In re Chase Manhattan Mortg. and Realty Trust
| Decision Date | 30 June 1981 |
| Docket Number | Bankruptcy No. 79-B-278. |
| Parties | In re CHASE MANHATTAN MORTGAGE AND REALTY TRUST, Debtor. Thomas J. HARTIGAN, as Trustee, under that certain trust agreement dated as of May 1, 1980, Plaintiff, v. BLAESER DEVELOPMENT CORPORATION and Riverbend East Development, Inc., Defendants. Thomas J. HARTIGAN, as Trustee, under that certain trust agreement dated as of May 1, 1980, Plaintiff and Third-Party Plaintiff, v. TRITON GROUP, Third-Party Defendant. |
| Court | United States Bankruptcy Courts. Second Circuit. U.S. Bankruptcy Court — Southern District of New York |
Zalkin, Rodin & Goodman, New York City, for Thomas J. Hartigan; Andrew Gottfried, New York City, of counsel.
Gordon, Hurwitz, Butowski, Baker, Weitzen & Shalov, New York City, for defendants; Paul Wexler, New York City, of counsel.
On February 22, 1979, Chase Manhattan Mortgage and Realty Trust (CMART or debtor) filed its petition for the relief afforded by Chapter XI of the now repealed provisions of the 1898 Bankruptcy Act (Act), Sections 301 et seq., 11 U.S.C. (1976 ed.) § 701 et seq.1 In the ordinary course of the unfolding of this Chapter XI estate, this court confirmed the debtor's third amended plan on May 23, 1980.2 The adversary proceeding now before the court, however, was commenced one day before the entry of the order of confirmation, when, upon CMART's consent, this court authorized the commencement of an action by the unofficial creditors' committee of bank creditors in the name of the debtor. See Rule 11-61, 415 U.S. 1067, 94 S.Ct. 3258, 39 L.Ed.2d lii, which makes applicable to this type of proceeding the Part VII Bankruptcy Rules. Rules 701 et seq., 411 U.S. 1068, 93 S.Ct. 3147, 37 L.Ed.2d lxvi et seq.
This subject matter of the first cause of action in the suit thus started is 20 acres of undeveloped land in Florida (Florida property) relative to a proposed condominium project. On the date of the filing of the complaint, Rule 703, title to this Florida property and possession were in CMART. Also involved is a dispute over the management of a contiguous existing condominium project.
The specifics are these: on August 25, 1978, CMART and Riverbend East Development, Inc. (Riverbend)3 entered into a written agreement of sale (sale agreement) whereby Riverbend agreed to purchase 20 acres of land from CMART for $640,000. Paragraph 11 of the agreement made this sale contingent upon Riverbend's obtaining the appropriate government approval for a proposed condominium project on or before January 31, 1978, a time frame extended in writing until October 31, 1979. The required government approval had not been obtained by that date, nor has there been such approval since. Notwithstanding, Riverbend continued to assert rights it said subsisted under this agreement, thereby burdening the property with a cloud on title.
Plaintiff's second claim involves a letter agreement (letter agreement), dated January 19, 1979, between CMART and Blaeser Development Corporation (Blaeser), by which CMART appointed Blaeser as its exclusive agent to sell seven assets owned by CMART in the period of six months from the date of that letter agreement.
Plaintiffs asked for a declaratory judgment that the sale agreement had been terminated as a result of failure to meet certain preconditions and that the letter agreement expired by its own terms.
After initiation of this suit, the debtor's plan was confirmed, an event crucial to this dispute, for, pursuant to Article III(D) of the plan, CMART transferred all its right, title and interest in the agreement and in the letter agreement to a liquidating trust for the benefit of bank creditors. Simply stated, CMART relinquished to a third party, a stranger to this Chapter XI case, all its interest in those assets forming the subject matter of this adversary proceeding. To conform to this change, this court, on June 17, 1980, granted a motion made by CMART and Thomas Hartigan, trustee under a trust agreement, dated May 1, 1980, to substitute the latter for CMART as plaintiff herein. Hartigan then served an amended complaint. Defendants answered the amended complaint, denied the main allegations, asserted a counterclaim in quantum meruit and raised affirmative defenses, including lack of subject matter jurisdiction, oral waiver and estoppel. Hartigan replied, denied the allegations of the counterclaim, and crossclaimed against CMART (now known as The Triton Group) which denies all liability.
Defendant then brought on the present motion for an order, pursuant to Rules 712(b), 411 U.S. 1074, 93 S.Ct. 3151, 37 L.Ed.2d lxviii (1973), and 915, 411 U.S. 1098, 93 S.Ct. 3170, 37 L.Ed.2d lxxix (1973), of the Bankruptcy Rules, dismissing this adversary proceeding for want of subject matter jurisdiction.
The issue thus raised by this motion is whether a bankruptcy court which undeniably possesses subject matter jurisdiction over the controversy raised in an adversary proceeding at its commencement may lose this power upon the assignment of title to the subject property and contract rights pursuant to the terms of the debtor's later confirmed Chapter XI plan. The court starts with a brief revisit to the fundamentals of bankruptcy jurisdiction under the 1898 Act.
Bankruptcy jurisdiction under the Act was a fluid concept, not capable of precise definition.4 It was clear that the bankruptcy court was empowered with only limited jurisdiction and the power it exercised must have been found expressly or implicitly in the provisions of the Bankruptcy Act. O'Dell v. United States, 326 F.2d 451, 455 (10th Cir. 1964).
This power was not coextensive with the powers of a United States District Court endowed with a more robust general jurisdiction.
"The power conferred upon courts of bankruptcy by the Bankruptcy Act does not make them courts of general jurisdiction to hear and determine controversies not properly part of a bankruptcy proceeding".
Associated Electronic Supply Co. of Omaha v. C.B.S. Electronic Sales Corp., 288 F.2d 683 (8th Cir. 1961). And, although Congress had not rigidly delineated the boundaries of bankruptcy jurisdiction, a course leading to many troublesome and difficult questions as to the length and breadth of this power, the facts of the instant controversy surely fall within the more generally accepted principles fixing the reach of the bankruptcy court's jurisdiction. See, In re Eastern Freightways, Inc.; Gluck v. Seaboard Surety, 577 F.2d 175 (2d Cir. 1978), for an example of the difficulties inherent in determining that jurisdiction. Section 311 of the Act, 11 U.S.C. (1976 ed.) § 711,5 endowed the Bankruptcy Court in a Chapter XI case with subject matter jurisdiction over the debtor and its property, wherever located. Basically, jurisdiction was said to depend upon the Chapter XI debtor's title or possession. Slenderella Systems of Berkeley, Inc. v. Pacific Telephone & Telegraph Co., 286 F.2d 488, 491 (2d Cir. 1960).
This controversy simply does not satisfy these criteria, as it has become a dispute between strangers to this Chapter XI debtor's bankruptcy. It seems clear that neither the debtor nor its property are involved. Extensive discussion is not needed for, on the facts, this dispute is within the general rule that a bankruptcy court lacks subject matter jurisdiction over a controversy solely and exclusively between third parties not involving, directly or indirectly, the debtor or its property. First State Bank and Trust Company of Guthrie, Oklahoma v. Sand Springs State Bank of Sand Springs, Oklahoma, 528 F.2d 350 (10th Cir. 1976).
At this juncture, the dispute may be characterized as a private controversy not relating to matters pertaining to CMART's Chapter XI case. Plaintiff is the assignee of CMART's interest in two contracts relating to a planned condominium project in Florida. Pursuant to CMART's confirmed plan, title to the Florida property was transferred from CMART to plaintiff. To be sure, CMART at one time did have an interest in the subject matter of this adversary proceeding. But that interest was relinquished in accordance with the provisions of the plan. Now, therefore, the subject matter of this adversary proceeding is neither an asset of this estate, nor does resolution of the dispute have any impact on the tidying up of loose ends which might affect the administration of the Chapter XI case. There can be no dispute that both plaintiff and defendant are strangers to this proceeding and this court without the power to determine a controversy between third parties not involving property of the debtor.
Nor do these facts provide the only exception to this general rule, i.e., unless the dispute is resolved, this court could not complete its administrative duties. In re Shirley Duke Associates, 611 F.2d 15 (2d Cir. 1979); First State Bank and Trust Co., supra; O'Dell v. United States, supra. Plaintiff does not even suggest that this court must rule lest it fail in its duty to oversee the final administrative detail in this Chapter XI case.
This court acknowledges that plaintiff is attempting to construct a theory of jurisdiction based on cases relating to substitution of parties. See Rule 725, 411 U.S. 1078, 93 S.Ct. 3155, 37 L.Ed.2d lxx (1973), which makes applicable F.R.Civ.P. 25, and general principles of federal jurisdiction. This...
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