Opinion
Civil Action No. 00-3262.
February 2, 2001
ORDER AND REASONS
Before the Court are the appeal and cross-appeal of Elizabeth Jeffers and Reliastar Life Insurance Company ("Reliastar") from the ruling of the United States Bankruptcy Court. In his Order and Reasons dated October 4, 2000, Bankruptcy Judge Brahney determined that he did not have jurisdiction to hear Reliastar's claim against Jeffers because the property in dispute was not part of the bankruptcy estate. His jurisidictional ruling notwithstanding, Bankruptcy Judge Brahney denied Jeffers's motion for summary judgment, which stripped Jeffers of her primary defenses against Reliastar's claims. Both parties have appealed this ruling and ask this Court to render a decision wholly in their favor.
After reviewing the record, the arguments of counsel and the applicable law, the Court finds that, under 28 U.S.C. § 1334(b), the Bankruptcy Court had jurisdiction to adjudicate this dispute because it is "related to" a bankruptcy matter. Because the litigation between these parties qualifies as a "non-core" proceeding, this Court shall therefore review the decision of the Bankruptcy Court de novo. For the reasons expressed below, the Court hereby DENIES Jeffers's Motion for Summary Judgment, GRANTS Reliastar's Motion for Summary Judgment and REMANDS to Bankruptcy Court for the purposes of considering Reliastar's Motion to Lift Stay.
Background
Elizabeth Jeffers filed for Chapter 13 bankruptcy relief on December 11, 1998. Jeffers is the wife of the late Marvin Jeffers, who, at the time of his death on November 10, 1998, was insured under a Reliastar group life insurance policy. The maximum benefit payable under this policy was $150,000, and Elizabeth Jeffers was the policy's sole-beneficiary. Shortly after her husband's death, Elizabeth Jeffers filed for the benefits under the insurance policy. Reliastar transferred $150,000 to a State Street Bank checking account in Jeffers's name, which was the company's typical procedure for disbursing insurance proceeds. However, Jeffers requested that the money be issued to her directly in the form of a check. Reliastar sent Jeffers a check for $150,678.49 on December 21, 1998 (representing the $150,000 policy amount plus interest), and then revoked its previous directive to open a State Street checking account in her name.
Her Chapter 13 plan was confirmed by the Bankruptcy Court in May 1999, and her Chapter 13 case is still pending in the Bankruptcy Court below.
Apparently, this revocation was not properly processed, because a State Street Bank account was opened for Jeffers with an initial deposit of $150,000 by Reliastar. On March 24, 1999, apparently as the result of some confusion, Reliastar released the money in the account — $150,000 with interest, totaling $151,931.33 — to Jeffers. According to Jeffers, when Reliastar offered to send her a second payment, she insisted that she was not interested in receiving any additional money unless Reliastar could assure her that the money was rightfully hers. Jeffers maintains that Reliastar guaranteed that the money in fact belonged to her, and then, after receiving such assurances, she accepted the payment. Although the queston of what happened to the money remains somewhat unclear, it appears from the pleadings that Jeffers used (some of) the proceeds to make repairs to her home.
On July 22, 1999, Reliastar realized that it had erroneously made two dispersements to Jeffers and attempted to correct its error. From that date through November 12, 1999, Reliastar made a series of demands on Jeffers to return or repay the March 1999 disbursement of $151,931.33. When Jeffers had not returned the money by the beginning of the year 2000, Reliastar commenced adversary proceedings.
Procedural History
Reliastar initially filed a motion for a preliminary injunction to prevent Jeffers from spending the March 1999 money. However, because it was unclear whether Jeffers had commingled the March 1999 insurance payment with other money, the Bankruptcy Court refused to enjoin Jeffers from spending approximately $150,000 in funds on deposit in a Dean Witter account that had been "frozen" pursuant to an interim order of the Bankruptcy Court. On June 16, 2000, prior to the issuance of the Bankruptcy Court's decision on the motion for preliminary injunction, Reliastar filed a motion for summary judgment, requesting return of the March 1999 payment, or alteratively, a money judgment equal to the amount of the March 1999 payment. On the same date, Reliastar also filed a motion to lift the stay in the bankruptcy case, which sought permission to execute a judgment against any post-petition income owned by Jeffers, in the event that the Bankruptcy Court granted Reliastar's alternate request for money damages. In response to these motions, Jeffers filed a cross-motion for summary judgment in which she sought, in effect, to obtain a declaratory judgment from the Court that Reliastar had either a contractual obligation or some other duty to pay her the March 1999 sum because of the representations it purportedly made to her before sending the second payment.
Jeffers also filed a motion to compel and a motion for sanctions relating to telephone records requested by her from Reliastar, which she alleged would assist her in proving that Reliastar had, in fact, made such representations to her prior to sending the March 1999 payment. The Bankruptcy Court denied these motions, and those decisions have not been appealed.
On October 4, 2000, the Bankruptcy Court issued rulings on the two motions for summary judgment and on Reliastar's motion to lift the stay. The Bankruptcy Court found that it did not have jurisdiction over the matter because the March 1999 money in dispute was neither insurance proceeds (only the December 21, 1998 payment had actually been for the insurance policy) nor property of the estate at the time the Chapter 13 plan was ratified on December 11, 1998 (since the money was only transferred on March 21, 1999). Therefore, the Bankruptcy Court found that it had no jurisdiction over the subject matter of this litigation. Nevertheless, the Bankruptcy Court proceeded to state that assuming it did have jurisdiction, the Court would deny Jeffers's motion for summary judgment. Both parties have appealed the disposition of the case by Bankruptcy Judge Branhey.
Threshold Question: Jurisdiction
As a preliminary matter, this Court reviews the Bankruptcy Court's determination that it did not have jurisdiction to hear this dispute. While the Court agrees that the $151,931.33 payment did not qualify as property of the estate, bankruptcy courts are also given jurisdiction to consider disputes that are "related to" bankruptcy matters. As the Fifth Circuit has explained,
[s]peciflcally, 28 U.S.C. § 1334(b) grants jurisdiction to district courts and adjunct bankruptcy courts to entertain proceedings "arising under," "arising in a case under," or "related to" a case under Title 11 of the United States Code, i.e., proceedings "related to bankruptcy." To determine whether such jurisdiction exists, "it is necessary only to determine whether a matter is at least `related to' the bankruptcy."In re Bass, 171 F.3d 1016, 1022 (5th Cir. 1999) (quoting Walker v. Cadle Co. (In re Walker), 51 F.3d 562, 569 (5th Cir. 1995) (quoting Wood v. Wood (In re Wood), 825 F.2d 90, 93 (5th Cir. 1987))).
Although the Fifth Circuit has acknowledged that "[r]elated to is a term of art in bankruptcy jurisdiction," In re Bass, 171 F.3d at 1022, a review of the caselaw reveals that a dispute that directly implicates the financial obligations of a debtor is usually sufficiently "related to" a debtor's bankruptcy proceedings as to justify jurisdiction. The Fifth Circuit's test for "related to" jurisdiction asks only whether "the outcome of that proceeding could conceivably have any effect on the estate being administered in bankruptcy." Id. (emphasis added). Thornier questions have arisen when two creditors of a debtor are pursuing claims against each other that will indirectly implicate the obligations of the debtor. See, e.g., In re Canion, 196 F.3d 579, 586 (5th Cir. 1999) ("Courts in other circuits that have faced this question have held that a claim between two non-debtors that will potentially reduce the bankruptcy estate's liabilities produces an effect on the estate sufficient to confer `related to' jurisdiction.") (citations omitted). However, where a party seeks to recover money from a debtor directly, "related to" jurisdiction is clearly implicated. See, e.g., Insure One Independent Insurance Agency, Inc. v. Koestner, 198 B.R. 709, 711 n. 1 (N.D.Ill. 1996) ("`Related to' jurisdiction primarily is intended to encompass tort, contract, and other legal claims by and against the debtor, claims that, were it not for bankruptcy, would be ordinary stand-alone lawsuits between the debtor and others but that section 1334(b) allows to be forced into bankruptcy court so that all claims by and against the debtor can be determined in the same forum.") (citing Zerand-Bernal Group, Inc. v. Cox, 23 F.3d 159, 161 (7th Cir. 1994)). Even though the March payment is not part of the bankruptcy estate, the Court finds that it is conceivable that a judgment for Reliastar in the amount of $150,000, particularly in light of Jeffers's representations that this money has already been spent, see Hearing Transcript at 37, could affect the estate. Therefore, this Court finds that the Bankruptcy Court may properly exercise jurisdiction over this matter pursuant to 28 U.S.C. § 1334(b).
Standard of Review
This Court has jurisdiction to hear an appeal from "final judgments, orders and decrees" of the Bankruptcy Court under 28 U.S.C. § 158. On appeal, the District Court will overturn the Bankruptcy Court's findings only where those findings are clearly erroneous. See Fed.R.Bankr.P. 8013 and Fed.R.Civ.P. 52(a). See also In the Matter of Perez, 954 F.2d 1026, 1027 (5th Cir. 1992). On the other hand, however, the District Court reviews the Bankruptcy Court's conclusions of law de novo. See id.
The Bankruptcy Court has the ability to designate certain matters that are "related to" Title 11 under (b) as either "core" or "non-core" proceedings. See also 28 U.S.C. § 157. If the proceedings are "core," then a bankruptcy court can "enter appropriate orders and judgments, subject to review under section 158 . . . ." See id. The district court must accept the bankruptcy court's findings of fact unless clearly erroneous but shall review its conclusions of law de novo. See Fed.R.Bk. P. 8013; Matter of Excalibur Auto. Corp., 859 F.2d 454, 457 (7th Cir. 1988). However, if the "related" proceedings are "non-core," a bankruptcy court can only make proposed findings of fact and conclusions of law, and only an Article III court may enter final judgment after reviewing all of the bankruptcy court's recommendations de novo. See 400 S. Main Street v. Schiff, 133 B.R. 282, 284 (1991); see generally Northern Pipeline Constr. Co. v. Marathon Pipe Line Co., 458 U.S. 50 (1982).
In Wood, the Fifth Circuit noted that the definition of "core proceedings" must be kept narrow in order to comply with Northern Pipeline. See Credit Agricole Indosuez v. JLH, 2000 WL 108930 at *4 (E.D. La. 2000) ("A proceeding is core under section 157 if it invokes a substantive right provided by title 11 or if it is a proceeding that, by its nature, could arise only in the context of a bankruptcy case. Therefore, if the proceeding does not invoke a substantive right created by the federal bankruptcy law and is one that could exist outside of bankruptcy it is not a core proceeding. . . . [I]t is an `otherwise related' or non-core proceeding.") (citing Wood, 825 F.2d at 95, 97). Under this standard, the Court finds that Reliastar's lawsuit against Jeffers is a "non-core" proceeding. Therefore, this Court shall review Bankruptcy Judge Brahney's determination on the merits — specifically, his denial of Jeffers's motion for summary judgment — de novo.
Motions for Summary Judgment
From the outset, the Court notes that summary judgment was appropriate, as the material facts in this case are not disputed. A question remains, however, as to whether there is any legal reason why Elizabeth Jeffers should be allowed to keep the second payment of $151,931.33 erroneously given to her in March 1999. The Bankruptcy Court rejected Jeffers's defenses on this point with little explanation.
This Court believes, however, that some of Jeffers's arguments, which rely on civilian law concepts, are worthy of greater discussion. First, Jeffers notes that Louisiana contract law is distinct from most other jurisdictions. Whereas consideration is necessary to form a binding contract in other states, Louisiana recognizes a unilateral contract, which can be formed simply by making a promise to do something. This distinction between Louisiana and other jurisdictions poses in stark relief a basic theoretical debate in the law of contracts — what causes another to be bound in contract? Does the duty arise at the moment of making a promise, reflecting the honorable tradition of "giving one's word"? or does one remain free from any contractual obligations until the other party responds to the promise in some way — either by offering consideration in return or by relying on that promise to his or her detriment? Although most states require the latter, Louisiana's civilian law tradition still codifies the former view, substituting the civilian concept of "cause" for the common law concept of consideration. As the late Professor J. Denson Smith, Professor of Civil Law Contracts at Louisiana State University, explained in his article, "A Refresher Course in Cause,"
The basic difference between civilian cause and common law consideration rests in these principles. In the civil law, agreement without more equals contract, as long as the agreement is a lawful one. In Anglo-American common law, agreement plus consideration equals contract. One theory holds that a promise should be enforced because it is a promise, the other holds to the belief that a promise should not be enforced unless the promisor asks for and receives something in return for it.
12 La. L. Rev. 2 (1951); see also McCarty Corp. v. Pullman-Kellogg, 571 F. Supp. 1359 (M.D. La. 1983), aff'd in part and rev'd in part on other grounds, 751 F.2d 750 (5th Cir. 1985). Jeffers insists that when Reliastar promised that the $151,931.33 payment rightfully belonged to her, Reliastar became bound to her to give that money.
Jeffers's invocation of the concept of unilateral contract is to no avail. Under the Civil Code, a unilateral contract usually demands a greater level of ceremony or formality in order to become binding. As the Louisiana Court of Appeals noted in Simmons v. Sowela Tech. Inst., 470 So.2d 913, 918 (La.App. 3d Cir. 1985), "[t]he unilateral contract, being a gratuitous disposition, must generally be made and accepted by an act passed before a notary public and two witnesses." The Simmons court noted that there were only two cases where such formality was not required: (1) an agreement made for the performance of a natural obligation, see La. Civ. Code 1759, and (2) an onerous donation, see La. Civ. Code arts. 1523, 1524, and 1526. See 470 So.2d at 918. Because it is gratuitous, a unilateral contract by definition is not an onerous donation. See id. As the Court shall explain infra, neither can this contract be understood as representing an agreement to perform a natural obligation. Therefore, any attempt to characterize this agreement as a unilateral contract fails. The policy considerations behind these civil code provisions are also reasonable, in that by requiring the parties to participate in such formalities, all involved shall be clear that a contract has, in fact, been formed.
Louisiana state courts have held that bank accounts qualify as "incorporeal things," see, e.g., Brown v. Brown, 635 So.2d 255, 259 (La.App. 3d Cir. 1994), thereby seeming also to render other transfers of money subject to the provisions of the civil code.
In a related, but distinct argument, Jeffers relies on the civilian concept of "natural obligation" as a defense to Reliastar's claims. Under Louisiana Civil Code Article 1760, "a natural obligation arises from circumstances in which the law implies a particular moral duty to render a performance." According to Jeffers, "[Reliastar's] natural obligation was not to send her the check unless they were representing to her that it was indeed hers." Jeffers's Answering and Reply Brief at 14. Although Jeffers acknowledges that she would not be entitled to receive the money from Reliastar in the first instance by alleging that a natural obligation exists, she insists that under Civil Code Article 1761, the existence of a natural obligation is a defense to any claim of unjust enrichment made by Reliastar. See La. Civ. Code art. 1761 ("A natural obligation is not enforceable by judicial action. Nevertheless, whatever has been freely performed in compliance with a natural obligation may not be reclaimed."). Article 1762 offers three examples where a natural obligation would arise, but later cases have noted that those examples are merely illustrative rather than exclusive. See Gray v. McCormick, 663 So.2d 480, 485-86 (3d Cir. 1995), rehearing denied. Other cases where courts have found a "natural obligation," so as to preclude an action for unjust enrichment, include the erroneous payment of interest not explicitly prayed for in a judgment, and a payment for an amount greater than the contract price for services rendered by a contractor that were arguably beyond his contractual obligations. See Stoll v. Goodnight Corp., 469 So.2d 1072, 1079 (La.App. 2d Cir. 1985) (citing Shell Pipe Line Corp. v. Sarver, 442 So.2d 884 (La.App. 3d Cir. 1983) and Banta v. McSpadden, 147 La. 847 (1920), respectively).
These three cases are:
(1) When a civil obligation has been extinguished by prescription or discharged in bankruptcy. (2) When an obligation has been incurred by a person who, although endowed with discernment, lacks legal capacity. (3) When the universal successors are not bound by a civil obligation to execute the donations and other dispositions made by a deceased person that are null for want of form.
La. Civ. Code art. 1762.
Jeffers specifically relies upon Stoll to support her argument that Reliastar should not be entitled to recover the March 1999 payment through an unjust enrichment claim. In Stoll, a former travel agency employee sued her employer to recover the amount that she had paid the company to cover a bad check written by one of the customers she had served. The court found that Stoll had a natural obligation to reimburse the money to her employer because the loss resulted from her failure to follow internal company procedures with regard to questionable checks. InStoll, the employee alleged that had only paid the sum to pacify her superiors so as to avoid termination as a result of her error. Although the payment had not been required, Stoll had been told that "it would be to her advantage" if she reimbursed the company for the loss. Id. at 1075. Even though Stoll claimed that she had not voluntarily handed over the money, the court nevertheless found that she could not recover the sum under a theory of unjust enrichment. In contrast to Stoll, in this case Reliastar did not initially release the money so as to correct a previous error that Reliastar had made. The second payment itself was the error. Therefore, this Court finds that Stoll is inapposite.
Furthermore, despite Jeffers's best efforts to raise civilian law defenses to Reliastar's claims against her, other provisions of Louisiana civilian law undermine her attempt. Specifically, Civil Code Article 2303 provides that "[a] person who in bad faith received a payment or a thing not owed to him is bound to restore it with its fruits and products." Although Reliastar has made no allegation of bad faith against Jeffers pertaining to her initial acceptance of the March payment, they insist that she improperly held on to the money after being informed of the mistake. In Prudential Life Insurance v. Harris, our sister court specifically addressed the application of this civilian law provision to a case of erroneous insurance payments:
The Louisiana courts have consistently held that an insurance company has a right of recovery against the insured when the company erroneously or mistakenly pays policy proceeds, reasoning the payment on the policy was not due. The courts relied on this theory of law whether the payment had been made pursuant to an expired policy or when there was a double payment of the obligation by the same insurer or two separate insurers.748 F. Supp. 445, 447 (M.D. La. 1990) (internal citations omitted). Negligence per se on the part of the insurance company does not preclude it from recovering money erroneously dispersed. See id. at 448 (citingDynamic Exploration, Inc. v. Sugar Bowl Gas Co., 367 So.2d 18 (La.App. 1st Cir. 1978), writ denied, 368 So.2d 142 (La. 1979)). Jeffers argues that gross negligence, on the other hand, should operate against a company seeking to recover monies wrongfully dispersed. See Jeffers's Answering and Reply Brief at 16 ("A grossly careless mistake which could have been avoided by ordinary diligence is to be distinguished from the mistake that reasonable minds would conclude is sometimes made even by reasonable persons in the ordinary course of business.") (quoting Texas Gen. Petroleum v. C.A. Brown, 408 So.2d 288, 292 (La.App. 2d Cir. 1981)). Whether or not there is a "gross negligence" exception to the general principle expressed above, the Court finds that in light of the facts of this case — in particular, the fact that some of the confusion here appears to have resulted from an attempt by Reliastar to disburse the insurance proceeds in a manner preferred by Jeffers and contrary to Reliastar's standard operating procedures — a showing of gross negligence has not been made.
Likewise, Article 2299 provides that "[a] person who has received a payment or a thing not owed to him is bound to restore it to the person from whom he received it." Bankruptcy Judge Brahney found this provision applicable to the current dispute, but utilized it for the purposes of determining that Jeffers's obligation to Reliastar arose post-petition. As the Comments to Article 2299 make clear, "[u]nder Article 2299, as under Article 2301 of the Louisiana Civil Code of 1870, the person who receives a thing or a payment not owed, whether knowingly or through error, must restore it to the person from whom he received it." See also Aetna Casualty Surety Co. v. MA Farms, Ltd., 462 So.2d 1323 (La.App. 3d Cir. 1985) (finding that, under Article 2299, insurance company was entitled to recover payment made under erroneous belief that court order was still in effect).
Therefore, the Court agrees with the Bankruptcy Court's assessment of the merits of this dispute, and ORDERS that Jeffers's motion for summary judgment shall be DENIED and the motion of Reliastar shall be GRANTED. Motion to Lift Stay
In her Brief in Support of her Motion for Summary Judgment before the Bankruptcy Court, Jeffers raised only the arguments of unilateral contract and natural obligation. To the extent that, through her briefs on appeal, Jeffers has raised a third defense of detrimental reliance, that argument is also rejected by the Court.
After reviewing the transcript of the July 14, 2000 hearing, the Court finds that it is appropriate to remand this case to Bankruptcy Court for the purposes of ruling on Reliastar's Motion to Lift Stay. Reliastar has consistently asserted that it should be permitted to execute a money judgment against the Dean Witter account held by Jeffers. However, the transcript reveals that Reliastar's sole argument pertaining to lifting the stay consisted of two sentences at the end of the hearing: "And finally, I'd like the stay lifted as to the Dean Witter account and as to any other nonexempt property of the debtor so I can proceed with execution of the judgment. I think that about sums it up." Hearing Transcript at 35. Reliastar's Motion to Lift Stay included neither affidavits nor any other supporting evidence.
Jeffers objected to any lifting of the stay, in particular with regard to the Dean Witter account. At the hearing, Bankruptcy Judge Brahney reiterated that, as of July 2000, he had only ruled that Reliastar had failed to establish that Jeffers had commingled her Reliastar funds with other money in that account. See id. at 38. When Jeffers attempted to offer evidence regarding the whereabouts of the March 1999 money and the composition of the Dean Witter account, Reliastar objected on the grounds that "[t]his is a motion for summary judgment." Id. at 39. Bankruptcy Judge Brahney agreed, noting that "I don't know where you're going to lift the stay until I make my ruling on the summary judgment. If I make the ruling on the summary judgment, then I can turn them loose." Id.
In light of the rulings above, this Court REMANDS the matter to Bankruptcy Judge Brahney for the purposes of conducting a hearing on Reliastar's Motion to Lift Stay. While considering this matter on remand, the Bankruptcy Court shall also craft appropriate relief for Reliastar — restoration damages and/or a judgment for money damages. This determination shall clearly impact on whether it is necessary to rule on the Motion to Lift Stay. Any due process concerns that may have been implicated by a denial of Jeffers's request to present evidence at the first hearing on this issue can be rectified on remand.
IT IS SO ORDERED.