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*

This disposition is not appropriate for publication. 

Although it may be cited for whatever persuasive value it may

have (see Fed. R. App. P. 32.1), it has no precedential value. 

See 9th Cir. BAP Rule 8013-1.

UNITED STATES BANKRUPTCY APPELLATE PANEL

OF THE NINTH CIRCUIT

In re: ) BAP No. CC-11-1100-MkHPa

)

VALLEY HEALTH SYSTEM, ) Bk. No. 07-18293

)

Debtor. ) Adv. No. 10-01566

______________________________)

)

PEGGY KIRTON; DIANE AGNELLO, )

)

Appellants, )

)

v. ) MEMORANDUM*

)

VALLEY HEALTH SYSTEM; VALLEY )

HEALTH SYSTEM RETIREMENT PLAN;)

JOEL BERGENFELD, Trustee; )

VINAY M. RAO, Trustee; )

MICHELE BIRD, Trustee, )

)

Appellees. )

______________________________)

Argued on November 16, 2011

at Pasadena, California

Submitted on February 7, 2012

Filed – March 13, 2012

Appeal from the United States Bankruptcy Court

for the Central District of California

Honorable Peter H. Carroll, Chief Bankruptcy Judge, Presiding 

Appearances: Gary E. Klausner of Stutman, Treister & Glatt PC

argued for Appellee Valley Health System; Mark

Attwood of Jackson Lewis LLP argued for Appellees

Valley Health System Retirement Plan, and the

following persons as trustees of the Valley Health

System Retirement Plan: Joel Bergenfeld, Vinay M.

FILED

MAR 13 2012

SUSAN M SPRAUL, CLERK

U.S. BKCY. APP. PANEL

OF THE NINTH CIRCUIT
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**Even though Daniel Barness of Barness & Barness LLP filed

with the BAP a calendar acknowledgment indicating that he would

appear at oral argument to argue on behalf of Appellants Peggy

Kirton and Diana Agnello, no one actually appeared at oral

argument to argue on behalf of the Appellants. Accordingly, the

panel deemed Appellants’ position submitted on their briefs and

on the record.

1

Unless specified otherwise, all chapter and section

references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532, and

all “Rule” references are to the Federal Rules of Bankruptcy

Procedure, Rules 1001-9037. All “Civil Rule” references are to

the Federal Rules of Civil Procedure.

2

Rao and Michele Bird.**

 

Before: MARKELL, HOLLOWELL and PAPPAS, Bankruptcy Judges.

INTRODUCTION

Peggy Kirton and Diana Agnello (“Kirton Parties”) are former

employees of Valley Health System (“VHS”) and were participants

in the Valley Health System Retirement Plan (“Retirement Plan”). 

After VHS confirmed its chapter 91 plan of adjustment, they filed

in state court a petition for writ of mandamus (“Petition”)

against VHS and others seeking to enforce their alleged rights

under the Retirement Plan. VHS removed the Petition to the

bankruptcy court. Along with other named respondents, VHS then

filed a Civil Rule 12(b)(6) motion to dismiss the Petition, which

the bankruptcy court granted without leave to amend. The Kirton

Parties filed a motion for reconsideration, which the bankruptcy

court denied. 

The Kirton Parties appeal from both the dismissal order and

the order denying their motion for reconsideration. Because the

bankruptcy court lacked subject matter jurisdiction over the

Petition, we VACATE and REMAND.
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2

Neither the Chapter 9 Plan nor the accompanying first

amended disclosure statement of even date were included in the

parties’ excerpts of record, but we have obtained copies of these

and other bankruptcy court filings by accessing the bankruptcy

court’s electronic docket and the imaged documents attached

thereto. We can take judicial notice of the contents and filing

of these documents. See Atwood v. Chase Manhattan Mortg. Co.

(In re Atwood), 293 B.R. 227, 233 n.9 (9th Cir. BAP 2003)(citing

O'Rourke v. Seaboard Sur. Co. (In re E.R. Fegert, Inc.), 887 F.2d

955, 957-58 (9th Cir. 1989)).

3

FACTS

VHS is a local healthcare district under the California

Local Health Care District Law, Cal. Health & Safety Code

§ 32000, et seq. See In re Valley Health System, 429 B.R. 692,

700 (Bankr. C.D. Cal. 2010). VHS owned and operated one skilled

nursing facility and three acute health care facilities in

Riverside County, California. Id. VHS filed a chapter 9

bankruptcy petition in December 2007, and the bankruptcy court

entered an order for relief in the case in February 2008.

Pursuant to § 943, the bankruptcy court confirmed VHS’s

first amended plan of adjustment (“Chapter 9 Plan”) by order

entered April 26, 2010 (“Confirmation Order”). The Chapter 9

Plan was based on the sale of substantially all of VHS’s

remaining assets to another entity known as Physicians for

Healthy Hospitals, Inc. (“PFHH”). Among other things, the

Chapter 9 Plan provided for the discharge of VHS’s prepetition

debts and also enjoined claimants from pursuing any action or

proceeding on account of such debts.2

The Chapter 9 Plan specifically addressed VHS’s obligations

under its Retirement Plan:

Defined Benefit Plan Participants will be entitled to
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the same rights and benefits to which such participants

are currently entitled under the VHS Retirement Plan

and the MetLife Group Annuity Contract, and such

participants shall have no recourse to the District or

to any assets of the District, and shall not be

entitled to receive any distributions under this Plan. 

Instead, all unallocated amounts held by MetLife Group,

pursuant to the VHS Retirement Plan and the MetLife

Group Annuity Contract, will continue to be made

available to provide retirement benefits for

participants in the manner indicated under the

provisions of the VHS Retirement Plan and the MetLife

Group Annuity Contract. Accordingly, the treatment of

Allowed Class 2C claim holders set forth herein shall

not affect any legal, equitable or contractual rights

to which the VHS Retirement Plan participants are

entitled.

Chapter 9 Plan (Dec. 17, 2009) at 16:13-22. Based on this

treatment, the Chapter 9 Plan characterized the Class 2C

claimants – the Retirement Plan participants – as unimpaired and

stated that they therefore had no entitlement to vote on

confirmation of the plan. These same plan terms were reiterated

in VHS’s first amended disclosure statement, filed concurrently

with the Chapter 9 Plan.

The record reflects that the Kirton Parties were served with

advance notice of: (1) the claims bar date, (2) the court

approval of the first amended disclosure statement, and (3) the

confirmation hearing on the Chapter 9 Plan. The record further

indicates that the Kirton Parties were sent copies of the

Chapter 9 Plan and the first amended disclosure statement at the

same time they were served with notice of the confirmation

hearing. The Kirton Parties did not file any proofs of claims,

did not object to VHS’s Chapter 9 Plan, and did not otherwise

participate in VHS’s chapter 9 case.

On October 14, 2010, VHS issued a notice that the asset sale

to PFHH had closed on October 13, 2010, and that October 13,
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3The Kirton Parties sometimes referred to VHS as “Valley

Health Systems.” See Petition (Aug. 26, 2010) at ¶ 1; Appellants’

Opening Brief (May 25, 2011) at p.6 n.4 (emphasis added).

4

The Kirton Parties sometimes identified the Retirement Plan

as the “Valley Health Systems Retirement Plan.” See Petition

(Aug. 26, 2010) at ¶ 3 (emphasis added). At times, the Kirton

Parties have argued that there might be two or more entities with

similar sounding names and that some of these entities might not

be independent of VHS while others allegedly are independent of

VHS. However, the entirety of the record makes clear that there

is only one relevant retirement plan, and that is the Retirement

Plan, from which the Kirton Parties’ retirement benefits

allegedly arose. Indeed, the Kirton Parties have conceded on

appeal that the document establishing the Retirement Plan is part

of the record, attached as Exhibit 1 to the Declaration of Joel

Bergenfeld, filed in support of VHS’s Civil Rule 12(b)(6) motion

to dismiss. See Appellants’ Opening Brief (May 25, 2011) at

6:6-14.

5

2010, was the effective date of the Chapter 9 Plan.

Meanwhile, back in August 2010, a few months after the

confirmation of VHS’s Chapter 9 Plan, the Kirton Parties filed

their Petition in the Riverside County Superior Court (Case No.

RIC 10017129). The Petition named the following parties as

respondents:

• VHS, which the Kirton Parties alternately identified as a

public entity and community hospital, and as a “California

Local Health Care District.”3

• The Retirement Plan, which the Kirton Parties alternately

referred to as a public employee retirement entity, and as

“an independent sui juris entity with constitutionally

mandated fiduciary duties to the [Kirton Parties].” See

Petition (Aug. 26, 2010) at ¶¶ 1, 2.4

• Joel Bergenfeld, Michele Bird and Vinay Rao, as individuals

and as trustees of the Retirement Plan (collectively,
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5Due to its length, we reprint California Constitution Art.

XVI, Sec. 17, in an appendix to this memorandum.

6

“Trustees”).

• Met Life, Inc. (“Met Life”), as the administrator of the

Retirement Plan.

The Petition enumerated four causes of action based on the

following common allegations: (1) violation of the Retirement

Plan; (2) violation of the California Constitution; (3) breach of

contract; and (4) declaratory relief. The Petition’s prayer for

relief sought, among other things, the issuance of a peremptory

writ of mandate directing the respondents to fund the Retirement

Plan as required by law, to disclose VHS’s underfunding and

violations of the Retirement Plan and the California

Constitution, to cease any concealment of

underfunding/violations, and to prosecute any actions allowed or

required to conserve the Retirement Plan’s assets.

The gravamen of the Petition was that VHS allegedly

underfunded the Retirement Plan to the tune of $100 million. The

Petition further alleged that all of the respondents breached

their respective duties to prevent or disclose (or both) VHS’s

underfunding of the Plan. Supposedly, these duties arose from

the Plan itself and California Constitution Art. XVI, Sec. 17.5

 

On September 22, 2010, VHS filed a notice of removal

pursuant to 28 U.S.C. § 1452(a) and Rule 9027, effectively

removing the Petition from the state court to the bankruptcy

court. VHS, the Trustees and the Retirement Plan (collectively,

“VHS Defendants”) then filed, in October 2010, a motion to
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dismiss the Petition under Civil Rule 12(b)(6) (made applicable

in adversary proceedings by Rule 7012(b)). 

First and foremost, the VHS Defendants argued that VHS’s

Chapter 9 Plan and the Confirmation Order had discharged VHS’s

obligations to fund the Retirement Plan. The VHS Defendants also

argued, among other things: (1) the Trustees had no contractual

or fiduciary obligations to the Kirton Parties under the

Retirement Plan; (2) the Retirement Plan did not have the legal

capacity to sue or be sued; (3) the Kirton Parties did not comply

with the pre-filing requirements of the California Government

Claims Act; (4) both VHS and the Trustees are immune from

liability; and (5) the Kirton Parties failed to plead the

requisite elements for mandamus relief or for relief under the

causes of action alleged. 

The notice of motion accompanying the VHS Defendants’ motion

to dismiss warned the Kirton Parties that, under Rule 9013-1(h)

of the Local Bankruptcy Rules of the United States Bankruptcy

Court for the Central District of California (“Local Bankruptcy

Rules”), the court might treat a failure to file an opposition to

the motion to dismiss as consent to the relief requested in the

motion.

The Kirton Parties never filed an opposition to the motion

to dismiss. However, on January 3, 2011, on the eve of the

hearing on the motion to dismiss, the Kirton Parties did file a

pleading entitled “Class Action – Plaintiffs’ First Amended

Complaint For Damages and Injunctive Relief.” The First Amended

Complaint was founded upon the same basic alleged misconduct as

the Petition. The only essential differences were the addition
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Nor did the Kirton Parties ever file a motion for remand. 

Local Bankruptcy Rule 9027-1(c) provides: “A motion for remand

must be filed with the clerk of the bankruptcy court not later

than 30 days after the date of filing of the notice of removal.”

8

of class action allegations and several new causes of action

based on the same alleged misconduct.

At the January 4, 2011 hearing on the motion to dismiss, the

bankruptcy court noted that the Kirton Parties never filed a

written opposition to the dismissal motion, even though the

motion was filed and served over two months before, on

October 22, 2010.6 The court further noted that Local Bankruptcy

Rule 9013-1(h) permitted the court to treat the Kirton Parties’

failure to file a written opposition as consent to the relief

requested in the dismissal motion. The court also determined

that the Kirton Parties' amended complaint, filed on the eve of

the January 4, 2011 hearing, contravened national and local

bankruptcy rules requiring in advance either the opposing

parties' written consent to the amendment or leave of court. 

Accordingly, the bankruptcy court declined to consider the

amended complaint. Based on these findings and rulings, and

based on all of the arguments made in the dismissal motion, the

court granted the motion to dismiss without leave to amend.

The Kirton Parties objected to the proposed dismissal order

lodged by the VHS Defendants. The Kirton Parties argued that the

proposed order attempted to grant relief beyond that sought in

the dismissal motion and to resolve matters not properly before

the court. The Kirton Parties also argued that it would be

improper for the bankruptcy court to grant the dismissal motion
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7Rule 9023 makes Civil Rule 59(e) applicable in adversary

proceedings.

9

in favor of parties who had not been expressly named as movants

in the dismissal motion. According to the Kirton Parties,

granting the dismissal motion in favor of the unnamed parties

would violate the Kirton Parties' due process rights. Finally,

the Kirton Parties argued that the California Constitution

deprived the bankruptcy court of jurisdiction over the Retirement

Plan. The court overruled the Kirton Parties' objections and

entered the form of order that the VHS Defendants had lodged.

The Kirton parties then filed a motion for reconsideration,

which essentially reiterated the same arguments that the Kirton

Parties had made in their objection to the proposed order. After

the parties filed opposition and reply papers, the bankruptcy

court ruled on the reconsideration motion without holding a

hearing, in a memorandum of decision entered on February 24,

2011.

In its memorandum decision, the bankruptcy court first noted

that it had subject matter jurisdiction over the litigation and

that the matter was a core proceeding under 28 U.S.C.

§ 157(b)(2)(A), (I), (B), (L) and (O). The court next classified

the motion for reconsideration as a motion under Civil Rule 59(e)

to alter or amend the judgment and stated the legal standards

applicable to such motions.7

After summarizing the VHS Defendants’ arguments in favor of

dismissal and the Kirton Parties’ arguments in favor of

reconsideration of the dismissal order, the bankruptcy court
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explained why it considered the Petition fatally deficient and

why the reconsideration motion should be denied. The court first

focused on VHS, its obligations to the Kirton Parties, and the

effect of the confirmed, effective Chapter 9 Plan on those

obligations. According to the court, VHS only had one retirement

plan – the Retirement Plan – and VHS’s only alleged pension

obligations to the Kirton Parties arose from the Retirement Plan

and were contractual in nature. The court also noted that VHS

had not incurred any new pension obligations under the Retirement

Plan since 1999 because VHS had frozen the accrual of new pension

benefits as of May 4, 1999. As a result, the court ruled that

the alleged pension obligations all arose prior to VHS’s

bankruptcy filing and thus had been discharged by VHS’s Chapter 9

Plan. The court also ruled that any objections or questions that

the Kirton Parties could have raised concerning their treatment

under VHS’s Chapter 9 Plan were barred by the doctrine of claim

preclusion.

The bankruptcy court next addressed its decision to dismiss

the Petition as against Met Life, which had not joined in the VHS

Defendants’ dismissal motion. According to court, even though

Met Life had not joined in the dismissal motion, Met Life was in

the same position as the VHS Defendants vis-à-vis the Petition,

so it was permissible for the court to dismiss the Petition as

against Met Life as well. The court did not specify the precise

grounds for dismissal that Met Life shared with the VHS

Defendants. Moreover, with the exception of VHS, the court did

not specifically describe why the Petition failed to state a

claim as against any of the other named respondents. However, a
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fair reading of the court’s rulings and comments in their

entirety demonstrate that the court concluded, in part, that the

Petition failed to allege sufficient facts from which the court

reasonably could infer that any of the named respondents had a

legally enforceable duty which they had breached and which had

caused the harm alleged in the Petition. This is the common

grounds for dismissal that all of the named respondents

apparently shared.

The bankruptcy court then rejected the Kirton Parties’

jurisdictional arguments. According to the court, it had subject

matter jurisdiction over the Petition because it affected “the

interpretation, implementation, consummation, execution or

administration of a confirmed plan.” Mem. Dec. (Feb. 24, 2011),

at p. 11 (quoting State of Montana v. Goldin (In re Pegasus Gold

Corp.), 394 F.3d 1189, 1194 (9th Cir. 2005)). In addition, the

court stated that, if the Kirton Parties believed that removal of

the Petition to the bankruptcy court was improper, the Kirton

Parties should have filed a remand motion within the time

prescribed by Local Bankruptcy Rule 9027-1(c). The court further

noted that the Kirton Parties had not, as required by Rule

9027(e)(3), responded to the VHS Defendants’ allegation that the

removed Petition was a core bankruptcy proceeding under 28 U.S.C.

§ 157(b)(2)(A), (B) and (L).

Finally, the bankruptcy court concluded that the

deficiencies in the Petition “could not possibly be cured,” so

dismissal without leave to amend was appropriate. In so

concluding, the court apparently relied on the numerous grounds

for dismissal that the VHS Defendants asserted in their dismissal
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motion, but the court did not specify which of the Petitions’

deficiencies were incurable.

Based on its memorandum decision, the bankruptcy court

entered an order on February 24, 2011, denying the

reconsideration motion. On March 6, 2011, the Kirton Parties

filed a timely notice of appeal of both the dismissal order and

the order denying reconsideration.

JURISDICTION

We have jurisdiction over this appeal pursuant to 28 U.S.C.

§ 158. We discuss the bankruptcy court’s jurisdiction below.

ISSUE

Did the bankruptcy court have jurisdiction over the removed

Petition?

STANDARD OF REVIEW

We review issues concerning the bankruptcy court’s

jurisdiction de novo. See Rosson v. Fitzgerald (In re Rosson),

545 F.3d 764, 769 n.5 (9th Cir. 2008); see also Cal. Franchise

Tax Bd. v. Wilshire Courtyard (In re Wilshire Courtyard),

459 B.R. 416, 423 (9th Cir. BAP 2011).

DISCUSSION 

The bankruptcy court lacked subject matter

jurisdiction over the removed petition.

We begin with a review of the relevant jurisdictional

statutes because bankruptcy jurisdiction is “‘grounded in, and

limited by, statute.’” Battle Ground Plaza, LLC v. Ray (In re

Ray), 624 F.3d 1124, 1130 (9th Cir. 2010) (quoting Celotex Corp.

v. Edwards, 514 U.S. 300, 307 (1995)).

 Under 28 U.S.C. § 1334(b), the federal district courts have
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“original but not exclusive jurisdiction” over “all civil

proceedings arising under title 11, or arising in or related to

cases under title 11.” In turn, 28 U.S.C. § 157 provides the

means by which the district courts share their bankruptcy

jurisdiction with the bankruptcy courts. In accordance with the

referral process authorized in 28 U.S.C. § 157(a), virtually all

federal district courts have “referred” to the bankruptcy courts

all of those matters over which the district courts hold

bankruptcy jurisdiction pursuant to 28 U.S.C. § 1334. 

As used in the bankruptcy jurisdiction statutes, the terms

“arising under title 11” and “arising in a case under title 11"

both have well-defined meanings. A proceeding to enforce a right

to relief created by title 11 “arises under” title 11. In re

Wilshire Courtyard, 459 B.R. at 424 (citing Harris v. Wittman

(In re Harris), 590 F.3d 730, 737 (9th Cir. 2009)). Wilshire

Courtyard also identified when a civil proceeding “arises in” a

bankruptcy case:

proceedings “arising in” bankruptcy cases, for purposes

of the jurisdictional statute, are . . . those that,

although not based on any right granted in title 11,

would not exist outside a bankruptcy case, such as

matters related to the administration of the bankruptcy

estate.

Id. (citing Maitland v. Mitchell (In re Harris Pine Mills),

44 F.3d 1431, 1435-37 (9th Cir. 1995)).

As the parties seeking to invoke federal court jurisdiction,

the VHS Defendants had the burden to establish facts supporting

the federal court’s subject matter jurisdiction. See Hunter v.

Philip Morris USA, 582 F.3d 1039, 1042 (9th Cir. 2009). 

Generally speaking, to determine whether removal jurisdiction
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exists, the court must look at the well-pleaded allegations of

the complaint in order to ascertain whether it raises any

bankruptcy law issues, without reference to any anticipated

defenses that might be raised in response to the complaint. 

Miles v. Okun (In re Miles), 430 F.3d 1083, 1088 (9th Cir. 2005).

Outside the removal context, subject matter jurisdiction is

determined based on circumstances as they existed when the

complaint was filed. See Buenting v. Crystal Cascades Civil, LLC

(In re Crystal Cascades Civil, LLC), 398 B.R. 23, 28 (Bankr. D.

Nev. 2008). In contrast, in the context of removal, subject

matter jurisdiction ordinarily is determined based on

circumstances existing at the time of removal. Abada v. Charles

Schwab & Co., Inc., 300 F.3d 1112, 1117 (9th Cir. 2002) (citing

O'Halloran v. Univ. of Wash., 856 F.2d 1375, 1379 (9th Cir.

1988)). However, when the federal court determines the merits of

the removed action without any remand motion, or without

immediate appeal from the denial of a remand motion, the

appellate court reviewing the trial court’s merits determination

also must consider “‘whether the federal court would have had

jurisdiction had the case been filed in federal court in the

posture it had at the time of the entry of the final judgment.’”

See O'Halloran, 856 F.2d at 1379 n.2 (quoting Lewis v. Time Inc.,

710 F.2d 549, 552 (9th Cir.1983), abrogated on other grounds as

recognized in Unelko Corp. v. Rooney, 912 F.2d 1049, 1052–53 (9th

Cir. 1990)).

Having reviewed the relevant jurisdictional statutes and

having noted some ground rules for assessing the bankruptcy

court’s jurisdiction, we are ready to consider the jurisdictional
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issue raised in this appeal: the extent of the bankruptcy court’s

post-confirmation jurisdiction to interpret and enforce its own

orders. The United States Court of Appeals for the Ninth Circuit

recently addressed this issue in In re Ray, 624 F.3d at 1131-36. 

Because we believe that Ray controls the outcome of the appeal

before us, we examine Ray in detail. 

In Ray, the debtor and Jessen, his business partner, owned a

shopping center called Battleground Plaza Shopping Mall (“Mall”)

and an adjacent parcel of undeveloped land (“Adjacent Land”). 

Id. at 1127. Ray filed a chapter 11 bankruptcy case in August

2000, and the bankruptcy court confirmed Ray’s third amended plan

in March 2002. Id. at 1127-28. Meanwhile, back in December

2000, Ray and Jessen had agreed to sell the Mall to a company

known as Battle Ground Plaza, LLC (“BGP”). Id. at 1127. The

sale agreement also gave BGP a right of first refusal to purchase

the Adjacent Land. Ray’s confirmed plan acknowledged the agreedupon sale of the Mall to BGP, but noted that the sale had not yet

closed. Id. at 1128. The plan also referenced Ray’s intention

to sell his interest in the Adjacent Land to either Jessen, BGP

or some third party. Id.

In 2005, Ray and Jessen agreed to sell the Adjacent Land to

a man named Maldonado. When Ray and Jessen notified BGP of the

proposed sale agreement, BGP asserted that its first refusal

rights were not “ripe” because the Mall sale still had not yet

closed. Ray and Jessen then executed the sale agreement with

Maldonado, and Ray obtained bankruptcy court approval for the

sale of the Adjacent Land to Maldonado. BGP did not object to

this first sale motion, but when Ray sought bankruptcy court
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approval a second time (to account for an agreed-upon reduction

of the purchase price by $5,000), BGP this time objected, stating

that it now desired to exercise its first refusal rights. Id.

The bankruptcy court overruled BGP’s objection and, again,

approved the sale, free and clear of all liens and encumberances,

including BGP’s first refusal rights. Id. at 1128-29. The

bankruptcy court in relevant part found that BGP had not properly

exercised its first refusal rights because its proposal to

purchase the Adjacent Land did not mirror Ray and Jessen’s sale

agreement with Maldonado; rather, BGP’s purchase proposal

purported to extend the sale closing date and purported to give

BGP the option to back out of the proposed purchase during a set

period of time. Id. at 1129. BGP did not appeal either of the

bankruptcy court’s sale orders. Ultimately, the sale of the

Adjacent Land closed. The sale proceeds enabled Ray to pay off

his remaining obligations under his chapter 11 plan, and his

bankruptcy case was closed in December 2005. Id.

Several months later, BGP learned for the first time that,

as part of the sale of the Adjacent Land, Ray and Jessen had

granted an easement to Maldonado that gave the Adjacent Land

“valuable cross-parking rights” in the Mall’s parking areas. 

Believing that the undisclosed easement materially changed the

dynamics of the exercise of its first refusal rights, BGP filed a

state court breach of contract action against Ray, Jessen and

Maldonado seeking damages and specific performance of its first

refusal rights. Id. The state court “remanded” the lawsuit to

the bankruptcy court, which concluded that it had subject matter

jurisdiction over the lawsuit because the lawsuit necessitated
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the interpretation and enforcement of the bankruptcy court’s

prior sale orders. Ultimately, the bankruptcy court entered

summary judgment against BGP and denied BGP’s reconsideration

motion. Id. According to the bankruptcy court, the breach of

contract lawsuit amounted to an impermissible collateral attack

on the court’s prior sale order entered in November 2005,

overruling BGP’s objection and approving the sale of the Adjacent

Land free and clear of BGP’s first refusal rights. Id.

In an unpublished memorandum decision, this Panel held that

the bankruptcy court had subject matter jurisdiction pursuant to

28 U.S.C. § 1334(b), because the breach of contract lawsuit

“required resolution of a substantial question of bankruptcy law,

i.e., the impact of the bankruptcy court’s November 2005 Sale

Order, arising under section 363(b)” of the Bankruptcy Code. 

Battle Ground Plaza, LLC v. Jessen (In re Ray), BAP No. WW-08-

1104-KaJuPa, at p. 18 (mem. dec. 9th Cir. BAP Dec. 31, 2008). 

The Panel also held that the bankruptcy court had ancillary

jurisdiction because the breach of contract lawsuit implicated

and potentially could undermine the bankruptcy court’s prior sale

orders. Id. at 14-16. Ultimately, the Panel affirmed the

bankruptcy court, concluding in part that the bankruptcy court

retained jurisdiction to interpret and enforce its own orders. 

Id.

The Ninth Circuit disagreed with the Panel’s jurisdictional

analysis. According to the Ninth Circuit, the bankruptcy court

had no jurisdiction over BGP’s state court breach of contract

action. The Ninth Circuit considered each of the potential

grounds of bankruptcy court jurisdiction and opined that none of
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8

Beneficial Trust Deeds v. Franklin (In re Franklin),

802 F.2d 324 (9th Cir. 1986); McCowan v. Fraley (In re McCowan),

296 B.R. 1 (9th Cir.BAP 2003); Aheong v. Mellon Mortg. Co. (In re

Aheong), 276 B.R. 233 (9th Cir. BAP 2002); Haw. Airlines, Inc. v.

Mesa Air Group, Inc., 355 B.R. 214 (D. Haw. 2006).

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them gave the bankruptcy court jurisdiction over BGP’s breach of

contract lawsuit.

First, the Ray court determined that the breach of contract

lawsuit did not arise under title 11 or arise in a case under

title 11. Ray held that the breach of contract lawsuit did not

arise under title 11 because the lawsuit’s existence did not

depend on any substantive bankruptcy law provision; rather, the

lawsuit merely sought to invoke BGP’s state-law contract rights. 

Id. at 1131. Ray also held that the breach of contract lawsuit

did not arise in a case under title 11 because it was not an

administrative matter unique to the bankruptcy process; rather,

the lawsuit had an existence independent of the debtor’s

bankruptcy case. Id. 

Next, Ray distinguished several cases upon which the BAP,

Jessen and Ray had relied.8

 According to Ray, in each of these

cases, the plaintiff/movant was invoking substantive bankruptcy

law rights or rights established in the bankruptcy court in the

process of resolving the debtor’s bankruptcy case. Id. at 1132-

33. Ray determined that BGP’s breach of contract lawsuit simply

did not invoke any such rights: “the state court action is a

breach of contract action claiming the Sellers did not honor the

terms of the right of first refusal, which itself was created

under Washington law rather than as part of the bankruptcy

proceeding.” Id. at 1133.
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Ray then examined whether the bankruptcy court had “relatedto” jurisdiction over the breach of contract lawsuit. Ray

applied the “close nexus test” adopted by the Ninth Circuit in

In re Pegasus Gold Corp., 394 F.3d at 1194. Under the close

nexus test, when a bankruptcy court is asked after plan

confirmation to resolve a dispute, the court must determine

whether “there is a close nexus to the bankruptcy plan or

proceeding sufficient to uphold bankruptcy court jurisdiction

over the matter.” In re Ray, 624 F.3d at 1134 (citing In re

Pegasus Gold Corp., 394 F.3d at 1194). In holding that BGP’s

breach of contract lawsuit did not satisfy the close nexus test,

Ray considered significant the following facts: “the bankruptcy

proceeding is over, . . . a ruling on the state court claim by

the state court would not affect the bankruptcy estate, and . . .

the state court claim should look to the preclusive effect of the

[bankruptcy] proceeding.” Id. at 1135 n.7. 

Significantly, Ray acknowledged that, if the state court

ultimately did not give preclusive effect to the rulings in the

bankruptcy court’s sale orders, then the sale orders might be

undermined and the debtor and the bankruptcy estate might be

adversely impacted. However, Ray concluded that all courts

routinely face collateral attacks of orders entered in other

courts and that courts facing such collateral attacks routinely

reject such attacks when appropriate. Id. at 1135. As Ray put

it, the state court “was perfectly capable of taking jurisdiction

and assessing whether [BGP’s breach of contract claim] is

precluded given that the sale already had been finalized and

approved in the previous proceeding.” Id. at 1136.
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9

Recently, this Panel followed Ray and held that a

bankruptcy court lacked subject matter jurisdiction to hear postconfirmation contempt proceedings commenced by the general

partners of the former debtor against the California Franchise

Tax Board. In re Wilshire Courtyard, 459 B.R. at 434. In one

sense, the Panel went further in Wilshire Courtyard than the

Ninth Circuit did in Ray. In Wilshire Courtyard, the debtor’s

general partners commenced a contempt proceeding in the

bankruptcy court expressly and directly seeking interpretation

and enforcement of the bankruptcy court’s confirmation order. In

contrast, the subject action in Ray was a garden-variety state

law breach of contract action that the non-debtor plaintiff had

(continued...)

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Ray emphasized this point by further noting:

Ordinarily both issue preclusion and claim preclusion

are enforced by awaiting a second action in which they

are pleaded and proved by the party asserting them, and

the first court does not get to dictate to other courts

the preclusion consequences of its own judgment.

Id. at 1135 (internal quotation marks omitted) (citing Charles A.

Wright, Arthur R. Miller & Edward H. Cooper, FEDERAL PRACTICE &

PROCEDURE § 4405 (2d ed. 1988)).

Finally, Ray determined that the bankruptcy court did not

have ancillary jurisdiction over the breach of contract lawsuit. 

Id. at 1136. Ray acknowledged that ancillary jurisdiction

generally is available when it is necessary for the bankruptcy

court to interpret or effectuate its prior orders. But Ray, in

essence, ruled that ancillary jurisdiction does not allow the

bankruptcy court to try a post-confirmation breach of contract

lawsuit when the lawsuit did not invoke substantive bankruptcy

law rights, did not raise any bankruptcy law issues, and could

not affect the estate or the debtor (because the bankruptcy

proceedings already had run their full course and the debtor

already had received his discharge). Id.9
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9

(...continued)

filed in state court. Yet we still held in Wilshire Courtyard

that Ray was apposite and that the bankruptcy court lacked

jurisdiction over the contempt proceeding. As we held in

Wilshire Courtyard, the absence of substantive bankruptcy law

issues and the dispute’s lack of any potential effect on the

debtor, the plan and the estate were dispositive. Id.

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Ray compels us to hold that the bankruptcy court here lacked

jurisdiction over the Kirton Parties’ Petition. The Petition

contained no causes of action based either on substantive

bankruptcy law or on rights created in the course of the

bankruptcy case. To the contrary, the respondents’ alleged

obligations arose, according to the Petition, from the Retirement

Plan and the California Constitution. Thus, these alleged

obligations on their face arose (if at all) independent of and

prior to VHS’s bankruptcy filing.

Nor did the Petition raise any bankruptcy law issues. The

Petition does not even mention VHS’s bankruptcy case. There is

only one apparent connection between the Petition and the

bankruptcy case: the potential preclusive effect of the claims

bar date, the confirmed plan, and the plan confirmation order on

the causes of action stated in the Petition. Ray made it

abundantly clear that this potential preclusive effect does not

by itself confer any sort of subject matter jurisdiction on the

bankruptcy court. Ray, 624 F.3d at 1135. As Ray put it, the

state court is “perfectly capable” of assessing the preclusive

effect of the bankruptcy court’s prior orders and rulings, id. at

1136, and the bankruptcy court “does not get to dictate to other

courts the preclusion consequences of its own [rulings].” Id. at

1135.
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10Appellee’s Supplemental Brief (Dec. 15, 2011) at p. 12;

see also id. at p. 13 (stating that dispute in Ray “would have

had no impact on the debtor, its property or its ability to pay

creditors”); id. at p. 14 (stating that the dispute in Ray “would

have had no impact on the estate itself).

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Because neither the Kirton Parties nor the VHS Defendants

discussed either Ray or Wilshire Courtyard in their appeal

briefs, we issued an order giving the parties the opportunity to

file supplemental briefs discussing the impact of these cases on

this appeal. In its supplemental brief, the VHS Defendants

asserted that this matter meets Pegasus Gold Corp.’s “close

nexus” test (and is distinguishable from Ray) because the Kirton

Parties’ Petition could have a profound impact on VHS’s Chapter 9

Plan. The VHS Defendants further asserted that the bankruptcy

court had jurisdiction because here, unlike in Ray, the Petition

did not raise solely state law issues but also raised bankruptcy

law issues. Finally, the VHS Defendants claimed that Ray is

distinguishable because, there, the debtor’s plan had been fully

administered and the bankruptcy case closed, whereas here the

plan has not been fully administered and the case is still open. 

We will address each of these contentions in turn.

As we indicated above, the VHS Defendants’ close nexus

argument hinges on the impact they say the Petition might have on

the Chapter 9 Plan. According to the VHS Defendants, this

potential impact distinguished Ray because the Ninth Circuit in

Ray concluded that BGP’s state court lawsuit “would have had no

impact on the debtor, its property or the implementation of its

plan.”10

However, we disagree with the VHS Defendants’ interpretation
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11If, in the process of ruling on the Petition, the state

court misinterprets the plan, the confirmation order or any of

the bankruptcy court’s other orders, VHS then might be able to

seek relief from the bankruptcy court, provided that the state

court’s ruling implicates substantive bankruptcy law issues or

impacts VHS or its plan. See Huse v. Huse–Sporsem, A.S. (In re

Birting Fisheries, Inc.), 300 B.R. 489, 500-01 (9th Cir. BAP

2003).

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of Ray. It ignores Ray’s pivotal comments on the role the state

court must play in deciding what preclusive effect (if any) to

give to the bankruptcy court’s prior rulings. Id. at 1134 n.7,

1135. Simply put, we acknowledge that, if the state court here

does not give the bankruptcy court’s prior rulings preclusive

effect, the Petition may impact VHS, its Chapter 9 Plan, or other

creditors. But Ray acknowledged similar concerns, and yet left

the preclusion issues squarely in the hands of the state court.11

We also disagree with the VHS Defendants’ second argument,

that the bankruptcy court had jurisdiction because the Kirton

Parties’ Petition raised bankruptcy law issues. To the contrary,

the Petition was based solely on state-law rights allegedly

arising from the Retirement Plan and the California Constitution,

rights that arose (if at all) prior to and wholly independent of

VHS’s bankruptcy case. That VHS ultimately might want to assert

as a defense to the Petition rights it acquired in the course of

its bankruptcy case is of no moment. As we stated above, the

focus in determining the bankruptcy court’s removal jurisdiction

is on the well-pled allegations of the Petition and not on any

defense the VHS Defendants anticipate they might want to assert

in response. See In re Miles, 430 F.3d at 1088.

The VHS Defendants also attempt to distinguish Ray by
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12See generally In re Ray, 624 F.3d at 1132 n.5 (noting that

whether the underlying bankruptcy case is open or closed does not

control).

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comparing the status of VHS’s Chapter 9 Plan and the status of

its bankruptcy case with the status of Ray’s chapter 11 plan and

his bankruptcy case. In Ray, at the time BGP sued Ray and others

in state court for breach of BGP’s first refusal rights with

respect to the sale of the Adjacent Land, Ray’s plan had been

fully administered and his bankruptcy case had been closed. 

624 F.3d at 1129. In contrast, according to the VHS Defendants,

distributions under VHS’s Chapter 9 Plan are in progress now, and

its bankruptcy case is still open. However, in terms of finding

(or not) the requisite close nexus between the Petition and VHS’s

bankruptcy case, the current status of the VHS bankruptcy case

and the Chapter 9 Plan simply are not critical under the

circumstances.12 Rather, under the facts of this case, it is the

entry of the court’s confirmation order (and any preclusive

effect that order and the Chapter 9 Plan might have) that are

crucial in considering the potential impact of the Petition on

VHS’s bankruptcy case. In short, the distinctions that the VHS

Defendants have pointed to are not significant for purposes of

ascertaining whether “related to” jurisdiction exists here. 

Nor can these case status and plan status distinctions

support a conclusion that ancillary jurisdiction exists. Ray

stands for the proposition that there can be no ancillary

bankruptcy jurisdiction (nor any other type of bankruptcy

jurisdiction) in a postconfirmation breach of contract lawsuit,

when the complaint does not raise any issues of bankruptcy law,
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does not invoke any rights either based on substantive bankruptcy

law or created in the course of the bankruptcy case, and does not

impact the debtor, the estate or the plan. In other words, there

can be no ancillary jurisdiction over an action when the action

in question is not sufficiently connected to a prior action over

which the court had jurisdiction. See Fed. Sav. & Loan Ins.

Corp. v. Ferrante, 364 F.3d 1037, 1041-42 (9th Cir. 2004). In

light of Ray, we cannot find here that there is sufficient

connection between the Petition and VHS’s bankruptcy case to

establish that the bankruptcy court had ancillary jurisdiction

over the Petition.

We also note that the Chapter 9 Plan included lengthy and

broad jurisdiction retention provisions. Among other things, the

plan purported to have the bankruptcy court retain jurisdiction:

“to hear and determine all disputes or controversies arising in

connection with or related to this Plan or the Confirmation Order

or the interpretation, implementation, or enforcement of this

Plan or the Confirmation Order or the extent of any entity’s

obligations incurred in connection with or released under this

Plan or the Confirmation Order.” Chapter 9 Plan (Dec. 17, 2009)

at 26:14-17. Notwithstanding the above, Ray ruled that a

jurisdiction retention provision, by itself, cannot confer

jurisdiction on the bankruptcy court. See In re Ray, 624 F.3d at

1136 n.8.

Even though the Kirton Parties never filed a remand motion,

they did not waive the argument that the bankruptcy court lacked

subject matter jurisdiction; the Kirton Parties could make that

argument, and did make that argument, at other times during the
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13While we ultimately reach the same result as that urged by

the Kirton Parties in their supplemental brief, that the

bankruptcy court lacked jurisdiction over the Petition, the

Kirton Parties asserted this result follows from the following

facts: (1) they did not actively participate in VHS’s bankruptcy

case; (2) the Chapter 9 Plan stated that their Retirement Plan

rights were unaffected; and (3) the Chapter 9 Plan deprived them

the right to vote for or against the plan. It suffices for us to

say that we disagree with the Kirton Parties’ jurisdictional

analysis and instead rely on our own analysis, which mirrors

Ray’s analysis.

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course of the proceedings and on appeal. See O'Halloran, 856

F.2d at 1379 (stating that an argument regarding the court’s

subject matter jurisdiction could not be waived and could be

raised at any time).13

Accordingly, because the bankruptcy court lacked subject

matter jurisdiction over the removed Petition, we must VACATE its

judgment dismissing the Petition under Civil Rule 12(b)(6).

CONCLUSION

For the reasons set forth above, we VACATE the bankruptcy

court's order under Civil Rule 12(b)(6) dismissing the Kirton

Parties’ Petition because it lacked subject matter jurisdiction

over this dispute. We REMAND this matter to the bankruptcy court

with instructions to remand the Petition to the state court.
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Appendix

California Constitution Art. XVI, Sec. 17, provides in part:

Notwithstanding any other provisions of law or this

Constitution to the contrary, the retirement board of a

public pension or retirement system shall have plenary

authority and fiduciary responsibility for investment

of moneys and administration of the system, subject to

all of the following:

(a) The retirement board of a public pension or

retirement system shall have the sole and exclusive

fiduciary responsibility over the assets of the public

pension or retirement system. The retirement board

shall also have sole and exclusive responsibility to

administer the system in a manner that will assure

prompt delivery of benefits and related services to the

participants and their beneficiaries. The assets of a

public pension or retirement system are trust funds and

shall be held for the exclusive purposes of providing

benefits to participants in the pension or retirement

system and their beneficiaries and defraying reasonable

expenses of administering the system.

(b) The members of the retirement board of a

public pension or retirement system shall discharge

their duties with respect to the system solely in the

interest of, and for the exclusive purposes of

providing benefits to, participants and their

beneficiaries, minimizing employer contributions

thereto, and defraying reasonable expenses of
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administering the system. A retirement board's duty to

its participants and their beneficiaries shall take

precedence over any other duty.

(c) The members of the retirement board of a

public pension or retirement system shall discharge

their duties with respect to the system with the care,

skill, prudence, and diligence under the circumstances

then prevailing that a prudent person acting in a like

capacity and familiar with these matters would use in

the conduct of an enterprise of a like character and

with like aims.

(d) The members of the retirement board of a

public pension or retirement system shall diversify the

investments of the system so as to minimize the risk of

loss and to maximize the rate of return, unless under

the circumstances it is clearly not prudent to do so.

(e) The retirement board of a public pension or

retirement system, consistent with the exclusive

fiduciary responsibilities vested in it, shall have the

sole and exclusive power to provide for actuarial

services in order to assure the competency of the

assets of the public pension or retirement system.

* * *

(h) As used in this section, the term "retirement

board" shall mean the board of administration, board of

trustees, board of directors, or other governing body

or board of a public employees' pension or retirement

system; provided, however, that the term "retirement
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board" shall not be interpreted to mean or include a

governing body or board created after July 1, 1991

which does not administer pension or retirement

benefits, or the elected legislative body of a

jurisdiction which employs participants in a public

employees' pension or retirement system.