Opinion
Case No. 02-84136-SSM.
November 9, 2007
MEMORANDUM OPINION
Before the court is the motion of Bank of America, N.A. to reopen the debtor's case for the purpose of removing to this court a lawsuit now pending between the debtor and Bank of America in the Circuit Court of Prince William County, Virginia. A hearing was held on November 6, 2007, at which the court heard the contentions of the parties and took the matter under advisement. For the reasons stated, the motion to reopen will be denied.
Background
Debra A. Maggard ("the debtor") filed a voluntary petition in this court on August 19, 2002, for adjustment of her debts under chapter 13 of the Bankruptcy Code. The case was converted to chapter 7 on October 30, 2002, and Robert O. Tyler was appointed as trustee. Bank of America Mortgage, which held a deed of trust against the debtor's property in Catlett, Virginia, filed a secured proof of claim in the amount of $246,784.48. In the course of administering the case, the trustee, with court approval, sold the property for $280,000. The order approving the sale made no mention of Bank of America's lien. At settlement, which was held on August 11, 2003, Bank of America was paid $132,040.69 on account of its lien, which it released in October 2003. From the net proceeds, the trustee ultimately paid all allowed claims (which totaled $18,192.32) at 100 cents on the dollar plus interest. The surplus funds, which came to $88,460.80, were returned to the debtor. The trustee's final report and account was approved on November 9, 2004, and the case was closed on September 1, 2005.
This was actually her fourth bankruptcy filing in this court, but the prior filings have no relevance to the present controversy.
The trustee had earlier paid the debtor $5,000.00 as her homestead exemption.
In addition to those facts that are shown by the record of this case, the following facts are asserted by the parties. A residence located on the debtor's property had burned down in February 2000, but the debtor's insurance company, Northern Neck Mutual Insurance Company ("Northern Neck"), for reasons that are not explained, refused to pay the debtor's claim for the loss. At some point not disclosed by the record, Bank of America, apparently unable to verify that the property was insured, had obtained its own property insurance from Balboa Insurance Company ("Balboa"). Again at a point not disclosed by the record, Bank of America made a claim to Balboa, which paid Bank of America $132,000 for the loss. According to Bank of America, this amount was held in escrow and was not immediately applied to the loan. Bank of America says that when the chapter 7 trustee requested payoff figures for the loan, credit was given for the amount held in escrow, and Bank of America quoted only the difference. Shortly after the property was sold by the trustee, Northern Neck finally agreed to pay $95,000 on account of the fire loss, and on or about September 19, 2003, delivered a check for that amount to Balboa and its attorneys, Shaheen Shaheen, P.C., as subrogee of Bank of America.
The debtor, unaware of the payment, eventually brought suit against Northern Neck. Upon learning of the $95,000 payment, she then brought suit in the Circuit Court of Prince William County, Virginia, against Bank of America, Balboa, and Balboa's attorneys, asserting that the $95,000 payment belonged to her. Debra Ann Maggard v. Bank of America et al., No. CL 75964. The state court complaint, as amended, asserts claims for conversion and for imposition of a constructive trust on the theory that "Bank of America has received in excess of $264,000 in payments when it was owed approximately $132,000." Bank of America has responded, not only by filing pleadings in the state court challenging its jurisdiction to entertain the suit, but by filing the present motion to reopen the debtor's case in order to remove the state court action to this court.
Discussion A.
A closed bankruptcy case may be reopened "to administer assets, to accord relief to the debtor, or for other cause." § 350(b), Bankruptcy Code. Whether to reopen a closed case is discretionary with the bankruptcy court. Hawkins v. Landmark Finance Co. (In re Hawkins), 727 F.2d 324 (4th Cir. 1984). A case should not be reopened, however, if there is no effective relief that can be granted. In re Carberry, 186 B.R. 401 (Bankr. E.D. Va. 1995).
Under the bankruptcy removal statute, 28 U.S.C. § 1452, a lawsuit filed in another forum may be removed to the federal district court for the district in which the action is pending if the district court would have jurisdiction of the action under 28 U.S.C. § 1334. Section 1334 confers jurisdiction on the federal courts over bankruptcy cases, civil proceedings arising under the Bankruptcy Code, civil proceedings arising in a bankruptcy case, and civil proceedings related to a bankruptcy case. 28 U.S.C. § 1334(a) and (b). A proceeding "arises under" the Bankruptcy Code if federal bankruptcy law creates the cause of action or if the plaintiff's right to relief necessarily depends on resolution of a substantial question of federal bankruptcy law. Poplar Run Five Ltd. P'ship v. Virginia Elec. Power Co. (In re Poplar Run Five Ltd. P'ship), 192 B.R. 848, 855 (Bankr. E.D. Va. 1995). Proceedings "arising in" a bankruptcy case are those that "are not based on any right expressly created by [the Bankruptcy Code], but nevertheless, would have no existence outside of the bankruptcy." Bergstrom v. Dalkon Shield Claimants Trust (In re A.H. Robins Co.), 86 F.3d 364, 372 (4th Cir. 1996); see Grausz v. Englander, 321 F.3d 467 (4th Cir 2003) (debtor's malpractice claim against his bankruptcy attorney for acts committed during the case "arises in" the bankruptcy case). Finally, the "related to" category of proceedings is "quite broad and includes proceedings in which the outcome could have an effect upon the estate being administered." Bergstrom, 86 F.3d at 372; Pacor, Inc. v. Higgins, 743 F.2d 984, 994 (3rd Cir. 1984) (explaining that the test is whether "the outcome of that proceeding could conceivably have any effect on the estate being administered" or "could alter the debtor's rights, liabilities, options, or freedom of action"). Nevertheless, the "related to" category is not so broad as to encompass post-bankruptcy litigation of claims arising under state law or non-bankruptcy federal law that will not have an effect on the bankruptcy estate or on rights protected by the Bankruptcy Code. New Horizon of N.Y., LLC v. Jacobs, 231 F.3d 143 (4th Cir. 2000) (district court lacked even "related to" jurisdiction over state law claims by entity formed to purchase debtor's assets in accordance with a confirmed plan against parties who allegedly interfered with the sale); Valley Historic Ltd. P'ship v. Bank of New York, 486 F.3d 831 (4th Cir. 2007) (bankruptcy court did not have post-confirmation jurisdiction to adjudicate debtor's claims against lender holding a deed of trust against its property for improperly increasing the monthly payments prepetition and for tortiously interfering with the debtor's contractual relationship with its tenant). See, also, In re Poplar Run Five Ltd. P'Ship, 192 B.R. 848 (Bankr. E.D. Va. 1995) (dismissing for want of subject-matter jurisdiction a post-confirmation action to recover a security deposit the debtor had paid to an electric company during its chapter 11 case).
In turn, the district court may refer the action to the bankruptcy court. 28 U.S.C. § 157(a). Because every district court in the country has, either by standing order or local rule, referred all bankruptcy cases and proceedings to the bankruptcy judges for the district, in practice the removal is usually directly to the bankruptcy court.
B.
Having reviewed the amended complaint filed by the debtor in the state court action, the court concludes that the pleaded claims do not "arise under" the Bankruptcy Code, do not "arise in" the debtor's bankruptcy case, and are not "related to" the debtor's bankruptcy case. The complaint asserts state law causes of action for conversion and imposition of a constructive trust and invokes no right or remedy created by the Bankruptcy Code. Although two of the critical events — the trustee's sale of the property and Northern Neck's payment of Balboa — occurred during the bankruptcy case, the Fourth Circuit's analysis in Valley Historic Limited Partnership makes it clear that a cause of action does not "arise in" a bankruptcy case simply because it arose during the case if it would have existed whether or not the debtor filed bankruptcy. 486 F.3d at 836. There is nothing about the trustee's sale of the property that would distinguish it from a sale outside bankruptcy. The trustee did not request, and the order of sale did not authorize, a sale free and clear of Bank of America's lien, nor did the court, in connection with the proposed sale, adjudicate the amount owed to Bank of America. Finally, even though the category of claims "related to" a bankruptcy can be quite broad while the case is being administered, once it is closed (or a plan confirmed in a chapter 11 case), there must be a "close nexus" to the bankruptcy plan or proceeding. 486 F.3d at 836. Here, there is no nexus at all. The debtor's case has been fully administered. No judgment that might be entered on the debtor's claims against Bank of America could have any possible effect on the creditors of the bankruptcy estate, since all of them have been paid in full with interest. In short, because the debtor's causes of action do not arise under the Bankruptcy Code, do not arise in the bankruptcy case, and are not related to the bankruptcy case, neither this court nor the district court would have subject-matter jurisdiction under 28 U.S.C. § 1334. Absent such jurisdiction, no basis exists for removal under 28 U.S.C. § 1452.
In a situation in which creditors had not been paid in full, a different result might follow, since the $95,000 check (as the proceeds of the debtor's prepetition insurance policy) would be property of the estate potentially available for the payment of creditor claims. But once all claims are paid in full with interest, any surplus in the estate is returned to the debtor, and the estate, as a practical matter, ceases to exist. 11 U.S.C. § 726(a)(6). Thus, the bankruptcy estate in this case would have no claim to the funds.
C.
But even if the "arising in" or "related to" categories were broad enough to embrace the claims asserted by the debtor in the state court action, any jurisdiction this court might have to resolve them would not be exclusive. Although the federal courts have original jurisdiction over bankruptcy cases and over civil proceedings arising in or related to the case, jurisdiction is exclusive only over the bankruptcy case itself. See 28 U.S.C. § 1334(b) ("[T]he district courts shall have original but not exclusive jurisdiction of all civil proceedings arising under title 11, or arising or related to cases under title 11") (emphasis added). Thus, except to the extent restrained by the automatic stay or the discharge injunction, state courts have concurrent jurisdiction with federal courts to determine causes of action that "arise in" or are "related to" a bankruptcy case. In re Middlesex Power Equipment Marine, Inc., 292 F.3d 61, 66-67 (1st Cir. 2002) (holding that bankruptcy court did not abuse its discretion in abstaining from suit to determine whether purchaser of property sold by bankruptcy trustee free and clear of liens was liable for pre-sale real estate taxes, since state court had concurrent jurisdiction to construe the sale order). Neither of the causes of action pleaded by the debtor invokes, or is dependent upon, any provision of the Bankruptcy Code. Both are traditional state law claims that raise solely state law issues. Put another way, whether Bank of America was owed only $132,000 or some larger amount when it accepted both the $132,000 payment from Balboa and the $132,040.69 payment at settlement is a pure question of state law, namely, how much was due under the note and deed of trust. Nor, as Bank of America suggests in its papers, is the chapter 7 trustee a necessary party to the litigation. (He might be a useful witness, but that is a different issue.) No showing has been made that the Circuit Court of Prince William County is not fully competent to adjudicate who is entitled to the $95,000 payment. Because reopening a case is in any event discretionary, and because the claims between the debtor and Bank of America may be litigated every bit as conveniently in the Prince William County Circuit Court as this court, no useful purpose would be served by reopening the case to allow removal of the litigation, even if this court did have jurisdiction.
A separate order will be entered denying the motion to reopen.