In re Grimes

• Decision Date: 31 March 2008
• Docket Number: Bankruptcy No. 06-7.,Adversary No. 07-57.
• Citation: 388 B.R. 195
• Court: U.S. Bankruptcy Court — Northern District of West Virginia
• Parties: In re David Lynn GRIMES and, Linda Perry Grimes, Debtors. David Lynn Grimes, Plaintiff, v. First-Citizens Bank & Trust Company, Timothy Pennington, and Timothy McClung, Defendants.

388 B.R. 195

In re David Lynn GRIMES and, Linda Perry Grimes, Debtors David Lynn Grimes, Plaintiff, v. First-Citizens Bank & Trust Company, Timothy Pennington, and Timothy McClung, Defendants.

Bankruptcy No. 06-7.

Adversary No. 07-57.

United States Bankruptcy Court, N.D. West Virginia.

March 31, 2008.

COPYRIGHT MATERIAL OMITTED

Paul J. Harris, Wheeling, WV, for Plaintiff.

Donald J. Epperly, Steptoe and Johnson PLLC, Clarksburg, WV, Paul A. Fanning, Ward and Smith, P.A., Greenville, NC, for Defendants.

MEMORANDUM OPINION

PATRICK M. FLATLEY, Bankruptcy Judge.

David Lynn Grimes (the "Debtor") filed a state court complaint against First-Citizens Bank & Trust Company ("First Citizens"), Timothy Pennington, and Timothy McClung (collectively, the "Defendants"). The state court complaint alleges a negligence cause of action based on, inter alia, First Citizens's unauthorized withdrawal of money from the Debtor's bank account. As a result of First Citizens's alleged negligence, the Debtor contends that he suffers from humiliation, embarrassment, and emotional distress.

The Defendants removed the state court action to this court on June 26, 2007. The Debtor now argues that the state court action is a personal injury tort, and that the bankruptcy court lacks jurisdiction over the case under the proscription set forth in 28 U.S.C. § 157(b)(5).

I. BACKGROUND

The Debtor is the principal of three corporate entities, Clearwater Timber Resources, LLC, ("Clearwater"), Deer Creek Management, LLC, ("Deer Creek"), and Independent Transport, Inc. All three entities borrowed money from First, Citizens, and the Debtor signed commercial guaranty loans in excess of $1.4 million. With regard to these loans, the Debtor alleges that First Citizens provided financial advice to him upon which he relied to his detriment, and that First Citizens lent money based on the value of the collateral and not the ability to repay the loans.

In an attempt to assist the Debtor in obtaining additional financing for his business entities, First Citizens arranged for a meeting between the Debtor and the West Virginia Economic Development Authority ("WVEDA") in June 2005. During this meeting, the Debtor contends that the WVEDA encouraged the Debtor to seek bankruptcy protection for his business entities, and that, following the bankruptcy filings, it would grant a loan to sustain the businesses.

As a result of that meeting, the Debtor filed Chapter 11 bankruptcy petitions for both Clearwater and Deer Creek on August 18, 2005. After filing the bankruptcies, however, WVEDA declined to extend any credit to those businesses, and both cases were converted to Chapter 7 on April 24, 2007. Each case was designated a "no asset" case. Both were closed on August 23, 2007.

The Debtor contends that, before the Chapter 11 bankruptcy filings of Clearwater and Deer Creek, First Citizens, under the directions of McClung and Pennington, withdrew money from his personal checking accounts without his authorization. As a result, the Debtor's account became overdrawn, and First Citizens charged him with insufficient funds fees and other miscellaneous fees in excess of $29,000. The Debtor also alleges that First Citizens refused to cash checks and cashier's checks for employees of the Debtor's businesses. According to the Debtor's complaint, McClung "had no regrets or remorse as to the [Debtor's] problems," and Pennington "told other individuals that he hoped the [Debtor's] businesses failed."

The Debtor filed his individual Chapter 13 bankruptcy on January 9, 2006, which was converted to a Chapter 7 case on January 31, 2007. The Debtor received a discharge on May 30, 2007, but the case is still open pending administration of estate assets.

II. DISCUSSION

First Citizens contends that this court has subject matter jurisdiction over the Debtor's state court complaint, and that the proceeding is "core" within the meaning of 11 U.S.C. § 157(b)(2). The Debtor asserts that his complaint must be tried in the federal district court—not the bankruptcy court—on the basis that the complaint alleges a personal injury tort within the meaning of § 157(b)(5).

A. Personal Injury Tort Claims

Neither party disputes that federal jurisdiction exists over the Debtor's state court complaint under 28 U.S.C § 1334. That section grants the federal district courts exclusive jurisdiction over all bankruptcy cases, and "all the property, wherever located, of the debtor as of the commencement of the case, and property of the estate." § 1334(a), (e). District courts also have "original but not exclusive jurisdiction of all civil proceedings arising under title 11, or arising in or related to a case under title 11." § 1334(b). This grant of jurisdiction has been referred from the district court to the bankruptcy court by General Orders of the District Court for the Northern District of West Virginia dated December 23, 1982 and August 24, 1984. See 11 U.S.C. § 157(a).

However, a bankruptcy court does not have the ability to exercise jurisdiction over all types of bankruptcy proceedings. An important reservation prohibits the bankruptcy court from adjudicating personal injury tort and wrongful death claims:

The district court shall order that personal injury tort and wrongful death claims shall be tried in the district court in which the bankruptcy case is pending, or in the district court in the district in which the claim arose, as determined by the district court in which-the bankruptcy case is pending.

28 U.S.C. § 157(b)(5).

Thus, to the extent that the Debtor's cause of action against First Citizens is a "personal injury tort" claim, the case must be tried in the district court given the objection by the Debtor to the cause of action being tried in the bankruptcy court.

Cases delineating the scope of "personal injury tort" have generally fallen within one of three categories. First, some courts have adopted a narrow view of the term, which would require that the complaining party actually suffer a physical bodily injury. Massey Energy Co. v. West Virginia Consumers for Justice, 351 B.R. 348, 351 (E.D.Va.2006) (finding that a claim for defamation did not fall within the purview of a personal injury tort); In re Atron Inc. of Michigan, 172 B.R. 541, 545 (Bankr.W.D.Mich.1994) (finding that a wrongful discharge claim is not a personal injury tort within the scope of § 157). Second, some court have taken a more expansive view of the term to include any injury that invades a personal right. Thomas v. Adams (In re Gary Brew Enterprises, Ltd.), 198 B.R. 616, 620 (Bankr. S.D.Cal.1996) (finding that the scope of "personal injury tort" in § 157 encompasses civil rights actions). The third approach adopts a more moderate view that looks to whether the complaint falls within the purview of a personal injury tort under the expansive view, but retains bankruptcy court jurisdiction over the claim if it has the "earmarks of a financial, business or property tort claim, or a contract claim." Stranz v. Ice Cream Liquidation, Inc. (In re Ice Cream Liquidation, Inc.), 281 B.R. 154,161 (Bankr.D.Conn.2002).

The legislative history to 11 U.S.C. § 157(b)(5) is not particularly enlightening. Representative Kastenmeier, however, stated that it was only a "narrow category of cases" to which § 157(b)(5) would apply. 98th Cong.2d Sess. 130 Cong. Rec. H 7471 (June 29, 1984). Indeed, the bankruptcy court retains jurisdiction over many different types of tort claims, such as determinations of fraud or wilful and malicious injury under 11 U.S.C. § 523(a). To eliminate the risk that financial, business, or property tort claims could escape the jurisdiction of the bankruptcy court, the court specifically rejects an overly expansive view of what constitutes a "personal injury tort."

Regarding the remaining two prevalent interpretations of "personal injury tort," neither interpretation helps the Debtor. No allegation exists in the complaint that the Debtor suffered a specific bodily injury. The complaint only contains one count for negligence. The alleged facts supporting that cause of action include: (1) First Citizens's giving of financial advice upon which the Debtor detrimentally relied; (2) First Citizens's approval of loans based on the value of the underlying collateral and not the Debtor's (or his business entities') ability to repay those loans; (3) making unauthorized withdraws from his checking account; and (4) inducing the Debtor to deal with the WVEDA, which resulted in his bankruptcy filings. According to the Debtor's complaint, the Defendants' actions resulted in his "humiliation, embarrassment and emotional distress." No stand alone cause of action was alleged for intentional infliction of emotional distress. Viewing the Debtor's complaint as a whole, the Debtor's cause of action is more akin to a financial, business, or property tort claim than a personal injury tort claim. The Defendants are not ones that have entered an involuntary association with the Debtor as is the case in more traditional personal injury tort claims such as automobile accidents. See In re Poole Funeral Chapel, Inc., 63 B.R. 527, 530 (Bankr. N.D.Ala.1986) (distinguishing between voluntary and involuntary associations). In this court's view, the allegations in the complaint simply do not fall within the exception to bankruptcy court jurisdiction in § 157(b)(5).

B. Core and Non-Core Proceedings

Concluding that the bankruptcy court has jurisdiction to adjudicate the Debtor's cause of action against First Citizens, the court must make the further determination of whether the cause of action is "core" or "non-core."

Section 157 of title 28 distinguishes between those proceedings that are "core" and "non-core." Section 157(b)(2) contains a non-exclusive list of proceedings that are "core." In general terms, "core proceedings depend on the Bankruptcy Code for their existence and are those matters that either `arise in' or `arise...