In re Landbank Equity Corp.
| Decision Date | 04 August 1987 |
| Docket Number | Civ. A. No. 87-167-N.,Bankruptcy No. 85-01541-N |
| Citation | 77 BR 44 |
| Parties | In re LANDBANK EQUITY CORPORATION, Debtor. Laurence H. LEVY, Trustee, Appellee, v. BUTLER, PAYNE AND GRIFFIN, Frank E. Butler, III, Woodruff H. Griffin, and Richard E. Payne, Appellants. |
| Court | U.S. District Court — Eastern District of Virginia |
David H. Adams, Clark & Stant, Virginia Beach, Va., Frank J. Santoro, Portsmouth, Va., for appellee.
Tom C. Smith, Virginia Beach, Va., Charles M. Lollar, Michelle Rack, Heilig, McKenry, Fraim and Lollar, Norfolk, Va., Vann H. Lefcoe, Livesay & Lefcoe, Ltd., Portsmouth, Va., for appellants.
This matter comes before the Court on appeal from the interlocutory Order of the United States Bankruptcy Court entered February 23, 1987. By Order dated May 5, 1987, this Court granted leave to appeal the interlocutory Order pursuant to 28 U.S.C. § 1334(b) and permitted Woodruff H. Griffin to intervene in the appeal. The parties have submitted briefs; therefore, this matter is ready for decision.
On September 24, 1986, the Trustee filed in the Bankruptcy Court a Complaint against the defendants alleging a conspiracy to defraud Landbank Equity Corporation (Landbank) and its creditors and also alleging several acts of negligence by the defendants, all of which were claimed to have resulted in damages to Landbank. The Complaint was one of a series of Complaints filed by the Trustee against Landbank's former officers, employees, accountants and attorneys. The Bankruptcy Court entered an Order in the suit against the Runnells family members in which the Court ruled, inter alia, that the cause of action for conspiracy did not lie. The Trustee requested leave to replead all of his pending Complaints, including the instant suit against these defendants. Leave was granted, and the Amended Complaint was filed on December 23, 1986.
The Amended Complaint contains four counts: (1) that the defendants, as attorneys for Landbank, negligently failed to handle or complete certain foreclosures, causing Landbank to lose money; (2) that the defendants, as attorneys for Landbank, negligently conducted loan closings, causing Landbank to incur "excessive administrative expenses;" (3) that the defendants, as attorneys for Landbank, and various borrowers in a series of condominium closings negligently permitted Landbank and the Runnellses to fail to pay off prior deeds of trust, causing claims to be made against Landbank; and (4) that the defendants defrauded Landbank by overbilling it for legal fees.
The defendants filed two Motions in response to the Trustee's Amended Complaint. First, to determine the nature of the proceeding as a non-core "related" proceeding, and then to either dismiss the Amended Complaint for lack of jurisdiction or to abstain from adjudicating it pursuant to 28 U.S.C. § 1334(c). Second, to dismiss the Amended Complaint for failure to state a claim, or, alternatively, to require a more definite statement of the facts and theories supporting the claims.
The Bankruptcy Court denied both Motions from the bench on February 2, 1987 and entered an Order embodying this ruling on February 23, 1987. This appeal is taken only from the Bankruptcy Court's ruling that the proceeding is a "core proceeding" within the meaning of 28 U.S.C. § 157(b)(2) and the consequent rulings that the Bankruptcy Court has jurisdiction and need not abstain.
In reviewing a decision of the Bankruptcy Court, this Court can set aside findings of fact only if they are clearly erroneous. 11 U.S.C. Rule 8013 (1984); Harman v. Levin, 772 F.2d 1150, 1152-53 (4th Cir. 1985). This Court, however, is not bound by the Bankruptcy Court's conclusions of law. See In re Multipanics, 622 F.2d 709, 713 (5th Cir.1980); In re Fett Roofing & Sheet Metal Co., Inc., 438 F.Supp. 726, 729 (E.D.Va.1977), aff'd, 605 F.2d 1201 (4th Cir. 1979). On appeal from a decision of the bankruptcy court, the district court may make an independent examination and determine questions of law. In re Ford, 53 B.R. 444 (W.D.Va.1984), aff'd, 773 F.2d 52 (4th Cir.1985).
The first issue on appeal is whether the Bankruptcy Court erred when it determined that the Trustee's action was a "core" proceeding within the meaning of 28 U.S.C. § 157.
The Bankruptcy Amendments and Federal Judgeship Act of 1984 require the bankruptcy judge to determine whether a proceeding is a "core" or "related" proceeding. 28 U.S.C. § 157(b)(3). If a matter is determined to be a core proceeding, the bankruptcy court may hear it and render a final determination, subject to appeal. 28 U.S.C. § 157(b)(1). Pursuant to 28 U.S.C. § 157(c), bankruptcy judges may also hear matters that are not core proceedings but are otherwise related to a case under title 11. However, bankruptcy judges may not enter final orders in these "non-core" proceedings absent the consent of the parties; instead, the bankruptcy judge must submit his findings of fact and conclusions of law to the district court. The district court may then enter a final order or judgment after considering the bankruptcy judge's proposed findings and conclusions and reviewing de novo any matters to which any party objects. 28 U.S.C. § 157(c)(1). The distinction Congress made between what a bankruptcy judge may hear and determine and just hear was no doubt in response to the constitutional infirmities of the Bankruptcy Reform Act of 1978 the Supreme Court found in Northern Pipeline Construction Co. v. Marathon Pipe Line Co., 458 U.S. 50, 102 S.Ct. 2858, 73 L.Ed.2d 598 (1982).
The term "core proceeding" is not explicitly defined anywhere in the 1984 Amendments. However, 28 U.S.C. § 157(b)(2) contains a nonexclusive list of such actions. Section 157(b)(2) provides that:
28 U.S.C. § 157(b)(2)(A)-(O) (Supp.1987). Section 157(b)(3) states that:
The bankruptcy judge shall determine . . . whether a proceeding is a core proceeding under this subsection or is a proceeding that is otherwise related to a case under title 11. A determination that a proceeding is not a core proceeding shall not be made solely on the basis that its resolution may be affected by State law.
28 U.S.C. § 157(b)(3) (Supp.1987).
The Bankruptcy Court held that the proceeding brought by the Trustee against these defendants was a "core proceeding." The Court stated that it:
Is of the opinion that this is a part of the core, the purpose that Congress has set forth which may be unconstitutional. I\'m not going to declare it such, that it is a part of what Congress intended when it set up core, and is not this non-core bit that involves something really completely remote. This is a part of the heart, the core, of Landbank itself. . . . I would have to say further that this Court is very much guided by Judge MacKenzie\'s decision in the William Runnells matter. While he didn\'t even know this was coming along, I dare say, not speaking for him. I think that there was a broadness given there about the trustee trying to marshall together the case that led Judge MacKenzie to decide as he did. (Tr. 52-3).
For the following reasons, this Court REVERSES the decision of the Bankruptcy Court and finds that the Amended Complaint is a non-core "related" proceeding.
The Bankruptcy Court stated when making its determination that this was a core proceeding that it relied heavily on the decision by Judge MacKenzie in Levy v. Runnells, 77 B.R. 41, (E.D.Va.1986) and Huffman v. Brandan, 59 B.R. 319 (W.D.Va. 1986). In both the Runnells case and the Brandan case, the relief sought by the Trustee was clearly "core" relief—turnover of property under Section 543 of the Bankruptcy Code, setting aside preferences under Section 547, setting aside fraudulent transfers under Section 547, and avoiding post-petition transactions.
In the present case, the Trustee is seeking to recover money damages incurred by Landbank due to the defendants' alleged negligent representation of Landbank in certain real estate loan closings and foreclosure proceedings, and for their alleged preparation of false statements for loan closings handled on behalf of Landbank. None of the allegations in the Trustee's Amended Complaint demand relief under the list of "core" proceedings set forth in Section 157(b)(2). There are no allegations that these defendants have any property belonging to Landbank, or that they have filed any claims against the estate.
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