In re Porter

• Decision Date: 19 June 2003
• Docket Number: Bankruptcy No. 00-34284F.,Adversary No. 02-1453.
• Citation: 295 B.R. 529
• Parties: In re Roslyn PORTER, Debtor. Roslyn Porter, Plaintiff, v. NationsCredit Consumer Discount Company; Bank of America, NA.; NationsCredit Consumer Corporation; NationsCredit Insurance Corporation; Nations Credit Financial Services Corporation; Fairbanks Capital Corporation; Protective Life Insurance Company, and other Defendants who are yet unknown to the Plaintiff class, Defendant.
• Court: U.S. Bankruptcy Court — Eastern District of Pennsylvania

Page 529

295 B.R. 529

In re Roslyn PORTER, Debtor Roslyn Porter, Plaintiff, v. NationsCredit Consumer Discount Company; Bank of America, NA.; NationsCredit Consumer Corporation; NationsCredit Insurance Corporation; Nations Credit Financial Services Corporation; Fairbanks Capital Corporation; Protective Life Insurance Company, and other Defendants who are yet unknown to the Plaintiff class, Defendant.

Bankruptcy No. 00-34284F.

Adversary No. 02-1453.

United States Bankruptcy Court, E.D. Pennsylvania.

June 19, 2003.

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Paul J. Giordano, Philadelphia, PA, Lorraine Gazzara Romolini, Law Offices of Mark J. Udren & Assoc., Cherry Hill, NJ, for creditor.

Mary Jeffery, Philadelphia, PA, for debtor.

MEMORANDUM

BRUCE I. FOX, Chief Judge.

The defendants in the above-captioned putative class action have requested that this adversary proceeding be dismissed pursuant to Fed.R.Civ.P. 12(b), which is incorporated into bankruptcy proceedings by Fed. R. Bankr.P. 7012(b). Specifically, the defendants assert, inter alia, that this court lacks subject matter jurisdiction over the claims of the unnamed proposed class members, as well as the individual claims of the named plaintiff.¹

The plaintiff, Roslyn Porter, argues that this court does have subject matter jurisdiction over the class and individual claims, and so opposes dismissal. In the alternative, she contends that, if I determine that subject matter jurisdiction is lacking, I should refer this proceeding to the district court by having the reference withdrawn, pursuant to 28 U.S.C. § 157(d).

For the following reasons, I conclude that this court does not have subject matter jurisdiction over the purported class claims, that the individual claims must also be dismissed, and that it is inappropriate for me to urge the district court to withdraw the reference in this proceeding.

I.

The relevant facts surrounding this proceeding are not in dispute and are deduced from the pleadings and docket entries of matters pending in this court.

The debtor, Ms. Porter, filed a voluntary petition in bankruptcy under chapter 13 on November 15, 2000. In 1998, prior to her bankruptcy filing, she had entered into a loan transaction involving NationsCredit and, in connection with that transaction, purchased credit insurance from Protective Life Insurance Company. As a result of that loan transaction, NationsCredit obtained a security interest in Ms. Porter's residence.

Her proposed chapter 13 plan, filed on November 27, 2000, stated in relevant handwritten part:

No secured creditors will be paid through this Plan. The claim of Nations Credit [sic] will be determined in litigation raising TILA claims and claims under section 506 of the Bankruptcy Code, and all other relevant claims.

The proposed plan also provided that title to property would revest to the debtor upon confirmation. See 11 U.S.C. § 1327(b). (Neither the plan nor the debtor's schedules make reference to any claim held against Protective Life.) This plan was confirmed, without opposition from NationsCredit, on May 7, 2002.

Accordingly, in this chapter 13 case, it was anticipated upon confirmation that NationsCredit's secured claim would not be provided for in the debtor's plan, that there would be litigation between these parties, and that the debtor would prosecute such litigation post-confirmation. Compare In re Johnson, 13 B.R. 263 (Bankr.D.R.I.1981) (where confirmed chapter 13 plan so provides, the bankruptcy trustee may prosecute a prepetition TILA claim).

Before confirmation, on March 14, 2001, Ms. Porter filed an adversary proceeding against NationsCredit docketed at Adv. No. 01-0157. In her complaint, she asserted claims under the federal Truth in Lending Act, 15 U.S.C. §§ 1601 et. seq., requesting damages, rescission of the mortgage held by NationsCredit and attorney's fees. As part of that litigation, Ms. Porter — through her attorney — sought discovery concerning the cost of the credit insurance purchased from Protective Life as part of the loan transaction. She maintained that the cost of this insurance should have been a disclosed to her by NationsCredit as a component of the finance charge of the loan, rather than as part the amount financed.

This 2001 adversary proceeding is still pending for a variety of reasons: discovery disputes; illness and substitution of counsel; and cessation of the defendant's business and termination of all employees. (An affidavit was filed in connection with the 2001 adversary swearing that NationsCredit merged with another entity in 1999 and all of its business locations were then closed.) Despite this pending litigation, given the terms of the confirmed plan, on November 14, 2002, the chapter 13 trustee filed a report of his final account in this case, with notice sent to all creditors, informing that the debtor had completed her chapter 13 plan and was entitled to a chapter 13 discharge. No opposition to this final report was submitted, and on December 20, 2002, Ms. Porter received her bankruptcy discharge under section 1328.

Six days later, on December 26, 2002, Ms. Porter initiated the instant adversary proceeding, filed "on behalf of herself and all others similarly situated." This second lawsuit asserts claims against the defendants (affiliated entities of NationsCredit plus Protective Life) under the Truth in Lending Act (TILA), 15 U.S.C. §§ 1601 et seq., and under the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. §§ 1961 et seq. (This complaint was amended on January 10, 2003 and again on February 11, 2003.) On behalf of the putative class, the second amended complaint seeks statutory relief in the form of damages plus attorney's fees. Individually, Ms. Porter seeks the same relief, along with rescission of the mortgage lien held by NationsCredit.

The plaintiff class proposed in the "second amended complaint" is identified in ¶ 7. This proposed class:

consists of [ ] "[t]hose borrowers who were included as enrollees of the group life or group disability insurance coverage with Protective Life Insurance Company as part of a loan transaction with NationsCredit Consumer Discount Company or any other named Defendants (known or unknown)."

There is no requirement that these class members are presently (or ever were) debtors in a bankruptcy case in this or any other district. The proposed class simply consists of all borrowers from NationsCredit who, in connection with their respective loans, also purchased credit insurance from Protective Life.²

Defendant Protective Life Insurance Company filed its motion to dismiss on March 10, 2003. The NationsCredit defendants jointly filed their own motion to dismiss on March 19, 2003. Oral argument was thereafter held, and all parties submitted supporting memoranda.

II.

A.

A federal court, in deciding whether to dismiss a proceeding for lack of subject matter jurisdiction, presumptively lacks jurisdiction over that proceeding unless the plaintiff affirmatively demonstrates that jurisdiction exists. See, e.g., Commodity Futures Trading Commission v. Nahas, 738 F.2d 487 (D.C.Cir.1984); Lucas v. Gulf & Western Industries, Inc., 666 F.2d 800, 805 (3d Cir.1981); Walnut Associates v. Saidel, 164 B.R. 487, 490 (E.D.Pa.1994). This proposition is no less true for bankruptcy courts which, despite their expanded jurisdictional grant found in 28 U.S.C. § 1334, remain courts of limited jurisdiction. See, e.g., Pacor, Inc. v. Higgins, 743 F.2d 984 (3d Cir.1984); In re U.S. Seating Co., Inc., 105 B.R. 259, 260 (Bankr.E.D.Pa.1989). "The burden of establishing the requisite jurisdictional facts rests on the plaintiff as the party alleging their existence." Lucas v. Gulf & Western Industries, Inc., 666 F.2d at 805; accord Walnut Associates v. Saidel, 164 B.R. at 490.

In deciding whether the plaintiff has demonstrated the existence of bankruptcy subject matter jurisdiction, I note that adversary proceedings can be grouped into three general categories for purposes of the jurisdictional statute, 28 U.S.C. § 1334(b).

First, there are "core" proceedings, which may be heard and resolved by the bankruptcy court via final judgment. See 28 U.S.C. § 157(b)(1). Core proceedings represent those disputes that are so intertwined with the bankruptcy process that Congress has the power, under Article I of the Constitution, to direct a non-tenured judicial officer (i.e., bankruptcy judge) to render a final determination of their merits. See 1 Norton Bankruptcy Law and Practice 2d § 4.26, at 4-154 (1999) ("The word `core' was a shorthand word employed to signify issues and actions that traditionally formed part of the functions performed under federal bankruptcy law").

As established by section 1334(b), core proceedings consist of two subsets: those that "arise under" and those that "arise in" the bankruptcy case. The Third Circuit Court of Appeals has construed section 1334(b) in the following manner:

Our circuit precedents have "held that a proceeding is core under section 157 if it invokes a substantive right provided by title 11 or if it is a proceeding that, by its nature, could arise only in the context of a bankruptcy case." In re Marcus Hook Dev. Park Inc., 943 F.2d 261, 267 (3d Cir.1991) (citations and internal quotation marks omitted). In support of its ruling that this case was a core proceeding, the bankruptcy court relied, inter alia, on the decision of the Court of Appeals for the Fifth Circuit in In re Wood, 825 F.2d 90 (5th Cir.1987), which observed that the phrases "arising under" and "arising in" are helpful indicators of the meaning of core proceedings. If the proceeding involves a right created by the federal bankruptcy law, it is a core proceeding; for example, an action by the trustee to avoid a preference. If the proceeding is one that would arise only in bankruptcy, it is also a core proceeding; for example, the filing of a...