1

UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF COLUMBIA

IN RE: SPECIALTY HOSPITAL OF 

WASHINGTON, LLC

_______________________________________

CAPITOL HILL GROUP,

Plaintiff,

v.

DCA CAPITOL HILL LTAC, LLC, et al.,

Defendants.

Civil Action No. 16-090 (BAH)

Chief Judge Beryl A. Howell

MEMORANDUM OPINION

The plaintiff, Capitol Hill Group, the landlord of a hospital building located at 700 

Constitution Avenue, NE, Washington, D.C., commenced this suit in Superior Court for the 

District of Columbia against the tenants of this building, the defendants, DCA Capitol Hill 

LTAC, LLC and DCA Capitol Hill SNF, LLC, alleging breach of the rental contract due to the 

defendants’ withholding of more than $1,000,000 in rent. Compl., ECF No. 1-1, Adv. Proc. 15-

10027 (Bankr. D.C.). The defendants removed the suit to the United States Bankruptcy Court 

for the District of Columbia, pursuant to 28 U.S.C. § 1452(a), on grounds that federal bankruptcy 

jurisdiction exists, under 28 U.S.C. § 1334(b), because this case “arises in and/or is related to” a 

separate bankruptcy proceeding involving the prior lessee of the building. Defs.’ Notice of

Removal (“Defs.’ Removal Notice”) ¶ 1, ECF No. 1, Adv. Proc. 15-10027 (Bankr. D.C.).1 The 

 

1 Upon removal pursuant to 28 U.S.C. § 1452(a), the case was automatically referred to the Bankruptcy 

Court. See D.C. Local Bankruptcy Rule 5011-1(a)–(b) (referring to Bankruptcy Court “all proceedings arising 

under Title 11 or arising in or related to a case under Title 11,” including any case removed to District Court on the 

basis of § 1334 jurisdiction).
2

plaintiff promptly filed a motion to withdraw the reference from the Bankruptcy Court, ECF No. 

1, which motion was referred to the Bankruptcy Court for a report and recommendation, Mem. &

Order, ECF No. 5. Pending before the Court are the Bankruptcy Court’s Report and 

Recommendation (“R&R”), ECF No. 6, recommending grant of the plaintiff’s motion for 

withdrawal of the reference to Bankruptcy Court for lack of federal bankruptcy jurisdiction, the 

defendants’ objections thereto, Defs.’ Obj. Bankr. Ct.’s R&R (“Defs.’ Obj.”), ECF No. 7, and the 

plaintiff’s motion for remand of the case to Superior Court, Pl.’s Mot. Remand, ECF No. 8. For 

the reasons explained more fully below, this Court lacks subject matter jurisdiction over this case 

and, consequently, the plaintiff’s motions to withdraw the reference and to remand are granted.2

I. BACKGROUND

The factual background of this case is extensively reviewed by the Bankruptcy Court, see

R&R at 4–16, and, consequently, will only be briefly summarized, followed by review of the 

relevant procedural history.

A. FACTUAL BACKGROUND

Specialty Hospital, the previous lessee of the hospital building at issue in this case,

declared bankruptcy and, in the course of its bankruptcy proceedings, assigned the lease in 2014 

to the defendants. R&R at 5. As part of this confluence of events, two separate agreements

among different parties were executed and an order of the Bankruptcy Court was issued that now 

form the basis of the defendants’ assertion of federal bankruptcy jurisdiction.

 

2 The defendants have requested oral argument on their objections, Defs.’ Mot. for Hearing, ECF No. 12, 

which request is denied since the R&R and briefing by the parties have amply discussed the issues. See LCvR. 7(f) 

(stating allowance of oral hearing “shall be within the discretion of the Court”). The plaintiff’s motion to file a surreply brief, ECF No. 13, is also denied because the defendants have not met their burden, see infra Section III, of 

establishing subject matter jurisdiction,rendering unnecessary any further argument from the plaintiff. 
3

The first agreement, titled “Specialty Hospital of America, LLC Landlord Sale Support 

Agreement Term Sheet,” was entered on May 28, 2014, by the plaintiff and the defendants’ 

parent company, which is not a party to this action. R&R at 5; Pl.’s Resp. Defs.’ Obj. (“Pl.’s 

Resp.”), Ex. A (“Sale Support Agreement” or “SSA”), ECF No. 9-2. This Sale Support 

Agreement established the framework for finalizing the terms of the new lease to replace the 

extant lease between the plaintiff and the debtor, Specialty Hospital. R&R at 5–7. By its terms, 

this agreement was not “exhaustive as to the final terms,” such that if any SSA terms conflicted 

with a subsequent agreement between the parties, “the latter shall govern.” SSA at 1; see also id. 

¶ 16 (noting that “New Lease and the SSA will be subject to the negotiation, execution and 

delivery of definitive forms of agreement . . . embodying the terms set forth herein reasonably 

satisfactory to Buyer and Landlord.”). Significantly for the defendants’ justification for the 

withholding of rent, the SSA provided, as a condition for the defendants’ parent company 

entering the new lease, that the plaintiff would “fully fund the costs and expenditures required to 

complete the new HVAC [Heating, Ventilation, and Air Conditioning] system and boiler room” 

and construction on a “multi-rec room project and entry ramp project.” Id. ¶ 18. In the 

defendants’ view, the plaintiff “failed to comply with these conditions and fraudulently 

represented that it complied with these conditions.” R&R at 7.

The second agreement, titled “Asset Purchase Agreement,” was executed on June 20, 

2014, by Specialty Hospital and the defendants’ parent company providing for the sale of 

substantially all of the debtor’s assets to the latter. R&R at 8 n.3; Pl.’s Resp., Ex. C (“Asset 

Purchase Agreement”), ECF No. 9-4. Although the plaintiff was not a party, this agreement

nonetheless referenced obligations of the plaintiff stating that the plaintiff “shall be in full 
4

compliance with the terms of the Sale Support Agreement,” Asset Purchase Agreement § 8.1(l), 

and that the new lease would be “effective as of the Closing” of the sale, id. § 8.1(m). 

The Bankruptcy Court approved the Asset Purchase Agreement in a Sale Order, entered 

on June 30, 2014, thereby authorizing the debtor to sell its assets to the defendants’ parent 

company. R&R at 9–10; Pl.’s Resp., Ex. D (“Sale Order”), ECF No. 9-5. The Sale Order

provides that “upon certain payments being made to [the plaintiff] by the closing of the sale, the 

new lease was to be deemed assumed by Specialty Hospital and assigned to [the defendants’ 

parent company] . . . with all preexisting obligations under the lease as of the closing date to be 

treated as cured.” R&R at 10–11; Sale Order ¶ 32. The Sale Order further expressly states that

the Bankruptcy Court retains “exclusive jurisdiction” to enforce and resolve disputes related to 

the Asset Purchase Agreement. Sale Order ¶ 53.

About six months after entry of the Sale Order approving the sale of the debtor’s assets, 

the plaintiff and defendants executed, on December 16, 2014, the new lease, titled “Amended 

and Restated Lease Agreement.” Pl.’s Resp., Ex. B (“2014 Lease”), ECF No. 9-3. Particularly 

relevant here, the 2014 Lease contains an express integration clause providing that the lease 

“contains and embodies the entire agreement of the parties hereto with respect to the subject 

matter hereof, and supersedes all prior agreements, negotiations, and discussions between the

parties hereto.” Id. § 24.10. Further emphasizing the controlling force of the 2014 Lease, this 

provision makes clear that “[a]ny representation, inducement or agreement that is not contained 

in this Lease shall not be of any force or effect.” Id. Other provisions in the 2014 Lease 

referenced the plaintiff’s obligations to complete construction of the new ramp and auditorium,

and acknowledged installation of a new HVAC system, with detailed procedures and timing for 

resolution of any matters “in connection with such installation.” Id. § 8.4. 
5

Two days after execution of the 2014 Lease, Specialty Hospital and the defendants’ 

parent company closed on the sale of debtor’s assets and the 2014 Lease “was 

contemporaneously assumed and assigned and went into effect.” R&R at 14. As the Bankruptcy 

Court notes, if the defendants’ parent company was not satisfied with the plaintiff’s compliance 

with the terms of the Sale Support Agreement, the defendants’ parent company was entitled not 

to complete the purchase under the Asset Purchase Agreement, § 8.1(l), but, instead, that 

company “proceeded to make the purchase, and apparently looked to § 8.4 of the [2014 Lease] as 

satisfactorily protecting the defendants with respect to issues regarding the HVAC system and 

the construction of a new auditorium and a new entry ramp.” R&R at 15; id. at 9 (noting that 

defendants’ parent company “could have backed out of completing the purchase if [plaintiff] 

failed to meet its obligations under the Sale Support Agreement”) (emphasis in original). 

According to the defendants, after the closing they discovered that, contrary to the 

requirements of the Sale Support Agreement and representations in the 2014 Lease, the plaintiff 

had not installed a new and fully-functioning HVAC system. R&R at 14–15. In September 

2015, more than one year after the Bankruptcy Court’s issuance of the Sale Order and nine 

months after the 2014 Lease went into effect, the defendants began withholding rent because of 

the plaintiff’s alleged failure to install a fully-functioning HVAC system. Pl.’s Mem. Supp. Mot. 

Remand (“Pl.’s Mem.”) at 4, ECF No. 8-1. To date, according to the plaintiff, the defendants 

have withheld more than $1,200,000 in rent. Id.

B. PROCEDURAL BACKGROUND

On October 23, 2015, the plaintiff filed suit in Superior Court alleging that the defendants 

had breached the 2014 Lease by failing to pay rent due and seeking rent accrued as well as 

penalties, interest, costs, expenses, and attorneys’ fees. Compl. ¶¶ 129–39; Pl.’s Mem. at 4. The 

plaintiff also seeks a declaratory judgment clarifying that, under the 2014 Lease, the landlord’s
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responsibility is limited to “construction of a ramp, awning and auditorium as defined in the 

Lease” and no additional HVAC upgrades and installation are required. Compl. ¶¶ 140–51, 

Relief Requested.

The defendants timely removed the case directly to United States Bankruptcy Court for 

the District of Columbia alleging bankruptcy jurisdiction, under 28 U.S.C. § 1334(b), due to this 

landlord-tenant matter arising in and being related to the original bankruptcy proceeding 

involving Specialty Hospital. Defs.’ Removal Notice at 1–2; Defs.’ Resp. Pl.’s Mot. Remand 

(“Defs.’ Resp.”) at 4, ECF No. 11; Pl.’s Resp. at 8. The defendants’ Answer asserted four

affirmative defenses based on the 2014 Lease, Defs.’ Answer and Counter Claims (“Defs.’ 

Ans.”) ¶¶ 153–54, 162–63, ECF No. 18, Adv. Proc. 15-10027 (Bankr. D.C.), and four 

counterclaims for alleged violations of the Sale Order, fraudulent misrepresentation, and breach 

of contract by the plaintiff, id. ¶¶ 209–36. 

The plaintiff responded to the defendants’ removal of this action to Bankruptcy Court by 

moving to withdraw the reference to the Bankruptcy Court, Pl.’s Mot. Withdraw Reference, ECF 

No. 1, which motion was referred to the Bankruptcy Court for a report and recommendation,

pursuant to 28 U.S.C. § 157(a). Mem. & Order at 1–4.

C. BANKRUPTCY COURT’S REPORT AND RECOMMENDATION

The Bankruptcy Court recommends granting the plaintiff’s Motion to Withdraw the 

Reference to the Bankruptcy Court because none of three categories of bankruptcy jurisdiction—

“arising under,” “arising in,” and “related to” jurisdiction—exists here. R&R at 1, 16. 

Specifically, the Bankruptcy Court found that the plaintiff’s claims arise solely under the 2014

Lease rather than a provision of the Bankruptcy Code, and thus the case lacks “arising under” 

bankruptcy jurisdiction. Id. at 16 (citing Gupta v. Quincy Med. Ctr., 858 F.3d 657, 662 (1st Cir. 

2017)).
7

Moreover, just because the original lease between Specialty Hospital and the plaintiff 

was assigned to the defendants in the bankruptcy proceedings, “arising in” jurisdiction was not 

established, because the lease dispute was not a claim that by its nature “‘could only arise in the 

context of a bankruptcy case.’” R&R at 18–22 (quoting Stoe v. Flaherty, 436 F.3d 209, 218 (3d 

Cir. 2006)). Indeed, the “defendants point to no specific provision of the Sale Order that requires 

interpretation or enforcement by the Bankruptcy Court.” Id. at 23. The Sale Order simply 

contemplated that the parties would enter into a new lease, and the parties entered into the 2014 

Lease regardless of whether the conditions in the Asset Purchase Agreement, which were 

approved by the Sale Order, were satisfied. Id. at 23–24. “[T]he Bankruptcy Court’s mere 

approval of the Asset Purchase Agreement via the Sale Order, and its authorization in the Sale 

Order of the assumption and assignment of an amended and restated lease that would be 

satisfactory to [defendants’ parent company], did not automatically create jurisdiction over all 

future contract disputes arising under the [2014] Lease entered into incident to the Asset 

Purchase Agreement.” Id. at 25 (emphasis in original) (citing Gupta, 858 F.3d at 664–65). In 

reaching this conclusion, the Bankruptcy Court assumed, without deciding, that: (1) “defenses to 

a complaint may be sufficient to establish ‘arising in’ jurisdiction” as an exception to the wellpleaded complaint doctrine; and (2) that “defendants can defend on the basis of [their parent 

company’s] rights under the Sale Support Agreement, the Asset Purchase Agreement, and the 

Sale Order even though the defendants were not parties to those matters.” Id. at 17–18

(emphasis in original).

Finding that the outcome of this proceeding will have no effect on the bankruptcy estate, 

the Bankruptcy Court further found no “related to” jurisdiction here. Id. at 33–34 (citing Pacor, 

Inc. v. Higgins, 743 F.2d 984 (3d Cir. 1984), overruled in part on other grounds by Things 
8

Remembered, Inc. v. Petrarca, 516 U.S. 124, 124–25 (1995)). Thus, the Bankruptcy Court 

concluded that no bankruptcy jurisdiction exists in this case. Id. at 37.

The defendants’ objections to the Bankruptcy Court’s recommended grant of the 

plaintiff’s motion to withdraw reference and the plaintiff’s motion for remand are now ripe for 

consideration.

II. LEGAL STANDARD

Bankruptcy judges are authorized to both “hear and determine all cases under title 11” as 

well as “all core proceedings,” as defined in 28 U.S.C. § 157(b)(2), “arising under title 11” or 

“arising in a case under title 11.” 28 U.S.C. § 157(b)(1). For non-core proceedings that are 

“otherwise related to a case under title 11,” bankruptcy judges may hear the proceeding but must 

then submit proposed findings of fact and conclusions of law to the district court for entry of any 

final order after de novo review of any “matters to which any party has timely and specifically 

objected.” Id. § 157(c)(1).

“When it appears that a district court lacks subject matter jurisdiction over a case that has 

been removed from a state court, the district court must remand the case, 28 U.S.C. § 1447(c), 

and the court’s order remanding the case to the state court whence it came ‘is not reviewable on 

appeal or otherwise,’ id. § 1447(d).” Republic of Venezuela v. Philip Morris Inc., 287 F.3d 192, 

196 (D.C. Cir. 2002). Likewise, orders to remand cases where the removing party had asserted 

federal bankruptcy jurisdiction, under 28 U.S.C. § 1334, are non-reviewable. 28 U.S.C. § 

1452(b) (stating that an order issued under this subsection remanding “a claim or cause of action, 

or a decision to not remand, is not reviewable by appeal or otherwise by the court of appeals . . . 

or by the Supreme Court of the United States”); see also Things Remembered, Inc. v. Petrarca, 

516 U.S. 124, 129 (1995) (“If an order remands a bankruptcy case to state court because of a 
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timely raised defect in removal procedure or lack of subject-matter jurisdiction, then a court of 

appeals lacks jurisdiction to review that order under § 1447(d), regardless of whether the case 

was removed under § 1441(a) or § 1452(a).”). As a consequence of the statutory prohibition of 

appellate review of remanded cases, the legal standard for removal has largely been developed 

by the district courts.

“When the plaintiff makes a motion to remand, the defendant bears the burden of proving 

federal jurisdiction.” Busby v. Capital One, N.A., 841 F. Supp. 2d 49, 53 (D.D.C. 2012) (citing 

Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S. 375, 377 (1994)). If the defendant is 

unable to make that showing, a “court must remand the case.” Johnson-Brown v. 2200 M Street 

LLC, 257 F. Supp. 2d 175, 177 (D.D.C. 2003). “In light of the significant federalism concerns 

involved, this court ‘strictly construes the scope of its removal jurisdiction.’” Moses v. SunTrust 

Mortg., Inc., 2012 U.S. Dist. LEXIS 4342, at *4 (D.D.C. Jan. 13, 2012) (quoting Breakman v. 

AOL, LLC, 545 F. Supp. 2d 96, 100 (D.D.C. 2008)). Moreover, even “[w]here the need to 

remand is not self-evident, the court must resolve any ambiguities concerning the propriety of

removal in favor of remand.” Johnson-Brown, 257 F. Supp. 2d at 177 (citing Univ. of S. 

Alabama v. Am. Tobacco Co., 168 F.3d 405, 411 (11th Cir.1999) and Nwachukwu v. Karl, 223 F. 

Supp. 2d 60, 66 (D.D.C.2002)).

III. DISCUSSION

The parties agree that subject matter jurisdiction over this case rests solely on whether the 

parties’ dispute falls within the scope of 28 U.S.C. § 1334(b), which grants district courts 

“original but not exclusive jurisdiction of all civil proceedings arising under title 11, or arising in 

or related to cases under title 11.” 28 U.S.C. § 1334(b).

3

 The defendants contend that this 

 

3 At the time of removal, the defendants also asserted that diversity jurisdiction existed, Defs.’ Removal 

Notice ¶ 1; see also Mem. & Order at 1 n.1, ECF No. 5 (“The parties agree that this Court has subject matter 
10

litigation “aris[es] in or relat[es] to” the Specialty Hospital bankruptcy proceedings. Defs.’ Obj. 

at 8, 18–19.

4

 They object to the Bankruptcy Court’s finding otherwise, arguing that this “case 

requires the interpretation of several bankruptcy court orders,” id. at 8, relying almost 

exclusively on the Sale Order.

5

 The Court disagrees and instead concludes that the Bankruptcy 

Court reached the correct conclusion.6

A. “Arising In” Jurisdiction

The Bankruptcy Court found no “arising in” jurisdiction present here because the instant 

case is not a dispute that by its nature “‘could only arise in the context of a bankruptcy case.’” 

R&R at 19 (quoting Stoe, 436 F.3d at 218). “‘[P]roceedings or claims arising in Title 11 are 

those that are not based on any right expressly created by Title 11, but nevertheless, would have 

no existence outside of the bankruptcy.’” Capitol Hill Grp. v. Pillsbury, Winthrop, Shaw, 

Pittman, LLC, 569 F.3d 485, 489 (D.C. Cir. 2009) (quoting Grausz v. Englander, 321 F.3d 467, 

471 (4th Cir. 2003)) (internal quotations omitted). Thus, “arising in” jurisdiction is limited to 

claims relating to the administration of a bankruptcy estate, such as “administrative matters, 

orders to turn over property of the estate, and determinations of the validity, extent, or priority of 

 

jurisdiction on the basis of diversity.”), but have since withdrawn that assertion, Defs.’ Resp. at 15 (stating that 

defendants do “not continue to assert that diversity jurisdiction provides a basis for this case proceeding in federal 

court”); Pl.’s Mem. at 5–6 (noting that the parties are likely not fully diverse). 

4 The defendants raise no objection to the Bankruptcy Court’s conclusion that, since the claims at issue “do 

not ‘arise under’ a provision of the Bankruptcy Code,” R&R at 16, no “arising under” jurisdiction exists. See 

generally Defs.’ Obj.; see also Defs.’ Removal Notice ¶ 1 (asserting jurisdiction “because this matter aris es in and/or 

is related to” a bankruptcy proceeding). 

5 Although defendants indicate that “several bankruptcy court orders” are at issue, Defs.’ Obj. at 8, other 

than the Sale Order, they briefly mention only once the “orders approving the debtor-in-possession facility,” id. at 

12. They utterly fail to explain the significance of these latter orders to the instant dispute, leading inexorably to the 

conclusion that they simply do not support the exercise of bankruptcy jurisdiction. 

6 The defendants make two other arguments, both of which are unavailing. First, the defendants contend that 

the Bankruptcy Court did not sufficiently consider in its jurisdictional analysis the Sale Support Agreement, Defs.’ 

Obj. at 17, but this amounts merely to a variation of the defendants’ principal argument addressed in the text, and is 

simply wrong, given the Bankruptcy’s Court’s well-reasoned explanation for the irrelevancy of this agreement, 

particularly in light of the SSA’s express direction that its terms may be superseded, bolstered by the integration 

clause in the 2014 Lease. See R&R at 24–25. The defendants also urge the exercise of supplemental jurisdiction, 

Defs.’ Obj. at 19, but this argument is moot given the lack of subject matter jurisdiction.
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liens.” Gupta, 858 F.3d at 663. Indeed, the defendants explicitly relied, when removing this 

case, on the standard that “‘[c]laims “arising in” a case under Title 11 are limited to 

“administrative matters that arise only in bankruptcy cases and have no existence outside of the 

bankruptcy proceeding.”’” Defs.’ Removal Notice ¶ 12 (quoting In re Premium Escrow Servs., 

Inc., 342 B.R. 390, 396 (Bankr. D.D.C. 2006)).

While apparently not contesting the Bankruptcy Court’s findings that they do not meet 

the standard articulated above for “arising in” jurisdiction, the defendants counter that a different 

standard applies such that “arising in” jurisdiction is triggered when a bankruptcy court order

must be interpreted to assess a common law claim. Defs.’ Obj. at 8 (“[F]ederal bankruptcy 

jurisdiction [exists] over contract and tort claims when their resolution requires the interpretation 

of bankruptcy court orders.”). Relying almost exclusively on Luan Inv. S.E. v. Franklin 145 

Corp. (In re Petrie Retail, Inc.), 304 F.3d 223 (2d Cir. 2002), the defendants contend that 

“arising in” jurisdiction exists here because “resolution of the parties’ dispute depends on the 

interpretation of the bankruptcy court’s sale order.” Defs.’ Obj. at 10; see also Defs.’ Reply 

Supp. Obj. (“Defs.’ Reply”) at 14, ECF No. 10 (arguing that their “counterclaims require both 

enforcement and interpretation of the bankruptcy court’s orders that incorporated the Sale 

Support Agreement Term Sheet concerning the HVAC obligation.”). The Second Circuit’s 

decision in Petrie Retail has superficial similarities to the instant dispute but the defendants’ 

reliance is misplaced, as the Bankruptcy Court correctly pointed out. R&R at 30–31. 

In Petrie Retail, as here, a landlord sought to recover rent due from the current tenants, 

which had assumed a lease from a debtor in bankruptcy after the Bankruptcy Court approved the 

lease assignment in a sale order that also excluded, and enjoined any claim to, liabilities existing

prior to the assignment. 304 F.3d at 226–27. Also similar to the posture of this case, in Petrie 
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Retail, the landlord contended “that the bankruptcy court did not have subject matter jurisdiction 

over the contract dispute,” arguing that “it was part of a post-sale contract dispute between two 

non-debtors.” Id. at 228. In this regard, the Petrie Retail court acknowledged that the contract 

dispute “could arise outside of bankruptcy proceedings [which] weighs against its core status” 

falling under the bankruptcy court’s jurisdiction. Id. at 229. Nevertheless, based on “a 

combination of factors,” id., the Second Circuit approved the continued exercise of bankruptcy 

jurisdiction, under 28 U.S.C. § 157, citing three reasons: (1) “the dispute . . . was based on rights 

established in the sale order,” which allowed the assumption of a lease with certain provisions 

excepted, and the landlord’s demand on the new tenants “involved excluded liabilities as defined 

in the sale order,” id. at 229–30; (2) the motion at issue “sought enforcement of a pre-existing 

injunction issued” by the Bankruptcy Court as part of the sale order, and a “bankruptcy court 

retains post-confirmation jurisdiction to interpret and enforce its own orders,” id. at 230; and (3) 

“the dispute . . . involved an issue already before the bankruptcy court as part of . . . [the 

landlord’s] claim against the estate,” namely, whether the landlord was entitled to additional rent 

under a rent-escalation clause in the original lease, id. The court explicitly “express[ed] no view 

as to whether any one of these facts alone would” establish a bankruptcy court’s “core” 

jurisdiction under 28 U.S.C. § 157. Id. at 231.

The dispute at issue in Petrie Retail was over the terms of the debtor’s original lease, 

interpretation of which was integral to the adjudication of the bankruptcy proceeding since those 

lease terms “determine[d] what assets of the debtors’ estate should be distributed to [the 

landlord].” Id. at 230. Here, by contrast, the dispute is over the terms of a new 2014 Lease,

which, through its integration clause, expressly “supersedes” and renders moot any obligations 

set out under any prior agreements by the debtor or the plaintiff, including in either the SSA or 
13

the Asset Purchase Agreement. 2014 Lease § 24.10. In other words, the dispute between the 

parties in this case rests on their respective obligations under the 2014 Lease, which was 

referenced in but not integral to Specialty Hospital’s bankruptcy proceedings. As a consequence

of this critical difference between the instant dispute and the focus of the Petrie Retail case, none 

of the three factors identified by the Petrie Retail court as conferring bankruptcy court 

jurisdiction is present here. 

For instance, in this case, the first Petrie Retail factor regarding whether the dispute is 

“based on rights established in the sale order,” id. at 229, is not met since, as the Bankruptcy 

Court clearly found, “[n]o issue regarding interpreting the Sale Order exists in that regard,” R&R 

at 24 (emphasis in original). The defendants’ vigorous dispute of this finding is not persuasive. 

They contend that this case “turns on” the Sale Order, rather than the 2014 Lease, Defs.’ Obj. at 

15, because their “counterclaims require both enforcement and interpretation of the bankruptcy 

court’s [Sale Order] that incorporated the Sale Support Agreement Term Sheet concerning the 

HVAC obligation.” Defs.’ Reply at 14 (emphasis added). Notably, the defendants do not and 

cannot assert that the Sale Order expressly details any obligations by the plaintiff for physical 

maintenance or improvements to the property that would require interpretation. Instead, the Sale 

Order’s sole reference to the SSA is to confirm that upon closing of the sale of the debtor’s 

assets, the parties would enter a new lease and the “existing Lease Agreement will be rejected (or 

assumed as amended and restated).” Sale Order ¶ 32 (quoting SSA ¶ 6). This provision in the 

Sale Order plainly contemplated that a new lease would be entered upon certain enumerated 

payments by the defendants’ parent company at closing. Id. For purposes of the Sale Order,

compliance with the payment schedule to ensure assumption and assignment of the 2014 Lease 

was significant to satisfy the relevant provisions of the Bankruptcy Code, not whether all of the 
14

SSA’s terms and conditions were satisfied by the plaintiff. Indeed, despite trying to shoe-horn 

the Sale Order into this case, even the defendants admit that the obligations they claim the 

plaintiff failed to fulfill “were established by the Sale Support Agreement,” Defs.’ Reply at 14, 

an admission consistent with the Bankruptcy Court’s conclusion that the Sale Order is not truly 

at issue here, R&R at 25. 

Indeed, as the Bankruptcy Court pointed out, the Sale Support Agreement was a private 

agreement between the plaintiff and the defendants’ parent company laying the groundwork for 

the 2014 Lease. R&R at 22–25. “How [the plaintiff and defendants’ parent company] structured 

the sale of the debtor’s assets and how they composed the provisions of the [2014 Lease] . . . was 

entirely their decision,” and the “reasons for the deal being structured as it was do not bear on the 

jurisdictional question.” Id. at 24–25. In short, reference to the SSA, a private deal, in the Sale 

Order simply does not confer federal bankruptcy jurisdiction since the Sale Order is not the 

source of the obligations or rights at the core of the instant dispute, and therefore the first Petrie 

Retail factor is plainly not present here.7

The second Petrie Retail factor regarding whether the dispute requires “enforcement of a 

pre-existing injunction issued as part of the bankruptcy court’s sale order,” 304 F.3d at 230, is 

also not present here. The Sale Order barred only suits against the bankruptcy estate or the lease 

assignee over issues predating the 2014 Lease. Sale Order ¶ 33 (barring “any non-Debtor party . 

. . from raising or asserting against the Debtors or the Purchaser, or the property of either of 

 

7 Likewise, the Sale Order’s approval of the Asset Purchase Agreement, which also references the SSA, does 

not support the exercise of bankruptcy jurisdiction. Sale Order ¶ 45 (“[I]t being the intent of the Court that the Asset 

Purchase Agreement be authorized and approved in its entirety”). As noted, the Asset Purchase Agreement, to 

which the plaintiff was not a party, conditioned the defendants’ parent company’s purchase ofthe debtor’s assets on 

plaintiff being “in full compliance with the terms of the [SSA],” Asset Purchase Agreement § 8.1(l), but also 

provides that all such terms “may be waived in writing by Buyer,” id. § 8.1. Again, the Sale Order was concerned 

with whether the sale went forward, not with whether the SSA conditions were satisfied to the satisfaction of the 

Buyer or waived. See R&R at 24. Consequently, even if the defendants did not get all they believe they were owed 

under Asset Purchase Agreement, this does not trigger a need to interpret or enforce any provision of the Sale Order.
15

them, any [claim] existing as of the date of the Sale Hearing, or arising by reason of the 

consummation of transactions contemplated by the Asset Purchase Agreement.”).

8 While the

defendants note the “enforcement” requirement, Defs.’ Obj. at 15, they argue only that 

“interpretation” of the Sale Order is required, see, e.g., Defs.’ Obj. at 8, 11, before asserting in 

reply that “enforcement” is also required here, see, e.g., Defs.’ Reply at 2, 8, 14. Whichever way 

the defendants frame their argument, no injunction is at issue here because, in contrast to Petrie 

Retail and the prior litigated dispute between these parties, see supra note 8, the landlord has not 

sued over pre-assignment obligations. 

Finally, the third Petrie Retail factor, whether the same issue is already before the 

Bankruptcy Court, 304 F.3d at 330, is not present here since none of the instant parties has an 

existing claim against the bankruptcy estate of Specialty Hospital.

Having failed to demonstrate that interpretation or enforcement of any Bankruptcy Court 

order is required to resolve the parties’ contract dispute, the defendants make the last-gasp

alternative argument that the plaintiff’s alleged misconduct in itself creates “arising in” 

jurisdiction because it was “‘inextricably intertwined’ with the administration of the bankruptcy 

sale.” Defs.’ Obj. at 18; see also Defs.’ Reply at 16–18. The law does not support this basis for 

bankruptcy jurisdiction. “[T]he mere coincidence that wrongful conduct that is the basis for a 

 

8 By contrast to the instant dispute, an injunction was at issue in a prior dispute among the parties over the 

plaintiff’s demands for the defendants to satisfy obligations incurred prior to assumption of the 2014 Lease. The 

Bankruptcy Court exercised jurisdiction, granted a declaratory judgment that the defendants had no liability for preassignment costs, and explicitly ordered the plaintiff not to bring any such claims. Order of Final Judgment, ECF 

No. 59, Adv. Proc. 15-10010 (Bankr. D.C.); see also Defs.’ Obj. at 6–7 & nn.2–3. The plaintiff in Petrie Retail had 

violated a similar injunction. Petrie Retail, 304 F.3d at 225 (describing the case as “an ongoing attempt by [the 

lessor] to recover from a bankrupt”). Thus, both Petrie Retail and theinstant parties’ prior dispute illustrate that the 

Bankruptcy Court may appropriately exercise jurisdiction when the landlord seeks satisfaction of pre-assignment 

obligations in violation of a sale order’s injunction. This jurisdictional scope does not reach the instant dispute 

where the landlord seeks only rent owed under the 2014 Lease, which by its terms eschewed any prior obligations 

and provided the specific remedy, acknowledged by the defendants to be “withholding the cost of repairing any 

deficiencies from the future rent payments provided for in that Lease,” Defs.’ Obj. at 18 (citing 2014 Lease ¶ 8.4), 

for any HVAC compliance failures.
16

plaintiff’s claims, or for a defendant’s defenses to those claims, took place in a bankruptcy case” 

does not establish “arising in” jurisdiction. R&R at 25–26 (citing Stoe, 436 F.3d at 218–19; 

Torkelsen v. Maggio (In re Guild & Gallery Plus, Inc.), 72 F.3d 1171, 1178 (3d Cir. 1996)). In 

Torkelsen, for example, the Third Circuit held that “even if the [bankruptcy] estate has a direct 

financial interest in a claim that a party proposes to litigate in bankruptcy court, this fact, by 

itself, does not provide an adequate jurisdictional foundation” for a suit against a bankruptcy 

trustee for actions taken in that capacity with non-estate property. 72 F.3d at 1180 (citing 

Northern Pipeline Const. Co. v. Marathon Pipe Line Co., 458 U.S. 50 (1982)). Moreover, even

in a case where a debtor alleged abuse of process by a creditor for initiating a proceeding “to 

obtain a determination that the debts owed to it by [the debtor] were nondischargeable under 11 

U.S.C. § 523(a)(6),” the Bankruptcy Court held that it lacked jurisdiction because the 

counterclaims at issue “arose postpetition and . . . would not affect the administration of the 

estate.” Va. Hosp. Ctr.-Arlington Health Sys. v. Akl (In re Akl), 397 B.R. 546, 547–48 (Bankr. 

D.D.C. 2008). In that case, the Bankruptcy Court emphasized that “an ‘“arising in”’ proceeding 

is one that must not only arise from events in the bankruptcy case but that by its nature is of an 

‘“administrative”’ character because it requires disposition in the bankruptcy case in order for 

the bankruptcy case to be administered.” R&R at 27 (quoting In re Akl, 397 B.R. at 350).

Here, the bankruptcy estate does not have any interest in either party’s claims, nor do 

their claims affect the administration of the estate. The plaintiff’s obligations under the SSA 

“were pertinent to the bankruptcy case only because the Sale Order allowed [defendants’ parent 

company] to back out of completing the purchase if the obligations had not been met.” R&R at 

29 (emphasis in original). With the sale concluded and the bankruptcy estate out of the picture, 

the plaintiff’s alleged noncompliance with those obligations “is of no concern to . . . the 
17

bankruptcy estate.” Id. Unlike “orders to turn over property of the estate, and determinations of 

the validity, extent, or priority of liens” which “arise in” bankruptcy, Gupta, 858 F.3d at 663, the 

defendants’ requested relief, Defs.’ Ans. at 38–39, if granted, would have no impact on the 

administration of the estate—it would affect only the obligations between the defendants and the 

plaintiff. The defendants’ repeated emphasis that the plaintiff’s alleged breach of contract 

occurred “while the bankruptcy sale was pending,” Defs.’ Obj. at 17 (emphasis in original), is 

simply not legally significant to resolving the instant dispute.

9

 The Bankruptcy Court was 

correct that “it is only a coincidence that if such wrongdoing occurred, it occurred in the 

bankruptcy case” and that this “dispute does not affect the administration of the bankruptcy 

case.” R&R at 33. Thus, no “arising in” jurisdiction exists.

In sum, the defendants have fallen short of showing that the contract dispute “arises in” 

bankruptcy. For this showing, the “fundamental question is whether the proceeding by its 

nature, not its particular factual circumstance, could arise only in the context of a bankruptcy 

case,” Gupta, 858 F.3d at 665 (emphasis in original), and this landlord-tenant case is not 

bankruptcy-specific.

B. “Related to” Jurisdiction

A matter is “related to a case under title 11,” 28 U.S.C. § 1334(b), if “the outcome of that 

proceeding could conceivably have any effect on the estate being administered in bankruptcy .” 

Pacor, Inc. v. Higgins, 743 F.2d 984, 994 (3d Cir. 1984) (emphasis in original). The defendants 

seek to expand this narrow scope of “related to” jurisdiction to cover the renegotiation and 

 

9 The defendants cite, without explanation, In re McClelland, 460 B.R. 397, 405 (Bankr. S.D.N.Y. 2011), to 

support their argument that “[t]he contractual breaches at issue here were ‘inextricably intertwined’ with the 

administration of the bankruptcy sale and thereby provide a basis for jurisdiction.” Defs.’ Obj. at 18. In that case, 

“[t]he Plaintiff sued an estate professional retained by order of the bankruptcy court and compensated from the 

bankruptcy estate, on a claim grounded on work performed for the bankruptcy estate.” In re McClelland, 460 B.R. 

at 405. Plainly, the orders of the bankruptcy court and administration of the bankruptcy estate were starkly at stake 

in that case, which only serves to show the lack of any such “intertwining” here. 
18

assignment of the 2014 Lease because this lease was entered due to the bankruptcy proceeding. 

Defs.’ Obj. at 18–19. They cite no authority for this alternative and expanded standard for

evaluating “related to” jurisdiction. See id. Rather, the effect on the bankruptcy estate is the test, 

and the Bankruptcy Court applied this standard correctly, concluding that no “related to” 

jurisdiction exists in this case because the dispute between the plaintiff and the defendants will 

not have any impact on the bankruptcy estate. R&R at 34. The defendants do not and cannot 

point to any effect that their landlord-tenant dispute will have on the original debtor-lessee’s 

estate, and therefore have established no “related to” jurisdiction under 28 U.S.C. § 1334(b).

IV. CONCLUSION

For the foregoing reasons, the Bankruptcy Court’s recommendation is adopted. The 

defendants have failed to satisfy their burden of establishing subject matter over this case, under 

28 U.S.C. 1334(b), and, consequently the plaintiff’s motions to withdraw the reference to the 

Bankruptcy Court and to remand this case to the Superior Court are granted.10 An order 

consistent with this Memorandum Opinion will be entered contemporaneously.

Date: November 28, 2017

__________________________

BERYL A. HOWELL

Chief Judge

 

10 The plaintiff’s request for attorneys’ fees, Pl.’s Reply Supp.Mot. Remand (“Pl.’s Reply”) at 21–25, ECF 

No. 14, is denied. Although attorney’s fees and “just costs” may be awarded upon issuance of an order remanding a 

case, see 28 U.S.C. § 1447(c), such fees generally are allowed “only where the removing party lacked an objectively 

reasonable basis for seeking removal,” Martin v. Franklin Capital Corp., 546 U.S. 132, 141 (2005), which has been 

construed to mean when the basis for removal is directly “contrary to well-settled law or binding authority,” Nat’l 

Consumers League v. Gen. Mills, Inc., 680 F. Supp. 2d 132, 141 (D.D.C. 2010). The “lack of controlling precedent 

in this Circuit,” Breathe DC v. Santa Fe Nat.Tobacco, 232 F. Supp. 3d 163, 172 (D.D.C. 2017), precluding removal 

shows that the defendants’ arguments, however tenuous, are not “objectively unreasonable.” The plaintiff’s 

argument that “unusual circumstances” nevertheless warrant fees here, Pl.’s Reply at 23 (citing Martin, 546 U.S. at 

141), is a closer call. The “unusual circumstances” exception may apply when a party “fail[s] to disclose facts 

necessary to determine jurisdiction.” Martin, 546 U.S. at 141. Here, the defendants took two years to waive their 

“back-up, protective” reliance on diversity jurisdiction, Defs.’ Resp. at 15; see also supra note 3, and resisted 

jurisdictional discovery, Defs.’ Resp. at 25. Yet, the relevant facts about defendants’ owners’ citizenship were not 

“necessary to determine jurisdiction,” Martin, 546 U.S. at 141, until the question of federal bankruptcy jurisdiction 

was resolved. Thus, no award of attorneys’ fees under the “exceptional circumstances” exception will be granted.