2007 D e c i sion s O p inion s of the U nit e d S t a t e s C our t of Appe al s for the Thir d C ir c uit

10-24-2007 

# I n Re: S eve n F ield s

P r e c e de n t i al or N on-P r e c e de n t i al : N on-P r e c e de n t i al
D ock e t N o . 06-3658

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w . v i l l a no v a . e du/thir dc ir c uit_2007/303PREC EDENTIAL
U N IT E D S T A T E S C O U R T O F A P P E A LS F O R T H E T H IRD C IR C U IT

No. 06-3658

I N RE: SEVEN FI EL DS DEVEL OPMENT CORPORATI ON,

D e b t o r MARY GERUSCHAT; DOL ORES SP ENEY; ANT OI NETTE MOROCCO; and DONNA M. B UXTON , Ap pe lla nts

v
. ERNST YOUNG L L P; C HARL ES MODI SPAC HER

On Appea l from the United States District Court fo r t he Wes te rn

Di str ic t of

Pe nn sylva

nia (D.C. Civ. No. 05-1527) District J udg e: Honora

ble Gar y L . L anca ster

Argued June 28, 2007

BEF ORE: SMI TH and G REENBE RG, Circuit J udg es,

and POL L AK, District Judge* (F iled: October

24, 2007)

Vincent A. Coppola ( argued) Pr iba nic & Pr iba

nic 513 Court Place

*The Honor able L ouis H. Poll ak, Senior Judge of the United States District Court for the Ea stern District of Pennsylvania, sitting by desig nation.2 First F loor Pitt sburg h, PA 15219
Attor ne y s f or Ap pe lla nts
Wil liam H. Schorling (ar g ued) Samuel W. Brave r Stanley J . Parker Christopher P. Schueller Buc hanan I

ng ersoll & Rooney 301 Gra nt Street One Oxford Centre , 20th Floor Pitt sburg h, PA 15219 Attorney s for Appe llees

OPI NI ONOF TH E CO UR T

GREENB ERG, Circuit J udg e.

I . I NTRODUCTI ON
This matter come s on befor e the c ourt on an a ppeal by Mary Ge ru sc hat, D olo re s Sp e ne y , A nto ine tte Mo ro c c o, and Do nn a M. Buxton (“appe llants”) fr om the district court’s memora ndum order dated July

14, 2006, which adopte d as its own and af firmed the ba nk ru ptc y c ourt ’s op ini on

and or de r d ate d Se pte mbe r 2 , 2 00 5, in which the ba

nkruptcy court (1) asser

ted its jurisdiction t o resolve a state -l aw m a lpr a c tic e , n e g lig e nc e , a nd fr a ud su it that a

pp e lla nts , cre ditors in a consolidated Chapter 11 bankruptc y

proce eding , broug ht in a state c ourt ag ainst the ac countants who pe rfor med work dur ing the bankr uptcy , Ernst & YoungL L P and its employ ee, Cha rles Modispacher

(tog ether “Ernst & Young ”), ( 2) re fused to re mand appellants’ c ase to the state court fr om which Ernst & Youngremove d it, and (3 ) d ism iss e d th e c omp la int on its me ri ts. Th is a

pp e a l, ho we ve r, pr ima

ri ly is a bo ut j ur isd ic tio n, bo th o ur jur isd ic tio n to re vie w the ba

nk ru ptc y and dis tr ic t c ourt s’ de c isi on s n ot t o a bs ta in fr om e xer c isi ngjur isd ic tio n a nd no t to re mand

the matte r t o th e state court, a nd, dependingon the extent, if any , that we have jurisdiction to r e vie w tho se c ourt s’ de c isi on s, wh e the r t he dis tr ic t c ourt

pr op e rl y found that the ba

nkruptcy court ha d subject matter jur isdiction and the3 final adjudicative authority to resolve the state-lawactions.
As we wi ll d isc us s in

de ta il l ate r, a

pp e lla nts ini tia lly

fi le d th e ir suit in a state court, but Ernst & Youngremove d the ca se to a fe dera l court, i.e., a

bankruptc y

court. Appe llants then sought a n order
rema nding the case to the state cour t on the g rounds that (a ) there
wer e proc edura l irregularities in the re moval proce ss, (b) the bankruptc y

court did not have subject matter jur isdiction over the dis pute , a nd (c ) e ve n if

the ba nk ru ptc y c ourt did have jur isd ic tio n, it sh ou ld h ave a

bs ta ine d p e rm iss ive ly

or wa s r e qu ir e d to a

bs ta in mandatorily

from exerc ising its jurisdiction. The bankruptc y court disag ree d with appellants, exercise d jurisdiction, and dismiss ed the
case on its merits. On appellants’ a ppeal, the district c ourt aff irmed the bankr uptcy court’s or der a

nd, though to a

deg ree writing
se pa rate ly , a do pte d th e ba

nk ru ptc y c ourt ’s op ini on

and or de r a s it s own. This appea l followed. B ut appellants cha lleng e only the decisions re g ardingthe proc edura l irregularities in the re moval proce ss, the bankruptc y

court’s f inding that it had jurisdiction and final adjudicative authority , and its decision not to abstain from exercisingthat jurisdiction. Thus, we ar e not re viewingthe dispositi on of the malpra ctice, ne g lige nce, a nd fra ud dispute on the merits. Inasmuch a s we c onclude that we lack jurisdiction to revie w a substantial portion of the issues appe llants raise on this appea l, and that the bankr

uptcy and district cour

ts did not err in the ruling s over which we have a

ppellate jurisdiction, we w ill affirm the July 14, 2006
me mor and

um o rd e r o f t

he dis tr ic t c ourt

and , a c c or din g ly , in

e ff e c t, will affirm the ba

nkruptcy court’s opinion and or der dated September 2, 2005.

I I . F AC TS A ND PRO CED UR

AL HI STO RY
The c ase ha s g rown out of the a ctivities of Earne d Capital Corporation, Mana g ed Proper ties, Inc., Canter

bury Villag e, Inc., and Easter n Ara bian, Inc. (c ollectively

“De btors”), c orporations eng ag ed in d e ve lop ingre a l pr op e rt y . T o r a ise c a

pit a l, t he De bto rs so ld investment share s in the proper ty , and, in re turn, promised the investors an a

nnual re turn.
Th e De bto rs ’ p lan invo lve d th e de ve lop me nt o f 6 00 a c re s inAs a matter of convenie nce we will use the name Ernst & Young 1 when r efe rringto Arthur Young& Company

. 4 the B or ou g h o f S e ve n F ie lds , B utl e r C ounty , Pe nn sylva nia , w ith townh ou se s and

re c re atio na l f

a c ili tie s. Un fo rt

un ate ly fo r t he De bto rs , ho we ve r, the ir

pla n d id n ot g o a s e xpe c te d. Thus , th e y be c ame de lin qu e nt i n ma

kin gthe pa

y me nts the y

pr omi se d to the inv e sto rs , leadingthe Debtor s to oversell shar es to maintain the promised pa y me nts . T he De bto rs c ou ld n ot c on tin ue thi s Po nzi- ty

pe sc he me ind e fi nit e ly , a

nd , c on se qu e ntl y , o n Jun e 3, 19 86 , th e y fi le d s e pa

ra te voluntary petitions under Chapter 11 of the B ankruptc y

Code in the Ba nkruptcy Court for the Western D istrict of Pennsylvania. That court c onsolidated the Chapter 11 proce eding s on J une 5, 1986, in a
case entitled In re Ea

rned Capital Corpor ation, No. 86-21474.
Prior to the time that the Debtors f iled their bankr

uptcy p et i t i o n s , th ey

h adem p l o y edth e a cc o un t i n g fi rm o f A rt hur Y o un g & Company (a pr edec essor of E rnst & Y oung ) to revie w their fina ncial
rec ords and pr epar e the f

inancial sc hedules ne eded f or the ba nkruptcy

. On J une 12, 1986, the ba

nkruptcy court a pproved the appointment of Ernst & Young

. Ernst & Youngdeter mined that the Debtor s were 1 insolvent and that they

owed the va st majority

of their oblig ations (totaling over $60,000,000) to the approximately 2,500 investors. An Offic ial Commi ttee of Unsecur ed Creditors ( “Committ ee” ), selec ted from amongthe investors, re prese nted the investors in the ba nkruptcy
case . The Committee and the De btors filed compe ting plans of
re or g anizatio n, bo th c a lli ngfo r c on so lid atio n o f t he De bto rs ’ a sse ts and liabilities into one surviving re org anized corpor ation.
The ba nkruptcy court found the Debtors to be insolvent a nd confirme d an Amende d Plan of Reorg anization (“Amende d Plan”) on Oc tob e r 2 1, 19 87 . A c c or din gto a pp e lla nts , th e c ourt

ba se d th is dispositi on on information that Ernst & Youngprovided the c ourt and the Debtor s’ cr editors. Under the Amende d Plan, the Debtors we re merg ed into a succ essor e ntity , Seven F ields Deve lopment Corporation (“ Seven F ields”), a nd their asse ts, the principal one of which wa s the Butler

County rea l estate, be came assets of Seve n Fields. Unde r the Ame nded Plan, all of the se cure d and tra de
c re dit or s’ c la ims we re to b e pa id i n f ull or in a c c or da

nc e wi th ag ree ments otherwise ne g otiated, but the investor cla ss of unsecur ed
cre ditors was to rec eive c ommon stock in S even F ields at a pa r value equal to 5% of

their allowe d claims with the rema ining 95% classified
a s uns e c ur e d, no nd isc ha

rg e a ble de bt. Un de r t

he Am e nd e d Pl an, “ [a]ll5 a c tiv iti e s o f [Se ve n F ie lds ] sha ll s e e k to a c hie ve the g oa l of fu ll pay ment to [ the investors/stockholders],” app. at 33, and assets we re to “be mana g ed, improved, de veloped a nd sold, etc. whe re appropr iate, to the end that all cre ditors will eventually achie ve maximumre tur

ns ,” id. at 22 . T he inv e sto rs vo te d o ve rwhe lmi ng ly in fa vo r o f t he pla n, 2, 17 9 to 87 , o n a

n in div idu a l ba sis , a

nd , in c la ims terms, $62,639,067 to $13,758,972. After confirmation, Seven Fields liquidated its assets, substantially throug h the sale of

the B utler County rea l estate, a

nd made distributions to the investors. Seven F ie lds , h ow e ve r, did

no t pa y the a llo we d c la ims of

the inv e sto rs in f

ull throug h this li quidation. On September

29, 2004, appellants, on be half of the mselves and other s simil arly

situated as shar eholder s of Seven F ields, filed a complaint ag ainst Ernst & Y oungin the Court of Common P leas of Butler County , alleg ing pr ofessional ne g lige nce ( Count I ), fr aud and dece it (Count I I ), and ne g lige nt misreprese ntation (Count I I I ). Be cause , as will be see n, the pre cise a lleg ations in the complaint are signific ant in deter

mining a c entra l issue on appea l, i.e., the jurisdiction of the bankruptc y court ove r appe llants’ state-law cause s of a c tio n, we re c ite the re le va nt a lle g atio ns ve rb atim :
2. Prior to the formation of Seve n Fields . . . , the pre dece ssor entities wer e involved in a ba nkruptcy in which [Ernst & Young ] acted as a ccounta nts and perf ormed ser vices on be half of, inter

alia, the [appellants] and other

members of

the class – dur ing
an d a f t e r th e b an kr u p t c y.
3. As a re su lt o f t

he wo rk pe rf or me d b y [Er ns t & Y oung ], all of the prede cessor entities were repr esente d by

[Ernst & Young ] t o be insolvent, the prede cessor

entities were consolidated a nd a succ essor corpor ation, Seven F ields . . . , acc eded to owne rship of the assets of the prede cessor entities which included a
s u b s t an t i a l tr a c to f

l an d i nB u t l e r C o un ty, Pennsylvania.
4. In addition to declar ing the prede cessor entities insolvent, [ Ernst & Young ] advised the United States Ba nkruptcy Court, the [appellant] class and others, that eve n afte r the re org anization and bankruptc y

and in spite of the f

act that Seve n Fields . .The c omplaint uses the words “r ece ived by” but we be lieve that 2 appellants intende d to mean “g iven by” or “ rec eived f rom.”
6 . o wn e d a s u b s t an t i a l tr a c to f

l an d i nB u t l e r C o un ty, Pennsylvania, [Ernst & Young ] represe nted to the [appellant] class members and other s that the new company had a de bt of about $280 million t o the g roup of inv e sto rs
. 5. The for eg oing ha d been r epre sented pr e vio us ly

and thr ou g ho ut t

he ba nk ru ptc y by [Er ns t & Young ] t o the United States B ankruptc y Court, the inv e sto r c la ss a

nd oth e rs
. 6. [Ap pe lla

nts ] an d th e re ma ini ngc la ss me mbe rs ha d a ll i nv e ste d v ary ingsums o f m on e y

in
one or more of the pre dece ssor entities including Ea rn e d Ca pit a l, I nc . a nd up on be inga dv ise d b y

[Er ns t & Yo un g ] that th e c omp any wa s $ 28 0 mi lli on

in d e bt, [appellants] and the r emainingclass member s were horrifie d in that [ Ernst & Young ], i n eff ect, r epre sented that [appellants] and the r emainingclass member s had either lost all of their mone y or we re g oing to lose a
s u b s t an t i a l p o rt i o no f

th e m o n e y.
7. As a re sult of the advice rec eived by [2] [Ernst & Young ], an effor t to develop the prope rty

and other a ssets was made which included sa les of asse ts at price s below their mar

ket value a

nd a g ener al development sc heme wa s put toge ther by the succ essor corpor ation and its office rs, which instea d of emphasizing the hig hest use of the proper ties to which the ne w c or

po ratio n h a d ti tle , w a s in ste a d c a lc ulate d to g e ne rate c a sha s q

uic kly a s p os sib le in a

n e ff or t to bo th ‘r e pa y ’ [a pp e lla nts ] an d o the r c la ss m e mbe rs ‘t he ir loss’ and in a fur

ther e ffor t to reassure [appellants] and other c lass members that some mone y would be returne d.
8. As a re sult of the state of mind and perc eption on the par

t of the newcorpor ation, [appellants] and other

class member s, the proper ty was develope d and/or sold in a manne r which c aused a ll ofErnst & Youngraised othe r def enses that we need not desc ribe. 3
7 the investors to suffe r losses on the investment previously

made a nd to fail to rea liz e eve n a re turn of the fu ll amou

nt o f t he ir inv e stm e nt. App. at 43-44.
On Novembe r 5, 2004, Ernst & Youngfiled a notice of
remova l of the B utler County case with the cler

k of the ba

nkruptcy court, re moving the c ase to the United States Ba nkruptcy Court for the Western District of Pennsylvania under Rule 9027(a) of the F eder al Rules of Ba

nkruptcy Procedur e and 28 U .S.C. §§ 1452 and 1334. Then, Er nst & Youngfiled a motion to dismis s appellants’ c omplaint
on No ve mbe r 1 1, 20 04 , a

rguin gthat e ve n th ou g h th e ir c la ims “ are in the nature of a sha

reholde r der ivative suit,” appe llants failed to asser t the claims on beha lf of Seven F ields and had not made any demand on Seven F ields as re quired unde r F eder al Rule of Civil P roce dure 23.1. App. at 56-57. A dditionally , Ernst & Youngargued that the doc trines of re s judicata, c ollatera l estoppel, and judicial e stoppel require d dismiss al of the c omplaint because the claims “ne cessa rily require [t he cour t] to disturb a valid, final and bindingreor g anization plan and confirmation order, a s well as [the court’s] order approving[i ts] fee s.” I d. at 57. 3 Appellants re sponded with a motion reque sting that the bankruptc y

court re mand the ca se to the B utler County Court of Common P leas pursua

nt to 28 U.S.C . § 1452(b) a nd Fe dera l Rule of Ba nkruptcy 9027(d), or , in the alternative, abstain fr om exercising jurisdiction under 28 U.S.C. §§ 1334(c)( 1) and ( c)( 2). In this mot ion,
a pp e lla nts argue d th at th e no tic e of re mov a l w a s p ro c e dura lly defic ient in that Ernst & Y oungerr oneously filed it with the clerk of the bankr uptcy court a nd not the cler

k of the district cour

t, and that the ba nk ru ptc y c ourt did no t ha ve su bje c t matte r j ur isd ic tio n. Ap pe lla nts , in the alternative, also asser ted that if the ba

nkruptcy court did have jur isd ic tio n, it s ho uld

have a bs ta ine d p e rm iss ive ly

or wa s r e qu ir e d to abstain mandatorily

from exerc ising its jurisdiction over the state- law
cause s of ac tion. Moreover , appellants filed a “Motion to St rike Def endants’ N otice of Remova l,” ar g uing that Ernst & Y oungwas not permitted to remove the state-c ourt ca se as the unde rlying ba nkruptcy
case on which re moval was pre dicated ha d been ma rked “ closed” and Ernst & Youngdid not move to reopen the case befor e filingthe notice of r emoval.8 On September

2, 2005, the bankr

uptcy court issued a

n opinion and orde r in which it sua sponte re opened the underly ing ba nkruptcy
case and denie d appellants’ motions to remand a nd strike the notice of
remova l, thus asserting its subject matter jurisdiction to rule on the merits of the c ase. In re Ea rned Capital Corp., 331 B .R. 208 (Ba nkr. W.D . Pa . 2 00 5) . O n th e me ri ts, the ba nk ru ptc y c ourt g ra nte d E rn st & Yo un g ’s mot ion

to d ism iss fo r f

a ilure to s tate a

c la im b e c a

us e

“ [ap pe lla nts ’] c la ims are sh are ho lde r d e ri vativ e c la ims that c an o nly be pre sented by

[appellants] throug h a shar eholder deriva tive suit,” and appe llants failed to make a demand on “ the boar d of direc tors or compar able a

uthority ” under

Fe dera l Rule of Civil Procedur e 23.1 for them to bring the ac tion ag ainst Ernst & Y oung . I d. at 222-24. The court a lso found that it should di smiss t he complaint on the grounds of re s judicata, c ollatera l estoppel, and judicial e stoppel inasmuch as the bankr uptcy court a lrea dy

had dec lare d the Debtor s insolvent in the
c on fi rm atio n p ro c e e din g s and ha d a wa rd e d f e e s to Er ns t & Young –litigation in which the Committee, which re prese nted the int e re sts of

the inv e sto rs , f

ull y pa rt ic ipate d. I d. at 22 4- 28 . App e lla nts appea led from the opinion and or der of the bankr uptcy court to the district court under

28 U.S.C. § 158(a), whic h, in turn, on J uly 14, 2006, aff irmed the orde r of the ba

nkruptcy court a nd adopted the ba nk ru ptc y c ourt ’s op ini on

and or de r a s it s o wn . G e ru sc hat v. Er ns t & Y oungL L P, 346 B.R. 123 (W.D. Pa. 2006).
On Au g us t 7, 20 06 , a

pp e lla nts tim e ly fi le d a no tic e of a pp e a l, contestingthe district court’s a ffirma nce of the bankr uptcy court’s order (1) grantingErnst & Young ’s motion to dis miss their case, ( 2) denying a ppellants’ motion to strike Ernst & Y oung ’s notice of
remova l, (3) deny

ing a ppellants’ motion to remand the c ase to the state cour t, and (4) r eopeningthe under lying ba nkruptcy case
. Ho we ve r, wh e n w e e xami ne d a pp e lla nts ’ b ri e f, we ob se rv e d th at it was de void of any

discussion relatingto the merits of the c ase insofa r as the district cour

t affir med the bankr

uptcy court’s opinion and or der g rantingErnst & Young ’s motion to dis miss. I t thus appear ed that be tw e e n th e tim e a

pp e lla nts fi le d th e ir

no tic e of a pp e a l and the tim e that they filed their br ief, they

decide d not to appeal the ba nkruptcy and district cour

ts’ dispositi on of the c ase on the merits and, instead, challeng ed only

the re solution of jurisdictional is sues in the bankruptc y

proce eding s. At oral ar g ument, appellants c onfirmed that the y ha d ma de a

de lib e ra te de c isi on

to f or e g o th e ir

a pp e a l in so fa

r a s it relates to the merits of the dispute. Ac cording ly , the only issues appellants ra ise befor e us re late to re moval proce dure, subjec t matter jurisdiction, the bankruptcy court’s a djudicative author ity over the9 state-law claims, and a

bsention. In particula

r, appe llants present the iss ue s b e fo re us a s f

oll ow s:
1. Does a

bankruptc y

court have subjec t matter jurisdiction to adjudicate a c ase r emoved f rom state cour t where the under lying ba nkruptcy
case on which re moval is predicated was c losed many y ear s befor e re moval and whe re the removingparty

did not seek to open the e arlier bankruptc y

case for c ause pur suant to 11 U. S.C. § 3 50 (b ) p ri or

to r e mov a l of

the sta te court c ase?
2. May

a pa rt y wi thi n th is C ir c uit

re mov e a c a se direc tly to the bankruptc y

court unde r 28 U.S.C. § 1452(a) without a prior ref err al from the dis tr ic t c ourt ?
3. Did the re quisite ‘close ne x us’ existunder Resorts Int’l, Inc. L itig. Trust v. Price Wat e rh ou se [, 37 2 F .3 d 1 54 (3 d Ci r. 20 04 ), ] to confe r subject matter

jurisdiction in the dist rict court ove r [appellants’] state law cla ims where such cla ims affe cted ne ither the ba nkruptcy estate nor the debtor, a

nd wher e succ ess on the merits of such c laims would have no impac t on the prope rty

of the e state or distribution to any
cre ditor?
4. Did [appellants’] st ate law malprac tice ac tion constitute a ‘non- core ’ proc eedingunder 28 U.S.C. § 157 thus depriving the ba nkruptcy court of or igina l jurisdiction to enter final
or de rs and

fu rt he r r e qu ir ingthe dis tr ic t c ourt to abstain fr om jurisdiction under 28 U.S.C. § 1334(c) (2)?

5. Did the bankr

uptcy court c ommit clear e rror

of law whe n it assumed that the status of [ ap p el l an t s ’] co mp l ai n tas a ‘ co re p ro ce ed i n g’ was dispositive of the issue of discr etionary abstention under § 1334( c)( 1)?In appellants’ ope ning br ief they l i mit their discussion of our 4 jurisdi ct i on to the following sentenc e: “The United States Court of Appea ls for the Third Circ uit curr ently has jurisdiction over this matter pursuant to 28 U.S.C. § 1291 as an appe al from a final dec i sion and order of the district cour

t.” Appellants’ br . at 1. In Ernst & Young ’s br ie f i t do e s n ot m e nti on

our jur isd ic tio n, thu s imp lyingthat it ini tia lly ag ree d with appellants on this point. Neverthe less, we have a “spec ial obligation to satis fy [ o u rselves] of [our] own jurisdi ction” eve n if the parties a g ree that we have jurisdiction. Kory tny uk v. Ashcrof

t, 396 F.3d 272, 279-80 (3d Cir. 2005). A s w ill be seen, a n inquiry into our jur isd ic tio n is mor e c omp lic ate d th an th e pa rt ie s a pp are ntl y or ig ina lly believed.
10 Appellants’ br . at 2. We have divided those issues into three cate g ories: (1) r emoval proc edure err ors (issues 1 and 2) ; (2) jurisdiction (issues 3 and 4); and ( 3) abstention (issues 4 a nd 5).

I I I . J URI SDI CTI ON AND STANDARD OF REVI EW Appellants’ c entra l issue in this case implicates the question of whether the bankr uptcy court ha d jurisdiction under 28 U.S.C. §§ 157 and 1334. The re is no question that the district cour t had jurisdiction over the appea l of the bankr uptcy court’s Septe mber 2, 2005 opinion and orde r under

28 U.S.C. § 158(a).
But be fore we r eac h the question of whe ther the ba nkruptcy
c ourt ha d ju ri sd ic tio n a

nd the oth e r i ssu e s a

pp e lla nts ra ise , w e fi rs t must ensure that we have jur isdiction to review this case under 28 U.S.C. §§ 1291 and 158(d). See Emera ld I nvestors Trust v. Ga unt Parsippany

Partners, 492 F .3d 192, 193-94 (3d Cir. 2007) ( “As alway s, after

we a re satisfied of our own jur isdiction, the threshold, and, indee d, as it turns out, the only issue on this appeal is whethe r the district court had subjec t matter jurisdiction.”) ( footnote omitted). Th e pa rt ie s in iti a lly

did no t qu e sti on

our j ur isd ic tio n. Pr ior

to 4
argume nt, ho we ve r, we ob se rv e d th at th e re might b e a pr ob le m w ith
re sp e c t to our j ur isd ic tio n. Thus , at ou r d ir e c tio n, our c le rk

se nt a no tic e to t he pa rt ie s r e qu e sti ngthat th e y

“ be pr e pa

re d to br ie fl y discuss whether

28 U.S.C. § 1334(d) prec ludes us from re viewing both the Ba

nkruptcy Court’s decision to abstain under § 1334(c) (1)
and the Di str ic t Co ur

t’ s a ff ir manc e of thi s d e c isi on , b e c a

us e discretionar

y abstention does not appe ar to be subject to appe alUnfortunately our letter w as exactly wron g b eca

use the 5 bankruptc y

court did not abstain. As it happens we are confide nt that the attorney s rea liz ed that we had er red a nd wer e not misled.
I t is possi ble t h at we c ould gr ant re lief to appe llants without 6 order ing that the bankruptc y and district c ourts rema nd the ca s e t o t he state cour t but inasmuch as we do not find that they err ed in any

respe ct we ne ed not set for

th what that possible relief might be.
11 pursuant to § 1334(d).” At oral a rgument, we e x presse d an 5
a dd iti on a l c on c e rn

wi th r e sp e c t to our j ur isd ic tio n to re vie w c e rt a in aspec ts of the ca se under

28 U.S.C. § 1452(b), the bankr uptcy re mov a l st atut e , whic h b ars a c ourt of a pp e a ls’ re vie w o f d e c isi on s to rema nd or not to remand ma de on the ba sis of “any equitable ground.” Acc ording ly , we a sked the pa rties to submit suppl emental memor anda addre ssing jurisdictional issues. Having g iven the par ties an opportunity

to addre ss the questions relatingto our jurisdiction, and havingrec eived those me moranda and hea rd their or al ar g uments, the issues with respec t to our jurisdiction are now r ipe for our dispositi on.
The e ssence of this appea l is that the bankruptcy or district court should have rema

nded the c ase to the state court be cause (1) Ernst & Young ’s notice of remova l was proc edura lly defe ctive, (2) the fede ral c ourts lacke d subject matter jur isdiction over the state- law
cause s of ac tion, (3) the bankr uptcy court lac ked fina l adjudicative authority , and (4) the fe dera l courts should have a bstained permissively

or we re r equire d to abstain mandatorily from asse rting the ir jur isd ic tio n. Th e re are thr e e statut or y pr ov isi on s p ote nti a lly 6 aff ectingour jurisdiction to review the order s in which the bankr uptcy and district cour

ts declined to re mand the ca se, assumed jurisdiction, and did not abstain fr om assertingjurisdiction: 28 U.S.C . § 1447(d) (g ener al re moval/remand) ; 28 U.S.C. § 1452(b) (bankr uptcy remova l/remand); a

nd 28 U.S.C. § 1334(c) a

nd (d) ( bankruptc y a bs te nti on and lim itatio n o f a

pp e a ls o f o rd e rs wi th r e sp e c t to abstention). Section 1447(d) is the g ener al statutory provision gove rning the re vie wa

bil ity of or de rs re mand ingc a se s r e mov e d f ro m st ate courts. Section 1447(d) states “[a]n order r emandinga ca se to the State court fr om which it was re moved is not reviewa ble on appe al or oth e rw ise [exc e pt i n c e rt a in c ivi l r ig hts c a se s].” Th ou g h th e Sup re me Court has conc luded that sec tion 1447(d) applies re g ardle ss of whether a par ty has re moved a c ase pur suant to the g ener al re moval12 provision, 28 U.S.C. § 1441(a), or the ba nkruptcy remova l provision, 28 U. S.C. § 1 45 2, se e Th ing s Re me mbe re d, Inc . v . Pe tr arc a , 5 16 U. S. 12 4, 12 8, 11 6 S. Ct. 49 4, 49 7 ( 19 95 ), se c tio n 1 44 7( d) is i na pp lic a ble here as in this case w e ar e not dea ling with an or der r emandingthe
case . After

all, the bankr

uptcy court de nied appe llants’ motions seekingto remand the case and the district cour t affir med the denia l. See City & County

of San F ranc isco v. PG&E Corp., 433 F .3d 1115, 11 22 (9 th C ir .) (h old ingthat se c tio n 1 44 7( d) do e s n ot a pp ly to d e c i s i o n s n o tt o r e m an d

a c a s e ) , c e rt

. d e n i e d , 1 2 7 S

. C t

. 2 0 8 ( 2 0 0 6 ) ; In re B issonnet I nvs. L L C, 320 F.3d 520, 525 (5th Cir. 2003) (sa me). Ind e e d, we re g ula

rl y e nte rt a in a

pp e a ls f oll ow ingfi na l ju dg me nts in wh i ch ap p el l an t s co n t en d th atth e d i s tri ctco urterre d i nd en yi n g a motion to remand.

In c on tr a st, un de r t

he re mov a l st atut e a

pp lic a ble sp e c if ic a lly to bankruptc y

case s, [t]he c ourt

to whic h s uc h c la im o r c a us e of a c tio n is
remove d may

rema nd such cla im or cause of ac tion on
any e qu ita ble g ro un d. An

or de r e nte re d und e r t

his subsection re mandinga cla im or cause of ac tion, or a decision to not remand, is not re viewable by appea l or otherwise by

the cour t of appe als under se ction 158(d), 1291, or 1292 of this title or by the Supreme Court of the United States under

section 1254 of this title.
28 U. S.C. § 1 45 2( b) (e mph a sis a dd e d) . T hu s, se c tio n 1 45 2( b) , in
a dd iti on to b arringre vie w o f d e c isi on s to re mand , p re c lud e s a pp e llate re vie w o f d e c isi on s “ to n ot r e mand ,” the ty pe of or de r i nv olv e d in

thi s case
. But sec tion 1452(b) makes c lear that a dec ision to remand or not to remand a

case is unreviewa

ble by a cour t of appe als only

when the dis tr ic t c ourt

re lie s o n “ any

e qu ita ble g ro un d” a s th e ba sis fo r i ts decision. While the statute does not define “equitable g round,” w e have re c og nize d th at “ e qu ita ble ” a s u se d in

se c tio n 1 45 2( b) is n ot t o be under stood as distinguishing e quitable from leg al g rounds in a tr a dit ion a l se ns e , b ut, ins te a d, “ e qu ita ble ” “ signa ls t

hat w hic h is
rea sonable, fa ir, or appr opriate.” Allied Signal Rec overy Trust v. Al l i edS i gn al , In c. , 2 9 8 F. 3 d 2 6 3 , 2 6 8 (3 d

C i r. 2 0 0 2 ) ( qu o t i n g T h i n gs Remembere d, 516 U.S. at 133, 116 S.Ct . at 499 (Ginsburg , J ., concur ring )).As we discusse d above, section 1447(d) is inapplicable he re a s 7 it only bars r eview of

order s to remand, not orde rs not to remand.

13 Acc ording ly , we f

irst must decide which, if a ny , of the cate g ories of issues a

ppellants raise contestingthe bankr uptcy and district courts’ de cisions not to remand the state- law ca uses of a ction
ar e i n s u l at e d

f r o ma p p e l l at e r e v i e wb y s e c t i o n1 4 5 2 ( b )

. A d d i t i o n a l l y, we a lso must determine whethe r 28 U.S.C. § 1334, the bankruptc y abstention provision, insulates from our r eview the decisions re lating to abstention.
A. Removal Procedur e Err ors
We have no doubt that the ba nkruptcy court’s “ decision to not
rema nd” the c ase in the f

ace of appe llants’ proce dural a rguments that Ernst & Youngdid not seek to reope n the bankr uptcy case befor e filing its notice of

remova l and that Ernst & Youngimproperly filed the notice of

remova l directly

with the bankruptc y

cler k was ba sed on the ba nk ru ptc y c ourt ’s de te rm inatio n th at th e re we re no t “ e qu ita ble g round[s] ,” i.e., “ rea sonable, fa ir, or appr opriate” g rounds, for the
re mand , a de c isi on that w e c ann ot r e vie w. Th e Sup re me Court in Thing s Remembere d fac ed ver y simil ar c ircumstance s. In that case , the issue was “ whether

a fe dera l court of a

ppeals may

revie w a district court orde r re mandinga bankr uptcy court c ase to state c ourt on g rounds of untimely

remova l.” Thing s Remembere d, 516 U.S. at 125, 116 S.Ct . at 496. The Court de cided that the g ener al statutory provision gove rningthe re viewability of re mand orde rs, 28 U.S.C. § 1 4 4 7 (d ), b arre d

ap p el l at e r ev i ew o f t h e r em an d o rd er
. S ee T h i n gs

7 Remembere d, 516 U.S. at 127-28, 116 S.Ct. at 496-97. Whi le the majority opinion did not di scuss the possibilit y that the bankr

uptcy rema nd provision of section 1452(b) simil arly would bar r eview, Justi c e Gi ns burgin h e r c on c ur ri ngop ini on , jo ine d b y

Justi c e Ste ve ns , conclude d that section 1452(b) independe ntly would bar r eview of

the order rema nding the case by

rea son of untimely

remova l, finding that the basis for r emand wa s on an “e quitable g round.” I d. at 131-34, 116 S.Ct . at 498-500 (G insburg , J ., concur ring ). Surely , if a re mand base d on untimely remova l is predicate d on an “e quitable g round,” the decision not to remand ba sed on the proce dural de fec ts raised he re a lso addresse s a propose d rema nd on
e qu it a b le g r o un d s , an d

th u s w e ar e p r e c lu d e d

f r o m r e v ie w in git

. We
rec og nize that the issue in Things Remembe red w as whe ther a decision to rema

nd was unre viewable and the issue he re is whe ther aIn any event, even if we had jurisdiction to consider the question 8
o f whether Ernst & Youngfiled the notice of re moval with the ap p r o p r iate c le r

k , a p p e ll an ts ’ ar g u me n t w o u ld f a il

. F e d e r a l Rule of Ba nkruptcy Procedur e 902 7 (a)(1) pe rmits the filing of a notice of
remova l with the “cler k,” a te rm that Rule 9001(3) d ef i n es as “bankr uptcy cler k,” and 28 U .S.C. § 1452(a) permits removal to the “dist ri ct co u rt ,” an e ntity of which the bankruptc y court is a unit. 28 U

. S. C. § 1 5 1 ; se e In r e G ia n ak a s , 5 6 B

. R. 7 4 7 , 7 5 0 (N

. D

. I ll

. 1 9 8 5 )

. We also point out that the W estern D istrict of Pennsylvan i a h as a g ener al order ref err ing all bankruptc y case s and proce eding s filed in the district to the bankruptc y

judge s. See Orde r of Refer ence of B ankruptc y Cases and Proce eding s Nunc Pro Tunc (Oc t. 16, 1984), ava ilable at http: //ww w. p aw b

. u s co urt s
. go v / p d fs /Or d er Of

R ef ere nce.pdf

. Moreove r, even if we conclude d that the notice of remova l should have bee n filed with the di strict court and that the fil ing e rror compels us to reve rse, our ru lin gwo uld

be me anin g le ss. In thi s re g ard we take no te of 28 U. S.C.
14 decision not to remand is unre viewable , and, althoug h we c an distinguish the ca ses on that basis, this differe nce is not mater ial here
a s b ank ru ptc y re mand se c tio n 1 45 2( b) te lls us that a pp e llate c ourt s should treat dec isions to remand or not re mand alike in asc erta ining their own jurisdiction. Appellants do not specif

ically discuss in their supplemental memorandum whe ther we are barr ed fr om review ing the issue raised relating to Ernst & Young ’s filing of the notice of re moval with the bankruptc y

cler k and not the district cour t clerk. N ever

theless, we a

re treating a ppellants’ discussion relating to our oblig ation to review their cha lleng es to the bankr uptcy court’s subjec t matter jurisdiction as incorpor atingthis aspect of the ir appe al. Howe ver, w e do not cate g orize this fili ngissue as re lating to the ba nkruptcy court’s subjec t matte r j ur isd ic tio n, a

ho ldi ngthat w ou ld b e ve ry signif ic ant w ith respe ct to our jurisdiction for, a s we ne x t discuss, section 1452(b) does not prec lude a c ourt of appe als from re viewinga cha lleng e to a bankruptc y

or district court’ s subject matter jurisdiction. Rather , Ernst & Young ’s er

ror, if the re w as an e rror , was mer ely an er ror re l at i n g t o re m o v al p ro ce d ure i nth e n ature o f a“c l ai m -p ro ce s s i n g” issue as the Supreme Court used that term in B owles v. Russell, 127 S.Ct . 2360, 2364 (2007). It had nothing to do with the “ delineat[ion of ] the c la sse s o f c a se s ( su

bje c t matte r j ur isd ic tio n)

. . . f a lli ngwi thi n a cour t’s adjudicator

y authority .” Kontric k v. Ry an, 540 U.S. 443, 455, 124 S.Ct . 906, 915 (2004). Thus, se ction 1452(b) pr eclude s us from re viewingthe alleg ed proc edura l error here

. 8§ 16 3 1 w h ic hp r o v id e s th at wh e na c iv il a c ti o nis f

il e d w it ha district court (of which the bankruptcy court is a unit ) wit h a wa nt of jurisdiction the c ourt sh a ll in the int e re st o f j us tic e tr ans fe r t he c a se to a

c ourt in which it could have been f iled orig inally . Thus, if the bankr uptcy cler k tho ug ht t hat th e re mov a l sh ou ld h ave be e n to the dis tr ic t c ourt , h e a lmo st cer tainly would have se nt the remova l notice to that co u rt which then would have r efe rre d it back to the bankr uptcy court pursua

nt to the g e ne ra l r e fe rr a l or de r. Ac c or din g ly , if we re ve rs e d o n th e fi lin gpo int,
vaca ted the bankr

uptcy and district cour

ts’ order s, and remanded the matter to the ba

nkruptcy court to ente r an or der not inconsistent with our opinion, we do not doubt that rather than dismissi ngthe ca se, the ba nk ru ptc y c ourt wo uld

tr ans fe r i t to the dis tr ic t c ourt wh ic h th e n w ou ld ref er it bac k to the bankruptc y court followingwhich al l the vac ated order s of the bankr

uptcy court, an d , i f appellants ag ain appe aled, the district court’ s me mor andum orde r of July 14, 2006, would be re instated.
I t is obvious why

we look to t he substance of the c ourt’s orde r 9 and not the par

ty ’s ca p t ioning of

its mot ion in determining the applicability

of sec tion 1452. I f we wer e to look at t h e form of the party ’s motion, we would enc ourag e attempts to circ umvent t h e broa d ba r p re c lud ingour r e vie w o f r e mand or de rs un de r s e c tio n 1 45 2. Th is
c a se provi de s a

g re at e xamp le . App e lla nts c a pti on the ir mot ion a s a

“ Mo tio n to Str ike De fe nd ant s ’ N o t i c e o f R e m o v a l .” Ho we ve r, or din ari ly wh e n a part y fi le s a

mot ion to s tr ike un de r t

he F e de ra l Ru le s o f C ivi l Procedur e it files the motion under F eder al Rule of Civil P roce dure 12(f) , which per

mits a party to seek to have “stricken from any pleading any insufficient de fense or any re dundant, immaterial, impertinent or scanda lous matter.” B ut appellants did not file their motion to s trike for any such purpose . In the circ umstances the a p p ro p ri ate motion here would have be en a “ motion to remand” unde r 28 U.S .C. § 1447(c), which provide s for “ [ a] m o t ion to remand the c ase on the basis of any defe ct other than lack of subject matter jurisdiction,” or a motion under
15 Appellants ar g ue that sec tion 1452(b) does not bar our re view of issues attributable to Er nst & Young ’s fa ilure to seek to r eopen the bankruptc y

case befor e filingits noti ce of remova l, as they

raised the issue with the bankruptc y judge “in a motion to strike defe ndant’s notice of r emoval, and not by means of a

motion to remand.” Appellants’ Suppl. Mem. at 2. We do not find this argument to be substantial. I nasmuch a s section 1452 pre cludes our r eview of “dec ision[ s] t o not remand,” we look to the substance of the ba nk ru ptc y c ourt ’s de c isi on

and no t th e fo rm

of the pa rt y ’s mot ion

in deter mining the a

pplicability

of sec tion 1452. I t is clear that the 928 U.S.C. § 1452, whic h provides for rema nd of re moved claims re lating to bankruptcy

case s on “any

equitable ground.” We a lso point outthat
we are no t awa

re of any ru le or oth e r a

uth or ity a uth or izin g a mot ion

to strike a notice of removal, though we are aware that parties sometimes
c ha ra c te ri ze m oti on s see kin g c e rt a in r e lie f o the r t ha n th os e un de r R

ule 12(f) as motions to st rike. Although we do not ha

ve jurisdiction to re view this issue, we 10 point out that it was within the bankruptcy judge ’s discre tion to reopen the bankr uptcy case sua sponte so that “m at t er s that have a signific ant connec tion with the administration of the case can be addr essed.” Earne d Capital, 331 B.R. at 217; see 11 U.S. C

. § 350 (providingfor the reope ning o f a b an k ruptcy case “for other c ause” ); 11 U.S.C. § 105(a) (per mitti ngcourt to ac t sua sponte) ; Donaldson v. Be rnstein, 104 F.3d 547, 55 1

- 5 2 ( 3 d

Ci r
. 1 9 9 7 ) ( r e

je c ti n gc o n te n ti o nth at t

h e b an kr u p tc y c ourt la c ke d ju ri sd ic tio n o n th e g ro un d th at it wa s a c tin g in a c los e d c a se when the c ourt sua sponte re opened the case “for other c ause” ).
16 ba nk ru ptc y c ourt ’s de c isi on

in whic h it

de nie d “ Pla int if

fs ’ M oti on

to Strike Defe ndants’ Notice of Removal,” a nd the district court’s aff irmance there of, ar e “de cision[s ] t o not remand” inasmuch as they deny appellants’ r equest to re mand the matter to the state cour

t be c a us e of the a lle g e d p ro c e dura l de fe c t. We a dd that a pp e lla nts the mse lve s a c kn ow le dg e thi s p oint f or the y re qu e ste d in

the ir proposed or der attached to their motion that the court order rec ite that

“ De fe nd ants ’ N oti c e of

Re mov a l is he re by

str ic ke n, and

thi s c a se is
r e m an d e d t o th e C o urto f

C o m m o nP l e a s o f

B u t l e r C o un ty, Pennsylvania.” A

pp. at 145. 10

B. Ba

nkruptcy Court J urisdiction and Adjudicative Autho ri ty We ag ree with appellants that the de cisions of the bankr uptcy and district cour

ts not to remand the ca se on the ba sis that the bankruptc y

court lac ked jurisdiction and their a rgument that the bankruptc y

court did not have the authority to exercise fina l adjudicative a

uthority , while “not per

se re viewable ” under

section 1 4 5 2 (b ), n ev erth el es s ar e s u b j ec tt o ap p el l at e r ev i ew
. S ee T h i n gs Remembere d, 516 U.S. at 132 n.1, 116 S.Ct . at 499 n.1 (Ginsburg , J ., concur ring ); see a lso Cit y

& County

of San F ranc isco, 433 F.3d at 1121 (“This is a que stion of subject matter jurisdiction that does not implicate the jurisdictional limitations of sec tion 1452(b).”) ; I n re V& M Mgmt. , Inc ., 32 1 F .3 d 6 , 7 (1 st C ir . 2 00 3) (“ B e c a us eThe 2005 Ame ndments in Pub. L . 109-8, § 1219 , s t ru ck out 11 “made under this subsec tion” and inserted “made under subsection (c )”
and su bs tit ute d “ Sub se c tio n ( c ) a nd th is s ub se c tio n” fo r “ Th is
su bs e c tio n” in the la st se nte nc e of se c tio n 13 34 (d ) de a lin gwi th stay s. But we are satisfied t hat the 2005 Amendme nts did not m ake substantive chang es in section 1334 mater ial here

. 17 [appellant’s] argument attacks the lower c ourt’s subject matter jurisdiction, we not only

have jur isdiction to review but ar e oblig ated to do so.”); Owe ns-I ll., I nc. v. Rapid Am. Corp. (In re Celotex Corp.), 124 F.3d 619, 625 ( 4th Cir. 1997) (“[W] e hold that § 1452(b) . . . doe s not prec lude us from re viewingthe district court’s de cision denying [t he] moti on to remand to the e x tent that [t he] moti on rested on the d is tr ic t c o urt a ll e g e d ly

la c k in gs u

b je c t m att e r

ju r is d ic ti o n
. ” )

. We
rea ch our c onclusion beca use cour ts of appea ls on appea ls from bankruptc y

and district cour

ts must ensure that those cour ts do not
e xce e d th e a

uth or ity that A rt ic le I I Iof

the Con sti tut ion

and Con g re ss has g rante d them. Section 1452 cannot de trac t from this obligation and we are of the viewthat a bankr uptcy judge absent c onsent of the parties doe s not have jurisdiction to enter a final orde r in a non-c ore matter. 28 U.S.C. § 157(c) . Of c ourse, ther e is no question that the district court had jurisdiction to enter tain the appe al from the bankruptc y

court. See 28 U.S.C. § 158(a).
C. Abstention The que stion of whether

we have jurisdiction to reviewthe dis tr ic t c ourt ’s a ff

ir manc e of the ba nk ru ptc y c ourt ’s de c isi on

no t to abstain under

28 U.S.C. § 1334(c)(2) (mandatory abstention) and section 1334(c )(1) (per

missive abstention) is a two-step proc ess. F ir st, we mus t de c ide wh ic h v e rs ion of se c tio n 1 33 4 w e are to a

pp ly in this case. This sele ction is significa nt as Congr ess adopted
ame ndme nts to s e c tio n 1 33 4 a lte ri ngc ourt s o f a pp e a ls’ jur isd ic tio n in 1984 (“the 1984 Amendments”) , 1990 (“the 1990 Amendments”) , and 1994 (“the 1994 Amendments”) . Congr ess ena cted the c urre nt version of se ction 1334 in the 1994 Amendments, thoug h it further amende d section 1334 in technic al non-substantive re spects in 2005. 11 Second, once we de cide whic h version of se ction 1334 applies, we must construe the statute to dete rmine the e x tent of and limitations on
a cour t of appe als’ jurisdiction over a bstention decisions.
Under the cur rent ve rsion of sec tion 1334(d),18 [a] ny decision to abstain or not to abstain made under subsection (c ) (other

than a de cision not to abstain in a proce edingdescr ibed in subsection (c )(2) [m andator y a bs te nti on ]) i s n ot r e vie wa ble by a pp e a l or oth e rw ise by the cour t of appe als under se ction 158(d), 1291, or 12 92 of thi s ti tle

. . . . Sub se c tio n ( c ) a nd thi s subsection shall not be construe d to limi t the applicability

of the stay

. . . . Thus , w e have re c og nize d th at, a s se c tio n 1 33 4( d) no w s tand s,

“ a pp e a ls o f d e c isi on s n ot t o e xer c ise mand ator y a bs te nti on purs ua nt t o § 1334(c) (2) a

re e x plicitly

permitted,” Stoe v. F laher ty , 436 F.3d 209, 212 (3d Cir. 2006), y et appe als of dec isions invol ving pe rmissive abstention, whethe r or not the c ourt abstains, ar e bar red, se e Allied Signal, 298 F .3d at 269. Moreove r, under section 1334(d) a dec ision mandatorily

abstainingis not appeala ble.

Inasmuch a s appellants appe al the denia l of their motion for mandatory

abstention, it might be thoug ht that they would contend that the cur

rent ve rsion of sec tion 1334 is applicable her e. Ye t they
c on te nd that se c tio n 1 33 4( d) in i ts c ur re nt f or m do e s n ot c on tr ol t

his
case , a position they

predic ate on the c ircumstance that the Debtor s filed their ba

nkruptcy petitions in 1986, well before Congr ess ena cted the c ur re nt v e rs ion

of se c tio n 1 33 4 thro ug h th e 19 94 Am e nd me nts and eve n well bef

ore Cong ress e nacte d the 1990 Amendments. Appellants’ Suppl. Mem. at 3-4. Ac tually it is understandable that the y take thi s p os iti on

a s th e y argue that th e ba

nk ru ptc y c ourt sh ou ld have a bstained both mandatorily and per missively , and cur

rently , as we ha ve indicate d, appea ls of order s denying pe rmissive abstention unquestionably

are not allowed.
The a ppellants rely

on the 1984 Amendments, i.e., the version the B ankruptc y

Amendments and F eder al J udg eship Act of 1984, Pub. L . No. 98-353, 98 Stat. 333, ena cted on July 10, 1984, beca

use that
ve rs ion pr ov ide d th at “ [a]ny

de c isi on to a bs ta in m a de un de r t

his subsection is not reviewa ble by appea l or otherwise .” See Christo v. Padg ett, 223 F.3d 1324, 1331 ( 11th Cir. 2000). But the 1984 Amendments did not limi t appea ls of decisions not to abstain. Ac c or din g ly , if

we we re to l oo k to the 19 84 Am e ndme nts fo r o ur ru le of de c isi on , th e ba

nk ru ptc y c ourt ’s de c isi on

no t to a bs ta in m and ator ily or per missively would be subjec t to our review and we could re view all of appe llants’ abstention arguments.Ernst & Youngdoes conte nd that “alter natively” to the 1990 12 Am e ndme nts be inga

pp lic a ble “ the 19 94 Am e ndments a pp ly” to appellants’ c ase, A

ppellees’ Suppl. Memo at 9, and that unde r “both the 1990 and 1994 amended versions of 28 U.S .C. § 1334, [ we a re] without jurisdiction to review [the bankrupt cy judge ’s] decision not to remand
and no t to a bsta in. ” I d. at 10 . We un de rs tand , h ow e ve r, that E rn st & Young primarily relies on the version of section 1334 as ame nded by the 19 90 Am e ndme nts

. 19 Ernst & Young , on the other ha nd, urg es us to look to the
ve rs ion of se c tio n 1 33 4( c )( 2) e na c te d in the Judic ia l Impr ov e me nts Act of 1990, Pub. L . No. 101-650, 104 Stat. 5089, 5113, i.e., the 1990 Am e ndme nts , whic h p ro vid e d th at “ [a]ny de c isi on to a bs ta in o r n ot t o a bs ta in u nd e r t his su bs e c tio n is no t r e vie wa

ble by a pp e a l or oth e rw ise by the c ourt of a pp e a ls .

. . .” Ap pe lle e s’ Sup pl. Me m. at 3- 4. Er ns t & Youngcontends that unde r the 1990 Ame ndments we a re pr ohibited from re viewingdecisions not to abstain either ma ndatorily or permissively . I d. at 4-5. Thus, a ppellants and Er

nst & Youngtake polar opposite appr oache s with respec t to our jurisdiction to hear the appea l with respec t to abstention.
We have e x amined the que stion of which ver sion of section 1334 is applicable, a

nd have c oncluded that se ction 1334(d), a s amende d in 1994, and which, with the minor non-substantive 2005 Am en dm en t s , i

. e. , th e c urr en tl aw , co n tro l s th i s ca s e e v en th o u gh
n e it h e r p arty c o n te n d s th at t

h e 1 9 9 4 A me n dme n ts ar e a p p li c a b le

. We
rea ch this conclusion bec ause Cong ress e nacte d the 1994 Am e ndme nts lon gbe fo re a pp e lla nts ini tiate d th e ir

a c tio n in the state c ourt

. 12

In consideringwhether the 1994 Amendments, a nd thus
curr ent law, a

re a pplicable we point out that C ong ress made it clear that the 1994 Amendments, with ce rtain exceptions not releva nt here , “shall not apply

with respec t to cases c ommenced unde r title 11 of the United States Code bef

ore the date of

the ena ctment of this Act [October 22, 1994].” Ba

nkruptcy Reform Ac t of 1994, Pub. L . No. 103-394, § 702(b) (Application of Amendments), 108 Stat. 4106, 41 50 ; se e a lso 28 U. S.C. § 1 33 4 ( Hi sto ri c a l and Statut or y No te s, Effe ctive and A

pplicability

Provisions) (stating that the 1994 Amendments do “not a

pply with respec t to cases c ommenced unde r Title 11 of the United States Code be fore Oct. 22, 1994”) ; I n re Middlesex P ower

Equip. & Ma

rine, Inc., 292 F .3d 61, 67 n.5 (1st Cir. 20 00 ); Chr ist o, 22 3 F .3 d at 13 32 . Wh ile the re ha s b e e n s ome20 d is c u s s io nin

o th e r c o urts o f a p p e a ls a s to w h e th e r

a “ c a s e []
c omm e nc e d und e r t itl e 11 ” re fe rs to t he ba nk ru ptc y c a se or the c ivi l
case which wa s removed, se e id., a distinction that is critical her e as the De bto rs fi le d th e ir

pe tit ion s in

19 86 and a pp e lla nts ins tit ute d th is
a c tio n in 20 04 , w e ne e d n ot c on c e rn ours e lve s at le ng th w iththi s question reg ardingapplication of the 1994 Amendments for we alre ady have de termined that “ case s under Title 11” as used in sec tion 13 34 (a ) r e fe rs “ me re ly

to t he ba nk ru ptc y pe tit ion its e lf ,” a s o pp os e d to

“ pr oc e e din g [s],” wh ic h r e fe rs “ to t he ste ps wi thi n th e ‘c a se ’ a nd to any subaction within the ca se that may raise a disputed or litigate d matter.” In re Combustion Eng’ g , Inc., 391 F .3d 190, 226 n.38 (3d Cir. 2004). We do not see why “ca ses” should have a diffe rent m e an i n gi nth e w o r d s “ c a s e s c o m m e n c e d un d e r t i t l e 1 1 ” i nP u

b

. L. No. 103-394 § 702(b) , with respec t to the effe ctive date of the 1994 Am e ndme nts . T hu s, a s th e 19 94 Am e ndme nts do no t a pp ly to c a se s, i.e., the bankr

uptcy case itself, commence d under title 11 bef ore October 22, 1994, they

do apply in this proceedingwhich wa s ins tit ute d a ft e r O c tob e r 2 2, 19 94 , a nd , r athe r t

ha n b e inga c a se wi thi n the me anin gof

Pub . L . N o. 10 3- 39 4, § 7 02 (b ), is a “ su ba c tio n” wi thi n the bankr uptcy case initiated long a fter that date.

I t mi g ht b e tho ug ht f

ro m th e fo re g oin gana ly sis that w e wo uld conclude that we do not have jurisdiction over this appea l with respec t to the bankruptc y

court’s r efusa l to abstain permissively but do have jurisdiction over its refusa l to abstain mandatorily as appe als of decisions not to abstain in proce eding s commence d afte r Oc tober 22, 1994, are permitted whe n mandatory abstention has bee n ref

used. Indeed, a t first g lance it would seem that nothing c ould be clea rer as section 1334(d) provides that only “a de cision not to abstain in a proce edingdescr ibed in subsection (c )(2) ” i.e., mandatory abstention, is reviewa

ble.

Ye t th e re is a

sp e c ia l si tuatio n h e re . A s w e po int out be low

in dealingwith the distinction between “ related to,” i.e., non- core jur isd ic tio n, and

“ ari sin gun de r t itl e 11 or ari sin gin a

c a se un de r t itl e 11,” i.e., c ore jurisdiction, in deter mining whe ther the ba

nkruptcy court ha d final adjudicative power , in this case the ba nkruptcy court was a pplying “ arisingin” jurisdiction. Moreover , section 1334(c )(2) in providing f

or mandatory

abstention applies only

to “a pr ocee ding based upon a

State law ca

use of a ction related to a ca se under title 11 but not arising unde r title 11 or ar ising in a c ase unde r title 11.” Consequently , it necessa

rily follows from our holdingthat this is an “ar ising in” c ase, that there w as no possible basis for the bankruptc yEv e n th ou g h our op ini on ha s the e ff e c t of re je c tin ga pp e lla nts ’ 13 mandatory

abstention contentions on their merits, we are not assuming jurisdiction contrary

to the holding in Steel C o. v. Citi zens for a B etter Envir onme nt, 52 3 U .S. 83 , 93- 10 2, 11 8 S.Ct. 10 03 , 1 01 2- 16 (1 99 8) , in deter mining that this is a core case
. In this reg ard we poi nt out that we have jur isdiction to d ecide whether this case is cor e or non- core as appellants c halleng e the ba nkruptcy court’s e x erc is e o f

f in a l a djudicative power , and a r esolution of that question require s that we de termine if the
case is core or

non-cor e. The deter

mination of that issu e has an incidental ef

fec t on the jurisdictional questi o n o f whether we have authority to hear appellants’ a

rgum en t s with respec t to mandatory
a bs te nti on and thu s h a s th e c oll ate ra l e ff e c t of re je c tin ga pp ell ant s’
mand ator y a bs te nti on c la ims on

the ir me ri ts.
21 and dis tr ic t c ourt s to a

bs ta in m and ator ily

un de r t he 19 94 Am e ndme nts or at a ny time since their e nactment. See In re G ober, 100 F .3d 1195, 1206 (5th Cir. 1996) (“ Mandatory abstention applies only

to non-core proce eding s -- that is, proc eeding s ‘re lated to a c ase unde r title 11, but
no t a ri sin gun de r t itl e 11 , o r a

ri sin gin a c a se un de r t itl e 11 .’ ” ). Thus , we a re not de alingwith a dec ision denying ma ndatory abstention as no matter how a

ppellants entitled their applica tion for abstention they did not make a motion for a bstention coming w ithin section 13 34 (c )( 2)

. Con se qu e ntl y , n otw ith sta nd inga pp e lla nts ’ e ff or ts t o 13
c h ar a c t e r i z e th i s c a s e a s i n v o l v i n gm an d at o r y a b s t e n t i o n , i ti s o n l y a permissive abstention ca se and w e do not have jurisdiction over the appea l of the denia l of abstention.

We rea liz e that our r esult differ s from that of the Court of Appea ls for the F ifth Circuit I n re Southmark Corp., 163 F .3d 925 (5th Cir. 1999), a c ase on which appe llants rely . In that case , the cour t appar ently

believed that it shoul d look to the filing date of the bankruptc y

petition when deter

mining which ve rsion of sec tion 1334 applied. See id. at 929. Thus, the court a pplied the 1984 Amendments in a c ase in whic h the Chapter 11 ba nkruptcy petition was filed in 1989, e ven thoug h the civil action bef ore the court of
a pp e a ls w a s f

ile d in a state c ourt

and re mov e d to a

fe de ra l c ourt

in 1995, afte r the e nactment of both the 1990 Amendments and the 1994 Am e ndme nts and

pr ior to t he matte r b e ingbe fo re the c ourt of a pp e a ls in 1999. I d. at 927-29. The court did not discuss the implications of the 1990 Amendments but see med to think that inasmuch as “S o u th m ark ’s ca s e, ” e v i d en t l y m ea n i n g i t s C h ap t er

1 1 fi l i n g, “pre dates [the 1994] Amendments and was filed when dec isions not to abstain wer e re viewable on appea l,” id. at 929, it had jurisdiction.As we e xpl a i n b e l owwe do fo llo w So uthmark in o the r r e sp e c ts. 14 Although w e re

ject Ernst & Young ’s contention that the 1990 15 Amendments control this case we a re satisfied that its contention that those amendme nts would ba r, if applicable , any

appea l of an a

bstention decision abstainingor not abstainingon mandatory or per missive g ro un ds is c or

re c t. M or e ov e r, w e are s atis fi e d th at th os e ame ndme nts we re in e ff

e c t until Con g ress e na c te d th e 19 94 Am e ndme nts and if Con g re ss h a d no t a do pte d th e 19 94 Am e ndme nts the 19 90 Am e ndme nts would control this c ase. The principal a rgument with respec t to the 1990 Am e ndme nts c e nte rs on

the po int that th e ir re str ic tio n o n a

pp e a la bil ity of a bs te nti on de c isi on s w a s c on ta ine d in se c tio n 1 33 4( c )( 2) de a lin gwi th
22 Th e c ourt ’s re fe re nc e to t he a pp e a la bil ity of de c isi on s n ot t o a

bs ta in
mus t ha ve be e n to the 19 84 Am e ndme nts a s th e y pr e c lud e d o nly appea ls of decisions to abstain. We cannot distinguish Southmark with respe ct to jurisdiction
over a bstention appea ls but we will not follow it as we question whether Southmark in this respect is consistent with binding pr e c e de nts

. I t is we ll- se ttl e d th at “ a c ourt is t o a pp ly the law i n 14
e ff e c t at th e tim e it r e nd e rs its de c isi on , unle ss d oin gso wo uld re su lt in manifest injustice or ther e is statutory direc tion or leg islative his tor y to t he c on tr ary .” B ra dle y

v. Sc h. B d. of

Ric hmo nd , 4 16 U. S. 69 6, 71 1, 94 S.Ct . 2 00 6, 20 16 (1 97 4) . We fi nd no jus tif ic atio n to disreg ard this long standing leg al principle a nd establish an exception wher ein a c ourt would look to the date that a debtor or c reditor f

iled the ba nk ru ptc y c a se rathe r t

ha n th e pr oc e e din gdir e c tly

in i ssu e in d et erm i n i n g wh i ch v er s i o no f s ec t i o n1 3 3 4 ap p l i es
. P ro ce ed i n gs subject to the abstention provisions are cause s of ac tion init iated separ ately from the ba

nkruptcy case itself and ofte n arise w ell afte r the filing of bankr

uptcy petition, and sometimes, as in this case, e ven afte r the a ssets of the bankr uptcy estate ha ve bee n distributed and the bankruptc y

case closed. Ove rall, we cannot justify applying the law that exis ted at the time the De btors filed their ba nkruptcy petitions and
no t th e law that e xiste d at th e tim e that a pp e lla nts fi le d th e ir

se pa ra te civil action or the la

w as it curr ently

stands which is materia lly the
same.
In s um, wi th r e sp e c t to our j ur isd ic tio n w e fi nd that w e on ly
c an r e vie w the ba

nk ru ptc y and dis tr ic t c ourt s’ de c isi on s r e latin gto subject matter jur isdiction, including the a uthority of the ba nkruptcy court to issue final or ders. We do not have jurisdiction to review 15mandatory abstention rathe r than, a s now, separ ately in section 1334(d)
and thu s the re str ic tio n might no t a pp ly to de c isi on s wi th respect to permissive abstention. We believe , howeve r, that Cong ress intende d the
re str ic tio n on ap pe a ls to ap ply to p e rm iss ive a

bs te nti on a s a uth or ize d in
s ec tion 1334(c)( 1) both as a matter of wha t might be c hara cter ized as “mec hanica l” statutory

construction and beca

use we c annot under stand why Congress would have wanted to pr eclude appea ls of decisions d enying ma

ndatory abstention, as it undoubtedly did in the 1990 Amendments, but would have wanted to pe rmit appea ls of decisions denying pe rmi ssive abstention. In fac t, if any thing, one would expect that Congr ess would have had the r ever se intent, as it, in fac t, did when it a do pte d th e 19 94 Am e ndme nts

. 23 their dec isions relating to the alleg ed proc edura l defe cts in the
remova l proce ss and mandator y or per missive abstention. Consequently , inasmuch as a ppellants do not challeng e the or der dismiss ing the ir ca se on the mer its, now that we have set forth the
sc op e of our j ur isd ic tio n, the su

bje c t matte r o f o ur

re vie w i s q

uit e limit ed.

D. Standard of Re view
“Our revie w of the D istrict Court’s ruling in its capa city as an appellate court is plenar

y , and we revie w the bankr uptcy judge ’s leg al deter minations de novo,” In re O ’L exa, 476 F.3d 177, 178 (3d Cir. 2007), and “ its factual f

indings for

clea r er ror a nd its ex erc ise of discretion for

abuse the reof

,” In re United Hea lthcare Sy s., Inc., 396 F.3d 247, 249 ( 3d Cir. 2005). Our r eview of the district court’s or der on jurisdiction and of the issue of whether the proc eedingin the bankruptc y

court wa s core or non-c ore is de novo. See Stoe, 436 F.3d at 212; In re Resor

ts I nt’l, Inc., 372 F .3d 154, 160 (3d Cir. 2004).

I V. DI SCUS SI ON
A. The Statutory

Fr amewor

k of F eder al B ankruptc y J urisdiction
As we have ind ic ate d in

oth e r l iti g atio n, “ [b]ank

ru ptc y c ourt s fall outside of the c onstitut ional authority of Article I I Iand der ive their authority

from fe dera l statutes.” Resorts, 372 F.3d at 161. Con g re ss, in t

ur n, “ ha s v e ste d li mit e d a

uth or ity in b ank ru ptc y c ourt s”24 throug h 28 U.S.C. §§ 1334 and 157, sections within tit le 28 of the United States Code dea ling with the judiciar y and judicial proc edure

. I d. For the most part, howeve r, title 11 of the United States Code g overns ba

nkruptcy proce eding s.
Section 1334 descr ibes the jurisdictional boundarie s of a district court over

bankruptc y

case s and proc eeding s but, by itself, does not vest any

authority in the bankruptc y

courts. Rather , section 1334(a) states that “the district c ourts shall have or igina l and exclusive jurisdiction of all cases unde r title 11,” and se ction 1334(b) states that “the district c ourts shall have or igina l but not ex clusive jur isd ic tio n o f a ll c ivi l pr oc e e din g s a ri sin gun de r t itl e 11 , o r a

ri sin gin
or re lated to ca ses under

title 11.” District courts, howe ver, e ven though the y

have jur isdiction under subsections (a ) or ( b), ar e pe rm itt e d, “ in t

he int e re st o f j us tic e , o r i n th e int e re st o f c omi ty wi th S t at e c o urt s o r r es p ec tfo r S t at e l aw [ , ]

. . . [ t o ] ab s t ai n [ ] fr o mh ea ri n g a particula r proc eedingarisingunder title 11 or a rising in or

related to a
case under title 11.” 28 U .S.C. § 1334(c)(1) (per missive abstention). Additionally , [u] pon timely

motion of a party

in a proc eedingbased upon a State law c laim or State law c ause of action, related to a ca se under

title 11 but not arising under title 11 or arisingin a ca se under title 11, with respect to whic h a

n a c tio n c ou ld n ot h ave be e n c omm e nc e d in
a cour t of the United States abse nt jurisdiction under [section 1334] , the district court shall absta in from hear ing suc h proce edingif an a ction is commence d, and ca n be timely

adjudicate d, in a State forum of appropr iate jurisdiction. 28 U.S.C. § 1334(c)(2) (mandatory abstention). 28 U.S.C. § 157, on the other hand, lists the bankruptc y case s and proc eeding s that may be “r efe rre d” to the bankr uptcy courts. Absent dele g ation of authority by the district court, much like the authority in 28 U.S.C. § 636(b), which provides f or the de leg ation of
cer tain judicial power s to mag istrate judg es, sec tion 157 does not permit bankruptc y

judge s to hear a

nd adjudicate case s in the absenc e of a r efe renc e fr om the district court. B ut under sec tion 157(a), “[e]ach district may

provide that a

ny or all ca ses under

title 11 and any or all proc eeding s arisingunder title 11 or a rising in or

related to a
case under title 11 shall be r efe rre d to the bankruptc y judge s for theCore proc eeding s as def ined in section 157 include, but a re not 16 li mi ted to -- (A) mat ter s con cern in g t he adm in is tr ati on of t he es tat e; ( B) allowanc e or disall o wa n ce of claims ag ainst the estate or exemption from prope rty

of the e state, and e stimation of claims or interests for

the purp os e s o f c on fi rm inga

pla n und e r c ha

pte r 1 1, 12 , or 13 of tit le 11 ; ( C) counter claims by

the est at e ag ainst persons filingclaims ag ainst the estate; (D) order s in r espec t to obtaining cre dit; (E) order s to tur n over proper ty to the estate; (F ) proc eeding s t o d et ermine, avoid, or re cover pr e fe re nc e s; ( G) mot ion s to te rm inate , a nnul, or mod if y the a uto matic stay ; (H) pr ocee dings to de termin e, avoid, or re cover fra udulent conveyance s; (I ) dete rminations as to the discharg eability of par ticular d e b t s ; ( J ) o b

j e c t i o n s t o d i s c h ar g e s ; ( K ) d e t e r m i n at i o n s o f

th e v a l i d i ty, extent, or priority

of liens; (L ) conf

i rm ati ons of plans; (M) or ders approving the use or lease of proper ty ; (N) or ders a

pprovingthe sale of pr op e rt y oth e r tha

n pr op e rt y re su lti ng fr om c la ims br ou g ht b y the e state ag ainst persons who have not filed c laims ag ainst the estate; (O) othe r proce eding s aff

ectingthe liquidati o n o f assets of the e state or the adjustment of the debtor-c reditor or the equity secur ity h o l d er relationship, ex cept pe rsonal injury tort or wrong ful death claims; and (P) re cog nition of foreig n proce eding s and other matters under cha pter 15 of title 11.
25 district.” As we have indicated, “[t] he district cour ts’ power to refe r is d isc re tio na

ry , b ut c ourt s r outin e ly

re fe r m os t ba

nk ru ptc y c a se s to the bankr uptcy court.” Resorts, 372 F.3d at 162 (internal quotation marks omitted). Section 157 provides for

two levels of a

uthority that may be invested in a ba

nkruptcy judge dependingupon into which of two
c ate g or ie s a

c a se or pr oc e e din gfa lls . T he tw o c ate g or ie s a re (1 ) “ a ll
case s under title 11 and a ll core pr ocee dings a rising unde r title 11, or
ari sin gin a

c a se un de r t itl e 11 ,” 28 U. S.C. § 1 57 (b )( 1) (c oll e c tiv e ly kn own a s “ c or e pr oc e e din g s” ), and (2 ) “ a pr oc e e din gthat is no t a 16
core proce edingbut that is otherwise re lated to a c ase unde r title 11,” 28 U.S.C. § 157(c)(1) (“non- core proce eding s”). See Combusti on Eng ’g , 391 F.3d at 225; Resorts, 372 F.3d at 162.
The ba nkruptcy judge “dete rmine[s] , on the judg e’s own motion or on tim ely

motion of a party , whether a proc eedingis a core pr oc e e din gun de r t

his su bs e c tio n o r i s a

pr oc e e din gthat is oth e rw ise related to a ca se under

title 11.” 28 U.S.C. § 157(b)(3). Acorr ect deter mination of whether

a matter is core or non-cor e esta

blishes the bankruptc y

judge ’s level of

authority . Wit h respe ct to core26 proce eding s Congr ess has provide d that “bankr uptcy judge s may

hear and dete rmine all ca ses under title 11 and all core proce eding s arising under title 11, or a

rising in a case under title 11, re fer

red unde r subsection (a ) of this section, and ma y enter appropr iate orde rs or judgme nts, subject to reviewunder se ction 158 of this titl e.” 28 U.S.C. § 157(b)(1). Sec tions 158(a) a nd (b) g ive jurisdiction to the district courts and the ba

nkruptcy appellate panel ( should one be established by

the judicial counc il of a circ uit and with the consent of all the par ties) to hear

appea ls from final judg ments, order s, and de c re e s, a s w e ll a s f

ro m inte rl oc uto ry

or de rs and

de c re e s und e r c e rt a in circ umstances, e ntere d by the bankr uptcy courts.
Howeve r, the de termination that a c ase is not a c ore pr oc e e din gdo e s n ot m e an th at a ba nk ru ptc y jud g e la c ks a

uth or ity with respec t to it. R ather , [a] bankruptc y

judge may

hear a proc eeding

that is not
a c or e pr oc e e din gbut th at is oth e rw ise re late d to a c a se under title 11. In such proc eeding , the bankr uptcy judge shall submit proposed findings of fac t and conclusions of lawto the district court, and a ny final
o rd er o r j u d gm en ts h al l b e e n t er edb y th e d i s tri ctj u d ge afte r consider ing the bankruptc y judge ’s proposed finding s and conc lusions and after revie wingde novo those matters to which a

ny party has timely

and specific ally

objected. 28 U.S.C. § 157(c)(1) . Additionally , “the district cour t, with the consent of a ll the parties to the proc eeding , may ref er a proce eding related to a ca se under

title 11 to a bankruptcy

judge to hear

and de te rm ine and

to e nte r a pp ro pr iate or de rs and

jud g me nts , s ub

je c t to revie w under

section 158 of this title.” 28 U.S.C. § 157(c)( 2).

B. Resorts International Appellants pre dicate a

larg e par t of their ca se on this appea l challeng ing the bankruptc y and district cour

ts’ jurisdiction on our opinion in R esorts, 372 F .3d 154, so we star t with a discussion of that
c a se . In Re so rt s, Re so rt s Inte rn atio na l and re late d e nti tie s e nte re d into Chapter 11 ba

nkruptcy proce eding s in 1989. I d. at 157. The fo llo wi ngy e ar t

he ba nk ru ptc y c ourt iss ue d a n o rd e r c on fi rm ingthe ir Second Amende d J oint Pl an of Reor g anization (“the Reor g anization Plan”). I d. at 158.27 L ess than one month af

ter the c ourt confir

med the Reorg anization Pl an, Resorts International and its creditors e ntere d into a Final Plan and L itigation Trust Agree ment cre atinga litigation trust in which the trustee w as assig ned cla ims Resorts I nternational held ag ainst Donald J. Trump and affiliated e ntities arising f rom Trump’s 1988 leve rag ed buyout of the Taj Ma hal Resort. I d. The Final Plan author ized the trustee to prosec ute the cla ims, with t he debtor to provide the first $5,000,000 spent in the litigation in the form of a n irrevoc able letter

of cr edit. Neve rtheless the pr ocee ds from the suit were to be distributed to cer tain cre ditors who wer e cove red under the Final Plan. I d. at 157-58. The Final Plan also re quired the trustee to re tain an indepe ndent public ac countingfirm to provide auditing a nd tax-related se rvice s for the trust, a nd on November

1, 1990, pursuant to this require ment, the trustee r etained Pric e Waterhouse f

or this purpose. I d. at 158. On May 28, 1991, the tr us te e e nte re d into a

se ttl e me nt, that th e c re dit or s su bs e qu e ntl y approve d, with Trump in the amount of $12,000,000. I d. The proce eds of the se ttlement became assets of the litigation trust. I d.
On Ap ri l 15 , 1 99 7, the tr

us te e fi le d a

n a dv e rs ary

pr oc e e din gin the bankr uptcy court settingforth ac countingmalprac tice and br eac h of contra ct claims ag ainst Price Waterhouse in which the trustee soug ht disgorg ement of Price Waterhouse’ s fee s in ex cess of $5 00 ,0 00 pa id f

or a c c ounti ngse rv ic e s th at it pe rf or me d f or the tr us t, as we ll as damag es. I d. The trustee ’s “pr incipal alleg ation [was] that Pr ic e Wat e rh ou se e rr on e ou sly re po rt e d in

its a ud it r e po rt s th at c e rt a in
acc rued inter est on the L itigation Trust a ccounts be longe d to the debtor ra ther than the Trust,” a

nd that the bankr

uptcy court re lied upon those err oneous re ports in a sepa rate suit between the trust and Re so rt s Inte rn atio na l in

de c idi ngon

an a llo c atio n o f t

he int e re st ear ned on the $5,000,000 litigation ex pense a ccount c reated under the Final Plan. I d. at 158-59. Resorts International, whose estate no longe r existed following the c onfirmation of the Reor g anization Pl an, was not a pa

rty to the malprac tice ac tion. I d. at 157.
The ba nkruptcy court he ld that it did not have jur isdiction over the adve rsar

y proce edingwhich set for th state-law c laims and thus dismiss ed the pr ocee dings. The trustee, howe ver, a ppeale d and the dis tr ic t c ourt

re ve rs e d, fo llo wi ngwh ic h th e dis tr ic t c ourt c e rt if ie d it s ruling for immediate a

ppeal to us under

28 U.S.C. § 1292(b), and we g rante d leave to appea l. Resorts, 372 F.3d at 159- 60. The c ase the n came on befor e us to dec ide whethe r the ba nkruptcy court ha d jurisdiction over the state- law cla ims. I d. We discussed threeErnst & Young u n d erstanda bly does not argue that the 17 Reorg anization Pl an’s retention-of- jurisdiction provision is dispositi ve, an ar g ument that it might have pr edicated on Sectio n 9

. 0 1 of the plan which states that the ba

nkruptcy court wa s to retain jurisdict i on over, am o n g o ther thing s, all disputes connec ted to the Fina l Plan or confirmation o rder

and all adve rsar

y proce eding s filed af

ter the pla

n’s confirmation date. FollowingResorts, i t i s o bvious that an argument anchor ed solely

on this retention-of-

jurisdictio n

p r o v is io n c o u ld n o t h a ve been suc cessf

ul.
28 separ ate issues in our opinion. First, we held that cour

ts will give e ffe ct to rete ntion-ofjurisdiction provisions t hat re org anization plans sometimes include only if there is bankruptcy

court jurisdiction under 28 U .S.C. §§ 1334
and 15 7, a s “ ne ith e r t

he ba nk ru ptc y c ourt no r t he pa rt ie s c an wri te their own jurisdictional ticket.” Resorts, 372 F.3d at 161. I n other words, in the abse nce of

statutory fede ral jurisdiction, “re tention of jurisdiction provisions i n a plan of reor g anization or trust ag ree ment are fundame ntally

irrele vant.” I d. Of c ourse, “ if there is jurisdiction,
we wi ll g ive e ff

e c t to re te nti on

of jur isd ic tio n p ro vis ion s. ” I d. Thus , 17
we e x amined the que stion of whether the dispute fell within the bankruptc y

court’s subjec t matter jurisdiction. I d. Second, we held that the state- law cla ims at issue were not

“ c or e pr oc e e din g s” un de r s e c tio n 1 57 (b ) b e c a us e the pr oc e e din gdid not invoke “a substantive r ight pr ovided by title 11 or a proc eeding that, by its nature, could a

rise only in the context of a bankruptc y c a se .” I d. at 16 3. We d ist inguis he d th e c ir c ums tanc e s in Re so rt s fr om t he sit uatio n b e fo re the Court

of Ap pe a ls f

or the F if th C ir c uit in Southmark, 163 F.3d 925. In Southmark, the debtor f iled a malprac tice suit ag ainst the ac countingfirm that provided a ccounting service s prior to plan conf irmation. Resorts, 372 F.3d at 163. The Southmark court held that the suit wa s a cor e proc eedingbeca use the bankruptc y

court must be able to ensure “ that court-a pproved manag ers of

the debtor’ s estate a

re pe rfor ming their

work
c on sc ie nti ou sly , a

nd c os t- e ff e c tiv e ly ,” and

su pe rv isi ngc ourt

appointed prof

essionals “be ars dire ctly

on the distribution of the debtor’s e state” f

or “[i] f the e state is not marshaled a nd liquidated or
re or g anize d e xpe dit iou sly , th e re wi ll b e fa r l e ss m on e y

ava ila ble to pay cre ditors’ claims.” I d. (quoting Southmark, 163 F.3d at 931).

In distinguishing Southmark w e made the following29 ob se rv atio ns : Unlike in Southmark, this claim arose post-plan confirmation. I t does not directly aff ect the de btor or the liquidation of the estate’ s assets. Fur thermore , the
acc ounting f

irm’s alleg ed malpra ctice in Southmark implicated the integ rity

of the e ntire bankr

uptcy pr oc e ss. Southm ark ’s ba nk ru ptc y aro se out of

its inv olv e me nt i n D re xel B ur nh am L ambe rt , Inc .’ s il lfate d junk bond investment. Sout hmark, 163 F .3d at 927-28. Southmark soug ht the appointment of an
acc ounting f

irm to provide an objec tive, independe nt assessment of pote ntial leg al claims ag ainst thirdparties. I d. Unbeknownst to Southmark, Dre x el was one of the acc ounting f

irm’s larg est clients. I d. at 927- 28. Acc ordingto Southm ark, the acc ounting f irm
c omm itt e d ma lpr a c tic e by fa ili ngto s atis fa c tor ily investigate potential claims ag ainst Drexel. I d. Southm ark

a lle g e d th e a c c ounti ngfi rm ’s br e a c h o f i ts c ourt -a pp ointe d f

idu c iary duty pr e ve nte d th e e state from re cover ing f

rom Dre x el. I d. at 928. The
acc ounting f

irm’s failure to investigate Dre x el imp lic ate d th e c or e of

the ba nk ru ptc y pr oc e ss. I ts alleg ed malpra ctice w as insepar able f rom the bankruptc y

context. Here, Price Waterhouse’ s alleg ed malprac tice, er

roneously repor ting that c erta in acc rued interest belong ed to one e ntity rathe r than to anothe r and committing other

err ors in auditing a

nd tax advice,
e ve n if tr ue , is no t a

pr oc e e din gthat c ou ld a

ri se on ly in the bankr uptcy context. Resorts, 372 F.3d at 163.

Neve rtheless, in Resorts we went on to indicate that it was
unnece ssary

to resolve whe ther the c ase w as a c ore or non-cor e pr oc e e din gfo r s ub

je c t matte r j ur isd ic tio na l pu rp os e s b e c a

us e “[w]hether a pa

rticular pr ocee ding is c ore r epre sents a question wholly separ ate f

rom that of subjec t-matter jurisdiction.” I d. (quoting In re Ma rcus Hook D ev. Park, Inc., 943 F .2d 261, 266 (3d Cir. 1991)). I t was not nec essar

y to make a c ore ve rsus non-cor e dete rmination beca use as longas a pr ocee ding satisfied the jurisdictional prer equisites to be consider ed a non- core “re lated to” pr ocee ding, the “broa dest of the potential paths to bankruptcy jurisdiction,” it was anWe c ann ot t ake the same path a s w e did in R e so rt s b e cau se 18 appellants challeng e both fede ral jurisdi ction under se ction 1334 and the bankruptc y

court’s a uthority to issue final order s under se ction 157, a question the resolution of which require s a determination of whe ther the pr oc e e din gwa s c or e or

no n- c or e . T he on ly

iss ue be fo re us in R e so rts was subjec t matter jurisdiction under se ction 1334.

In this case, ther e ar e esse ntially two proce dural paths that can be transver sed in resolving a dispute over jurisdiction and the adjudicative po we rs of the ba

nk ru ptc y c ourt

. We ca

n en g a g e in a

tw o- ste p a

na ly sis in which we f

ir s t inquire whethe r there is feder al jurisdiction over a p r o c e e d i n gb y a s k i n gw h e th e r th e c a s e i s “ r e l at e d

t o ” th e b an kr

u p t c y, which is the broa dest categ ory of ca ses over

which the re is federa l jur isd ic tio n. Then, if

we fi nd tha t th e c a se pa sse s th at te st, we wo uld decide whether the ca se is a cor e matter , in which the bankr uptcy court could issue final orde rs, or a non-cor e m at ter, in which the bankruptc y court c ould make only

rec ommendations to the district court. We, however , find this methodology ineffic ient in situations l ike the one b ef

o re u s beca

use a f inding that the c ase “ aris[es] i n” the b an kr u p tc y w o u ld “ k il l t w o b ir d s w it

ho n e s to n e ” in a s mu c has such a finding conclu s iv e ly

would establish both subject matter jurisdiction and the bankr uptcy court’s a uthority to e nter final order s. In that situation, there simply

would be no re ason to eng ag e in the two-s t ep i nquiry we have de s c r ib e d

. O f c o ur s e , if w e d e te r mi n e d th at th e c a s e d o es not “ar is[ e] in” the bankr

uptcy proce eding s, then, depe nding on which cour t is ex erc ising jurisdiction whe n the deter mination is m ade, the appropr iate co u rt must determine if ther e is subject matter jurisdiction under the broade st jurisdictional hook of “re lated to” jurisdiction.
30 extraneous exercise to de cide whe ther the ma tter wa s core provided th atj ur i s d i c t i o n , an d

n o tth e b an kr

u p t c y c o urt ’ s a d

j u d i c at i v e a

u th o r i ty, was the sole issue be fore the cour t. See id. In other wor ds, a deter mination of whether

a matter is core or non-cor e is unnec essar

y in an inquiry

of whe ther ther e is fede ral jurisdiction over a bankruptc y proce eding , as both categ ories of c ases a re w ithin federa l jurisdiction and the de termination only impacts on the question of whe ther a bankruptc y

court ha s the authority

to enter f inal judgme nts and order s un de r s e c tio n 1 57

. Se e id. I t w a s im pli c it i n o ur

ho ldi ngin R e so rt s 18 that a ca se is “re lated to” a bankruptc y

case even if

the bankr uptcy court c ould exercise cor e jurisdiction with respec t to it. I n this reg ard,
we p o i n to u tth ats ec t i o n1 5 7 (c )( 1 ) p ro v i d es th ata “ b an krup t cy j u d ge may he ar a pr oc e e din gthat is no t a

c or e pr oc e e din gbut th at is31 o th e r w i s e r e l at e d

t o a c a s e un d e r

T i t l e 1 1

. ” ( E mp h a s i s a d d e d

. ) It seems cle ar f

rom that languag e, in par

ticular the inc lusion of “other wise,” that Congre ss believed that a core case was “ related to” title 11 but that a case can be “re lated to” title 11 on a ba sis other than beinga cor e ca se. More over, Cong ress’s e numeration of core pr oc e e din g s in

se c tio n 1 57 (b )( 2) , in

or din ary un de rs tand ing , li sts matters that would be c onsidered “ related to” title 11 case s. Third, we w ent on to discuss the limit s of non-c ore “ related to” jurisdiction. We first discussed “the se minal test for dete rmining the bo un da

ri e s o f ‘ re late d to ’ j ur isd ic tio n in [Pac or , Inc . v . H ig g ins , 743 F.2d 984, 994 ( 3d Cir. 1984)],” in which we he ld that fede ral courts have “re lated to” jurisdiction to hear a proc eedingif “the outcome of that proce edingcould conc eivably have a ny eff ect on the estate be ing a dminist ere d in bankruptcy .” Resorts, 372 F .3d at 164. We, ho we ve r, de c ide d in

Re so rt s th at a

pp lic atio n o f t

he Pa c or te st i n the “ po st- c on fi rm atio n c on te xt” w a s “ pr ob le matic ” ina smu c h a s “ it i s imp os sib le fo r t

he ba nk ru pt d e bto r’ s e state to b e a ff e c te d b y a po stconfirmation disput e bec ause the debtor’s e state ce ases to exist once confirmation has occur

red,” as g ener ally

“the c onfirmation of a

plan vests all of the prope rty

of the e state in the re org anized debtor.” I d. at 165 (interna l quotation marks omitted).

In light of the circ umstance that post-confirmation the de btor’s estate w ill not ex ist, and in recognition of the need to c onfine bankruptc y

court jurisdiction to appropr iate limits, we rec og nized a new test to be a

pplied in the “post-conf

irmation context” in which “the e ssential inquiry ” is “whe ther ther e is a c lose nexus to t he bankruptc y

plan or proc eedingsufficie nt to uphold bankruptcy court jurisdiction over the matter .” I d. at 166-67. In other wor ds, “[a]tthe post-confirmation stage , the claim must aff ect a n integ ral a spect of the bankruptc y

proce ss–there must be a

close ne x us to the bankruptcy plan or proc eeding .” I d. at 167. For instance, w e held that “ [m ]atters that aff ect the inter

pretation, impl ementation, consummation, execution, or administration of the conf irmed plan will ty

pically have the re quisite close nexus.” I d. Applied to the fa cts of Resorts–whe re the trustee’ s principal
a lle g atio n w a s th at Pr ic e Wat e rh ou se e rr on e ou sly re po rt e d in

its a ud it repor ts that acc rued inter est on the litigation trust belonge d to the de bto r r athe r t

ha n th e tr us t–w e he ld t

hat th e “ pr oc e e din gla c ks a c los e nexus t o the bankr

uptcy plan or proc eedingand af fec ts only matters collater al to the bankr

uptcy proce ss.” I d. at 169. We explained our32 de c isi on a s f oll ow s:
The re solution of [ the] malpractice claims will not aff ect the e state; it will have only incidental ef

fec t on the re org anized debtor; it will not i nterfe re w ith the imp le me ntatio n o f t

he Re or g anizatio n Pl an; t ho ug h it wi ll a ff e c t th e fo rm e r c re dit or s a s L iti g atio n T ru st be ne fi c iari e s, the y

no lon g e r h ave a

c los e ne xus to bankruptc y

plan or proc eedingbeca

use they exchang ed their cr editor status to attain rig hts to the lit iga tion claims; and as state d, the jurisdictional rete ntion plans cannot c onfer

jurisdiction gr eate r than that g rante d under 28 U .S.C. § 1334 or 28 U.S.C . § 157.

I d. We acknowle dg ed that “in c erta in circumstanc es, ac counting
err ors could have a suff

iciently close ne x us to the bankruptcy plan or pr oc e e din gto w arr ant e xer c isi ng‘r e late d to ’ j ur isd ic tio n p os tc on fi rm atio n, ” but, u

nd e r t he fa c ts o f R e so rt s, re so lut ion of the c la ims will not require a

court to interpr et or c onstrue the Reor g anization Plan o r t he Tr us t A g re e me nt a

nd “ [t]ho ug h th e Pla

n a nd Tr us t Agre e me nt p ro vid e the c on te xt of the c a se , th is b are fa c tua l ne xus is insufficient to conf

er ba nkruptcy jurisdiction.” I d. at 170.
C. Th e De c isi on s o f t he B ank ru ptc y and Di str ic t Co ur

ts
The ba nkruptcy court in this case conclude d that there was fede ral jurisdiction bec ause a ppellants’ cla ims “aris[e] i n” the bankruptc y

case as the c laims “implicate the integ rity of the bankruptc y

proce ss,” and, like the c laims in S outhmark, 163 F .3d 925, “the c laims of profe ssional malprac tice we re ba sed on ser vices provided duringthe bankr uptcy , under the supervision of, and subje ct to the approva l of, the bankr uptcy court.” Earne d Capital, 331 B.R. at 218. The ba

nkruptcy court de termined that the “ close ne x us” test that Resorts discussed did not g overn this ca se bec ause “ Resorts is unlike the sit uatio n h e re , whe re [ap pe lla nts ’] c la ims are c la ims a g a ins t a court a ppointed profe ssional for wor k perf ormed duringthe bankruptc y

case .” I d. Fur

ther, be cause the state-la

w claims ar e claims “a rising in” the bankr

uptcy case , the cour

t determined “ that [appellants’] C omplaint ag ainst [Ernst & Young ] i s a cor e pr oc e e din g ,” and

thu s, un de r 2 8 U .S. C. § 15 7( b) (1 ), the c ourt ha d f ull adjudicative pow er subjec t to appellate r eview by the district court. I d. at 218-20.Ac tua lly , whi le the ba nk ru ptc y c ourt ind ic ate d that th e “ c los e 19 nexus” test did not apply , the district court found that “the state c ourt a c tio n h a s a

‘c los e ne xus’ to th e bankr up tc y pr oc e e din g s. ” Ge ru sc hat, 34 6 B .R. at 12 5. Ho we ve r, it wa s no t ne c e ssa ry fo r the dis tr ic t c ourt

to re a c h th is c on c lus ion

ina smu c h a s it

fi rst held

that a pp e lla nts ’ “ state court a ction arises in ba

nkruptcy and . . . is a c ore matte r, ” an d, as we dis c us s, the “ c los e ne xus” te st a pp lie s o nly

wh e n a na ly zingth e c a se in the non-c ore “ related t o” contex t. In any event, e ven appe llants treat the dis tr ic t c ourt ’s de c isi on

a s if th e cou rt e rr e d in

no t a pp lyingthe “ c los e nexus” test. S ee Appellants’ br. at 26 (“It was inappropr iate for the dis tr ic t c ourt

no t to a dd

re ss t he ‘c los e ne xus’ s tan dard t hat th is C ir c uit set forth in Resorts Int’l.”).
33 On appe al under

28 U.S.C. § 158, the district court aff irmed the ba nk ru ptc y c ourt ’s op ini on

and or de r. Spe c if

ic a lly , w ithre sp e c t to jurisdiction, it held:

We a g re e that [a

pp e lla nts ’] s tate c ourt

a c tio n a ri se s in bankruptc y

and that it is a core matter. [Appellants’] claims of prof

essional neg lige nce w ere based on service s provided duringthe bankr uptcy , under the supervision of, and subje ct to the appr oval of, the ba nk ru ptc y c ourt . A s su c h, the y

imp lic ate the int e g ri ty of the ba nkruptcy proce ss. The state c ourt ac tion challeng es the a ccounta

nts’ conclusion that the De btor was insolvent, a c onclusion endorse d by the ba nk ru ptc y c ourt in i ts c on fi rm atio n o rd e r. F or the se same re a so ns , th e state c ourt a c tio n h a s a

‘c los e ne xus’ to t he ba nk ru ptc y pr oc e e din g s.
Ger uschat, 346 B .R. at 125.

D. An a ly sis Appellants cha lleng e two aspe cts of the de cisions of the bankruptc y

and district cour

ts relatingto subject matter jurisdiction and the ba

nkruptcy court’s f inal adjudicative a

uthority . First, they argue that the c ourts err ed in findingthat the “c lose nexus” test was not applicable unde r their r ationale that the imprope r conduc t alleg ed in t he state -l aw c la ims oc c ur re d d ur ingthe ba

nk ru ptc y pr oc e e din g s. 19 Appellants believe that this conclusion was incorr ect a s they contend “applica tion of the ‘close nexus’ test does not depend on whe n the
ma lpr a c tic e its e lf

oc c ur s. To the c on tr ary , th e ‘c los e ne xus’ te st i sEr ns t & Yo un gc on te nd s th at a pp e lla nts “ wa ive d the ir

ri g ht t o 20 challeng e th at t h e litigation is a core matter,” a ppellees’ br. at 17, be c a us e a pp e lla nts did no t f ile a tim e ly state me nt und e r B ank ru ptc y Rul e 90 27 (e )( 3)

. In vie w of our re su lt we have no ne e d to con si der this argument and do not do so.
We rec ently

conclude d in I

n re Shena

ng o Group Inc., No. 05- 21 48 05 , F .3 d , 200 7 WL 25 05 58 5 ( 3d

Cir . Se pt. 6, 20 07 ), that a po stconfirmation disput e over wh ether a re org anization plan obligate d a
reor g anized debtor to fund a pension plan was “ related to” a ba nkruptcy proce eding , and, thus, the district c ourt proper ly aff irmed the orde r of the b an kr u p t c y c o u rti nw h i c hi te x e r c i s e d i t s “ r e l at e d

t o ” j ur i s d i c t i o n
. In that ca s e, we f

ound that the dispute did have a “close nexus” to the bankruptc y

under Resor

ts as its resolution require d the court to int erpr et the pla n’ s p ro vis ion

re latin gto t

he ob lig atio n o f t

he de bto r, wh o w a s a party to the suit, to fund pension benef it incr ease s. I d. at *3-4

. Our de c isi on in She na ng o Gr ou p doe s not af

fe c t th is c a se a s h e re the iss ue is not whether

the suit is “r elated to” the bankruptc y , but, instea d, whether it is “arising in” the bankr uptcy

. 34 applicable whene ver a

state lawsuit is removed to f eder al cour

t on the basis of a ba

nkruptcy case that is alrea dy

closed by

that point.” Appellants’ br . at 26. Second, a ppellants contend that the bankruptc y and district cour

ts were wrongin concludingthat this state-law a ction
wa s a c or e pr oc e e din gun de r s e c tio n 1 57 (b ), and thu s a pp e lla nts believe the bankruptc y

court did not have the authority to enter f inal order s under se ction 157(c) (1). I d. at 28. 20
After consideringthe par

ties’ ar g uments, we will aff irm the order of the district cour

t and thus, in effe ct, the orde r of the bankruptc y

court a s we c onclude that the ba nkruptcy court ha d core jurisdiction in thi s case . The ba nkruptcy and district cour

ts were not require d to addre ss the “close nexus” test because the test was not
a pp lic a ble in t his “ ari sin gin” pr oc e e din g . A s w e dis c us se d in Resorts, the “c lose nexus” standard only applies for

the purposes of deter mining whe ther a

fede ral c ourt has jurisdiction over a non-cor e “re lated to” pr ocee ding in the post-c onfirmation context. See 21 Re so rt s, 37 2 F .3 d at 16 4- 67 . App e lla nts se e m to be lie ve that any tim e a pa rt y fi le s a c a se po st- c on fi rm atio n, the “ c los e ne xus” te st i s tr ig g e re d. Th is i s p la inl y no t th e c a se . Wh ile c ourt s ma y c ho os e to rely on “re lated to” jurisdiction bec ause it is the broa dest categ ory of fede ral ba nkruptcy jurisdiction when examining their own jurisdiction, it certainly

is not incumbent upon them to do so, because ,35 a s o c c ur re d h e re , a

pa rt y may argue and

a c ourt may de c ide that a proce edingfalls within one of the na rrowe r categ ories of jurisdiction, such as “ arisingin” jurisdiction, in which case “re lated to” jurisdiction and the c orre sponding “ close ne x us” test ar e not implicated.
We further

find that the cour

ts’ conclusion that there was “ar ising in” jurisdiction wa s corr ect. “ [C ]l aims that ‘ar ise in’ a bankruptc y

case are claims that by

their nature , not their particula r fac tual circ umstance, c ould only arise in the c ontext of a ba nkruptcy
case .” Stoe, 436 F.3d a

t 218. I n Resorts, in disti ng uishing the
c ir c ums tanc e s o f t

he c a se fr om t

ho se in S outhm ark , w e e xpla ine d in what cir cumstance s and on what leg al basis a c laim of profe ssional malprac tice for

work pe rfor

med duringthe bankr

uptcy could support “ar ising in” c ore jurisdiction. See Resor ts, 372 F.3d at 163. Unlike those in Resorts, the materia l fac ts of the ca se bef ore us a re indisti ng uishable fr om those in Sout hmark. First, in Resorts we distinguished the ca se fr om Southm ark beca use the state- law cla ims in R esorts “a rose post-plan confirmation.” See id. Her e, howe ver, a ppellants in their complaint alleg e that their c laims, like the claims in Southm ark, a rose pr econfirmation inasmuch as the conduc t on which they predic ate the
c la ims oc c ur

re d d ur ingthe ba

nk ru ptc y pr oc e ss. Spe c if

ic a lly , th e ir
c omp la int a lle g e s th at in

re lia nc e up on the ne g lig e nt w or

k E rn st & Youngperf

ormed duringthe bankr

uptcy , the bankr

uptcy court wrong ly deeme d the Debtor s to be insolvent and ca used the liquidation of the estate’ s assets in a manne r that contra vened the Amended Plan.
Se c on d, in o ur

c a se , ju st a s w a s tr

ue in S outhm ark , E rn st & Young ’s “a lleg ed malpra ctice . . . implicate d the integ rity of the e ntire ba nk ru ptc y pr oc e ss” and

the “ a lle g e d ma lpr a c tic e wa s in se pa ra ble from the ba

nkruptcy context.” Resorts, 372 F.3d at 163. The ba nk ru ptc y c ourt a pp ointe d E rn st & Yo un gto r e vie w the De bto rs ’ financ ial rec ords and pr epar e the f inancial sc hedules ne eded f or the ba nk ru ptc y . A c c or din gto a

pp e lla nts ’ a lle g atio ns in t

he ir c omp la int , as a r esult of the wor

k that Ernst & Youngperf ormed duringthe bankruptc y

proce eding s and its repre sentations to the bankruptc y c ourt , th e ba

nk ru ptc y c ourt de e me d th e De bto rs to b e ins olv e nt. Th is conclusion led to the for

mation of Seven F ields, a cor poration
or g anize d, a c c or din gto t

he Am e nd e d Pl an, to “ a c hie ve the g oa l of fu ll pay ment” of the unsecur ed, nondischa rg eable debt due a

ppellants. Ce rt a inl y thi s a sp e c t of

the pla n, ba se d at le a st i n p art

on Er ns t &On September 15, 1989, the bankr

uptcy court approved the 22 stipulation between Er

nst & Youngand Seven Fie lds and enter ed an order stating that E rnst & Young was due $125,000 in fee s in settlement of its $210,000 claim. Earne d Capital, 331 B.R. at 226- 27; Supp. App. at 55-57.
36 Yo un g ’s re pr e se ntatio ns that th e De bto rs we re ins olv e nt, wa s a signific ant fa ctor in bring ing a bout the court’s c onfirmation of the plan. Yet, ther eaf

ter, a ccor ding to the c omplaint, Ernst & Young repr esente d that Seven F ields had a la rg e debt, whic h, acc ordingto the
c omp la int is n ot t he c a se , a nd Se ve n F ie lds wa s c omp e lle d to se ll i ts pr op e rt ie s in

a mann e r t hat w a s n ot i n a

pp e lla nts ’ b e st e c on omi c interests, contra

ry to the court-a

pproved A mended Plan’s pr ovisions. Moreove r, the ba

nkruptcy court a pproved the stipulation between Se ve n F ie lds and

Er ns t & Yo un gpr ov idi ngfo r t he fe e s p a id t o E rn st & Yo un gfo r i ts a c c ounti ngwo rk duri ngthe ba

nk ru ptc y pr oc e e din g s. 22 Supp. App. at 55-57. The Court of Appe als for the Fifth Circuit in Southmark explained why

this ty pe of misconduc t and re lationship to t he bankruptc y

court fa lls withi n the “a

rising in” jurisdiction of the fe de ra l c ourt s:
In this case, the pr ofessional malpra ctice c laims alleg ed ag ainst [t he def

endants] are insepara

ble from the bankruptc y

context. A sine qua non in restruc turing the de bto r- c re dit or

re latio ns hip is the c ourt ’s a bil ity to police the f

iduciarie s, whether

trustees or de btors-inpo sse ssi on

and oth e r c ourt -a

pp ointe d p ro fe ssi on a ls, wh o a re re sp on sib le fo r m ana g ingthe de bto r’ s e state in the best intere st of cre ditors. The bankr uptcy court mus t be a ble to a ssu

re its e lf and the c re dit or s w ho re ly on the proc ess that cour

t-approve d manag ers of

the debtor’s e state ar e per formingtheir work, conscie ntiously

and cost-e ffe ctively . Ba

nkruptcy Code provisions describe the basis for c ompensation, appointment and re moval of cour t-appointed profe ssionals, their conflict-of -intere st standards, and the dutie s th e y

mus t pe rf

or m. S e e g e ne ra lly

11 U. S.C. §§ 321, 322, 324, 326-331. Althoug h standards f or the conduct of

court-a ppointed profe ssionals, the brea ch of which may

constitute bankruptcy

malprac tice, ar e not compre hensively

expressed in the statute, the CodeOf course , the parties’ consent cannot establish the bankr uptcy 23 court’s jurisdiction, and if w e disag ree d with the parties an d believed that the court did not have jurisdiction, or even that the jurisdiction that it d id h ave was “rel ate d to ” but no t c or e jur isd ic tio n, we wo uld say so 37 need not duplicate re levant, also-a pplicable state law. I t is evident that a cour

t-appointed prof

essional’s dere liction of duty

could transgress both explicit C ode responsibilities and applicable profe ssional malprac tice standards. F or instance , in Billing v. Ravin, Gr eenbe rg & Z ackin, P.A., 22 F .3d 1242 (3d Cir. 1994), the profe ssional malprac tice alleg ations included the
atto rn e y s’ fa ilure to c omp ly wi th c ourt

or de rs and

to submit a plan of re org anization to the bankruptcy court. Aw ard of

the profe ssionals’ fee s and enfor ceme nt of the appr opriate standa rds of c onduct
are ins e pa ra bly re late d f un c tio ns of

ba nk ru ptc y c ourt s. Sup e rv isi ngthe c ourt -a

pp ointe d p ro fe ssi on a ls a lso bear s directly

on the distribution of the debtor’s e state. I f the e state is not marshaled a nd liquidated or
reor g anized expeditious ly , there will be far less money available to pay

cre ditors’ claims. Excessive profe ssional fee s or fe es cha rg ed for mediocre or, worse, pha

ntom work also ca

use the e state and the
cre ditors to suffer . . . . Amalprac tice cla im like the pr e se nt o ne [ag a ins t c ourt -a pp ointe d p ro fe ssi on a ls] inevitably involves the nature of the ser vices perf ormed for the debtor’ s estate a

nd the fe es aw arde d
un de r s up e ri nte nd e nc e of the ba nk ru ptc y c ourt ; it cannot stand a lone.
Southm ark , 1 63 F .3 d at 93 1. Othe r c ourt s o f a pp e a ls, inc lud ingthi s court, have re ache d simil ar c onclusions. See Gra usz v. Englande r, 321 F.3d 467, 471 ( 4th Cir. 2003) (findingthat leg al malpra ctice
c la im a g a ins t f

ir m f or a lle g e d mi sc on du c t in

ba nk ru ptc y c a se is a claim “a rising in” the bankr

uptcy case ); In re F err ante, 51 F .3d 1473, 1476 (9th Cir. 1995) (holdingthat action ag ainst trustee for misconduct in administering estate w as a c ore pr ocee ding c oncer ning the administration of the ba nkruptcy estate) ; see a lso Billing, 22 F .3d at 1245, 1252-53 (while not directly addre ssing whe ther a

leg al malprac tice suit ag ainst bankruptcy counsel c onstitut es a c ore proce edingas par

ties ag ree d that it does, we r ecognized that the 23even in the a bsence of a pa

rty raisingthe jurisdictional iss ue on the
a pp e a l.
38 “malpra ctice suit mirrors [debtors’] objections to the allowanc e of attorney s’ fe es,” the resolution of which a re w ithin the bankruptcy court’s “ expli cit jurisdiction to award f ees f or bankr uptcy counsel a nd other super

visory power s as to bankruptc y

counsel” ).
As Er ns t & Yo un gpo int s o ut, [n] othing is more importa nt than the integ rity

of the ba nk ru ptc y pr oc e ss .
. . . [T ]he int e g ri ty of the pr oc e ss g oes to the hea

rt of the a dminist ration of a bankruptc y case . Fur thermore , fewissues are as important in the bankruptc y

proce ss as the bankr

uptcy court’s conclusion as to the solvenc y of a de btor. The solvency analy sis is t he cor

nerstone of

the distribution plan. Her e, both the integ rity of the ba nkruptcy proce ss and the solvenc y

of the De btors have be en drawn into question. Appellee s’ br. at 23 (citations omitted). In this reg ard, w e have no doubt that the bankruptc y and district cour

ts corre ctly

found that appellants a sserted the ir alleg ed malpra ctice c laims in a core proce edingthat “ar is[ es] in” the bankruptc y case
. In addition to the rea soning of Southmark, we a lso note that section 157 spec ifically

provides that cor e proc eeding s include “matter s conce rningthe administration of the e state” a nd “other proce eding s aff

ectingthe liquidation of the assets of the estate.” 28 U.S.C. § 157(b)(2)( A) a

nd (O). Such matters ar e at issue he re. Appellants alleg e that Ernst & Young ’s neg lige nce a nd misrepre sentations cause d the sale of Seven F ields’s assets in a
manner that was not in their best e conomic intere sts, contrary to the Amended Plan’ s provisions requiringthat Seven F ields would be

“ mana g e d, imp ro ve d, de ve lop e d a nd so ld, e tc . whe re a

pp ro pr iate , to the end that a ll creditors will eve ntually achie ve maximum returns.” Ap p. at 22 . In s um, it i s c le ar t o u s th at a ma lpr a c tic e a c tio n a g a ins t an ac countant for

misconduct duringthe bankr uptcy on which the bankruptc y

judge relied in c onfirmingthe plan of r eorg anization, and in relianc e on which the bankruptc y court a pproved the fee s to the
a c c ounta nts , a nd on wh ic h a pp e lla nts ’ r e pr e se ntativ e s r e lie d to the ir detriment in selling the assets to pay their cla ims, in a manner thatAp p el l an t s al s o ar gu e t h atth e c l ai m s ar e n o t co re p ro ce ed i n gs 24 beca use they are “not base d on any rig ht cre ated by

the fe dera l bankruptc y law,” but, instea d, are “base d exclusively on rig hts ex isting under state law.” Appellants’ br. at 30. This distinction, however, is not det erm inativ e a s se c tio n 15 7 pr ov ide s that “ [a] de te rm inatio n that a pr oc e e din g is not a c or e pr oc e e din g sh a ll not be ma de so le ly

on the ba sis that its resolution may be affec ted by State law.” 28 U .S.C. § 157(b)(3).
39 contravenes the terms of the r eorg anization plan, constitutes a core proce eding , more spec ifically a proc eeding“arising in” the bankruptc y , which is subject to fe dera l jurisdiction and the final
a dju dic ativ e a

uth or ity of the ba nk ru ptc y c ourt

. 24

Be cause we ha

ve conc luded that the bankr uptcy and district
c ourt s c or re c tly fo un d “ ari sin gin” c or e jur isd ic tio n s o th at th e “ c los e ne xus” te st d id n ot a

pp ly , w e ne e d n ot r e so lve the iss ue a pp e lla nts raise r elatingto the applicability of the “ close ne x us” test in the

“ re late d to ” po st- c on fi rm atio n c on te xt. We , h ow e ve r, wi ll t ake thi s op po rt un ity to a dd re ss t he div isi on

amon gc ourt s in

thi s c ir c uit

wi th respe ct to this iss ue that has de veloped in the wa ke of Resor

ts. Appellants ra ise the question of whe ther in ca ses in which the bankruptc y

and district cour

ts can be exercisingonly

“re lated to” jurisdiction, the Resorts “close ne x us” test applies whe never the complaint is filed post-confirmation or must the conduct also occ ur p o s t -c o n fi rm at i o nt o tri gger th e t es t ? Ino th er

wo rd s , i nan al y

z i n g a court’s “ related-to” jurisdiction, is pre- confirmation conduct alleg ed in a complaint that is filed post-conf irmation evaluated under

the Pa c or te st o r t he Re so rt s “ c los e ne xus” te st? Ap pe lla nts be lie ve that “ a

pp lic atio n o f t

he ‘c los e ne xus’ te st do e s n ot d e pe nd

on wh e n th e ma lpr a c tic e its e lf oc c ur s. ” Rathe r, in their view, the cruc ial inquiry is whether the bankruptc y case is closed at the time the cla im is removed to it. Appellants’ br. at 26. Ac c or din g ly , a

pp e lla nts c on te nd

that th e te st a

pp lie s w he ne ve r t

he re is a post-conf

irmation action filed, pr esumably even a n orig inal proce edingas distinguished f rom a re moved ca se which is the situation here. Er

nst & Young , on the other ha nd, argues that the “close nexus” test under Resorts applies only when “ the alleg ed wrong doing took plac e post-conf irmation.” Appe llees’ br . at 15. Ba nkruptcy and district cour

ts within t his circuit have rende red inconsistent opinions on t his point si nce Re sorts. Compare In re E X D S , In c
. , 3 5 2 B

. R

. 7 3 1 , 7 3 5 ( B an kr
. D

. D e l

. 2 0 0 6 ) , an d Inr e LG I, Inc ., 32 2 B .R. 95 , 1 02 -0 3 ( B ank r. D. N. J. 20 05 ), in whic h th e c ourt sT he district cour t held that the third-par ty complaint was 25

“ re late d to ” the b ank

ru ptc y so it d id n ot r e mand

that a sp e c t of

the c a se to t he state c ourt

. 40 stated the test in terms of when the c ause of action ar ose or the conduct oc curr ed, with J azz P hoto Corp. v. Dreie r L L P, No. Civ. A. 05-5198DRD, 2005 WL3542468, at *5-6 (D .N.J . Dec 23, 2005), and In re L aRoche Indus., Inc., 312 B .R. 249, 257 (Ba nkr. D. De l. 2004), in which the cour

ts stated the test in terms of whe n the ca use of a ction
wa s f ile d. Th is d ivi sio n in

re su lts make s it

imp or tant f or us to a dd re ss the issue. We start this pointwith a furthe r discussion of Pacor , 743 F.2d 984, the ca se that set for

th the test used to deter

mine whether

a pr oc e e din gis “ re late d to ” a ba nk ru ptc y that w a s a

pp lie d in a ll circ umstances until we e stablished the limitations on the test in the

“ po st- c on fi rm atio n c on te xt” i n Re so rt s. In Pa c or , John a nd L ou ise Hig g ins broug ht a suit in a state cour t ag ainst Pacor, a

chemica l
su pp lie s d istri butor , f

or inj ur ie s a lle g e dly

c a us e d b y e xpos ur e to asbestos conta ined in Pacor’ s products. I d. at 986. Pacor filed a third-par ty complaint in the state cour t ag ainst the asbestos manufa cture r, Johns -Manville. I d. J ohns-Manville subseque ntly filed Chapter 11 ba

nkruptcy proce eding s in the Southern District of Ne w York. I d. Pacor the n soug ht to remove the state court c ase to the bankruptc y

court in the Ea stern District of Pennsylvania. The Easter n District bankruptc y

court re manded the e ntire state- court c ase to the state cour t. On Pacor’ s appea l, the district court af firmed with re spect to the Hig g ins’s case ag ainst Pacor a s it held that it was not “related t o ” th e M an s v i l l e b an kr

u p t c y
. P a c o r

th e na p p e a l e d t o u s
. Id

. In 25 aff irming the district court’s orde r af firmingthe bankr

uptcy court, we articulated what be came the seminal test for de termining whether a c i v i l p r o c e e d i n gi s “ r e l at e d t o ” a b an kr u p t c y:
The usual a

rticulation of the test for

deter mining wh e the r a c ivi l pr oc e e din gis r e late d to ba nk ru ptc y is wh e the r t he outc ome of

that pr oc e e din gc ou ld
conce ivably

have a ny eff ect on the e state being administered in bankr

uptcy . . . . An ac tion is related to bankruptcy

if the outcome c ould alter the de btor’s rig hts, liabili ties, options, or free dom of ac tion (either po sit ive ly or ne g ativ e ly

) a nd wh ic h in any wa y imp a c ts upon the handlingand administration of the ba nkrupt estate.41 I d. at 994 (interna l citations omit ted).
Then c ame Resor

ts. W e re iterate that Resorts involved a claim for pr ofessional malpra ctice a nd brea ch of c ontrac t broug ht ag ainst Price Waterhouse for a ccountingservice s perf ormed for a litigation trust formed a fter the bankruptc y court issued a

n order confirmingthe Reorg anization Pl an. Resorts, 372 F .3d at 156-57. Almost seven y ear s after

the bankr uptcy court c onfirmed the pla

n, the lit ig atio n tr

us t br ou g ht s uit

a g a ins t Pr ic e Wat e rh ou se on a c c ou nt o f i ts post-confirmation services. I d. at 159. We held that the tra ditional test in Pacor, a c ase involvingclaims broug ht pre-c onfirmation, was

“ pr ob le matic ” in t

he “ po st- c on fi rm atio n c on te xt” i na smu c h a s “ it i s imp os sib le fo r t

he ba nk ru pt d e bto r’ s e state to b e a ff e c te d b y a po stconfirmation disput e bec ause the debtor’s e state ce ases to exist once confirmation has occur

red.” I d. at 165. Thus, bec ause c onfirmation of a pla n in which all prope rty

of the e state is vested in the
reor g anized debtor e liminates the exi stence of the e state, there never will be jurisdiction over a post-c onfirmation dispute under a literal interpre tation of the Pacor test. I d.

In an attempt to balanc e Cong ress’s intent to g rant ba nkruptcy
c ourt s “ c omp re he ns ive jur isd ic tio n s o th at th e y c ou ld d e a l e ff

ic ie ntl y and expeditiously

with matters conne cted with the ba nkruptcy estate” with the jurisdictional limi tations on non-Article I I Ibankruptc y courts, id. at 163-64 ( internal quotation marks omitted), we develope d the test to be applied “ [a] t the post-confirmation stage ”:
A s s t at e d , th e j ur i s d i c t i o no f th e n o n - A rt i c l e III bankruptc y

courts is limit ed af

ter c onfirmation of a plan. B ut where there is a close ne x us to the bankruptc y

plan or proc eeding , as whe n a matter aff ects the inter

pretation, impl ementation, consummation, execution, or administration of a
c on fi rm e d p lan o r i nc or

po rate d li tig atio n tr

us t ag ree ment, rete ntion of post-confirmation bankruptcy court jurisdiction is normally appropr iate.

I d. at 168-69.
After our pre sent consider ation of Resorts, we are satisfied that the “c lose nexus” test is applicable to “r elated to” jurisdiction
ov e r a ny c la im o r c a

us e of a c tio n f ile d p os t- c on fi rm atio n, re g ard le ss of whe n the conduc t givingrise to the cla im or cause of ac tionWe e mp h a s iz e th at th is d is ti n c ti o n an d a p p li c ati o n o f the 26
re sp e c tiv e te sts a

pp lie s o nl y wh e n th e pa rt ie s se e k to e sta

bli sh jurisdiction on the gr ounds that the ca use of a ction is “related t o ” the bankruptc y , the broa dest jurisdictional hook. We decided in Resorts that in suc h situations the court must impos e limits i n the post-conf irmation
c on te xt. In con tr ast , c a se s th at “ ari s[e ] in” the ba nk ru ptc y c a se mus t
42 occur red. We re ach this conc lusion because in Resorts, though we
wer e dea ling with post-conf irmation rather

than pre -conf

irmation conduct, we focuse d on the point of time in which the ca use of a ction was instituted: whether it wa s filed in the “post-c onfirmation stag e,” i.e., the “post-c onfirmation context.” Fur thermore , we did not indicate that the te st should be confined to situations in which the conduct g iving r ise to the complaint occ urre d post-confirmation. Mo re ov e r, sin c e Re so rt s, we have state d th at w e us e the te st t o de te rm ine wh e the r “ ‘r e late d to ’ j ur isd ic tio n .
. . e xist[s] at th e po stconfirmation stage ,” Stoe, 436 F.3d at 216 n.3 (emphasis adde d). Most rece ntly

in I n re Shena

ng o Group Inc., No. 05- 4805, F.3d , 2007 WL2505585, at *3-4 (3d Cir. Sept. 6, 2007), w e applied the Resorts “close nexus” test in a “re lated to” jurisdictional inquiry over a “post-c onfirmation dispute.” Additionally , we note that the Court of Ap pe a ls f or the Ni nth Cir c uit , whic h a do pte d th e “ c los e ne xus” te st that we de scribed in Resor ts, has stated that the test applies when “the pr oc e e din gari se s p os t- c on fi rm atio n” and a pp lie d th e “ c los e ne xus” test with respec t to claims raised post-c onfirmation involving pr econfirmation conduct. See In re Peg asus Gold Corp., 394 F.3d 1189, 1193-94 (9th Cir. 2005).

I mportantly , limit ing the “close nexus” test to cases involving only post-confirma

tion conduct would be inconsistent with our
rea soning to de part fr om Pacor in Resorts. In Resorts, we indicated that ou r c e ntr a l r e a so n to de pa

rt fr om t he Pa c or te st i n th e po stconfirmation context was that ther e no long er is an e state that ca n be aff ecte d so application of the Pac or test was “ problematic.” See Resorts, 372 F.3d at 164-65. The time whe n the conduc t raised in the po st- c on fi rm atio n c omp la int oc c ur re d is of no c on se qu e nc e in t

his analy sis as reg ardle ss of whethe r the c onduct was post-c onfirmation
or pr e -c on fi rm atio n, the re wo uld no t be an e state at th e po stconfirmation stage . For

these re asons, we c onclude that with re spect to “re lated to” jurisdiction, the Pacor test applies in all disputes raised pre- confirmation and the “c lose nexus” test applies in all disputes
ra ise d p os t- c on fi rm atio n, re g ard le ss o f whe n th e c on du c t a lle g e d in the complaint occ urre d. 26satis fy a stringent sta

nd ard in whic h th e matte r m

us t ha ve an intim ate connec tion to the b an k ru p tcy proce eding s, and thus the stag e at whic h the complaint is filed is not determinative.
43 V. CONCLUSI ON

For the fore g oing r easons, we will affirm the district c ourt’s memorandum orde r of July 14, 2006, aff

irming the bankruptc y

court’s
or de r o f S e pte mbe r 2 , 2 00 5, dis mis sin ga pp e lla nts ’ c omp la int

.