Opinion ID: 1315162
Heading Depth: 2
Heading Rank: 2

Heading: Whether the Bankruptcy Court Jurisdiction was Exclusive

Text: In its second argument, Mystic contends that the New York state court did not have subject matter jurisdiction to issue the default judgment. Mystic argues that because New York had submitted its claim to the New Jersey Bankruptcy Court before New York sought default judgment in the New York state court, its claim fell within the sole jurisdiction of the Bankruptcy Court. This argument fails as well. Before we consider whether the New York state court had jurisdiction to issue the default judgment, we must first inquire whether we should entertain this argument in light of Mystic's apparent failure to raise the issue in the District Court. This court has consistently held that it will not consider issues that are raised for the first time on appeal. Harris v. City of Philadelphia, 35 F.3d 840, 845 (3d Cir. 1994). We depart from this rule, which is one of waiver, only in exceptional circumstances. Delaware Nation v. Pennsylvania, 446 F.3d 410, 416 (3d Cir.2006). Although Mystic did argue in the District Court that the New York state court judgment was void ab initio, it based its argument entirely on whether the New York court's issuance of the default judgment was a violation of the automatic stay. It did not argue that the Bankruptcy Court had exclusive jurisdiction over the validity of the claim. Although we could view this argument as waived, it does trench upon the jurisdiction of the Bankruptcy Court, which Mystic contends is exclusive, and we will exercise our discretion to consider Mystic's argument. Under the statutory scheme for bankruptcy matters, established following the decision in N. Pipeline Constr. Co. v. Marathon Pipe Line Co., 458 U.S. 50, 102 S.Ct. 2858, 73 L.Ed.2d 598 (1982), the district courts have original jurisdiction in all cases arising under title 11 of the United State Code. 28 U.S.C. § 1334(a). They generally refer such matters to bankruptcy judges. 28 U.S.C. § 157(a). District courts have original, but not exclusive, jurisdiction over all civil suits related to the bankruptcy filing. 28 U.S.C. § 1334(b). Of note, this section also specifically states, nothing in this section prevents a district court in the interest of justice, or in the interest of comity with State courts or respect for State law, from abstaining from hearing 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). It is without a doubt, as Mystic argues, that when New York filed its proof of claim in the Bankruptcy Court, it submitted to the jurisdiction of the Bankruptcy Court. It does not follow that the Bankruptcy Court had exclusive jurisdiction over all aspects of the claim. No provision of the Bankruptcy Code requires the Bankruptcy Court to hear all related to claims. New York has not disputed the authority of the Bankruptcy Court to allow or disallow claims. Indeed, the Bankruptcy Court in this case allowed Mystic's Claim Number 161, while disallowing its Claim Number 207. It disallowed Claim Number 207 without inquiring into the validity of the claim under state law because it was filed late. As is evident from the language of 28 U.S.C. § 1334(c)(1), the district courts may, but are not required to, proceed concurrently with a state court on some aspects of a bankruptcy claim. Thus, in Penn Terra, we acknowledged the right of the Pennsylvania state court to issue its order compelling the debtor to proceed with remediation of the contaminated site, notwithstanding that the claim for recovery of the costs was pending in the Bankruptcy Court. This would not have been possible had the jurisdiction of the Bankruptcy Court been exclusive. The issue was succinctly discussed in Sanders v. City of Brady (In re Brady Mun. Gas Corp.), 936 F.2d 212, 218 (5th Cir.1991), where the court held that the only aspect of the bankruptcy proceeding over which the district courts and their bankruptcy units have exclusive jurisdiction is the bankruptcy petition itself. See In re Wood, 825 F.2d 90, 92 (5th Cir.1987). In other matters arising in or related to title 11 cases, unless the Code provides otherwise, state courts have concurrent jurisdiction.... As the New York state court had jurisdiction to enter the default judgment, the Bankruptcy Court properly allowed the claim.