Court Opinion

ID: 2757136
Source: CourtListenerOpinion
Date Created: 2014-12-03 19:08:34.444518+00
Date Added: 2024-06-11T11:26:53.934537
License: Public Domain

FILED
                                                           MAR 13 2012
 1                                                      SUSAN M SPRAUL, CLERK
                                                          U.S. BKCY. APP. PANEL
 2                                                        OF THE NINTH CIRCUIT

 3                  UNITED STATES BANKRUPTCY APPELLATE PANEL
 4                            OF THE NINTH CIRCUIT
 5   In re:                        )      BAP No.     CC-11-1100-MkHPa
                                   )
 6   VALLEY HEALTH SYSTEM,         )      Bk. No.     07-18293
                                   )
 7                  Debtor.        )      Adv. No.    10-01566
     ______________________________)
 8                                 )
     PEGGY KIRTON; DIANE AGNELLO, )
 9                                 )
                    Appellants,    )
10                                 )
     v.                            )      MEMORANDUM*
11                                 )
     VALLEY HEALTH SYSTEM; VALLEY )
12   HEALTH SYSTEM RETIREMENT PLAN;)
     JOEL BERGENFELD, Trustee;     )
13   VINAY M. RAO, Trustee;        )
     MICHELE BIRD, Trustee,        )
14                                 )
                    Appellees.     )
15   ______________________________)
16                        Argued on November 16, 2011
                            at Pasadena, California
17                       Submitted on February 7, 2012
18                           Filed – March 13, 2012
19            Appeal from the United States Bankruptcy Court
                  for the Central District of California
20
       Honorable Peter H. Carroll, Chief Bankruptcy Judge, Presiding
21
22   Appearances:     Gary E. Klausner of Stutman, Treister & Glatt PC
                      argued for Appellee Valley Health System; Mark
23                    Attwood of Jackson Lewis LLP argued for Appellees
                      Valley Health System Retirement Plan, and the
24                    following persons as trustees of the Valley Health
                      System Retirement Plan: Joel Bergenfeld, Vinay M.
25
26        *
           This disposition is not appropriate for publication.
27   Although it may be cited for whatever persuasive value it may
     have (see Fed. R. App. P. 32.1), it has no precedential value.
28   See 9th Cir. BAP Rule 8013-1.
 1                   Rao and Michele Bird.**
 2
     Before:   MARKELL, HOLLOWELL and PAPPAS, Bankruptcy Judges.
 3
                                  INTRODUCTION
 4
          Peggy Kirton and Diana Agnello (“Kirton Parties”) are former
 5
     employees of Valley Health System (“VHS”) and were participants
 6
     in the Valley Health System Retirement Plan (“Retirement Plan”).
 7
     After VHS confirmed its chapter 91 plan of adjustment, they filed
 8
     in state court a petition for writ of mandamus (“Petition”)
 9
     against VHS and others seeking to enforce their alleged rights
10
     under the Retirement Plan.    VHS removed the Petition to the
11
     bankruptcy court.   Along with other named respondents, VHS then
12
     filed a Civil Rule 12(b)(6) motion to dismiss the Petition, which
13
     the bankruptcy court granted without leave to amend.   The Kirton
14
     Parties filed a motion for reconsideration, which the bankruptcy
15
     court denied.
16
          The Kirton Parties appeal from both the dismissal order and
17
     the order denying their motion for reconsideration.    Because the
18
     bankruptcy court lacked subject matter jurisdiction over the
19
     Petition, we VACATE and REMAND.
20
21        **
           Even though Daniel Barness of Barness & Barness LLP filed
22   with the BAP a calendar acknowledgment indicating that he would
     appear at oral argument to argue on behalf of Appellants Peggy
23   Kirton and Diana Agnello, no one actually appeared at oral
     argument to argue on behalf of the Appellants. Accordingly, the
24   panel deemed Appellants’ position submitted on their briefs and
     on the record.
25
          1
26         Unless specified otherwise, all chapter and section
     references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532, and
27   all “Rule” references are to the Federal Rules of Bankruptcy
     Procedure, Rules 1001-9037. All “Civil Rule” references are to
28   the Federal Rules of Civil Procedure.

                                       2
 1                                   FACTS
 2        VHS is a local healthcare district under the California
 3   Local Health Care District Law, Cal. Health & Safety Code
 4   § 32000, et seq.   See In re Valley Health System, 429 B.R. 692,
 5   700 (Bankr. C.D. Cal. 2010).    VHS owned and operated one skilled
 6   nursing facility and three acute health care facilities in
 7   Riverside County, California.   Id.     VHS filed a chapter 9
 8   bankruptcy petition in December 2007, and the bankruptcy court
 9   entered an order for relief in the case in February 2008.
10        Pursuant to § 943, the bankruptcy court confirmed VHS’s
11   first amended plan of adjustment (“Chapter 9 Plan”) by order
12   entered April 26, 2010 (“Confirmation Order”).     The Chapter 9
13   Plan was based on the sale of substantially all of VHS’s
14   remaining assets to another entity known as Physicians for
15   Healthy Hospitals, Inc. (“PFHH”).     Among other things, the
16   Chapter 9 Plan provided for the discharge of VHS’s prepetition
17   debts and also enjoined claimants from pursuing any action or
18   proceeding on account of such debts.2
19        The Chapter 9 Plan specifically addressed VHS’s obligations
20   under its Retirement Plan:
21        Defined Benefit Plan Participants will be entitled to
22
          2
23         Neither the Chapter 9 Plan nor the accompanying first
     amended disclosure statement of even date were included in the
24   parties’ excerpts of record, but we have obtained copies of these
     and other bankruptcy court filings by accessing the bankruptcy
25   court’s electronic docket and the imaged documents attached
26   thereto. We can take judicial notice of the contents and filing
     of these documents. See Atwood v. Chase Manhattan Mortg. Co.
27   (In re Atwood), 293 B.R. 227, 233 n.9 (9th Cir. BAP 2003)(citing
     O'Rourke v. Seaboard Sur. Co. (In re E.R. Fegert, Inc.), 887 F.2d
28   955, 957-58 (9th Cir. 1989)).

                                       3
 1        the same rights and benefits to which such participants
          are currently entitled under the VHS Retirement Plan
 2        and the MetLife Group Annuity Contract, and such
          participants shall have no recourse to the District or
 3        to any assets of the District, and shall not be
          entitled to receive any distributions under this Plan.
 4        Instead, all unallocated amounts held by MetLife Group,
          pursuant to the VHS Retirement Plan and the MetLife
 5        Group Annuity Contract, will continue to be made
          available to provide retirement benefits for
 6        participants in the manner indicated under the
          provisions of the VHS Retirement Plan and the MetLife
 7        Group Annuity Contract. Accordingly, the treatment of
          Allowed Class 2C claim holders set forth herein shall
 8        not affect any legal, equitable or contractual rights
          to which the VHS Retirement Plan participants are
 9        entitled.
10   Chapter 9 Plan (Dec. 17, 2009) at 16:13-22.   Based on this
11   treatment, the Chapter 9 Plan characterized the Class 2C
12   claimants – the Retirement Plan participants – as unimpaired and
13   stated that they therefore had no entitlement to vote on
14   confirmation of the plan.   These same plan terms were reiterated
15   in VHS’s first amended disclosure statement, filed concurrently
16   with the Chapter 9 Plan.
17        The record reflects that the Kirton Parties were served with
18   advance notice of: (1) the claims bar date, (2) the court
19   approval of the first amended disclosure statement, and (3) the
20   confirmation hearing on the Chapter 9 Plan.   The record further
21   indicates that the Kirton Parties were sent copies of the
22   Chapter 9 Plan and the first amended disclosure statement at the
23   same time they were served with notice of the confirmation
24   hearing.   The Kirton Parties did not file any proofs of claims,
25   did not object to VHS’s Chapter 9 Plan, and did not otherwise
26   participate in VHS’s chapter 9 case.
27        On October 14, 2010, VHS issued a notice that the asset sale
28   to PFHH had closed on October 13, 2010, and that October 13,

                                      4
 1   2010, was the effective date of the Chapter 9 Plan.
 2        Meanwhile, back in August 2010, a few months after the
 3   confirmation of VHS’s Chapter 9 Plan, the Kirton Parties filed
 4   their Petition in the Riverside County Superior Court (Case No.
 5   RIC 10017129).   The Petition named the following parties as
 6   respondents:
 7   •    VHS, which the Kirton Parties alternately identified as a
 8        public entity and community hospital, and as a “California
 9        Local Health Care District.”3
10   •    The Retirement Plan, which the Kirton Parties alternately
11        referred to as a public employee retirement entity, and as
12        “an independent sui juris entity with constitutionally
13        mandated fiduciary duties to the [Kirton Parties].”   See
14        Petition (Aug. 26, 2010) at ¶¶ 1, 2.4
15   •    Joel Bergenfeld, Michele Bird and Vinay Rao, as individuals
16        and as trustees of the Retirement Plan (collectively,
17
          3
           The Kirton Parties sometimes referred to VHS as “Valley
18
     Health Systems.” See Petition (Aug. 26, 2010) at ¶ 1; Appellants’
19   Opening Brief (May 25, 2011) at p.6 n.4 (emphasis added).
          4
20         The Kirton Parties sometimes identified the Retirement Plan
     as the “Valley Health Systems Retirement Plan.” See Petition
21   (Aug. 26, 2010) at ¶ 3 (emphasis added). At times, the Kirton
     Parties have argued that there might be two or more entities with
22
     similar sounding names and that some of these entities might not
23   be independent of VHS while others allegedly are independent of
     VHS. However, the entirety of the record makes clear that there
24   is only one relevant retirement plan, and that is the Retirement
     Plan, from which the Kirton Parties’ retirement benefits
25   allegedly arose. Indeed, the Kirton Parties have conceded on
26   appeal that the document establishing the Retirement Plan is part
     of the record, attached as Exhibit 1 to the Declaration of Joel
27   Bergenfeld, filed in support of VHS’s Civil Rule 12(b)(6) motion
     to dismiss. See Appellants’ Opening Brief (May 25, 2011) at
28   6:6-14.

                                      5
 1        “Trustees”).
 2   •    Met Life, Inc. (“Met Life”), as the administrator of the
 3        Retirement Plan.
 4        The Petition enumerated four causes of action based on the
 5   following common allegations: (1) violation of the Retirement
 6   Plan; (2) violation of the California Constitution; (3) breach of
 7   contract; and (4) declaratory relief.   The Petition’s prayer for
 8   relief sought, among other things, the issuance of a peremptory
 9   writ of mandate directing the respondents to fund the Retirement
10   Plan as required by law, to disclose VHS’s underfunding and
11   violations of the Retirement Plan and the California
12   Constitution, to cease any concealment of
13   underfunding/violations, and to prosecute any actions allowed or
14   required to conserve the Retirement Plan’s assets.
15        The gravamen of the Petition was that VHS allegedly
16   underfunded the Retirement Plan to the tune of $100 million.    The
17   Petition further alleged that all of the respondents breached
18   their respective duties to prevent or disclose (or both) VHS’s
19   underfunding of the Plan.   Supposedly, these duties arose from
20   the Plan itself and California Constitution Art. XVI, Sec. 17.5
21        On September 22, 2010, VHS filed a notice of removal
22   pursuant to 28 U.S.C. § 1452(a) and Rule 9027, effectively
23   removing the Petition from the state court to the bankruptcy
24   court.   VHS, the Trustees and the Retirement Plan (collectively,
25   “VHS Defendants”) then filed, in October 2010, a motion to
26
27
          5
           Due to its length, we reprint California Constitution Art.
28   XVI, Sec. 17, in an appendix to this memorandum.

                                      6
 1   dismiss the Petition under Civil Rule 12(b)(6) (made applicable
 2   in adversary proceedings by Rule 7012(b)).
 3        First and foremost, the VHS Defendants argued that VHS’s
 4   Chapter 9 Plan and the Confirmation Order had discharged VHS’s
 5   obligations to fund the Retirement Plan.   The VHS Defendants also
 6   argued, among other things: (1) the Trustees had no contractual
 7   or fiduciary obligations to the Kirton Parties under the
 8   Retirement Plan; (2) the Retirement Plan did not have the legal
 9   capacity to sue or be sued; (3) the Kirton Parties did not comply
10   with the pre-filing requirements of the California Government
11   Claims Act; (4) both VHS and the Trustees are immune from
12   liability; and (5) the Kirton Parties failed to plead the
13   requisite elements for mandamus relief or for relief under the
14   causes of action alleged.
15        The notice of motion accompanying the VHS Defendants’ motion
16   to dismiss warned the Kirton Parties that, under Rule 9013-1(h)
17   of the Local Bankruptcy Rules of the United States Bankruptcy
18   Court for the Central District of California (“Local Bankruptcy
19   Rules”), the court might treat a failure to file an opposition to
20   the motion to dismiss as consent to the relief requested in the
21   motion.
22        The Kirton Parties never filed an opposition to the motion
23   to dismiss.   However, on January 3, 2011, on the eve of the
24   hearing on the motion to dismiss, the Kirton Parties did file a
25   pleading entitled “Class Action – Plaintiffs’ First Amended
26   Complaint For Damages and Injunctive Relief.”   The First Amended
27   Complaint was founded upon the same basic alleged misconduct as
28   the Petition.   The only essential differences were the addition

                                      7
 1   of class action allegations and several new causes of action
 2   based on the same alleged misconduct.
 3        At the January 4, 2011 hearing on the motion to dismiss, the
 4   bankruptcy court noted that the Kirton Parties never filed a
 5   written opposition to the dismissal motion, even though the
 6   motion was filed and served over two months before, on
 7   October 22, 2010.6   The court further noted that Local Bankruptcy
 8   Rule 9013-1(h) permitted the court to treat the Kirton Parties’
 9   failure to file a written opposition as consent to the relief
10   requested in the dismissal motion.   The court also determined
11   that the Kirton Parties' amended complaint, filed on the eve of
12   the January 4, 2011 hearing, contravened national and local
13   bankruptcy rules requiring in advance either the opposing
14   parties' written consent to the amendment or leave of court.
15   Accordingly, the bankruptcy court declined to consider the
16   amended complaint.   Based on these findings and rulings, and
17   based on all of the arguments made in the dismissal motion, the
18   court granted the motion to dismiss without leave to amend.
19        The Kirton Parties objected to the proposed dismissal order
20   lodged by the VHS Defendants.   The Kirton Parties argued that the
21   proposed order attempted to grant relief beyond that sought in
22   the dismissal motion and to resolve matters not properly before
23   the court.   The Kirton Parties also argued that it would be
24   improper for the bankruptcy court to grant the dismissal motion
25
26        6
           Nor did the Kirton Parties ever file a motion for remand.
27   Local Bankruptcy Rule 9027-1(c) provides: “A motion for remand
     must be filed with the clerk of the bankruptcy court not later
28   than 30 days after the date of filing of the notice of removal.”

                                      8
 1   in favor of parties who had not been expressly named as movants
 2   in the dismissal motion.      According to the Kirton Parties,
 3   granting the dismissal motion in favor of the unnamed parties
 4   would violate the Kirton Parties' due process rights.      Finally,
 5   the Kirton Parties argued that the California Constitution
 6   deprived the bankruptcy court of jurisdiction over the Retirement
 7   Plan.       The court overruled the Kirton Parties' objections and
 8   entered the form of order that the VHS Defendants had lodged.
 9           The Kirton parties then filed a motion for reconsideration,
10   which essentially reiterated the same arguments that the Kirton
11   Parties had made in their objection to the proposed order.       After
12   the parties filed opposition and reply papers, the bankruptcy
13   court ruled on the reconsideration motion without holding a
14   hearing, in a memorandum of decision entered on February 24,
15   2011.
16           In its memorandum decision, the bankruptcy court first noted
17   that it had subject matter jurisdiction over the litigation and
18   that the matter was a core proceeding under 28 U.S.C.
19   § 157(b)(2)(A), (I), (B), (L) and (O).      The court next classified
20   the motion for reconsideration as a motion under Civil Rule 59(e)
21   to alter or amend the judgment and stated the legal standards
22   applicable to such motions.7
23           After summarizing the VHS Defendants’ arguments in favor of
24   dismissal and the Kirton Parties’ arguments in favor of
25   reconsideration of the dismissal order, the bankruptcy court
26
27
             7
           Rule 9023 makes Civil Rule 59(e) applicable in adversary
28   proceedings.

                                          9
 1   explained why it considered the Petition fatally deficient and
 2   why the reconsideration motion should be denied.    The court first
 3   focused on VHS, its obligations to the Kirton Parties, and the
 4   effect of the confirmed, effective Chapter 9 Plan on those
 5   obligations.    According to the court, VHS only had one retirement
 6   plan – the Retirement Plan – and VHS’s only alleged pension
 7   obligations to the Kirton Parties arose from the Retirement Plan
 8   and were contractual in nature.    The court also noted that VHS
 9   had not incurred any new pension obligations under the Retirement
10   Plan since 1999 because VHS had frozen the accrual of new pension
11   benefits as of May 4, 1999.    As a result, the court ruled that
12   the alleged pension obligations all arose prior to VHS’s
13   bankruptcy filing and thus had been discharged by VHS’s Chapter 9
14   Plan.    The court also ruled that any objections or questions that
15   the Kirton Parties could have raised concerning their treatment
16   under VHS’s Chapter 9 Plan were barred by the doctrine of claim
17   preclusion.
18           The bankruptcy court next addressed its decision to dismiss
19   the Petition as against Met Life, which had not joined in the VHS
20   Defendants’ dismissal motion.    According to court, even though
21   Met Life had not joined in the dismissal motion, Met Life was in
22   the same position as the VHS Defendants vis-à-vis the Petition,
23   so it was permissible for the court to dismiss the Petition as
24   against Met Life as well.    The court did not specify the precise
25   grounds for dismissal that Met Life shared with the VHS
26   Defendants.    Moreover, with the exception of VHS, the court did
27   not specifically describe why the Petition failed to state a
28   claim as against any of the other named respondents.    However, a

                                       10
 1   fair reading of the court’s rulings and comments in their
 2   entirety demonstrate that the court concluded, in part, that the
 3   Petition failed to allege sufficient facts from which the court
 4   reasonably could infer that any of the named respondents had a
 5   legally enforceable duty which they had breached and which had
 6   caused the harm alleged in the Petition.   This is the common
 7   grounds for dismissal that all of the named respondents
 8   apparently shared.
 9        The bankruptcy court then rejected the Kirton Parties’
10   jurisdictional arguments.   According to the court, it had subject
11   matter jurisdiction over the Petition because it affected “the
12   interpretation, implementation, consummation, execution or
13   administration of a confirmed plan.”   Mem. Dec. (Feb. 24, 2011),
14   at p. 11 (quoting State of Montana v. Goldin (In re Pegasus Gold
15   Corp.), 394 F.3d 1189, 1194 (9th Cir. 2005)).    In addition, the
16   court stated that, if the Kirton Parties believed that removal of
17   the Petition to the bankruptcy court was improper, the Kirton
18   Parties should have filed a remand motion within the time
19   prescribed by Local Bankruptcy Rule 9027-1(c).   The court further
20   noted that the Kirton Parties had not, as required by Rule
21   9027(e)(3), responded to the VHS Defendants’ allegation that the
22   removed Petition was a core bankruptcy proceeding under 28 U.S.C.
23   § 157(b)(2)(A), (B) and (L).
24        Finally, the bankruptcy court concluded that the
25   deficiencies in the Petition “could not possibly be cured,” so
26   dismissal without leave to amend was appropriate.   In so
27   concluding, the court apparently relied on the numerous grounds
28   for dismissal that the VHS Defendants asserted in their dismissal

                                     11
 1   motion, but the court did not specify which of the Petitions’
 2   deficiencies were incurable.
 3        Based on its memorandum decision, the bankruptcy court
 4   entered an order on February 24, 2011, denying the
 5   reconsideration motion.    On March 6, 2011, the Kirton Parties
 6   filed a timely notice of appeal of both the dismissal order and
 7   the order denying reconsideration.
 8                                JURISDICTION
 9        We have jurisdiction over this appeal pursuant to 28 U.S.C.
10   § 158.    We discuss the bankruptcy court’s jurisdiction below.
11                                    ISSUE
12        Did the bankruptcy court have jurisdiction over the removed
13   Petition?
14                             STANDARD OF REVIEW
15        We review issues concerning the bankruptcy court’s
16   jurisdiction de novo.    See Rosson v. Fitzgerald (In re Rosson),
17   545 F.3d 764, 769 n.5 (9th Cir. 2008); see also Cal. Franchise
18   Tax Bd. v. Wilshire Courtyard (In re Wilshire Courtyard),
19   459 B.R. 416, 423 (9th Cir. BAP 2011).
20                                DISCUSSION
21                The bankruptcy court lacked subject matter
                  jurisdiction over the removed petition.
22
23        We begin with a review of the relevant jurisdictional
24   statutes because bankruptcy jurisdiction is “‘grounded in, and
25   limited by, statute.’” Battle Ground Plaza, LLC v. Ray (In re
26   Ray), 624 F.3d 1124, 1130 (9th Cir. 2010) (quoting Celotex Corp.
27   v. Edwards, 514 U.S. 300, 307 (1995)).
28            Under 28 U.S.C. § 1334(b), the federal district courts have

                                       12
 1   “original but not exclusive jurisdiction” over “all civil
 2   proceedings arising under title 11, or arising in or related to
 3   cases under title 11.”   In turn, 28 U.S.C. § 157 provides the
 4   means by which the district courts share their bankruptcy
 5   jurisdiction with the bankruptcy courts.    In accordance with the
 6   referral process authorized in 28 U.S.C. § 157(a), virtually all
 7   federal district courts have “referred” to the bankruptcy courts
 8   all of those matters over which the district courts hold
 9   bankruptcy jurisdiction pursuant to 28 U.S.C. § 1334.
10        As used in the bankruptcy jurisdiction statutes, the terms
11   “arising under title 11” and “arising in a case under title 11"
12   both have well-defined meanings.     A proceeding to enforce a right
13   to relief created by title 11 “arises under” title 11. In re
14   Wilshire Courtyard, 459 B.R. at 424 (citing Harris v. Wittman
15   (In re Harris), 590 F.3d 730, 737 (9th Cir. 2009)).     Wilshire
16   Courtyard also identified when a civil proceeding “arises in” a
17   bankruptcy case:
18        proceedings “arising in” bankruptcy cases, for purposes
          of the jurisdictional statute, are . . . those that,
19        although not based on any right granted in title 11,
          would not exist outside a bankruptcy case, such as
20        matters related to the administration of the bankruptcy
          estate.
21
22   Id. (citing Maitland v. Mitchell (In re Harris Pine Mills),
23   44 F.3d 1431, 1435-37 (9th Cir. 1995)).
24        As the parties seeking to invoke federal court jurisdiction,
25   the VHS Defendants had the burden to establish facts supporting
26   the federal court’s subject matter jurisdiction.    See Hunter v.
27   Philip Morris USA, 582 F.3d 1039, 1042 (9th Cir. 2009).
28   Generally speaking, to determine whether removal jurisdiction

                                     13
 1   exists, the court must look at the well-pleaded allegations of
 2   the complaint in order to ascertain whether it raises any
 3   bankruptcy law issues, without reference to any anticipated
 4   defenses that might be raised in response to the complaint.
 5   Miles v. Okun (In re Miles), 430 F.3d 1083, 1088 (9th Cir. 2005).
 6        Outside the removal context, subject matter jurisdiction is
 7   determined based on circumstances as they existed when the
 8   complaint was filed.   See Buenting v. Crystal Cascades Civil, LLC
 9   (In re Crystal Cascades Civil, LLC), 398 B.R. 23, 28 (Bankr. D.
10   Nev. 2008).    In contrast, in the context of removal, subject
11   matter jurisdiction ordinarily is determined based on
12   circumstances existing at the time of removal.   Abada v. Charles
13   Schwab & Co., Inc., 300 F.3d 1112, 1117 (9th Cir. 2002) (citing
14   O'Halloran v. Univ. of Wash., 856 F.2d 1375, 1379 (9th Cir.
15   1988)).   However, when the federal court determines the merits of
16   the removed action without any remand motion, or without
17   immediate appeal from the denial of a remand motion, the
18   appellate court reviewing the trial court’s merits determination
19   also must consider “‘whether the federal court would have had
20   jurisdiction had the case been filed in federal court in the
21   posture it had at the time of the entry of the final judgment.’”
22   See O'Halloran, 856 F.2d at 1379 n.2 (quoting Lewis v. Time Inc.,
23   710 F.2d 549, 552 (9th Cir.1983), abrogated on other grounds as
24   recognized in Unelko Corp. v. Rooney, 912 F.2d 1049, 1052–53 (9th
25   Cir. 1990)).
26        Having reviewed the relevant jurisdictional statutes and
27   having noted some ground rules for assessing the bankruptcy
28   court’s jurisdiction, we are ready to consider the jurisdictional

                                      14
 1   issue raised in this appeal: the extent of the bankruptcy court’s
 2   post-confirmation jurisdiction to interpret and enforce its own
 3   orders.   The United States Court of Appeals for the Ninth Circuit
 4   recently addressed this issue in In re Ray, 624 F.3d at 1131-36.
 5   Because we believe that Ray controls the outcome of the appeal
 6   before us, we examine Ray in detail.
 7        In Ray, the debtor and Jessen, his business partner, owned a
 8   shopping center called Battleground Plaza Shopping Mall (“Mall”)
 9   and an adjacent parcel of undeveloped land (“Adjacent Land”).
10   Id. at 1127.     Ray filed a chapter 11 bankruptcy case in August
11   2000, and the bankruptcy court confirmed Ray’s third amended plan
12   in March 2002.    Id. at 1127-28.    Meanwhile, back in December
13   2000, Ray and Jessen had agreed to sell the Mall to a company
14   known as Battle Ground Plaza, LLC (“BGP”).     Id. at 1127.   The
15   sale agreement also gave BGP a right of first refusal to purchase
16   the Adjacent Land.    Ray’s confirmed plan acknowledged the agreed-
17   upon sale of the Mall to BGP, but noted that the sale had not yet
18   closed.   Id. at 1128.    The plan also referenced Ray’s intention
19   to sell his interest in the Adjacent Land to either Jessen, BGP
20   or some third party.     Id.
21        In 2005, Ray and Jessen agreed to sell the Adjacent Land to
22   a man named Maldonado.    When Ray and Jessen notified BGP of the
23   proposed sale agreement, BGP asserted that its first refusal
24   rights were not “ripe” because the Mall sale still had not yet
25   closed.   Ray and Jessen then executed the sale agreement with
26   Maldonado, and Ray obtained bankruptcy court approval for the
27   sale of the Adjacent Land to Maldonado.     BGP did not object to
28   this first sale motion, but when Ray sought bankruptcy court

                                         15
 1   approval a second time (to account for an agreed-upon reduction
 2   of the purchase price by $5,000), BGP this time objected, stating
 3   that it now desired to exercise its first refusal rights.    Id.
 4        The bankruptcy court overruled BGP’s objection and, again,
 5   approved the sale, free and clear of all liens and encumberances,
 6   including BGP’s first refusal rights.    Id. at 1128-29.   The
 7   bankruptcy court in relevant part found that BGP had not properly
 8   exercised its first refusal rights because its proposal to
 9   purchase the Adjacent Land did not mirror Ray and Jessen’s sale
10   agreement with Maldonado; rather, BGP’s purchase proposal
11   purported to extend the sale closing date and purported to give
12   BGP the option to back out of the proposed purchase during a set
13   period of time.   Id. at 1129.    BGP did not appeal either of the
14   bankruptcy court’s sale orders.    Ultimately, the sale of the
15   Adjacent Land closed.   The sale proceeds enabled Ray to pay off
16   his remaining obligations under his chapter 11 plan, and his
17   bankruptcy case was closed in December 2005.    Id.
18        Several months later, BGP learned for the first time that,
19   as part of the sale of the Adjacent Land, Ray and Jessen had
20   granted an easement to Maldonado that gave the Adjacent Land
21   “valuable cross-parking rights” in the Mall’s parking areas.
22   Believing that the undisclosed easement materially changed the
23   dynamics of the exercise of its first refusal rights, BGP filed a
24   state court breach of contract action against Ray, Jessen and
25   Maldonado seeking damages and specific performance of its first
26   refusal rights.   Id.   The state court “remanded” the lawsuit to
27   the bankruptcy court, which concluded that it had subject matter
28   jurisdiction over the lawsuit because the lawsuit necessitated

                                       16
 1   the interpretation and enforcement of the bankruptcy court’s
 2   prior sale orders.   Ultimately, the bankruptcy court entered
 3   summary judgment against BGP and denied BGP’s reconsideration
 4   motion.   Id.   According to the bankruptcy court, the breach of
 5   contract lawsuit amounted to an impermissible collateral attack
 6   on the court’s prior sale order entered in November 2005,
 7   overruling BGP’s objection and approving the sale of the Adjacent
 8   Land free and clear of BGP’s first refusal rights.   Id.
 9         In an unpublished memorandum decision, this Panel held that
10   the bankruptcy court had subject matter jurisdiction pursuant to
11   28 U.S.C. § 1334(b), because the breach of contract lawsuit
12   “required resolution of a substantial question of bankruptcy law,
13   i.e., the impact of the bankruptcy court’s November 2005 Sale
14   Order, arising under section 363(b)” of the Bankruptcy Code.
15   Battle Ground Plaza, LLC v. Jessen (In re Ray), BAP No. WW-08-
16   1104-KaJuPa, at p. 18 (mem. dec. 9th Cir. BAP Dec. 31, 2008).
17   The Panel also held that the bankruptcy court had ancillary
18   jurisdiction because the breach of contract lawsuit implicated
19   and potentially could undermine the bankruptcy court’s prior sale
20   orders.   Id. at 14-16.   Ultimately, the Panel affirmed the
21   bankruptcy court, concluding in part that the bankruptcy court
22   retained jurisdiction to interpret and enforce its own orders.
23   Id.
24         The Ninth Circuit disagreed with the Panel’s jurisdictional
25   analysis.   According to the Ninth Circuit, the bankruptcy court
26   had no jurisdiction over BGP’s state court breach of contract
27   action.   The Ninth Circuit considered each of the potential
28   grounds of bankruptcy court jurisdiction and opined that none of

                                      17
 1   them gave the bankruptcy court jurisdiction over BGP’s breach of
 2   contract lawsuit.
 3         First, the Ray court determined that the breach of contract
 4   lawsuit did not arise under title 11 or arise in a case under
 5   title 11.   Ray held that the breach of contract lawsuit did not
 6   arise under title 11 because the lawsuit’s existence did not
 7   depend on any substantive bankruptcy law provision; rather, the
 8   lawsuit merely sought to invoke BGP’s state-law contract rights.
 9   Id. at 1131.   Ray also held that the breach of contract lawsuit
10   did not arise in a case under title 11 because it was not an
11   administrative matter unique to the bankruptcy process; rather,
12   the lawsuit had an existence independent of the debtor’s
13   bankruptcy case.    Id.
14         Next, Ray distinguished several cases upon which the BAP,
15   Jessen and Ray had relied.8   According to Ray, in each of these
16   cases, the plaintiff/movant was invoking substantive bankruptcy
17   law rights or rights established in the bankruptcy court in the
18   process of resolving the debtor’s bankruptcy case.   Id. at 1132-
19   33.   Ray determined that BGP’s breach of contract lawsuit simply
20   did not invoke any such rights: “the state court action is a
21   breach of contract action claiming the Sellers did not honor the
22   terms of the right of first refusal, which itself was created
23   under Washington law rather than as part of the bankruptcy
24   proceeding.”   Id. at 1133.
25
           8
26         Beneficial Trust Deeds v. Franklin (In re Franklin),
     802 F.2d 324 (9th Cir. 1986); McCowan v. Fraley (In re McCowan),
27   296 B.R. 1 (9th Cir.BAP 2003); Aheong v. Mellon Mortg. Co. (In re
     Aheong), 276 B.R. 233 (9th Cir. BAP 2002); Haw. Airlines, Inc. v.
28   Mesa Air Group, Inc., 355 B.R. 214 (D. Haw. 2006).

                                     18
 1        Ray then examined whether the bankruptcy court had “related-
 2   to” jurisdiction over the breach of contract lawsuit.    Ray
 3   applied the “close nexus test” adopted by the Ninth Circuit in
 4   In re Pegasus Gold Corp., 394 F.3d at 1194.    Under the close
 5   nexus test, when a bankruptcy court is asked after plan
 6   confirmation to resolve a dispute, the court must determine
 7   whether “there is a close nexus to the bankruptcy plan or
 8   proceeding sufficient to uphold bankruptcy court jurisdiction
 9   over the matter.”   In re Ray, 624 F.3d at 1134 (citing In re
10   Pegasus Gold Corp., 394 F.3d at 1194).    In holding that BGP’s
11   breach of contract lawsuit did not satisfy the close nexus test,
12   Ray considered significant the following facts: “the bankruptcy
13   proceeding is over, . . . a ruling on the state court claim by
14   the state court would not affect the bankruptcy estate, and . . .
15   the state court claim should look to the preclusive effect of the
16   [bankruptcy] proceeding.”   Id. at 1135 n.7.
17        Significantly, Ray acknowledged that, if the state court
18   ultimately did not give preclusive effect to the rulings in the
19   bankruptcy court’s sale orders, then the sale orders might be
20   undermined and the debtor and the bankruptcy estate might be
21   adversely impacted.   However, Ray concluded that all courts
22   routinely face collateral attacks of orders entered in other
23   courts and that courts facing such collateral attacks routinely
24   reject such attacks when appropriate.    Id. at 1135.   As Ray put
25   it, the state court “was perfectly capable of taking jurisdiction
26   and assessing whether [BGP’s breach of contract claim] is
27   precluded given that the sale already had been finalized and
28   approved in the previous proceeding.”    Id. at 1136.

                                     19
 1   Ray emphasized this point by further noting:
 2        Ordinarily both issue preclusion and claim preclusion
          are enforced by awaiting a second action in which they
 3        are pleaded and proved by the party asserting them, and
          the first court does not get to dictate to other courts
 4        the preclusion consequences of its own judgment.
 5   Id. at 1135 (internal quotation marks omitted) (citing Charles A.
 6   Wright, Arthur R. Miller & Edward H. Cooper, FEDERAL PRACTICE &
 7   PROCEDURE § 4405 (2d ed. 1988)).
 8        Finally, Ray determined that the bankruptcy court did not
 9   have ancillary jurisdiction over the breach of contract lawsuit.
10   Id. at 1136.   Ray acknowledged that ancillary jurisdiction
11   generally is available when it is necessary for the bankruptcy
12   court to interpret or effectuate its prior orders.    But Ray, in
13   essence, ruled that ancillary jurisdiction does not allow the
14   bankruptcy court to try a post-confirmation breach of contract
15   lawsuit when the lawsuit did not invoke substantive bankruptcy
16   law rights, did not raise any bankruptcy law issues, and could
17   not affect the estate or the debtor (because the bankruptcy
18   proceedings already had run their full course and the debtor
19   already had received his discharge).    Id.9
20
21        9
           Recently, this Panel followed Ray and held that a
     bankruptcy court lacked subject matter jurisdiction to hear post-
22
     confirmation contempt proceedings commenced by the general
23   partners of the former debtor against the California Franchise
     Tax Board. In re Wilshire Courtyard, 459 B.R. at 434. In one
24   sense, the Panel went further in Wilshire Courtyard than the
     Ninth Circuit did in Ray. In Wilshire Courtyard, the debtor’s
25   general partners commenced a contempt proceeding in the
26   bankruptcy court expressly and directly seeking interpretation
     and enforcement of the bankruptcy court’s confirmation order. In
27   contrast, the subject action in Ray was a garden-variety state
     law breach of contract action that the non-debtor plaintiff had
28                                                      (continued...)

                                        20
 1           Ray compels us to hold that the bankruptcy court here lacked
 2   jurisdiction over the Kirton Parties’ Petition.    The Petition
 3   contained no causes of action based either on substantive
 4   bankruptcy law or on rights created in the course of the
 5   bankruptcy case.    To the contrary, the respondents’ alleged
 6   obligations arose, according to the Petition, from the Retirement
 7   Plan and the California Constitution.    Thus, these alleged
 8   obligations on their face arose (if at all) independent of and
 9   prior to VHS’s bankruptcy filing.
10           Nor did the Petition raise any bankruptcy law issues.   The
11   Petition does not even mention VHS’s bankruptcy case.    There is
12   only one apparent connection between the Petition and the
13   bankruptcy case:    the potential preclusive effect of the claims
14   bar date, the confirmed plan, and the plan confirmation order on
15   the causes of action stated in the Petition.    Ray made it
16   abundantly clear that this potential preclusive effect does not
17   by itself confer any sort of subject matter jurisdiction on the
18   bankruptcy court.    Ray, 624 F.3d at 1135.   As Ray put it, the
19   state court is “perfectly capable” of assessing the preclusive
20   effect of the bankruptcy court’s prior orders and rulings, id. at
21   1136, and the bankruptcy court “does not get to dictate to other
22   courts the preclusion consequences of its own [rulings].”       Id. at
23   1135.
24
             9
           (...continued)
25   filed in state court. Yet we still held in Wilshire Courtyard
26   that Ray was apposite and that the bankruptcy court lacked
     jurisdiction over the contempt proceeding. As we held in
27   Wilshire Courtyard, the absence of substantive bankruptcy law
     issues and the dispute’s lack of any potential effect on the
28   debtor, the plan and the estate were dispositive. Id.

                                       21
 1           Because neither the Kirton Parties nor the VHS Defendants
 2   discussed either Ray or Wilshire Courtyard in their appeal
 3   briefs, we issued an order giving the parties the opportunity to
 4   file supplemental briefs discussing the impact of these cases on
 5   this appeal.       In its supplemental brief, the VHS Defendants
 6   asserted that this matter meets Pegasus Gold Corp.’s “close
 7   nexus” test (and is distinguishable from Ray) because the Kirton
 8   Parties’ Petition could have a profound impact on VHS’s Chapter 9
 9   Plan.        The VHS Defendants further asserted that the bankruptcy
10   court had jurisdiction because here, unlike in Ray, the Petition
11   did not raise solely state law issues but also raised bankruptcy
12   law issues.       Finally, the VHS Defendants claimed that Ray is
13   distinguishable because, there, the debtor’s plan had been fully
14   administered and the bankruptcy case closed, whereas here the
15   plan has not been fully administered and the case is still open.
16   We will address each of these contentions in turn.
17           As we indicated above, the VHS Defendants’ close nexus
18   argument hinges on the impact they say the Petition might have on
19   the Chapter 9 Plan.       According to the VHS Defendants, this
20   potential impact distinguished Ray because the Ninth Circuit in
21   Ray concluded that BGP’s state court lawsuit “would have had no
22   impact on the debtor, its property or the implementation of its
23   plan.”10
24           However, we disagree with the VHS Defendants’ interpretation
25
             10
26         Appellee’s Supplemental Brief (Dec. 15, 2011) at p. 12;
     see also id. at p. 13 (stating that dispute in Ray “would have
27   had no impact on the debtor, its property or its ability to pay
     creditors”); id. at p. 14 (stating that the dispute in Ray “would
28   have had no impact on the estate itself).

                                          22
 1   of Ray.        It ignores Ray’s pivotal comments on the role the state
 2   court must play in deciding what preclusive effect (if any) to
 3   give to the bankruptcy court’s prior rulings.       Id. at 1134 n.7,
 4   1135.        Simply put, we acknowledge that, if the state court here
 5   does not give the bankruptcy court’s prior rulings preclusive
 6   effect, the Petition may impact VHS, its Chapter 9 Plan, or other
 7   creditors.       But Ray acknowledged similar concerns, and yet left
 8   the preclusion issues squarely in the hands of the state court.11
 9           We also disagree with the VHS Defendants’ second argument,
10   that the bankruptcy court had jurisdiction because the Kirton
11   Parties’ Petition raised bankruptcy law issues.         To the contrary,
12   the Petition was based solely on state-law rights allegedly
13   arising from the Retirement Plan and the California Constitution,
14   rights that arose (if at all) prior to and wholly independent of
15   VHS’s bankruptcy case.       That VHS ultimately might want to assert
16   as a defense to the Petition rights it acquired in the course of
17   its bankruptcy case is of no moment.       As we stated above, the
18   focus in determining the bankruptcy court’s removal jurisdiction
19   is on the well-pled allegations of the Petition and not on any
20   defense the VHS Defendants anticipate they might want to assert
21   in response.       See In re Miles, 430 F.3d at 1088.
22           The VHS Defendants also attempt to distinguish Ray by
23
             11
24          If, in the process of ruling on the Petition, the state
     court misinterprets the plan, the confirmation order or any of
25   the bankruptcy court’s other orders, VHS then might be able to
26   seek relief from the bankruptcy court, provided that the state
     court’s ruling implicates substantive bankruptcy law issues or
27   impacts VHS or its plan. See Huse v. Huse–Sporsem, A.S. (In re
     Birting Fisheries, Inc.), 300 B.R. 489, 500-01 (9th Cir. BAP
28   2003).

                                          23
 1   comparing the status of VHS’s Chapter 9 Plan and the status of
 2   its bankruptcy case with the status of Ray’s chapter 11 plan and
 3   his bankruptcy case.    In Ray, at the time BGP sued Ray and others
 4   in state court for breach of BGP’s first refusal rights with
 5   respect to the sale of the Adjacent Land, Ray’s plan had been
 6   fully administered and his bankruptcy case had been closed.
 7   624 F.3d at 1129.    In contrast, according to the VHS Defendants,
 8   distributions under VHS’s Chapter 9 Plan are in progress now, and
 9   its bankruptcy case is still open.     However, in terms of finding
10   (or not) the requisite close nexus between the Petition and VHS’s
11   bankruptcy case, the current status of the VHS bankruptcy case
12   and the Chapter 9 Plan simply are not critical under the
13   circumstances.12    Rather, under the facts of this case, it is the
14   entry of the court’s confirmation order (and any preclusive
15   effect that order and the Chapter 9 Plan might have) that are
16   crucial in considering the potential impact of the Petition on
17   VHS’s bankruptcy case.    In short, the distinctions that the VHS
18   Defendants have pointed to are not significant for purposes of
19   ascertaining whether “related to” jurisdiction exists here.
20        Nor can these case status and plan status distinctions
21   support a conclusion that ancillary jurisdiction exists.    Ray
22   stands for the proposition that there can be no ancillary
23   bankruptcy jurisdiction (nor any other type of bankruptcy
24   jurisdiction) in a postconfirmation breach of contract lawsuit,
25   when the complaint does not raise any issues of bankruptcy law,
26
          12
27         See generally In re Ray, 624 F.3d at 1132 n.5 (noting that
     whether the underlying bankruptcy case is open or closed does not
28   control).

                                       24
 1   does not invoke any rights either based on substantive bankruptcy
 2   law or created in the course of the bankruptcy case, and does not
 3   impact the debtor, the estate or the plan.    In other words, there
 4   can be no ancillary jurisdiction over an action when the action
 5   in question is not sufficiently connected to a prior action over
 6   which the court had jurisdiction.    See Fed. Sav. & Loan Ins.
 7   Corp. v. Ferrante, 364 F.3d 1037, 1041-42 (9th Cir. 2004).     In
 8   light of Ray, we cannot find here that there is sufficient
 9   connection between the Petition and VHS’s bankruptcy case to
10   establish that the bankruptcy court had ancillary jurisdiction
11   over the Petition.
12        We also note that the Chapter 9 Plan included lengthy and
13   broad jurisdiction retention provisions.    Among other things, the
14   plan purported to have the bankruptcy court retain jurisdiction:
15   “to hear and determine all disputes or controversies arising in
16   connection with or related to this Plan or the Confirmation Order
17   or the interpretation, implementation, or enforcement of this
18   Plan or the Confirmation Order or the extent of any entity’s
19   obligations incurred in connection with or released under this
20   Plan or the Confirmation Order.”     Chapter 9 Plan (Dec. 17, 2009)
21   at 26:14-17.   Notwithstanding the above, Ray ruled that a
22   jurisdiction retention provision, by itself, cannot confer
23   jurisdiction on the bankruptcy court.    See In re Ray, 624 F.3d at
24   1136 n.8.
25        Even though the Kirton Parties never filed a remand motion,
26   they did not waive the argument that the bankruptcy court lacked
27   subject matter jurisdiction; the Kirton Parties could make that
28   argument, and did make that argument, at other times during the

                                     25
 1   course of the proceedings and on appeal.   See O'Halloran, 856
 2   F.2d at 1379 (stating that an argument regarding the court’s
 3   subject matter jurisdiction could not be waived and could be
 4   raised at any time).13
 5        Accordingly, because the bankruptcy court lacked subject
 6   matter jurisdiction over the removed Petition, we must VACATE its
 7   judgment dismissing the Petition under Civil Rule 12(b)(6).
 8                               CONCLUSION
 9        For the reasons set forth above, we VACATE the bankruptcy
10   court's order under Civil Rule 12(b)(6) dismissing the Kirton
11   Parties’ Petition because it lacked subject matter jurisdiction
12   over this dispute.   We REMAND this matter to the bankruptcy court
13   with instructions to remand the Petition to the state court.
14
15
16
17
18
19
20
21
22        13
           While we ultimately reach the same result as that urged by
23   the Kirton Parties in their supplemental brief, that the
     bankruptcy court lacked jurisdiction over the Petition, the
24   Kirton Parties asserted this result follows from the following
     facts: (1) they did not actively participate in VHS’s bankruptcy
25   case; (2) the Chapter 9 Plan stated that their Retirement Plan
26   rights were unaffected; and (3) the Chapter 9 Plan deprived them
     the right to vote for or against the plan. It suffices for us to
27   say that we disagree with the Kirton Parties’ jurisdictional
     analysis and instead rely on our own analysis, which mirrors
28   Ray’s analysis.

                                     26
 1                                Appendix
 2   California Constitution Art. XVI, Sec. 17, provides in part:
 3        Notwithstanding any other provisions of law or this
 4        Constitution to the contrary, the retirement board of a
 5        public pension or retirement system shall have plenary
 6        authority and fiduciary responsibility for investment
 7        of moneys and administration of the system, subject to
 8        all of the following:
 9             (a) The retirement board of a public pension or
10        retirement system shall have the sole and exclusive
11        fiduciary responsibility over the assets of the public
12        pension or retirement system.   The retirement board
13        shall also have sole and exclusive responsibility to
14        administer the system in a manner that will assure
15        prompt delivery of benefits and related services to the
16        participants and their beneficiaries.   The assets of a
17        public pension or retirement system are trust funds and
18        shall be held for the exclusive purposes of providing
19        benefits to participants in the pension or retirement
20        system and their beneficiaries and defraying reasonable
21        expenses of administering the system.
22             (b) The members of the retirement board of a
23        public pension or retirement system shall discharge
24        their duties with respect to the system solely in the
25        interest of, and for the exclusive purposes of
26        providing benefits to, participants and their
27        beneficiaries, minimizing employer contributions
28        thereto, and defraying reasonable expenses of

                                     27
 1   administering the system.   A retirement board's duty to
 2   its participants and their beneficiaries shall take
 3   precedence over any other duty.
 4        (c) The members of the retirement board of a
 5   public pension or retirement system shall discharge
 6   their duties with respect to the system with the care,
 7   skill, prudence, and diligence under the circumstances
 8   then prevailing that a prudent person acting in a like
 9   capacity and familiar with these matters would use in
10   the conduct of an enterprise of a like character and
11   with like aims.
12        (d) The members of the retirement board of a
13   public pension or retirement system shall diversify the
14   investments of the system so as to minimize the risk of
15   loss and to maximize the rate of return, unless under
16   the circumstances it is clearly not prudent to do so.
17        (e) The retirement board of a public pension or
18   retirement system, consistent with the exclusive
19   fiduciary responsibilities vested in it, shall have the
20   sole and exclusive power to provide for actuarial
21   services in order to assure the competency of the
22   assets of the public pension or retirement system.
23                        *      *     *
24        (h) As used in this section, the term "retirement
25   board" shall mean the board of administration, board of
26   trustees, board of directors, or other governing body
27   or board of a public employees' pension or retirement
28   system; provided, however, that the term "retirement

                                 28
 1   board" shall not be interpreted to mean or include a
 2   governing body or board created after July 1, 1991
 3   which does not administer pension or retirement
 4   benefits, or the elected legislative body of a
 5   jurisdiction which employs participants in a public
 6   employees' pension or retirement system.
 7
 8
 9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

                               29