Opinion
Case No. 97-12701-SSM, Adversary Proceeding No. 97-1282
November 24, 1997
Peter C. Williams, Alexandria, VA, for the plaintiff
Robert O. Tyler, Tyler, Bartl, Burke Albert, P.L.C., Alexandria, VA, for defendants Andrew S.
Mr. Brian Powell, Upper Marlboro, MD, for Defendant
MEMORANDUM OPINION
A hearing was held in open court on November 4, 1997, on the motions of the debtor-defendants (a) to dismiss the amended complaint and (b) to abstain. The issues are whether an amendment to the original complaint adding a dischargeability count related back to the filing date of the original complaint, and whether this court may or should exercise jurisdiction over the counts seeking to reinstate the lien of a deed of trust against real estate and to subordinate an intervening lien.
Facts
Andrew S. Anderson and Benita W. Anderson, his wife (the "debtors"), filed a joint voluntary petition under chapter 7 of the Bankruptcy Code in this court on April 11, 1997, and received a discharge of their dischargeable debts on July 24, 1997. Among the assets listed on their schedules was a "barn house" and 65 acres of farmland located in Cumberland County, Virginia, valued at $98,950.00 and subject to two deeds of trust totaling $96,000.00. The debtors claimed $1,489.51 of equity in the property exempt under the Virginia homestead exemption, Va. Code Ann. § 34-4. The trustee filed a report of no distribution on June 16, 1997, and the bankruptcy case was closed on July 30, 1997.
Evidently a barn converted to a house.
The original deadline for filing complaints under § 523(c), Bankruptcy Code, to determine the dischargeability of debts alleged to be excepted from discharge under §§ 523(a)(2), (a)(4), (a)(6), and (a)(15), Bankruptcy Code was July 14, 1997. The deadline was extended, with the consent of the debtors, to August 14, 1997, on the motion of the MAM Trust #1, which had brought a suit against the debtors pre-petition in the Circuit Court of Spotsylvania County, Virginia. That suit, which sought reinstatement of a released deed of trust and subordination of an intervening deed of trust, was stayed as a result of the bankruptcy filing.
The motion to extend alleged, in relevant part, "Grounds may exist for denial of the dischargeability of the Debtors" indebtedness to movant or for the equitable subordination of the claim of another creditor of the Debtors that is secured by the same property of the Debtors, and additional time is needed to determine the facts."
On August 14, 1997, Orazio Roger Oliva ("Roger Oliva"), as co-trustee of the MAM Trust #1, filed a complaint in two counts against the debtors and a third person named Brian Powell, seeking reinstatement of a deed of trust and the subordination of an intervening deed of trust. Briefly summarized, the complaint alleged that a Raymond Oliva had loaned money and sold property to the debtors. On March 30, 1990, the debtors executed a note and deed of trust in the amount of $122,500 on property located in Cumberland County, Virginia. By a separate writing, the parties agreed that upon Andrew Anderson's purchase of a parcel of property in Northern Virginia, "the loan will be transferred to the northern Virginia property as a second deed of trust and the Cumberland County property will be released." On June 26, 1990, the debtors bought property located at 1609 Maddux Lane, McLean, Virginia ("the Maddux Lane property"), for $1,232,489.00. In connection with the purchase, they executed a first deed of trust in the amount of $940,200.00. On July 1, 1991, Raymond Oliva loaned the debtors an additional $70,000.00, which was secured by a second deed of trust against the Maddux Lane property.
The complaint alleges that Raymond Oliva then assigned "the note and deed of trust" "presumably meaning the $122,500 Cumberland County note and deed of trust" to thirteen relatives. Raymond Oliva died on January 12, 1993, and each of the relatives assigned their interest in the Cumberland County note and deed of trust to the MAM Trust. Moving forward, the complaint alleges that in July 1996, Andrew Anderson, his brother George, and defendant Brian Powell met to discuss the substitution of collateral on the Cumberland County property. Powell approached Roger Oliva and represented that he was a loan officer of "First Sovereign Bank Trust Company" ("First Sovereign"). Powell made representations to Oliva concerning the fair market value of the Maddux Lane property, and on August 5, 1996, a third deed of trust in the amount of $118,539.00 was recorded against the Maddux Lane property as a substitute for the Cumberland County deed of trust, which was released by certificate of satisfaction recorded on September 16, 1996. Approximately three weeks earlier, an $80,000.00 deed of trust in favor of First Sovereign had been recorded against the Cumberland County property. The complaint further alleges that on January 15, 1997, the Maddux Lane property was sold at a foreclosure sale. While the complaint does not expressly say so, the court assumes for the purpose of this opinion that the property brought only enough to satisfy the first deed of trust, leaving the MAM Trust with a deficiency claim for the entire amount of the debt formerly secured by the Cumberland County property.
Count I of the complaint seeks cancellation and recission of the certificate of satisfaction on the Cumberland County property on the ground that it was executed by Roger Oliva during a period that he was not a trustee of the MAM Trust and therefore had no authority to act Count II of the complaint seeks equitable subordination of the First Sovereign deed of trust to the (reinstated) MAM deed of trust, based on the fraudulent conduct of Brian Powell. Both counts mirror essentially identical counts in the Spotsylvania County chancery suit that was pending at the time the debtors filed their bankruptcy petition.
The plaintiff is thus in the anomalous position of suing to set aside the release on the ground of his own lack of authority. The complaint alleges that Roger Oliva was named by Mary Ann Mills as a trustee of the MAM Trust #1 at the time it was created but was removed as trustee on July 18, 1995, by an amendment to the declaration of trust. Another amendment dated January 10, 1997, reinstated him as trustee.
The original complaint in this adversary proceeding did not contain any language seeking a determination of dischargeability. Prior to the filing of a responsive pleading, however, the plaintiff filed on August 26, 1997, an amended complaint adding Count Three, which seeks a determination that the debt owed to the MAM Trust by the debtors is nondischargeable under § 523(a)(2), Bankruptcy Code, as having been procured by the fraud. Specifically, the amended complaint alleges that Powell, as agent for the Andersons, misrepresented to Roger Orazio that the agreement for substitution of collateral was enforceable, that the fair market value of the Maddux Lane property was $1,350,000, and that the debtors intended to reside in the property indefinitely. The debtors, in response, have filed motions to dismiss and for abstention, on the ground that the § 523(a)(2) count is time-barred and that the court either has no jurisdiction over Counts One and Two or should abstain in favor of the Circuit Court of Spotsylvania County.
Discussion I.
Under Section 523(a), Bankruptcy Code, a discharge in a chapter 7 case does not discharge an individual debtor from liability for 18 specified categories of debts. With respect to 14 of those categories, no action need be taken by the creditor during the bankruptcy case to preserve the issue of nondischargeability. With respect to four of the specified categories however "those debts described in §§ 523(a)(2), (a)(4), (a)(6), and (a)(15), Bankruptcy Code" the rule is different. Such debts are discharged unless, within 60 days of the first date set for the meeting of creditors, a complaint is filed in the bankruptcy court to determine the dischargeability of the debt. § 523(c), Bankruptcy Code; F.R.Bankr.P. 4007(b). Although the time may be extended, the motion requesting such extension must be made "before the time has expired," and the Bankruptcy Rules expressly prohibit an extension based on excusable neglect when the request is made after the time has expired. Id.; F.R.Bankr.P. 9006(b)(3). The Fourth Circuit, in dicta, has sided with those courts that have held that the time limit is not jurisdictional. Farouki v. Emirates Bank Int'l, Ltd. (In re Farouki), 14 F.3d 244, 248 (4th Cir. 1994), adopting Schunk v. Santos (In re Santos), 112 B.R. 1001 (Bankr. 9th Cir. 1990). At the same time, it is clear that Rule 4007 "establishes a strict time limit," which "is analogous to a statute of limitations" and "is not easily avoided." Mann v. CCR Financial Planning, Ltd. (In re McKoy), 211 B.R. 843, 846 (E.D. Va. 1997) (Ellis, J.).
In the present case, Count Three, seeking a determination of nondischargeability under § 523(a)(2), was not filed with the court until August 26, 1997 "twelve days after the previously extended date for filing complaints to determine dischargeability. Thus, Count Three is plainly untimely unless, as argued by the plaintiff, Count Three "relates back" to the date of the original complaint, which was filed within the (extended) period for filing dischargeability complaints.
A "proceeding . . . to determine the dischargeability of a debt" is an adversary proceeding governed by Part VII of the Federal Rules of Bankruptcy Procedure. F.R.Bankr.P. 7001. It is, accordingly, commenced by the filing of a complaint, and is subject to the pleading requirements of Federal Rules of Civil Procedure 7, 8, 9, 10, 12, 13, and 15. F.R.Bankr.P. 7003, 7007-7015. In particular, Federal Rule of Bankruptcy Procedure 7015, which incorporates Federal Rule of Civil Procedure 15, allows a party to "amend the party's pleading once as a matter of course at any time before a responsive pleading is filed." Relevant to the present controversy, Rule 15 further provides,
(c) Relation Back of Amendments. An amendment of a pleading relates back to the date of the original pleading when
* * *
(2) the claim or defense asserted in the amended pleading arose out of the conduct, transaction, or occurrence set forth or attempted to be set forth in the original pleading[.]
(emphasis added). See, Framingham UAW Credit Union v. Kelley (In re Kelley), 46 B.R. 63 (Bankr. E.D. Va. 1985) (Shelley, J.) (granting leave, after Rule 4004 deadline had expired, to amend § 727 complaint objecting to debtor's discharge to instead seek § 523 determination of dischargeability, where claim in amended complaint arose out of the same conduct, transaction or occurrence as set out in the original complaint); but see In re McKoy, supra (caption of dischargeability complaint erroneously filed in case of debtor's corporation could not be amended, after the dischargeability deadline had passed, to show that it was filed in the debtor's individual case).
In McKoy, Judge Ellis discussed the interplay between the "strict time limit" of Rule 4007(c) and the "relation back" provisions of F.R.Bankr.P. 7015:
In appropriate circumstances, an amendment to a timely filed discharge objection, allowed pursuant to Rule 7015 after the expiration of the Rule 4007(c) time limit, will relate back. Consider, for example, a situation in which a plaintiff incorrectly names a debtor in the caption of a timely filed complaint to except discharge and then attempts to correct this error after the Rule 4007(c) period . . . has expired. In such event, provided that the proper party had notice, the amendment to correct the simple misnomer will relate back. . . . Similarly, consider the analogous situation in which a plaintiff inadvertently omits to allege an additional basis for objection to discharge in the original complaint. . . . In this event, provided that the objection asserted in the amended complaint arises out of the same conduct, transaction, or occurrence pertaining to the debtor's bankruptcy, . . . the amendment will relate back to the initial filing.
McKoy, 211 B.R. at 846-47. In McKoy, Judge Ellis, affirming the bankruptcy court, held that "relation back" did not apply where the dischargeability complaint had been filed in the wrong case altogether (the case of the debtor's wholly-owned corporation, rather than the debtor's individual case), as Rule 7015 could not be used to effect "the transfer of a pleading from one proceeding to another." Id. at 847. This was true even though the individual debtor' who was the actual target of the allegations in the complaint" had actual notice of the incorrect filing.
The case presently before the court more closely resembles Kelley than McKoy. That is, the plaintiff filed its original complaint within the time limit prescribed by Rule 4007(c), and the facts urged in support of nondischargeability in the amended complaint arise out of the same transaction and events that are set forth in the original complaint. Unlike the plaintiffs in McKoy, the plaintiff here did not file its complaint in the wrong case. It is true that the language of the motion to extend time "which alleged that — [g]rounds may exist for denial of the dischargeability of the Debtors' indebtedness to movant or for the equitable subordination of the claim of another creditor" (emphasis added) "may have briefly misled the debtors, when they were served with the original complaint, into believing that the plaintiffs had elected to pursue only the latter cause of action and not the former. The plaintiff, however, after recognizing its error, promptly amended the complaint prior to the time that a responsive pleading was due, and there can therefore be no serious claim of prejudice.
It is true that the original complaint, which addressed only the rescission and subordination causes of action, did not plead all the elements of a fraud cause of action against the debtor. Nevertheless, "relation back" under Rule 15 does not require that all the elements of an added cause of action be set forth in the original complaint; it is sufficient that "the litigant has been advised at the outset of the general facts from which the belatedly asserted claim arises." Tri-Ex Enterprises v. Morgan Guaranty Tr. Co. of New York, 586 F. Supp. 930, 932 (S.D.N.Y. 1984) (emphasis added), quoted in McKoy, 211 B.R. at 847 n. 7. That test is unquestionably met in the present case. The "general facts" in both the original and amended complaint are the same: the release of the Cumberland County deed of trust at Mr. Powell's instigation in order to free up equity for the First Sovereign deed of trust. It is true that the original complaint characterizes Mr. Powell only as the "alter ego" of Sovereign rather than, as does the amended complaint, the agent of the debtors. But even the original complaint alleges that Powell's approach to Roger Oliva came after a meeting in July 1996 among debtor Andrew Anderson, his brother George, and Mr. Powell at which the three "discussed methods to effect a substitution of collateral . . . by offering a third deed of the trust on the Maddux Lane Property in exchange for the release of the [Cumberland County] deed of trust." § 17. The court concludes, therefore, that the original complaint, although it did not plead a cause of action for nondischargeability, nevertheless did set forth facts describing in adequate detail the transaction which is the basis for the nondischargeability count pleaded in the amended complaint. That amended complaint, moreover, was one that the plaintiffs were entitled to file as a matter of right, since a responsive pleading had not yet been served. Accordingly, under the plain language of Rule 7015, Count Three relates back to the timely-filed original complaint and is not time-barred.
The bill of complaint filed in the state court chancery suit likewise did not seek a money judgment against the debtor for fraud, but only equitable relief in the form of cancellation of the certificate of satisfaction and the restoration of the lien of its deed of trust.
II.
With respect to Counts One and Two, the issue is not timeliness but rather one of jurisdiction. The plaintiff asserts that this court has jurisdiction over those two counts under 28 U.S.C. § 1334 and 157, and that both counts are "core" proceedings. The court, however, is constrained to conclude that not only are Counts One and Two not core proceedings, but that no basis exists for the exercise of bankruptcy jurisdiction, unless "an issue that will be discussed below" this court has the power to hear and determine those counts based on the doctrine of supplemental jurisdiction.
A.
Under 28 U.S.C. § 1334 and 157(a) and the general order of reference from the United States District Court for the Eastern District of Virginia dated August 15, 1984, this court has jurisdiction over bankruptcy cases, proceedings "arising under" the Bankruptcy Code, and proceedings "arising in" or "related to" a bankruptcy case. As Chief Judge Bostetter of this court has explained,
Like other federal courts, bankruptcy courts are courts of limited jurisdiction, and as such, they "must be alert to overstepping their limited grants of jurisdiction." At any stage of a litigation . . . subject-matter jurisdiction may be questioned. By failing to do so, the parties cannot confer jurisdiction by consent. If the court perceives the defect, it is obligated to raise the issue sua sponte. "It is to be presumed that a cause lies outside this limited jurisdiction, and the burden of establishing the contrary rests upon the party asserting jurisdiction."
Poplar Run Five L.P. v. Virginia Electric Power Co. (In re Poplar Run Five L.P., 192 B.R. 848, 854-55 (Bankr. E.D. Va. 1995) (internal citations omitted). In Poplar Run, the debtor, after its plan of reorganization was confirmed and its case closed, brought an adversary proceeding seeking the return of a security deposit. The court found that the debtor's cause of action arose under state law and did not "arise under" the Bankruptcy Code or "arise in" a bankruptcy case. Nor, the court found, was it "related to" a bankruptcy case. For that reason, the court dismissed the adversary complaint for lack of subject-matter jurisdiction. In reaching this conclusion, the court explained,
To determine whether a proceeding "arises" under title 11, we apply the same test for deciding whether a civil action presents a federal question under 28 U.S.C. § 1331. This means that "arising under" jurisdiction in bankruptcy extends to "only those cases in which a well-pleaded complaint establishes either that federal [bankruptcy] law creates the cause of action or that the plaintiff's right to relief necessarily depends on resolution of a substantial question of federal [bankruptcy] law.
Id. (internal citations omitted). Proceedings "arising in" a bankruptcy case, as the Fourth Circuit recently explained, are those proceedings that "are not based on any right expressly created by [the Bankruptcy Code], but nevertheless would have no existence outside of the bankruptcy." Bergstrom v. Dalkon Shield Claimants Trust (In re A. H. Robins Co., Inc.), 86 F.3d 364, 372 (4th Cir. 1996), cert. denied, U.S. § 117 S.Ct. 483, 136 L.Ed.2d 377 (1996).
Finally, the "related to" category of proceedings is "quite broad and includes proceedings in which the outcome could have an effect on the estate being administered." Id., citing Pacor, Inc. v. Higgins, 743 F.2d 984, 994 (3rd Cir. 1984) (a matter is "related to" a bankruptcy case if "the outcome of that proceeding could conceivably have any effect on the estate being administered" or if it "could alter the debtor's rights, liabilities, options, or freedom of action.") Nevertheless, the "related to" category is not so broad as to encompass litigation of state law claims that will not have an effect on the bankruptcy estate, simply because one of the litigants at one point filed a petition in bankruptcy. Lux v. Spotswood Construction Loans, 176 B.R. 416 (E.D. Va. 1994) (after chapter 7 case was closed, there was no "related to" jurisdiction over adversary proceeding brought by debtor challenging a foreclosure), aff'd, 43 F.3d 1467 (4th Cir. 1994) (table).
The debtors assert in their motion for abstention that Counts One and Two are "a dispute between third parties as to liens on real property which the Trustee has abandoned, and the outcome of the disputes will have no impact on the bankruptcy case." To the extent that the debtors are seeking to imply that only the interest of third parties is involved, this is not entirely true. As noted above, the debtors have claimed their equity in the property as exempt. Although the dollar amount is modest, the debtors nevertheless have a stake in the outcome of the litigation that goes beyond the dischargeability issue.
Even given the debtor's residual interest in the outcome of the litigation, however, the relief sought in Counts One and Two "the restoration of the plaintiff's lien against the debtor's Cumberland County property" simply does not fall within the jurisdictional grant of 28 U.S.C. § 1334. Neither count "arises under" the Bankruptcy Code because neither invokes a right created by the Bankruptcy Code or that necessarily depends on substantial questions of bankruptcy law. Instead Counts One and Two are purely state law causes of action.
Nor do Counts One and Two "arise in" a bankruptcy case, since the bankruptcy case has been closed, and the Cumberland County property has been abandoned as an asset of the bankruptcy estate. § 554(c), Bankruptcy Code. Furthermore, it can hardly be said that Counts One and Two, even though not based on any right expressly created by the Bankruptcy Code, "would nevertheless have no existence outside of the bankruptcy." Indeed, Counts One and Two were brought and asserted in the Circuit Court of Spotsylvania County prior to the debtors' bankruptcy filing. It is true that in Lux v. Spotswood Construction Loans, supra, Judge Merhige gave as an example of proceedings "arising in" a bankruptcy case, "actions to determine the validity of liens or claims." 176 B.R. at 418. However, this can logically be read to refer only to liens against property of the bankruptcy estate.
Finally, even though the "related to" category of jurisdiction is quite broad and includes any proceeding that "could have an effect on the estate being administered," it does not include proceedings that could not have any realistic effect on the estate. Compare, In re McLean Square Assocs., G.P., 200 B.R. 128 (E.D. Va. 1996) (Ellis, J.) (litigation between tenant and chapter 11 debtor-landlord over lease in shopping center that was debtor's sole asset had potential effect on debtor" reorganization plan and plainly qualified as non-core "related" proceeding) with Lux, supra (after real estate was abandoned and case was closed, debtor's suit against lender over conduct of foreclosure was not "related to" the debtor's bankruptcy). Here, the restoration of plaintiff's lien against property that has been abandoned cannot possibly have any effect in a case that has been closed and in which there was no distribution to creditors.
It is, of course, true that Counts One and Two arise out of the same facts that give rise to the cause of action pleaded in Count Three "as to which this court unquestionably does have jurisdiction" and that judicial economy would probably be served by having all three counts heard by a single court. As the U.S. District Court for this district has observed:
It is a well-known maxim that once equitable jurisdiction has been properly invoked, it will proceed to render a full and complete disposition of the controversy. Such a result prevents duplication of effort, multiplicity of suits, [and] wasted resources, and [promotes] judicial economy.
Harris v. U.S. Fire Ins. Co., 162 B.R. 466 (E.D. Va. 1994) (Cacheris, C.J.) (citations omitted) (holding that bankruptcy court making a determination of nondischargeability had jurisdiction to enter money judgment as well). If the plaintiff and the debtors were the only parties to Counts One and Two, the court would agree that "a full and complete disposition" of the controversy would require the restoration of any lien released as a result of the debtors'alleged fraud. However, the plaintiff and the debtors are not the only parties to Counts One and Two. Brian Powell is also a party. Whether he is, as alleged, the mere alter ego of First Sovereign, has not been determined. However, neither Powell nor First Sovereign is a necessary or proper party to the nondischargeability action, which seeks only to determine whether a particular debt is dischargeable. The point is simply this: while Counts One and Two are unquestionably (since they grow out of the same facts) "related to" Count III, jurisdiction under the "related to" prong of 28 U.S.C. § 1334(b) requires that the cause of action be related to the bankruptcy case.
The court notes that neither First Sovereign nor the trustees under First Sovereign's deed of trust have been made parties to this adversary proceeding. Additionally, it is by no means clear at this point that the note has not been transferred. Given the uncertainty on this point, it might well be necessary to proceed against the unknown noteholder(s) by order of publication.
But see the discussion of supplemental jurisdiction, infra.
B.
The plaintiff, however, argues that under 28 U.S.C. § 157(b), Counts One and Two are "Cbore" proceedings, and as such, this court necessarily has jurisdiction to decide them. Essentially, 28 U.S.C. § 157(b) divides bankruptcy "proceedings" into two categories: "Cbore" proceedings that may be both heard and determined by a bankruptcy judge, and non-core proceedings with respect to which a bankruptcy judge may conduct the trial but may not enter a final judgment or order unless all parties consent. 28 U.S.C. § 158(c). In the absence of such consent, the bankruptcy judge makes proposed findings of fact and conclusions of law, but any final judgment or order must be signed by a district judge after de novo review of any findings or conclusions as to which specific and timely objection has been taken. Id.; F.R.Bankr.P. 9033. Although it has been aptly observed that "the statute" definitions of core and non-core related proceedings are quite opaque,"In re McLean Square Associates, 200 B.R. at 133, nevertheless as a general proposition it can be stated that proceedings "arising under" the Bankruptcy Code or "arising in" a bankruptcy case will almost always be "core" matters. Proceedings that are only "related to" a bankruptcy, however, are non-core. Id.
In this District, it has been held that "a party, who fails to object to a bankruptcy court's jurisdiction in a non-core related matter until after the entry of an unfavorable order, has impliedly consented to the court's power." In re McLean Square Assocs., 200 B.R. at 134.
In this connection, 28 U.S.C. § 157(b)(2) sets forth a non-exclusive list of core proceedings. This includes, as plaintiff correctly points out, "determinations of the validity, extent, or priority of liens." 28 U.S.C. § 157(b)(2)(K). However, the statutory language can only be understood as referring to those liens that affect property of the bankruptcy estate or that would affect an exemption claimed by the debtor or that depends on some right created by the Bankruptcy Code. Put another way, simply because the competing lien holders are both creditors of the debtor does not make a dispute between them a core proceeding if the resolution of the controversy does not involve any rights created by the Bankruptcy Code and could not have any effect on the bankruptcy. Accordingly, even if jurisdiction exists over Counts One and Two, such jurisdiction is non-core.
C.
The plaintiff argues further, however, that unless he is permitted to maintain Counts One and Two in this court, he is effectively deprived of any remedy, since in the state court suit the debtors will be able to plead their discharge as a bar to the restoration of the plaintiff's lien. Of course, if the court ultimately determines that the debt is nondischargeable, the discharge will not be an issue. In any event, the discharge injunction only bars actions to collect a prepetition debt as a "personal liability" of the debtor. § 524(a)(2), Bankruptcy Code. It does not bar enforcement, even against exempt property, of valid prepetition liens, since such liens, unless expressly avoided under some specific provision of the Bankruptcy Code, pass through bankruptcy unaffected. Johnson v. Home State Bank, 501 U.S. 78, 83, 111 S.Ct. 2150, 2153, 115 L.Ed.2d 66 (1991). By the same token, the discharge injunction should not be construed as barring a creditor's equitable action to restore an improperly or mistakenly released lien against the debtor' property, so long as no relief is sought against the debtor individually. Accordingly, the court may adequately protect the plaintiff's right to vindicate the MAM Trust's lien interest by modifying the discharge injunction to permit the plaintiff to prosecute the Spotsylvania County suit to final judgment, so long as no relief sought against the debtors for money damages, including court costs or counsel fees, unless the plaintiff's claim against the debtors is ultimately determined to be nondischargeable.
D.
Although the court concludes that it has no independent jurisdiction over Counts One and Two, there remains the question of whether the court may or should exercise supplemental jurisdiction. Under 28 U.S.C. § 1367(a), which was enacted by the Judicial Improvements Act of 1990,
[With certain exceptions], in any civil action of which the district courts have original jurisdiction, the district courts shall have supplemental jurisdiction over all other claims that are so related to claims in the action within such original jurisdiction that they form part of the same case or controversy under Article III of the United States Constitution. Such supplemental jurisdiction shall include claims that involve the joinder or intervention of additional parties.
(emphasis added). Section 1367 is essentially a codification of the judicially-developed doctrines of ancillary and pendent jurisdiction. Susan Block-Lieb, "The Case Against Supplemental Bankruptcy Jurisdiction: A Constitutional, Statutory, and Policy Analysis,"62 Fordham L. Rev. 721 (1994); see also United Mine Workers of America v. Gibbs, 383 U.S. 715, 725-29, 86 S.Ct. 1130, 1138-40, 16L.Ed.2d 218(1966).
If Section 1367 applies to bankruptcy courts, there can be little doubt (for the same reasons that supported the "relation back" of Count Three) that the claims raised in Counts One and Two are "so related to" the nondischargeability claim "over which the District Court, by virtue of 28 U.S.C. § 1334(b), and this court, by virtue of 28 U.S.C. § 157(a) and the general order of reference, plainly have original jurisdiction" as to "form part of the same case or controversy." However, the question of whether a bankruptcy court is empowered to exercise supplemental jurisdiction is quite controversial and has divided the courts. See, generally, Block-Lieb, supra (conceding that "the majority of courts that have addressed the issue have concluded that both district courts and non-Article III bankruptcy courts are empowered to exercise supplemental bankruptcy jurisdiction" but arguing that the exercise of such jurisdiction even by a district court is inconsistent with the primary purpose of bankruptcy jurisdiction, which is the efficient administration of a bankruptcy estate, and its exercise by a non-Article III bankruptcy court unconstitutional); compare Walker v. The Cadle Co. (In re Walker), 51 F.3d 562, 572 (5th Cir. 1995) (concluding bankruptcy courts have no authority to exercise supplemental jurisdiction) with Jones v. Woody (In re W. J. Services, Inc.), 139 B.R. 824, 826 (Bankr. S.D. Tex. 1992) (as unit of the district court, bankruptcy court may exercise supplemental jurisdiction).
E.
The court need not, however, enter into the statutory and Constitutional thicket over whether supplemental jurisdiction exists over Counts One and Two, because even if such jurisdiction does exist, the court would be required to grant the motion to abstain. Although the grant of bankruptcy jurisdiction in 28 U.S.C. § 1334 is expansive, Congress has provided in § 1334(c) for both discretionary and mandatory abstention. Only the latter is implicated by the present motion to abstain. In relevant part, the statute provides as follows:
Upon timely motion of a party in a proceeding based upon a State law claim or State law cause of action, related to a case under title 11 but not arising under title 11 or arising in a case under title 11, with respect to which an action could not have been commenced in a court of the United States absent jurisdiction under this section, the district court shall abstain from hearing such proceeding if an action is commenced, and can be timely adjudicated, in a State forum of appropriate jurisdiction.
28 U.S.C. § 1334(c)(2). Essentially, where a non-core "related to" matter presents only state law claims, and where there is no other basis for Federal jurisdiction and an action is already pending in state court, a district court "and by extension the bankruptcy court, which merely exercises the judicial power of the district court in cases referred to it" is required to abstain unless the action cannot be "timely adjudicated" in the state court.
Although most courts have held that a state court action must be pending at the time the bankruptcy petition is filed in order to trigger mandatory abstention, a few decisions have held that a state court action need not actually have been filed. See 1 Collier on Bankruptcy § 3.05[2] at 3-67 (Lawrence P. King, ed., 15th ed. rev. 1997); see also World Solar Corp. v. Steinbaum (In re World Solar Corp.), 81 B.R. 603, 612 (Bankr. S.D. Cal. 1988).
Here there can be no question that the debtors § motion to abstain was timely; that Counts One and Two do not "arise under" the Bankruptcy Code or "arise in" a bankruptcy case; that the claims raised in those counts are state law causes of action; that no basis of Federal jurisdiction has been asserted other than under 28 U.S.C. § 1334; and that an action had been commenced in a state forum of appropriate jurisdiction prior to the filing of the bankruptcy petition. Whether a particular action can be "timely adjudicated" in state court is a question not only of the state court's calendar but the needs of bankruptcy administration. Where there is an on-going reorganization, for example, the need for prompt resolution may be very great. World Solar Corp., 81 B.R. at 612. Here, however, the bankruptcy case has been closed, and, consequently, there is no urgency in terms of the administration of the bankruptcy case. There is no suggestion that the Circuit Court of Spotsylvania County does not dispose of the cases on its docket with reasonable dispatch. Accordingly, the court concludes that under 28 U.S.C. § 1334(c)(2) the motion to abstain must be granted with respect to Counts One and Two.
See Georgou v. Fritzshall (In re Georgou), 157 B.R. 847, 851 (N.D. Ill. 1993); World Solar Corp., 81 B.R. at 612.
III.
A separate order will be entered consistent with this opinion granting the defendant-debtors' motion to abstain with respect to Count One and Two and dismissing those two counts without prejudice. The defendant-debtorsDmotion to dismiss Count Three will be denied.
Inasmuch as Brian Powell is a party defendant solely with respect to Counts One and Two, he will be dismissed as a party to this adversary proceeding.