Opinion ID: 201641
Heading Depth: 1
Heading Rank: 2

Heading: jurisdiction

Text: 13 We start with the jurisdictional question. The churches strive to persuade us that there is no related to jurisdiction because this litigation arose after the bankruptcy court confirmed the Plan. We are not convinced. 14 Bankruptcy jurisdiction is governed principally by statute. The general grant of bankruptcy jurisdiction is contained in 28 U.S.C. § 1334. That provision vests original jurisdiction in the district courts over all civil proceedings arising under title 11, or arising in or related to cases under title 11. Id. § 1334(b). In what is a typical arrangement, the District of Massachusetts, by standing order, has delegated to the bankruptcy court all cases in which jurisdiction is premised on section 1334, see D. Mass. R. 201, subject to review by the district court (or, alternatively, by the bankruptcy appellate panel) in accordance with 28 U.S.C. §§ 157, 158. 15 The statutory grant of related to jurisdiction is quite broad. Congress deliberately allowed the cession of wide-ranging jurisdiction to the bankruptcy courts to enable them to deal efficiently and effectively with the entire universe of matters connected with bankruptcy estates. See Pacor, Inc. v. Higgins, 743 F.2d 984, 994 (3d Cir.1984). Thus, bankruptcy courts ordinarily may exercise related to jurisdiction as long as the outcome of the litigation potentially [could] have some effect on the bankruptcy estate, such as altering debtor's rights, liabilities, options, or freedom of action, or otherwise have an 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 In re Smith, 866 F.2d 576, 580 (3d Cir.1989)). 16 In this instance, the bankruptcy court found the adversary proceeding to be related to [a] case[ ] under title 11, as that phrase is used in section 1334(b). At first blush, this seems to be a garden-variety application of the general rule. Whether or not BRMC prevails will directly affect the amount of the liquidating dividend paid to creditors. There is, therefore, a fairly close connection between the adversary proceeding and the administration of the bankruptcy estate. That seemingly would suffice to bring this case within the bankruptcy court's related to jurisdiction. See In re Toledo, 170 F.3d 1340, 1345-46 (11th Cir.1999) (finding related to jurisdiction when the outcome of the suit would affect the amount of funds available to creditors). 17 The churches urge us not to apply the general rule here. In their view, the distinguishing feature is that L-BRMC commenced this proceeding after the bankruptcy court confirmed the Plan. This argument presupposes that the scope of the bankruptcy court's related to jurisdiction narrows dramatically once a plan of reorganization has been confirmed and that, thereafter, related to jurisdiction only includes those matters that have a particularly close nexus to the confirmed plan—a nexus that the churches assert is absent in this case. 18 On its face, section 1334 does not distinguish between pre-confirmation and post-confirmation jurisdiction. Nonetheless, courts sometimes have found a need to curtail the reach of related to jurisdiction in the post-confirmation context so that bankruptcy court jurisdiction does not continue indefinitely. See, e.g., In re Pegasus Gold Corp., 394 F.3d 1189, 1193-94 (9th Cir.2005) (suggesting that post-confirmation bankruptcy court jurisdiction is necessarily more limited than pre-confirmation jurisdiction); In re Resorts Int'l, Inc., 372 F.3d 154, 164-69 (3d Cir.2004) (similar). 19 The rationale behind this line of decisions starts with the premise that a reorganized debtor is emancipated by the confirmation of a reorganization plan. It emerges from bankruptcy and enters the marketplace in its reincarnated form. From that point forward, it is just like any other corporation; it must protect its interests in the way provided by the applicable non-bankruptcy law, without any special swaddling. Pettibone Corp. v. Easley, 935 F.2d 120, 122-23 (7th Cir.1991). Given the broad sweep of related to jurisdiction, applying the general rule without qualification after the confirmation of a reorganization plan easily could result in the bankruptcy court retaining jurisdiction of all cases affecting the reorganized debtor for many years thereafter. This prospect not only would work an unwarranted expansion of federal court jurisdiction but also would unfairly advantage reorganized debtors by allowing such firms to funnel virtually all litigation affecting them into a single federal forum. See id. at 122. 20 The solution, however, is not to discard the baby with the bath water. While courts have interpreted the term related to more grudgingly in some post-confirmation settings, context is important. Those narrowing interpretations have been invoked only with respect to actions involving reorganized debtors that have reentered the marketplace. No case has suggested that courts should abandon the general rule in all post-confirmation cases. 21 Here, the Plan calls for the liquidation of BRMC, not its continuation as a going concern. The most salient difference between the usual Chapter 11 reorganization and a liquidating plan is that, in the latter instance, the reorganized debtor's sole purpose is to wind up its affairs, convert its assets to cash, and pay creditors a pro rata dividend. By definition, it has no authority to reenter the marketplace. That fact undercuts the primary purposes for parsimoniously policing the perimeter of post-confirmation jurisdiction: the specter of endless bankruptcy jurisdiction and a kindred concern about unfairly advantaging reorganized debtors. Accordingly, there is much less reason to depart from the general rule for related to jurisdiction where a claim involves a liquidating plan of reorganization. 22 There is another, perhaps more important, reason for distinguishing between liquidating plans and true reorganization plans. Courts that have limited the scope of post-confirmation jurisdiction have based their holdings on the conclusion that, once confirmation has occurred, fewer proceedings are actually related to the underlying bankruptcy case. See, e.g., Resorts Int'l, 372 F.3d at 165-67; In re Craig's Stores of Tex., Inc., 266 F.3d 388, 390 (5th Cir.2001). That makes good sense: as the corporation moves on, the connection attenuates. 23 This justification is absent in the case of a liquidating plan. Typically, a reorganized debtor is attempting to make a go of its business. Thus, its actions (including any involvement in litigation) redound primarily to that end and only affect the underlying bankruptcy proceeding in a tangential or derivative way. See Pettibone, 935 F.2d at 122-23. By contrast, a liquidating debtor exists for the singular purpose of executing an order of the bankruptcy court. Any litigation involving such a debtor thus relates much more directly to a proceeding under title 11. 24 This case is a paradigmatic example: LBRMC's success or lack of success in securing a share of the trust corpus will directly impact the amount of the liquidating dividend eventually paid to BRMC's creditors. That is a matter intimately connected with the efficacy of the bankruptcy proceeding. 3 25 We add, moreover, that in the case of a liquidating plan of reorganization, there exists a substantial policy interest in favor of adhering to the general rule governing related to jurisdiction: the strong federal policy in favor of the expeditious liquidation of debtor corporations and the prompt distribution of available assets to creditors. See In re Holiday Mart, Inc., 715 F.2d 430, 435 (9th Cir.1983); In re Cartridge Television, Inc., 535 F.2d 1388, 1390 (2d Cir.1976). This policy is furthered by concentrating in a single forum any litigation that will impede or advance that goal. 26 The existence vel non of related to jurisdiction must be determined case-by-case. See Pegasus Gold, 394 F.3d at 1194 (recognizing that post-confirmation related to jurisdiction should be determined with a certain flexibility). The language of the jurisdictional statute, 28 U.S.C. § 1334, is protean, and what is related to a proceeding under title 11 in one context may be unrelated in another. With this in mind, we feel confident that there will be situations in which the fact that particular litigation arises after confirmation of a reorganization plan will defeat an attempted exercise of bankruptcy jurisdiction. See, e.g., Resorts Int'l, 372 F.3d at 166-68. We are equally confident, however, that there are other situations in which the fact that particular litigation arises after confirmation of a reorganization plan will not defeat an attempted exercise of bankruptcy jurisdiction. 27 Insofar as we can tell, no court has yet addressed the scope of post-confirmation related to jurisdiction in a case involving a liquidating plan of reorganization. For the reasons alluded to above, we hold that when a debtor (or a trustee acting to the debtor's behoof) commences litigation designed to marshal the debtor's assets for the benefit of its creditors pursuant to a liquidating plan of reorganization, the compass of related to jurisdiction persists undiminished after plan confirmation. Based on this holding, we affirm the bankruptcy court's exercise of subject matter jurisdiction.