Caledonia Springs, Inc. v. LLP (In re Watson)
| Decision Date | 15 June 2016 |
| Docket Number | Civil Action No. 3:2011-0058,Bankruptcy No. 2009-10002,Civil Action No. 3:2011-0012,Bankruptcy No. 2009-10003 |
| Court | U.S. District Court — Virgin Islands |
| Parties | In re: Curneall Watson & Leona Watson, Debtor. In re: Caledonia Springs, Inc., Debtor. CURNEALL WATSON and LEONA BRADY WATSON, Plaintiffs/Appellants, v. LLP MORTGAGE, LTD., Defendant/Appellee. UNITED STATES OF AMERICA, Intervenor. |
Attorneys:
Martial A. Webster, Esq.,
St. Croix, U.S.V.I.
For Appellants
Warren B. Cole, Esq.,
St. Croix, U.S.V.I.
For Appellee LLP Mortgage, Ltd.
Cathy Tran Moses, Esq.,
Washington, D.C.
Angela Tyson-Floyd, Esq.,
St. Croix, U.S.V.I.
For Intervenor United States of America
THIS MATTER comes before the Court on the appeals of Plaintiffs/Appellants Curneall Watson and Leona Brady Watson (collectively, "the Watsons") from three orders entered in jointly administered Chapter 7 bankruptcy proceedings by the Bankruptcy Division of the District Court of the Virgin Islands ("Bankruptcy Court"). The first Order, dated October 8, 2010, approved the procedures for the bankruptcy trustee's sale at auction of real property belonging to the estates of Debtors Curneall Watson, Leona Brady Watson, and Caledonia Springs, Inc. ("Debtors"). The second Order, dated January 6, 2011, confirmed the sale of the property to Defendant/Appellee LLP Mortgage, Ltd. ("LPP Mortgage"). The third Order, dated May 12, 2011, directed the Watsons to vacate the property and provided that LPP Mortgage could have all writs necessary to evict them. For the reasons discussed below, the Court will affirm the rulings of the Bankruptcy Court.
The instant appeals represent the latest stage in the litigation between the Debtors and LPP Mortgage, dating from 2002, when LPP Mortgage sued the Debtors seeking a judgment for amounts due on a series of loan transactions, and foreclosure against the properties securing those loans. (See 02-cv-0172, Dkt. No. 1; Dkt. No. 132 at 1-2). LPP Mortgage obtained a judgment against the Debtors on November 6, 2007. (02-cv-0172, Dkt. No. 133 at 5-13). A Marshal's Sale of the properties was scheduled for April 13, 2009. (02-cv-0172, Dkt. No. 182, Ex. 1 at 3).
On April 8, 2009, five days before the Marshal's Sale, the Watsons filed for Chapter 13 bankruptcy protection. (09-bk-10002, Dkt. No. 1). Caledonia Springs, Inc., filed for Chapter 11 reorganization protection on April 9, 2009. (09-bk-10003, Dkt. No. 1). As a result of thebankruptcy filings, LPP Mortgage's debt and foreclosure action was automatically stayed. 11 U.S.C. § 362(a); (02-cv-0172, Dkt. No. 181). Ultimately, both bankruptcy cases were converted to Chapter 7 liquidation proceedings (09-bk-10002, Dkt. No. 35; 09-bk-10003, Dkt. No. 25) and, on November 12, 2009, the Bankruptcy Court ordered them to be jointly administered under docket number 09-bk-10003. (09-bk-10002, Dkt. No. 36; 09-bk-10003, Dkt. No. 24).1
In June 2010, the Chapter 7 Trustee moved for an order authorizing the sale of the Debtors' assets. (Dkt. No. 35). On October 8, 2010, the Bankruptcy Court granted the motion and issued an "Order: (I) Authorizing Procedures for Sales of the Debtors' Assets; and (II) Approving Form of Notice of Sales of Assets Pursuant to 11 U.S.C. 105 and 363, Fed. Bankr. P. 6004 and LBR 6004-1" (the "Approval Order"), setting forth the procedures for the sale at auction of all real property of the combined bankruptcy estates. (Dkt. No. 53). The auction was held on December 2, 2010 and, according to the Trustee's Report of Sale filed on December 6, 2010, all four auctioned properties were purchased by LPP Mortgage via cash and credit bids, including Plots 101 and 106 of Estate Grove Place ("the Property") on St. Croix, U.S. Virgin Islands. (Dkt. No. 62). The Bankruptcy Court confirmed the sale on January 6, 2011 in an "Order of Confirmation of Trustee's Sale" ("Sale Order"). (Dkt. No. 73). The Watsons filed an appeal of the Sale Order on January 14, 2011 (Dkt. No. 74), docketed as Case Number 11-cv-0012 in the District Court.2
Pursuant to the sale, the Trustee issued a deed to the Property on January 12, 2011, which was recorded on March 29, 2011. (09-bk-10002, Dkt. No. 109-3). When the Watsons refused torelinquish possession of the Property (see id., Dkt. No. 109-4), LPP Mortgage moved for an Order of Restitution and Issuance of Writ of Restitution, seeking an Order directing the Watsons to vacate the Property, and any writs necessary to effectuate that relief. (Dkt. No. 109). Following a hearing on May 12, 2011 (Dkt. No. 115), the Bankruptcy Court granted LPP Mortgage's motion that same day and entered an "Order of Restitution and Order for Issuance of Writs" ("Restitution Order"). (Dkt. No. 116). The Watsons appealed the Restitution Order on May 20, 2011. (11-cv-0058, Dkt. No. 1; Dkt. No. 117).3
The Watsons and LPP Mortgage filed their respective briefs in the appeal of the Sale Order on May 3 and 24, 2011. (11-cv-0012, Dkt. Nos. 31, 33). The parties filed their respective briefs in the appeal of the Restitution Order on July 5 and 11, 2011. (11-cv-0058, Dkt. Nos. 9, 10). On July 25 and 26, 2011, the United States of America moved to intervene in the appeals to address the constitutional challenges made by the Watsons to portions of the Bankruptcy Code. (11-cv-0058, Dkt. Nos. 14, 16). Following a status conference on July 29, 2011, the Court consolidated the two appeals, granted the United States' motion to intervene, and accepted the United States' brief. (11-cv-0058, Dkt. Nos. 18, 20); (see 11-cv-0058, Dkt. No. 17-1) (Brief by the United States of America as Intervenor).4
Some of the issues raised by the Watsons concern the Bankruptcy Court's and this Court's jurisdiction over the case below and this appeal, respectively. "'[I]t is familiar law that a federal court always has jurisdiction to determine its own jurisdiction.'" White-Squire v. U.S. Postal Service, 592 F.3d 453, 456 (3d Cir. 2010) (quoting United States v. Ruiz, 536 U.S. 622, 628 (2002)); VeraSun Energy Corp. v. West Plains Co. (In re VeraSun Energy Corp.), 2013 WL 3336870, at *2 (D. Del. June 28, 2013) (citing 28 U.S.C. §§ 157(a) and 1334(b)); Chicot Cnty. Drainage Dist. v. Baxter State Bank, 308 U.S. 371, 376-77 (1940).
As discussed below, the District Court of the Virgin Islands has jurisdiction to review the Orders of its Bankruptcy Division pursuant to 18 U.S.C. § 158(a). When a district court sits as an appellate court in a bankruptcy matter, it reviews the bankruptcy court's legal determinations de novo, its factual findings for clear error, and its exercise of discretion for abuse thereof. See Official Comm. of Unsecured Creditors v. CIT Group/Business Credit Inc. (In re Jevic Holding Corp.), 787 F.3d 173, 179 (3d Cir. 2015); Carroll v. Klingerman (In re Prosser), 2013 WL 5422881, at *2 (D.V.I. Sept. 27, 2013) () (internal quotation and citation omitted).
On appeal, the Watsons have raised numerous overlapping constitutional, jurisdictional, and statutory issues by way of nine identical arguments raised in both briefs which generally question whether the Bankruptcy Court was permitted to enter the Orders at issue, and whether theDistrict Court of the Virgin Islands has jurisdiction to review these appeals.5 The Watsons also make several jurisdictional and merits-based arguments specific to the Bankruptcy Court's October 8, 2010 Approval Order, the January 6, 2011 Sale Order, and the May 12, 2011 Restitution Order.6
LPP Mortgage's counter-statement of the issues reframes the Watsons' arguments; narrows the constitutional, jurisdictional, and statutory issues to three, and addresses some additionalissues.7 The United States, as Intervenor, focuses on the constitutional and jurisdictional issues raised by the Watsons.8
The Watsons' overarching contention is that the Bankruptcy Court lacked jurisdiction to issue the two Orders because allowing a non-Article III judge to issue Orders in a bankruptcy case violated their constitutional right to have an Article III judge decide their case, and because orders issued by a Bankruptcy Judge in the Virgin Islands are void due to lack of legal authority for such a Judge to sit there.
1. Whether the Watsons and Caledonia Springs, Inc. Are Entitled to the Adjudication of Their Bankruptcy Proceedings by an Article III Court
Because the Watsons' arguments implicate the constitutionality of the entire bankruptcy system—which involves, in this case, the interplay between Articles I, III, and IV of the U.S. Constitution—as well as the constitutionality and jurisdictional authority of Bankruptcy Judges inthe Virgin Islands and their authority to issue certain orders, it is necessary to provide an overview of the bankruptcy structure and recent developments in bankruptcy jurisdiction as articulated by the Supreme Court in Stern v. Marshall, 564 U.S. 462 (2011).
Federal bankruptcy jurisdiction is set forth in 28 U.S.C. § 1334. Section 1334(b) confers upon district courts "original and exclusive jurisdiction of all cases under title 11," and "original but not exclusive jurisdiction of all civil proceedings arising under title 11, or arising in or related to cases under title 11." 28 U.S.C. § 1334(b). The Third Circuit has parsed the statute as follows:
Bankruptcy jurisdiction extends to four types of proceedings: (1) cases "under" title 11, that is, the bankruptcy petition; (2) proceedings "arising under title 11"; (3) proceedings "arising in" a bankruptcy case; and (4) proceedings "related to" a case under title 11. 28 U.S.C. § 1334(b); In re Combustion Eng'g, Inc., 391 F.3d 190, 225 (3d Cir. 2005). The first three categories are "core" proceedings in which the bankruptcy court has power to hear, decide, and enter...
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