In re Eastland Partners Ltd. Partnership

Citation199 BR 917
Decision Date29 August 1996
Docket NumberBankruptcy No. 91-03149-R. Adv. No. 96-4091-R.
PartiesIn re EASTLAND PARTNERS LIMITED PARTNERSHIP, a Michigan limited partnership, Debtor. EASTLAND PARTNERS LIMITED PARTNERSHIP, a Michigan limited partnership; Eastland Properties Limited Partnership, a Michigan limited partnership; Samuel Walker, III; Ralph Tennant; Laurance Rybacki; Paul Robertson, Jr., as Trustee of Paul Robertson, Jr. Revocable Trust; Alfred Loewenstein, Trustee of the Alfred Loewenstein Trust; Albert Lopatin; Norman R. LePage and Bonnie LePage; Frederick Z. Herr, Trustee, Frederick Herr Trust; Timothy L. Hennessey and Anne C. Hennessey; Robert Galacz; Frank A. DiPietro Living Trust; Beck C. Demery, Trustee, Beck C. Demery Trust; and Lorraine Lerner Revocable Living Trust, Lorraine Lerner and Leonard Lerner, Trustees, Plaintiffs, v. Anthony Steven BROWN, Individually; ASB Asset Management Inc., a Michigan corporation; Anthony S. Brown Development Company, Inc.; Village Green Management Co., Inc., a Michigan corporation; Property Management Group, Inc., a Michigan corporation; Robert M. Stillings, Jr., Individually, and Geoff Hockman, Individually, Jointly and Severally, Defendants.
CourtUnited States Bankruptcy Courts. Tenth Circuit. U.S. Bankruptcy Court — Eastern District of Michigan

Meyer Morganroth, Southfield, Michigan, Scott Rooney, Detroit, Michigan, Larry Sharp, Linden, Michigan, for Plaintiffs.

Michael Leib, Southfield, Michigan, Cynthia Thomas, Detroit, Michigan, Kimberly Denewith, Clinton Township, Michigan, for Defendants.

SUPPLEMENTAL OPINION REGARDING JURISDICTION

STEVEN W. RHODES, Chief Judge.

In this adversary proceeding brought by a former chapter 11 debtor and others postconfirmation alleging various state law claims, the issue is whether the Court has subject matter jurisdiction.

I.

Plaintiff Eastland Partners Limited Partnership is owned by JAM Associates, the general partner, and Eastland Properties Limited Partnership. JAM is a co-partnership owned equally by defendant Anthony Steven Brown and Eric Yale Lutz. Eastland Properties is owned by 35 individual limited partners, some of whom are defendants here, and JAM, the general partner.

The plaintiffs owned an apartment complex known as Eastland Village Apartments. Pursuant to a June 20, 1989 agreement with Eastland Properties, defendant ASB Asset Management, Inc. was the managing agent of the property. ASB Asset in turn hired defendant Village Green to perform its management obligations. Village Green managed the apartment complex from May, 1990 through December, 1994.

Eastland Partners filed for relief under chapter 11 in 1991. A plan of reorganization was confirmed in April of 1992 and modified in May of 1992. Subsequently, the chapter 11 case was closed.

In October of 1994, the partnerships and limited partners, plaintiffs here, sued these same defendants for breach of contract, breach of fiduciary duties, conversion, and negligence in Oakland County Circuit Court. The defendants moved for summary disposition there on the basis that the plaintiffs' claims arose out of violations of the plan of reorganization, arguing that the Bankruptcy Court has exclusive jurisdiction over any and all actions brought by the limited partners and partnerships.

The state court agreed with this argument. In its ruling on the matter, the state court judge stated:

In re Shepp\'s Schepps Food Stores, Inc., 160 B.R. 792 (Bkrtcy.S.D.Tex.1992) 1993 held that a state suit by shareholders against debtor directors was an improper attempt to interfere with a plan of reorganization. A proceeding need only be related to a Chapter Eleven case to fall within bankruptcy jurisdiction. In matters related to a bankruptcy case, if the outcome of the bank — if the outcome of the proceeding could conceivably have any effect on the estate being administered in bankruptcy. Sanders Confectionery Products, Inc. v. Heller Financial, 973 F.2d 476 474 (6th Cir.1992). 11 U.S.C. Section 541(a) defines property of the estate to include:
Proceeds, products, offspring rents or products from property of the estate, any interest in property that the estate acquires after the commencement of the action.
Defendant argues that if the funds acquired by Eastland Partners is subject to the plan, that they are funds that are clearly part of the estate. Therefore, the Bankruptcy Court has exclusive jurisdiction.
Plaintiff argues that the Court has jurisdiction because they claim state claims under the state law against the Defendant who is not a bankruptcy debtor, and any decision in this Court will have no effect on the bankruptcy estate. Plaintiffs argue their complaint and breach of contract under state law and under state tort claim. Plaintiffs argue that any analysis of the Bankruptcy Court order is unnecessary and irrelevant to the core allegations in the complaints. Plaintiffs further argue under applicable state law and the partnership agreement itself, where the essential purpose of the partner is no longer in existence, the partnership is automatically dissolved. If any winding up or dissolution proceedings are necessary, these are state court proceedings, rather than Bankruptcy Court proceedings. Plaintiffs claim that a state court claim may proceed where the outcome will have no, or only a slight affect, upon the bankruptcy estate. In re Petrolia Corp., 79 B.R. 686 (Bankr. E.D.Mich.1987). . . .
. . . . .
Okay. The Court is going to grant Defendant\'s motion on summary disposition on lack of subject matter jurisdiction, as the plan provides that the Bankruptcy Court shall have jurisdiction for the purposes, including determination of all questions and disputes regarding title to assets of the estate, and the determination of all causes of action, controversy, disputes or conflicts, whether or not subject to action pending confirmation sale between the debtor and any other party, as well as the enforcement and interpretation of the terms and conditions of the plan.

Transcript of Motion Proceedings before Hon. Barry L. Howard, Oakland County Circuit Court, Oct. 12, 1995, at 9-11.

Accordingly, the plaintiffs filed the present adversary on January 29, 1996. The complaint contains five counts, seeking damages in excess of $778,000. Count I, against Brown, asserts claims of breach of fiduciary duty, misappropriation, fraud, and willful misrepresentation. Count II asserts a claim of defalcation against Brown and Village Green for failing to account for rents from the apartment complex. Count III, against Brown, ASB Asset, and Anthony S. Brown Development Company, Inc., asserts claims of breach of fiduciary duty. Count IV contains claims for breach of contract, defalcation, negligence, and violation of court order against Village Green. Count V contains claims for breach of fiduciary duty against Property Management Group, Inc., Robert M. Stillings, Jr. and Geoff Hockman.

The plaintiffs essentially allege that significant provisions in the plan were violated, including provisions for paying certain creditors first and keeping certain funds in escrow. The plaintiffs contend that Brown and his related companies embezzled more than $775,000 from the debtor partnership. These funds should have been used to fund the reorganization. When a secured creditor did not receive payments from the reorganized debtor, it foreclosed upon the apartment complex property.

The issue of subject matter jurisdiction over this adversary was raised by the Court in a pre-trial conference on April 12, 1996. The parties were given an opportunity to brief the issue and a hearing was held on May 6, 1996. At the hearing, the Court concluded that it did not have subject matter jurisdiction and dismissed the adversary. This written opinion supplements that bench decision.

II.

This Court is a court of limited jurisdiction. The bankruptcy court derives jurisdiction from the district court. 28 U.S.C. § 157(a), (b)(1). 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 present adversary proceeding is neither a case arising under title 11 (which involves a cause of action created by title 11), nor a case arising in title 11 (a sort of residual category of civil proceedings which includes administrative matters, motions to turnover property of the estate, and determinations of the validity, extent, and priority of liens). See 1 Collier on Bankruptcy ¶ 3.011ciii, v at 3-26, 3-32 (Lawrence P. King ed., 15th ed. 1996). Thus, the question is whether this proceeding is "related to" a case under title 11. "Related to" proceedings have been described as

those which (1) involve causes of action owned by the debtor that became property of the estate under 11 U.S.C. § 541, and (2) are suits between third parties which "in the absence of bankruptcy, could have been brought in a district court or state court" and whose outcome could conceivably have an effect on the bankruptcy estate.

Ibid. ¶ 3.011civ, at 3-28-29. Similarly, the Sixth Circuit has concluded that bankruptcy court jurisdiction over a proceeding exists "if `the outcome of that proceeding could conceivably have any effect on the estate being administered in bankruptcy.'" Sanders Confectionery Prod. v. Heller Fin., 973 F.2d 474, 482 (6th Cir.1992) (quoting In re Wolverine Radio Co., 930 F.2d 1132, 1142 (6th Cir.1991)). See also In re Salem Mortgage, 783 F.2d 626, 634 (6th Cir.1986); 8300 Newburgh Rd. Partnership v. Time Constr., Inc. (In re Time Constr., Inc.), 43 F.3d 1041, 1045 (6th Cir.1995).

Additionally, the status of the bankruptcy case figures prominently in determining bankruptcy court jurisdiction. Following confirmation of a chapter 11 debtor's plan, a bankruptcy court has a fairly narrow jurisdiction. Post-confirmation, the Court's role is "limited to matters involving the execution, implementation, or interpretation of the plan's provisions, and to...

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  • City of Southfield v. Shefa, LLC
    • United States
    • Court of Appeal of Michigan (US)
    • February 10, 2022
    ...judge every time something unpleasant happens. [Id., quoting Pettibone Corp v Easley, 935 F.2d 120, 122 (CA 7, 1991); see also Eastland, 199 BR at 921.] fact, "[a] bankruptcy estate usually ceases to exist after a reorganization plan is confirmed." In re Celebrity Home Entertainment, Inc, 2......
  • City of Southfield v. Shefa, LLC
    • United States
    • Court of Appeal of Michigan (US)
    • February 10, 2022
    ...judge every time something unpleasant happens. [Id., quoting Pettibone Corp v Easley, 935 F.2d 120, 122 (CA 7, 1991); see also Eastland, 199 BR at 921.] fact, "[a] bankruptcy estate usually ceases to exist after a reorganization plan is confirmed." In re Celebrity Home Entertainment, Inc, 2......

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