In re Smith

• Citation: 389 B.R. 902
• Decision Date: 24 June 2008
• Docket Number: Adversary No. 08-1012-BAM.,Bankruptcy No. BK-S-07-16504-BAM.
• Parties: In re John L. SMITH, Debtor. Sheldon G. Adelson, Plaintiff, v. John L. Smith, Defendant.
• Court: United States Bankruptcy Courts. Ninth Circuit. U.S. Bankruptcy Court — District of Nevada

Page 902

389 B.R. 902

In re John L. SMITH, Debtor.

Sheldon G. Adelson, Plaintiff, v. John L. Smith, Defendant.

Bankruptcy No. BK-S-07-16504-BAM.

Adversary No. 08-1012-BAM.

United States Bankruptcy Court, D. Nevada.

June 24, 2008.

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Dominica C. Anderson, Duane Morris LLP, Ryan A. Loosvelt, Las Vegas, NV, for Plaintiff.

Richard McKnight, Las Vegas, NV, for Defendant.

OPINION ON MOTIONS TO STAY PROCEEDING AND FOR RELIEF FROM STAY

BRUCE A. MARKELL, Bankruptcy Judge.

I. Facts and Introduction

Plaintiff Sheldon Adelson is a philanthropic businessman with casino interests across the globe. Defendant John L. Smith is a newspaper columnist in Las Vegas. Smith wrote a book about Las Vegas that Adelson believes libeled him. Adelson brought suit in California state court seeking damages for that alleged libel. Shortly before the California case was to go to trial before a jury, on October 10, 2007, Smith filed a chapter 7 case in Nevada, partly in response to Adelson's libel lawsuit, but also partly because of significant medical expenses incurred by a family member.

Within five days of the January 14, 2008 deadline to do so, Adelson filed an adversary proceeding in this court. That proceeding requested this court to determine and to liquidate Smith's liability to Adelson because of Smith's alleged libel, and find that any such debt was nondischargeable. Adelson's complaint did not request a jury trial on any portion of his claims. Almost six weeks later, on February 8, 2008, Adelson filed a proof of claim with respect to the damages alleged in his adversary proceeding. On March 25, 2008, the parties attended an initial status conference on the dischargeability adversary proceeding, at which Adelson participated and during which the court scheduled a five-day libel and nondischargeability trial for December 2008.

On March 21, 2008, shortly before the status conference and almost three months after the adversary proceeding was filed, Adelson moved to stay the adversary proceeding, and he concurrently moved for relief from stay to allow the California state case to go to trial. In addition, Adelson alleged that he was entitled to a jury trial on his libel claims, and that because of that right, the matter would be more efficiently tried in California state court. The evidence for the speedy resolution, however, was not definitive or persuasive; a lawyer for Adelson submitted a declaration about a telephone conversation he had with the California court's clerk. That declaration essentially stated that if relief from stay were granted, the earliest the California case would go to trial was January 2009. The declaration also stated that given the age of the case "the judge may set the case to begin trial according to his own calendar and discretion."¹

At the hearing on the motion for relief from stay and to stay the adversary proceeding, this court, on its own motion, requested post-hearing briefing on whether Section 157(b)(5) of title 28 requires this matter to be heard by an Article III United States District Judge. The parties submitted briefs in response to this point.

After considering the briefs and evidence, this court denies Adelson's motions and retains jurisdiction of this adversary proceeding. As to the motion to lift the stay, Adelson has not met his burden of showing cause. The same infirmity dooms his motion to stay the adversary proceeding. As to whether this court or the district court should hear all future matters, this court holds that Adelson's libel claims are "personal injury tort claims" within the meaning of Section 157(b)(5) of title 28, but that the provisions of that section are not jurisdictional in the sense that they deprive this court of the power to hear the matter.

Initially, then, this matter is properly before this court. Although Adelson might at some time have been able to rely on Section 157(b)(5) to effect a transfer to the district court, he has waived the benefit of that statute by the language of his complaint, his filing of a proof of claim, and his conduct in these proceedings. As a result, this case will proceed to trial in December 2008 as originally scheduled, and Adelson may not continue to prosecute the California action.

II. Jurisdiction and 28 U.S.C. § 157(b)(5)

The context in which Section 157(b)(5) is found requires some explanation of bankruptcy court jurisdiction. Bankruptcy courts are legislative courts, created by Congress under Article I of the Constitution to administer the federal Bankruptcy Code, found in title 11 of the United States Code. After Congress revised the bankruptcy laws in 1978, the initial allocation of jurisdiction was found to have constitutional flaws. Northern Pipeline Constr. Co. v. Marathon Pipe Line Co., 458 U.S. 50, 102 S.Ct. 2858, 73 L.Ed.2d 598 (1982). In response to this opinion, in 1984 Congress revised bankruptcy jurisdiction. Bankruptcy Amendments and Federal Judgeship Act of 1984, Pub.L. 98-353, 98 Stat. 333.

In this overhaul, general bankruptcy jurisdiction was conferred upon Article III district courts, 28 U.S.C. § 1334(b), with bankruptcy courts being made "units" of those district courts, 28 U.S.C. § 151. By rule or order, each district court was then given the ability to refer all bankruptcy matters to the bankruptcy courts. 28 U.S.C. § 157(a). These referrals could be withdrawn by the district court in appropriate cases, 28 U.S.C. § 157(d), or the cases and matters thus referred might be stayed if appropriate federalism or comity concerns justified abstention, 28 U.S.C. § 1334(c).

With respect to the referred matters, Congress did not, because it could not, provide that bankruptcy courts could hear and determine—that is, enter final judgments subject only to appeal—all such matters. That was the basic infirmity uncovered in Marathon. What Congress did provide, however, was that bankruptcy courts could hear and determine certain matters, and would draft a report and recommendation for the district court on others. Section 157(b) initially handles this division of labor. Paragraph (1) gives bankruptcy courts the power to hear and determine cases under title 11, and all "core" matters that arise in or arise under title 11. Paragraph (2) provides a nonexhaustive list of core matters. Paragraph (5) of that subsection deals specifically with the handling of personal injury tort claims within this system.

Section 157(b) does not cover all matters within Section 1334(b)'s broad jurisdiction. In addition to bankruptcy cases, and civil proceedings arising in and under title 11, Congress also conferred upon the district courts, for referral to the bankruptcy courts, jurisdiction of matters "related to" cases under title 11. Section 157(c) governs the determination of these related matters, and of noncore matters set forth in Section 157(b)(1). It empowers the bankruptcy court to hear such matters, but on the condition that they be submitted to the district court for a final determination, unless the parties otherwise consent. See 28 U.S.C. § 157(c)(2).

Against this background, this opinion will establish that Adelson's claims are within the jurisdiction conferred upon the district courts, were appropriately referred to this court to hear and determine, and are appropriate to remain here for final determination. This demonstration requires an examination of the positive law governing jurisdiction, and an application of that law to the parties' actions—or failures to act. After a short discussion of some determinative definitional issues regarding what constitutes a "personal injury tort claim," this opinion will resolve these issues.

A. Is Libel a "Personal Injury Tort Claim"?

The initial inquiry is definitional. A detailed discussion of bankruptcy court jurisdiction is unnecessary if a libel claim is not a "personal injury tort claim" within the meaning of 28 U.S.C. § 157(b)(5). In such a case, this court could proceed directly to Adelson's motion to stay the adversary proceeding and his motion to lift the stay. But if libel is a "personal injury tort claim," additional analysis is necessary to determine what should be done next. The Ninth Circuit has not ruled on this issue, and the parties cite different lines of cases, each of which provide different tests for determining whether libel is a personal injury tort claim.

Generally speaking, there are three different definitions of a personal injury tort under 28 U.S.C. § 157(b)(5). 1 COLLIER ON BANKRUPTCY ¶ 3.06 (Alan N. Resnick & Henry J. Sommer eds., 15th ed. rev.2008). The narrowest construction of personal injury tort requires the aggrieved party to plead an actual physical injury to his or her person. Massey Energy Co. v. West Virginia Consumers for Justice, 351 B.R. 348, 351 (E.D.Va.2006) (citing In re Vinci 108 B.R. 439 (Bankr.S.D.N.Y.1989); In re Interco, 135 B.R. 359 (Bankr.E.D.Mo. 1991)). By contrast, the most expansive reading includes civil rights claims under federal antidiscrimination laws as personal injury tort claims. See In re Gary Brew Enterprises Ltd., 198 B.R. 616, 618-19 (Bankr.S.D.Cal.1996) (holding that a claim for relief under 42 U.S.C. § 1983 is a personal injury tort claim); In re Nifong, 2008 WL 2203149 (Bankr.M.D.N.C, May 27, 2008) (same).

These two views were synthesized into a third view in In re Ice Cream Liquidation, Inc., 281 B.R. 154, 160-64 (Bankr.D.Conn. 2002). That court balanced the definitions provided in Massey Energy and In re Gary Brew Enterprises to reach a middle ground in defining personal injury torts. That court rejected limiting the definition of personal injury torts to bodily injuries, because to do so would be to construe the statute more narrowly than it was written. Ice Cream Liquidation, 281 B.R. at 161.

The court similarly disagreed with the "`broader' view" because it was premised on how nonbankruptcy law categorized a tort without necessarily examining the...