In re Coral Petroleum, Inc.

Decision Date01 August 1986
Docket Number83-1754-H3.,Adv. No. 83-2302-H1,Bankruptcy No. 83-02460-H2-5
Citation62 BR 699
PartiesIn re CORAL PETROLEUM, INC., Debtor. TOTAL PETROLEUM, INC., Plaintiff, v. CORAL PETROLEUM, INC., United Refining, Inc., Kiantone Pipeline Corporation and Lakehead Pipeline, Inc., Defendants.
CourtU.S. Bankruptcy Court — Southern District of Texas

Steven Zager, Fulbright & Jaworski, Houston, Tex., for Total Petroleum, Inc.

Laura Steinberg, Sullivan & Worcester, Boston, Mass., for Lakehead Pipeline, Inc.

James T. McCartt, Susman, Godfrey & McGowan, Houston, Tex., for Lakehead Pipeline, Inc.

Memorandum Opinion

R.F. WHELESS, Jr., Bankruptcy Judge.

FACTS

This action was commenced in the United States District Court for the Western District of Pennsylvania on May 20, 1983 by a complaint for an injunction to restrain Kiantone Pipeline Corporation (Kiantone) from making delivery, and to restrain United Refining, Inc. (United) from accepting delivery, of certain shipments of oil which United had purchased from Coral Petroleum, Inc. (Coral). The oil had previously been purchased from the plaintiff, Total Petroleum, Inc. (Total). Jurisdiction over the three original defendants, Coral, United, and Kiantone, was premised on diversity of citizenship.

During the relevant time period, Coral was the direct parent of United, which was the direct or indirect parent of United Refining Co. and Kiantone. On June 2, 1983, Coral filed a voluntary petition under Chapter 11 of title 11 in this Court. United Refining Co. and its subsidiaries, Kiantone and United Refining Co. of Pennsylvania, filed petitions for reorganization in this Court on September 16, 1983.

On June 3, 1983, Total filed an amended complaint seeking possession of oil or, in the alternative, payment therefore. The action was subsequently removed to the Bankruptcy Court for the Western District of Pennsylvania, on motion of Coral, United, and Kiantone. On further motion of Coral, United, and Kiantone, the case was thereafter transferred to the Houston Bankruptcy Court by Order dated September 23, 1983. Lakehead Pipeline, Inc. (Lakehead) was added as a party defendant in February 1984.

The Second Amended Complaint alleges that plaintiff sold oil to Coral, on credit, in reliance upon a letter issued by Coral which misrepresented Coral's financial condition as being solvent. Certain deliveries of the oil were allegedly placed in the Lakehead or Kiantone pipelines. Upon learning of Coral's insolvency, plaintiff allegedly issued a stop delivery notice to all defendants, including Lakehead, pursuant to the Uniform Commercial Code. It is alleged that this notice was ignored by defendants. Lakehead allegedly predelivered oil to United and diverted or retained other deliveries of oil. Under the Uniform Commercial Code, plaintiff alleges a right to recover either the oil or its value from defendants.

Plaintiff's claims were subsequently settled with all defendants except Lakehead. An Order of Partial Non-Suit was signed on March 13, 1986. 60 B.R. 377. Lakehead is presently moving to dismiss the plaintiff's remaining claims on the ground that the bankruptcy court lacks subject matter jurisdiction to hear the remainder of the case.

In support of its motion to dismiss, Lakehead asserts that neither of the remaining parties is a debtor in a pending bankruptcy case and that a judgment would not affect property of the estate. According to Lakehead, plaintiff's remaining claims are state law claims which are unrelated to the bankruptcy proceeding and thus beyond this Court's jurisdiction. Total responds that the settlement of the claims against the debtor does not destroy the subject matter jurisdiction of this Court. Total maintains that the bankruptcy court has pendent jurisdiction over its remaining claim against Lakehead.

DISCUSSION

In determining whether subject matter jurisdiction exists in this case, we must refer to the facts which existed at the date of the filing of the complaint. See Gresham Park Community Organization v. Howell, 652 F.2d 1227, 1236 n. 25 (5th Cir.1981); Nuclear Engineering Co. v. Scott, 660 F.2d 241, 248 (7th Cir.1981); International Harvester Co. v. Deere & Co. 623 F.2d 1207, 1210 (7th Cir. 1980). Certainty is served by not allowing an event occurring during the pendency of the suit to create or destroy jurisdiction. See Wright, Miller, & Cooper, 13B Federal Practice and Procedure 452 (1984) ("if jurisdictional prerequisites are satisfied when the suit is begun, subsequent events will not work an ouster of jurisdiction.") E.g., Smith v. Sperling, 354 U.S. 91, 93 n. 1, 77 S.Ct. 1112, 1113-14 n. 1, 1 L.Ed.2d 1205 (1957) (change of citizenship occurring after the filing of the complaint will not divest the federal court of jurisdiction).

Movant relies on Boelens v. Redman Homes, Inc., 759 F.2d 504 (5th Cir. 1985), for the proposition that the voluntary amendment of plaintiff's complaint, which dropped the claims that provided federal jurisdiction, had the effect of destroying federal jurisdiction. In that case, federal jurisdiction had rested on the federal question that had been dropped by the amendment. The Boelens court based this conclusion on the general rule that "an amended complaint supersedes the original complaint and renders it of no legal effect, unless the amended complaint specifically refers to or adopts the earlier pleading."1 759 F.2d at 508 (citations omitted).

This rule is not inconsistent with the rule that jurisdiction is determined by looking at the facts which exist at the time of filing the complaint, but merely clarifies which complaint is determinative in the situation where the original complaint has been amended.

In the case at bar, there has been no amendment of the complaint to drop any federal causes of action. The Second Amended Complaint asserts claims against all defendants, including the debtor. Merely the facts and not the allegations have changed, in the respect that the claims have been settled against all defendants other than Lakehead.

Thus, we must examine whether jurisdiction existed at the time of filing the Second Amended Complaint. The subsequent settlement of the claims against all defendants other than the movant does not affect this analysis. The Fifth Circuit has expressly held that the federal court has the power to hear pendent state claims after the main claim has been dismissed. Breen v. Centex Corp., 695 F.2d 907, 914 (5th Cir. 1983). See also Rosado v. Wyman, 397 U.S. 397, 405, 90 S.Ct. 1207, 1214, 25 L.Ed.2d 442 (1970); In re Coordinated Pretrial Proceedings, Etc., 520 F.Supp. 635, 649-50 (D.Minn.1981) (court retained ancillary jurisdiction over attorney's fees dispute six years after the main action had been settled and dismissed with prejudice).

The proper focus in determining the jurisdictional issue is on the district court because the bankruptcy court is a unit of the district court. 28 U.S.C. § 151. Firestone v. Dale Beggs & Associates (In re Northwest Cinema Corp.), 49 B.R. 479 (Bankr.D. Minn.1985). The district court has "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 district court may provide that bankruptcy cases and proceedings shall be referred to bankruptcy judges. 28 U.S.C. § 157(a). Pursuant to the Order of Reference dated August 9, 1984, the district court for the Southern District of Texas made such a referral. Thus, 28 U.S.C. § 1334 defines the limits of the bankruptcy court's jurisdiction.

28 U.S.C. § 157 provides for certain controls to be maintained by the district court after an order of referral has been entered. If a proceeding is a "core proceeding" arising under title 11 or arising in a case under title 11, the bankruptcy judge may enter a final judgment or order thereon. 28 U.S.C. § 157(b)(1). Such judgments or orders are subject to review by the district court under 28 U.S.C. § 158. Under 28 U.S.C. § 157(c)(1), a bankruptcy judge may hear a proceeding that is not a core proceeding but that is otherwise related to a case under title 11. Any final order in such proceedings must be entered by the district court after the bankruptcy judge has submitted proposed findings of fact and conclusions of law to the district court. The district court may withdraw any referred case or proceeding for cause. 28 U.S.C. § 157(d).

Substantial controversy exists in defining proceedings "related to a case under title 11." Some courts would require the action to have a direct and significant impact on the estate or its administration. Uranga v. Geib, 755 F.2d 421, 425 (5th Cir.1985) ("exercising jurisdiction over a collateral controversy is improper where it is `possible' to administer the estate without resolving the controversy"); Pacor v. Higgins, 743 F.2d 984, 995 (3d Cir.1984) (debtor must be bound by res judicata or collateral estoppel, or automatic liability of the debtor must exist, in order to find that a civil proceeding has an effect on the estate); In re John Peterson Motors, Inc., 56 B.R. 588 (Bankr.D.Minn.1986) (third party action filed by defendant in preference action brought by the estate against the debtor's principal for indemnity was beyond the court's "related to" jurisdiction); In re D.L. McKinney, 45 B.R. 790 (Bankr. W.D.Ky.1985); In re Dickenson Lines, Inc., 47 B.R. 653 (Bankr.D.Minn.1985).

Other courts hold that a broader interpretation of the statute more closely reflects congressional intent. In re Salem Mortgage Co., 783 F.2d 626, 634-35 (6th Cir.1986) (finding of definite liability on the part of the estate is not a condition precedent to finding an action related to a bankruptcy proceeding); In re Fleet, 53 B.R. 833, 838 (Bankr.E.D.Pa.1985) (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 which in any way...

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