In re Menk
| Citation | 241 BR 896 |
| Decision Date | 05 November 1999 |
| Docket Number | BAP No. SC-98-1816-KRyB. Bankruptcy No. 95-14067. Adversary No. 97-90319. |
| Parties | In re Wolfgang M. MENK, Debtor. Wolfgang M. Menk, Appellant, v. Michael J. Lapaglia and Temecula Ready Mix, Inc., Appellees. |
| Court | Bankruptcy Appellate Panels. U.S. Bankruptcy Appellate Panel, Ninth Circuit |
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Richard Schwabe, Vista, CA, for Wolfgang M. Menk.
Thomas A. Shpall, Rosenberg, Shpall & Associates, San Diego, CA, for Micheal J. La Paglia and Temecula Ready Mix.
Before KLEIN, RYAN and BRANDT, Bankruptcy Judges.
The debtor-appellant lost the trail when he misunderstood what it means to reopen a closed bankruptcy case. Now he is mired in a poorly-explored jurisdictional swamp involving the relationship of 28 U.S.C. § 1334(a) to § 1334(b) and the difference between bankruptcy "cases" and bankruptcy "civil proceedings."
The debtor has appealed the order reopening his bankruptcy case and fixing a deadline for the moving creditor to file an adversary proceeding to determine whether a debt was discharged. Relying on the fallacy that defeating the reopening would pull the jurisdictional carpet from under the discharge litigation, the debtor has not appealed the subsequent judgment declaring the debt to be excepted from discharge.
We hold that we lack jurisdiction because the appeal is moot and because the debtor lacks standing.
The linchpin of our mootness analysis is that exercising jurisdiction pursuant to the "arising under" clause of 28 U.S.C. § 1334(b) to determine whether a debt is excepted from discharge does not require that the closed bankruptcy case first be reopened under 28 U.S.C. § 1334(a). Reopening is irrelevant to the bankruptcy court's jurisdiction to determine whether a debt is excepted from discharge. Hence, no effective relief could be fashioned if we were to reverse the reopening.
The debtor lacks standing because the consequences to him of reopening are too slight to "aggrieve" him.
The appeal must be DISMISSED.
The bankruptcy court had jurisdiction to reopen the case. 28 U.S.C. § 1334(a). We determine our own jurisdiction, including the appellant's standing, sua sponte. National Org. for Women, Inc. v. Scheidler, 510 U.S. 249, 255, 114 S.Ct. 798, 127 L.Ed.2d 99 (1994); Vylene Enter., Inc. v. Naugles, Inc. (In re Vylene Enter., Inc.), 968 F.2d 887, 889 (9th Cir. 1992).
Appellees Michael LaPaglia and Temecula Ready Mix, Inc. ("TRM") obtained an award of compensatory and punitive damages against appellant Wolfgang Menk in 1991.
Menk filed his chapter 7 bankruptcy in 1995 shortly after appellees' counsel took his testimony in a judgment collection proceeding. Menk (who is himself a lawyer) listed LaPaglia and TRM at obsolete addresses from which the post office had ceased forwarding mail and gave no notice to their counsel.
Menk's bankruptcy case was closed within four months as a no-asset case in which a discharge issued without challenge.
After the case was closed, LaPaglia and TRM moved to reopen the bankruptcy case, contending that they had previously been unaware of it, and asked the court to fix a deadline for filing a nondischargeability action.
Menk contested the motion to reopen, arguing that he had scheduled the debts correctly and had exercised appropriate diligence in determining the addresses of creditors.
The bankruptcy court, questioning neither Menk's standing nor whether his defense was material to the question of reopening, rejected the defense on the merits. Reasoning that Menk had not properly scheduled the creditors, the court ruled that complaints could be filed to determine the discharge status of the judgment debt under either 11 U.S.C. § 523(a)(3)(B) or the court's equitable powers by way of 11 U.S.C. § 105. Accordingly, it reopened the bankruptcy case and required that an adversary proceeding be filed within 60 days. An adversary proceeding was filed.
Menk tried to appeal the order reopening the case at once. Our motions panel, over a dissent, ruled that the appeal was interlocutory, treated the notice of appeal as a motion for leave to appeal, denied the motion, and dismissed the appeal.
Judgment was subsequently entered in the adversary proceeding excepting the improperly-scheduled debts from Menk's discharge as being based on willful and malicious conduct.
Menk then renewed his appeal from the order reopening the case but did not appeal the adversary proceeding judgment.
Menk explained at oral argument that he does not question the merits of the judgment excepting the debt from discharge and that, by appealing only the reopening, he thinks he is indirectly attacking the jurisdictional underpinnings of that judgment. In essence, he contends that, were we to reverse the reopening order, the judgment would evaporate.
1. Whether the appeal is moot on the basis that reversal of an order reopening a bankruptcy case would not invalidate a judgment of nondischargeability entered in an adversary proceeding that was filed after the case was reopened.
2. Whether a debtor has standing to appeal an order reopening a case in order to permit a creditor to prosecute a dischargeability action.
The question of our own jurisdiction is an issue of law we are entitled to raise sua sponte and that we address de novo.
Two aspects of jurisdiction are important in this appeal. Could effective relief be fashioned if the order reopening the case were to be reversed? Does the debtor have standing to complain about an order reopening the case at the request of a creditor who wants a debt determined to be excepted from discharge? We answer both questions in the negative.
This appeal is moot if we cannot fashion effective relief in the event of reversal. We must therefore focus on the relationship between subsections 1334(a) and (b) of the Judicial Code. 28 U.S.C. § 1334(a)-(b).
Basic bankruptcy jurisdiction is governed by three subsections of Judicial Code § 1334:
28 U.S.C. § 1334 (emphasis added). The bankruptcy courts are "units" of the district courts that exercise the district court's jurisdiction under terms specified by Congress. 28 U.S.C. § 157.
Our focus is on whether reopening a closed bankruptcy "case" under § 1334(a) is a prerequisite to subject-matter jurisdiction under § 1334(b) over a creditor's "civil adversary proceeding arising under title 11" seeking a determination that a debt is excepted from discharge. If not, then reversal of the reopening order could have no impact on a judgment entered in the adversary proceeding.
The answer requires close attention to the language of the statute, to the ambient structure of bankruptcy in connection with the meanings of "case" and "civil proceeding," and to the history of bankruptcy jurisdiction.
The important point about § 1334 is that there is no explicit requirement that a "case" be open under § 1334(a) for a court to act in a "civil proceeding" under § 1334(b).
Rather, § 1334(b) grants concurrent jurisdiction over civil proceedings, separate and distinct from exclusive jurisdiction over bankruptcy cases under § 1334(a).
The relationship between § 1334(a) and (b) is not rigid: the extent to which § 1334(b) jurisdiction can be exercised in the absence of an open bankruptcy case under § 1334(a) depends upon the nature of the civil proceeding, the essential parties, the impact on the estate, and the doctrines of ripeness, case and controversy, and mootness.
The civil proceeding looming in the background of this appeal, the existence of which we cannot ignore, is a so-called nondischargeability action seeking to have a debt determined to be excepted from discharge under 11 U.S.C. § 523(a)(3)(B) as an omitted debt that was incurred by willful and malicious conduct.
There are three salient points to be made about this cause of action.
First, subject-matter jurisdiction is conferred by the "arising under" clause of § 1334(b), as it is a cause of action created by the Bankruptcy Code, without existence outside the context of bankruptcy, and otherwise unknown to the law. 28 U.S.C. § 1334(b).
Second, the action could be commenced after the bankruptcy case has been closed, the controlling rule specifying that such an action may be filed "at any time." Fed.R.Bankr.P. 4007(b); Fidelity Nat'l Title Ins. Co. v. Franklin (In re Franklin), 179 B.R. 913, 924 (Bankr. E.D.Cal.1995).
Finally, state courts have concurrent jurisdiction to entertain the action. 28 U.S.C. § 1334(b); Franklin, 179 B.R. at 923-24. Thus, the appellees could have filed their action in state court, leaving it to the debtor to decide whether to remove it to bankruptcy court and resist remand. 28 U.S.C. § 1452; Fed.R.Bankr.P. 9027; Siragusa v. Siragusa (In re Siragusa), 27 F.3d 406 (9th Cir.1994);1 Franklin, 179 B.R. at 923-24.
Now we parse § 1334(b), which has three subcategories of subject-matter jurisdiction that we refer to as § 1334(b) "arising under" jurisdiction, § 1334(b) "arising in" jurisdiction, and § 1334(b) "related to" jurisdiction.
Our...
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