* Of the Eighth Circuit, sitting by designation.



# Un ited S tates Co urt o f Ap pea ls

For the First Circuit

____________________ No. 01-2314

IN RE: MIDDLESEX POWER EQUIPMENT & MARINE, INC., Debtor.

____________________ NEW ENGLAND POWER & MARINE, INC.,

Appellant,

v. TOWN OF TYNGSBOROUGH, MASSACHUSETTS,

Appellee.

____________________ APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MASSACHUSETTS [Hon. Douglas P. Woodlock, U.S. District Judge ]

____________________

Before Lynch, Circuit Judge , Campbell and Magill, * Senior Circuit Judges .

____________________ Gregory D. Oberhauser for appellant. David G. Baker for appellee.

June 11, 2002-2- LYNCH, Circuit Judge . This case involves a dispute over payment of taxes owed to a town on real estate sold by a trustee in bankruptcy. The purchaser of the debtor's propert y atte mpted to have the bankruptcy court resolve the tax matter by filing a motion to reopen. The bankruptcy court demurred, preferring to abstain in favor of allowing the Massachusetts Land Court, which was hearing the tax foreclosure proceedings, to resolve the issue. The federal district court, hearing the appeal fromthe bankruptcy court, held that the bankruptcy court acted wi thin i ts power and discretion. On appeal to this court, the purchaser argues that the federal court had exclusive jurisdiction and was required to act, and that, in the alternative, it abused its discretion by abstaining. We affirm. I.

On October 15, 1992, Middlesex Power Equipment & Marine, Inc., filed a voluntary Chapter 11 petition with the United States Bankruptcy Court for the District of Massachusetts. On November 8, 1993, the bankruptcy court authorized the sale of Middlesex Power's "building, and various items of equipment, machinery and inventory usedin connec tio n with its business activities." This sale includedthe real estate that the bu sine ss occupied, which consistedof four parcels of land in the town of Tyngsborough, Massachusetts. In the trustee's unopposed Motion for Authorization of Sale, which was allowed by the court by endorsement order, the trustee stated that the sale was p ursua nt to 11 U.S.C. § 363(b), andthat "[t]he business assets will be sold free an d cl ear of-3-

liens, with liens attaching to the proceeds of sale." That broad wording from the trustee's court endorsed motion was to be the

cause of later mischief. On January 11, 1994, NEPM purchased Middlesex Power's assets, including the real estate, for $750,000. On June 1, 1994, the case was converted to a Chapter 7 bankruptcy, and on March 11, 1997, the bankruptcy case was closed.

NEPM, the new owner of the land, refused to pay real estate taxes leviedprior to the sale to the Town of Tyngsborough. NEPMreasoned that because it purchased the land "free andclear of liens, with liens attaching to the proceed s of the sale," it did not need to pay back taxes on the property. In addition, NEPM stoppedmaking payments on the post-s ale re al estate taxes in September 1994, because it claimed that the Town improperly applied current tax payments to pre-sale taxes owed by Middlesex Power.

The Town brought actions under Massachusetts law, Mass. Gen. Laws ch. 60, § 65 (2000), to foreclose tax liens on NEPM's four parcels of land on August 26, 1997, in Massachusetts Land Court. The Land Court held a one-day trial on February 14, 2000.

While the Land Court still had the case under advisement,

on November 28, 2000, NEPM filed a motion with the bankruptcy court to reopen the bankruptcy case for the purpose of hearing a motion f or civil contempt. NEPM argued that the Town was in cont emp t because of its refusal to comply with the bankruptcy court's 1993 sale order which, it said, "carv[ed] out from the proceeds of the sale the sum of $10,000 for the benefit of the creditors of the estate of Middlesex Power Equipment and Ma rine," and stated that-4-

the property in question would be sold "free and clear of liens , with liens attaching to the proceeds of sales."

The bankruptcy court denied NEPM's motion to reopen on January 4, 2001, reasoning that

the issues raised by the contempt motion can adequately be adjudicated in th e pending Land Court proceeding between the parties, a tax taking action by the Town against NEPM. The Bankruptcy Court's jurisdiction over the scope and effectiveness of the 1993 sale order is not exclusive, so the Land Court has jurisdiction to decide the matter . Iss ues relating to the 1993 sale order shouldhave been raised (and, I understand, were raised) by NEPM as a defense in the tax taking action. Moreover, the Land C ourt action has already been fully litigated andtaken under advisement. Comit y, a nd the courts' sharedinterest in the avoidance of forum shopping, favor leaving the matter to the Land Court . . . the [bankruptcy] Court wou ld, i n the interest of comity, abstain from adjudicatin g th e matter. 28 U.S.C. § 1334(c)(1). In re Middlesex Power Equip. & Marine, Inc. , No. 92-20482-CJK, slip op. at 1-2 (Bankr. D. Mass. Jan. 4, 2001) (footnote omitted).

On March 15, 2001, the Land Court entered judgment in the Town's favor. Town of Tyngsborough v. New England Power & Marine, Inc. , Tax Lien Case Nos. 114858, 114859, 114860, 114861, slip op. (Mass. Land Ct. Mar. 15, 2001). In its decision, the Land Court consideredand rejected NEPM's argument that the bankruptcy court's sale order, with its "free and clear of liens" provision, prevented the Town from collecting back taxes on the land from NEPM. It statedthat the "free and clear" language in the sale order "was overbroad in its intended scope and that [it] consequently had no force and effect regarding the real estate taxes owed by [the debtor]." Id . at 11. The Land Court, citing to 11 U.S.C. § 523(a), also said that "the Bankruptcy Court is without authority-5-

to discharge a n i ndividual debtor from any debt arising from pr operty t axes." Id. at 11 n.14. Thus, the Land Court ordered NEPM to pay the Town over $168,000 in unpaid taxes.

On March 26, 2001, NEPM filed an appeal from the Land Court decision. On April 9, NEPM filed a motion with the Land Court for stay of judgment pending appeal, which the Land Court denieda day later. NEPM then petitioned the Massachusetts Appeals Court fo r re lief pending appeal, and the Massachusetts Appeals Court granted a temporary restraining order on April 13. The TRO was lifted on April 24, after the Town submitted its brief to the Massachusetts Appeals Court.

On April 13, 2001, NEPM filed motions to reopen the case with the bankruptcy court, for the court to rule on a motion for contempt and to stay the Land Court's judgment. On April 27, the bankruptcy court once again denied the mot ion st ating that "[i]n denying the [first] motion to reopen, [it] effecti vely abstained f rom determining the significance of the sale order" and "[t]he fact that th e s tate court has ruled in favor of the Town is not

cause for the bankruptcy court to revisit its decision to abstain." In re Middlesex Power Equip. & Marine, Inc. , No. 92-20482-CJK, slip op. at 2 (Bankr. D. Mass. Apr. 27, 2001). In addition, the bankruptcy court stated that under the Rooker

- Feldman doctrine, it,

as a lower federal court, could not review the final judgment of a state court, and that even hadit not abstained, "the Land Court's ruling on the scope and effect of the Bankruptcy Court's sale order . . . would be entitled to preclusive effect." Id. at 3 .-6- NEPMappealed the bankrupt cy co urt's decision to the federal district court. In response, the Town moved to dismiss the appeal. In a written opinion issued on August 14, 200 1, the district court granted the Town's motion to dis mis s the appeal. New En gland Power & Marine, Inc. v. Town of Tyngsborough ( In r e Middlesex Power Equip. & Marine, Inc. ), No. 01-10886-DPW, slip op. (D. Mass. Aug. 14, 2001). The district court reasonedthat because the bankruptcy court's jurisdiction over the matter was not exclusive, its decision to abstain "fell squarely with in t he discretion afforded to t he fed eral courts under [28 U.S.C.] § 1334(c)(1)." Id. at 9. The district court also agreed with the ba nkrup tcy court's reliance on the Rooker

- Feldman doctrine and issue preclusion as additi onal r easons for denying the motion to reopen. Id. at 9-14.

NEPMnow appeals the district court's decision. NEPM argues that the federal courts hadexclusive jurisdiction over the § 363 sale order and so the bankruptcy court could not abstain. In the alternative, it argues that even if the bankruptcy court had concurrent jur isdiction, it abused its discretion in abstaining. NEPM also asserts that the Rooker

- Feldman doctrine does not apply to this case because this case involved a federal and not a state claim. We affirm the district court's order because we conclude that the bankruptcy court had concurrent jurisdiction over this proceeding and was acting well with in its discretion under 281 One of the bankruptcy co urt's and district court's

grounds of decision was the Rooker

- Fel dman doctrine. The Rooker

Feldman doctrine is jurisdicti onal i n nature; if a case is dismissedbecause the Rooker

- Feldman doctrine applies, it means the court has no sub ject matte r jurisdiction to hear the case. See Hill v. Town of Conway , 193 F.3d 33, 41 (1st Cir. 1999); L ong v. Shorebank Dev. Corp. , 182 F.3d 548, 554-55 (7th Cir. 1999); Goetzman v. Agribank, FCB ( In re Goetzman ), 91 F.3d1173, 1177 (8th Cir. 1996); Dubinka v. Judges of the Superior Court , 23 F.3d 218, 221 (9th Cir. 1994). "Article III generally requires a federal court to satisfy itself of its jurisdiction over the subject matter before it considers the merits of a case." Ruhrgas AG v. Marathon Oil Co. , 526 U.S. 574, 583 (1999) (citing Steel Co. v. Citizens for a Better Env't , 523 U.S. 83, 101-02 (1998)). However, while "subject-matter jurisdiction necessarily precedes a ruling on the merits, the same principle does not dictate a sequencing of jurisdictional issues," and a court may "choose among threshold grounds for denying audience to a case on the merits." Ruhrgas AG , 526 U.S. at 584-85. For example "district courts do not overstep Article III limits when they dec line jurisdiction of state-law claims on discretionary grounds . . . or abstain under Younger v. Harris ." Id. at 585; see also Parella v. Ret. Bd. of the R.I. Employees' Ret. Sys. , 173 F.3d 46, 53-57 (1st Cir. 1999) (declining to apply the rule of Steel Co. to cases involving the Eleven t h Amendment). Thus, we choose to decide this case on discretionary abstention grounds before we reach the issue of subject matter jurisdiction and the Rooker

- Feldman doctrine . -7- U.S.C. § 1334(c)(1) to abstain. 1 II. A. Exclusive or Concurrent Jurisdiction

NEPM's argument is that the bankruptcy court, as a federal court, had exclusive jurisdiction in this case, and so had

no discretion to abstain and defer to the Massachusetts Land Court.

The federal courts' jurisdiction over bankruptcy cases is governedby 28 U.S.C. § 1334 (2000). Celotex Corp. v. Edwards , 514 U.S. 300, 307 (1995). Section 1334 sets up two main categories of ba nkru ptcy cases over which the district court has jurisdiction: "cases under title 11," over which the district court has original and exclusive jurisdiction, 28 U.S.C. § 1334(a), and "proceedings2 The bankruptcy court has j uris diction over these cases

through delegation by the district court pursuant to 28 U.S.C. § 157(a) (2000). LeBlanc v. Salem( In re Mailman Steam Carpet Cleaning Corp. ), 196 F.3d 1, 5 (1st Cir. 1999). -8- arising under title 11, or arising in or related to cases under title 11," over which the district court has original, but not exclusive jurisdiction, 28 U.S.C. § 1334(b). See also Donaldson v. Bernstein , 104 F.3 d 547, 552 (3d Cir. 1997). 2 Section 1334(a) states that the only cases over which the district court has exclusive jurisdiction are "cases under title 11." A case under title 11 is the bankruptcy petition itself , suc h as a Chapter 11 reorganization. 1 Collier on Bankruptcy¶ 3.01[3], at 3-12 to 3-13 (L. King et al. eds., 15th rev. ed. 2001) ("The 'case' referred to in section 1334(a) is the umbrella under which all of the proceeding s that follow the filing of a bankruptcy petition take place."); see also Dona ldson , 104 F.3d at 552. The claims here, between a purchaser of estate property and a town, both third parties to the bankruptcy, are not the sort of case outlined in § 1334(a), and the bankruptcy court's jurisdiction was therefore not exclusive. The responsibility of a purchaser of real property from the estate to pay property taxes i s n ot part of the original debtor's bankruptcy petition. Instead, this is a dispute which is connected to the bankruptcy case.

NEPMcharacterizes the dispute as an attempt by the Town to collaterally attack the bankruptcy court order. That is not so. The Town says it is owed taxes and sought to foreclose. NEPM inte rposed the order as a defense to the foreclosure, as it was3 NEPM attempts to rely on several Ninth Circuit cases to

bolster its argument that the bankruptcy court had no discretion to abstain. McGhan v. Rutz ( In re McGhan ), No. 99- 5695 6, 2002 WL 857767 (9th Cir. May 7, 2002); Contractors' State License Bd. v. Dunbar ( In re Dunbar ), 245 F.3d 1058 (9th Cir. 20 01); Grunt z v. Coun ty of Los Angeles ( In re Gruntz ), 202 F.3d 1074 (9t h Cir . 2000). These cases fell within the exclusive jurisdiction of the federal courts under 28 U.S.C. § 1334(a). McGhan , 2002 WL 857767, at *4-*5; Gruntz , 202 F.3d at 1080-83. As we have held that jurisdiction here was concur re nt, those cases are irrelevant. Although Gruntz contains a dictum that may suggest that its rule couldextend to cases of concurrent jurisdiction, 202 F.3d at 1083, we find that suggestion inconsistent with § 1334(c) and therefore unpersuasive.

4 Congress revised 2 8 U.S. C. § 1334 as part of the Bankruptcy Reform Act of 1994, Pub. L. No. 103-394, § 104(b), 108 Stat. 4106, 4109 (1994). These revisions only apply in ti tle 1 1 cases commenced after the effective date of the revisions, October 22, 1994. Id. § 702, 108 Stat. at 4150; see also Christo v. Padgett , 223 F.3d 1324, 1331-32 (11th Cir. 2000), cert. denied , 531 -9- authorizedto do by the statute. That is not a collateral attack. The interpretation of the order and its applicability to discharge of the liens was never litigated before.

Because this case falls into one of the categories establishedin § 1334(b) -- a proceeding arising under title 11, arising in or related to a case under title 11 -- the bankruptcy court had non-exclusive jurisdiction. As such, the case is subject to the abstention provisions in § 1334(c). 1 Collier on Bankruptcy , supra , ¶ 3.01[4], at 3-14. 3 B. Mandatory or Permissive Abstention

Section 1334(c) provides for both permissive abstention under § 1334(c)(1) , an d mandatory abstention under § 1334(c)(2). Whether the bankruptcy court's abstention was mandatory or permissive matters because, under the language of § 1334 applicable in this case, 4 there is a difference in this cou rt's jurisdictionU.S. 1191 (2001). Because this case began on October 15, 1992, the

rev isions do not apply here. We therefore use the ver sion o f § 1334 that was in place before the revisions.

5 Because we decide that the bankruptcy court in this case properly abstained under § 133 4(c)(1), the permissive abstention provision, we do not decide the extent of appellate jurisdiction to review a court's decision about mandatory abstention under the old version of § 1334(c) which applies in this case. While some courts have stated that appellate courts "have no power to review the district court's decision" to abstain under § 1334(c)(2), Gober v. Terra + Corp. , 100 F.3d 1195, 1206 n.9 (5th Cir. 1996), others have saidthat appellate courts have jurisdiction to review whether "the statutory requirements prerequisite to mandatory abstention are met." S.G. Phillips Constructors, Inc. v. City of Burlington ( In re S.G. Phillips Constructors, Inc. ), 45 F.3d 702, 708 (2d Cir. 1995). -10- to review the abstention decision. In relevant part, sectio n 1334(c)(2), the provision for mandatory abstention, states that "[a]ny decision to abstain or not to abstain made under this subsection is not reviewable by appeal or otherwise by the court of appeals . . . or by the Supreme Co urt . . . ." The court of appeals' jurisdiction to review a decision of mandatory abstention is thus, at best, limited. 5

The permissive abstention provision reads: Nothing in this section prevents a district court in the interest o f just ice, or in the interest of comity with St ate courts or respect for State law, from abstaining fromhearing a particular proceeding arising under title 11 or arising in or related to a case under title 11. 28 U.S.C. § 1334(c)(1). The abstention exercised by the bankruptcy court in this case was necessarily permissive because the case fits into a category of proceedings described in § 1334(c)(1), as the bankruptcy court itself stated.

The dividing line is unclear betwe e n proceedings that-11-

"arise under" as opposed to "arise in" and as opposed to " relat e to" title 11. The statute itself provides no de fini tions. We

assume each term was meant to have s eparate co ntent in order to avoidredundancy. Woodv. Wood( In re Wood ), 825 F.2d90, 96 (5th Cir. 1987); see also Tamko Roofing Prods., Inc. v. Ideal Roofing Co. , 282 F.3d 23, 32 (1st Cir. 2002) (when Congress creates a list of categories, courts "are loath to strip [any of them] of meaning"). The "arising under" language of § 1334(b) is analogous to the "arising under" language in 28 U.S.C. § 1331. 1 Collier on Bankruptcy , supra , ¶ 3.01[4][c][i], at 3-21. In shorthand, it is commonly said that "arising under" proceedings are (at least) those

cases in which the cause o f action is created by title 11. Id. ;

see also Cont'l Nat'l Bank of Miami v. Sanchez ( In re Toledo ), 170 F.3d 1340, 1345 (11th Cir. 1999); In re Wood , 825 F.2d at 96.

"Arising in" proceedings generally "are those that are not based on any right expressly created by title 11, but nevertheless, would have no existence outside of the bankruptcy." In re Wood , 825 F.2d at 97; see also I n re Toledo , 170 F.3d at 1345; United States Tr. v. Gryphon at the Stone Mansion, Inc. , 166 F.3d552, 556 (3d Cir. 1999) ; Eastpor t Assocs. v. City of Los Angeles ( In re Eastport Assocs. ), 935 F.2d 1071, 1076 (9th Cir. 1991). By contrast, this court has defined "related to" proceedings as proceedings which "'potentially have some effect on th e bankruptcy estate, such as altering debtor's rights,6 Altern ativ ely, if the proceeding were "related to" but

not "arising under" title 11 or "arising in" a case under title 11, and thus subject to mandatory abstention, then the outcome from a practical point of view wo uld b e the same. The bankruptcy court would have been required to abstain and this court would have, at best, limited appellate jurisdiction to review that orde r. See supra n.4. The requirements for mandatory abstention, laid out in 28 U.S.C. § 1334(c)(2), in relevant part, read: Upon timely moti on of a pa rty in a proceeding based upon a State law claim or S tate law cause of action, related to a case under title 11 but not arising under title 11 or arising in a case under title 11 , with re spec t to which an action couldnot have been commenced in a court of the United States abse n t jurisdiction under this section, the district court -12- l iabilities, options, or freedom of action, or otherwise h ave a n impact upon the handling and administration of the bankrupt estate.'" In re G.S.F. Corp. , 938 F.2d 1467, 1475 (1st Cir. 1991) (quoting Smith v. Commerical Banking Corp. ( In re Smith ), 866 F.2d 576, 580 (3d Cir. 1989)). We need not decid e whether this proceeding is "related to" a case under title 11.

The underlying dispute here involves a subsequent purchaser's interpretation of a sale order "free an d clea r of liens" under 11 U.S.C. § 363(b), an order that can only be issued by a bankruptcy court, and so it is one that arises in a case under title 11 or perhaps arises under title 11. In addition, the motion for civil contempt underlying the motion to reopen would not exist but for the bankruptcy, because NEPM is claiming that the Town is in contempt of the bankruptcy court's sale order, and so it arises in a case under title 11. 1 Collier on Bankruptcy , supra , ¶ 3.01 [4 ][c][iv], at 3-28 ("'Arising in' proceedings might also include contempt matt er s."). This case then allows permissive abstention. 6shall abst ain from hearing such proceeding if an action is

commenced, and can be timely adjudicated, in a State forum of appropriate jurisdiction. 28 U.S.C. § 1334(c)(2) (emphasis added). -13- C. The Decision to Abstain

Our review of the bankruptcy court's decision to abstain under § 1334(c)(1) is for abuse of discretion. Gober v. Terra + Corp. , 100 F.3d 1195, 1207 (5th Cir. 1996); Coker v. Pan Am. World Airways, Inc. ( In re Pan Am. Corp. ), 950 F.2d 839, 844 (2d Cir. 1991); In re Eastport Assocs. , 935 F.2d at 1075. In a case that falls into the categories outlined in § 13 34(c)( 1), "courts have broaddiscretion to abstain from hearing state law claims whenever appropriate 'in the interest of justice, or in the interest of

co mity with State courts or respect for State law.'" Gober , 100 F.3dat 12 06 (citi ng 28 U.S.C. § 1334(c)(1)). We find no abuse here. In the bankruptcy court's denial of the first motion to reopen, it articulated several reasons for abstention. The court statedthat the issues raised by the contempt motion underlying the motion to reopen "can adequately be adjudicated in the pending Land Court proceeding between the parties, a tax taking action by the Town against NEPM" and that "the Land Court action has already been fully litigated and tak en under advisement." It then concluded that "[c]omity, and the courts' shared interest in the avoidance of forumshopping, favor leaving the matter to the Land C our t." Later, in the bank rupt cy court's opinion denying NEPM's second motion to reopen (which is the o rder on appeal before us), the-14-

c ourt quoted extensively from its first decision and state d tha t there was no reason for it "to revisit its decision to abstain."

The scope of the bankruptcy court's sale order under the Code is an issue of federal law, and, as such, is a factor that weighedagainst abstention. However, the bankruptcy court also consideredother factors which weighed in favor of abstention. It took into account judicial economy and comity, when, in its first opinion, it noted that the issues between the parties had already been fully litigatedin the Land Court, and in its second decision, it stated that "NEPM's motions essentially ask this court to review

a final ju dgmen t of the state court." The bankruptcy court also sagely commented on "avoidance of forum shopping" as a reason to defer to the Land Court.

The statute itself delineates "three . . . cri teria to determine whether abstention is appropriate" : the interests of justice, comity, and respect for state law. In re Pan Am. Corp. , 950 F.2d at 845. Other circuits have consideredseveral factors in the determination of whether permissive abstention is appropriate, including: "the extent to which state law issues predominate over bankruptcy issues"; "the presence of a related proceeding commenced in state court or other nonbankruptcy court"; and "the likelihood that the commencement of the proceeding in bankruptcy court involves forum shopping by one of the parties." See Christensen v. Tucson Estates, Inc. ( In re Tucson Estates, Inc. ), 912 F.2d 1162, 1166-67 (9th Cir. 1990) (quoting Republic Reader's Serv., Inc. v. Magazine Serv. Bureau, Inc. ( In re Republic Reader's Serv., Inc. ),-15-

81 B.R. 422, 429 (Bankr. S.D. Tex. 1987)) (internal quotations omi tted) (adopting a twelve-factor test to ascertain whe the r permissive abstention is appropriate in any given case); see also In re Chicago, Milwaukee, St. Paul & Pac. R.R. Co. , 6 F.3d 1184, 1189 (7th Cir. 1993) (same). In our view, the bankruptcy court took these criteria into account in its decision and arrived at a sound and supportable decision to abstain. III. Because we conclude that the ban kruptcy court was well within its discretion to abs tain under the permissive abstention provision, we do not reach the issues of collateral estoppel and the Rooker

- Feldman doctrine. If appellant is dissatisfiedwith the conclusion reached by the state LandCo urt, its remedies are through the state system. We affirmthe judgment of the district court. Costs are awarded to the Town.