In re Kaiser Steel Corp.

• Court: U.S. Bankruptcy Court — District of Colorado
• Writing for the Court: CHARLES E. MATHESON
• Citation: In re Kaiser Steel Corp., 80 B.R. 216 (Bankr. Colo. 1987)
• Decision Date: 24 November 1987
• Docket Number: Adv. No. 87 E 135.,Bankruptcy No. 87 B 1553 E
• Parties: In re KAISER STEEL CORPORATION, Debtor. KAISER STEEL CORPORATION, Plaintiff, v. Joseph A. FRATES, et al., Defendants.

80 B.R. 216 (1987)

In re KAISER STEEL CORPORATION, Debtor KAISER STEEL CORPORATION, Plaintiff, v. Joseph A. FRATES, et al., Defendants.

Bankruptcy No. 87 B 1553 E, Adv. No. 87 E 135.

United States Bankruptcy Court, D. Colorado.

November 24, 1987.

Edward M. Glennon, John T. Connelly, Lawrence R. Waldock, James P. McCarthy, Lindquist & Vennum, Minneapolis, Minn., H. Thomas Coghill, David J. Richman, Coghill & Goodspeed, Denver, Colo., for plaintiff, debtor-in-possession Kaiser Steel Corp.

Leon C. Marcus, Robin S. Weinstein, Booth, Marcus & Pierce, New York City, Michael E. Katch, Katch, Anderson & Wasserman, Denver, Colo., for plaintiff, The Official Unsecured Creditors' Committee of Kaiser Steel Corp.

Thomas P. Johnson, Timothy D. Knaus, Mayer, Brown & Platt, Denver, Colo., for defendants State Federal Sav. & Loan and Sierra Gateway Development, Inc.

ORDER ON MOTION TO EXPUNGE NOTICE OF LIS PENDENS

CHARLES E. MATHESON, Chief Judge.

This matter is before the Court on State Federal Savings and Loan Association and Sierra Gateway Development, Inc.'s ("State Federal") motion to expunge the notice of lis pendens filed by Kaiser Steel Corporation ("Kaiser" or "plaintiff") in San Bernadino County, California. Both State Federal and Kaiser submitted briefs in support of their positions concerning the motion.

State Federal has asserted that Kaiser is ineligible to file its lis pendens notice pursuant to California law and, alternatively, that Kaiser bears an evidentiary burden similar to that applicable to a motion for a preliminary injunction in opposing the motion to expunge. Conversely, Kaiser maintains that it is eligible to file its lis pendens notice pursuant to California law and that its burden in opposing the motion to expunge is substantively different than that required in a preliminary injunction proceeding.

It should be noted that the matter before the Court, involving the convergence of the questions concerning (a) subject matter jurisdiction over a res situated in another state within the context of a recovery action brought in Federal bankruptcy court and (b) the extent to which lis pendens principles allow one to affect title to property where the underlying action is brought in a different state from that of the res, is one of first impression. The interplay between the effect of lis pendens filings and the ability to marshall and otherwise preserve the assets of an estate is given a heightened focus in the present context. The Court will first address Kaiser's eligibility to file the lis pendens notice and then endeavor to ascertain the burden of proof which a party must bear under California law in opposing a motion to expunge.

This matter is inextricably linked to the Kaiser claims being asserted for the recovery of fraudulent conveyances. The Court therefore finds that this is a "core" matter pursuant to 28 U.S.C. § 157(b)(2)(H) and a final order shall enter accordingly.

MEMORANDUM

Eligibility to File a Notice of Lis Pendens With Extraterratorial Effect Pursuant to Cal.Civ.Pro.Code § 409 and 28 U.S.C. § 1964

State Federal contends that a notice of lis pendens can be filed in California and thereby affect title to California real property only by litigants with a suit pending in that state. Such a contention is at odds with the language of the relevant California statute and the federal statute regarding the filing of lis pendens notices involving cases pending in federal courts. See Cal.Civ.Pro.Code § 409; 28 U.S.C. § 1964. Within the context of federal bankruptcy proceedings, State Federal's position is untenable and would deprive bankruptcy litigants of the ability to determine rights to property of the estate wherever located and avail themselves of the privilege of filing notices of lis pendens, something reserved for all federal litigants by California's lis pendens recording statute, where subject matter jurisdiction over the res exists. See Cal.Civ.Pro.Code § 409(a).

It is well established that the propriety of filing a lis pendens notice involving a federal lawsuit is a matter governed by state law. Hamilton v. Smith, 808 F.2d 36 (10th Cir.1986). Since the real property at issue is located in California, this Court must look to that state's substantive law. The California lis pendens statute provides in relevant part:

This section authorizes a notice of an action concerning real property pending in any United States district court to be recorded and indexed in the same manner and in the same place as herein provided with respect to notices of action pending in courts of this state.

Cal.Civ.Pro.Code § 409(a) (emphasis supplied).

The interpretation of a statute should be according to the plain meaning of the language therein. There is no limitation concerning which federal litigants may file lis pendens notices pursuant to the California statute.

In Allied Eastern Financial v. Goheen Enterprises, 265 Cal.App.2d 131, 71 Cal.Rptr. 126 (Cal.App.1968), the California Court of Appeals commented upon an amendment to the California lis pendens statute providing for the recordation of notice of pending federal actions. As the Allied court stated:

In 1959, the California legislature amended the lis pendens statute. The amendment was expressly intended to make the statute available to litigants in federal court actions (Senate Judiciary Committee Report, for Interim 1957-1959, upon S.B. 27) (emphasis supplied). Allied, 71 Cal.Rptr. at 127.

California courts have had the opportunity to limit the eligibility for filing lis pendens notices by out-of-state federal litigants since the passage of the 1959 amendment. There is no case of record demonstrating any such limitation. The language of Cal.Civ.Pro.Code § 409 leads one to the conclusion that when the California legislature authorized the filing of a lis pendens notice "of an action . . . pending in any United States district court" (emphasis supplied), it meant exactly that—any, within or without the confines of California where the court hearing the underlying action has subject matter jurisdiction over the property at issue.

In its argument, State Federal cites Ludvik v. James S. Jackson Co., Inc., 635 P.2d 1135 (Wyo.1985) in support of its contention that the California statute is limited to federal litigants within California. In Ludvik, the Supreme Court of Wyoming considered whether the Wyoming lis pendens statute permitted the filing of such a notice where the underlying action was pending outside the state. The issue arose within the context of an action to quiet title between two alternative assignees of an interest in Wyoming real estate. The underlying action giving rise to the lis pendens notice at issue within Ludvik had been brought in the United States District Court for the Northern District of Indiana, sitting in diversity. The Ludvik court held that since the Indiana federal district court was exercising its diversity jurisdiction, it was acting merely as another court of the state of Indiana. Ludvik, 638 P.2d at 1141-42.

The Indiana suit underlying the lis pendens notice at issue in Ludvik was brought by the Jackson Company to obtain a judgment for monies due it and to obtain an assignment of an interest in Wyoming real estate, an assignment previously agreed to as a guarantee of a debt. The Ludvik court held that no special efficacy would be ascribed to the lis pendens notice connected thereto since the Indiana court had no jurisdiction over the Wyoming real property other than through its power to order the parties before it to effect a transfer or an assignment of an interest in the res as a result of the Indiana court's judgment. The Indiana court's jurisdiction was therefore in personam rather than in rem, its judgment not directly affecting the real property. See, Ludvik, 635 P.2d at 1140-42.

Although this court questions the narrow holding of the Ludvik court respecting the ability of out-of-state litigants to file notices of lis pendens regardless of whether the out-of-state tribunal has subject matter jurisdiction over the res at issue, this Court does agree that the issue of whether the extraterritorial tribunal has jurisdiction over the res must be addressed before any ruling to expunge a notice of lis pendens. Where it is determined that a court does indeed have jurisdiction over the res, there should be no bar to filing a lis pendens notice in another state if the relevant state law permits such a filing. While it is acknowledged that subject matter jurisdiction over real property is generally limited to courts within the same state as that of the res, the jurisdictional grant of federal bankruptcy courts provides an exception to that rule. Given that, the subject matter jurisdiction analysis contained within Ludvik is inapplicable herein.

Pursuant to 11 U.S.C. §§ 105 and 541, 28 U.S.C. §§ 157(b) and 1334(d) and an order of reference under 28 U.S.C. § 157(a), federal bankruptcy courts are granted subject matter jurisdiction over all property of a debtor's estate. See, Delgado Oil Co., Inc. v. Torres, 785 F.2d 857, 860 (10th Cir.1986). Property of the estate may be recovered as the result of actions for turnover or the avoidance of transfers or liens pursuant to 11 U.S.C. §§ 522, 542, 543, 544, 545, 547, 548, and 549. In the case at bar, Kaiser has brought an action pursuant to Section 548 to avoid an alleged fraudulent conveyance. If that action is successful, Kaiser's estate could recover the California real property at issue. Since this Court has been granted specific subject matter jurisdiction over such real property pursuant to of 11 U.S.C. §§ 541 and 548 and 28 U.S.C. §§ 157(b)(2)(H) and 1334(d), the concern over the lack of subject matter jurisdiction by the relevant courts noted in Ludvik, supra, and Fall v. Eastin, 215 U.S. 1, 30 S.Ct. 3, 54 L.Ed. 65 (1909), is obviated.

The United States Supreme Court acknowledged as early as 1910 that a court of one state could have subject matter...