Wood, Matter of

Decision Date26 August 1987
Docket NumberNo. 86-4510,86-4510
Parties17 Collier Bankr.Cas.2d 743, Bankr. L. Rep. P 71,955 In the MATTER OF James P. WOOD, M.D. and Carol B. Wood, Debtors. Dr. Arthur E. WOOD, III, Plaintiff-Appellant, v. Dr. James P. WOOD, Carol Wood, Woodrow Barham & Wayne Clinic, P.A., Defendants-Appellees.
CourtU.S. Court of Appeals — Fifth Circuit

Jim Waide, Estes & Waide, Tupelo, Miss., for plaintiff-appellant.

Craig M. Geno, Floyd M. Sulser, Bennett, Lotterhos, Sulser & Geno, Jackson, Miss., Stanford Young, Waynesboro, Miss., for defendants-appellees.

William H. Leech, Thomas E. Williams, Kenneth W. Barton, Jackson, Miss., for Barham.

Appeal from the United States District Court for the Southern District of Mississippi.

Before WISDOM, WILLIAMS, and HILL, Circuit Judges.

WISDOM, Circuit Judge:

This appeal calls upon us to decipher the jurisdictional provisions of the Bankruptcy Amendments and Federal Judgeship Act of 1984. A brief history of the Act may cast some light on the nature of our task.

Years of effort to reform the bankruptcy laws culminated with the enactment of the Bankruptcy Reform Act of 1978. 1 As part of its overall goal to create a more efficient procedure for administering bankruptcies, the 1978 Act vested broad powers in the bankruptcy courts. This reform was short-lived. In 1982 the Supreme Court decided Marathon v. Northern Pipelines. 2 The Court declared the jurisdictional provision of the 1978 Act unconstitutional because, in short, it vested Article III judicial power in Article I judges. Courts were left to their own devices while Congress deliberated a response to Marathon. With prompting from bench, bar, and law professors with expertise in bankruptcy, Congress responded with the Bankruptcy Amendments and Federal Judgeship Act of 1984. Essentially, Congress reenacted the 1978 Act, but divided its jurisdictional grant into "core" proceedings, over which the bankruptcy courts exercise full judicial power--and "otherwise related" or "non-core" proceedings--over which the bankruptcy courts exercise only limited power. In this case, we must decide two issues: first, whether bankruptcy jurisdiction exists; second, if jurisdiction does exist, whether the bankruptcy court may proceed over this matter as a "core" or a "non-core" proceeding.


This case results from a dispute among the directors/stockholders of a medical clinic. In 1981, Dr. James Wood and Dr. Arthur Wood, III, formed the Wayne Clinic, P.A., each becoming the owner of 1000 shares of stock. In March of 1984, Dr. James Wood and his wife, Carol Wood, filed a Chapter 11 bankruptcy petition in the Southern District Court of Mississippi. In May of 1985, Dr. Arthur Wood filed a complaint in the same court is alleging that in November of 1984, Dr. and Mrs. James Wood and Woodrow Barham, acting together as directors of the clinic, wrongfully issued additional stock to Dr. James Wood. The complaint stated that in the Spring of 1985, Dr. James Wood received a disproportionate distribution from the clinic as the result of the wrongful stock issuance in violation of the agreement between Dr. James Wood and Dr. Arthur Wood that they were to be equal partners in the clinic. The complaint seeks damages and declaratory relief.

The bankruptcy judge of the district denied the defendants' motion to dismiss for lack of subject-matter jurisdiction and held that the matter was a core proceeding. On appeal to the district court, the court held that the matter was neither a "core" proceeding, over which the bankruptcy judge had full judicial power, nor an "otherwise related" or "non-core" proceeding, over which the bankruptcy judge has limited judicial power. The court dismissed the complaint for lack of subject-matter jurisdiction. The plaintiffs appealed to this Court.


The starting point in our analysis is 28 U.S.C. Sec. 1334. In relevant part this provision provides:

(a) Except as provided in subsection (b) of this section, the district court shall have original and exclusive jurisdiction of all cases under title 11.

(b) Notwithstanding any Act of Congress that confers exclusive jurisdiction on a court or courts other than the district courts, the district courts shall have original but not exclusive jurisdiction of all civil proceedings arising under title 11, or arising in or related to cases under title 11. 3

Section 1334 lists four types of matters over which the district court has jurisdiction:

1. "cases under title 11",

2. "proceedings arising under title 11",

3. proceedings "arising in" a case under title 11, and

4. proceedings "related to" a case under title 11.

The first category refers merely to the bankruptcy petition itself, over which district courts (and their bankruptcy units) have original and exclusive jurisdiction. Our concern, however, is with the other proceedings listed in subsection 1334(b), over which the district courts have original, but not exclusive, jurisdiction.

There is almost no legislative history to guide us in interpreting the 1984 Act. Subsection 1334(b), however, was taken verbatim from subsection 1471(b) of the 1978 Act. 4 The legislative history and judicial interpretations of that Act therefore are instructive. 5

Legislative history indicates that the phrase "arising under title 11, or arising in or related to cases under title 11" was meant, not to distinguish between different matters, but to identify collectively a broad range of matters subject to the bankruptcy jurisdiction of federal courts. 6 Congress was concerned with the inefficiencies of piecemeal adjudication of matters affecting the administration of bankruptcies and intended to give federal courts the power to adjudicate all matters having an effect on the bankruptcy. 7 Courts have recognized that the grant of jurisdiction under the 1978 Act was broad. 8

Nothing in Marathon suggests that we should read the corresponding provisions of the 1984 Act differently. The jurisdictional provision of the 1978 Act, section 1471, accomplished two things. First, subsection (b) vested an expansive bankruptcy jurisdiction in the district courts. 9 Second, subsection (c) conferred the power to exercise that jurisdictional grant in the bankruptcy courts. 10 The issue in Marathon- was not the constitutionality of subsection (b), but the constitutionality of subsection (c). Marathon held that Congress could not vest the whole of bankruptcy jurisdiction in bankruptcy courts because the jurisdictional grant encompassed proceedings too far removed from the "core" of traditional bankruptcy powers to allow them to be adjudicated by non-Article III judges. 11 The holding in Marathon suggests no concern over the constitutionality of the scope of bankruptcy jurisdiction defined by Congress; its concern is with the placement of that jurisdiction in non-Article III courts. In response to Marathon, Congress altered the placement of bankruptcy jurisdiction by creating a statutory distinction between core and non-core proceedings and restricting the power of bankruptcy courts to adjudicate the latter. Because Marathon did not compel Congress to reduce the scope of bankruptcy jurisdiction, it seems plain that Congress intended no change in the scope of jurisdiction set forth in the 1978 Act when it later enacted section 1334 of the 1984 Act.

The district court expressed its concern that an overbroad interpretation of section 1334 would bring into federal court matters that should be left to state courts to decide. We have also expressed the same concern. 12 There is no necessary reason why that concern must be met by restrictive interpretations of the statutory grant of jurisdiction under section 1334. The Act grants the district court broad power to abstain whenever appropriate "in the interest of justice, or in the interest of comity with State courts or respect for State law". 13 The abstention provisions of the Act demonstrate the intent of Congress that concerns of comity and judicial convenience should be met, not by rigid limitations on the jurisdiction of federal courts, but by the discretionary exercise of abstention when appropriate in a particular case. 14 Here, the possibility of abstention was not raised in the district court. 14a

For the purpose of determining whether a particular matter falls within bankruptcy jurisdiction, it is not necessary to distinguish between proceedings "arising under", "arising in a case under", or "related to a case under", title 11. These references operate conjunctively to define the scope of jurisdiction. Therefore, it is necessary only to determine whether a matter is at least "related to" the bankruptcy. The Act does not define "related" matters. Courts have articulated various definitions of "related", but the definition of the Court of Appeals for the Third Circuit appears to have the most support: "whether the outcome of that proceeding could conceivably have any effect on the estate being administered in bankruptcy." 15 This definition comports with the legislative history of the statutory predecessor to section 1334. Neither Marathon nor general concerns of comity counsel against its use. We adopt it as our own.

Applying this test to case before us, we find that the complaint is sufficiently related to the pending bankruptcy to allow the district court to exercise jurisdiction under section 1334. The complaint against the bankruptcy debtors could have a conceivable effect on their bankruptcy. The plaintiff seeks to recover stock and monies that the debtors allegedly appropriated from the clinic. They seek to resolve the disputed allocation of interest in the clinic. To the extent that the debtors' interest in the clinic, their stock holdings, or their withdrawals are now property of the estate, the complaint against them has a potential effect on their estate.

The debtors argue that the complaint raises a post-petition claim that will not affect their bankruptcy. 16 Generally,...

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