Miller v. Bruemmer (In re Bruemmer Dev., LLC)

Decision Date18 July 2014
Docket NumberBankruptcy No. 11–51001.,Adversary No. 13–4414.
PartiesIn re BRUEMMER DEVELOPMENT, LLC, Debtor. Timothy J. Miller, Trustee, Plaintiff, v. Shaun Bruemmer, et al., Defendants/Third Party Plaintiffs, v. Dennis Whedon, Third Party Defendant.
CourtUnited States Bankruptcy Courts. Tenth Circuit. U.S. Bankruptcy Court — Eastern District of Michigan

515 B.R. 551

In re BRUEMMER DEVELOPMENT, LLC, Debtor.
Timothy J. Miller, Trustee, Plaintiff,
v.
Shaun Bruemmer, et al., Defendants/Third Party Plaintiffs,
v.
Dennis Whedon, Third Party Defendant.

Bankruptcy No. 11–51001.
Adversary No. 13–4414.

United States Bankruptcy Court,
E.D. Michigan,
Southern Division.

Signed July 18, 2014.


[515 B.R. 552]


Jeffrey H. Bigelman, Osipov Bigelman, P.C., Southfield, MI, Timothy J. Miller, Schneider Miller, P.C., Washington, MI, for Plaintiff.

Martin G. Lozier, Jackson, MI, Jeffrey G. Bennett, Ann Arbor, MI, for Defendants/Third Party Plaintiffs.


Bruce N. Elliott, Bradley J. MeLampy, Ann Arbor, MI, for Third Party Defendant.

OPINION REGARDING DISMISSAL OF THIRD–PARTY COMPLAINT FOR LACK OF SUBJECT MATTER JURISDICTION

THOMAS J. TUCKER, Bankruptcy Judge.

This opinion explains why the Court must dismiss the third-party claims filed by the Defendants in this adversary proceeding,

[515 B.R. 553]

for lack of subject matter jurisdiction.

I. BackgroundA. The Chapter 7 Trustee's adversary complaint

In this adversary proceeding, the Plaintiff Timothy R. Miller, who is the trustee in the Chapter 7 bankruptcy case of Bruemmer Development, LLC, seeks a judgment against Defendants Shaun Bruemmer, Executive Realty, LLC (“Executive Realty”), Bruemmer Builders, LLC (“Bruemmer Builders”), and Arthur Bruemmer (collectively, the “Defendants”), arising out of a transfer by quit claim deed of a condominium unit located at 3441 Belgian Circle, Jackson, Michigan (“Unit 17”).1 The pre-petition transfer was made by the Debtor Bruemmer Development, LLC to Executive Realty. At the time of transfer, Arthur Bruemmer was the sole owner and managing member of both the Debtor and Bruemmer Builders, and Shaun Bruemmer was the sole owner and member of Executive Realty. Arthur Bruemmer is married to Shaun Bruemmer. Shortly after the transfer at issue, Executive Realty sold Unit 17 to third parties for $175,000. Shaun Bruemmer received a check in the amount of $167,428.26 from the sale of Unit 17, and deposited the check into an investment account in her name at Wachovia Investments.

In his adversary complaint, the Trustee alleges, in relevant part, that Debtor's transfer of Unit 17 to Executive Realty was a fraudulent transfer that can be avoided and recovered for the bankruptcy estate, and that he is entitled to a judgment against the Defendants, jointly and severally, of “no less than $175,000” plus interest and costs.2 The Trustee also alleges that the Defendants were parties to a civil conspiracy “to cause the Debtor to convey Unit 17 and the Unit 17 sale proceeds from [the] reach of Debtor's creditors, including without limitation Fifth Third Bank,” and that he is entitled to a judgment against the Defendants, jointly and severally, of “no less than treble the Unit 17 sale price of $175,000” based on his civil conspiracy claim. 3

B. The Defendants' third-party complaint

The Defendants filed a third-party complaint against Dennis Whedon (“Whedon”), a family friend and retired attorney, in which they allege that Arthur and Shaun Bruemmer sought legal advice from Whedon regarding a possible transfer of Unit 17 by the Debtor, and Whedon advised them to cause Debtor to transfer Unit 17 to Executive Realty.4 In Count I of their third-party complaint, captioned “Conspiracy,” Defendants “request that in the event that they are found liable on Count IV–Conspiracy of Plaintiff's Complaint, that Third–Party Defendant, Dennis Whedon be found jointly and severally liable with Third–Party Plaintiffs.” 5

In Count II of their third-party complaint, Defendants assert a claim against Whedon for legal malpractice, and “request that this [C]ourt enter judgment against Dennis Whedon in an amount they are found to be justly entitled, together with interest, costs, and attorney fees, including the amount of any judgment which

[515 B.R. 554]

Third–Party Plaintiffs are found to be liable to the Plaintiff.” 6

C. The Court's Show–Cause Order

On June 19, 2014, the Court entered an order entitled “Order Requiring Third Party Plaintiffs and Third Party Defendant to Show Cause in Writing Why the Court Should Not Dismiss All of the Third Party Claims in this Adversary Proceeding, for Lack of Subject Matter Jurisdiction.” 7 The Show–Cause Order noted that “[t]he parties to the third party claims apparently agree that the Court has subject matter jurisdiction over these claims,” but that “the Court is not bound by that agreement, and must independently determine whether it has subject matter jurisdiction.” 8 The Order further stated that “it appears that this Court lacks subject matter jurisdiction over the claims in the third party complaint,” and discussed in detail the applicable statutes and case law that support such a conclusion.9 The Show–Cause Order provided:

IT IS ORDERED that no later than July 3, 2014, the Third Party Plaintiffs and the Third Party Defendant each must file a written response to this Order, showing cause why this Court should not dismiss all of the claims in the third party complaint for lack of subject matter jurisdiction.

If any such party does not timely file such a written response, the Court will assume that such party agrees that this Court lacks subject matter jurisdiction over the third party claims.10

On July 3, 2014, Defendants filed a response to the Show–Cause Order. 11 Third–Party Defendant Whedon did not file a response. In the Response, Defendants argued that this Court has subject matter jurisdiction over their third-party claims. The Court disagrees, however, for the reasons stated below.

II. DiscussionA. The scope of the bankruptcy court's jurisdiction

The Supreme Court has noted that:

[515 B.R. 555]

Federal courts are courts of limited jurisdiction. They possess only that power authorized by Constitution and statute, see Willy v. Coastal Corp., 503 U.S. 131, 136–137, 112 S.Ct. 1076, 1080, 117 L.Ed.2d 280 (1992); Bender v. Williamsport Area School Dist., 475 U.S. 534, 541, 106 S.Ct. 1326, 1331, 89 L.Ed.2d 501 (1986), which is not to be expanded by judicial decree, American Fire & Casualty Co. v. Finn, 341 U.S. 6, 71 S.Ct. 534, 95 L.Ed. 702 (1951). It is to be presumed that a cause lies outside this limited jurisdiction, Turner v. Bank of North America, 4 U.S. (4 Dall.) 8, 11, 1 L.Ed. 718 (1799), and the burden of establishing the contrary rests upon the party asserting jurisdiction, McNutt v. General Motors Acceptance Corp., 298 U.S. 178, 182–183, 56 S.Ct. 780, 782, 80 L.Ed. 1135 (1936).

Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S. 375, 377, 114 S.Ct. 1673, 128 L.Ed.2d 391 (1994).


As this Court has previously noted, under 28 U.S.C. § 1334(b), bankruptcy courts have

subject matter jurisdiction over ‘all cases under title 11,’ and over ‘all civil proceedings' (1) ‘arising under title 11’ or (2) ‘arising in’ a case under title 11 or (3) ‘related to’ a case under title 11.

A “case under title 11” refers “merely to the bankruptcy petition itself, filed pursuant to 11 U.S.C. §§ 301, 302, or 303.” Michigan Employment Sec. Comm'n v. Wolverine Radio Co., Inc., 930 F.2d 1132, 1140 (6th Cir.1991).

...

“The phrase ‘arising under title 11’ describes those proceedings that involve a cause of action created or determined by a statutory provision of title 11, and ‘arising in’ proceedings are those that, by their very nature, could arise only in bankruptcy cases.” Bliss Technologies, Inc. v. HMI Indus., Inc. (In re Bliss Technologies, Inc.), 307 B.R. 598, 602 (Bankr.E.D.Mich.2004) (quoting Wolverine Radio, 930 F.2d at 1144). These two categories of civil proceedings are “core” proceedings within the meaning of 28 U.S.C. §§ 157(b)(1) and 157(b)(2). Id. ...

Civil proceedings that fall only within the third category of the bankruptcy court's subject matter jurisdiction—its “related to” jurisdiction—are non-core....

The Sixth Circuit has adopted the test articulated in Pacor, Inc. v. Higgins (In re Pacor, Inc.), 743 F.2d 984, 994 (3d Cir.1984), for determining “related to” jurisdiction:

“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, options, or freedom of action (either positively or negatively) and which in any way impacts upon the handling and administration of the bankrupt estate.”

Wolverine Radio, 930 F.2d at 1142 (emphasis in original) (quoting Pacor, Inc. v. Higgins (In re Pacor, Inc.), 743 F.2d 984, 994 (3d Cir.1984) (emphasis in original)); see also Lindsey v. O'Brien, Tanski, Tanzer and Young Health Care Providers of Connecticut (In re Dow Corning Corp.), 86 F.3d 482, 489, 490 (6th Cir.1996). In enacting § 1334(b), “Congressional intent was ‘to grant comprehensive jurisdiction to the bankruptcy courts so that they might deal

[515 B.R. 556]

efficiently and expeditiously with all matters connected with the bankruptcy estate.’ ” Id. (quoting Celotex Corp. v. Edwards, 514 U.S. 300, 308 [115 S.Ct. 1493, 131 L.Ed.2d 403] (1995)). Proceedings “related to” the bankruptcy case include “more than simple proceedings involving the property of the debtor or the estate.” Celotex Corp. v. Edwards, 514 U.S. at 308 [115 S.Ct. 1493]. And such “related to” proceedings include even “suits between third parties which have an effect on the bankruptcy estate.” Id. at 308 n. 5 [115 S.Ct. 1493]. But the Sixth Circuit has cautioned against finding “related to” jurisdiction in “situations ... where [there is] an extremely tenuous connection to the estate [.]” See Wolverine Radio, 930 F.2d at 1142.

Allard v. Coenen (In re Trans–Industries, Inc.), 419 B.R. 21, 26–28 (Bankr.E.D.Mich.2009) (footnotes omitted); see also Swain v. United States Dep't of Treasury, I.R.S. (In...

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