Matter of Roper
| Citation | 203 BR 326 |
| Decision Date | 31 October 1996 |
| Docket Number | Adversary No. 96-40373,Bankruptcy No. 95-40203,96-40372.,95-40171 |
| Court | United States Bankruptcy Courts. Eleventh Circuit. U.S. Bankruptcy Court — Northern District of Alabama |
| Parties | In the Matters of Tony ROPER and Darlene Roper, Debtors. Tony ROPER and Darlene Roper, Plaintiffs, v. AMERICAN HEALTH & FIRE INSURANCE CO. & Commercial Credit Corporation, Defendants. Matter of Gary W. SMITH, Debtor. Gary W. SMITH, Plaintiff, v. AMERICAN HEALTH & LIFE INSURANCE CO. & Commercial Credit Corporation, Defendants. |
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Earl Underwood, Anniston, AL, for debtors (plaintiffs) in both cases.
Nathan Norris, Birmingham, AL, for American Health and Life Insurance Company (creditor/defendant).
Stephen Porterfield, Birmingham, AL, for Commercial Credit Corporation (creditor/defendant).
Mavis Willingham, Anniston, AL, Standing Trustee in both cases.
This matter is before the Court on a Motion to Remand filed by the plaintiffs on June 24, 1996. The District Court referred the matter to this Court on August 1, 1996. A hearing was held on September 10, 1996. Appearing at the hearing on the motion were Earl Underwood, attorney for the debtors, Nathan Norris, attorney for American Health and Life Insurance Company, Stephen Porterfied, for Commercial Credit Corp., and Mavis Willingham, Standing Trustee. The matter was taken under submission on September 18, 1996 on oral and written arguments of counsel and undisputed facts. The cases were consolidated for this opinion and taken under advisement on that date. The issues before the Court involve federal jurisdiction and bankruptcy court authority to hear and determine Motions to Remand. For the reasons discussed below, both cases are remanded to state court.
A Chapter 13 plan was filed by Tony and Darlene Roper on February 23, 1995, proposing to pay one hundred percent of claims against the estate, plus eight percent interest to both secured and unsecured claims. Commercial Credit Corporation filed a secured claim of $7,980.88, with attached documents including certificate of titles on a 1980 Ford Mustang and a 1979 Chevrolet Camaro. The Ropers filed an adversary proceeding challenging the extent of the lien on the Camaro. A judgment was entered against Commercial Credit for an allowed secured claim of $2,500.00 and an allowed unsecured claim of $5,480.88. The plan provided for the Mustang to be surrendered to satisfy the claim secured by it and for payment in full plus eight interest on the claim secured by the Camaro. The secured claim is to be paid in sixteen fixed monthly payments of $160.00 and the unsecured claim is to be paid pro rata. The plan was confirmed on July 25, 1995.
Debtor Gary Smith filed his Chapter 13 petition on June 6, 1995. This plan proposed to pay one hundred percent of all claims, plus eight percent interest on secured claims, but no interest to unsecured claimants. Commercial Credit filed a secured claim for $8,192.28, with attached documents, including a security agreement in nonpurchase money personal property. However, no recorded financing statement was included. Mr. Smith filed an adversary proceeding challenging the security interest against Commercial Credit and obtained a judgment for an allowed secured claim of zero and an allowed unsecured claim of $8,192.28. Thus, the plan provided for the full claim to be paid pro rata during the life of the plan. It was confirmed on July 20, 1995.
On May 9, 1996, these debtors filed separate actions against American Health and Insurance Company and Commercial Credit, Inc. in the Circuit Court of Calhoun County, Alabama. The actions consisted of allegations of common law charges of fraud, deceit, and misrepresentation, and violations of the Alabama Mini-Code in connection with credit insurance policies sold to the debtors by Commercial Credit as general agent for American Health and Insurance Company. The premiums for the policies were added to consumer notes signed by the debtors.
Pursuant to 28 U.S.C. §§ 1331 and 1452, defendant Commercial Credit removed both cases to the U.S. District Court of the Northern District of Alabama on June 14, 1996. As grounds for subject matter jurisdiction in federal court, the defendant contended that plaintiffs' allegations of violating disclosure requirements was not a viable cause of action under the Alabama Mini-Code, but was instead a masked attempt to try a federal claim under the Truth In Lending Act. Therefore, Commercial Credit argued that federal question jurisdiction under 28 U.S.C. § 1331 was present. The defendant also contended that federal jurisdiction existed pursuant to 28 U.S.C. § 1334, based on the pendency of the plaintiffs' respective bankruptcy cases.
Motions to Remand were filed by plaintiffs on June 24, 1996; and as support they argued that the state court was the proper forum because all claims were based upon state law. The District Court dismissed defendant's claim of jurisdiction under the Truth In Lending Act, as barred by the statute of limitations provided in 15 U.S.C. § 1640(e). All that remains as a possible basis for federal jurisdiction is the relation between the actions and the debtors' bankruptcy cases.1 The District Court referred the "issue" to this Court for a "report and recommendation" on August 1, 1996.2 Upon review of recent Congressional amendments to the U.S. Code, this Court respectfully declined to submit a recommendation, but instead held that it had the authority to render an Order on Motions to Remand.
Every court must determine its jurisdiction or power to adjudicate an issue presented to it. A bankruptcy court, as a unit of the federal court system created by Congress pursuant to its Article I powers, must first ascertain whether it has subject matter jurisdiction over the matter before it. It must then decide whether it has the authority, as opposed to an Article III court, to render a final order on the matter. Finally, as a matter of comity and federalism, it must decide whether it should exercise its power or refrain in order to remand the matter to the state court where the action was originally filed. Beverly Royal v. Daihatsu (In re Royal), 197 B.R. 341, 345 (Bankr.N.D.Ala. 1996). At the federal level, the ultimate issue is separation of powers. At the state level, the issue is sovereignty of the states.
"It is well settled that the jurisdiction of the bankruptcy courts to hear cases related to bankruptcy is limited initially by statute and eventually by Article III." Miller v. Kemira, Inc. (In re Lemco Gypsum, Inc.), 910 F.2d 784, 787 (11th Cir.1990) citing Pacor, Inc. v. Higgins, 743 F.2d 984, 994 (3rd Cir.1984). A case filed in a state court may be removed by a party to a federal court only if a statute exists that would have allowed the plaintiff to file the claim in federal court originally.3 Burns v. Windsor Ins. Co., 31 F.3d 1092, 1095 (11th Cir.1994). In the present case, removal based on federal question jurisdiction was dismissed by the district court, leaving the only possible basis for jurisdiction over this action to be its relation to the plaintiffs/debtors' pending cases in bankruptcy.
Title 28 U.S.C. Section 1452(a) provides for removal to a federal court any claim or action based on its relation to a bankruptcy case, if the district court has jurisdiction based on § 1334 of the same title. Section 1334(a) grants district courts exclusive power over bankruptcy cases. Section 1334(b) creates original, but not exclusive federal jurisdiction over "civil proceedings arising under title 11 or arising in or related to a case under title 11." 28 U.S.C. § 1334(b) (emphasis added).4 Federal jurisdiction thus exists, at a minimum, if the proceeding filed in state court "relates to" a case under title 11. Community Bank of Homestead v. Boone (In re Boone), 52 F.3d 958 (11th Cir.1995). District courts may then refer matters to bankruptcy courts for adjudication pursuant to 28 U.S.C. § 157(a). This is accomplished either by General Order of Reference, or, as in the present case, by a party's removal to the district court and its referral to the bankruptcy court.
The plaintiffs' complaints do not state a case under title 11. Only the case initiated by a petition filed in bankruptcy court for protection under title 11 qualifies as such pursuant to section 1334(a). Thomasson v. AmSouth Bank, 59 B.R. 997, 1004 (N.D.Ala.1986). Therefore, the matter is a proceeding and jurisdiction exists, if at all, by virtue of § 1334(b).
It is not necessary to distinguish between proceedings "arising in," "arising under," or "related to" bankruptcy cases under Title 11. Legislative History indicates that the phrases were not used to refer to different matters, but to "operate conjunctively to define the scope of jurisdiction." See Wood v. Wood (In re Wood), 825 F.2d 90, 93 (5th Cir.1987), citing S.Rep. No. 989, 95th Cong., 2d Sess., 153-54 (1987); see also In re Lemco Gypsum, Inc., 910 F.2d at 786. The only necessary determination is whether the proceeding is related to the bankruptcy.5 In re Wood, 825 F.2d at 93.
The Eleventh Circuit adopted the standard developed by the Third Circuit to determine if there exists a sufficient relationship between the removed cause of action and the bankruptcy case to establish federal jurisdiction. In re Lemco Gypsum, Inc., supra at 788, citing Pacor, Inc. v. Higgins, 743 F.2d at 994.
The usual articulation of the test for determining whether a civil proceeding is related to bankruptcy is whether the outcome of that proceeding could conceivably have any effect on the estate being administered in bankruptcy. Thus, 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,...
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