Court Opinion

ID: 2972427
Source: CourtListenerOpinion
Date Created: 2015-09-22 16:49:01.611408+00
Date Added: 2024-06-11T11:43:41.173237
License: Public Domain

By order of the Bankruptcy Appellate Panel, the precedential effect
                of this decision is limited to the case and parties pursuant to 6th
                Cir. BAP LBR 8013-1(b). See also 6th Cir. BAP LBR 8010-1(c).

                                   File Name: 05b0008n.06

            BANKRUPTCY APPELLATE PANEL OF THE SIXTH CIRCUIT

In re: CHARLES E. HART                  )
and LINDA L. HART,                      )
                                        )
                 Debtors.               )
                                        )
                                        )
CHARLES E. HART and                     )
               1
LINDA C. HART,                          )
                                        )
                 Plaintiffs-Appellees,  )
                                        )
v.                                      )                   No. 05-8001
                                        )
J. ANTHONY LOGAN and BROOKS,            )
WILBURN & LOGAN CO., L.P.A.,            )
                                        )
                 Defendants-Appellants. )
                                        )

                       Appeal from the United States Bankruptcy Court
                      for the Southern District of Ohio, Eastern Division
              Chapter 12 Case No. 99-31675, Adversary Proceeding No. 04-3119

                                     Argued: May 4, 2005

                               Decided and Filed: June 24, 2005

       Before: GREGG, PARSONS, and WHIPPLE, Bankruptcy Appellate Panel Judges.

       1
         The middle initial of Linda Hart according to the bankruptcy petition is “L,” while the
notice of removal of the litigation to the bankruptcy court apparently erroneously uses “C” as Ms.
Hart’s middle initial.
                                       __________________

                                            COUNSEL

ARGUED: David A. Herd, JOHN C. NEMETH & ASSOCIATES, Columbus, Ohio, for Appellant.
William O. Cass, Jr., Dayton, Ohio, for Appellee. ON BRIEF: David A. Herd, JOHN C. NEMETH
& ASSOCIATES, Columbus, Ohio, for Appellant. Alfred W. Schneble III, SCHNEBLE, CASS &
ASSOCIATES, Dayton, Ohio, for Appellee.

                                             OPINION

       MARY ANN WHIPPLE, Bankruptcy Appellate Panel Judge. J. Anthony Logan and Brooks,
Wilburn & Logan Co., L.P.A., appeal an order remanding and/or abstaining from hearing a lawsuit
that they removed to the bankruptcy court. For the reasons that follow, we conclude that the order
on appeal should be AFFIRMED.

                                     I. ISSUE ON APPEAL

       The issue presented is whether the bankruptcy court erred in remanding and/or abstaining
from hearing a lawsuit that the defendants removed to that court following the consummation of the
appellees’ Chapter 12 plan.

                    II. JURISDICTION AND STANDARD OF REVIEW

       An order remanding litigation removed from a state court constitutes a final order, see
Quackenbush v. Allstate Ins. Co., 517 U.S. 706, 712-15, 116 S. Ct. 1712, 1718-20 (1996), so the
order being challenged may be appealed as of right. 28 U.S.C. § 158(a)(1). The United States
District Court for the Southern District of Ohio has authorized appeals to the Bankruptcy Appellate
Panel, and neither party has timely elected to have this appeal heard by the district court. 28 U.S.C.
§ 158(b)(6), (c)(1). Accordingly, the Panel has jurisdiction to decide this appeal.

                                                  2
          The decision whether or not to remand a removed action on equitable grounds is reviewed
for an abuse of discretion. McCarthy v. Prince (In re McCarthy), 230 B.R. 414, 417 (B.A.P. 9th Cir.
1999). Likewise, “review of the bankruptcy court’s decision to abstain under § 1334(c)(1) is for
abuse of discretion.” New Eng. Power & Marine, Inc. v. Town of Tyngsborough, Mass. (In re
Middlesex Power Equip. & Marine, Inc.), 292 F.3d 61, 69 (1st Cir. 2002); accord, e.g., Luan Inv.
S.E. v. Franklin 145 Corp. (In re Petrie Retail, Inc.), 304 F.3d 223, 232 (2d Cir. 2002); Southmark
Corp. v. Coopers & Lybrand (In re Southmark Corp.), 163 F.3d 925, 929 (5th Cir. 1999); In re U.S.
Brass Corp., 110 F.3d 1261, 1268 (7th Cir. 1997); Siragusa v. Siragusa (In re Siragusa), 27 F.3d
406, 407-08 (9th Cir. 1994). However, when the decision to remand is based on a lack of juris-
diction, the decision is reviewed de novo. Davis v. McCourt, 226 F.3d 506, 509 (6th Cir. 2000)
(citing Mich. Affiliated Healthcare Sys., Inc. v. CC Sys. Corp. of Mich., 139 F.3d 546, 549 (6th Cir.
1998)).

                                            III. FACTS

          On March 31, 1999, appellees Charles E. Hart and Linda L. Hart (the “Plaintiffs”) filed a
voluntary petition for relief under Chapter 12 of the Bankruptcy Code. They were originally
represented in connection with their Chapter 12 case by appellant J. Anthony Logan (“Logan”). On
November 12, 1999, the Plaintiffs’ Chapter 12 Plan was confirmed. On April 3, 2000, Logan filed
an application for compensation and reimbursement of expenses. The docket does not disclose the
disposition of that application. On May 30, 2002, Logan filed another application for compensation
and reimbursement, and that application was granted on June 21, 2002. The record does not reveal
whether the Plaintiffs ever paid the fees and expenses.

          On July 17, 2002, Bank One, N.A., obtained relief from the automatic stay to foreclose on
certain tracts or parcels of real property of one or both Plaintiffs. Logan withdrew from his
representation of the Plaintiffs in March 2003 and substitute counsel was retained. On May 29,
2003, the Plaintiffs filed a motion to modify their Chapter 12 plan and, on August 22, 2003, the
bankruptcy court entered an order confirming the modified plan. The confirmation order, although
not included in the record on appeal, requires the payment of all claims in full. The order further

                                                  3
provides that “[a]ny property retained by Debtors after payments of the allowed claims shall be
vested in the Debtors free and clear of any claim or interest of any creditor or claimant provided for
in the Debtors’ Plan, as modified, regardless of whether said creditor or claimant filed a timely proof
of claim.”

        On March 26, 2004, the Plaintiffs commenced a legal malpractice action against Logan and
Brooks, Wilburn & Logan Co., L.P.A. (the “Defendants”), in the Common Pleas Court of Franklin
County, Ohio, alleging that the Plaintiffs intended to bid at the Bank One foreclosure sale, that
Logan knew that, and that he erroneously informed the Plaintiffs that the sale had been postponed.
They claim damage as a result of their inability to attend the foreclosure sale, and also as a result of
the quality of the representation received in the Chapter 12 case. On April 6, 2004, the Plaintiffs
filed a report in their Chapter 12 case indicating that they had completed the payments under their
modified plan and were entitled to a discharge. On May 2, 2004, the bankruptcy court entered an
order granting them a discharge. On May 4, 2004, the Defendants filed an answer and a Notice of
Filing of Notice of Removal in the state court litigation and, the next day, they filed a Notice of
Removal in the bankruptcy court. On May 11, 2004, the Plaintiffs filed a motion for remand and/or
permissive abstention and, on May 25, 2004, the Defendants filed a memorandum in opposition to
the motion. On November 9, 2004, the bankruptcy court granted the motion without a hearing, on
the basis that “the underlying claims are noncore matters.” The Defendants timely filed a notice of
appeal on November 19, 2004.

                                          IV. DISCUSSION

        The statute governing the removal of claims related to bankruptcy cases provides that “[t]he
court to which such claim or cause of action is removed may remand such claim or cause of action
on any equitable ground,” 28 U.S.C. § 1452(b), and the bankruptcy jurisdictional statute provides
that “[n]othing in this section prevents a district court in the interest of justice, or in the interest of
comity with State courts or respect for State law, from abstaining from hearing a particular
proceeding arising under title 11 or arising in or related to a case under title 11,” id. § 1334(c)(1).
In addition to such equitable grounds, 28 U.S.C. § 1447(c) provides: “If at any time before final

                                                    4
judgment it appears that the district court lacks subject matter jurisdiction, the case shall be
remanded.” See Things Remembered, Inc. v. Petrarca, 516 U.S. 124, 129, 116 S. Ct. 494, 497
(1995) (both § 1447 and § 1452 govern remand in actions removed to bankruptcy courts). Because
we conclude that the bankruptcy court lacked subject matter jurisdiction over the removed litigation,
remand was proper.

       At the outset, it is important to note the distinction between the determination of whether a
court has jurisdiction over a proceeding and the determination of whether the proceeding is “core”
or “non-core.” “[T]hese aspects of bankruptcy law are not interchangeable. The status of a
proceeding as core or non-core does not affect the issue of jurisdiction.” Bank United v. Manley,
273 B.R. 229, 238 (N.D. Ala. 2001). “Subject matter jurisdiction is the court’s authority to entertain
an action between the parties before it.” Am. Hardwoods, Inc. v. Deutsche Credit Corp. (In re Am.
Hardwoods, Inc.), 885 F.2d 621, 624 (9th Cir. 1989). Jurisdiction over bankruptcy cases and
proceedings is vested in the district courts by 28 U.S.C. § 1334. The district courts may then refer
those matters to the bankruptcy judges for the district. 28 U.S.C. § 157(a). Whether a matter is
“core” or “non-core” under 28 U.S.C. § 157(b) then controls the extent to which the bankruptcy
judge may exercise the district court’s bankruptcy jurisdiction. Id. § 157(c). “[T]he core/noncore
determination under 28 U.S.C. § 157(b) and (c) implicates the bankruptcy court’s power to render
final orders or judgments; it is not a determination that the bankruptcy court either possesses or lacks
subject matter jurisdiction over a particular proceeding.” Holly’s, Inc. v. City of Kentwood (Matter
of Holly’s, Inc.), 172 B.R. 545, 556 (Bankr. W.D. Mich. 1994), aff’d, 178 B.R. 711 (W.D. Mich.
1995); accord, e.g., Gen. Am. Communications Corp. v. Landsell (In re Gen. Am. Communications
Corp.), 130 B.R. 136, 154 (S.D.N.Y. 1991).

       The court must first determine that the court has subject matter jurisdiction over the matter.
“Once that determination is made, then it is proper to identify the proceedings as either ‘core’ or
‘non-core but related’ matters.” Eubanks v. Esenjay Petroleum Corp., 152 B.R. 459, 462 (E.D. La.
1993). The district courts and, by reference, the bankruptcy courts have jurisdiction over “cases
under title 11 ” and “civil proceedings arising under title 11, or arising in or related to cases under
title 11.” 28 U.S.C. §§ 1334(a), (b), 157(a). The Plaintiffs’ action against the Defendants is clearly

                                                   5
not a “case under title 11,” i.e., a Chapter 7, 9, 11, 12, or 13 case, so subsection (a) of § 1334 is
inapplicable. Robinson v. Mich. Consol. Gas Co., 918 F.2d 579, 583 (6th Cir. 1990). As for
subsection (b) of the jurisdictional statute, the Sixth Circuit does not distinguish between
proceedings “under title 11,” proceedings “arising in” bankruptcy cases, and proceedings “related
to” bankruptcy cases. Mich. Employment Sec. Comm’n v. Wolverine Radio Co. (In re Wolverine
Radio Co.), 930 F.2d 1132, 1141 (6th Cir. 1991). “These references operate conjunctively to define
the scope of jurisdiction. Therefore, for purposes of determining section 1334(b) jurisdiction, it is
necessary only to determine whether a matter is at least ‘related to’ the bankruptcy.” Id. (citation
omitted).

       “[C]laims will be considered ‘related to’ the . . . bankruptcy proceeding if ‘the outcome of
that proceeding could conceivably have any effect on the estate being administered in bankruptcy.’”
Browning v. Levy, 283 F.3d 761, 773 (6th Cir. 2002) (quoting Sanders Confectionary Prods., Inc.
v. Heller Fin., Inc., 973 F.2d 474, 482 (6th Cir. 1992)). “Stated another way, a claim is ‘related to’
the bankruptcy proceeding if it would have affected the debtor’s rights or liabilities.” Id. (citing
Lindsey v. O’Brien, Tanski, Tanzer & Young Health Care Providers of Conn. (In re Dow Corning
Corp.), 86 F.3d 482, 489 (6th Cir. 1996)). A legal malpractice action does not “arise under” the
Bankruptcy Code, and it is not “related to” a bankruptcy case merely because the attorney represent-
ed debtors in connection with a bankruptcy case. Nat’l City Bank v. Coopers & Lybrand, 802 F.2d
990, 993-94 (8th Cir. 1986).

       The Plaintiffs’ causes of action against the Defendants became property of their bankruptcy
estate when they accrued. 11 U.S.C. § 1207(a)(1). However, the modified Chapter 12 plan provided
that all property of the estate would vest in the Plaintiffs upon completion of payments of the
allowed claims.2 The Plaintiffs completed the payments under their Chapter 12 plan and received

       2
         Although this provision is found in the order confirming the modified plan and neither party
designated that order (or the original Chapter 12 plan, the modified plan, or the order confirming the
original plan) for inclusion in the record on appeal, 11 U.S.C. § 1227(b) provides that in the absence
of a provision to the contrary in a plan or confirmation order, all property of the estate is vested in
                                                                                         (continued...)

                                                  6
a discharge prior to the filing of the notice of removal so, at that time, there was no “estate being
administered in bankruptcy.” Although a final decree has not yet been entered in the Chapter 12
case, a review of the docket reveals no reason that the case should not be closed, see id. § 350(a),
and, in any event, the Plaintiffs are no longer “debtors” in the true sense of the word. The outcome
of their action against the Defendants can have no conceivable effect on the Plaintiffs’ creditors,3
particularly since their Chapter 12 plan provided for the full payment of all claims.4 The bankruptcy
court lacks subject matter jurisdiction over the Plaintiffs’ causes of action against the Defendants.

       Other courts have so held under similar circumstances. For example, in Citigroup, Inc. v.
Harris (In re Harris), 306 B.R. 357 (M.D. Ala. 2004), the debtors completed payments under their
Chapter 13 plan then filed suit asserting various causes of action in state court. The defendants
removed the action to bankruptcy court, which then granted the debtors’ motion for remand. Id. at
361. The district court affirmed:

               As the test of whether “related to” jurisdiction exists is the nexus between the
       adversarial procedure and the underlying bankruptcy estate, there cannot be any
       “related to” jurisdiction here, because there is no longer any underlying bankruptcy
       estate.

               ....

       2
         (...continued)
the debtor upon confirmation.
       3
         The Bankruptcy Code defines “creditor” as an entity that holds a prepetition claim (or one
of a few limited types of postpetition claim that the Code treats like prepetition claims). 11 U.S.C.
§ 101(10).
       4
          Although the Defendants dispute that assertion, the order confirming the modified plan
supports the assertion. Although that order is not included in the record on appeal, the Defendants
have offered no evidence that all claims have not been paid in full, and “the party invoking federal
jurisdiction bears the burden of establishing its existence.” Steel Co. v. Citizens for a Better Env’t,
523 U.S. 83, 104, 118 S. Ct. 1003, 1017 (1998); accord, e.g., R.S.W.W., Inc. v. City of Keego
Harbor, 397 F.3d 427, 433-34 (6th Cir. 2005) (citing Thomson v. Gaskill, 315 U.S. 442, 446, 62 S.
Ct. 673, 675 (1942)).

                                                  7
               . . . [I]n a chapter 13 bankruptcy case where the creditors have been paid at
       100% and the debtor is entitled to a discharge, there is simply nothing left to which
       the adversarial proceeding can be related. The creditors have received all the monies
       due to them—any recovery the debtors may receive in state court could not possibly
       affect the estate, as the bankruptcy estate has long since ceased to exist.

              Quite simply, appellants have failed to demonstrate how the present inde-
       pendent actions could conceivably affect the bankruptcy estates, as neither estate was
       being administered in bankruptcy when the Tippins actions were filed.

Id. at 364 (citation omitted). Numerous other courts have likewise concluded (albeit outside the
removal context) that the bankruptcy court has no “related to” jurisdiction over Chapter 13 debtors’
claims after completion of their plan payments. E.g., McAlpin v. Educ. Credit Mgmt. Corp. (In re
McAlpin), 278 F.3d 866, 868 (8th Cir. 2002); Brown v. GMAC Mortgage Corp. (In re Brown), 300
B.R. 871, 876 (D. Md. 2003); Bibler v. SN Servicing Corp. (In re Bibler), 310 B.R. 308, 312-13
(Bankr. W.D. Mich. 2004); Shuman v. Kashkashian (In re Shuman), 277 B.R. 638, 653-55 (Bankr.
E.D. Pa. 2001) (claims against former attorney, including claims for fraud and legal malpractice);
see also Nat’l City Bank v. Coopers & Lybrand, 802 F.2d at 994 (Chapter 11 case).

       The district court and, by reference, the bankruptcy court lacked subject matter jurisdiction
over the Plaintiffs’ causes of action against the Defendants. Accordingly, it is unnecessary to
determine whether the litigation constitutes a “core” or “non-core” proceeding. The bankruptcy
judge properly remanded the action to the state court.

                                       V. CONCLUSION

       For the foregoing reasons, the bankruptcy court’s order granting the Plaintiffs’ motion for
remand and/or permissive abstention is hereby AFFIRMED.

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