Opinion ID: 6933484
Heading Depth: 4
Heading Rank: 1

Heading: Whether the Proof of Claim Was “Defensive.”

Text: The City relies on the Ninth Circuit’s decision in In re Castlerock Properties, 781 F.2d 159 (9th Cir.1986), to argue that when a creditor files a proof of claim under protest in order to avoid losing its rights in bankruptcy, it does not consent to determination of its claims by the bankruptcy court, and it preserves its right to object to the bankruptcy court’s jurisdiction. We find this argument unpersuasive. In Castlerock, the creditor had filed a pre-petition contract action in state court which was stayed when the debtor filed for bankruptcy. The Castlerock creditor did not file a proof of claim, however; instead it moved for relief from the automatic stay so its state court action could proceed. In response to this motion for relief from stay, the debtor asserted counterclaims against the creditor. The creditor moved to dismiss the counterclaims as inappropriately filed in connection with a motion for relief from stay. After the bankruptcy court denied the creditor’s motion to dismiss, the creditor then filed a proof of claim. The bankruptcy court adjudicated the counterclaims and found for the debtor. The district court, however, vacated the bankruptcy court’s judgment as well as the automatic stay of the state court proceedings. Id. at 160. On appeal, the Ninth Circuit held that the bankruptcy court did not have jurisdiction to adjudicate the counterclaims against the creditor. The court recognized the “well-settled law that a creditor consents to jurisdiction over related counterclaims by filing a proof of claim,” but held that consent could not be found where “the filing of the proof of claim followed the bankruptcy court’s assertion of jurisdiction over the counterclaims despite objections from the creditor.” Id. at 162. The court found it significant, if not dispositive, that the debtor asserted counterclaims before the creditor filed its proof of claim. Id. at 161-62. Thus, the filing of the proof of claim was a “defensive” maneuver. Id. at 163; see In re BKW Systems, 66 B.R. at 548 (Castlerock involved “a unique situation in which the creditor ... was not given an opportunity to freely elect whether or not to assert a claim in the bankruptcy proceed•ing”). We need not decide whether we agree with the Ninth Circuit’s reasoning because we find the decision in Castlerock inapposite. In Castlerock, the Ninth Circuit found that the bankruptcy court lacked core jurisdiction under § 157(b)(2). Thus, in Castlerock, the issue of the creditor’s consent arose because the bankruptcy court could only exercise jurisdiction over the state law counterclaims with the mutual consent of the parties. Id. at 162; see 28 U.S.C. § 157(c)(2); In re TVR of America, Inc., 123 B.R. 159, 162 (Bankr.D.Conn.1991) (bankruptcy court may only exercise jurisdiction over non-core proceedings with the consent of the parties); 1 Collier on Bankruptcy ¶ 3.01[d], at 3-56 (Lawrence P. King et al. eds., 15th ed. 1994) (same). If the City, by relying on Castlerock, is somehow contending that its claim here is non-core, its argument fails. The claim in this case is core, as discussed above, because it falls within § 157(b)(2)(B). If, instead, the City’s claim is that consent was required even if the proceeding was core, we must also reject this argument. While under the old Bankruptcy Act of 1898, consent was treated as the basis for bankruptcy court jurisdiction, Jeffrey T. Ferriell, Core Proceedings in Bankruptcy Court, 56 UMKC L.Rev. 47, 75 (1987), under the 1985 Bankruptcy Amendments, the determination that a proceeding is core does not depend on the consent of the parties. Instead, the statutory basis for a bankruptcy court’s jurisdiction to issue final orders depends on the nature of the proceeding, 28 U.S.C. § 157(b)(2)(B), i.e., whether it is “at the core of the federal bankruptcy power.” Marathon, 458 U.S. at 71, 102 S.Ct. at 287. Even in Castlerock, the party challenging the bankruptcy court’s jurisdiction conceded that the court had subject matter jurisdiction. 781 F.2d at 160. Finally, if the City is contending that it did not consent to the bankruptcy court’s equitable jurisdiction over it, that claim also fails. Invoking equitable jurisdiction in the bankruptcy context might be analogized to invoking a court’s jurisdiction by filing a complaint. The Supreme Court and this court have consistently held that in filing a proof of claim the petitioner submits to the bankruptcy court’s equitable jurisdiction. See, e.g., Langenkamp, 498 U.S. at 44, 111 S.Ct. at 331 (per curiam) (“by filing a claim against a bankruptcy estate the creditor triggers the process of ‘allowance and disallowance of claims,’ thereby subjecting himself to the bankruptcy court’s equitable power”); Granfinanciera, S.A. v. Nordberg, 492 U.S. 33, 59 n. 14, 109 S.Ct. 2782, 2799 n. 14, 106 L.Ed.2d 26 (1989) (“by submitting a claim against the bankruptcy estate, creditors subject themselves to the court’s equitable power to disallow those claims.... ”); In re Manville, 896 F.2d at 1389 (“[b]y filing a proof of claim, [the party] submitted itself to the equitable power of the bankruptcy court to disallow its claim”). The City, by filing its proof of claim in this case, not only triggered § 157(b)(2)(B) subject matter jurisdiction, but also necessarily submitted to the court’s equitable power to resolve its claims. Again, without deciding the validity of Castlerock, we note that the case at bar remains distinguishable from Castlerock. In the latter case, the creditor: (1) moved for relief from the automatic stay, (2) moved to have the district court withdraw its reference of the claims to the bankruptcy court, (3) continually objected to the bankruptcy court’s jurisdiction, and (4) did not file a proof of claim until after all other reasonable measures had failed and the bankruptcy court had taken jurisdiction. In sum, the creditor in Castlerock acted throughout in a manner that was inconsistent with acceptance of the bankruptcy court’s jurisdiction. 781 F.2d at 161-62 (The creditor “would not have the filed Proof of Claim if the bankruptcy court had declined jurisdiction over the counterclaims.”). Here the opposite is true. The City’s first move in the bankruptcy proceeding was to file its proof of claim and it thereafter became deeply involved in the proceedings. It did not file its motion for relief from the stay until ten months later. The record presented to us does not reflect that the City ever moved for the district court to withdraw its reference and remand the claims to state court. Under these circumstances, the City plainly submitted to the equitable resolution of its claims in bankruptcy court.