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In re Jordan

United States District Court, M.D. Alabama, Northern Division

May 7, 2019

In re DAVID DUANE JORDAN. Debtor,
v.
DAVID DUANE JORDAN, Defendant. SERVISFIRST BANK, Plaintiff, Bankruptcy Adversary Proceeding No. 17-3092-WRS4

         Chapter 7

          MEMORANDUM OPINION AND ORDER

          W. KEITH WATKINS UNITED STATES DISTRICT JUDGE

         This matter, which arises out of a Chapter 7 bankruptcy proceeding, is an attempt by a creditor to have a federal court of limited jurisdiction oversee its efforts to collect an $800, 000 debt at a rate of $600 per month. Because state courts of general jurisdiction are better suited to handling such matters, the court will deny Plaintiff's motion to withdraw the reference (Doc. # 1), related motion for a continuing order of condemnation (Doc. # 3), and the parties' joint motion for entry of a continuing order of condemnation (Doc. # 7).

         I. BACKGROUND [1]

         Plaintiff ServisFirst Bank sought a declaration in bankruptcy court that the debt owed to it by Defendant David Duane Jordan was nondischargeable because it was obtained through fraud. The bankruptcy court entered a stipulated judgment providing that $800, 000 of the debt was nondischargeable in bankruptcy under 11 U.S.C. § 523(a)(2)(B), which makes debts procured through a false writing nondischargeable. (Doc. # 1, at 8-9.) After entry of judgment, Plaintiff downloaded forms from the bankruptcy court's website and began wage garnishment proceedings to collect its $800, 000 debt. Defendant's wages were to be garnished at a rate of $600 per month. At that rate, the $800, 000 debt would be paid off in about 111 years.

         Seeking to secure its garnishment, Plaintiff moved the bankruptcy court to enter an order of continuing condemnation. The bankruptcy court denied the motion, but ordered the bankruptcy clerk to pay out any funds held by the court that were owed to Plaintiff. The bankruptcy court further advised that it would abstain from further proceedings initiated by Plaintiff in its efforts to collect its $800, 000 debt.

         Plaintiff then moved to reopen the adversary proceeding and withdraw the reference. (Doc. # 1.) The bankruptcy court held a hearing on the motion during which it explained its view that allowing creditors in bankruptcy to utilize the federal courts to collect their debts would “soon overwhelm” the system. (Doc. # 3-1, at 5.) The bankruptcy court also explained that state courts of general jurisdiction are the appropriate fora for such efforts. Finally, the bankruptcy court warned Plaintiff that the district court had an absolute right to abstain from exercising jurisdiction in this matter and that it would write a memorandum explaining why the district court should abstain.

         Plaintiff's motion to withdraw the reference (Doc. # 1), motion for entry of continuing order of condemnation (Doc. # 3), and the bankruptcy court's memorandum (Doc. # 2-1) are now before the district court. After Plaintiff filed these motions, the garnishee filed limited objections (Docs. # 4, 6), reiterating the bankruptcy court's abstention decision.[2] But the garnishee apparently changed its mind and has consented to Plaintiff's motions, since Plaintiff, Defendant, and the garnishee have now filed a joint motion for a continuing order of condemnation. (Doc. # 7.) Even so, the district court agrees with the bankruptcy court that abstention is appropriate. This is a matter that state courts of general jurisdiction should handle.

         II. DISCUSSION

         “Federal courts are courts of limited jurisdiction.” Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S. 375, 377 (1994). Bankruptcy matters are included in federal courts' limited jurisdiction. Indeed, the district courts have original and exclusive jurisdiction over cases arising under title 11, which contains the Bankruptcy Code.[3] See 28 U.S.C. § 1334(a).

         But federal courts are not absolutely obligated to take on bankruptcy cases. Except in a few circumstances not applicable here, a district court “in the interest of justice, or in the interest of comity with State courts or respect for State law, ” may abstain “from hearing a particular proceeding arising under title 11 or arising in or related to a case under title 11.” Id. § 1334(c)(1). And when a district court abstains under § 1334(c)(1), that decision “is not reviewable by appeal.” Id. § 1334(d).

         Individual debtors like Defendant file for Chapter 7 bankruptcy to discharge their debts. See 11 U.S.C. § 727(a). A successful Chapter 7 bankruptcy discharges the debtor's debts unless they fall into any of the nineteen categories of debts enumerated in 11 U.S.C. § 523 as nondischargeable. See 11 U.S.C. § 727(b).

         One kind of nondischargeable debt is any money debt obtained through fraud. See 11 U.S.C. § 523(a)(2). The bankruptcy court's stipulated judgment in this case provided that Defendant's debt to Plaintiff was obtained through a false writing and thus nondischargeable. (See Doc. # 1, at 8-9; 11 U.S.C. § 523(a)(2)(B).)

         The bankruptcy court had jurisdiction to enter a judgment declaring that $800, 000 of Defendant's debt was nondischargeable in bankruptcy. See 28 U.S.C. ยง 1334(a). But the bankruptcy court identified a distinction between a declaration of nondischargeability of a debt and a money judgment on the amount of underlying indebtedness. A declaration of nondischargeability is quintessentially a bankruptcy function, while a money judgment on a debt is a ...


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