Summary
dismissing adversary proceeding for lack of subject matter jurisdiction
Summary of this case from Youssef v. Sallie Mae, Inc. (In re Homaidan)Opinion
Case No. 8:16-bk-10036-MGW Adv. No. 8:20-ap-00211-MGW
02-16-2021
IN RE: JEFFREY L. MILLER INVESTMENTS, INC., Debtor. Jeffrey L. Miller Investments, Inc., Plaintiff, v. Premier Realty Advisors, LLC, et al., Defendants.
Jeffrey W. Hellberg, Jr., Esq. Scott Lawrence, Esq. WICK PHILLIPS GOULD & MARTIN, LLP -and- Adam Lawton Alpert, Esq. BUSS ROSS, P.A. Counsel for Defendants Buddy D. Ford, Esq. BUDDY D. FORD, P.A. Counsel for Plaintiff
Jeffrey W. Hellberg, Jr., Esq. Scott Lawrence, Esq. WICK PHILLIPS GOULD & MARTIN, LLP -and- Adam Lawton Alpert, Esq. BUSS ROSS, P.A. Counsel for Defendants
Buddy D. Ford, Esq. BUDDY D. FORD, P.A. Counsel for Plaintiff
MEMORANDUM OPINION AND ORDER GRANTING DEFENDANTS’ MOTION TO DISMISS PLAINTIFF's AMENDED COMPLAINT WITH PREJUDICE
Michael G. Williamson, United States Bankruptcy Judge THIS PROCEEDING came on for hearing on October 28, 2020, at 10:30 a.m., on the Defendants’ motion to dismiss Jeffrey L. Miller Investments, Inc.'s amended complaint. Two months after confirming a plan in this chapter 11 case, Jeffrey L. Miller Investments, Inc. (the "Debtor") filed its adversary complaint against (among others) Premier Realty Advisors, Matt Nine, and Steven Stenmark. The Debtor later amended its complaint.
Defs.’ Mot. to Dismiss Am. Compl. , Adv. Doc. No. 33.
Compl. , Adv. Doc. No. 1. New Campus Advisors, LLC and Campus Real Estate Solutions were also named as defendants. Id. Both entities were dropped from this proceeding when the Debtor amended its complaint. Adv. Doc. No. 29.
Am. Compl. , Adv. Doc. No. 29.
In its amended complaint, the Debtor alleges that Nine fraudulently induced it to enter into a real estate sales contract with Premier Realty Advisors. So the Debtor seeks to recover damages against Nine and Premier Realty Advisors for their alleged fraud. The Debtor also seeks to hold Nine and Stenmark liable under an alter ego theory for allegedly using Premier Realty Advisors to perpetrate the alleged fraud.
Id. at ¶¶ 29 – 50 & 92 – 104.
Id. at ¶¶ 92 – 104.
Id. at ¶¶ 106 – 121.
The Defendants have moved to dismiss the Debtor's amended complaint on a variety of grounds. Among other grounds, the Defendants argue that the Debtor fails to state causes of action for fraudulent inducement and alter ego liability. The Defendants raise procedural objections, as well—e.g., the Debtor's claims are compulsory counterclaims to a state court lawsuit that Premier Realty Advisors previously brought against the Debtor and should have been filed in state court. The Defendants’ chief objection, however, is that this Court lacks subject-matter jurisdiction over the Debtor's claims.
Defs.’ Mot. to Dismiss Am. Compl. , Adv. Doc. No. 33.
Id. at ¶¶ 22 – 24, 36 & 37.
Id. at ¶¶ 27 – 32. The Defendants also argue that the Debtor failed to join indispensable parties in the state court litigation. Id. at ¶¶ 33 – 35.
Id. at ¶¶ 11 – 16.
It is generally accepted, as the Defendants argue in their motion, that a bankruptcy court's jurisdiction should be narrowly construed once, as is the case here, a debtor has confirmed a chapter 11 plan. That is not to say that a bankruptcy court cannot exercise jurisdiction post-confirmation. As the Defendants concede, bankruptcy courts have substantial authority to retain jurisdiction over specific matters. But, the Defendants argue, for the Court to do so, the debtor's confirmed plan must expressly and unequivocally retain jurisdiction over the matter.
In re Bicoastal Corp. , 164 B.R. 1009, 1015 (Bankr. M.D. Fla. 1993) (observing that "it is generally accepted that a Court's post-confirmation jurisdiction should be narrowly construed"); A.R.E. Mfg. Co. v. United States (In re A.R.E. Mfg. Co.) , 138 B.R. 996, 998 (Bankr. M.D. Fla. 1992) ("After confirmation of a plan, the bankruptcy court has limited jurisdiction."); In re Am. Body Armor & Equip., Inc. , 172 B.R. 659, 662 (Bankr. M.D. Fla. 1994) ("The Court retains only limited post-confirmation jurisdiction."); see also In re Ener1, Inc., 558 B.R. 91, 95 (Bankr. S.D.N.Y. 2016) ("Section 1334 does not expressly limit the bankruptcy court's post-confirmation jurisdiction. However, most courts agree that ‘once confirmation occurs, the bankruptcy court's jurisdiction shrinks.’ ") (citing Gen. Media v. Guccione (In re Gen. Media, Inc.) , 335 B.R. 66, 73 (Bankr. S.D.N.Y. 2005) ). Not all courts agree, though. See, e.g., Harstad v. First Am. Bank (In re Harstad) , 155 B.R. 500, 506 – 07 (Bankr. D. Minn. 1993).
Defs.’ Mot. to Dismiss Am. Compl. , Adv. Doc. No. 33 at ¶ 11 (citing Walter v. Celotex Corp. (In re Hillsborough Holdings Corp.) , 197 B.R. 366, 370 (Bankr. M.D. Fla. 1996) ; In re Bicoastal Corp. , 164 B.R. 1009, 1015 (Bankr. M.D. Fla. 1993) ; A.R.E. Mfg. Co. v. United States (In re A.R.E. Mfg. Co.) , 138 B.R. 996, 998 (Bankr. M.D. Fla. 1992) ).
Id.
While it is true that the debtor's plan must retain jurisdiction over a claim for the debtor to later assert it, the Defendants’ argument puts the cart before the horse. A retention-of-jurisdiction plan provision can only be given effect if there is subject-matter jurisdiction in the first place. "Where a court lacks subject matter jurisdiction over a dispute, the parties cannot create it by agreement even in a plan of reorganization." Here, the Court does not have subject-matter jurisdiction over the Debtor's claims.
Binder v. Price Waterhouse & Co. (In re Resorts Int'l) , 372 F.3d 154, 161 (3d Cir. 2004) ("Retention of jurisdiction provisions will be given effect, assuming there is bankruptcy court jurisdiction. But neither the bankruptcy court nor the parties can write their own jurisdictional ticket. Subject matter jurisdiction ‘cannot be conferred by consent’ of the parties."); Gupta v. Quincy Med. Ctr. , 858 F.3d 657, 663 (1st Cir. 2017) ("Bankruptcy courts—like all federal courts—may retain jurisdiction to interpret and enforce their prior orders. However, a bankruptcy court may not ‘retain’ jurisdiction it never had—i.e., over matters that do not fall within § 1334's statutory grant.") (citations omitted).
In re Resorts Int'l , 372 F.3d at 161.
Although the Eleventh Circuit has not addressed the scope of post-confirmation "related to" jurisdiction (the only basis for subject-matter jurisdiction alleged here) in a published opinion, it did address that very issue in an unpublished opinion less than two years ago in In re Kachkar . There, the Eleventh Circuit initially observed that the scope of bankruptcy court jurisdiction diminishes after confirmation. Then, looking to the Third Circuit's nearly twenty-year-old decision in In re Resorts International, Inc. , the Eleventh Circuit noted that the essential inquiry for determining whether a bankruptcy court has post-confirmation "related to" jurisdiction is "whether there is a close nexus to the bankruptcy plan or proceeding."
Kachkar v. Bank of Am. (In re Kachkar) , 769 F. App'x 673, 679 (11th Cir. 2019) ("We have not addressed, in a published opinion, the scope of ‘related to’ jurisdiction in the post-confirmation context.").
Id. at 679 (quoting Binder v. Price Waterhouse & Co., LLP (In re Resorts Int'l, Inc.) , 372 F.3d 154, 164–65 (3d Cir. 2004) ).
The Eleventh Circuit, again looking to In re Resorts International , identified matters that typically have the requisite close nexus: matters that affect the interpretation, consummation, execution, or administration of a confirmed plan. Here, there is no close nexus between the Debtor's claims in this proceeding and its confirmed plan.
Id.
The Debtor's claims in this proceeding are run-of-the-mill state law fraudulent transfer and alter ego claims. They do not in any way involve interpretation of the confirmed plan. Nor do they affect plan consummation, execution, or administration. In fact, before the Debtor even confirmed its plan in this case, the Debtor's real property (its primary asset) was sold at an auction; all allowed claims were paid in full from the sales proceeds; and the surplus sales proceeds were then distributed to the Debtor's principal.
Am. Compl. , Adv. Doc. No. 29 at ¶¶ 58 – 60.
Confirmation Aff. , Main Case No. 8:16-bk-10036-MGW, Doc. No. 447 at ¶ 17; Emergency Mot. for Authority to Disburse Funds , Main Case No. 8:16-bk-10036-MGW, Doc. No. 441 at ¶¶ 5 – 9.
Order Granting Emergency Mot. to for Authority to Disburse Funds , Main Case No. 8:16-bk-10036-MGW, Doc. No. 448.
To be sure, any recovery in this proceeding would inure to the benefit of the Debtor's principal. But courts have consistently rejected the notion that even an increased dividend to creditors is enough to establish the close nexus required for post-confirmation jurisdiction. The Court sees no reason why—and the Debtor has not cited any case holding that—the outcome is somehow different because the increased dividend would go to equity (rather than creditors). The Debtor therefore has failed to establish the close nexus required for post-confirmation jurisdiction.
Resp. to Defs.’ Mot. to Dismiss Am. Compl. , Adv. Doc. No. 45.
Equip. Finders, Inc. v. Fireman's Fund Ins. Co. (In re Equip. Finders, Inc. of Tenn.) , 473 B.R. 720, 732 (Bankr. M.D. Tenn. 2012) ("Most decisions agree that ‘related to’ jurisdiction requires more than a vague notion that litigation might increase a dividend to creditors under the plan.").
Even if this Court did have subject-matter jurisdiction in the first place, the Debtor nonetheless failed to properly retain jurisdiction over its alleged claims in its confirmed plan. Although there is no dispute that bankruptcy courts can retain jurisdiction to hear certain causes of action, "[c]ourts have disagreed over the level of specificity that is required in order to preserve the reorganized debtor's ability to pursue causes of action at a later date." The Court need not decide the appropriate level of specificity because even under the lowest level of required specificity, the Debtor's retention-of-jurisdiction provision still fails.
7 Collier on Bankruptcy ¶ 1123.02[3][b] (16th ed. 2020).
The Debtor's plan in this case contains only a general blanket retention (or reservation) of jurisdiction over all causes of action:
10.02 Retention of Jurisdiction. Until the case is closed the Court shall retain jurisdiction to insure that the purpose and intent of the Plan are carried out. The Court shall retain jurisdiction to hear and determine the following:
*** *** ***
b. The determination of all questions and disputes regarding title to the assets of the estate and the determination of all causes of action , controversies, disputes or conflicts whether or not subject to
action pending as of the date of confirmation between the Debtor and any other party included but not limited to any rights of parties in interest to recover assets pursuant to the provisions of Title 11 of the United States Code.
Chapter 11 Plan of Reorganization , Main Case No. 8:16-bk-10036-MGW, Doc. No. 84 at ¶ 10.02 (emphasis added).
A majority of courts have held that a retention-of-jurisdiction provision must identify the claims being retained (or reserved) with some specificity; however, some courts have enforced blanket retention-of-jurisdiction provisions in a plan.
See, e.g., Goldin Assocs., LLC v. Donaldson, Lufkin & Jenrette Sec. Corp. , 2004 WL 1119652, at * 3 (S.D.N.Y. May 20, 2004) ("A majority of courts have held that ... the reservation must identify with some specificity what claims it intends to preserve and against whom those claims are asserted.")
See, e.g., Goldin Assocs. , 2004 WL 1119652, at * 3 ; Katz v. I.A. Alliance Corp. (In re I. Appel Corp.) , 300 B.R. 564, 570 (S.D.N.Y. 2003).
Courts that have done so, though, have typically relied on the fact that the debtor identified the retained cause of action with more specificity in the disclosure statement. Here, unlike most cases where courts have enforced a blanket reservation of jurisdiction, the Debtor's disclosure statement does not mention that it has, or is investigating, potential claims against Premier Realty Advisors, Nine, or Stenmark.
Goldin Assocs. , 2004 WL 1119652, at * 3 ("Although the reservation clause in the Plan is a blanket one, and thus insufficient alone to preserve the Debtor's claims, the Disclosure Statement details the specific causes of action SmarTalk was pursuing against both the WWD and DLJ defendants at the time of confirmation.") (citation omitted); In re I. Appel Corp. , 300 B.R. at 570 ("The Plan indicated that the Debtor was reserving all causes of action, and the Disclosure Statement indicated that the Debtor was investigating potential claims against the Katzes. The combination of the blanket reservation of claims in the Plan and the reference to potential claims against the Katzes in the Disclosure Statement was sufficient to provide adequate notice to the creditors, the Katzes, the trustee, and the bankruptcy court that the Debtor had potential outstanding claims against the Katzes"); IBM Se. Emps. Fed. Credit Union v. Collins , 2008 WL 4279554, at *16 (M.D. Tenn. Sep. 17, 2008) ("After reading collectively the Plan, Disclosure Statement and Confirmation Order, the Court concurs with the Bankruptcy Court's conclusion that ‘a plain meaning interpretation of the Disclosure Statement, Plan and Order confirming the Plan, leads to the conclusion that the Trustee adequately preserved the causes of actions he alleges in the [Amended Complaint]’ and that only ‘[a] hyper-technical and tunneled interpretation of the Plan and Confirmation Order is the only way to achieve the outcome urged by [Defendants].’ ").
The only place the Debtor disclosed its alleged claims in this proceeding is on its Amended Schedule A/B, filed a year-and-a-half after the Debtor filed its plan:
The Debtor has causes of actions (sic) for damages, tortious interference, slander of title, filing and prosecuting fraudulent claims; breach of contract against Premier Realty Advisors, Matt Nine, Steve Stenmark; Education Realty Investors; Campus Real Estate Solutions, LLC; New Campus Advisors, LLC; WISE, LLC, Daniel Landberg, and counsel for the entities above. The damages are unspecified but exceed 3 Million dollars.
Am. Schedule A/B , Main Case No. 8:16-bk-10036-MGW, Doc. No. 310 at 4.
The Ninth Circuit Bankruptcy Appellate Panel's decision nearly twenty-five years ago in In re Kelley could be read to suggest that disclosure in a debtor's schedules may suffice: "[I]f the debtor fails to mention the cause of action in either his schedules, disclosure statement, or plan, then he will be precluded from asserting it post-confirmation."
Kelley v. South Bay Bank (In re Kelley) , 199 B.R. 698, 704 (B.A.P. 9th Cir. 1996).
This Court, however, does not read In re Kelley that way. It's worth noting that, in In re Kelley , the debtors disclosed the potential claim in their disclosure statement. So, at best, the statement in In re Kelley is dicta. While some cases have cited to In re Kelley for that proposition, the Court has located only one case— In re MF Global Holdings, Ltd . —where the court actually relied on the debtor's schedules in finding that the court had retained jurisdiction.
Id. ("In their Disclosure Statement, the Kelleys make two references to potential claims against South Bay.").
MF Global Holdings USA Inc. v. Heartland Co-Op (In re MF Glob. Holdings, Ltd.) , 2017 WL 1373267, at *5 (Bankr. S.D.N.Y. 2017 Apr. 13, 2017).
There, the plan administrator pursued sued Heartland Co-Op post-confirmation under an IDSA Master Agreement. Heartland moved to dismiss because the claim was not specifically reserved in the confirmed plan. The plan had a general reservation of jurisdiction, which preserved "all claims, demands, rights, and Causes of Action that every Debtor and Estate may hold against any Person or Entity to the extent not otherwise released." The MF Global Holdings court, relying on In re Kelley , ruled that the "general reservation of rights provisions" in the plan and disclosure statement, "taken together with the Schedules," could be "fairly read to preserve the claim against Heartland."
Id. at *2.
Id. at *4.
This Court disagrees that disclosure of potential claims on a debtor's schedules would be enough to save a general retention-of-jurisdiction plan provision—assuming, as the Defendants argue here, that an express and unequivocal reservation is not required. Even so, the disclosure here is not as detailed as the (admittedly minimal) disclosure in In re MF Global Holdings , where the disclosure statement at least advised creditors (in bold) that they should not rely on the fact that a specific claim is not identified in the disclosure statement and that the plan administrator was investigating and prosecuting other claims.
Id. at *2.
Nearly eighty years ago, the Second Circuit Court of Appeals famously commented on the need (and desire) for reorganized debtors to free themselves from tutelage of the bankruptcy court:
We have had occasion before to deplore the tendency of District Courts to keep reorganized concerns in tutelage indefinitely by orders purporting to retain jurisdiction for a variety of purposes, extending from complete supervision of the new business to modifications of detail in the reorganization. Since the purpose of reorganization clearly is to rehabilitate the business and start it off on a new and to-be-hoped-for more successful career, it should be the objective of courts to cast off as quickly as possible all leading strings which may limit and hamper its activities and throw doubt upon its responsibility. It is not consonant
with the purposes of the Act, or feasible as a judicial function, for the courts to assume to supervise a business somewhat indefinitely.
N. Am. Car Corp. v. Peerless Weighing & Vending Mach. Corp. , 143 F.2d 938, 940 (2d Cir. 1944).
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That is why post-confirmation jurisdiction is constrained to matters that have a "close nexus" to the confirmed plan.
Here, once the Debtor's property was sold, creditors were paid, and surplus funds were distributed to the Debtor, there were no more matters affecting the interpretation, consummation, execution, or administration of the Debtor's confirmed plan. At that point, the Debtor had emerged from chapter 11 and was no longer under this Court's tutelage. Thus, even if the Debtor's retention-of-jurisdiction provision had the required level of specificity, this Court still could not exercise subject-matter jurisdiction over the Debtor's claims in this proceeding because there is no longer a close nexus between the Debtor's alleged claims and the Debtor's bankruptcy estate.
Accordingly, it is
ORDERED :
1. The Defendants’ motion to dismiss is GRANTED. The Plaintiffs’ amended complaint is DISMISSED with prejudice.
2. The Clerk of Court is directed to close this proceeding.
Attorney Adam Alpert is directed to serve a copy of this order on interested parties who do not receive service by CM/ECF and to file a proof of service within three days of entry of the order.