Filed: Jun. 22, 2004
Latest Update: Mar. 02, 2020
Summary: Opinions of the United 2004 Decisions States Court of Appeals for the Third Circuit 6-22-2004 Binder v. Price Waterhouse Precedential or Non-Precedential: Precedential Docket No. 03-1857 Follow this and additional works at: http://digitalcommons.law.villanova.edu/thirdcircuit_2004 Recommended Citation "Binder v. Price Waterhouse" (2004). 2004 Decisions. Paper 541. http://digitalcommons.law.villanova.edu/thirdcircuit_2004/541 This decision is brought to you for free and open access by the Opinion
Summary: Opinions of the United 2004 Decisions States Court of Appeals for the Third Circuit 6-22-2004 Binder v. Price Waterhouse Precedential or Non-Precedential: Precedential Docket No. 03-1857 Follow this and additional works at: http://digitalcommons.law.villanova.edu/thirdcircuit_2004 Recommended Citation "Binder v. Price Waterhouse" (2004). 2004 Decisions. Paper 541. http://digitalcommons.law.villanova.edu/thirdcircuit_2004/541 This decision is brought to you for free and open access by the Opinions..
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Opinions of the United
2004 Decisions States Court of Appeals
for the Third Circuit
6-22-2004
Binder v. Price Waterhouse
Precedential or Non-Precedential: Precedential
Docket No. 03-1857
Follow this and additional works at: http://digitalcommons.law.villanova.edu/thirdcircuit_2004
Recommended Citation
"Binder v. Price Waterhouse" (2004). 2004 Decisions. Paper 541.
http://digitalcommons.law.villanova.edu/thirdcircuit_2004/541
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PRECEDENTIAL ALAN E. KRAUS, ESQUIRE (Argued)
Latham & Watkins
UNITED STATES P.O. Box 10174
COURT OF APPEALS One Newark Center, 16th Floor
FOR THE THIRD CIRCUIT Newark, New Jersey 07101
Attorney for Appellant
No. 03-1857 DAVID H. PIKUS, ESQUIRE (Argued)
Bressler, Amery & Ross, P.C.
325 Columbia Turnpike
IN RE: RESORTS Florham Park, New Jersey 07932
INTERNATIONAL, INC., Attorney for Appellee,
RESORTS INTERNATIONAL J. Louis Binder, as Trustee
FINANCING, INC., of the Resorts International, Inc.
GRIFFIN RESORTS, INC., Litigation Trust
RESORTS HOLDING, INC.,
Debtors
OPINION OF THE COURT
J. LOUIS BINDER,
as Trustee of the Resorts
International, Inc. Litigation Trust SCIRICA, Chief Judge.
v. This appeal addresses the scope of
“related to” jurisdiction of the bankruptcy
PRICE WATERHOUSE & CO., LLP, court for post-confirmation claims brought
Appellant on behalf of a litigation trust against an
accounting firm. The trustee sued the
accounting firm for p r of e ssional
On Appeal from the negligence and breach of contract for work
United States District Court for the it performed for the trust. The Bankruptcy
District of New Jersey Court declined to hear the claim, finding it
D.C. Civil Action 02-cv-01333 lacked subject matter jurisdiction. The
(Honorable Dickinson R. Debevoise) District Court disagreed and reversed. We
will reverse the order of the District Court
and remand for proceedings consistent
Argued October 29, 2003 with this opinion.
I.
Before: SCIRICA, Chief Judge,
NYGAARD and AMBRO, A. Overview of Affected Parties
Circuit Judges The underlying matter in this appeal
is an accounting malpractice action. J.
(Filed June 22, 2004)
Louis Binder, the Trustee for the Resorts beneficiaries of the Litigation Trust, who
International, Inc. Litigation Trust, brought were former creditors of the debtor’s
a claim in excess of $500,000 against estate.
accounting firm Price Waterhouse & Co.
Price Waterhouse responds that the
for professional malpractice and breach of
Litigation Trust, a legally distinct entity, is
contract in connection with accounting
not a continuation of the bankruptcy estate
services performed for the Litigation
for jurisdictional purposes. Moreover,
Trust. The Trustee’s principal allegation is
Price Waterhouse contends the debtor is
that Price Waterhouse erroneously
only tangentially affected by this
reported in its audit that accrued interest
malpractice action after it assigned away
on Litigation Trust accounts belonged to
its interests in the litigation claims, and the
the debtor rather than to the Litigation
Litigation Trust beneficiaries traded their
Trust. Underlying this claim was a suit
creditor status to attain rights to the Trust’s
between the Litigation Trust and the
assets.
debtor, Resorts International, Inc., over
entitlement to the accrued interest. B. Facts
A ccording to the T rustee , Price
On November 12, 1989, creditors of
Waterhouse’s erroneous reports were
Resorts International, Inc.1 and Resorts
relied on by the bankruptcy court to the
International Financing, Inc. filed against
Litigation Trust’s detriment.
t h e m C h a p t e r 1 1 i n v o l u n ta r y
The debtor, Resorts International, reorganization petitions in the United
Inc., is not a party to the malpractice States Bankruptcy Court for the District of
action. The debtor assigned to the New Jersey. On December 22, 1989,
Litigation Trustee all its rights, title, and Griffin Resorts and Griffin Resorts
interest in the Litigation Trust’s primary Holding, Inc., affiliates of Resorts
asset, its claim against Donald Trump and International, filed separate voluntary
affiliated entities. Because the Bankruptcy petitions under Chapter 11. All of the
Court confirmed the Reorganization Plan, cases were consolidated.
the debtor’s estate no longer exists.
On August 28, 1990, the
Nonetheless, the Trustee alleges the Bankruptcy Court issued an Order
debtor’s estate would still be affected by confirming the Second Amended Joint
the malpractice suit because the Litigation Plan of Reorganization. On September 17,
Trust is effectively a continuation of the
bankruptcy estate. Furthermore, contends
the Trustee, any recovery obtained in this 1
Resorts International, Inc. changed its
action would necessarily become Trust
name on June 30, 1995, to Griffin Gaming
assets, available to cover any liability that
& Entertainment, Inc. For sake of clarity,
might arise in the accrued interest lawsuit
we will continue to refer to it as Resorts
or available for possible distribution to the
International, Inc.
2
1990, the parties entered into a Final Plan the amount of $5,000,000 to the Litigation
and Litigation Trust Agreement. The Final Trust to enable it to pursue the litigation
Plan created a Litigation Trust for the claims.
benefit of certain creditors. Section
On May 28, 1991, the Trustee
7.10(a) of the Plan provided: “Litigation
entered into an agreement with Trump and
Trustee shall retain and preserve the
his affiliates and the debtor settling the
Litigation Claims for enforcement, as
litigation claims on behalf of the Trust’s
representative of and successor to the
Unitholders in the amount of $12,000,000,
Reorganizing Entities in accordance with
subject to approval by the Unitholders.
Bankruptcy Code §§ 1123(b)(3)(B) and
Approval was solicited and received by
1145(a).” The beneficial interests in the
July 15, 1991. The Settlement Agreement
Litigation Trust were divided into ten
proceeds became assets of the Litigation
million Litigation Trust Units and
Trust.
allocated to certain creditors, the
Unitholders,2 under a formula set forth in The Litigation Trust Agreement
section 7.10(b) of the Plan. Under section contained several provisions affecting
7.10(d), each Unitholder was entitled to a Price Waterhouse, though it was never
pro rata share of any distribution from the named in the document. Section 3.2 of the
Litigation Trust. Litigation Trust Agreement provided that
“[t]he Trustee shall retain an independent
The assets assigned to the Litigation
public accounting firm to audit the
Trust were claims originally held by the
financial books and records of the Trust
debtor, Resorts International, Inc., against
and to perform such other reviews or
Donald J. Trump and affiliated entities,
audits as may be appropriate in the
arising from Trump’s 1988 leveraged
Trustee’s sole discretion,” and that the
buyout of the Taj Mahal Resort. Upon
Trustee “shall pay such accounting firm
formation of the Litigation Trust, the
reasonable compensation from the Trust
litigation claims were assigned to the
Assets” for its services. Section 5.5 of the
Trustee. The Plan authorized the Trustee
Litigation Trust Agreement required the
to prosecute the claims against the Trump
Trustee to report to all Unitholders the
entities. The Plan and Litigation Trust
details of the Trust’s transactions and
Agreement also required the debtor to
disbursements at least annually and to have
provide an irrevocable letter of credit in
these reports “audited by the independent
accounting firm retained by the Trustee . .
2 . not less frequently than annually.”
The Unitholders were the holders of
allowed Class 3B Claims, allowed Resorts On April 17, 1990, representatives
International, Inc. Debenture Claims, and of the Litigation Trust’s Unitholders
allowed Other Class 3C Claims as defined elected Kenneth R. Feinberg as Litigation
by the Plan. In re Resorts Int’l, Inc., 199 Trustee. On November 1, 1990, after
B.R. 113, 115 n.2 (Bankr. D.N.J. 1996).
3
confirmation of the Plan, the Trustee Trustee alleged that to the extent the
retained Price Waterhouse to provide Bankruptcy Court approved the debtor’s
auditing and tax-related services to the claim to the interest, it relied on Price
Litigation Trust. Subsequently, under an Waterhouse’s audit reports, so that its
order dated August 17, 1994, J. Louis “errors” injured the Litigation Trust. The
Binder replaced Feinberg as Trustee. Trustee alleged that even though the Trust
Shortly thereafter, the Trustee terminated partially prevailed in the interest dispute,
the services of Price Waterhouse. On P r i c e W a t e r h o us e ’ s e rr o n e o us
April 15, 1997, the Trustee filed this characterization caused the Trust to incur
adversary proceeding against Price
Waterhouse alleging pro f e s s ional
negligence and breach of contract.
$ 5 million deposit became a
The Trustee allege d Price “Trust Asset” as defined by
Waterhouse committed professional Article II of the Litigation
malpractice by making several errors in its Trust Agreement, and any
accounting and tax advice. His principal interest earned on such
allegation is that Price Waterhouse “Trust Asset” also became a
erroneously reported in its audit reports “Trust Asset.” Accordingly,
that certain accrued interest on the the Litigation Trust is
Litigation Trust accounts belonged to the entitled to interest earned on
debtor rather than to the Trust. The the balance of the initial $ 5
accrued interest was the subject of a million deposit for the
dispute between the debtor and the period beginning May 28,
Litigation Trust—a dispute the Bankruptcy 1991 through the present
Court decided in part in favor of the debtor date. To the extent that the
and in part in favor of the Trust. See In re Settlement Agreement dated
Resorts Int’l, 199 B.R. at 118-19.3 The May 28, 1991 between the
former Litigation Trustee
F e i n berg a nd Re sorts
3
The Bankruptcy Court allocated the provided for interest income
interest between the Litigation Trust and earned on the Expense
the debtor in the following manner: Account for the period
Interest income earned on March 16, 1991 through
the Expense Account for the May 28, 1991 to be paid to
period beginning on or Resorts, the Litigation
about October 3, 1990 Trus t’s e ntitlemen t to
through May 28, 1991 interest shall accrue from
belongs to Resorts. Upon the post-settlement period
settlement of the Litigation following May 28, 1991.
Claims, the balance of the In re Resorts Int’l, 199 B.R. at 125.
4
unnecessary litigation costs in defending (internal quotations omitted). But the
its entitlement. The Trustee also alleged Bankruptcy Court rejected “related to”
certain errors in tax advice and auditing jurisdiction because the claims could not
provided to the Trustee and faulted Price have had any “conceivable effect on the
Waterhouse for failing to review and administration of the estate,” and because
interpret certain Litigation Trust the dispute would not significantly affect
documents. The Trustee sought damages consummation of the Reorganization Plan.
and disgorgement of fees in excess of See id. at 29-32. It also found that none of
$500,000. the Plan’s retention provisions were
intended to serve as a basis for jurisdiction
C. Procedural History
over the Litigation Trust and third-party
On April 15, 1997, almost seven accountants; nor could the Plan language
y e a r s a f ter R eo rgan ization Pla n create jurisdiction greater than that granted
confirmation, the Trustee filed the by Congress. Id. at 13-14.
underlying professional malpractice action
The Trustee appealed to the District
against Price Waterhouse in the United
Court, which reversed and remanded.
States Bankruptcy Court for the District of
Binder v. Price Waterhouse & Co. (In re
New Jersey. On January 4, 2002, the
Resorts Int’l, Inc.), No. 02-1333, slip op. at
B a n k r u p t c y C o urt gra nted P rice
19 (D.N.J. Dec. 18, 2002). The District
Waterhouse’s motion to dismiss for lack of
Court held “the terms on which the
subject matter jurisdiction finding there
Litigation Trust was created and its
was no “related to” or “core” jurisdiction.
practical role in the Plan lead to the
Binder v. Price Waterhouse & Co. (In re
conclusion that claims arising from
Resorts Int’l, Inc.), Adv. No. 97-2283, slip
professional misconduct in the Trust’s
op. at 22, 30, 35 (Bankr. D.N.J. Jan. 4,
affairs are sufficiently related to the
2002). Disagreeing with the Trustee that
bankruptcy case to be within the
this was a “core” proceeding, the
jurisdiction of the Bankruptcy Court.” Id.
Bankruptcy Court characterized the matter
at 7. The Court explained:
as a post-confirmation dispute between
two non-debtors involving state law claims [C]onfirmation did not
that did not affect the “administration of terminate the estate with
the estate, property of the estate, or respect to the property
liquidation of assets of the estate.” Id. at vested in the Litigation
21. Although finding its post-confirmation Trus t; and th e Trust
jurisdiction to be “extremely limited,” the r e p r e se n t e d a p a r t i a l
Bankruptcy Court recognized that it continuation of the estate.
retained post-confirmation jurisdiction Consequently, the
over disputes that potentially “affect the j u r i s d ic t i o n o f t h e
s u c c e s s f u l i m p l e m e n t a t io n a n d bankru ptcy court over
consummation of the plan.”
Id. at 28 proceedings arising from the
5
affairs of the Litigation Court’s order under 28 U.S.C. § 158. We
Trust is not substantially have jurisdiction under 28 U.S.C. §
different from its 1292(b). Our review of the District
jurisdiction over similar Court’s order on jurisdiction is de novo.
matters pre-confirmation, Resolution Trust Corp. v. Swedeland Dev.
and it should have the power Group (In re Swedeland Dev. Group), 16
to hear claims of F.3d 552, 559 (3d Cir. 1994).4
professional malpractice in
II.
the administration of the
Trust. Both the Reorganization Plan and
Litigation Trust Agreement contain
Id. at 12. But in light of the “uncertainties
retention of jurisdiction provisions.
surrounding the exercise of Bankruptcy
Article XI of the Plan provides in part:
Court jurisdiction post-confirmation,” the
District Court certified its ruling for The Bankruptcy Court will
immediate appeal under 28 U.S.C. § retain jurisdiction of the
1292(b). Id. at 17-18. Price Waterhouse Reorganizing Cases for the
petitioned for leave to appeal. The Trustee following purposes: . . . (c)
chose not to contest the petition. We To ensure that the
granted leave to appeal. distribution of Holders of
Claims and Interests are
Price Waterhouse claims the
[sic ] a c c omplished as
District Court erred in upholding “related
provided herein; . . . (h) To
to” bankruptcy jurisdiction because there
hear and determine disputes
can be no conceivable effect on the
arising in connection with
administration of the estate. Furthermore,
the Plan or its
it contends, the District Court’s judgment,
implementation including
if permitted to stand, threatens unending
disputes arising under
jurisdiction in the Bankruptcy Court well
agreements, documents or
after dissolution of the debtor’s estate.
instrument executed in
The Trustee counters that this professional
connection with this Plan; .
malpractice cause of action involves
. . (i) To construe and to
parties, assets, and issues central to the
take any action to enforce
Reorganization Plan and is “related to” the
bankruptcy, especially given the sweeping
jurisdictional retention provisions in the 4
We agree with the District Court that
Plan and Litigation Trust Agreement.
the challenge is a facial attack regarding an
The jurisdiction of the Bankruptcy issue of law rather than a factual attack
Court is at issue. The District Court had and accordingly will assume the truth of
jurisdiction to review the Bankruptcy the allegations in the Complaint. See
Binder, No. 02-1333, slip op. at 7-8.
6
the Plan and issue such according to the Agreement was “not only
orders as may be necessary comprehensive it was exclusive.”
for the implementation, Appellee’s Br. at 9 (emphasis in original).
e x e c u t i o n , a n d
Retention of jurisdiction provisions
consummation of the Plan; .
will be given effect, assuming there is
. . (o) To hear and determine
bankruptcy court jurisdiction. But neither
any other matters not
the bankruptcy court nor the parties can
inconsistent with Chapter 11
write their own jurisdictional ticket.
of the Bankruptcy Code.
Subject matter jurisdiction “cannot be
Article VIII of the Litigation Trust conferred by consent” of the parties.
Agreement provides: Coffin v. Malvern Fed. Sav. Bank, 90 F.3d
851, 854 (3d Cir. 1996). Where a court
The Bankruptcy Court shall
lacks subject matter jurisdiction over a
retain exclusive jurisdiction
dispute, the parties cannot create it by
over the Litigation Claims
a g r e e m e n t e v e n i n a p l a n of
and Counterclaims, the
reorganization. In re Continental Airlines,
Trust, the Trustee, and the
Inc., 236 B.R. 318, 323 (Bankr. D. Del.
Trust Assets, as provided for
1999), aff’d, 2000 WL 1425751 (D. Del.
in the Plan, including,
September 12, 2000), aff’d, 279 F.3d 226
without limitation, the
(3rd Cir. 2002). Similarly, if a court lacks
d e t e r m i n at i o n o f a l l
jurisdiction over a dispute, it cannot create
controversies and disputes
that jurisdiction by simply stating it has
a r i si n g u n d e r o r i n
jurisdiction in a confirmation or other
connection with this Trust
order. Id.; accord United States Trustee v.
Agreement.
Gryphon at the Stone Mansion, 216 B.R.
The Trustee contends these 764, 769 (W.D. Pa. 1997) (“A retention of
provisions confer bankruptcy court jurisdiction provision within a confirmed
jurisdiction over this dispute because the plan does not grant a bankruptcy court
Litigation Trust Agreement falls within the jurisdiction.”), aff’d, 166 F.3d 552 (3d Cir.
definition of agreements, documents, or 1999). Bankruptcy courts can only act in
instruments executed in connection with proceedings within their jurisdiction.
the Plan. Furthermore, the Trustee Donaldson v. Bernstein,
104 F.3d 547, 552
contends the dispute involves the (3d Cir. 1997). If there is no jurisdiction
performance of professionals whose under 28 U.S.C. § 1334 or 28 U.S.C. §
retention was mandated and whose duties 157, retention of jurisdiction provisions in
were specified by the Litigation Trust a plan of reorganization or trust agreement
Agreement. The Trustee stresses that, are fundamentally irrelevant. But if there
under the Agreement, the Bankruptcy is jurisdiction, we will give effect to
Court’s retention over any dispute retention of jurisdiction provisions.
7
Consequently, we will examine whether that any or all cases under title 11 and any
this dispute falls within the Bankruptcy or all proceedings arising under title 11 or
Court’s subject matter jurisdiction. arising in or related to a case under title 11
shall be referred to the bankruptcy judges
III.
for the district.” Id. The district courts’
Congress has vested “limited power to refer is discretionary, but courts
authority” in bankruptcy courts. Bd. of “routinely refer” most bankruptcy cases to
Governors v. MCorp Fin., Inc., 502 U.S. the bankruptcy court. Torkelsen v. Maggio
32, 40 (1991). Bankruptcy courts fall (In re Guild & Gallery Plus, Inc.), 72 F.3d
outside of the constitutional authority of 1171, 1175 (3d Cir. 1996).
Article III and derive their authority from
Bankruptcy court jurisdiction
federal statutes. See N. Pipeline Constr.
potentially extends to four types of title 11
Co. v. Marathon Pipe Line Co., 458 U.S.
matters, pending referral from the district
50, 60-87 (1982) (plurality opinion).
court: “‘(1) cases under title 11, (2)
There are significant restrictions on what
proceeding arising under title 11, (3)
functions can be constitutionally delegated
proceedings arising in a case under title
to these courts. See id. at 63-87. “[T]he
11, and (4) proceedings related to a case
source of the bankruptcy court’s subject
under title 11.’” In re Guild & Gallery
matter jurisdiction is neither the
Plus, 72 F.3d at 1175 (quoting In re
Bankruptcy Code nor the express terms of
Marcus Hook Dev. Park, Inc., 943 F.2d
the Plan. The source of the bankruptcy
261, 264 (3d Cir. 1991)). Cases under title
court’s jurisdiction is 28 U.S.C. §§ 1334
11, proceedings arising under title 11, and
and 157.” United States Brass Corp. v.
proceedings arising in a case under title 11
Travelers Ins. Group, Inc. (In re United
are referred to as “core” proceedings;
States Brass Corp.), 301 F.3d 296, 303
whereas proceedings “related to” a case
(5th Cir. 2002).
under title 11 are referred to as “non-core”
28 U.S.C. § 1334 grants jurisdiction proceedings. See 1 Collier on Bankruptcy,
over bankruptcy cases and proceedings to P3.02[2], at 3-35 (15th ed. rev. 2003).
the district court: the district courts “shall Congress vested the bankruptcy courts
have original and exclusive jurisdiction of with full adjudicative power with regard to
all cases under title 11,” and “original but “core” proceedings, subject to appellate
not exclusive jurisdiction of all civil review by the district courts. 28 U.S.C. §§
proceedings arising under title 11, or 157(b)(1), 158(a), (c). At the same time, it
arising in or related to cases under title provided that, for “non-core” proceedings
11.” Id. at (a)-(b). Procedurally, a district that are otherwise related to a case under
court may refer all cases and proceedings title 11, the bankruptcy court “shall submit
that fall within this section to the proposed findings of fact and conclusions
bankruptcy court. 28 U.S.C. § 157(a) of law to the district court” subject to de
provides: “Each district court may provide
8
novo review by that court. 28 U.S.C. §
157(c)(1).
A. Core Proceedings personal injury tort or
wrongful death claim s
28 U.S.C. § 157(b)(1) provides that
against the estate for
“[b]ankruptcy judges may hear and
purposes of distribution in a
determine all cases under title 11 and all
case under title 11; (C)
core proceedings arising under title 11, or
counterclaims by the estate
arising in a case under title 11, referred
against persons filing claims
under subsection (a) of this section, and
against the estate; (D) orders
may enter appropriate orders and
in respect to obtaining
judgments, subject to review under section
credit; (E) orders to turn
158 of this title.” Id. 28 U.S.C. §
over property of the estate;
157(b)(2) provides a non-exhaustive list of
(F) proceedings to
examples of core proceedings such as
determine, avoid, or recover
“matters concerning the administration of
preferences; (G) motions to
the estate,” “orders to turn over property of
terminate, annul, or modify
the estate,” or “other proceedings affecting
the automatic stay; (H)
the liquidation of the assets of the estate or
proceedings to determine,
the adjustment of the debtor-creditor or the
avoid, or recover fraudulent
equity security holder relationship, except
conveyances; (I)
personal injury tort or wrongful death
determinations as to the
claims.” Id.5 We have held that a core
dischargeability of particular
debts; (J) objections to
discharges; (K)
5
The full list of examples of core de te r mina tions of th e
proceedings follows: validity, extent, or priority
(A) matters concerning the of liens; (L) confirmations
administration of the estate; of plans; (M ) orders
(B) allowance or approving the use or lease of
disallowance of claims property, including the use
against the estate or of cash collateral; (N) orders
exemptions from property of approving the sale of
the estate, and estimation of property other than property
claims or interests for the r e sulting f ro m claim s
purposes of confirming a brought by the estate against
plan under chapter 11, 12, or persons who have not filed
13 of title 11 but not the claims against the estate;
liquidation or estimation of and (O) other proceedings
contingent or unliquidated affecting the liquidation of
9
proceeding under section 157 is one that “core” proceeding. It is not a proceeding
“‘invokes a substantive right provided by that invokes a substantive right provided
title 11’” or one that “‘by its nature, could by title 11 or a proceeding that, by its
arise only in the context of a bankruptcy nature, could arise only in the context of a
case.’” In re Guild & Gallery Plus, 72 bankruptcy case. In re Guild and Gallery
F.3d at 1178 (quoting In re Marcus Hook, Plus, 72 F.3d at 1178.
943 F.2d at 267).
Unlike in Southmark, this claim
The Trustee argues this matter arose post-plan confirmation. It does not
qualifies as a “core” proceeding, relying directly affect the debtor or the liquidation
on Southmark Corp. v. Coopers & of the estate’s assets. Furthermore, the
Lybrand (In re Southmark Corp.), 163 accounting firm’s alleged malpractice in
F.3d 925 (5th Cir. 1999). In Southmark, Southmark implicated the integrity of the
the court concluded that a debtor’s suit entire bankruptcy process. Southmark’s
against an accounting firm was a core bankruptcy arose out of its involvement in
proceeding in bankruptcy, observing that Drexel Burnham Lambert, Inc.’s ill-fated
the bankruptcy court must be able to junk bond investments. Southmark, 163
ensure “that court-approved managers of F.3d at 927-28. Southmark sought the
the debtor’s estate are performing their appointment of an accounting firm to
work cons cie n t i o u sl y, a nd cost- provide an objective, independent
effectively.” Id. at 931. The court also assessment of potential legal claims
noted that supervising court-appointed against third-parties.
Id. Unbeknownst to
professionals “bears directly on the Southmark, Drexel was one of the
distribution of the debtor’s estate. If the accounting firm’s largest clients.
Id. at
estate is not marshaled and liquidated or 927-28. According to Southmark, the
reorganized expeditiously, there will be far accounting firm committed malpractice by
less money available to pay creditors’ failing to satisfactorily investigate
claims.”
Id. potential claims against Drexel.
Id.
Southmark alleged the accounting firm’s
Notwithstanding the Trustee’s
breach of its court-appointed fiduciary
arguments, it is difficult to see how this
duty prevented the estate from recovering
malpractice matter could be considered a
from Drexel. Id. at 928. The accounting
firms’s failure to investigate Drexel
implicated the core of the bankruptcy
the assets of the estate or the process. Its alleged malpractice was
adjustment of the debtor- inseparable from the bankruptcy context.
creditor or the equity Here, Price W aterho use’s a lleged
security holder relationship, malpractice, erroneously reporting that
except personal injury tort certain accrued interest belonged to one
or wrongful death claims. entity rather than to another and
28 U.S.C. § 157(b)(2).
10
committing other errors in auditing and tax boundaries of “related to” jurisdiction in
advice, even if true, is not a proceeding Pacor, 743 F.2d at 994.6
that could arise only in the bankruptcy
Under Pacor, bankruptcy courts
context.
have jurisdiction to hear a proceeding if
Regardless, we need not resolve “the outcome of that proceeding could
whether this is a “core” proceeding for conceivably have any effect on the estate
subject matter jurisdictional purposes being administered in bankruptcy.” Id. In
because “[w]hether a particular proceeding In re Marcus Hook,
943 F.2d 261, we
is core represents a question wholly emphasized that a key word in this test is
separate from that of subject-matter “conceivable” and that “[c]ertainty, or
jurisdiction.” In re Marcus Hook, 943 even likelihood, is not a requirement.”
Id.
F.2d at 266. Under 28 U.S.C. § 157, a at 264. In Pacor, we observed: “[T]he
bankruptcy court might have jurisdiction proceeding need not necessarily be against
over a proceeding but still might not be the debtor or against the debtor’s property.
able to enter final judgments and orders. An action is related to bankruptcy if the
Id. Non-core “related to” jurisdiction is outcome could alter the debtor’s rights,
the broadest of the potential paths to liabilities, options, or freedom of action
bankruptcy jurisdiction, so we need only (either positively or negatively) and which
determine whether a matter is at least in any way impacts upon the handling and
“related to” the bankruptcy. Donaldson, administration of the bankrupt
estate.”
104 F.3d at 552. 743 F.2d at 994. The Supreme Court has
explained that the critical component of
B. Non-Core “Related To” Proceedings
the Pacor test is that “bankruptcy courts
1. The Pacor Test
With “related to” jurisdiction, 6
The Supreme Court effectively has
Congress intended to grant bankruptcy
overruled Pacor with respect to its holding
courts “comprehensive jurisdiction” so
that the prohibition against review of a
that they could “‘deal efficiently and
remand order in 28 U.S.C. § 1447(d) is not
expeditiously’” with matters connected
applicable in a bankruptcy case. See
with the bankruptcy estate. Celotex Corp.
Things Remembered, Inc. v. Petrarca, 516
v. Edwards, 514 U.S. 300, 308 (1995)
U.S. 124 (1995). But Things Remembered
(quoting Pacor, Inc. v. Higgins, 743 F.2d
does not disturb the authority of Pacor on
984, 994 (3d Cir. 1984)). Nonetheless, a
the points for which we cite it. In fact, the
bankruptcy court’s “related to” jurisdiction
Pacor test “has been enormously
“cannot be limitless.” Id. We set forth the
influential” as a “cogent analytical
seminal test for determining the
framework” relied upon by our sister
circuits more than any other case in this
area of the law. In re Guild & Gallery
Plus, 72 F.3d at 1181.
11
have no jurisdiction over proceedings that confirmation of a reorganization plan,
have no effect on the estate of the debtor.” retention of bankruptcy jurisdiction may be
Celotex, 514 U.S. at 308 n.6. problematic. See Bank of La. v. Craig’s
Stores of Tex., Inc. (In re Craig’s Stores of
2. T h e Post-Co nfirm atio n
Tex., Inc.), 266 F.3d 388, 391 (5th Cir.
Context of the “Related To”
2001); In re Fairfield Cmtys., Inc., 142
Inquiry
F.3d 1093, 1095-96 (8th Cir. 1998). This
As noted, Pacor and its progeny is so because, under traditional Pacor
provide the analytical framework for analysis, bankruptcy jurisdiction will not
determining “related to” jurisdiction. But extend to a dispute between non-debtors
most of the cases decided under Pacor do unless the dispute creates “the logical
not arise post-confirmation or even after possibility that the estate will be affected.”
the creation of a litigation trust. Litigation In re Federal-Mogul Global, Inc., 300
trusts, which serve a valid purpose in the F.3d 368, 380 (3d Cir. 2002) (internal
bankruptcy process, may continue long quotations omitted), cert. denied 537 U.S.
after a reorganization plan has been 1148 (2003). At the most literal level, it is
confirmed and the debtor has emerged impossible for the bankrupt debtor’s estate
from bankruptcy. And yet bankruptcy to be affected by a post-confirmation
jurisdiction may still obtain if there is dispute because the debtor’s estate ceases
sufficient connection to the bankruptcy. to exist once confirmation has occurred.
See In re Fairfield Cmtys., 142 F.3d at
The post-confirmation context of
1095 (holding that once a bankrupt
this dispute affects our “related to” inquiry
debtor’s plan has been confirmed the
because bankruptcy court jurisdiction
debtor’s estate ceases to exist). Unless
“must be confined within appropriate
otherwise provided by the plan or order
limits and does not extend indefinitely,
confirming the plan, “the confirmation of
particularly after the confirmation of a
plan and the closing of a case.”
Donaldson, 104 F.3d at 553. 7 After
litigation trusts. See H & L Developers v.
Arvida/JMB Partners (In re H & L
7
The District Court recognized that Developers), 178 B.R. 71, 76 (Bankr. E.D.
“special considerations dictate that the Pa. 1994) (“[O]nce a plan has been
application of the Pacor test provides confirmed, the court’s jurisdiction begins
jurisdiction over a narrower range of cases to weaken.”) (internal quotations omitted);
post-confirmation than pre-confirmation.” Eastland Partners Ltd. v. Brown (In re
Binder, No. 02-1333, slip op. at 10. Other Eastland Partners Ltd.),
199 B.R. 917,
courts have also recognized how 919-20 (Bankr. E.D. Mich. 1996)
c o n f i r m a ti o n a f f e c t s b a n k r u p t c y (“Following confirmation of a chapter 11
jurisdiction, though they have not debtor’s plan, a bankruptcy court has a
specifically done so in cases involving fairly narrow jurisdiction.”).
12
a plan vests all of the property of the the bankruptcy court. See Gryphon, 166
estate” in the reorganized debtor. 11 F.3d at 555-56 (holding that the
U.S.C. § 1141(b). See also NVF Co. v. bankruptcy court had post-confirmation
New Castle County,
276 B.R. 340, 348 (D. jurisdiction because a trustee’s action to
Del. 2002) (holding that the confirmation enforce a fee provision was related to and
of a plan revests the estate’s property in arising in the bankruptcy); Donaldson, 104
the reorganized debtor, and accordingly, F.3d at 552-54 (upholding post-
the bankruptcy estate “no longer existed”), confirmation bankruptcy court jurisdiction
aff’d
2003 WL 328428 (3d Cir. Jan. 21, where the debtors failed to fund the
2003). reorganization plan and failed to pay
unsecured creditors as required by the
But courts do not usually apply
plan). And courts have upheld post-
Pacor’s “effect on the bankruptcy estate”
confirmation jurisdiction in situations
test so literally as to entirely bar post-
involving trusts and similar entities. See
confirmation bankruptcy jurisdiction. As
Bergstrom v. Dalkon Shield Claimants
the District Court correctly noted, though
Trust (In re A.H. Robins Co.), 86 F.3d 364,
the scope of bankruptcy court jurisdiction
372-73 (4th Cir. 1996) (upholding
diminishes with plan confirmation,
bankruptcy jurisdiction over a professional
bankruptcy court jurisdiction does not
fees dispute between a claimants’ trust and
disappear entirely. Binder, No. 02-1333,
attorneys representing claimants on the
slip op. at 9. Post-confirmation
trust).8
jurisdiction is assumed by statute and rule:
11 U.S.C. § 1142(b) authorizes the
bankruptcy court to “direct the debtor and
8
any other necessary party . . . to perform Other courts have also upheld post-
any other act . . . that is necessary for the confirmation bankruptcy jurisdiction over
consummation of the plan,” id., and Fed. continuing trusts. See New Nat’l Gypsum
R. Bankr. P. 3020(d) provides that Co. v. Nat’l Gypsum Co. Settlement Trust
“[n]otwithstanding the entry of the order (In re Nat’l Gypsum Co.),
219 F.3d 478,
of confirmation, the court may issue any 479, 493 (5th Cir. 2001) (assuming
other order necessary to administer the bankruptcy court jurisdiction over a post-
estate.”
Id. Although § 1142(b) assumes confirmation proceeding involving a
that post-confirmation jurisdiction exists settlement trust where the court had to
for disputes concerning the consummation interpret the plan of reorganization in
of a confirmed plan, 28 U.S.C. § 1334 order to resolve a dispute); Plotner v.
remains the source of this jurisdiction. In AT&T Corp.,
224 F.3d 1161, 1171 (10th
re United States Brass Corp., 301 F.3d at Cir. 2000) (holding that a post-
306. confirmation fraud action involving a plan-
created trust was related to the bankruptcy
Moreover, several courts have
proceeding); United States v. Unger, 949
preserved post-confirmation jurisdiction in
F.2d 231, 233-35 (8th Cir. 1991) (holding
13
Courts have applied varying determine the “precise standard” to apply
standards to determine whether “related post-confirmation. First W. SBLC, Inc. v.
to” jurisdiction should be upheld post- Mac-Tav, Inc., 231 B.R. 878, 882 (D.N.J.
confirmation. We noted in Donaldson, 1999). Subsequently, in Gryphon, 166
104 F.3d 547, that some courts have held
that the act of plan confirmation changes
the Pacor test from “whether the outcome
with the Bankruptcy Court to the extent
of the proceeding could conceivably have
that those disputes might affect the
any effe ct on th e estate bein g
s u c c e s s fu l im p l e m e n t a ti o n a nd
administered” to “whether the outcome
consummation of the confirmed plan.”);
could ‘significantly affect[] consummation
Eubanks v. Esenjay Petroleum Corp., 152
of the plan as confirmed.’” Id. at 553
B.R. 459, 464 (E.D. La. 1993)
(quoting Grimes v. Graue (In re Haws),
(Bankruptcy courts maintain jurisdiction if
158 B.R. 965, 970 (Bankr. S.D. Tex.
the proceeding has “a conceivable effect
1993)). 9 In Donaldson, we declined to
on the debtor’s ability to consummate the
confirmed plan.”). Some courts have been
a bankruptcy court had post-confirmation reluctant to apply such a broad standard
jurisdiction when a representative of the post-confirmation but have nonetheless
creditors committee deposited trust funds found that bankruptcy court jurisdiction
into his personal account in contravention continues post-confirmation. See In re
of the plan); Mayor v. W. Va. (In re Eagle- Craig’s Stores of Tex., 266 F.3d at 391
Picher Indus., Inc.),
285 F.3d 522, 524 (holding that a bankruptcy court has
(6th Cir. 2002) (assuming without analysis jurisdiction over a civil proceeding if the
post-confirmation bankruptcy jurisdiction litigated matter “bear[s] on the
over a dispute involving a settlement interpretation or execution of the debtor’s
trust). plan”); I n re Dilbert’s Qu ality
Supermarkets, Inc., 368 F.2d 922, 924 (2d
9
Other courts have applied similar tests Cir. 1966) (holding that bankruptcy court
that assess whether the dispute could jurisdiction continues post-confirmation at
conceivably affect the implementation or least “to protect its decree, to prevent
consummation of the confirmed plan. See interference with the execution of the plan
Trans World Airlines, Inc. v. Karabu and to aid otherwise in its operation”); In
Corp., 196 B.R. 711, 714 (Bankr. D. Del. re Leeds Bldg. Prod., Inc.,
160 B.R. 689,
1996) (“[T]his court has subject matter 691 (Bankr. N.D. Ga. 1993) (concluding
jurisdiction over any proceeding that that the bankruptcy court’s role post-
conceivably could affect [the debtor’s] confirmation “is limited to matters
ability to consummate the confirmed involving the execution, implementation,
plan.”); In re Walker,
198 B.R. 476, 482 or interpretation of the plan’s provisions,
(Bankr. E.D. Va. 1996) (“Jurisdiction over and to disputes requiring the application of
certain post-confirmation disputes remains bankruptcy law”).
14
F.3d 552, we applied the Pacor test to jurisdiction, we found significant the fact
resolve a claim for post-confirmation fees that the case did “not involve a dispute
brought by a United States Trustee, essentially collateral to the bankruptcy
querying whether the dispute “could case.”
Id. Rather, the action “implicat[ed]
conceivably have any effect on the estate the integrity of the bankruptcy process”
being administered in bankruptcy” and because one party’s actions impaired the
holding that the matter satisfies the Pacor other party’s ability to act in accordance
test “because it directly relates to the with the plan.
Id. The post-confirmation
debtor’s liabilities— in fact it creates a fee dispute in Gryphon,
166 F.3d 552, also
liability—and could impact the handling had a close nexus to the bankruptcy
and administration of the estate.”
Id. at proceeding because it involved a U.S.
556. And in Gryphon, we held that though Trustee’s action to enforce a post-
11 U.S.C. § 114210 provides that the confirmation fee provision and created a
bankruptcy court may take action to ensure liability for the debtor.
Id. at 555. At the
the consummation of a confirmed plan, the post-confirmation stage, the claim must
bankruptcy court may entertain other post- affect an integral aspect of the bankruptcy
confirmation actions as well. 166 F.3d at process— there must be a close nexus to
556. the bankruptcy plan or proceeding.
Though courts have varied the Whether a matter has a close nexus
standard they apply post-confirmation, the to a bankruptcy plan or proceeding is
essential inquiry appears to be whether particularly relevant to situations involving
there is a close nexus to the bankruptcy continuing trusts, like litigation trusts,
plan or proceeding sufficient to uphold where the plan has been confirmed, but
bankruptcy court jurisdiction over the former creditors are relegated to the trust
matter. For example, in Donaldson, 104 res for payment on account of their claims.
F.3d 547, we upheld bankruptcy court To a certain extent, litigation trusts by their
jurisdiction because the trustee through the nature maintain a connection to the
lawsuit was “basically . . . seeking to carry bankruptcy even after the plan has been
out the intent of the reorganization plan.” confirmed. The question is how close a
Id. at 553. We distinguished the matter connection warrants post-confirmation
from other cases denying jurisdiction bankruptcy jurisdiction. Matters that
because it had a “much closer nexus to the affect the interpretation, implementation,
bankruptcy case.”
Id. In upholding con s u m m a t i o n , e x e c u t io n , or
administration of the confirmed plan will
typically have the requisite close nexus.
10
11 U.S.C. § 1142(b) authorizes the Under those circumstances, bankruptcy
bankruptcy court to “direct the debtor and court jurisdiction would not raise the
any other necessary party . . . to perform specter of “unending jurisdiction” over
any other act . . . that is necessary for the continuing trusts.
consummation of the plan.” Id.
15
An example of a dispute in which jurisdiction, the court explained why the
there was a sufficiently close nexus to the dispute was central to the bankruptcy
plan or proceeding to uphold bankruptcy proceeding: “The Trust was created to
court jurisdiction post-confirmation was an protect and pay those persons who had
earlier proceeding involving the Resorts been damaged by use of the Dalkon
International, Inc. bankruptcy. See In re Shield. The efforts of the Trust to settle
Resorts Int’l,
199 B.R. 113. There, unlike the remaining claims could easily be
here, the Bankruptcy Court was required to affected if the remaining claimants are
construe and enforce provisions of the aware that any attorneys’ fees out of the
Plan to resolve a post-confirmation dispute pro rata distribution will be limited to ten
over whether the Litigation Trust or the percent.”
Id. at 372. Accordingly, the
debtor was entitled to accrued interest.
Id. dispute integrally affected the bankruptcy
at 120-25. The court correctly held that it plan and proceeding, and it was
retained jurisdiction to enter appropriate appropriate for the district court, sitting in
orders to enforce the intent and specific bankruptcy, to exercise jurisdiction over
provisions of the Plan.
Id. at 118-19. that proceeding.
Bergstrom, 86 F.3d 364, and Falise In contrast, this kind of close nexus
v. Am. Tobacco Co.,
241 B.R. 48 to the bankruptcy plan or proceeding was
(E.D.N.Y. 1999), are useful for illustrating absent in Falise,
241 B.R. 48. Falise
when there is a sufficiently close nexus to involved a dispute between tobacco
the bankruptcy plan or proceeding to manufacturers and a trust created as a
uphold bankruptcy jurisdiction in post- result of the bankruptcy of an asbestos
c o n f i r m a tion situations invo lv ing products producer.
Id. at 51. The trust
continuing trusts. In Bergstrom, 86 F.3d sought to recover from the tobacco
364, the dispute implicated an integral companies for their role in contributing to
aspect of the bankruptcy process. The asbestos-related illnesses.
Id. Noting that
plan-created trust intended to distribute the resolution of the dispute would require
surplus funds to tort claimants on a pro more than merely interpreting the plan’s
rata basis.
Id. at 367. But certain terms, the court held that bankruptcy court
attorneys claimed entitlement to contingent jurisdiction does not extend to a “major
fees.
Id. The district court, sitting in suit” brought by the trust against non-
bankruptcy, limited attorneys’ fees to ten parties to the bankruptcy or to any closely
percent of the amounts distributed.
Id. To related proceeding.
Id. at 52, 55. In
resolve the dispute, it was necessary to Falise, the resolution of the dispute would
interpret the pla n’s accom panying have had no impact on any integral aspect
documents to determine whether it was of the bankruptcy plan or proceeding.
unreasonable to charge standard attorneys’ Accordingly, it was appropriate to find no
fees out of the pro rata distribution. See bankruptcy jurisdiction over that collateral
id. at 368-71. In upholding “related to” matter.
16
In re Haws, 158 B.R. 965, similarly They brought suit, alleging Montana
illustrates when a proceeding lacks a breached the agreement by hiring a
sufficiently close nexus to the bankruptcy competitor to perform the reclamation
plan or proceeding to uphold post- work.
Id. The court upheld bankruptcy
confirmation jurisdiction. There, the court jurisdiction because RSC’s failure,
action was brought by a trustee for a and its inability to retain the debtors’
liquidating trust against a partner of the employees on account of Montana’s
debtor for breach of fiduciary duty.
Id. at breach, “undermine[d] the Plan’s
967-68. In holding the matter to be objectives for reorganization and the
outside bankruptcy court jurisdiction, the payment of creditors.”
Id. at 233-35. The
court noted the plaintiff had failed to court held that the “facts demonstrate the
demonstrate how any damages recovered necessary close nexus between appellees’
from the defendant were “necessary to tort and contract claims and the bankruptcy
effectuate the terms of the” plan.
Id. at proceeding.”
Id. at 235.
971. The court recognized that “[n]owhere
As stated, the jurisdiction of the
in the lawsuit is the bankruptcy court being
non-Article III bankruptcy courts is limited
asked to construe or interpret the
after confirmation of a plan. But where
confirmed plan or to see that federal
there is a close nexus to the bankruptcy
bankruptcy laws are complied with in the
plan or proceeding, as when a matter
face of violations.” Id. It concluded: “The
affects the interpretation, implementation,
only nexus to this bankruptcy case is that
consummation, exe cutio n, or
the plaintiff in this matter is a liquidating
administration of a confirmed plan or
trustee representing a group of creditors
incorporated litigation trust agreement,
appointed pursuant to the confirmed plan
retention of post-confirmation bankruptcy
of reorganization.” Id.
court jurisdiction is normally appropriate.
Montana v. Goldin (In re Pegasus
IV.
Gold Corp.), 296 B.R. 227 (D. Nev. 2003),
is also instructive. A reclamation services We now assess whether the
corporation (“RSC”) was created under a Bankruptcy Court can exercise “related to”
reorganization plan for the purpose of jurisdiction over these malpractice claims.
performing short-term reclamation work As noted, the Trustee’s principal allegation
“in order to benefit the overall Plan goal of was that Price Waterhouse erroneously
preserving the jobs of Debtors’ employees reported in its audit reports that accrued
to thereby maximize the possibility of interest on Litigation Trust accounts
creditor recovery.”
Id. at 231. The belonged to the debtor rather than to the
Trustee and RSC contended the state of Litigation Trust. The Trustee also alleged
Montana had represented that RSC would other errors in auditing and tax advice.
be given preference in the bidding for Price Waterhouse’s errors, according to
long-term reclamation work.
Id. at 232.
17
the Trustee, constituted professional The Trustee argues the estate is
negligence and breach of contract. affected because the Litigation Trust is a
continuation of the estate. The District
The Trustee has made several
Court agreed, reasoning that the affairs of
arguments why the malpractice claims are
post-confirmation trusts are “effectively
sufficiently connected to the bankruptcy
those of the estate (or at least analogous to
process to uphold bankruptcy court
those of the estate) for jurisdictional
jurisdiction: the claims affect the
purposes.” Binder, No. 02-1333, slip op.
Litigation Trust, which is a continuation of
at 12-13. Though the Litigation Trust’s
the estate; the claims affect the debtor; the
assets, the proceeds from the litigation
claims affect the operation of the
claims, were once assets of the estate, that
Reorganization Plan; the claims affect the
alone does not create a close nexus to the
former creditors as beneficiaries of the
bankruptcy plan or proceeding sufficient to
Litigation Trust; and the jurisdictional
confer bankruptcy jurisdiction. The
retention provisions confer continued
Litigation Trust’s connection to the
jurisdiction. The jurisdictional import of
bankruptcy is not identical to that of the
these arguments is not easily resolved.
estate. Under section 1.1 of the Litigation
Nonetheless, we believe this Trust, the debtor “absolutely assigned to
proceeding lacks a close nexus to the the Trustee and to its successors and
bankruptcy plan or proceeding and affects assigns, all right, title and interest of the
only matters collateral to the bankruptcy Reorganizing Entities in and to the
process. The resolution of these Litigation Claims.” Moreover, the
malpractice claims will not affect the Litigation Trust was created in part so that
estate; it will have only incidental effect on the Plan could be confirmed and the debtor
the reorganized debtor; it will not interfere freed from bankruptcy court oversight
with the im plem entatio n of the without waiting for the resolution of the
Reorganization Plan; though it will affect litigation claims. The deliberate act to
the former creditors as Litigation Trust separate the litigation claims from the
beneficiaries, they no longer have a close bankruptcy estate weakens the Trustee’s
nexus to bankruptcy plan or proceeding claim that the Litigation Trust has the
because they exchanged their creditor same jurisdictional nexus as that of the
status to attain rights to the litigation estate. Given the limited jurisdiction of
claims; and as stated, the jurisdictional non-Article III bankru ptcy cou rts,
retention plans cannot confer jurisdiction jurisdiction does not extend necessarily to
greater than that granted under 28 U.S.C. all matters involving litigation trusts.
§ 1334 or 28 U.S.C. § 157. For these
The Trustee also contends the
reasons, the malpractice claims here lack
resolution of the malpractice claim will
the requisite close nexus to be within the
affect the debtor, Resorts International,
B a n k r u p t c y C ourt’s “related to”
Inc. The debtor is not a party to this
jurisdiction post-confirmation.
18
litigation because, as stated, under section “essential to the integrity of the Plan and
1.1 of the Litigation Trust Agreement, it its implementation.” Appellee’s Br. at 2.
assigned away its right, title, and interest We disagree. It is true that accounting
in the litigation claims. But the Trustee services are essential in administering
argues Resorts would still be affected by trusts, and in certain circumstances,
this dispute because it “is claiming to be a accounting errors could have a sufficiently
continuing creditor of the estate” due to close nexus to the bankruptcy plan or
the litigation over the accrued interest. proceeding to warrant exercising “related
Oral Argument Transcript at 32. Should to” jurisdiction post-confirmation. But the
Resorts prevail in that ongoing dispute,11 resolution of the claims here will have no
the Trustee contends Resorts may have a substantial effect on the success of the
claim against the Litigation Trust, and an Plan.
award in the malpractice action could be
Resolution of this matter will not
distributed back to Resorts to pay on that
require a court to interpret or construe the
claim. Such attenuated effect on the
Plan or the incorporated Litigation Trust
reorganized debtor does not create a close
Agreement. Whether Price Waterhouse
nexus to the bankruptcy plan or proceeding
was negligent or breached its contract will
sufficient to confer bankruptcy court
not be determined by reference to those
jurisdiction. After assigning away its
documents. There is no dispute over their
right, title, and interest in the Litigation
intent. The Trustee’s claims are
Trust’s litigation claims, the reorganized
“ordinary” professional negligence and
debtor would have no greater claim to the
breach of contract claims that arise under
proceeds from this malpractice action than
state common law. Though the Plan and
any other Litigation Trust creditor. Any
Trust Agreement provide the context of
funds eventually received by the debtor as
the case, this bare factual nexus is
a result of the malpractice dispute would
insuf ficie nt to con fer ba nkru ptcy
be incidental to the bankruptcy process.
jurisdiction.
The Trustee maintains that
The malpractice action could result
continuing jurisdiction over the matter is
in an increase in the Litigation Trust’s
finite assets. But the potential to increase
11 assets of the Litigation Trust and its
Even though the Bankruptcy Court
beneficiaries does not necessarily create a
resolved the interest dispute in In re
close nexus sufficient to confer “related
Resorts Int’l, 199 B.R. 113, according to
to” bankruptcy court jurisdiction post-
the Trustee’s Complaint, the dispute is
confirmation. The Trust beneficiaries here
“ongoing” because Resorts International,
no longer have the same connection to the
Inc. and the Litigation Trust “remain
bankruptcy proceeding as when they were
engaged in negotiations over the form of
creditors of the estate. For reasons they
the order and settlement of other issues.”
believed financially prudent, they traded
Joint Appendix at 76.
19
their creditor status as claimants to gain V.
rights to the Litigation Trust’s assets.
For these reasons, there is no
Thus, their connection to the bankruptcy
“related to” jurisdiction over the
plan or proceeding is more attenuated.
malpractice dispute, and it cannot find a
Furthermore, if the mere possibility of a
home in the Bankruptcy Court. We will
gain or loss of trust assets sufficed to
reverse the order of the District Court and
confer bankruptcy court jurisdiction, any
remand for proceedings consistent with
lawsuit involving a continuing trust would
this opinion.
fall under the “related to” grant. Such a
result would widen the scope of
bankruptcy court jurisdiction beyond what
Congress intended for non-Article III
bankruptcy courts. Accord ingly,
resolution of these malpractice claims will
n o t a f f e c t th e i n t er p r e ta t i o n,
implementation, consummation, execution,
or administration of the Plan.12
12
Price Waterhouse argues the matter
turns in part on the fact that it was not
explicitly named in the Litigation Trust
Agreement or the Reorganization Plan and
that the Bankruptcy Court did not approve
its retention or dismissal. In some
circumstances, these factors may affect the
jurisdictional inquiry. But they are not
significant here.
Price Waterhouse also argues the
lapse of time since confirmation factors
against bankruptcy jurisdiction. The
Bankruptcy Court issued an Order
confirming the Plan on August 28, 1990.
The Trustee filed this malpractice action belonged to the Debtor in 1992.
on April 15, 1997. The Trustee responds Appellee’s Br. at 12-13. Though in some
that Price Waterhouse’s malpractice circumstances, the lapse of time since
“began barely after the ink dried on the confirmation may be relevant to whether a
confirmation order,” and notes that Price matter has a “close nexus” to a bankruptcy
Waterhouse released its allegedly plan or proceeding, we do not find it to be
erroneous report that the interest income so here.
20
