In re Hartley
| Decision Date | 30 March 1984 |
| Docket Number | Bankruptcy No. 81-01855,Adv. No. 83-0838. |
| Citation | 39 BR 281 |
| Parties | In re James Ross HARTLEY, Sharon Lee Hartley, Debtors. The TOLEDO TRUST COMPANY, Successor-in-Interest to The Peoples Bank, Carey, Ohio, Plaintiff, v. The PEOPLES BANKING COMPANY, et al., Defendants. |
| Court | U.S. Bankruptcy Court — Northern District of Ohio |
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Reginald S. Jackson, Jr., Steven R. Smith, Toledo, Ohio, for plaintiff.
William E. Clark, Findlay, Ohio, for The Peoples Banking Co.
Quentin M. Derryberry, II, Wapakoneta, Ohio, trustee/defendant.
Melanie Rovner Cohen, Antonow & Fink, Chicago, Ill., for trustee/defendant.
Russell E. Rakestraw, Findlay, Ohio, for Paul A. Burson.
This matter is before the Court upon the motions of defendants Paul A. Burson and Quentin M. Derryberry, II to dismiss the complaint of The Toledo Trust Company for a declaratory judgment. Under the circumstances of this case, the Court finds that the motions are not well taken and should be denied.
The well-pled allegations in plaintiff's complaint reveal the following:
1. On December 2, 1980 James Ross Hartley ("Hartley") delivered a sum of money to The Peoples Bank of Carey (the "Carey Bank") for 3,270 shares of stock of the Carey Bank, placing the single certificate received therefore in his name only.
2. In February of 1981, Hartley pledged the 3,270 shares of the Carey Bank obtained in December of 1980 plus 2,730 other shares of stock of the Carey Bank to The Peoples Banking Company of McComb (the "McComb Bank") to secure a loan.
3. In September of 1981 Hartley filed a voluntary petition under Chapter 7 of the Bankruptcy Code and Quentin M. Derryberry, II was appointed trustee of the estate.
4. The Trustee sold the 6000 shares of stock of the Carey Bank to The Toledo Trust Company ("Toledo Trust") for $480,000.
5. The McComb Bank asserts a first lien on the stock or the proceeds thereof by virtue of Hartley's pledge of the stock to it to secure the loan.
6. The Trustee asserts that the stock is property of the estate free from the claims of the McComb Bank.
7. Paul A. Burson ("Burson") claims an ownership interest in the stock by virtue of an agreement with Hartley and has filed a proof of claim with the Court asserting the same.
8. Toledo Trust and the McComb Bank are defendants in an action initiated in the Common Pleas Court of Wyandot County, Ohio by Burson wherein Burson asserts an ownership interest in the stock in question.
9. The trustee and the McComb Bank are parties to litigation in this Court which concern their respective interests in the stock.
Defendant Burson's motion to dismiss asserts this Court's lack of subject matter jurisdiction to determine this controversy and, alternatively, asks this Court to abstain from hearing this case. The Trustee, on the other hand, asserts that dismissal is appropriate since this case presents no "actual controversy" within the confines of The Declaratory Judgment Act. The Court rejects both arguments as grounds for dismissal.
First, despite Burson's contention to the contrary, it seems clear that, construing the broad construction given to the jurisdictional grant under 28 U.S.C. § 1471(b), See Peoples Banking Co. v. Hartley (In re Hartley), 16 B.R. 777 (Bkrtcy.N.D.Ohio 1982), this case is one "arising in or related to" a case under Title 11. One of the pivotal matters raised in plaintiff's complaint is the question of what interest, if any, defendant Burson has in 6000 shares of stock which the Trustee claims is property of the bankruptcy estate under 11 U.S.C. § 541. As plaintiff correctly points out, if an action involving a non-debtor will effect the debtor's schedules of assets or liabilities filed in the bankruptcy court, the action involving the non-debtor is "related to" the bankruptcy case, and the bankruptcy court has original jurisdiction over the action involving the non-debtor. Cincinnati Milacron Marketing Co. v. Ramirez (In re Weslo Products Co.), 19 B.R. 908, 8 B.C.D. 1364 (Bkrtcy.N. D.Ill.1982); In re Brentano's, Inc., 27 B.R. 90, 10 B.C.D. 157 (Bkrtcy.S.D.N.Y.1983). The present action questioning as it does both the Trustee's and non-debtor's interest in nominal estate assets, a fortiori, is within the original jurisdiction of the Court.
The Court also rejects Burson's contentions that the Court lacks jurisdiction of this matter in the aftermath of Northern Pipeline Construction Co. v. Marathon Pipe Line Co., 458 U.S. 50, 102 S.Ct. 2858, 73 L.Ed.2d 598 (1982), that the Court cannot undertake to decide this matter under General Order No. 61, "Emergency Rule for Bankruptcy Procedure" (hereinafter the "interim rule") in the absence of his consent, or that the Court lacks the authority, after Northern Pipeline, to render a declaratory judgment.
Since Northern Pipeline, pursuant to order of the Judicial Counsel of the Sixth Circuit, the district court in the Northern District of Ohio has adopted the interim rule, supra. The continuing validity and effectiveness of the rule, which provides for a general order of reference to the bankruptcy judges of this district of "all cases under Title 11 and all civil proceedings arising under Title 11 or arising in or related to cases under Title 11" was upheld by the United States Court of Appeals for the Sixth Circuit in White Motor Corp. v. Citibank, N.A., 704 F.2d 254 (1983) and need not be considered further herein. Thus notwithstanding Northern Pipeline, this Court maintains continuing derivative jurisdiction over the present matter in the first instance, and the motion to dismiss on this ground is not well taken.
Furthermore, it is not necessary to obtain defendant Burson's consent as a prerequisite to jurisdiction. Section (d)(1) of the interim rule provides, with exceptions not herein relevant, that "the bankruptcy judge may perform in referred bankruptcy cases and proceedings all acts and duties necessary for the handling of these cases and proceedings . . ." Consent, while relevant to the question of whether the bankruptcy judge can enter orders effective upon entry by the Clerk of the Bankruptcy court or whether, if the matter is a "related proceeding", he need submit findings, conclusions, and a proposed judgment or order to the district judge, see sections (d)(2) and (d)(3)(B) of the interim rule, does not govern the question of jurisdiction in the first instance.
Last of all, there is no limitation, under section (d)(1) of the interim rule, on the Court's power to render a declaratory judgment. The reservations expressed by the court in In re Southern Distilleries, 22 B.R. 234 (Bkrtcy.M.D.Ala.1982), to entry of a declaratory judgment in the light of Northern Pipeline, supra, need not be considered by the Court since White Motor v. Citibank, N.A., supra, 704 F.2d 254. In re Tremblay, 31 B.R. 200 (Bkrtcy.D.Vt. 1983), also relied on by defendant Burson for the contrary proposition, merely recognizes the propriety of abstention in certain circumstances, which will be more fully discussed, infra.
The Trustee asserts as grounds for dismissal that there is no dispute between himself and Toledo Trust sufficient to create an actual controversy for this Court's decision. In so arguing, the Trustee is obviously alluding to the provisions of the Federal Declaratory Judgment Act, 28 U.S.C. § 2201, which provides in relevant part:
In a case of actual controversy within its jurisdiction, . . . any court of the United States, upon the filing of an appropriate pleading, may declare the rights and other legal relations of any interested party seeking such declaration, whether or not further relief is or could be sought.
The test to be applied in determining the existence of an actual controversy in the context of a declaratory judgment action is "whether the facts alleged, under all the circumstances, show there is a substantial controversy, between parties having adverse legal interests, of sufficient immediacy and reality to warrant the issuance of a Declaratory Judgment." Maryland Casualty Co. v. Pacific Coal & Oil Co., 312 U.S. 270, 273, 61 S.Ct. 510, 512, 85 L.Ed. 826 (1941). Accord, Lake Carriers' Association v. MacMullan, 406 U.S. 498, 506, 92 S.Ct. 1749, 1755, 32 L.Ed.2d 257 (1972). Furthermore, whether the controversy is of sufficient immediacy and reality to permit a declaratory judgment is a question of degree, to be worked out on a case-by-case basis. See Golden v. Zwickler, 394 U.S. 103, 108, 89 S.Ct. 956, 959-960, 22 L.Ed.2d 113, 118 (1969); Evers v. Dwyer, 358 U.S. 202, 203, 79 S.Ct. 178, 179, 3 L.Ed.2d 222, 224 (1958).
In the present case, the Trustee asserts there is no actual dispute between himself and Toledo Trust. The trustee argues that the only dispute is between himself and the McComb Bank over the proceeds of the sale of the 6000 shares of stock sold to Toledo Trust. Thus, the Trustee contends, since Toledo Trust only claims the stock and not the proceeds thereof, it has no interest to protect vis-a-vis the Trustee and no claim cognizable under the Declaratory Judgment Act. Toledo Trust counters that, instead of being independent, there is a substantial entwinement of the various claims concerning the stock and the proceeds thereof. In particular, Toledo Trust points to defendant Burson's claim of ownership to one half of the stock or the proceeds thereof. If Burson succeeds against the Trustee on a claim of ownership of the stock, Toledo Trust asserts its readiness to pursue the Trustee for return of the monies paid to him for that portion of the stock. Furthermore, Toledo Trust contends, the McComb Bank has already filed a cross-claim against it in the Wyandot County action for indemnification in the event Burson succeeds on his claim against the stock.
In the opinion of the Court, the facts alleged by plaintiff Toledo Trust show convincingly that there is a substantial controversy...
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