In re Heinsohn, 3:99-CV-256.
| Citation | 247 BR 237 |
| Decision Date | 20 March 2000 |
| Docket Number | No. 3:99-CV-256.,3:99-CV-256. |
| Parties | In re Douglas L. HEINSOHN a/k/a Douglas Lylburn Heinsohn d/b/a Timberwinds Restaurant, Debtor. Joseph B. Kirk, Plaintiff-Appellant, v. William T. Hendon, Defendant-Appellee. |
| Court | U.S. District Court — Eastern District of Tennessee |
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Martin B. Bailey, John A. Lucas, Hunton & Williams, Knoxville, TN, for plaintiff.
J. Mikel Dixon, Knoxville, TN, for defendant.
Richard S. Stair, Jr., Donna W. Temple, U.S. Bankruptcy Court, Knoxville, TN, for debtor.
This case is before the Court on appeal from the United States Bankruptcy Court for the Eastern District of Tennessee. Plaintiff-Appellant Joseph B. Kirk appeals from an order of the bankruptcy court denying Kirk's Motion to Strike, denying Kirk's Motion to Remand and granting the motion of Defendant-Appellee William T. Hendon to dismiss (Rec. 22). For the following reasons, the Court will AFFIRM the judgment of the bankruptcy court.
Jurisdiction to hear appeals from bankruptcy court is conferred by 28 U.S.C. § 158. In determining appeals from bankruptcy court, this Court sits as an appellate court, reviewing the bankruptcy court's findings of fact under a clearly erroneous standard, but conducting a de novo review of the bankruptcy court's conclusions of law. Fed.R.Bankr.P. 8013; Nicholson v. Isaacman (In re Isaacman), 26 F.3d 629, 630 (6th Cir.1994); Harbour Lights Marina v. Wandstrat, 153 B.R. 781 (S.D.Ohio 1993). However, the Court may overturn matters within the discretion of the bankruptcy court only for an abuse of discretion. Fed.R.Bankr.P. 8003; American Imaging Services, Inc. v. Eagle-Picher Industries, Inc. (In re Eagle-Picher Industries, Inc.), 963 F.2d 855, 858 (6th Cir.1992); accord Investors Credit Corp. v. Batie (In re Batie), 995 F.2d 85, 88 (6th Cir.1993).
On March 6, 1996, Plaintiff Joseph P. Kirk was indicted for bankruptcy fraud and conspiracy to commit bankruptcy fraud by the Federal Grand Jury for the United States District Court for the Eastern District of Tennessee. The indictment and subsequent prosecution of Plaintiff stemmed from a criminal referral by William T. Hendon, the bankruptcy trustee for the relevant estate of which Plaintiff was accused of defrauding and conspiring to defraud. Plaintiff went to trial and moved for judgment of acquittal after the government presented its proof. On November 25, 1996, the Honorable Leon Jordan granted the motion and Plaintiff was acquitted. On September 24, 1997, Plaintiff filed a malicious prosecution and defamation action in the Circuit Court for Knox County, Tennessee against Defendant Hendon, the bankruptcy trustee.
On October 15, 1997, Defendant Hendon filed a notice of removal to bankruptcy court. In response Plaintiff filed a motion to remand because the Defendant's notice did not include a statement indicating whether the removed action was core or non-core, and if non-core, whether the parties consent to the final entry of judgment by the bankruptcy judge. Plaintiff argued this omission was fatal and the bankruptcy court did not have jurisdiction. In the alternative Plaintiff claimed the case was appropriate for mandatory or discretionary abstention.
Defendant subsequently filed an amended notice of removal which included an allegation that the proceeding was a core proceeding. Defendant did not request leave of the court to file an amended notice, and the amended notice was filed after the 30 day time period allowed for removal. Plaintiff filed a motion to strike the amended notice because it was filed without Plaintiff's consent or leave of the court. Plaintiff further argued the court could not grant leave "because the amendment attempts to add an essential allegation to the notice of removal which cannot be added after the expiration of the statutory period of time for filing such notice."
Defendant then filed a motion to dismiss on the grounds of absolute immunity since the Defendant claimed he was acting in his capacity as trustee and as an officer of the court in making the referral of Plaintiff for criminal prosecution. Defendant also claimed the alleged defamatory statements were made in the course of judicial proceedings so defendant had qualified immunity.
Prior to the bankruptcy court's ruling on these motions, Plaintiff filed a motion to withdraw the reference which was sent to the district court for disposition. All other matters were stayed pending the district court's ruling on the motion to withdraw the reference. The district court (Judge Jordan) denied the motion to withdraw the reference and instructed the bankruptcy court to rule on the pending motions.
The bankruptcy court (Judge Marcia Phillips Parsons) in an extensive, 42 page opinion, denied Plaintiff's motion to remand or for abstention and motion to strike, and granted Defendant's motion to dismiss (Rec. 22; Kirk v. Hendon (In re Heinsohn), 231 B.R. 48 (Bankr.E.D.Tenn. 1999)). Plaintiff appeals those decisions.
Rule 9027 of the Federal Rules of Bankruptcy Procedure states in part that a notice of removal shall "contain a statement that upon removal of the claim or cause of action the proceeding is core or non-core and, if non-core, that the party filing the notice does or does not consent to entry of final orders or judgment by the bankruptcy judge." Plaintiff contends Defendant's original notice failed to allege an essential jurisdictional element and is therefore "fatally defective." Plaintiff contends removal statutes are strictly construed and essential jurisdictional allegations may not be added after the statutory period for filing a removal notice has expired. Defendant contends all the facts necessary to support a legal conclusion the case is a core proceeding were present, therefore failure to comply with the bankruptcy rule is not fatal and may be corrected, even after the 30 day time period for removal has expired.
Neither the parties nor the bankruptcy court was able to locate any case law on the exact issue in this case — whether failure to delineate the proceeding as core or non-core in the removal notice is a fatal jurisdictional defect. The Court's review of judicial opinions also failed to locate any cases on point. The bankruptcy court concluded the core/non-core statement was not a jurisdictional allegation. Rather, the bankruptcy court noted the bankruptcy removal statute, 28 U.S.C. § 1452(a),1 authorizes removal if the district court has jurisdiction under 28 U.S.C. § 1334, the statute which sets forth the scope of bankruptcy jurisdiction. Section 1334 grants the district court original jurisdiction over "all cases under title 11" and "all civil proceedings arising under title 11, or arising in or related to cases under title 11." See 28 U.S.C. § 1334(a) and (b)2. Thus, the bankruptcy court reasoned "a statement is an essential jurisdictional allegation for removal purposes under § 1452(a) only if it describes or set forth the basis for the district court's exercise of jurisdiction under § 1334" (Rec. 22 at 10-11; 231 B.R. at 53). The bankruptcy court further reasoned that a statement designating a proceeding as core or non-core only becomes pertinent after it has been established the proceeding falls within the district court's bankruptcy jurisdiction. "Therefore, while the core/non-core statement is relevant in ascertaining the extent of the bankruptcy court's authority . . . it has no bearing on whether the district court has jurisdiction" and thus the failure to so state in the removal notice is only a technical defect which may be cured even after the time for removal has expired (Id. at 11; 231 B.R. at 54).
Plaintiff argues designating the proceeding as core or non-core must be jurisdictional, otherwise, consent would not be required for the bankruptcy court to enter orders in a non-core proceeding. Defendant argues removal petitions may be amended to add jurisdictional allegations where the facts justifying jurisdiction exist. The United States Court of Appeals for the Sixth Circuit has allowed amendments to cure jurisdictional defects when the underlying facts establishing jurisdiction indeed exist. See Gafford v. Gen. Elec. Co., 997 F.2d 150, 164 (6th Cir.1993).
In the Court's view, the bankruptcy court's decision on this issue was correct — designation of the proceeding as core or non-core is not jurisdictional. Simply because a proceeding is non-core does not mean the bankruptcy court does not have jurisdiction to hear the case, it simply determines the extent of the bankruptcy court's authority to issue final decisions. In the alternative, as Defendant argues and the bankruptcy court points out, even if the notice was jurisdictionally deficient, there were sufficient facts stated in the notice to support jurisdiction, thus the notice could be amended. The fact that Defendant did not ask leave of the Court before amending the notice does not materially change the analysis. Although a motion would have been the preferred method, the Sixth Circuit in Gafford did not require the Defendant to file a formal amended petition for removal since any deficiencies in the petition had been cured by submitting affidavits at a hearing to determine jurisdiction. See Gafford, 997 F.2d at 164.
Plaintiff also challenges the bankruptcy court's jurisdiction in this case, claiming it is not a core proceeding, nor is it related to bankruptcy. The bankruptcy estate was closed before Plaintiff initiated his suit. According to Plaintiff, "a criminal referral by a bankruptcy trustee, which does not mention Mr. Kirk, but which precipitates an unsuccessful criminal prosecution does not have any relationship to a closed bankruptcy estate." Plaintiff argues the outcome of the malicious prosecution/defamation action against Mr. Hendon, the bankruptcy estate ...
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