IN RE KESSLER

• Decision Date: 22 June 2010
• Docket Number: Adversary No. 1-10-ap-00046 RNO.,Bankruptcy No. 1-09-bk-01292 RNO.
• Citation: 430 B.R. 155
• Parties: In re Stephen Francis KESSLER and Lisa Katherine Kessler dba Locust Motors, Debtors: Metro Bank f/k/a Commerce Bank/Harrisburg, N.A., Plaintiff v. Stephen Francis Kessler and Lisa Katherine Kessler dba Locust Motors, and M Kevin Ricker Builder, Defendants.
• Court: U.S. Bankruptcy Court — Middle District of Pennsylvania

430 B.R. 155

In re Stephen Francis KESSLER and Lisa Katherine Kessler dba Locust Motors, Debtors:

Metro Bank f/k/a Commerce Bank/Harrisburg, N.A., Plaintiff v. Stephen Francis Kessler and Lisa Katherine Kessler dba Locust Motors, and M Kevin Ricker Builder, Defendants.

Bankruptcy No. 1-09-bk-01292 RNO. Adversary No. 1-10-ap-00046 RNO.

United States Bankruptcy Court, M.D. Pennsylvania.

June 22, 2010.

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Clayton William Davidson, McNees Wallace and Nurick LLC, Timothy A. Hoy, Mette Evans and Woodside, Harrisburg, PA, for Plaintiff.

Marc Allan Crum, Law Office of Dorothy L. Mott, Robert D. Kodak, Kodak and Imblum PC, Harrisburg, PA, for Defendants.

OPINION¹

ROBERT N. OPEL II, Bankruptcy Judge.

I. Procedural History

This Adversary Proceeding was commenced by a Complaint filed by Metro Bank f/k/a Commerce Bank/Harrisburg, N.A. ("Metro Bank") on February 9, 2010. The Complaint seeks a determination of lien priority on 1196 Oliver Lane, Lower Paxton Township, Pennsylvania ("Oliver Lane Property"). Specifically, Metro Bank seeks a declaration that its mortgage lien has priority over the mechanic's lien of Defendant, M Kevin Ricker Builder ("Builder"), on that same property. On March 10, 2010, Builder filed a Motion to transfer this Adversary Proceeding to the Court of Common Pleas of Dauphin County. The Motion was withdrawn in open court at a March 18, 2010, status conference.

Subsequently, on March 22, 2010, Builder filed the Motion of M. Kevin Ricker Builder for Abstention ("Abstention Motion"). Metro filed an Answer on April 2, 2010. A hearing was held on April 22, 2010. At the hearing, a briefing schedule was set and the Abstention Motion was taken under advisement. Builder filed its Brief on April 30, 2010. On May 10, 2010, the Kesslers and Metro Bank each filed a Brief. This matter is now ripe for decision. The issue is whether this Court should abstain from hearing the subject Adversary Proceeding. For the reasons set forth below, I conclude that, although mandatory abstention is inapplicable to this proceeding, I will permissively abstain from hearing this Adversary Proceeding.

II. Facts

Defendants, Stephen Francis Kessler and Lisa Katherine Kessler (collectively "the Kesslers"), filed a Chapter 13 Voluntary Petition on February 26, 2009. The Kesslers own the Oliver Lane Property subject to the Metro Bank and Builder liens. Both Builder and Metro Bank have obtained relief from the automatic stay to pursue state court remedies.² As stated in Builder and Metro Bank's Briefs, a sheriff's sale of the Oliver Lane Property is currently scheduled for June 3, 2010.³ No plan has been confirmed in the underlying Chapter 13 bankruptcy case.

III. Discussion

28 U.S.C. § 1334(c) provides two separate avenues for abstention, commonly known as permissive and mandatory abstention. 28 U.S.C. § 1334(c) provides that:

(1) Except with respect to a case under chapter 15 of title 11, nothing in this section prevents a district court in the interest of justice, or in the interest of comity with State courts or respect for State law, from abstaining from hearing a particular proceeding arising under title 11 or arising in or related to a case under title 11.

(2) Upon timely motion of a party in a proceeding based upon a state law claim or State law cause of action, related to a case under title 11 but not arising under title 11 or arising in a case under title 11, with respect to which an action could not have been commenced in a court of the United States absent jurisdiction under this section, the district court shall abstain from hearing such proceeding if an action is commenced, and can be timely adjudicated, in a State forum of appropriate jurisdiction.

Before discussing whether either mandatory or permissive abstention is appropriate, I find it necessary to first determine whether I have jurisdiction over this proceeding. The parties dispute the extent to which this Court has jurisdiction. As set forth more specifically in subsections B and C below, the extent to which I have jurisdiction directly relates to certain relevant factors for permissive and mandatory abstention. Therefore, I will first determine what type of jurisdiction, if any, I have over this proceeding.

A. Jurisdiction

The parties appear to disagree over whether this Court has "core" or merely "related to" jurisdiction over this proceeding. Metro Bank argues that this Court has "core" jurisdiction pursuant to 28 U.S.C. § 157(b)(2)(K).⁴ Builder argues that this Court does not have "core" jurisdiction and that any relatedness to the main case is remote.⁵ The Kesslers appear to concede that this proceeding is non-core but argue that this Court has "related to" jurisdiction over this case and should, therefore, not abstain.⁶

Bankruptcy courts only have the limited authority vested in them by Congress in federal statutes. In re Resorts Intern., Inc., 372 F.3d 154, 161 (3d Cir. 2004) (referencing Bd. of Governors v. MCorp. Fin., Inc., 502 U.S. 32, 40, 112 S.Ct. 459, 116 L.Ed.2d 358 (1991)). "Bankruptcy jurisdiction extends to four types of title 11 matters: (1) cases `under' title 11; (2) proceedings `arising under' title 11; (3) proceedings `arising in' a case under title 11; and (4) proceedings `related to' a case under title 11." Stoe v. Flaherty, 436 F.3d 209, 216 (3d Cir.2006) (citing In re Combustion Eng'g, Inc., 391 F.3d 190, 225 (3d Cir.2005)). "The category of cases `under' title 11 `refers merely to the bankruptcy petition itself.'" Stoe, 436 F.3d at 216 (citing In re Combustion Eng'g, Inc., 391 at 225-226 n. 38). "A cases `arises under' title 11 `if it invokes a substantive right provided by title 11.'" Stoe, 436 F.3d at 216 (citing In re Guild & Gallery Plus, Inc., 72 F.3d 1171, 1178 (3d Cir.1996)).

"The category of proceedings `arising in' bankruptcy cases `includes such things as administrative matters, orders to turn over property of the estate and determinations of the validity, extent, or priority of liens'.... Proceedings `arise in' a bankruptcy case, `if they have no existence outside of the bankruptcy.'" Stoe, 436 F.3d at 216 (citing United States Trustee v. Gryphon at the Stone Mansion, Inc., 166 F.3d 552, 556 (3d Cir.1999)). "... a proceeding is `related to' a bankruptcy case if `the outcome of that proceeding could conceivably have any effect on the estate being administered in bankruptcy.'" Stoe, 436 F.3d at 216 (citing In re Pacor, Inc. v. Higgins, 743 F.2d 984, 994 (3d Cir.1984)).

(1) Core Jurisdiction

Cases "under" title 11, proceedings "arising under" title 11, and proceedings "arising in" a case under title 11 fall within a bankruptcy court's "core jurisdiction". The Third Circuit recently gave further guidance for determining whether a claim is "core" in In re Exide Technologies, 544 F.3d 196, 206 (3d Cir.2008) and In re Winstar Communications, Inc., 554 F.3d 382, 405 (3d Cir.2009). "In order to evaluate whether a claim is `core,' a court must first look to the illustrative list of `core' proceedings found in § 157(b)(2). It must then conduct this Court's two-step test, according to which a claim will be deemed core `if (1) it invokes a substantive right provided by title 11 or (2) if it is a proceeding, that by its nature, could arise only in the context of a bankruptcy case." In re Exide Technologies, 544 F.3d at 206 (citing Halper v. Halper, 164 F.3d 830, 836 (3d Cir.1999)); In re Winstar Communications, Inc., 554 F.3d at 405.

28 U.S.C. § 157(b) does not give a precise definition to determine whether a proceeding is "core" but rather "... provides an illustrative list of proceedings that may be considered `core.'" Halper v. Halper, 164 F.3d 830, 836 (3d Cir.1999) (emphasis added). "It is important, however, that a court `not simply apply the terms of the statute but rather analyze the nature of the underlying claim to determine whether, given constitutional constraints on bankruptcy jurisdiction ..., that claim should be considered a core proceeding." In re Exide Technologies, 544 F.3d at 207 (citing Meadowlands Commc'ns, Inc. v. Banker's Trust Co., 79 B.R. 198, 199-200 (D.N.J.1987)).

This approach is designed to be mindful of the constitutional limitations highlighted by Northern Pipeline Const. Co. v. Marathon Pipe Line Co., 458 U.S. 50, 102 S.Ct. 2858, 73 L.Ed.2d 598 (1982). See Beard v. Braunstein, 914 F.2d 434, 443-445 (3d Cir.1990) (discussing different approaches to interpreting the categories of 28 U.S.C. § 157 within the limits of the Constitution). A claim might not be "core" even if it appears to fall within one of the illustrative examples of 28 U.S.C. § 157(b)(2); See, e.g., In re Guild and Gallery Plus, Inc., 72 F.3d 1171, 1178 (3d Cir.1996). Beard, 914 F.2d at 444-445 (finding that although the plaintiff could argue that the case fell within 28 U.S.C. § 157(b)(2)(E), a closer analysis led to a determination that the proceeding was not "core").

In the present case, I first look to the list of examples of core proceedings in 28 U.S.C. § 157(b)(2). As noted by the parties, one of the illustrative examples, 28 U.S.C. § 157(b)(2)(K), specifically includes "determinations of the validity, extent, or priority of liens." I must next look to whether the proceeding invokes a substantive right provided by Title 11 or if the proceeding could, by its nature, only arise in a bankruptcy case. This will help determine whether the bankruptcy court's jurisdiction over this particular proceeding to determine lien priority is, in fact, core. None of the Briefs appear to argue that this proceeding invokes a substantive right provided by Title 11, and I find that it does not invoke any such substantive right. Metro Bank argues that this proceeding arises in the context of a bankruptcy case because the subject property is property of the estate.⁷ This appears to be a misreading of Third Circuit law, which maintains as set out above, that...