In re Gold
| Decision Date | 19 April 2000 |
| Docket Number | Bankruptcy No. 98-47270-JFQ. Adversary No. 98-4324. |
| Parties | In re Harold GOLD and Kitty Gold, Debtors. Diversified Mortgage Co., Inc., Plaintiff, v. Harold M. Gold, Catherine A. Gold, D.I. Investment Partnership, CFX Bank, CFX Funding, LLC and Michael L. Buckman, Trustee, Defendants. |
| Court | United States Bankruptcy Courts. First Circuit. U.S. Bankruptcy Court — District of Massachusetts |
Walter W. Jabs Jr., Marlborough, MA, for Debtors.
Matthew D. Rockman, Rockman, & Kachajian, Northborough, MA, Trustee.
Decision
The defendants D.I. Investment Partnership ("D.I.") and Michael L. Buckman, Trustee ("Buckman") (collectively the "Defendants") have moved to dismiss this adversary proceeding for lack of jurisdiction or, in the alternative, to dismiss on grounds of abstention. Set forth here are the grounds for a previous order denying the motion.
The allegations of the complaint, taken as true for the purpose of this motion, disclose the following. At the time of their filing of this Chapter 7 case, Harold M. Gold and Catherine A. Gold (the "Debtors") owned two adjacent properties in Mashpee, Massachusetts. The addresses of the properties were 63 Greensward Road and 69 Greensward Road. Immediately prior to October 4, 1996, the properties were subject to the following mortgages having these face amounts and priorities:
63 Greensward Road 69 Greensward Road
1991 $430,000 mortgage to no mortgage of record
Chase Manhattan Financial
Services, Inc
1991 $70,000 mortgage to
Chase Manhattan Financial
Services, Inc
1995 $355,000 mortgage to
James Ross Freeman
On October 4, 1996, Diversified Mortgage Company, Inc. ("Diversified") loaned $175,000 to the Debtors. Diversified is the predecessor by assignment of The Chase Manhattan Bank as Trustee (the "Plaintiff"). The loan was secured by a mortgage describing the property at 63 Greensward Road, making it junior to the three mortgages of record. The description on the mortgage was a mistake in that both Diversified and the Debtors intended to secure the loan by a first mortgage on 69 Greensward Road. The mistake remained undiscovered for many months.
About six weeks later, on November 22, 1996, a corporation owned by the Debtor Harold M. Gold, Graphics Financial Group, Ltd., borrowed $170,000 from D.I. The Debtors executed a guaranty of this loan. The guaranty provided that it was secured by a second mortgage on 69 Greensward Road. Securing the guaranty was a mortgage placed on both Mashpee properties (and the Debtors' home), the mortgage on 63 Greensward Road being junior to the four prior mortgages and the mortgage on 69 Greensward Road being of record a first mortgage. The parties intended, however, that D.I. obtain only a second mortgage on 69 Greensward Road.
Thereafter, on June 19, 1997, two additional mortgages were recorded on 69 Greensward Road, one by CFX Bank and one by CFX Funding, LLC. On October 7, 1997, D.I. assigned its mortgages on 63 and 69 Greensward Road (plus the mortgage on the Debtors' home) to Buckman.
In April of 1998 Diversified discovered the mistake in the description of its mortgage. It obtained the Debtors' signature on a mortgage covering 69 Greensward Road to secure the $175,000 loan and recorded that mortgage.
As a result, at the time of the Debtors' bankruptcy filing on October 1, 1998, there were the following mortgages of record on the two properties:
63 Greensward 69 Greensward
-Mortgage to Chase Manhattan -D.I. Mortgage (recorded
Financial Services, December 3, 1996) ($170,000)
Inc. (recorded April 12
1991) ($430,000)
-Mortgage to Chase Manhattan -Mortgage to CFX Bank
Financial Services, (recorded June 19, 1997)
Inc. (recorded April 12, ($7,5000,000)
1991) ($70,000)
-Mortgage to James Ross -Mortgage to CFX Funding
Freeman (recorded July 28, LLC (recorded June
1995) ($355,000) 19, 1997) ($873,000)
-Diversified Mortgage (recorded -Assignment of D.I. Mortgage
October 8, 1996) to Michael L. Buckman
($175,000) Trustee (recorded November
28, 1997)
-D.I. Mortgage (recorded -Diversified Mortgage (recorded
December 3, 1996) ($170,000) April 13, 1998)
($175,000)
The value of 69 Greensward Road is less than the amount due on Diversified's mortgage.
The Plaintiff commenced this action on December 21, 1998, a few months after the Debtors filed their Chapter 7 petition. Asserting a mutual mistake on the part of Diversified and the Debtors, the Plaintiff as Diversified's successor requests in the complaint that the 1996 Diversified mortgage be reformed so as to describe 69 Greensward Road rather than 63 Greensward Road, and that the Plaintiff be equitably subrogated to D.I.'s $170,000 first mortgage position. In a separate count, the complaint asks the court to declare that the Plaintiff holds a $175,000 first mortgage on 69 Greensward and D.I. holds a $170,000 second mortgage on 69 Greensward.
The Defendants request dismissal first on the ground the court lacks jurisdiction to adjudicate this matter. This court, through reference from 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.A. § 1334(b) (Law.Coop. Supp.1999). "Bankruptcy judges may hear and determine all cases under title 11 and all core proceedings arising under title 11, or arising in a case under title 11, referred under subsection (a) of this section, and may enter appropriate orders and judgments, subject to review under section 158 of this title." 28 U.S.C.A. § 157 (Law.Co-op.1988). "Core proceedings include, but are not limited to . . . (K) determinations of the validity, extent, or priority of liens. . . ." 28 U.S.C.A. § 157(b)(1) (Law. Co-op 1988).
This is a core proceeding which I may hear and determine. In requesting a declaration that it holds a first mortgage on 69 Greensward Road with priority of D.I.'s mortgage, the Plaintiff seeks a "determination of the validity, extent, or priority of liens." 28 U.S.C.A. § 157(b)(2)(K) (Law.Co-op.1988); see also In re Samoset Assoc., 654 F.2d 247, 253 (1st Cir.1981); In re Pittsburgh Cut Flower Co., Inc., 118 B.R. 31, 34 (Bankr.W.D.Pa.1990).
In their memorandum of law supporting their motion, the Defendants summarily dismiss a conclusion that the court has "arising in" jurisdiction over this proceeding as a core proceeding. They do not address the aspect of the complaint requesting a determination of the validity or priority of the Plaintiff's lien. The Defendants limit their argument to the question whether this proceeding is "related to a case under title 11" over which the court has the more limited jurisdiction to "submit proposed findings of fact and conclusion of law to the district court. . . ." See 28 U.S.C.A. § 157(c)(1) (Law.Co-op.1988). Taking this cue from the Defendants, the Plaintiff has limited its argument to the same question of "related to" jurisdiction.
Both parties rely on the test for "related to" jurisdiction enunciated in Pacor, Inc. v. Higgins, 743 F.2d 984 (3d Cir.1984). The court there said:
The usual articulation of the test for determining whether a civil proceeding is related to bankruptcy is whether the outcome of that proceeding could conceivably have any effect on the estate being administered in bankruptcy. . . . Thus, the proceeding need not necessarily be against the debtor or against the debtor\'s property. An 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 impacts upon the handling and administration of the bankrupt estate.
The Pacor test has been adopted by the fourth, fifth, eighth, ninth and eleventh circuits. See Miller v. Kemira, Inc. (In re Lemco Gypsum, Inc.), 910 F.2d 784 (11th Cir.1990); American Hardwoods, Inc. v. Deutsche Credit Corp. (In re American Hardwoods, Inc.), 885 F.2d 621 (9th Cir. 1989); National Union Fire Ins. Co. v. Titan Energy, Inc. (In re Titan Energy, Inc.), 837 F.2d 325 (8th Cir.1988); Wood v. Wood (In re Wood), 825 F.2d 90 (5th Cir. 1987); Dogpatch Properties, Inc. v. Dogpatch U.S.A., Inc. (In re Dogpatch U.S.A., Inc.), 810 F.2d 782 (8th Cir.1987); A.H. Robins Co., Inc. v. Piccinin (In re A.H. Robins Co., Inc.), 788 F.2d 994 (4th Cir.), cert. denied, 479 U.S. 876, 107 S.Ct. 251, 93 L.Ed.2d 177 (1986). The second, fifth and sixth circuits have given a similar broad interpretation of "related to" jurisdiction. See Elscint, Inc. v. First Wisconsin Fin. Corp. (In re Xonics, Inc.), 813 F.2d 127 (7th Cir.1987); Kelley v. Nodine (In re Salem Mortgage Co.), 783 F.2d 626 (6th Cir.1986); Turner v. Ermiger (In re Turner), 724 F.2d 338 (2d Cir.1983).
In view of the core nature of this proceeding, it is unnecessary to deal with the question of whether this is a "related to" proceeding. I will nevertheless do so briefly because the parties have dwelled on that issue.
The Defendants contend this proceeding cannot conceivably alter the Debtors' liabilities, or in any way impact upon the handling and administration of their bankruptcy estate. They apparently rely on the foreclosure sale of 69 Greensward Road which took place after the filing of the complaint. On May 17, 1999, I permitted Buckman to foreclose on the property and ordered that the net foreclosure sales proceeds be held in escrow by Buckman's attorney pending final judgment in the present adversary proceeding. Buckman's lawyer presently holds in escrow the net foreclosure sales proceeds of...
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