In re Jones, Civil Action No. 2:07-CV-00709.

Decision Date29 September 2008
Docket NumberCivil Action No. 2:07-CV-00709.
Citation397 B.R. 775
PartiesIn re David Douglas JONES, Debtor. Daimler Chrysler Financial Services Americas LLC., Appellant, v. David Douglas Jones, et al., Appellees.
CourtU.S. District Court — Southern District of West Virginia

Andrew Nason, Charleston, WV, for debtor.

MEMORANDUM OPINION AND ORDER

JOSEPH R. GOODWIN, Chief Judge.

Pending before the court is an appeal by DaimlerChrysler challenging the decision of the United States Bankruptcy Court for the Southern District of West Virginia in the plaintiffs' adversary proceeding. That proceeding concerned DaimlerChrysler's repossession of the plaintiffs' vehicle. DaimlerChrysler claimed that it was entitled to repossess the vehicle because the plaintiffs were in default under the contract for sale once the debtor had filed for bankruptcy. The bankruptcy court held that DaimlerChrysler violated W. Va.Code § 46A-2-106 by repossessing the vehicle without first giving the plaintiffs notice of a right to cure the default. As a result, the bankruptcy court permanently enjoined DaimlerChrysler from repossessing the plaintiffs' vehicle on the basis of the bankruptcy filing. For the reasons stated herein, the court REVERSES the bankruptcy court's order and REMANDS the case to the bankruptcy court for further proceedings in accordance with this opinion.

I. Factual Background

This appeal arises from an adversary proceeding filed by the plaintiffs, David Douglas Jones and his wife Kirsten M. Jones, against DaimlerChrysler in the United States Bankruptcy Court for the Southern District of West Virginia, seeking declaratory relief, injunctive relief, and monetary damages for DaimlerChrysler's repossession of their vehicle. David Jones ("the debtor") previously had filed a petition for relief under Chapter 7 of the Bankruptcy Code on May 24, 2006. Kirsten M. Jones did not file for bankruptcy but brought the adversary proceeding as the co-owner of the vehicle.

In filing for bankruptcy, the debtor also filed a statement of intention with respect to a contract for the purchase of a 2004 Kia Sedona ("the vehicle").1 The statement of intention indicated that the debtor would "Continue Payments" on the vehicle, but did not state whether the debtor intended to redeem the vehicle or reaffirm the debt as required by 11 U.S.C. § 521(a)(2), (6) and § 362(h). The debtor also failed to redeem the vehicle or to enter into a reaffirmation agreement with DaimlerChrysler within forty-five days of the first meeting of creditors. Thereafter, DaimlerChrysler moved to confirm the termination of the automatic stay placed upon the property in the bankruptcy estate. DaimlerChrysler was seeking confirmation that the stay was no longer in effect in order to enforce its security interest in the vehicle by repossessing it pursuant to the default-upon-bankruptcy clause contained in the contract. The clause provided that "You will be in default if ... You file a bankruptcy petition or one is filed against You."2 After a hearing, and in the absence of any objection by the debtor, the bankruptcy judge ordered that the automatic stay was terminated on September 11, 2006, "owing to the Debtor's failure to redeem or reaffirm so as to permit DaimlerChrysler to proceed with any and all remedies available under state and/or federal law that are not inconsistent with [title 11] as to [the vehicle]." Agreed Order Confirming Termination of the Automatic Stay at 1, In re David Jones, No. 06-20296 (Bankr.S.D.W.Va. Sept. 11, 2006).

On or about September 22, 2006, DaimlerChrysler repossessed the vehicle without giving the plaintiffs prior notice of a right to cure the default, even though the plaintiffs were current on the installment payments due under the contract and had maintained all necessary insurance on the vehicle. The plaintiffs then commenced this adversary proceeding before the bankruptcy court on September 27, 2006. In that proceeding, the plaintiffs filed a Motion for Expedited Relief on September 28, 2006, seeking injunctive relief prohibiting DaimlerChrysler from selling the vehicle and requiring its return. After a hearing, the bankruptcy court granted the plaintiffs' request and the vehicle was returned to the plaintiffs' possession, where it remains.

The parties reached an agreement on May 1, 2007, to resolve the separate issue of damages, but left the issue of the right to repossess the vehicle for resolution by the bankruptcy court. On August 17, 2007, the bankruptcy court rejected DaimlerChrysler's claim that it had no subject matter jurisdiction over the proceeding, finding that it had jurisdiction pursuant to 28 U.S.C. § 1334. The court then proceeded to hold that "DaimlerChrysler had neither state nor federal bankruptcy law rights to repossess the vehicle, without prior written notice of default and right to cure, upon the Debtor's failure to redeem or reaffirm the debt and when the Plaintiffs were current on the installment payments due under the Contract." Order on Pls.' Compl. for Declaratory Relief, Injunctive Relief, and Monetary Damages at 3, Jones v. DaimlerChrysler, No. 06-02151 (Bankr.S.D.W.Va. Aug. 17, 2007). Accordingly, the court ordered that DaimlerChrysler was "permanently enjoined from repossessing the Vehicle based upon a default under the Contract's default-upon-bankruptcy clause repossession." Id. This appeal followed.

II. Standard of Review

The district court sits as an appellate court in bankruptcy under 28 U.S.C. § 158(a), and reviews findings of fact for clear error and conclusions of law de novo. See 28 U.S.C. § 158(a); Valley Historic Ltd. P'ship v. Bank of New York, 486 F.3d 831, 835 (4th Cir.2007) (citing Kielisch v. Educ. Credit Mgmt. Corp. (In re Kielisch), 258 F.3d 315, 319 (4th Cir.2001)); see also In re Gallagher, 388 B.R. 694, 697 (W.D.N.C.2008). No findings of fact are at issue in this appeal, and the court will review the questions of law de novo.

III. Discussion

DaimlerChrysler raises two issues on appeal, namely: (1) whether the bankruptcy court had subject matter jurisdiction to hear the claims presented in the adversary proceeding, given that the vehicle was no longer part of the bankruptcy estate and the proceeding concerned state law causes of action; and (2) whether DaimlerChrysler had the right under the Bankruptcy Code and applicable state law to repossess the vehicle, without prior notice of a right to cure, upon the debtor's failure to redeem or reaffirm.

A. The Bankruptcy Court Possessed Subject Matter Jurisdiction Over The Adversary Proceeding

Because DaimlerChrysler is challenging the bankruptcy court's subject matter jurisdiction, a potentially dispositive issue, I address it first. The bankruptcy court's jurisdiction in this matter, and in all bankruptcy proceedings, is derived from the district court. See 28 U.S.C. § 157(a), (b)(1). The district courts have "original and exclusive jurisdiction of all cases under title 11," and "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. §§ 157, 1334(a), (b); see also 9 Am. Jur.2d Bankruptcy §§ 706-10. The underlying bankruptcy case was referred to the Bankruptcy Court for the Southern District of West Virginia, where the adversary proceeding at issue also originated.3 DaimlerChrysler argues that the bankruptcy court lacked jurisdiction because the adversary proceeding was not a core bankruptcy proceeding, was based entirely on state law causes of action that had no impact on the administration of the bankruptcy estate, and did not arise under, arise in or relate to cases under title 11. The plaintiffs argue, by contrast, that the adversary proceeding was a core proceeding that satisfied all three statutory grounds of jurisdiction.

The bankruptcy court's jurisdiction over a nonbankruptcy civil proceeding, such as an adversary proceeding, stems from one of three statutory avenues, namely, that the civil proceeding: (1) "arises under" title 11; (2) "arises in" title 11; (3) or is "related to" cases under title 11. See 28 U.S.C. § 1334(a), (b). More specifically, a civil proceeding "arises under" title 11 (the Bankruptcy Code) when the cause of action or right is one that is created by the Code. See In re Aheong, 276 B.R. 233, 242-46 (9th Cir. BAP 2002); see also 1 Collier on Bankruptcy ¶ 3.01(4)(c)(I) (Alan N. Resnick & Henry J. Sommer eds., 15th ed. rev.2006). A civil proceeding "arises in" title 11 if it "is not based on any right expressly created by Title 11, but nevertheless, would have no existence outside of the bankruptcy." Valley Historic Ltd. P'ship, 486 F.3d at 835 (citations omitted; internal quotation marks omitted). Finally, a civil proceeding is "related to" a case under title 11 when "the outcome of that proceeding could conceivably have any effect on the estate being administered in bankruptcy. Therefore, 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 [it] in any way impacts upon the handling and administration of the bankruptcy estate." Id. at 836; see also In re Doctors Hosp. 1997, L.P., 351 B.R. 813, 830 (Bankr. S.D.Tex.2006).

To resolve the jurisdictional challenge, the following additional facts are necessary. The plaintiffs filed the instant adversary proceeding in response to the bankruptcy court's holding that the debtor had not acted to retain the vehicle under 11 U.S.C. §§ 521(a)(2), 362(h), and 521(a)(6). Upon the court's ruling, DaimlerChrysler repossessed the surrendered vehicle. The plaintiffs brought the adversary proceeding in an attempt to retain the vehicle, and asked the bankruptcy court to find, inter alia, that the 2005 amendments to title 11 had not superceded a preexisting common law doctrine adopted by the Fourth Circuit, the so-called...

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