Majestic Energy Corp., Matter of, 87-4466

• Decision Date: 04 January 1988
• Docket Number: No. 87-4466,87-4466
• Citation: 835 F.2d 87
• Parties: 18 Collier Bankr.Cas.2d 78 In the Matter of MAJESTIC ENERGY CORPORATION, Debtor. FEDERAL DEPOSIT INSURANCE CORPORATION, Appellant, v. MAJESTIC ENERGY CORPORATION and J.C. Templeton, Appellees.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 87

835 F.2d 87

18 Collier Bankr.Cas.2d 78

In the Matter of MAJESTIC ENERGY CORPORATION, Debtor.

FEDERAL DEPOSIT INSURANCE CORPORATION, Appellant, v. MAJESTIC ENERGY CORPORATION and J.C. Templeton, Appellees.

No. 87-4466

Summary Calendar.

United States Court of Appeals,

Fifth Circuit.

Jan. 4, 1988.

Joseph L. Shea, Jr., Clair F. White, Hargrove, Guyton, Ramey & Barlow, Shreveport, La., for appellant.

Randall S. Davidson, Allison A. Jones, Russell O. Brabham, John L. Schober, Jr., Shreveport, La., for appellees.

Appeal from the United States District Court for the Western District of Louisiana.

Before REAVLEY, CAROLYN DINEEN KING ^* and JOLLY, Circuit Judges.

REAVLEY, Circuit Judge:

This appeal arises from a district court affirmance of a bankruptcy court determination that the Federal Deposit Insurance Corporation's rights as pledgee under a pledge instrument do not extend to new common stock issued to the pledgor under a bankruptcy plan of reorganization in satisfaction of an unrelated unsecured claim. We affirm.

I.

By a pledge instrument dated December 7, 1983 (the "Pledge"), J.C. Templeton pledged 600 shares of preferred stock of Majestic Energy Corporation ("Majestic") to Bossier Bank & Trust Company ("BB & T"). The Pledge contained the following pertinent language:

(7) In the event that, during the term of this pledge, any share dividend, reclassification, readjustment, or other change is declared or made in the capital structure of Majestic, or any subscription warrant or other option is exercisable with respect to the shares pledged hereunder, all new, substituted, or additional shares, or other securities, issued by reason of any such change or option shall be held by the Bank under the terms of this agreement in the same manner as the shares originally pledged hereunder.

When BB & T was closed by the Louisiana Office of Financial Institutions in June 1986, the FDIC was appointed receiver. Under a purchase and assumption transaction, any and all rights of BB & T under the Pledge were transferred to FDIC in its corporate capacity.

Majestic, a closely held oil and gas company, filed for relief under Chapter 11 of the Bankruptcy Code on March 5, 1986. BB & T (and subsequently the FDIC) was permitted to intervene in the proceedings as a party in interest. In April 1986, Majestic filed a plan of reorganization (the "Plan"). Pertinent to this appeal, the Plan provided (1) that the holders of Majestic preferred stock (class 7 claims) were paid $15,000 cash and their interests were terminated upon confirmation of the Plan; (2) that Templeton, in satisfaction of 85 percent of his unsecured claims ¹ (class 6 claims), received 100% of the new common stock of reorganized Majestic; and (3) that Templeton, in satisfaction of the remaining 15 percent of his unsecured claims, received a subordinated promissory note of Majestic in the amount of approximately $536,000.

On August 11, 1986, the FDIC initiated an adversary proceeding in Majestic's bankruptcy against Majestic and Templeton, seeking a determination that the new common stock should be distributed to the FDIC rather than to Templeton, based on its superior rights under the Pledge, and a preliminary injunction preventing Majestic's delivery of the new common stock to Templeton pending a determination of FDIC's interest in the stock. Following a period of considerable discovery and objections to the Plan by the FDIC, the FDIC agreed to an Order of Confirmation of the Plan subject to a reservation of the right to pursue matters raised in the adversary proceeding. The bankruptcy court denied the relief sought by the FDIC, concluding that the Pledge does not encompass the new common stock issued to Templeton under the Plan. The FDIC then filed a notice of appeal to the district court on December 17, and although a stay of the judgment was sought from the bankruptcy court and the district court pending appeal to the district court, the efforts were denied and the lower courts eventually permitted the delivery of the new common stock of Majestic to Templeton over FDIC's objection. The district court affirmed the ruling of the bankruptcy court and FDIC now appeals.

II.

Our first concern on this appeal is whether the bankruptcy court, at the time it rendered its judgment, had jurisdiction to determine the effect of an agreement establishing a possible superior claim to stock in the debtor corporation issued under the plan of reorganization to a creditor of the debtor corporation.

Bankruptcy courts are courts of limited jurisdiction, with their scope defined by statute. In re Paso Del Norte Oil Co., 755 F.2d 421, 423-24 (5th Cir.1985). Where a federal court rules in a matter over which it does not have jurisdiction, its decisions, opinions and orders are without effect. B., Inc. v. Miller Brewing Co., 663 F.2d 545, 548 (5th Cir.1981).

The Bankruptcy Amendments and Federal Judgeship Act of 1984 provides, in part, that district courts have jurisdiction of all civil proceedings "arising under title 11 [the Bankruptcy Code], or arising in or related to cases under title 11." 28 U.S.C. Sec. 1334(b). In response to the Supreme Court's holding in Northern Pipeline Constr. Co. v. Marathon Pipe Line Co., 458 U.S. 50, 102 S.Ct. 2858, 73 L.Ed.2d 598 (1982), ² the 1984 Act divides its jurisdictional grant into "core" proceedings, which the district court can refer to a bankruptcy judge for full adjudication, and "otherwise related" (non-core) proceedings, over which a bankruptcy judge may exercise only limited power. In re Wood, 825 F.2d 90, 91 (5th Cir.1987); 28 U.S.C. Sec. 157. ³ Our court has previously read both Marathon and the 1984 Act as restricting the placement of jurisdiction in bankruptcy courts (non-Article III courts), rather than as restricting the scope of bankruptcy jurisdiction. Wood, 825 F.2d at 93.

Analysis of bankruptcy court jurisdiction in a particular action involves a two-step inquiry. First, whether federal jurisdiction over bankruptcy cases and proceedings exists is determined under Sec. 1334(b), which is to be read as a broad grant of jurisdiction. Id. at 92. Second, if jurisdiction is found, Sec. 157 is examined to determine the extent to which a bankruptcy court, rather than a district court, can adjudicate the matter, which depends on whether the matter is a core or non-core proceeding. In this case, the parties consented to the matter being determined by the bankruptcy judge. Thus, even if the matter is a non-core proceeding, a determination by the bankruptcy judge was proper as long as the matter was at least related to the bankruptcy case. See 28 U.S.C. Sec. 157(c)(2). Therefore, the key issue in this case is whether bankruptcy jurisdiction attached. Since Sec. 1334(b) defines jurisdiction conjunctively as either "arising under," "arising in" or "related to" a case under Title 11, we need only determine whether this matter is at least related to the bankruptcy. Wood, 825 F.2d at 93.

The 1984 Act does not define "related" matters. The court in Wood adopted the widely accepted Third Circuit test for determining whether a proceeding is "related to" the bankruptcy case: "whether the outcome of that proceeding 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 (3d Cir.1984) (emphasis omitted)). The Pacor court elaborated on this inquiry by stating: "[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." Pacor, 743 F.2d at 994.

Our examination of FDIC's action leads us to conclude that the matter is related to Majestic's bankruptcy case. The outcome of the action could bind Majestic in that it could affect a course of action of debtor Majestic. See Pacor, 743 F.2d at 995. FDIC named Majestic as a party to the proceeding and sought to enjoin it from delivering the new common stock to Templeton pending a determination of FDIC's interest in the stock. If FDIC were successful in establishing a superior claim to possession under the Pledge, the actions of Majestic, and the handling and administration of the Plan, would be affected.

We have often said that a debtor corporation has no property interest in the shares of its stock owned by shareholders. Paso Del Norte, 755 F.2d at 424. However, at the point the shares were issued but undelivered to Templeton, Majestic had possession of the stock, and delivery was necessary to administer the estate pursuant to the Plan (the partial satisfaction of Templeton's unsecured claim). Whether the undelivered stock was property of the estate is not a critical inquiry, since the Bankruptcy Act of 1978 eliminated Sec. 711...