In re Royal

• Decision Date: 12 June 1996
• Docket Number: Bankruptcy No. 94-07053-TOM-13. Adv. No. 96-00106.
• Citation: 197 BR 341
• Parties: In re Beverly ROYAL, Debtor. Beverly ROYAL, Plaintiff, v. Walt Alinder DAIHATSU; Credit Acceptance Corp.; and Western Diversified Life Insurance Co., Defendants.
• Court: U.S. Bankruptcy Court — Northern District of Alabama

197 B.R. 341 (1996)

In re Beverly ROYAL, Debtor Beverly ROYAL, Plaintiff, v. Walt Alinder DAIHATSU; Credit Acceptance Corp.; and Western Diversified Life Insurance Co., Defendants.

Bankruptcy No. 94-07053-TOM-13. Adv. No. 96-00106.

United States Bankruptcy Court, N.D. Alabama, Southern Division.

June 12, 1996.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

David Harrison and Allison Shelley, Birmingham, Alabama, for Ms. Royal.

Wynn Shuford, Birmingham, Alabama, for Credit Acceptance Corporation.

John Graham, Birmingham, Alabama, for Western Diversified Life Insurance.

MEMORANDUM OPINION AND ORDER

TAMARA O. MITCHELL, Chief Judge.

This matter is before the Court on the Motion to Remand or, in the Alternative, to Abstain or Remand and the Motion to Stay Enforcement of Federal Rules of Civil Procedure and Federal Rules of Bankruptcy Procedure filed by the Plaintiff/Debtor Beverly Royal. Appearing at the April 15, 1996, hearing on the motions were David Harrison and Allison Shelley, attorneys for Ms. Royal, Wynn Shuford, attorney for Credit Acceptance Corporation (Credit Acceptance), and John Graham, attorney for Western Diversified Life Insurance Company (Western Diversified). The motions before the Court today are core proceedings. 28 U.S.C. § 157(b)(2)(A). The Court has considered the motions, the pleadings, and the arguments of counsel and finds and concludes as follows.¹

I. FINDINGS OF FACT

Ms. Royal filed for relief under Chapter 13 of the Bankruptcy Code on November 23, 1994. That case was confirmed on January 3, 1995, and is still pending in this Court. Credit Acceptance filed a proof of claim in Ms. Royal's case indicating a secured debt of $4,540.30. On January 22, 1996, Ms. Royal filed a complaint against Walt Alinder Daihatsu (Alinder), Credit Acceptance and Western Diversified in the Circuit Court for Jefferson County. The complaint alleged claims based on unconscionability, breach of contract, fraud, outrage, breach of trust and fiduciary duty, civil conspiracy, and violations of Ala.Code § 5-19-20 (the "Complaint"). The case was assigned Civil Action Number CV-96-035. All of the relevant facts are alleged in the Complaint to have occurred in connection with the prepetition sale of an automobile to Ms. Royal by Alinder. The Complaint alleges that Ms. Royal took out credit life insurance at the time of the purchase which was written by Credit Acceptance and Western Diversified. Credit Acceptance filed a Notice of Removal on March 1, 1996. Alinder and Western Diversified joined the removal. Ms. Royal filed her Motion to Remand and Motion to Stay on March 18, 1996.

II. DISCUSSION AND CONCLUSIONS OF LAW

A. INTRODUCTION

"Jurisdiction" literally means "to speak the law." In application, it refers to the power of a court to adjudicate the case before it. The concept of jurisdiction is tied to Constitutional mandates and policy concerns. The jurisdictional scheme of the bankruptcy courts is a particularly complicated and confusing area of law.² Questions regarding the subject matter jurisdiction of a bankruptcy court frequently arise in removed cases, such as the instant one.³ In unraveling a question of bankruptcy court jurisdiction over a removed case, the first issue is whether the matter is properly heard within the federal court system, i.e. whether the federal court has subject matter jurisdiction. Concern over federalism and comity between the courts has engendered a jurisdictional scheme whereby certain matters are thought to be only properly heard by federal courts and other matters are consigned solely to the jurisdiction of the state courts. See, Shamrock Oil & Gas Corp. v. Sheets, 313 U.S. 100, 61 S.Ct. 868, 85 L.Ed. 1214 (1941). Certain other matters are under the concurrent jurisdiction of both the federal and state courts.

When a federal court determines that it has at least concurrent subject matter jurisdiction over a removed case, it must then determine if it is proper for it to exercise that jurisdiction. If the federal court determines that there is concurrent jurisdiction, it may decide that it is more proper for the state court to hear the case. Two doctrines exist whereby a federal court may relinquish jurisdiction in favor of another forum: remand⁴ and abstention.⁵

Finally, if the federal court decides both that it has subject matter jurisdiction and that it is proper for it to exercise that jurisdiction, the federal court must then determine in which division of the federal court system the removed case belongs. The bankruptcy courts are divisions of the federal district courts and have no jurisdiction separate and apart from them. See 28 U.S.C. § 1334. The district courts may refer matters to the bankruptcy court for adjudication pursuant to 28 U.S.C. § 157(a).⁶ However, even after a matter is referred to the bankruptcy court, it may be determined that the matter should properly be heard by the district court.⁷ In that case, the district court may "withdraw the reference" and reclaim the matter as its own. 28 U.S.C. § 157(d). Section 157 gives guidance as to what matters should and should not be heard by the bankruptcy courts. Subsection (b)(2) of § 157 gives a noninclusive list of matters which are "core proceedings." Bankruptcy judges may hear and determine all cases under title 11 and all core proceedings arising under title 11 or in a case under title 11. 28 U.S.C. § 157(b)(1).

Unfortunately, these three areas, subject matter jurisdiction, exercise of jurisdiction, and withdrawal of the reference, are often confused. In addressing a question of bankruptcy court jurisdiction in the context of a removed case, it is suggested that the three areas of concern be kept separate. Accordingly, it is helpful to ask and answer the following three questions in order: (1) Does subject matter jurisdiction exist? (2) If so, should that jurisdiction be exercised, or is abstention or remand appropriate? (3) If jurisdiction is to be exercised, should it be exercised by the federal district court or by the bankruptcy court?⁸

B. SUBJECT MATTER JURISDICTION

1. Introduction

When faced with a motion to remand a case removed from state court the first question which a federal court must answer is whether it has subject matter jurisdiction. Federal district courts have original and exclusive jurisdiction of all cases under title 11.⁹ 28 U.S.C. § 1334(a). Additionally, federal district courts have original but not exclusive jurisdiction of "all civil proceedings arising under title 11, or arising in or related to cases under title 11." 28 U.S.C. § 1334(b). Thus, as stated in Wood v. Wood (In re Wood), 825 F.2d 90 (5th Cir.1987):

Section 1334 lists four types of matters over which the district court has jurisdiction:

1. "cases under title 11",

2. "proceeding arising under title 11"

3. proceedings "arising in" a case under title 11, and 4. proceedings "related to" a case under title 11.

Id. at 93.

The first category refers merely to the bankruptcy petition itself, over which district courts (and their bankruptcy units) have original and exclusive jurisdiction. Id. Proceedings "arising under title 11" are those that involve a cause of action created or determined by a statutory provision of title 11. Id. at 96. The phrase "proceedings arising in" a case under title 11 seems to be a reference to those "administrative" matters that arise only in bankruptcy cases and would have no existence outside of bankruptcy. Id. at 97. "Related to" proceedings are those proceedings not falling into any of the other three categories but the outcome of which "could conceivably have any effect on the estate being administered in bankruptcy." Id. at 93 (quoting Pacor, Inc. v. Higgins, 743 F.2d 984, 994 (3rd Cir.1984).) Fortunately, it is not necessary to distinguish between these four categories for the purpose of determining whether a particular matter falls within bankruptcy jurisdiction as these references operate conjunctively to define the scope of jurisdiction. Therefore, it is necessary only to determine whether a matter is at least "related to" the bankruptcy. Id.

In Miller v. Kemira, Inc. (In re Lemco Gypsum, Inc.), 910 F.2d 784 (11th Cir.1990), the Eleventh Circuit Court of Appeals adopted the standard for "related to" jurisdiction as set out in Pacor, Inc. v. Higgins, 743 F.2d 984 (3rd Cir.1984):

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 an effect on the estate being administered in bankruptcy. 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 bankruptcy estate.

Lemco Gypsum, 910 F.2d at 788 (quoting Pacor, 743 F.2d at 994.)

2. Jurisdiction versus withdrawal of the reference

Often an examination of jurisdiction begins with a discussion of whether the action can be classified as a "core proceeding" under 28 U.S.C. § 157(b).¹⁰ The term "core proceeding" is sometimes stated to be "roughly equivalent" to "arising under title 11 or arising in a case under title 11." 3 David G. Epstein, Steve H. Nickles, and James J. White, Bankruptcy 198 (West 1992). It is tempting to leap from this generalization to the conclusion that if the matter is "core" it must be within the subject matter jurisdiction of the federal courts. Although this conclusion is generally, if not always, true, this should not lead to the practice of using the term "core proceeding" interchangeably with "arising under title 11 or arising in a case under title 11."

Approaching subject matter jurisdiction by referring to whether a matter is "core" or not may be confusing because it fails to recognize the distinction between...