Johnson v. Lovato (In re Jimenez)

• Decision Date: 21 April 2021
• Docket Number: Adv. No. 21-01029-SMG,Case No. 17-20926-SMG
• Citation: 627 B.R. 536
• Parties: IN RE: Francisco M. JIMENEZ, Debtor. Susan Johnson and Steven Johnson, Plaintiffs, v. Brenda Lovato a/k/a Brenda De La Cruz, Defendant.
• Court: U.S. Bankruptcy Court — Southern District of Florida

627 B.R. 536

IN RE: Francisco M. JIMENEZ, Debtor.Susan Johnson and Steven Johnson, Plaintiffs,

v.Brenda Lovato a/k/a Brenda De La Cruz, Defendant.

Case No. 17-20926-SMG

Adv. No. 21-01029-SMG

United States Bankruptcy Court, S.D. Florida, Fort Lauderdale Division.

Signed April 21, 2021

Filed April 22, 2021

G. Steven Fender, Fender, Bolling and Paiva, P.A., Ft. Lauderdale, FL, for Plaintiffs.

Rex E. Russo, Esq., S. Miami, FL, for Defendant.

ORDER DISMISSING ADVERSARY PROCEEDING FOR LACK OF SUBJECT MATTER JURISDICTION

Scott M. Grossman, United States Bankruptcy Judge

Judgment creditors filed a state-law fraudulent transfer adversary proceeding to collect a non-dischargeable judgment entered by this Court. But the underlying no-asset chapter 7 bankruptcy case has been fully administered, the chapter 7 trustee has been discharged of his duties, and the debtor has received a discharge of his other debts. So this Court must now determine whether it has subject matter jurisdiction over the judgment creditors’ state-law fraudulent transfer claim.

I. Background.

Plaintiffs Susan Johnson and Steven Johnson hold a non-dischargeable money judgment – entered by this Court – against Debtor Francisco M. Jimenez. On March 1, 2019, this Court entered a Final Summary Judgment in the adversary proceeding Johnson v. Jimenez ,¹ determining that the Johnsons’ claims against Mr. Jimenez were non-dischargeable under 11 U.S.C. §§ 523(a)(2)(A), (a)(4), and (a)(6).² The Final Summary Judgment also liquidated the Johnsons’ claims, and entered judgment for Susan Johnson in the amount of $360,526.00 and for Steven Johnson in the amount of $759,067.14.³ Mr. Jimenez received a discharge of all his other debts, however, on October 25, 2018.⁴ A few weeks earlier, his chapter 7 trustee reported that there were insufficient assets to administer and that he had fully administered the bankruptcy estate, and requested he be discharged as trustee.⁵ This Court then issued a Final Decree discharging the trustee and closing Mr. Jimenez's chapter 7 bankruptcy case.⁶ Since that time, the Johnsons have twice re-opened this bankruptcy case to pursue collection of their non-dischargeable judgment.⁷

After the second reopening, the Johnsons filed this adversary proceeding against Defendant Brenda Lovato a/k/a Brenda de la Cruz to avoid and recover, pursuant to Fla. Stat. § 726.105(1)(a), $19,831.70 allegedly transferred by Mr. Jimenez to Ms. de la Cruz.⁸ Ms. de la Cruz moved to dismiss this adversary proceeding for lack of personal jurisdiction and lack of subject matter jurisdiction.⁹

II. Arguments.

Relying on Florida's long-arm statute¹⁰ and cases thereunder,¹¹ Ms. de la Cruz argues that this Court lacks personal jurisdiction over her because she is and has been a resident of New Mexico since 1950, and that she has never been to Florida, never owned property in Florida, never done business in Florida, and never had any interest in an entity doing business in Florida. Ms. de la Cruz supports her arguments with an affidavit,¹² the validity of which the Johnsons have disputed.¹³ Ms. de la Cruz also asserts that this Court lacks subject matter jurisdiction over this adversary proceeding because it is not "related to" a case under title 11 of the United States Code (the "Bankruptcy Code").¹⁴

The Johnsons actually concede (wrongly – as discussed below) that Ms. de la Cruz posits the appropriate legal analysis on personal jurisdiction. But they raise factual issues (along with some unnecessarily vitriolic accusations) as to the authenticity and accuracy of Ms. de la Cruz's affidavit, which they dispute. As for subject matter jurisdiction, the Johnsons respond only in conclusory fashion – without citation to any legal authority – that a bankruptcy court has subject matter jurisdiction to enforce a money judgment it entered.

III. Analysis.

A. Subject Matter Jurisdiction.

Before wading into the dispute over Ms. de la Cruz's affidavit and personal jurisdiction, the Court must first determine whether it has subject matter jurisdiction over this proceeding. All federal courts are courts of limited jurisdiction.¹⁵ They may only hear cases they are authorized to hear by the Constitution or by Congress.¹⁶ Article I, Section 8 of the Constitution grants Congress the power to "establish ... uniform laws on the subject of bankruptcies throughout the United States."¹⁷ Pursuant to that grant of authority,¹⁸ Congress enacted 28 U.S.C. § 1334, which in subsection (a) grants to the district courts original and exclusive jurisdiction of all cases under the Bankruptcy Code,¹⁹ and in subsection (b) grants to the district courts original but not exclusive jurisdiction of all civil proceedings arising under the Bankruptcy Code, or arising in or related to cases under the Bankruptcy Code.²⁰

28 U.S.C. § 157 then authorizes each district court to refer "any or all cases under title 11 and any or all proceedings arising under title 11 or arising in or related to a case under title 11" to the bankruptcy judges for the district.²¹ In the Southern District of Florida, the District Court's standing Order of Reference²² does just that.²³ This Court's subject matter jurisdiction is therefore limited to (a) cases under the Bankruptcy Code, and (b) civil proceedings arising under the Bankruptcy Code, or arising in or related to cases under the Bankruptcy Code, which cases and proceedings this Court is authorized to hear pursuant to 28 U.S.C. § 157 and the District Court's Order of Reference . Accordingly, unless this adversary proceeding constitutes a civil proceeding arising under the Bankruptcy Code, arising in a case under the Bankruptcy Code, or related to a case under the Bankruptcy Code, this Court will lack subject matter jurisdiction and must dismiss it.

Although the terms "arising under," "arising in," and "related to" may sound colloquial, they actually have very precise meanings that have developed under the case law. A proceeding "arising under" the Bankruptcy Code is "one based in a provision of the Bankruptcy Code itself."²⁴ Examples of "arising under" proceedings include claims to avoid preferences and fraudulent transfers under 11 U.S.C. §§ 547 and 548, respectively.²⁵ A proceeding "arising in" a bankruptcy case is one that is not based on any right expressly created by the Bankruptcy Code, but which would have no practical existence outside of the bankruptcy case.²⁶ Examples of "arising in" proceedings include determinations of the validity, extent, or priority of liens;²⁷ allowance or disallowance of claims against the estate;²⁸ and other matters affecting administration of the bankruptcy estate.²⁹ Finally, a proceeding "related to" a case under the Bankruptcy Code is a civil proceeding that could be pursued outside a bankruptcy case, "but which nonetheless bears a connection with the title 11 case sufficient to bring it within federal bankruptcy jurisdiction."³⁰ The Eleventh Circuit has held that "[a]n 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 bankrupt estate."³¹ As noted by the Eleventh Circuit in adopting the Third Circuit's test in Pacor, Inc. v. Higgins³² for determining "related to" jurisdiction, "[t]he 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."³³

Federal Rule of Civil Procedure 69(a) (made applicable by Federal Rule of Bankruptcy Procedure 7069 ) provides the procedural basis for the Johnsons to assert their substantive claim under Fla. Stat. § 726.105(1)(a). Rule 69(a) provides that:

(a) In General.

(1) Money Judgment; Applicable Procedure. A money judgment is enforced by a writ of execution, unless the court directs otherwise. The procedure on execution—and in proceedings supplementary to and in aid of judgment or execution—must accord with the procedure of the state where the court is located, but a federal statute governs to the extent it applies.

(2) Obtaining Discovery. In aid of the judgment or execution, the judgment creditor or a successor in interest whose interest appears of record may obtain discovery from any person—including the judgment debtor—as provided in these rules or by the procedure of the state where the court is located.

While proceeding under Rule 69(a) is procedurally appropriate, a Federal Rule of Civil Procedure "cannot expand the basis for subject matter jurisdiction."³⁴ There still "must be subject matter jurisdiction under some appropriate jurisdictional statute"³⁵ for the action to proceed.

To determine whether the Court has subject matter jurisdiction, then, we must look first to the substance of the claim asserted. The Johnsons assert a fraudulent transfer claim against Ms. de la Cruz under Fla. Stat. § 726.105(1)(a), which allows a creditor to avoid a "transfer made ... by a debtor ... if the debtor made the transfer ... [w]ith actual intent to hinder, delay, or defraud any creditor of the debtor."³⁶ Although fraudulent transfer claims (including those under state law incorporated into the Bankruptcy Code by 11 U.S.C. § 544(b) )³⁷ most commonly do arise under the Bankruptcy Code, that is not the case here. The Johnsons are not trustees, debtors-in-possession, or post-confirmation fiduciaries for Mr. Jimenez's bankruptcy estate. Their claim is not brought on behalf of the estate under Bankruptcy Code sections 544 or 548.³⁸ Rather, they assert a state-law fraudulent transfer claim belonging solely to them and not to the bankruptcy estate. In other words, if the Johnsons are successful, they will avoid and recover (for themselves alone) $19,831.70 in respect of their non-dischargeable judgment against Mr. Jimenez. Accordingly, the Johnsons’ fraudulent transfer claim does not arise under...