we reverse the bankruptcy court and render judgment in favor of the Trustees, vacating the injunction.
In the 1950s, the Debtor's grandparents ("Settlors") created several irrevocable, fully discretionary "spendthrift trusts" pursuant to Texas law, one for the primary benefit of each of their grandchildren. One of those trusts ("the Trust") was created for the primary benefit of the Debtor. Decades later, the Denneys made loans on the strength of the Debtor's guaranty, which loans were never repaid. Financial representations made by the Debtor at the time of his guaranties proved to have been materially false and misleading.
In 1992, the Debtor filed a voluntary petition in bankruptcy in the District of Utah, seeking protection under Chapter 7 of the United States Bankruptcy Code. 1 The Denneys initiated an adversary proceeding seeking to recover the amounts owed by the Debtor and to have these obligations excepted from discharge pursuant to § 523 of the Code. 2 The Trustees were never parties to the Utah bankruptcy proceedings.
The Denneys eventually obtained a stipulated non-dischargeable judgment against the Debtor in the principal amount of $734,096.60. Their collection efforts proved fruitless, demonstrating that the Debtor was difficult to find. So, when they learned that the Debtor had been receiving approximately $300,000.00 in distributions from the Trust each year, the Denneys sought to obtain satisfaction of their judgment from the Debtor's interest in the Trust. They set the stage for this effort when, in October, 1995, they "registered" an authenticated copy of their judgment with the Bankruptcy Court for the Northern District of Texas "pursuant to 28 U.S.C. § 1738." 3 After the Debtor's bankruptcy case in Utah was completed in early 1996, the Denneys filed suit against the Trustees in the bankruptcy court serving the Greater Dallas area where one or more of the Trustees are domiciled. Aware that, in Smith v. Moody (In re Moody), 4 we had affirmed a ruling of the Bankruptcy Court for the Southern District of Texas that imposed a 72-hour notice requirement on the trustee of a spendthrift trust of which the debtor in that proceeding was the beneficiary, the Denneys sought such an injunction against the Trustees in the bankruptcy court in Dallas.
Initially, the bankruptcy court granted the Trustees' motion to dismiss the Denneys' adversary proceeding in which they sought such a court-ordered advance notice from the Trustees. 5 On appeal, however, the district court reversed--largely in reliance on its reading of our opinion in Moody and § 105 of the Code--and remanded the matter to the bankruptcy court for a hearing on the Denneys' requested injunction.
On remand, the bankruptcy court obediently followed the legal conclusions of the district court and ordered the Trustees to furnish the Denneys and their counsel "at least 72 hours prior written and oral notice of any distribution to be made to or for the benefit of" the Debtor from income, principal, or other assets of the Trust. This mandatory injunction specified that such notice must include the date and time of any intended distribution, the method, the name and address of the person or entities to receive the distribution, including account numbers in financial institutions, as well as the "source of instructions authorizing distributions if other than those contained in" the Trust, and, of course, the amount of the intended distribution. The bankruptcy court did not, however, require the Denneys to meet this court's usual prerequisites for obtaining a mandatory injunction.
The second time around it was the Trustees who appealed the bankruptcy court's decision to the district court. Inasmuch as, on remand, the bankruptcy court had simply applied the district court's interpretation of the law to the largely uncontested facts of the case, the district court affirmed the bankruptcy court on that subsequent appeal. Both the bankruptcy court and the district court continued to rely largely on Moody and § 105, plus the district court's perception that the bankruptcy court has "inherent" jurisdiction to enforce such a judgment. The Trustees timely filed a notice of appeal to this court.
Federal courts must be assured of their subject matter jurisdiction at all times and may question it sua sponte at any stage of judicial proceedings. 6 The holding of a bankruptcy court (or a district court hearing an appeal from the bankruptcy court) that it has jurisdiction is a legal determination which we review de novo. 7 More generally, we review appeals from rulings and decisions of the bankruptcy court under the same standards employed by the district court when it hears an appeal from bankruptcy court. 8 Thus, we review the bankruptcy court's conclusions of law de novo and its findings of fact for clear error. 9 Mixed questions of fact and law, and questions concerning the application of law to the facts, are reviewed de novo. 10
In response to the Trustees' challenge to the jurisdiction of the bankruptcy court in Texas to aid in the collection of the judgment obtained by the Denneys in the bankruptcy proceedings in Utah, the Denneys have advanced no less than five theories for sustaining such jurisdiction. We consider those contentions seriatim.
All federal courts are courts of limited jurisdiction which, for the most part, derives from statutory grants of the Congress. A bankruptcy court's jurisdiction is even more circumscribed and is wholly "grounded in and limited by statute." 11 Specifically, 28 U.S.C. § 1334(b) grants jurisdiction to district courts and adjunct bankruptcy courts to entertain proceedings "arising under," "arising in a case under," or "related to" a case under Title 11 of the United States Code, i.e., proceedings "related to" bankruptcy. To determine whether such jurisdiction exists, " 'it is necessary only to determine whether a matter is at least "related to" the bankruptcy.' " 12 In each instance of challenged bankruptcy court jurisdiction, then, the result turns on how broad or how narrow "related to" should be construed under the circumstances.
A proceeding is "related to" a bankruptcy if " 'the outcome of that proceeding could conceivably have any effect on the estate being administered in bankruptcy.' " 13 More specifically, " '[a]n action is related to bankruptcy if the outcome could alter the debtor's rights, liabilities, options, or freedom of action (either positively or negatively) and ... in any way impacts upon the handling and administration of the bankruptcy estate.' " 14 This test is obviously conjunctive: For jurisdiction to attach, the anticipated outcome of the action must both (1) alter the rights, obligations, and choices of action of the debtor, and (2) have an effect on the administration of the estate.
The injunction sought by the Denneys doubtlessly passes the first prong of that test: By assisting the Denneys in their efforts to intercept discretionary distributions from the Trust, the advance notice mandated by the injunction would deprive the Debtor of those funds and constrain his ability to spend them. The second prong, however, is problematical. Although the injunction would have an impact on the Debtor, it could not have any effect whatsoever on his estate in bankruptcy or its administration. First and foremost, such an estate no longer exists. The Utah bankruptcy proceedings were closed before the Denneys ever filed suit against the Trustees in the Bankruptcy Court in Texas. So, from the beginning of this litigation, there has been no bankruptcy estate to affect. "To fall within the court's jurisdiction, the plaintiffs' claims must affect the estate, not just the debtor." 15 The fact that the judgment was entered by the Bankruptcy Court in Utah rather than another court is irrelevant for purposes of "related to" jurisdiction.
"Related to" is a term of art in bankruptcy jurisdiction,...
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