United States District Court, S.D. Alabama, Southern Division
ORDER
WILLIAM H. STEELE UNITED STATES DISTRICT JUDGE.
This
matter is before the Court on the defendant's motion to
dismiss and/or for other relief. (Doc. 17). The parties have
filed briefs and other materials in support of their
respective positions. (Docs. 17, 23-25). After careful
consideration, the Court concludes that subject matter
jurisdiction appears to exist under 28 U.S.C. § 1334(b),
that this case is thus to be referred to the District's
bankruptcy judges, and that the defendant's motion
(including the question of jurisdiction under Section 1334),
is to be resolved by the Bankruptcy Court, to the extent
consistent with Article III of the Constitution.
BACKGROUND
According
to the amended complaint, (Doc. 12), the plaintiff is the
mortgagee of certain real property located in Nassau County,
New York ("the Property"). The mortgagors are two
individuals (LaFortune and Padilla, collectively, "the
Borrowers"). While the mortgage was in effect, recorded
and unsatisfied, the Borrowers commenced a joint Chapter 13
bankruptcy case in this District ("the Joint
Bankruptcy"), listing an ownership interest in the
Property. The Bankruptcy Court entered an order confirming
the Borrower's Chapter 13 plan, which provided for
surrender of the Property. Padilla later successfully moved
for dismissal from the Joint Bankruptcy, while LaFortune
completed her Chapter 13 plan and received a discharge.
Padilla filed his own Chapter 13 bankruptcy case in this
District (“the Padilla Bankruptcy”), in which he
never identified any interest in the Property.
In
February 2018, nine months after LaFortune received a
discharge and twenty months after the Padilla Bankruptcy was
filed, the Borrowers purported to convey the Property by deed
to the defendant. The plaintiff filed this declaratory
judgment action seeking a declaration that the conveyance is
null and void, that the defendant holds no interest in the
Property, and that the deed be rescinded as a cloud on title.
The amended complaint asserts that the interest of both
Borrowers in the Property was irrevocably surrendered upon
confirmation of the Chapter 13 plan in the Joint Bankruptcy.
The amended complaint further asserts that, to the extent
Padilla retained any interest in the Property after his
dismissal from the Joint Bankruptcy, his failure to list the
Property as an asset in his bankruptcy schedules, and his
failure to obtain approval from the Bankruptcy Court to
transfer any interest in the Property, precluded any
effective conveyance.
The
defendant moves to dismiss on the following grounds: (1) lack
of subject matter jurisdiction; (2) lack of personal
jurisdiction; (3) improper venue; (4) failure to state a
claim on which relief can be granted; and (5) lack of
standing. As a last-resort alternative, the defendant seeks a
change of venue to the Eastern District of New York.
DISCUSSION
As
grounds for subject matter jurisdiction, the plaintiff
invokes 28 U.S.C. §§ 1331, 1334(b) and 1334(e)(1).
(Doc. 12 at 3). With exceptions not relevant here, “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.” 28
U.S.C. § 1334(b). The parties focus on the
“related to” prong of this provision.
The 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. The proceeding
need not necessarily be against the debtor or 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.
In re: Toledo, 170 F.3d 1340, 1345 (11th
Cir. 1999) (internal quotes omitted). This test is
“liberal” and “extremely broad.”
Id. The parties agree with this formulation of the
test, (Doc. 17 at 4-5; Doc. 23 at 16-17), but they disagree
as to its application here.
The
defendant first suggests that “related to”
jurisdiction can only be invoked in the context of an
adversary proceeding, not in the context of a separate civil
action. (Doc. 17 at 5). The defendant cites no authority for
this proposition, which is easily refuted. See, e.g.,
Carter v. Rodgers, 220 F.3d 1249, 1251-54
(11thCir. 2000) (the debtor's separate civil
action against the trustee triggered “related to”
jurisdiction).
The
defendant next posits that “related to”
jurisdiction does not exist because Padilla “is no
longer the owner of the [P]roperty.” (Doc. 17 at 5).
This unamplified ipse dixit is a non
sequitur. The return of property that (as the amended
complaint alleges) has been wrongfully removed from the
estate plainly impacts the handling and administration of the
estate, because it increases the assets of the estate.
See Carter, 220 F.3d at 1253 (a civil action
alleging wrongdoing in the sale of property belonging to the
estate “related to” the bankruptcy case, because
“[a]ny recovery would reduce the administrative
expenses of the sale of the estate property and perforce
increase the amount of estate property available to satisfy
creditors' claims.”); In re: Toledo, 170
F.3d at 1345-47 (a claim seeking a determination of the
extent and priority of liens and other interests in certain
estate property supported “related to”
jurisdiction, because it could result in “the possible
partial satisfaction and consequent downward adjustment of
the claim filed against the Estate by” the particular
creditor, thereby affecting the estate's interest in the
property).
The
defendant's principal argument is that a New York state
court in a quiet title action has already entered an adverse
decision, binding on the plaintiff, regarding the issue it
raises herein. According to the defendant, this means that,
“[a]ssuming arguendo that the Plaintiff were
to prevail in the instant action, any judgment would be
completely moot and invalid” as contrary to the state
decision and judgment. (Doc. 17 at 5-7). As phrased, the
argument cannot avail, because it presupposes that the
plaintiff will prevail in this action and so obtain a federal
judgment that the transfer of the Property to the defendant
is null and void, thus returning the Property to the estate
and increasing its assets and thereby satisfying
“related to” jurisdiction as discussed in the
preceding paragraph.
If what
the defendant intended to argue is that the plaintiff cannot
prevail in this action because the state judgment precludes
that result, the question becomes whether the plaintiff
“conceivably” could prevail despite the state
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