Court Opinion

ID: 28342
Source: CourtListenerOpinion
Date Created: 2010-04-25 09:22:23+00
Date Added: 2024-06-11T14:55:10.236084
License: Public Domain

IN THE UNITED STATES COURT OF APPEALS

                                 FOR THE FIFTH CIRCUIT

                                         No. 01-60520

       In the Matter of: DAVID WADE and JEANETTE WADE.

                                                           Debtors,
       __________________

       DAVID WADE and JEANETTE WADE,

                                                           Appellees,

                                             versus

       CHASE MANHATTAN MORTGAGE CORPORATION,

                                                           Appellant.

                   Appeal from the United States District Court for
                        the Southern District of Mississippi
                             (USDC No. 3:00-CV-73)
           _______________________________________________________
                                  August 2, 2002

Before REAVLEY, SMITH and DENNIS, Circuit Judges.

PER CURIAM:*

       This appeal is dismissed for want of jurisdiction.

       *
        Pursuant to 5TH CIR. R. 47.5, the Court has determined that this opinion should not be
published and is not precedent except under the limited circumstances set forth in 5TH CIR. R.
47.5.4.
       There has been no certification to warrant interlocutory appeal. The district court

referred to the bankruptcy court’s order as interlocutory, as does Chase’s notice of

appeal; but Chase contends in this court that the judgment is final under 28 U.S.C. §

158(d). That is untenable. Chase’s defense to the Wades’ suit, that their claims were

property of the former bankruptcy estate, has been rejected. Nothing more. The merits

of the Wade claims have not been addressed. That remains in the district court, and

apparently still as an adversary proceeding in the bankruptcy court. This is comparable to

the case of In re Greene County Hospital, 835 F.2d 589 (5th Cir. 1988), where we

dismissed an appeal from a bankruptcy court’s order on its jurisdiction.

       Appeal dismissed.

                                             2
JERRY E. SMITH, Circuit Judge, dissenting:

      The majority concludes that because the parties have more

litigation ahead of them, the district court’s order is not

final and not appealable.         While this may be correct under 28

U.S.C. § 1291, that is not the statute before us.

      Bankruptcy appeals are governed by 28 U.S.C. § 158, In re

Moody, 817 F.2d 365, 366 (5th Cir. 1987), which employs a “more

flexible notions of finality.”          In re Greene County Hosp., 835
F.2d 589, 593 (5th Cir. 1988).1             The majority overlooks our

§ 158 caselaw and thereby reaches a wrong result.                    I would

conclude that we have jurisdiction and would decide that some

of the claims belong to the Wades and some to Chase Mortgage.

Accordingly, I respectfully dissent.

                                     I.

      “To be appealable, an order must be final with respect to

a single jurisdictional unit . . . .                For the purposes of

§ 1291, the single jurisdictional unit is the case as a whole.”

Id. at 593-94.         For purposes of § 158, by contrast, the

bankruptcy order need only “resolve a discrete unit in the

      1
        Accord In re Bartee, 212 F.3d 277, 282 (5th Cir. 2000); In re Orr, 180
F.3d 656, 659 (5th Cir. 1999).
larger case.”      Id. at 595.      We have held that a “bankruptcy

court’s recognition of a creditor’s security interest is a

final order [because s]uch an order conclusively establishes

a claim against the estate.”         Id. (citing In re Lift & Equip.

Serv., Inc., 816 F.2d 1013 (5th Cir. 1987)).                “Similarly, a

turnover order, ordering an individual to turn over an antique

coin, is final, settling authoritatively the inclusion of a

piece of property in the estate.” Id. (citing In re Moody, 817
F.2d 365 (5th Cir. 1987)).          The relevant question is whether

the order “conclusively determine[s] substantive rights.”                Id.

(internal quotation marks omitted).

     The district court characterized the bankruptcy court’s

order as interlocutory.2 If the bankruptcy order was interloc-

utory, then the district court’s affirmance of it was, as well,

and we have no jurisdiction.          See Wood & Locker, 868 F.2d at

142 (“[A] district court’s decision on appeal from a bankruptcy

court’s interlocutory order is not a final order for purposes

of further appellate review unless the district court order in

some sense ‘cures’ the nonfinality of the bankruptcy court

order.”).      But, we cannot defer to the district court’s

     2
       The district courts, unlike the courts of appeals, may take
jurisdiction of interlocutory appeals from the bankruptcy court. 28 U.S.C.
§ 158(a).

                                     4
assessment on this issue.     Moody, 817 F.2d at 366-67;    Bartee,
212 F.3d at 283.      Instead, we must judge the finality of the

bankruptcy court order for ourselves.     Moody, 817 F.2d at 366-

67.

      Almost all the confusion over our jurisdiction arises from

the unusual procedural posture of this case. Once we step back

and understand the effects of the bankruptcy court’s ruling,

it becomes apparent that it is a final order.

      The Wades’ bankruptcy proceeding had already closed; Chase

Mortgage moved to reopen it, arguing that because the state law

claims belonged to the estate, the case was one “arising under”

or “related to” bankruptcy law.      28 U.S.C. § 157(a).   The case

was   referred   to    the   bankruptcy   court   to   decide   one

questionSSwhether the state law claims belong to the Wades or

the estate.   Once the bankruptcy court (and the district court

on appeal) concluded that the claims belong to the Wades, they

re-closed the Wades’ bankruptcy case.

      All proceedings before the bankruptcy court are now over,

and the Wades’ bankruptcy case is again closed.        There are no

remaining factual disputes for the bankruptcy court to resolve.

See In re Aegis Specialty Mktg. Inc., 68 F.3d 919, 921 (5th

Cir. 1995). The district court’s decision “ends the litigation

                                 5
on the merits and leaves nothing for the court to do but

execute the judgment.” Orr, 180 F.3d at 659. So, the decision

easily passes § 158's flexible definition of finality.             Id.

      The fact that there may be additional litigation in Mis-

sissippi’s state courts or in federal district court does not

affect our analysis.           See In re Adams, 809 F.2d 1187, 1188-89

(5th Cir. 1987).     That litigation will cover Mississippi tort

law. The bankruptcy litigation and all appeals under § 158 are

now over.      Chase Mortgage will not have a second opportunity

to appeal under § 158.

      We confronted a similar situation in Adams.              The case

began as a state court suit.          Id. at 1188.   When the defendant

declared chapter 13 bankruptcy, he removed the state claims to

bankruptcy court.        Id.    The plaintiffs, apparently misconstru-

ing   the   scope   of    their     bankruptcy   remedies,   voluntarily

dismissed the state suit. Later, they realized their error and

had the bankruptcy court reinstate the state court suit.            Id.

The district court affirmed the bankruptcy court’s order of

reinstatement, dismissed the appeal, and remanded to state

court.   Id.    We held that the bankruptcy court order reinstat-

ing the lawsuit and the district court order dismissing the

                                       6
appeal were final, reviewable orders under § 158(d).3                    Id. at

1189.     In Adams, as in this case, the parties had yet to

litigate their state law claims, but because the court’s order

resolved all bankruptcy issues between the parties, we deemed

it reviewable.

      In re Greene County Hospital does not alter this analysis.

We stated that “denial of a motion to dismiss for lack of

subject matter jurisdiction is not a final order” under §

158(d). Greene, 835 F.2d at 596. Superficially, this language

sounds relevant to the Wades’ caseSSthe bankruptcy court in the

Wades’ case also refused to dismiss their claims for lack of

subject matter jurisdiction.          But the similarity ends there.

      In Greene, a creditor moved to dismiss a hospital’s

bankruptcy petition on the ground the hospital was not eligible

to file for bankruptcy.         The bankruptcy court ruled that the

hospital could file under chapter 9, and the district court

affirmed. Id. We ruled that a bankruptcy court’s finding that

it has subject matter jurisdiction over a bankruptcy petition

is not an appealable, final order under § 158.                 Greene, 835
F.2d at 590.

      3
        We noted that 28 U.S.C. § 1452 precluded us from reviewing the
district court’s remand order. Adams, 809 F.2d at 1189.

                                      7
       In the Wades’ case, however, the bankruptcy court did not

rule that it had subject matter jurisdiction to decide the

Wades’ state tort claims.            The appeal before us does not

involve the bankruptcy court’s subject matter jurisdiction at

all.       The bankruptcy court ruled that certain property (the

state tort claims) belongs to the Wades, not the estate.

Accordingly, the decision is one over whether property is

included in the estate, one we deem final under § 158.                    Cf.

Moody, 817 F.2d at 368 (bankruptcy court’s turnover order

final); In re England, 975 F.2d 1168, 1172 (5th Cir. 1992) (“An

order which grants or denies an exemption will be deemed a

final order for the purposes of 28 U.S.C. § 158(d).”).

       The district and bankruptcy courts’ references to the

Wades’ standing to litigate4 do not change our analysis.                   In

this case, stating the Wades have standing to assert the claims

is just another way of stating the claims belong to them, not

to the estate.

       The instant case is fundamentally different from Greene.

The district court in Greene remanded to the bankruptcy court

so it could begin administering the petition.                “[T]he entire

       4
        The district court order, for example, concluded “that the lawsuit in
question belongs to the [Wades], and not the estate, and that the [Wades] have
standing to pursue the lawsuit.”

                                      8
bankruptcy proceeding remain[ed] before the parties.” Greene,
835 F.2d at 590.      Here, by contrast, there is no remand to the

bankruptcy court for further proceedings or factfindings; the

bankruptcy case is closed, and there will be no more § 158

appeals.    Accordingly, the decision was final under § 158(d),

and the majority errs in refusing to address Chase Mortgage’s

appeal.

                                     II.

      In reviewing an appeal from a bankruptcy court, we apply

the same standard as did the district court.                In re Pro-Snax

Distribs., Inc., 157 F.3d 414, 419-20 (5th Cir. 1998). Whether

a cause of action belongs to the debtor individually or is

property of the bankruptcy estate is a pure question of law we

review de novo.        In re Swift, 129 F.3d 792, 795 (5th Cir.

1997).

      The best way to begin the discussion is to understand what

this case is not about.        Chase Mortgage argues that the Wades’

state law claims are “really” claims that Chase Mortgage

violated the automatic stay under 11 U.S.C. § 362(h)5; viola-

      5
        “An individual injured by any willful violation of a stay provided by
this section shall recover actual damages, including costs and attorneys’
fees, and, in appropriate circumstances, may recover punitive damages.” 11
U.S.C. § 362(h).

                                      9
tions of the automatic stay are always property of the estate;

therefore, the Wades’ claims are property of the estate.         But

the Wades have raised only state law claims and repeatedly have

confirmed that they do not seek damages for violations of the

automatic stay.

    Chase   Mortgage’s   brief   never   asserts   that   §   362(h)

preempts overlapping state law causes of action, and at oral

argument Chase Mortgage explicitly repudiated any preemption

claim. This court has no authority to rewrite the Wades’ state

law claims as § 362(h) claims for violations of the automatic

stay, and Chase Mortgage’s arguments on this point miss the

mark.

    The Wades devote much of their brief to arguing that

because their legal claims accrued after they filed their

bankruptcy petition, 11 U.S.C. § 541(a)(1)’s rule that the

estate includes “all legal or equitable interests of the debtor

in property as of the commencement of the case” does not apply

to their claims.   But Chase Mortgage never raises this issue;

to the contrary, their brief concedes this point.         Chase is

left with one remaining argument, that under 11 U.S.C. § 541-

(a)(7), the claims belong to the estate.

                                 10
    If Chase Mortgage is correct, and the causes of action

belong to the estate, the trustee has exclusive standing to

assert them, and the Wades’ claims should be dismissed for lack

of standing.   See In re Educators Group Health Trust, 25 F.3d
1281, 1284 (5th Cir. 1994).       The fact that the bankruptcy case

already may have       closed when a claim accrued or was first

asserted does not affect the analysis.               “Any property not

abandoned by the trustee under [11 U.S.C. § 554(a) or (b)]

remains part of the estate even after closure of the bankruptcy

case.”   Correll v. Equifax Check Servs., Inc., 234 B.R. 8, 10

(D. Conn. 1997) (citing In re Drexel Burnham Lambert Group,

Inc., 160 B.R. 508, 514 (S.D.N.Y. 1993)); 11 U.S.C. § 554(d).

    When the Wades’ filed their chapter 7 petition on July 31,

1997, an estate was created under 11 U.S.C. § 541, which

defines “property of the estate”:        It lists seven categories;

all property claimed by the estate must fit into one of them.

Subsection    541(b)   then    lists    exceptions      to   these   seven

categories.

    Section    541(a)(7)      defines   property   of    the   estate   to

include “[a]ny interest in property that the estate acquires

after commencement of the case.”            11 U.S.C. § 541(a)(7).

“[F]or example, if the estate enters into a contract, after the

                                   11
commencement of the case, such a contract would be property of

the      estate.”             H.R. REP. NO.                103-835,          reprinted            in     1994

U.S.C.C.A.N. 3340 (legislative statements).                                        “Property” under

§ 541(a)(7) “includ[es] causes of action sounding in tort.”

In re Doemling, 127 B.R. 954, 955 (W.D. Pa. 1991).6

        Section 541(a)(7) was not added until 1994, and our

circuit has yet to define its scope. Other courts interpreting

§ 541(a)(7) have split into two camps.                                  One reading holds that

all property the debtor obtains before the bankruptcy case

closesSSwhether he obtains it pre- or post-petitionSSis property

of the estate unless a provision of § 541(b) specifically

excludes it from the estate.                           See, e.g., Correll, 234 B.R. at

10-11; In re Acton Foodservices Corp., 39 B.R. 70, 72 (D. Mass.

1984); Bostonian v. Liberty Sav. Bank, 61 Cal. Rptr. 2d 68, 73

(Cal. Ct. App. 1997).7

        But, this reading contradicts the language and structure

of § 541(a).               If all debtor property belongs to the estate

unless excluded by § 541(b), then § 541(a)(1)’s distinction

between pre- and post-petition assets (that only the debtor’s

        6
           Accord In re O’Dowd, 233 F.3d 197 (3d Cir. 2000); Correll, 234 B.R. at 10-11; In re Tomaiolo, 205
B.R. 10 (D. Mass. 1997); In re Griseuk, 165 B.R. 956, 958 (M.D. Fla. 1994); Bostonian v. Liberty Sav. Bank, 61
Cal. Rptr. 2d 68, 73 (Cal. Ct. App. 1997).
        7
        In re Griseuk, 165 B.R. at 958, also applied this framework but
grounded its holding in the fact that the debtors filed under chapter 11.

                                                      12
interests “at the commencement of the case” belong to the

estate) is meaningless.    In re Doemling sets forth the better

reading:

    Section 541(a)(1) specifically limits the property of
    the estate to the debtor's property interest as they
    exist when the case is commenced. Section 541(a)(7)
    does not in any way undermine the goal of
    establishing a critical time at which to determine
    which of debtor’s property becomes part of the
    estate. Instead, it focuses on property interests
    acquired by the estate after the commencement of the
    case. Obviously, after the commencement of the case,
    the estate has an existence that is completely sep-
    arate from that of the debtor.     Section 541(a)(7)
    covers only property that the estate itself acquires
    after the commencement of the proceeding.      Hence,
    there is absolutely no support for the . . . claim
    that all the debtor’s property, whether obtained pre-
    or post-petition, is property of the estate unless
    specifically excluded.

Id. at 956; see also In re O’Dowd, 233 F.3d 197, 203-04 (3d

Cir. 2000); In re Tomaliolo, 205 B.R. 10, 16 (D. Mass. 1997);

In re Osborn, 83 F.3d 433, 1996 WL 196695, at *5 (10th Cir.

Apr. 24, 1996) (unpublished) (table).

    According   to   the   Doemling   view,   §   541(a)(7)   merely

preserves the distinction between the debtor and the chapter

7 estate.   The debtor and the estate are completely separate

entities; all property the debtor acquires belongs to the

debtor, and all property the estate acquires belongs to the

estate.

                                13
     As    Doemling     illustrates,        the   Correll/Acton/Bostonian

reading often would lead to absurd results.              In Doemling, five

months after she filed for chapter 7 bankruptcy, Doemling was

hit by a drunk driver. The court held that her personal injury

suit from this accident belonged to the Doemlings:

     The Doemlings acquired whatever property interest
     they have in that cause of action in their personal
     capacities. The estate did not acquire this cause of
     action independent of the Doemlings. Any recovery in
     this cause of action would be to compensate the Doem-
     lings for injuries to their persons. It would not
     compensate for any injury to the estate itself.
     Thus, section 541(a)(7) is inapplicable because . . .
     it is limited to property acquired post-petition by
     the estate as opposed to property acquired by the
     debtors.

Doemling, 127 B.R.   at   956.        Doemling’s   suit   was   wholly

unrelated to the estate property or any “property that the

estate acquires after commencement of the case,” 11 U.S.C.

§ 541(a)(7).       Yet, under the rule of Correll, Acton, and

Bostonian, it would belong to the estate, because no section

of § 541(b) specifically excludes it.8

     8
        Griseuk, 165 B.R. at 958, held that a debtor’s personal injury claim
was property of the estate, so the debtor had no standing to bring it.
Griseuk, however, was a chapter 11 case, and the court left open the
possibility it would reach a different result in a chapter seven suit,
explaining that “[i]n contrast to the establishment of two separate estates at
the time of an individual debtor filing a Chapter 7 case, only one estate is
established at the filing of a typical Chapter 11 case.” Id. (internal
quotation marks omitted).

                                       14
       The Third Circuit applied Doemling’s framework in holding

that a debtor’s legal malpractice claim against her former

bankruptcy lawyer belonged to the estate.   The court explained

that

       the inquiry often depends on whether the estate or
       the debtor suffers the harm. Accordingly, only in
       the post-petition situation where the debtor is
       personally injured by the alleged malpractice, while
       the estate is concomitantly not affected, is it
       appropriate to assign the malpractice to the
       debtor. . . .       Here, any alleged malpractice
       resulting from the omission of claims in the Sevak
       Action would affect only the estate, not [the debt-
       or], because it would have reduced the value of the
       Sevak Action, which was property of the estate.

O’Dowd, 233 F.3d at 204.

       A court in the District of Massachusetts similarly ruled

that a debtor’s legal malpractice suit alleging the bankruptcy

attorney wrongly converted the case from chapter 11 to chapter

7, belonged to the estate:

       If the [attorney’s] services were deficient with
       respect to the conversion to chapter 7, the estate’s
       rights were abridged. Liquidation under chapter 7
       typically produces less for creditors than does a
       confirmed chapter 11 plan. To the extent the Debtor
       incurred a resulting loss, so did the creditors, who
       are the estate’s prime beneficiaries. Any loss to
       the Debtor was derivative of the estate’s loss. It
       follows that this claim was acquired by the estate
       under section 541(a)(7).

                                15
Tomaiolo, 205 B.R. at 16.9

      In an unpublished opinion, the Tenth Circuit also relied

on Doemling to decide whether a set of legal malpractice claims

belonged to the debtors or the estate. Osborn, 1996 WL 196695,

at *5. The debtors alleged that their attorney failed to claim

their home as an exempted homestead and advised them to enter

an in personam judgment that rendered $225,000 of their debts

nondischargeable.         Id.   In holding that the claims against the

attorney were property of the debtors, the court explained:

      [The attorney’s] negligence caused a $225,000
      judgment to be entered against the [debtors]
      personally. His negligence did not harm the estate.
      The legal malpractice action seeks to recover for
      injury to the [debtors] personally, not for injury to
      the estate, and therefore is more appropriately
      considered property of the [debtors] than of the
      estate.

Id.

      I too would adopt the rule of Doemling:         When a cause of

action arises after the commencement of the bankruptcy estate,

we ask whether the claims seek recovery for harm to the estate

or to the debtors in their individual capacities.          If the harm

befalls estate property, the claim is property of the estate;

if the harm befalls the debtor’s person or personal property,

      9
          But see Acton, 39 B.R. at 72.

                                          16
the claim is property of the debtors.               Applying this framework

to the Wades, I would conclude that some of their claims belong

to the estate and some to the Wades.

      The Wades’ claim that in March 1998, Chase Mortgage and

Chase Bank entered into a conspiracy to transfer funds held for

the Mississippi mortgage to pay for insurance on the Indiana

property, belongs to the estate.            Once the Wades filed on July

31,   1997,   they    assumed   “an    identity        independent     of   the

bankruptcy estate.”      Doemling, 127 B.R. at 955.             This claim

affects the value of the mortgages, both of which became

property of the estate under § 541(a)(1); it does not affect

the value of the Wades’ personal property.                 Even though the

Wades allege that this mismanagement harmed them, any loss to

them is derivative of loss to the estate.               Tomaiolo, 205 B.R.

at 16.

      The Wades also claim that Chase Mortgage wrongly charged

them for attorney’s fees.       This would be a personal debt, see

In re Brannan, 40 B.R. 20, 23-24 (N.D. Ga. 1984), not an estate

debt.    Because this debt must be paid from the Wades’ personal

property, not from estate property, the claim belongs to the

Wades.    If they are suing for personal hardships caused by

Chase    Mortgage’s    harassment          (e.g.,    personal   time    spent

                                      17
answering these harassing letters), these claims also belong

to them.     Like the car accident in Doemling, any harassment

that occurred after the Wades filed their chapter 7 petition

affected them in their personal capacity.              It did not reduce

the value of any estate asset.

     Finally, any claim the Wades bring to recover their lump

sum payment of $3,032.68, belongs to them.                    The alleged

contract is confusingSSit involves mortgages that had already

been assigned to the estateSSand some of the Wades’ claims

concerning it may be moot.10 But the merits of the Wades’ state

law claims are not before us, only the question of who owns

them. Because the Wades entered this contract after they filed

for bankruptcy, the contract rights and debts they incurred

belong to them.       See id.      Accordingly, any suit to recover

these personal rights and debts belong to them as well.

     For these reasons, I would affirm the district court with

regard to the claims of collusion and breach of fiduciary

duties by Chase Mortgage and Chase Bank, and reverse with re-

gard to the remaining claims.              Unfortunately, the majority

fails to address these claims.            I respectfully dissent.

     10
        The Wades initially listed their Mississippi mortgage for
reaffirmation, but the bankruptcy court granted discharge before the
reaffirmation was administered. Thus, Wades’ claim that Chase Mortgage failed
to send a letter reaffirming the debt is likely moot.

                                     18
19