Opinion ID: 177838
Heading Depth: 4
Heading Rank: 1

Heading: Arising In or Arising Under Jurisdiction

Text: Jessen takes the position that we should affirm the BAP because the state court action required resolution of a substantial question of bankruptcy law and was, therefore, a core proceeding. However, neither the decisions underlying the BAP's disposition, nor the cases Jessen cites on appeal, compel the conclusion that BG Plaza's state court action arose under the bankruptcy code. Instead, the better understanding of this case is as a run-of-the-mill collateral attack in which BG Plaza was free to bring its breach of contract action in state court, which, in turn, would have been obligated to examine the preclusive effects of the bankruptcy court's unappealed Sale Order, issued over BG Plaza's opposition. Congress non-exhaustively enumerated what constitutes a core proceeding in 28 U.S.C. § 157(b)(2). The proceedings listed include matters affecting the administration of the estate, determination of the validity, extent, or priority of liens, and other proceedings affecting the liquidation of the assets of the estate or the adjustment of the debtor-creditor relationship. § 157(b)(2)(A), (K), (O). [The] section, however, does not enumerate examples of, or define what constitutes, `non-core' proceedings. Dunmore v. United States, 358 F.3d 1107, 1114 (9th Cir.2004). We have addressed this question, holding proceedings to be non-core if they do not depend on the Bankruptcy Code for their existence and they could proceed in another court. Id. (internal citation omitted). In another articulation, we stated a core proceeding is one that invokes a substantive right provided by title 11 or... a proceeding that, by its nature, could arise only in the context of a bankruptcy case. Gruntz v. County of L.A. (In re Gruntz), 202 F.3d 1074, 1081 (9th Cir.2000) (internal quotation marks omitted). Here, BG Plaza's claim for breach of contract arising out of the Sellers' purported failure to comply with the right of first refusal does not, by its nature... arise only in the context of a bankruptcy case. Id. A matter arises under the Bankruptcy Code if its existence depends on a substantive provision of bankruptcy law, that is, if it involves a cause of action created or determined by a statutory provision of the Bankruptcy Code. In re Harris, 590 F.3d at 737; Eastport Assocs. v. City of L.A. (In re Eastport Assocs.), 935 F.2d 1071, 1076 (9th Cir.1991) (citing Wood v. Wood (In re Wood), 825 F.2d 90, 96 (5th Cir.1987)); Collier on Bankruptcy § 3.01[3][c][i]. Because the theory of its claim is a state law contract action independent of the bankruptcy case, BG Plaza's claim against the Sellers is not one arising under the Bankruptcy Code. A proceeding arises in a case under the Bankruptcy Code if it is an administrative matter unique to the bankruptcy process that has no independent existence outside of bankruptcy and could not be brought in another forum, but whose cause of action is not expressly rooted in the Bankruptcy Code. See In re Marshall, 600 F.3d at 1054-55; Collier on Bankruptcy § 3.01[3][c][iv]. Here, too, BG Plaza's Washington breach of contract claim does not depend on an administrative matter unique to the bankruptcy process that has no independent existence outside of the bankruptcy court and could not be brought in another forum. None of the cases Jessen cites or on which the BAP relied persuades us otherwise. The BAP first considered Beneficial Trust Deeds v. Franklin (In re Franklin), in which the plaintiffs-debtors' property was sold pursuant to a settlement of a second bankruptcy petition, notwithstanding debtors' filing of a third petition, which they claimed renewed the automatic stay preventing valid sale of the property. 802 F.2d 324, 325 (9th Cir. 1986). The plaintiffs sought relief in state court to, inter alia, set aside the trustee's foreclosure sale and to cancel recorded deeds resulting from the sale. Id. at 325-26. We held that, where the subsequent collateral attack turned on whether or not the bankruptcy judge's order ... entering the stipulation of the parties had the effect of preventing the automatic stay imposed by the filing of the Debtors [sic] third bankruptcy petition from interfering with the sale, the bankruptcy court retained jurisdiction. Id. at 326. In other words, we found arising under jurisdiction in In re Franklin because the relevant contract was a stipulated settlement of the bankruptcy proceeding, and the issue the plaintiffs attempted to bring in state court was the effect of the stipulation on the automatic stay provision, a fundamental aspect of the Bankruptcy Code. Id. ; see 11 U.S.C. § 362. Here, on the other hand, BG Plaza sought to bring a breach-of-contract claim created under Washington law based on a right of first refusal agreement entered into entirely independently of the bankruptcy action. The BAP also cited McCowan v. Fraley (In re McCowan), 296 B.R. 1, 4 (9th Cir. BAP2003), but this case also fails to compel a finding that the bankruptcy court had arising-under jurisdiction. In In re McCowan, after a Chapter 7 case had closed, a creditor attempted to execute on a judgment the bankruptcy court had previously entered fixing the amount of the debtor's nondischargeable debt to the creditor. Id. at 2. The bankruptcy court concluded it had jurisdiction to determine the dischargeability of a debt owed by a bankruptcy debtor, because such a proceeding `arises under' the Bankruptcy Code, because it is a cause of action created by § 523 of the Bankruptcy Code. Id. at 3 (internal citation omitted). Here, in contrast, the cause of action was not under the Bankruptcy Code at all; it was indisputably under Washington contract law. Further, the determination BG Plaza sought was not whether Ray had discharged his bankruptcy debtshe hadbut whether the Sellers (which included a non-debtor party) had breached the terms of the right of first refusal. The action in In re McCowan was for the direct enforcement of the bankruptcy court's order, a very different posture from the case before us. [5] Finally, the BAP relied on its opinion in Aheong v. Mellon Mortgage Co. (In re Aheong), 276 B.R. 233 (9th Cir.BAP2002), but that case is easily distinguishable. There, a debtor filed an emergency state court motion claiming an order granting the creditor's writ of possession for debtor's residence was void because it was obtained in violation of the bankruptcy court's automatic stay. Id. at 237. The state court granted a stay to allow time for clarification from the bankruptcy court. The bankruptcy court in turn granted the creditor's Motion to Annul the Stay on the grounds that the debtor had violated a General Order of the bankruptcy court regarding noticing the state court of the federal bankruptcy filing. Id. Thus, in In re Aheong, the bankruptcy court had jurisdiction to consider annulling a stay in the bankruptcy proceeding because, as the BAP rhetorically asked, What could be more `under' Title 11 than the automatic stay and the right to seek to annul it? Id. at 250 (citations omitted). Given the role the automatic stay plays in bankruptcy proceedings, we agree with this aspect of In re Aheong's reasoning, and conclude that it actually serves to distinguish the breach of contract action here. Jessen's citation to Hawaiian Airlines, Inc. v. Mesa Air Group, Inc., 355 B.R. 214 (D.Haw.2006), is no more helpful to his claim of jurisdiction. He relies on its statement that [a] post-confirmation proceeding involving a bankruptcy court's enforcement of its own order is a core proceeding. Id. at 219. [6] Putting aside for a moment the analytical overlap with our inquiry into ancillary jurisdiction below, Hawaiian Airlines involved the alleged breach of a confidentiality agreement entered into pursuant to the bankruptcy court's Plan Procedures Order, and was between one of the parties and the bankruptcy trustee, id. at 220, a plainly different posture from this case. Finally, in a case handed down after the parties' initial appellate briefing, we recently elaborated on the applicable standard. In In re Harris, we explained, A civil proceeding `arises in' a Title 11 case when it is not created or determined by the bankruptcy code, but where it would have no existence outside of a bankruptcy case. 590 F.3d at 737. There, a Chapter 7 debtor brought a state court action against the bankruptcy trustee and other representatives of the estate, claiming the defendants breached a settlement agreement entered into during the course of the bankruptcy proceedings, which was related to the administration of estate assets. Id. at 734-35. We held that the claim arose in [the debtor's] bankruptcy case because it could not exist independently of his bankruptcy case. Id. at 738; see also Maitland v. Mitchell (In re Harris Pine Mills), 44 F.3d 1431, 1435-38 (9th Cir. 1995). Although we found jurisdiction proper in In re Harris, the facts there are easily distinguishable and our reasoning supports finding the bankruptcy court here lacked jurisdiction. Here, the claims involve a piece of property a third party was trying to purchase from the Debtor and his non-bankruptcy partner, and the state court action is a breach of contract action claiming the Sellers did not honor the terms of the right of first refusal, which itself was created under Washington law rather than as part of the bankruptcy proceeding. Thus, following our reasoning in In re Harris, an action for breach of the right of first refusal can exist independently of the bankruptcy case, and does not arise under Title 11. See 590 F.3d at 737-38.