In re Matheney
| Decision Date | 24 March 1992 |
| Docket Number | Adv. No. 2-91-0421.,Bankruptcy No. 2-89-06704 |
| Citation | 138 BR 541 |
| Parties | In re Douglas MATHENEY, Debtor. Larry J. McCLATCHEY, Trustee, Plaintiff, v. OHIO PUBLIC EMPLOYEES DEFERRED COMPENSATION PROGRAM, Defendant. |
| Court | U.S. Bankruptcy Court — Southern District of Ohio |
Larry J. McClatchey, Emens, Hurd, Kegler & Ritter, Columbus, Ohio, for trustee, plaintiff.
Christopher B. McNeil, Asst. Atty. Gen., Columbus, Ohio, for Ohio Public Employees Deferred Compensation Program.
Charles M. Caldwell, Columbus, Ohio, Asst. U.S. Trustee.
ORDER ON MOTION FOR DETERMINATION OF NON-CORE STATUS AND GRANTING MOTION FOR SUMMARY JUDGMENT
This matter is before the Court upon a motion for determination of non-core status ("Motion for Determination") filed by the Ohio Public Employees Deferred Compensation Program, the defendant in the instant adversary proceeding. Larry J. McClatchey ("trustee"), the trustee in the underlying Chapter 7 case and the plaintiff in this proceeding, filed a response in opposition to the Motion for Determination and, in conjunction with that, a motion for summary judgment. The defendant filed a response to the motion for summary judgment and a reply to the trustee's response in opposition to the Motion for Determination; the trustee also has replied to the defendant's opposition to the motion for summary judgment.
1. Douglas Matheney filed a petition under Chapter 7 of the Bankruptcy Code on November 28, 1989. Listed in the schedules accompanying the petition is the debtor's interest in a "public employees deferred compensation program" (hereinafter, the "Program"). The interest is valued at $3,690.88. The debtor claimed this interest as exempt pursuant to Ohio Revised Code ("O.R.C.") §§ 2329.66(A)(10)(a) and 2329.66(A)(10)(c). The trustee objected to this claim of exemption; as no response to the objection was filed, it was sustained by order entered April 23, 1990.
2. On November 18, 1991, the trustee filed the instant complaint, seeking turnover of the debtor's interest in the Program. The trustee alleges, in paragraph 4 of the complaint, that the debtor has a property interest in "funds administered by and in possession of the defendant to the extent of $3,720.04, according to the account statement." The defendant admits that the document attached to the complaint is a participant statement of the debtor's account, but denies the other allegations in paragraph 4. The trustee further alleges, and the defendant admits, that on October 18, 1990, the trustee filed and served upon the defendant a motion for turnover of property of the estate. The defendant did not respond to this motion.
3. The Program was established and is operated in accordance with O.R.C. §§ 145.71-145.74 and 26 U.S.C. § 457, and the regulations promulgated thereunder, as a non-qualified, unfunded, deferred compensation plan for State of Ohio employees. The Program allows eligible State employees to elect to participate in the State's Deferred Compensation Plan by executing a Participation Agreement which directs that the State defer payment of a specified amount of the employee's compensation. The State then establishes an account in the employee's name with respect to the deferred funds. The deferred funds are not subject to Federal or State taxation until the employee-participant receives a distribution of funds from the Program.
4. A participant may obtain his deferred funds from the Program under the following conditions: (1) when he reaches the age of 70½; (2) is separated from service with the employer; or (3) when faced with an unforeseeable emergency. An unforeseeable emergency is defined as:
severe financial hardship resulting from a sudden and unexpected illness or accident of a participant or of a dependent (as defined in § 152(a) of the Code) of the participant, loss of the participant\'s property due to casualty, or other similar extraordinary and unforeseeable circumstances arising out of events beyond the control of the participant which hardship cannot be relieved by reimbursement or compensation (by insurance or otherwise), liquidation of the participant\'s assets (to the extent that liquidation would not itself cause severe financial hardship), or cessation of deferrals under the plan.
Deferred Compensation Plan, para. 1.24. Upon application by a participant, the plan administrator is to make the decision as to whether an unforeseeable emergency exists; such a decision shall be final and conclusive. Id.
5. The debtor is, and has been, an "eligible employee" and a "participating employee" in the Program; as such, on the date the petition was filed, the State had deferred the sum of $3,720.04 of what would otherwise have been paid to the debtor as current compensation. At the time of the filing of the bankruptcy petition, the debtor was not separated from public service and had not attained age 70½. The debtor has never requested of the plan administrator a determination of the existence of an unforeseeable emergency.
6. The defendant denies that the instant proceeding is core and that the Court has jurisdiction over these proceedings. Answer, para. 2.
28 U.S.C. § 1334 governs the existence of jurisdiction in bankruptcy courts:
Section 1334 establishes four types of matters over which the district court has jurisdiction: (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. The first category describes the underlying bankruptcy case upon which all subsequent proceedings rest. Michigan Employment Sec. Comm'n. v. Wolverine Radio Co., Inc. (In re Wolverine Radio Co.), 930 F.2d 1132, 1141 (6th Cir.1991) (citing Robinson v. Michigan Consol. Gas Co., 918 F.2d 579, 583 (6th Cir.1990); Wood v. Wood (Matter of Wood), 825 F.2d 90, 92 (5th Cir.1987)).
It is not necessary to distinguish between the second, third, and fourth categories of jurisdiction, all of which are subsumed under § 1334(b). These categories (proceedings "arising under," "arising in," and "related to" a case under title 11) operate together to define the scope of bankruptcy jurisdiction. Wolverine Radio, 930 F.2d at 1141 (citing Wood, 825 F.2d at 93). A determination of § 1334(b) jurisdiction hinges on whether a matter is at least "related to" the bankruptcy. Wolverine Radio, 930 F.2d at 1141.
An increasingly expansive definition of a related proceeding under § 1334(b) has been adopted by a number of the circuit courts. Id.; Robinson, 918 F.2d at 583. See also Hughes-Bechtol, Inc. v. Ohio (In re Hughes-Bechtol, Inc.), 124 B.R. 1007, 1015 (Bankr.S.D.Ohio 1991).
The usual articulation of the test for determining whether a civil proceeding is related to bankruptcy is whether the outcome of the proceeding could conceivably have any effect on the estate being administered in bankruptcy. Thus, the proceeding need not necessarily be against the debtor or against the debtor\'s property. 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 which in any way impacts upon the handling and administration of the bankrupt estate.
Wolverine Radio, 930 F.2d at 1142 (quoting Pacor, Inc. v. Higgins, 743 F.2d 984, 994 (3d Cir.1984) (citations omitted)); Robinson, 918 F.2d at 584 (quoting In re Salem Mortgage Co., 783 F.2d 626, 634 (6th Cir.1986)). This doctrine also has been adopted by the Fourth Circuit, A.H. Robins Co., Inc. v. Piccinin (In re A.H. Robins Co., Inc.), 788 F.2d 994, 1002 n. 11 (4th Cir.1985), cert. denied, 479 U.S. 876, 107 S.Ct. 251, 93 L.Ed.2d 177 (1986); the Fifth Circuit, Wood, 825 F.2d at 93; the Eighth Circuit, Dogpatch Properties, Inc. v. Dogpatch U.S.A., Inc. (In re Dogpatch U.S.A., Inc.), 810 F.2d 782, 786 (8th Cir.1987); and the Ninth Circuit, Fietz v. Great Western Savings (In re Fietz), 852 F.2d 455, 457 (9th Cir.1988).
Employing the foregoing analysis, the Court determines that it possesses jurisdiction over this proceeding. The outcome of this proceeding clearly could have an effect on the bankruptcy estate. Recovery by the trustee of the funds the debtor has deposited in the Program will provide additional monies for the bankruptcy estate and, hence, additional monies for distribution to creditors. The defendant's contention that the Court does not have jurisdiction over these proceedings is not well-taken.
The trustee contends that, as this action seeks turnover, it is a core proceeding under 28 U.S.C. § 157(b)(2)(E) and (O). The defendant disagrees. It argues that the proceeding is non-core because the action requires construction of the contract between the debtor and the Program and, thus, does not have any federal bankruptcy law as its basis; rather, state common law will control the proceedings.
Countless decisions, including several of this Court, have explored in depth the distinction between core and non-core proceedings. The Supreme Court's decision in Northern Pipeline Co. v. Marathon Pipe Line Co., 458 U.S. 50, 102 S.Ct. 2858, 73 L.Ed.2d 598 (1982), and the subsequent enactment of the Bankruptcy Amendments and Federal Judgeship Act of 1984 ("BAFJA"), spawned this analysis. BAFJA's restructuring of...
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