In re Simmons

Citation205 BR 834
Decision Date03 February 1997
Docket NumberBankruptcy No. 95-50853,Adv. No. 96-5151C.
PartiesIn re Earl W. SIMMONS, Debtor. Earl W. SIMMONS, et al, Plaintiff, v. JOHNSON, CURNEY & FIELDS, P.C., John Curney and J. David Brown, Defendants.
CourtUnited States Bankruptcy Courts. Fifth Circuit. U.S. Bankruptcy Court — Western District of Texas

Charles D. Houlihan, Jr., Simsbury, CT, for Plaintiff.

Clemens & Spencer, George H. Spencer, Jr., James A. Hoffman, San Antonio, TX, for Defendants.


LEIF M. CLARK, Bankruptcy Judge.

CAME ON for consideration the motion of defendants to dismiss this adversary proceeding, brought by a former chapter 11 debtor post-confirmation alleging various state law claims against his former bankruptcy (and pre-bankruptcy) counsel. For the reasons stated in this opinion, we conclude that the federal district courts do have subject matter jurisdiction over those claims which relate to the representation of plaintiff during his prior bankruptcy filing. We further recommend that the district court find that it has supplemental jurisdiction over those claims which have their source in non-bankruptcy related pre-bankruptcy representation but that the district court should decline to exercise that jurisdiction. We deny the defendants' the motion to dismiss with respect to the post-petition causes of action, and further deny the motion to abstain. We also deny the defendants' request for a jury trial.

Background Facts

Earl Wayne Simmons, the plaintiff in this case, filed for chapter 11 relief on March 27, 1995. During the course of the case, Simmons changed counsel. On November 29, 1995, this court confirmed Mr. Simmons' liquidating plan of reorganization. On August 30, 1996, nine months after confirmation, Mr. Simmons brought this action against his former bankruptcy (and pre-bankruptcy) counsel, J. David Brown and John Curney, as well as against their the law firm, Johnson, Curney & Fields, P.C.1

In his complaint, Mr. Simmons alleges that the defendants' representation of plaintiff during the chapter 11 bankruptcy proceeding before this court and in prior representation of the plaintiff in actions before both a Texas state court and the federal district court raised causes of action for legal malpractice, violations of the Texas Deceptive Trade Practices Act, breach of the fiduciary duty owed by lawyers to their clients, and breach of contract. In response, the defendants have moved for dismissal of these actions pursuant to Rule 12(b)(1) (made applicable to adversary proceedings in bankruptcy by Rule 7012 of the Federal Rules of Bankruptcy Procedure), alleging lack of subject matter jurisdiction. See FED.R.BANKR.P. 7012; FED. R.CIV.P. 12(b)(1). Alternatively, defendants ask the court to abstain from hearing this case, either under the permissive provisions of section 1334(c)(1) or by virtue of the "mandatory" provisions of section 1334(c)(2). See 28 U.S.C. §§ 1334(c)(1), (2). Defendants' also demand a jury trial, and insist, by virtue of that demand (and their refusal to consent to a jury trial in the bankruptcy court), that this matter must be tried before an Article III court. They would, in that regard, seek withdrawal of the reference by the district court.


Defendants' motion to dismiss is made in recognition of the settled principle that this court, like all federal courts, is one of limited jurisdiction. Celotex Corp. v. Edwards, 514 U.S. 300, ___, 115 S.Ct. 1493, 1498, 131 L.Ed.2d 403 (1995). While defendants do not specifically cite to Rule 12, the motion is nonetheless grounded on a claim that this court must dismiss because the court lacks subject matter jurisdiction.2

The starting point for our analysis of jurisdiction is 28 U.S.C. § 1334. In relevant part, this provision states:

(a) Except as provided in subsection (b) of this section, the district court shall have original and exclusive jurisdiction of all cases under title 11.
(b) Notwithstanding any act of Congress that confers exclusive jurisdiction on a court or courts other than the district courts, the district court shall 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. The statute thus describes the parameters of federal court jurisdiction, insofar as that jurisdiction has to do with bankruptcy matters.3 In turn, the power to exercise that jurisdiction is conferred on the bankruptcy courts by reference from the district court. 28 U.S.C. § 157(a).4

28 U.S.C. § 157(a) allows a district court to refer cases by general or specific reference. This district, like all other districts in the United States, see United States Lines, Inc. v. American Steamship Owners Mutual Protection & Indemnity Assc., Inc. (In re United States Lines, Inc.), 169 B.R. 804, 814 (Bankr.S.D.N.Y.1994), has entered a general order which operates as a blanket referral of all matters that the filer indicates are "bankruptcy matters" to the bankruptcy court, such that all such matters are filed directly with the clerk of the bankruptcy court. See Local Rule 1001(f); Order of Reference of Bankruptcy Cases and Proceedings Nunc Pro Tunc of the United States District Court for the Western District of Texas. In practice, therefore, the district court has no interaction with bankruptcy cases unless a bankruptcy court decision is appealed, or unless a party requests withdrawal of reference of a particular case or matter. Thus, a bankruptcy court's "jurisdiction" is actually coterminous with the jurisdiction of the district court as set out in section 1334. Walker v. Cadle Co. (In re Walker), 51 F.3d 562, 569 (5th Cir.1995).5 Accordingly, our first determination must be whether section 1334 encompasses this lawsuit.

The types of matters over which a district court has bankruptcy jurisdiction can be parsed from the statute into the following categories:

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.

28 U.S.C. §§ 1334(a), (b); Wood v. Wood (In re Wood), 825 F.2d 90, 92 (5th Cir.1987). The first category, "cases under title 11", applies to "the bankruptcy petition itself, over which district courts (and their bankruptcy units) have original and exclusive jurisdiction." In re Wood, 825 F.2d at 92; 28 U.S.C. § 1334(a); see also In re Walker, 51 F.3d at 568 (equating "cases under title 11" with bankruptcy petition itself); Eastland Partners Ltd. Partnership v. Brown (In re Eastland Partners Ltd. Partnership), 199 B.R. 917, 919 (Bankr.E.D.Mich.1996) (describing "cases under title 11" as those "which involve causes of action created by title 11"). In contrast, a "proceeding" has been defined as any "subaction raised or commenced within the case, including motions or adversary proceedings, which may raise a dispute or litigated matter." 2 COLLIER ON BANKRUPTCY, ¶ 301.03, at 301-3 (15th ed. 1996).

The current matters raised by plaintiff do not, of course, constitute the bankruptcy case itself. Only Simmons' bankruptcy petition itself falls into that category. Thus, the matter must fall into one of the other three categories, described in section 1334(b), or be dismissed for lack of subject matter jurisdiction.

Again, the three remaining categories are created by § 1334(b) which provides district courts with "original but not exclusive jurisdiction of all civil proceedings 1 arising under title 11, or 2 arising in or 3 related to cases under title 11." 28 U.S.C. § 1334(b) (brackets added). Relevant legislative history6 suggests that the entire § 1334(b) provision should be broadly interpreted to include all possible grants of jurisdiction:

Subsection (b) grants to the U.S. district courts original, but not exclusive, jurisdiction of all civil proceedings arising under or related to cases under title 11. This broad grant of jurisdiction will enable the bankruptcy courts, which are created as adjuncts of the district court for the purpose of exercising the jurisdiction, to dispose of controversies that arise in bankruptcy cases or under the bankruptcy code. Actions that formerly had to be tried in the State court or in the Federal district court, at great cost and delay to the estate, may now be tried in the bankruptcy court. The idea of possession and consent as bases for jurisdiction is eliminated. The adjunct bankruptcy courts will exercise in personam jurisdiction as well as in rem jurisdiction in order that they may handle everything that arises in a bankruptcy case.

S.REP. No. 989, 95th Cong, 2d Sess, 153 (1978), reprinted in 1978 U.S.CODE CONG. & ADMIN.NEWS 5787, 5939.

A facial reading of the statute suggests that the three categories were intended to address separate, although perhaps overlapping jurisdictional issues.7 That reading comports with a basic tenet of statutory construction that every word in a statute be given effect. Bowsher v. Merck, Inc., 460 U.S. 824, 833, 103 S.Ct. 1587, 1593, 75 L.Ed.2d 580 (1983).

Courts that have discussed the categories have provided a rather consistent reading of "related to"8 and "arising under."9 Few courts, however, have had the opportunity to examine the exact parameters of "arising in." We must undertake that examination now.

With so little analysis of section 1334 "arising in" jurisdiction, prior courts that have been called upon to address the issue have looked for analogies in the interpretations of similar statutes. They found at least one interpretation in the Fifth Circuit decision In re Wood, 825 F.2d 90. Wood defined the terms "arising in" and "arising under" as they were used in another statutory provision, 28 U.S.C. § 157(b). In an oft cited provision from that case, see, e.g., Bergstrom v. Dalkon Shield Claimant's Trust (In re A.H. Robins Co.), 86 F.3d 364, 372 (4th Cir.), ...

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