In re G. Weeks Securities, Inc.

• Decision Date: 26 August 1988
• Docket Number: Adv. No. 87-0208.,Bankruptcy No. 79-22564-B
• Citation: 89 BR 697
• Court: U.S. Bankruptcy Court — Western District of Tennessee
• Parties: In re G. WEEKS SECURITIES, INC., Debtor. Constance H. WEEKS, Plaintiff, v. Bruce S. KRAMER; Rosenfield, Borod & Kramer, P.C., a/k/a Borod & Huggins, a partnership; T. Harold Craig; and Francis J. Scott, Defendants.

89 B.R. 697 (1988)

In re G. WEEKS SECURITIES, INC., Debtor Constance H. WEEKS, Plaintiff, v. Bruce S. KRAMER; Rosenfield, Borod & Kramer, P.C., a/k/a Borod & Huggins, a partnership; T. Harold Craig; and Francis J. Scott, Defendants.

Bankruptcy No. 79-22564-B, Adv. No. 87-0208.

United States Bankruptcy Court, W.D. Tennessee, W.D.

August 26, 1988.

James F. Schaeffer, Sr., Memphis, Tenn., Erich W. Merrill, Memphis, Tenn. for Constance H. Weeks.

Joseph W. Barnwell, Jr., Petkoff, Lancaster & Barnwell, Memphis, Tenn. for Bruce S. Kramer and Borod and Huggins.

J. Alan Hanover and Barbara B. Lapides, Hanover, Walsh, Jalenak, and Blair, Memphis, Tenn. for T. Harold Craig and Frances J. Scott.

MEMORANDUM OPINION AND RECOMMENDATION TO DISTRICT COURT SUGGESTING WITHDRAWAL OF REFERENCE OF ADVERSARY PROCEEDING: JURISDICTION AND JURY TRIAL

WILLIAM H. BROWN, Bankruptcy Judge.

This adversary proceeding presents unique questions of the jurisdiction and procedural authority of the Bankruptcy Court for this District, and the Court has sua sponte examined whether the issues presented in this adversary proceeding are core or related¹ and whether this Court has the authority to conduct the jury trial requested by the plaintiff, Constance H. Weeks. As a result of this Court's analysis of the issues and law, the Court enters this Memorandum Opinion and recommends to the Honorable United States District Court for the Western District of Tennessee, Western Division, that the District Court withdraw the reference of this specific adversary proceeding, pursuant to 28 U.S.C. Section 157(d), and that the District Court then determine whether this adversary proceeding may properly be tried in the District Court or should be tried in an appropriate state court. These findings and conclusions are made pursuant to Bankruptcy Rule 7052.

CASE HISTORY

The voluntary Chapter 11 case was filed by the debtor, G. Weeks Securities, Inc. (hereinafter "debtor") on November 6, 1979, and the case file reflects that significant activity and litigation occurred. The Court notes that this Court's "Order" files consume thirteen separate jackets of pleadings, plus adversary proceedings. A "Joint Plan of Reorganization," as modified, was confirmed, after notice and hearing, by the Honorable William B. Leffler, on December 2, 1981. In the chapter 11 case, Judge Leffler appointed co-trustees for the Chapter 11 debtor on February 7, 1980, those co-trustees being two of the defendants in the pending adversary proceeding, T. Harold Craig and Francis J. Scott.

On March 30, 1984, the Honorable Odell Horton, United States District Judge, acting under a withdrawal of reference order dated February 22, 1984,² entered an "Order Approving Agreement and Plan of Merger," under which, after notice and hearing, the Court approved a merger, consistent with the confirmed plan of the debtor. Under the confirmed plan, Consolidated Federal Mortgage Securities Corporation ("Consolidated") had been formed, under which Federal Mortgage Services and Securities Corporation ("Federal") and Federal Mortgage Management, Inc. ("Federal Mortgage") were subsidiaries. Under the merger, Consolidated was merged into a surviving corporation, Diversified Financial Services Corporation ("Diversified"). The details of the merger are not pertinent to this adversary proceeding; however, numerical paragraphs three and five of Judge Horton's order provides:

3. The jurisdiction of the United States Bankruptcy Court for the Western District of Tennessee over Consolidated and its subsidiaries (excluding Federal Mortgage Management, Inc. and its retained assets and activities as well as all adversary proceedings and claims), is hereby terminated upon the effective date of the merger;

5. The jurisdiction of the Bankruptcy Court over Federal Mortgage Management, Inc., the pending adversary proceeding, disputed claims and the retained assets and activities is retained and unaffected.

These paragraphs at first reading seem to retain for and leave in the Bankruptcy Court jurisdiction over this adversary proceeding. However, this adversary proceeding was not initiated in the Bankruptcy Court until September 29, 1987, but the adversary proceeding began as a suit against the same defendants in the Circuit Court of the Thirteenth Judicial District of Tennessee, case number 13835-7, T.D., which was filed on December 6, 1985. A copy of the Circuit Court Complaint is a part of the adversary file. The complaint alleges that the plaintiff, Constance Weeks is a "resident citizen" of Shelby County, Tennessee; that all defendants except T. Harold Craig are also "resident citizens" of Shelby County, Tennessee; and that Mr. Craig is a "resident citizen" of Houston, Mississippi. Therefore, from the face of the complaint, diversity of citizenship did not exist to permit the filing of the original suit in the United States District Court. 28 U.S.C. Section 1332(a). Outside of reference to the bankruptcy case, no federal law causes of action are stated. 28 U.S.C. Section 1331. The original complaints in both the Circuit and this Court alleged acts of negligence as to the defendants and sought compensatory damages of $500,000.00 and punitive damages of $1,500,000.00. The Plaintiff Weeks sought a jury trial in the state court, as well as in this Court.

On September 4, 1986, the defendants Craig and Scott filed a "Petition" in the United States District Court for the Western District of Tennessee, seeking to enjoin further proceedings in the state Circuit Court. The "Petition" was brought pursuant to "28 U.S.C. Section 959, Bankruptcy Rule 7065 and Federal Rule of Civil Procedure 65," and the "Petition" alleged that permission of the Bankruptcy Court was not sought before the state suit was brought against the co-trustees of the chapter 11 debtor, and that "the rights of both parties as well as those of the bankrupt estate can be fully and more properly protected if such proceedings are enjoined and the respondent herein files her claim in the appropriate bankruptcy court." (Page 5 of "Petition"). A copy of the "Petition" is a part of the adversary file.

After hearing on April 22, 1987, before the Honorable Odell Horton, the District Court enjoined Constance Weeks from proceeding in the state court and "remanded the cause of action to the United States Bankruptcy Court for the Western District of Tennessee, Western Division, Division 1 thereof, for further proceedings." A copy of this order dated April 29, 1987, is a part of the adversary file. As a result of this order, the Plaintiff Weeks filed her complaint as an adversary proceeding in this Court on September 29, 1987, alleging substantially the same negligence causes of action and jury demand as were asserted in state court.

The procedural and jurisdictional quagmire is complicated further by the "Order of Final Decree Closing Case" which was entered by Judge Leffler on February 19, 1987, prior to Judge Horton's remand order. A copy of that order and of the underlying "Application For A Final Decree" is part of the adversary file. The defendants in this adversary proceeding initiated the closing of the chapter 11 case by their filing on January 20, 1987, of an application for final decree. It is significant that the defendants of the adversary proceeding were aware, prior to the entry of the District Court's remand of the state proceeding, that the chapter 11 case number 79-22564 had been "closed" by the Bankruptcy Court's February 19, 1987, order. In their application for final decree, the co-trustees stated that they had complied with all requirements of the order confirming the debtor's plan of reorganization and that as a result of the merger order mentioned above, certain assets and activities, including "all adversary proceedings and claims, were transferred and assigned to and vested in Federal Mortgage Management, Inc." (Page 2 of Application). The application specified the outstanding adversary proceedings, in numerical paragraph six, and listed under subsection (d) of that paragraph is the description of the Constance H. Weeks' state court suit. The co-trustees noted that an application for injunction was then pending before the District Court.

The application for final decree asserts that the Bankruptcy Court, by its earlier orders, had retained jurisdiction to hear the complaint of Constance Weeks, and that the Bankruptcy Court had authority to "determine the issues between the parties in interest pursuant to 11 U.S.C. Sections 105 and 350(a) and to effectuate its previous orders. (See also Rules 3022 and 5009, Rules Bankruptcy Procedure)." (Page 3 of Application). Numerical paragraph eight of the application asserts that the "claim" of Constance Weeks should be disallowed by the Bankruptcy Court, and asserts that the Bankruptcy Court retained jurisdiction to "allow or disallow disputed claims" and to "determine any other disputes involving claims." Further, it is alleged that the Constance Weeks' dispute interferes with the execution of the plan and with administration of the estate. (Page 4 of Application). In numerical paragraph nine of the application, the co-trustees ask the Bankruptcy Court to either hear the Constance H. Weeks' cause of action or "refer the matter to the United States District Court for disposition." (Page 4 of Application).

The order entered on this "Application For A Final Decree" purports to close the case. However, the order must be read in its entirety to understand its impact upon this adversary proceeding. Specifically, the order, in numerical paragraph five, page two, states that all adversary proceedings and claims were transferred and assigned to and vested in Federal Mortgage. Federal Mortgage would continue in existence in part for the disposition of the litigation, including Constance H. Weeks' suit, which is specifically mentioned in paragraph six, page three of the order. Comparing this provision to Judge...