Court Opinion

ID: 4149748
Source: CourtListenerOpinion
Date Created: 2017-03-02 17:09:41.728755+00
Date Added: 2024-06-11T14:46:33.528268
License: Public Domain

FILED
                                                                    Mar 02 2017, 8:31 am

                                                                        CLERK
                                                                    Indiana Supreme Court
                                                                       Court of Appeals
                                                                         and Tax Court

      ATTORNEYS FOR APPELLANT                                   ATTORNEY FOR APPELLEE
      Thomas M. Beeman                                          Donald K. McClellan
      Alexander M. Beeman                                       Muncie, Indiana
      Beeman Law
      Anderson, Indiana

                                                  IN THE
          COURT OF APPEALS OF INDIANA

      Michael R. Pilkington,                                    March 2, 2017

      Appellant-Plaintiff,                                      Court of Appeals Case No.
                                                                18A02-1605-PL-1086
              v.                                                Appeal from the Delaware Circuit
                                                                Court.
                                                                The Honorable Thomas A. Cannon,
      Karen A. Pilkington,                                      Jr., Judge.
      Appellee-Defendant.                                       Cause No. 18C05-1510-PL-24

      Shepard, Senior Judge

[1]   Michael Pilkington sued his stepmother, alleging she breached her duties as

      trustee of a trust created by her late husband, Michael’s father. The trial court

      dismissed the complaint with prejudice for lack of subject matter jurisdiction.

      We conclude that the court has authority to adjudicate Michael’s complaint,

      and reverse.

      Court of Appeals of Indiana | Opinion 18A02-1605-PL-1086 | March 2, 2017              Page 1 of 13
                                Facts and Procedural History
[2]   Flannan and Karen Pilkington were married until Flannan’s death in 2006. At

      the time of his death, Flannan, Karen, Michael, and Patrick each owned

      percentage interests in five limited liability corporations that held real property.

      Flannan’s will was probated and Karen was named trustee of a trust Flannan

      created by last will. The trust contained Flannan’s interest in the five limited

      liability corporations (the “LLCs”). Karen was entitled to income from the

      trust during her life. Upon her death, the trust assets passed to her stepsons

      Michael and Patrick Pilkington. The trust contained a spendthrift provision:

      “No creditor of my wife or any residual beneficiary shall have the right to

      invade this trust for the purpose of satisfying the debts of my wife or any

      residual beneficiary.” Appellant’s App. p. 12, Last Will and Testament of

      Flannan M. Pilkington.

[3]   In 2009, Michael filed Chapter 7 bankruptcy. By request of the bankruptcy

      trustee, his interest in the LLCs were sold to Karen for $20,000. The

      description of the interest sold was not specific, e.g., deeds prepared by the

      bankruptcy trustee quitclaimed to Karen “any interest [Michael] may have in

      the . . . described real property.” See Defendant’s Exhibits A, B, C, and D.

[4]   In 2015, Michael filed a complaint against Karen in the Delaware Circuit

      Court, alleging (among other things) that she breached her duties as trustee.

      Michael also alleged that he retained his beneficiary interest in the trust and that

      only his “entity interests” in the LLCs were sold to Karen during the

      Court of Appeals of Indiana | Opinion 18A02-1605-PL-1086 | March 2, 2017   Page 2 of 13
      bankruptcy. Appellant’s App. pp. 6-7. Michael sought (among other things) an

      accounting of all trust activity, Karen’s removal as trustee, and an order

      requiring Karen to restore trust assets and make up for any losses. Id. at 9.

[5]   Separately, Patrick sued Karen in the Delaware Circuit Court over the

      management, operation, and ownership of the trust assets. They entered into a

      settlement in April 2015, agreeing to sell all of the properties held by the LLCs

      and divide the proceeds 51% to 49% in favor of Patrick. Michael was not a

      named party and did not intervene in the action.

[6]   On February 9, 2016, Karen moved to dismiss Michael’s complaint for lack of

      subject matter jurisdiction. She argued that the bankruptcy court’s order and

      the quitclaim deeds divested Michael of any interest he had in the LLCs,

      including his remainder interest; that Michael’s complaint stemmed from the

      bankruptcy court’s sale of his interest in the LLCs; and that the Delaware

      Circuit Court, a court of general jurisdiction, had no subject matter jurisdiction

      over what Karen characterized as “a bankruptcy court determination.” Id. at

      38-39. According to Karen, the bankruptcy court first needed to determine

      whether Michael retained a remainder interest in the trust before the state court

      could act on his complaint against her.

[7]   Michael responded by saying that his “complaint [contained] no claims which

      would fall under the jurisdiction of the bankruptcy court.” Id. at 54. He then

      argued his remainder interest in the trust was not included in the bankruptcy

      Court of Appeals of Indiana | Opinion 18A02-1605-PL-1086 | March 2, 2017   Page 3 of 13
       sale because of the spendthrift provision, and that under applicable law the

       remainder interest could not be sold by the bankruptcy trustee.

[8]    Following a hearing, the trial court granted Karen’s motion and dismissed

       Michael’s complaint with prejudice, finding that it was an improper collateral

       attack on the judgment issued in the litigation between Patrick and Karen, and

       that Michael could have intervened in that litigation but did not. It also noted

       that he could have sought relief from the bankruptcy court.

                                                       Issue
[9]    Michael argues on appeal that the trial court erred in concluding that the

       Delaware Circuit Court lacked subject matter jurisdiction.

                                     Discussion and Decision
                                                 Motion to Strike

[10]   Initially, we must address Karen’s motion to strike portions of Michael’s brief

       and appendix. Karen alleges Michael’s statement of the facts contains

       argument, and that the appendix contains the chronological case summary

       (CCS) from the bankruptcy court which was not admitted into evidence and is

       not properly before us.

[11]   We agree, and Michael concedes, the CCS was never admitted. Therefore, it

       cannot be considered. See Cochran v. Rodenbarger, 736 N.E.2d 1279, 1283 (Ind.

       Ct. App. 2000) (evidence must be admitted into evidence in order to be

       considered). However, we do not find Michael’s statement of the facts so rife

       Court of Appeals of Indiana | Opinion 18A02-1605-PL-1086 | March 2, 2017   Page 4 of 13
       with argument that it is appropriate to strike parts of it. By separate order

       issued contemporaneously with this opinion, we grant Karen’s motion to strike

       the CCS from the appendix, as well as references to the CCS found in Michael’s

       brief, but deny the motion to strike portions of the statement of the facts.

                                               Standard of Review

[12]   Subject matter jurisdiction concerns the power of a court to hear and determine

       a general class of cases to which the proceeding before it belongs. Santiago v.

       Kilmer, 605 N.E.2d 237 (Ind. Ct. App. 1992). “‘The only relevant inquiry in

       determining whether the court has subject matter jurisdiction is to ask whether

       th[e] kind of claim the plaintiff advances falls within the general scope of

       authority conferred upon such court by the constitution or statute.’” Harp v.

       Ind. Dep’t. of Highways, 585 N.E.2d 652, 656 (Ind. Ct. App. 1992) (quoting State

       ex rel. Young v. Noble Cir. Ct., 263 Ind. 353, 356, 332 N.E.2d 99, 101 (1975)).

[13]   Indiana Code section 33-28-1-2 (2011) provides that all circuit courts have

       original and concurrent jurisdiction in all civil cases and in all criminal

       cases. Courts of such general jurisdiction are presumed to have subject matter

       jurisdiction. Mishler v. Cnty. of Elkhart, 544 N.E.2d 149 (Ind. 1989).

[14]   In ruling on a motion to dismiss for lack of subject matter jurisdiction, the trial

       court may consider not only the complaint and motion but also any affidavits or

       evidence submitted in support. GKN Co. v. Magness, 744 N.E.2d 397 (Ind.

       2001). The standard of appellate review for such a motion depends on what

       occurred in the trial court, and on “(i) whether the trial court resolved disputed

       Court of Appeals of Indiana | Opinion 18A02-1605-PL-1086 | March 2, 2017      Page 5 of 13
       facts; and (ii) if the trial court resolved disputed facts, whether it conducted an

       evidentiary hearing or ruled on a ‘paper record.’” Id. at 401. We review de

       novo a trial court’s ruling on a motion to dismiss where, as here, the facts

       before the court are disputed and the trial court rules on a paper record. Id.

       Under such circumstances a court of review is in as good a position as the trial

       court to determine whether the court has subject matter jurisdiction. Id.

                                Underlying Question – Beneficiary Interest

[15]   Karen maintains that Michael’s dispute “centers around the actions of the

       [bankruptcy court] in handling, selling and conveying to Karen, [sic] Michael’s

       interest in the [trust assets,]” and that the dispositive issue is whether Michael

       retained his beneficiary interest. Appellee’s Br. pp. 11-12. Karen contends that

       only the bankruptcy court can make this determination.

[16]   We agree that Michael’s complaint rests on whether his beneficiary interest in

       the trust was extinguished in the bankruptcy, and that this issue is dispositive.

       However, we disagree with regard to whether the trial court has authority to
                                     1
       determine the matter.

       1
         We decline to address the additional arguments Michael raises on appeal regarding the trial court’s decision
       to dismiss his complaint, i.e., improper collateral attack, failure to intervene in Patrick and Karen’s action,
       failure to seek relief in the bankruptcy court, and failure to seek an accounting of the trust from the probate
       court. These may yet be live issues, but only depending on the outcome of further proceedings concerning
       the nature of the bankruptcy court determination.

       Court of Appeals of Indiana | Opinion 18A02-1605-PL-1086 | March 2, 2017                          Page 6 of 13
                                         Subject Matter Jurisdiction

[17]   The jurisdiction of the federal district and bankruptcy courts is established in

       the Bankruptcy Code. See 11 U.S.C. §§ 101-1330 (2010). In particular, 28

       U.S.C. § 1334 states in relevant part:

               (a) Except as provided in subsection (b) of this section, the
               district courts shall have original and exclusive jurisdiction of all
               cases under title 11.
               (b) Except as provided in subsection (e)(2), and notwithstanding
               any Act of Congress that confers exclusive jurisdiction on a court
               or courts other than the district courts, the district courts shall
               have original but not exclusive jurisdiction of all civil proceedings
               arising under title 11, or arising in or related to cases under title
               11.

       28 U.S.C. § 1334(a) and (b). Although Congress has given the federal district

       courts “original and exclusive jurisdiction of all cases under title 11,” the district

       courts do not have “exclusive jurisdiction of all civil proceedings arising under

       title 11 or arising in or related to cases under title 11.” Id. (emphasis added). The

       district courts and their bankruptcy units have exclusive jurisdiction only over

       “the bankruptcy petition itself.” See Matter of Wood, 825 F.2d 90, 92 (5th Cir.

       1987). In other matters “arising in” or “related to” title 11 cases, unless the

       bankruptcy code provides otherwise, state courts have concurrent jurisdiction.

       Matter of Brady, Texas, Mun. Gas Corp., 936 F.2d 212, 218 (5th Cir. 1991).

[18]   In determining the question before us, we find guidance in cases from other

       jurisdictions. The Nebraska Supreme Court has provided helpful analysis in the

       course of deciding whether a probate court had jurisdiction to determine what

       Court of Appeals of Indiana | Opinion 18A02-1605-PL-1086 | March 2, 2017        Page 7 of 13
       was sold at a bankruptcy auction. The marriage of Ina and Willis Odenreider

       gave rise to the litigation In re Estate of Odenreider, 837 N.W.2d 756 (Neb. 2013).

       Willis passed away in 1990. Through a trust, he left Ina a life estate in certain

       property, with certain remainder interests vested in her two sons Robert and

       Joel, and the children of Robert and Joel. In 1998, one of Joel’s children,

       Christy, filed for chapter 7 bankruptcy and listed as an asset her contingent

       interest in Willis’ trust. Robert’s son Mark purchased the interest at a

       bankruptcy auction. The interest sold was described as “whatever interest

       Christy had in the trust.” Id. at 760. In 2005, Ina executed a last will and

       testament. Via trust, she left her interest in the property to Robert and Joel. If

       either Robert or Joel had died, his children would take an interest in the

       property. Joel (Christy’s father) predeceased Ina. Ina died in 2010. Robert

       served as personal representative of the estate.

[19]   A proposed schedule of distribution of the estate listed Mark as having Christy’s

       interest in Ina’s property. Christy filed a motion for supervised administration,

       arguing (among other things) that she had been left an interest in Ina’s property.

       Id. at 760-61. Robert argued that the bankruptcy court was the proper forum to

       determine what Christy had sold as part of her bankruptcy. Id. at 761.

[20]   Christy filed a motion with the bankruptcy court to consider the question of

       what interest was sold to Mark at the bankruptcy auction. The bankruptcy

       court denied the motion, concluding that the probate court was better

       positioned to determine the question. The probate court heard the matter and

       ruled in Christy’s favor. Id. Robert appealed.

       Court of Appeals of Indiana | Opinion 18A02-1605-PL-1086 | March 2, 2017   Page 8 of 13
[21]   The Nebraska Supreme Court concluded that the case “[u]ltimately . . . deal[t]

       with the construction and probate of Ina’s will and the inheritance of her heirs,

       in light of Christy’s prior bankruptcy filing.” Id. at 765. The court then

       discussed Marshall v. Marshall, 547 U.S. 293, 296, 126 S. Ct. 1735, 1739, 164 L.

       Ed. 2d 480 (2006), where the U.S. Supreme Court clarified that the probate or

       annulment of a will and the administration of a decedent’s estate are reserved to

       state probate courts, but that the “probate exception . . . does not bar federal

       courts from adjudicating matters outside those confines and otherwise within

       federal jurisdiction.” Id. Chief Justice Heavican noted that “[n]othing in

       Marshall compels this court to conclude that the federal bankruptcy court has

       exclusive jurisdiction over the matters at issue in this case.” Odenreider, 837

       N.W.2d at 765.

[22]   Similar analysis drove Dunn v. Menassen, 913 S.W.2d 621, 624 (Tex. App.

       1995), writ denied (June 28, 1996), which arose from an action alleging

       misrepresentation in violation of the Texas Deceptive Trade Practices –

       Consumer Protection Act (DTPA). The case began in 1989 when M & M

       Distributors sued Dunn, alleging misrepresentation in violation of the DTPA.

       Dunn prevailed on summary judgment, M & M Distributors appealed, and the

       Texas Court of Appeals reversed and remanded on the misrepresentation claim.

       See M & M Distributors v. Dunn, 819 S.W.2d 639 (Tex. App. 1991).

[23]   In 1993, Dunn filed a motion to abate in the trial court, alleging that an

       individual named Miguel A. Mena was the owner of M & M Distributors and

       that he had filed for bankruptcy. At the evidentiary hearing on the motion,

       Court of Appeals of Indiana | Opinion 18A02-1605-PL-1086 | March 2, 2017   Page 9 of 13
       Miguel testified that he became the owner of the company in 1987, that his

       brother Jose Menassen owned the company from 1983 to 1987, and that Miguel
                                              2
       filed for bankruptcy in 1990. The trial court denied the motion to abate,

       conducted a bench trial, and ruled in favor of M & M Distributors.

[24]   On appeal, Dunn contended that the trial court abused its discretion in denying

       the motion to abate because “the trial court did not have jurisdiction to

       determine whether the claim against Dunn belonged to Jose or to Miguel[.]”

       Dunn, 913 S.W.2d at 623. According to Dunn, the bankruptcy court had

       exclusive jurisdiction to do so. Id. The appeals court disagreed and

       determined that the trial court did not err in failing to abate the action because

       the bankruptcy had concluded sixteen months before the abatement hearing

       and the bench trial took place. Id. at 624. The court noted that the “record is

       devoid of any hint that the former trustee of the estate moved to reopen the case

       in bankruptcy court in order to pursue the claim against Dunn for the

       bankrupt’s estate.” Id. It also noted that while the bankruptcy proceeding was

       pending, “it did not purport to affect Jose Menassen, the plaintiff in [the suit

       before the court].” Id.

[25]   In Fuqua v. Graber, 158 S.W.3d 635 (Tex. App. 2005), aff’d, 279 S.W.3d 608

       (Tex. 2009), Richard Fuqua filed a malicious prosecution suit in the Texas state

       court against Thomas Graber, an attorney, and Graber’s law firm. Fuqua

       2
        Miguel testified at the evidentiary hearing that his name is Miguel Menassen, but that his last name is
       pronounced Mena.

       Court of Appeals of Indiana | Opinion 18A02-1605-PL-1086 | March 2, 2017                         Page 10 of 13
       argued that Graber and his firm, acting on behalf of a client, wrongfully filed an

       adversary proceeding in Fuqua’s then-pending bankruptcy case. Id. at 637.

       Graber and the firm challenged jurisdiction, maintaining that because Fuqua’s

       claim was premised on an adversary proceeding in a bankruptcy case, it was

       preempted. The trial court granted the plea and dismissed Fuqua’s claim.

[26]   The Texas Court of Appeals reversed, examining an array of Ninth Circuit

       cases, cases from the California appellate court, a Pennsylvania Superior Court

       case, a Kansas federal district case, and cases from the Florida District Court of

       Appeals. See id. at 640. Turning to the case before it, the Texas Court of

       Appeals noted that Fuqua’s malicious prosecution claim did not accrue until

       five years after he was discharged in bankruptcy. The court then concluded,

       relying on its decision in Dunn, that “Fuqua’s . . . claim could not have

       interfered with the bankruptcy court’s jurisdiction, and that the state court’s

       jurisdiction is therefore not precluded.” Fuqua, 158 S.W.3d at 646 (citing Dunn,

       913 S.W.2d at 623-24).

[27]   The above-discussed cases contrast with Halas v. Platek, 239 B.R. 784 (N.D. Ill.

       1999), in which the issue before the federal district court was whether state

       courts have jurisdiction to impose sanctions when an individual is injured by a

       willful violation of a bankruptcy court’s automatic stay. Halas, 239 B.R. at 785;

       11 U.S.C. § 362(h). In other words, the question was “whether a § 362(h)[ ]
                                                                                3

       3
           Later recodified at § 362(k).

       Court of Appeals of Indiana | Opinion 18A02-1605-PL-1086 | March 2, 2017   Page 11 of 13
       motion for sanctions falls under the exclusive jurisdiction of the bankruptcy

       court pursuant to § 1334(a) or under the non-exclusive jurisdictional provision

       of § 1334(b).” Halas, 239 B.R. at 788. The bankruptcy court found that

       § 1334(a)’s exclusive jurisdiction provision did not apply. Id. at 789. The

       district court disagreed, finding that a § 362(h) request for sanctions is within
                                                                                                                 4
       the exclusive jurisdiction of the bankruptcy court under § 1334(a). Id. at 792.

       The district court quoted Gonzales v. Parks, 830 F.2d 1033, 1036 (9th Cir. 1987)

       as follows: “Indeed, ‘[i]t is for Congress and the federal courts, not the state

       courts, to decide what incentives and penalties are appropriate for use in

       connection with the bankruptcy process and when those incentives or penalties

       shall be utilized.’” Halas, 239 B.R. at 792.

[28]   Turning to the instant case, we first agree with our Nebraska colleagues’

       decision in Odenreider that nothing in Marshall compels the conclusion that the

       bankruptcy court had exclusive jurisdiction over the matters at issue in this

       case. Second, as in Dunn and Fuqua, Michael’s bankruptcy was concluded

       before he filed his action against Karen. And third, unlike in Halas, Michael’s

       complaint does not require the Delaware Circuit Court to determine penalties

       in connection with the bankruptcy process. Accord Matter of Wood, 825 P.2d. 90.

       4
        In reaching its determination, the court focused on two cases that address whether state courts have
       concurrent jurisdiction to impose § 362(h) sanctions: Hawthorne v. Hameed, M.D., 836 P.2d 683 (Okl. Civ.
       App. 1989) (no) and Powell v. Washington Land Co., Inc., 684 A.2d 769 (D.C. 1996) (yes). The district court
       ultimately determined that “[w]hile the decision in Powell is well-reasoned, the court finds the holding in
       Hawthorne to be more consistent with the aims of the Bankruptcy Code.” Halas, 239 B.R. at 792.

       Court of Appeals of Indiana | Opinion 18A02-1605-PL-1086 | March 2, 2017                        Page 12 of 13
[29]   We, therefore, hold that the trial court had jurisdiction over Michael’s

       complaint. We reverse and remand and direct the court to determine first the

       threshold question of whether Michael’s beneficiary interest in the trust

       survived the bankruptcy proceeding.

                                                 Conclusion
[30]   The trial court did err in dismissing the complaint with prejudice. This cause is

       remanded for further proceedings on whether Michael’s beneficiary interest in

       the trust survived the bankruptcy. In all other respects, the trial court’s decision

       is affirmed without prejudice to Michael refiling his complaint once the

       dispositive question regarding his remainder interest has been decided.

[31]   Reversed and remanded.

       Najam, J., and Crone, J., concur.

       Court of Appeals of Indiana | Opinion 18A02-1605-PL-1086 | March 2, 2017   Page 13 of 13