OPINION1

CHRISTOPHER S. SONTCHI, Bankruptcy Judge.

INTRODUCTION

Before the Court are several motions to dismiss an amended complaint filed by Triad Guaranty Insurance Co. ("Triad"), the non-debtor plaintiff. Through the Amended Complaint, and based upon non-bankruptcy law, Triad seeks to rescind insurance obligations against a defensive class that consists of all current "owners" of Triad-insured loans.

This Court will dismiss Triad's post-confirmation action. As more fully detailed below, Triad has failed to provide sufficient reason to conclude that Triad's action is integral to the restructuring process. More specifically, Triad has failed to meet its burden to demonstrate a sufficient connection — a "close nexus" — between Triad's post-confirmation rescission action and the Debtors' Plan or Proceeding. In addition, Triad's action arises solely under state law, independent of the bankruptcy petition. The class action does not "arise in" the bankruptcy or "arise under" the Bankruptcy Code ("Code"). On the face of the Amended Complaint, this Court does not have jurisdiction over Triad's dispute with the putative defensive class.

AUTHORITY TO DETERMINE JURISDICTION

In response to an adversary proceeding initiated by Triad in a case before this Court, the Defendants submitted motions to dismiss for lack of subject-matter jurisdiction under Rule 12 of the Federal Rules of Civil Procedure.2 In such instances, a bankruptcy court has the authority to determine whether it has subject-matter jurisdiction over the adversary proceeding.3 Accordingly, this Court may determine whether to dismiss Triad's action for lack of subject-matter jurisdiction.

BACKGROUND

American Home Mortgage, Inc. ("AHM") and several affiliates (collectively, "Debtors") filed for bankruptcy in August 2007. After AHM's plan was confirmed in February 2009, Triad filed a complaint with this Court. Subsequently, Triad amended the complaint to add related claims (the "Amended Complaint"). Through this action, the "single question" Triad seeks this Court to determine is whether Triad can terminate its insurance obligations against non-debtors under non-bankruptcy law.4 To obtain relief against non-debtors, Plaintiff asks the Court to certify a class of these non-debtors.

A. Factual Background

Before filing for bankruptcy protection with this Court (the "Petition Date"), AHM was involved in the origination of mortgage loans. Triad Guaranty Insurance ("Triad"), a private mortgage insurer and plaintiff in this action, offered mortgage default insurance on many loans originated by AHM.

By contract (the "Master Policy"), Triad and AHM agreed that AHM would perform initial risk assessment functions.5 However, the Master Policy indicates that Triad maintained ultimate control over the decision to issue insurance certificates on each loan.6 If the risks were acceptable to Triad, Triad issued insurance certificates protecting current and future loan owners against borrower default.7 Under the Master Policy, Triad also agreed that the loans could be transferred to third-parties and Triad's obligations would follow those loans.8 If the loans were transferred, the new loan owners could become "the Insured."9

AHM filed for chapter 11 bankruptcy protection on August 6, 2007 (the "Petition Date"). By the Petition Date, Triad admits that AHM had already sold many, if not all, of its loans to non-debtor-third-parties.10

AHM's chapter 11 plan (the "Plan") was confirmed on February 23, 2009 (the "Confirmation Date").11 By the Confirmation Date, the Debtors and the Plan Trustee state that the Debtors had "sold, transferred or turned-over all of their mortgage loans to third parties," and they also state that they are no longer insured by Triad.12 In support, Defendants provide disclosure statements and other evidence.13

Whether the Debtors are insured is a point Triad avoids addressing. Most notably, in Triad's Amended Complaint it failed to plead that the Debtors continued to qualify as current "owners" of the insured loans Triad wishes to rescind.14 But, as Triad notes, the Plan created a liquidation trust (the "Trust") and funneled AHM's remaining assets into that Trust.15 As such, the beneficiaries of the Trust ("Trust Beneficiaries"), although once creditors of the Debtors' estates, voluntarily exchanged their creditor status for the potential to receive distributions from the Trust.16

Also supported by documentary evidence, the Debtors' and Trust-Trustee's represent that the relevant assets are no longer held by the bankruptcy estate for the benefit of the Debtors or former creditors.17 And no party has provided reason to believe otherwise. Rather, Triad rests upon a conclusory averment that "the Trusts ... hold the Triad Mortgage Insurance Certificates which Triad seeks to rescind."18

In sum, all facts and evidence before this Court suggest that (1) to the extent AHM once had an interest related to this action, the interest or entitlement thereto has since been transferred to non-debtors; and (2) Triad's insurance obligations run to non-debtors.19 That is, the undisputed facts clearly suggest that the reorganized debtor no longer has a direct interest in insurance proceeds that relate to this dispute.

Since Triad's Complaint was filed, claims against the Debtors have been barred. The deadline for non-governmental entities to submit proofs of claim in the Debtors' bankruptcy cases lapsed on January 11, 2008.20 And the deadline for parties to file and serve requests for administrative expense claims passed on January 5, 2011.21

B. Procedural Background

1. The Complaint

On September 4, 2009, Triad filed its Amended Complaint against a putative defensive-class in order avoid its insurance obligations against all current "owners" of certain AHM originated loans. Triad believes that the rescission of a delegation agreement, through which Triad permitted AHM to perform a limited number of initial risk assessment functions,22 will avoid its obligations against all individuals who currently own the loans.23 Thus, Triad argues that AHM committed various contractual breaches under non-bankruptcy law prior to filing for bankruptcy, permitting Triad to rescind all of Triad's outstanding insurance obligations against the defensive class.24 Specifically, seeking equitable rescission against current "owners" of insured loans (rather than damages against AHM or AHM's pre-confirmation estate), Triad asserts state law claims of breach of duty, breach of contract, and fraud in the inducement (the "rescission claims").25

In substance, Triad merely wishes to rescind insurance obligations against a putative defensive-class consisting of all current owners of Triad-insured loans. But, because Triad failed to aver that any party other than a non-debtor could qualify as a current "owner" of Triad-insured loans, these entities appear to be non-debtors.

2. The Motions to Dismiss

Shortly after Triad filed the Amended Complaint, AHM and various non-debtor entities (the "Defendants") filed motions to dismiss under Rule 12(b)(6) and Rule 12(b)(1) of the Federal Rules of Civil Procedure. Among other things, Defendants argue that the claims in Triad's Amended Complaint do not possess a "close nexus" to the bankruptcy plan or proceeding because AHM is no longer a current "owner" or insured entity under any of the loans relevant to Triad's rescission action. Defendants support their arguments with specific allegations and evidence.

3. Triad's Reply

Triad soon replied (the "Reply"). Resting primarily on the pleadings, Triad refused to confront the Defendants' claim that AHM is no longer a current owner or insured entity. Instead, Triad's Reply stated that this Court possesses subject-matter jurisdiction for the following three reasons:

As detailed below, each of Triad's arguments fail.

LEGAL STANDARD

It is a plaintiff's burden to persuade a federal court that it has subject-matter jurisdiction to hear a dispute under Rule 12(b)(1) of the Federal Rules of Civil Procedure.30 If the plaintiff clearly fails to meet its burden, the Court is bound to dismiss the plaintiff's action.31

Under Rule 12(b)(1), dismissal may be obtained through a successful facial or factual challenge. When a challenge is facial, the Court will accept as true all well-pleaded allegations in the complaint and draw reasonable inferences in favor of the plaintiff.32 When a defendant asserts a factual attack, the Court will permit the plaintiff to respond with evidence to the defendant's factual challenge. In doing so, it is incumbent upon the plaintiff to assert a measured response. "If the plaintiff fails to meet and controvert the defendant's factual assertions ..., then the ... court [will be forced to] determine whether it has subject matter jurisdiction based upon the factual context presented by the defendant."33

At bottom, "whether the challenge is facial or factual, the plaintiff bears the burden of persuasion" on each and every claim.34 A claim should be dismissed if it either (1) "clearly appears to be immaterial and made solely for the purpose of obtaining jurisdiction" or (2) "is wholly insubstantial and frivolous."35

Here, Defendants have asserted factual and facial challenges to this Court's bankruptcy jurisdiction. As detailed below, Defendants first assert a facial challenge regarding this Court's "arising in" or "arising under" jurisdiction. Based upon the Amended Complaint, Defendants argue that Triad's action neither "arises in" a bankruptcy case nor "arises under" the Code.36 In their view, Triad's action did not "arise under" the Code because Triad's rescission action is solely based upon, and made available under, state law.37 In addition, Defendants argue that Triad's action does not "arise in" the bankruptcy because the state law claims, arising in prepetition conduct, would exist independently of the bankruptcy filing.

Regarding the Court's related jurisdiction, the Defendants assert a mixed facial and factual challenge. Based upon the Master Contract, disclosure statements and prior proceedings, Defendants have produced unrebutted evidence suggesting that the Debtors sold, transferred or abandoned all relevant assets to non-debtors.38 On this issue Triad not only failed to provide more than a mere conclusory response, but also clearly appears to concede the same throughout the pleadings.39 According to Defendants, the Amended Complaint concedes the same. Specifically, the Amended Complaint itself states that Debtors have sold or transferred many, if not all, insured loans and suggests it is "The Trusts" (not the Debtors) who hold the Master Insurance Certificates that Triad wishes to rescind.40

The parties have fully briefed the jurisdictional issue and produced (or chosen not to produce) evidence. As detailed below, based upon the pleadings and evidence, Triad has not persuaded the Court that jurisdiction is proper.

DISCUSSION

Pursuant to § 1334 and § 157 of the Judicial Code,41 a bankruptcy court's subject-matter jurisdiction potentially extends to four types of title 11 matters: (1) cases "under" title 11; (2) proceedings "arising under" title 11; (3) proceedings "arising in" a case under title 11; and (4) proceedings "related to" a case under title 11.42 Triad would have the Court find that its post-confirmation action falls within one of the latter three types of proceedings.

A. The Court Lacks "Arising-in" or "Arising-under" Jurisdiction.

Based upon the submitted pleadings and motions, the most hotly contested question in this adversary proceeding is whether the Court possesses "related to" jurisdiction, infra. However, the parties also disagree whether this Court possesses either "arising under" jurisdiction or "arising in" jurisdiction. Both will be considered.

1. Arising-under Jurisdiction

The Court does not possess "arising under" jurisdiction. Arising under jurisdiction, analogous to general federal question jurisdiction, empowers the bankruptcy courts to hear matters that turn upon a substantive bankruptcy right or invoke a cause of action provided by the Bankruptcy Code ("Code").43 Here, Triad has presented two types of claims — non-bankruptcy rescission claims and requests for declaratory relief.

First the Court considers Triad's rescission claims. Triad's primary claims for rescission rely upon state-law causes of action for breach of contract, breach of duty and fraud.44 These claims do not arise under the Code but instead turn solely upon state tort, contract and regulatory law on their face. As such, the claims neither invoke a substantive right under the Code, nor rely upon a cause of action provided in the Code. The rescission claims do not "arise under" the Code.

Secondly the Court considers Triad's request for declaratory relief. According to Triad, some (unidentified) parties remitted premiums to Triad over the past several years. Assuming the rescission claims prevail (in some forum), Triad speculates that the final arbiter might need to return those premiums to the debtor's estate under § 541 of the Code.45 As such, Triad argues that a bankruptcy court should exercise jurisdiction because the court should be the one to determine whether any of the premiums would qualify as property of the estate — that this action arises under § 541.46

Putting to one side the fact that the Debtor's estate has technically ceased to exist after confirmation, Triad's speculation is insufficient on its face. Triad states that it might be required to refund the difference between (1) premium payments remitted to Triad on behalf of unidentified entities — $38 million, according to Triad's Reply Brief47 — and (2) an unidentified dollar-value of both (a) prior refunds and (b) claims paid.48 However, Triad fails to provide statements or facts suggesting that there might be a single cent available to be returned to the Former Debtors or beneficiaries of the former estate. Instead, the Amended Complaint suggests to the contrary, including admitting that the value of claims paid may alone exceed the value of premiums refunded.49

A court should dismiss claims that clearly appear "immaterial and asserted for the sole purpose of obtaining jurisdiction" or "wholly insubstantial and frivolous."50 Consequently, Triad's claim for declaratory judgment is insufficient to persuade the Court that "arising under" jurisdiction is proper over Triad's rescission action — one which otherwise clearly arises under nonbankruptcy law.

2. Arising In Jurisdiction

Although Triad does not argue otherwise, the Court pauses to note that this dispute did not "arise in" the bankruptcy. A claim "arises in" a bankruptcy case if it is one that could only arise in the context of a bankruptcy case by its very nature, not its particular factual circumstance.51 The proceeding must owe its existence to the filing of the bankruptcy petition.52

In the instant proceeding, Triad's state-law recision claims are based upon conduct that occurred prior to AHM's bankruptcy case. Even assuming the claims are meritorious, they do not owe their existence to the filing of the bankruptcy petition, but exist independently of it on their face. Moreover, Triad's declaratory judgment claim is insufficient to overcome the rescission claims' failings. As noted above, Triad's claim for declaratory relief is clearly alleged for the sole purpose of obtaining this Court's jurisdiction, or wholly insubstantial and frivolous. Triad's claims clearly do not "arise in" the bankruptcy case.53

B. The Court Lacks Post-Confirmation "Related To" Jurisdiction.

The primary dispute before the Court is whether it possesses "related to" jurisdiction over Triad's non-bankruptcy rescission claims. In particular, Defendants argue that the current action involves a non-debtor dispute that does not have a "close nexus" to the bankruptcy plan or proceeding, and, thus, this Court cannot exercise "related to" jurisdiction over Triad's insurance rescission claims.54

Triad disagrees — but on different grounds. Primarily, Triad argues that (1) the "close nexus" test is not applicable, and (2) even if it were applicable, the "close nexus" test would be satisfied because the Confirmation Order purportedly retained jurisdiction over similar disputes.55 Assuming a court ultimately rescinds Triad's insurance obligations against non-debtors, Triad also speculates that those non-debtors might turn around and file third-party complaints against the former Debtors.56 Therefore, Triad argues, the action is "related to" the former Debtors' bankruptcy case. On each point Triad is incorrect.

1. The General Scope of Related to Jurisdiction.

On the threshold, the parties disagree about the scope and application of "related to" jurisdiction. As noted above, Triad argues that it is only necessary for the Plan to state that the bankruptcy court retains jurisdiction. However, Defendants correctly argue that more is needed under the circumstances. Bankruptcy jurisdiction is proscribed by statute; neither the parties nor the court can expand upon it by merely providing so in the plan or confirmation order.57 And so the question remains — is the action "related to" the Debtors' bankruptcy case within the meaning of the Judicial Code?

We begin with the Pacor test. In this district, the outer-bounds of the bankruptcy court's "related to" jurisdiction are defined by Pacor v. Higgins and its progeny.58 In Pacor, the Third Circuit Court of Appeals explained that an action is "related to" a bankruptcy proceeding if "the outcome of that proceeding could conceivably have any effect on the estate being administered in bankruptcy."59 Moreover, the Pacor Court explained that an "action is related to bankruptcy if the outcome [1] could alter the debtor's rights, liabilities, options, or freedom of action (either positively or negatively) and ... [2] in any way impacts upon the handling and administration of the bankruptcy estate."60 This has become known as the Pacor test, which defines the broad ambit of "related to" jurisdiction in action filed before confirmation of a debtor's chapter 11 plan.

Despite some initial uncertainty, later decisions from the Third Circuit Court of Appeals confirmed that the Pacor test requires the conceivability of a direct impact upon the estate.61 Thus, if it is impossible for a collateral dispute between third-parties to directly impact the estate, the bankruptcy court will lack "related to" jurisdiction. The bankruptcy court might lack jurisdiction, for instance, if the plaintiff merely speculates that a third-party defendant might bring a separate common-law indemnification claim against the debtor in the future.62

At this point, we must pause to reject one argument. Triad speculates that, as a consequence of its rescission action, third-parties might file suit against the Debtor for common law contribution or indemnification.63 Yet, the Defendants represent that no party has asserted such claims and, because it appears that any such claims likely will be barred or enjoined, a separate action will need to be brought before the third-party claims could have any impact upon the administration of the former estate.64 Because indemnification and contribution claims against AHM have not yet accrued and would require another lawsuit before they could impact beneficiaries of the former estate,65 Triad's argument is simply too speculative.

And with that, we continue on. Why? Notwithstanding the outstanding breadth of pre-confirmation "related to" jurisdiction, a claimant must surmount additional hurdles in the post-confirmation context.66

2. Post-Confirmation: The "Close Nexus" Test.

After confirmation, claimants must satisfy additional hurdles established by the Third Circuit's Resorts decision;67 the test for "related to" jurisdiction becomes more stringent if the plaintiff files its action after the confirmation date.68

In the post-confirmation context, the plaintiff must persuade the court that the claims have a "close nexus" to the bankruptcy plan or proceeding.69 Here, despite agreeing that this action was filed after the Confirmation Date, the parties disagree about whether the "close nexus" test applies. In short, it does.

a) When is the test triggered? The "close nexus" test must be satisfied in any action filed after the court confirms a debtor's chapter 11 plan.70 Although it appears Congress intended bankruptcy courts to retain jurisdiction over some post-confirmation disputes,71 the Resorts Court noted that a literal application of the Pacor test becomes problematic because plan confirmation has the general effect of closing up the bankruptcy estate.72 Thus, in Resorts, the Third Circuit Court of Appeals established a test to ensure that the exercise of post-confirmation "related to" jurisdiction is confined to those proceedings that impact an aspect integral to the bankruptcy process.73 If an action is filed after the confirmation date, the bankruptcy court's "related to" jurisdiction does not extend beyond those claims or proceedings that possess a "close nexus" to the bankruptcy plan or proceeding.74

b) What is the required "close nexus"? Ultimately, the "close nexus" test was intended to limit jurisdiction to those proceedings that are "integral to the restructuring process."75 Thus, in establishing the binding post-confirmation test, the Resorts Court began by reiterating that "`[a]n action is related to bankruptcy if the outcome could alter the debtor's rights, liabilities, options or freedom of action (either positively or negatively) and which in any way impacts upon the handling and administration of the bankruptcy estate.'"76 However, the Court also explained that post-confirmation "related to" jurisdiction is limited; it "`does not extend indefinitely, particularly after the confirmation of a plan and the closing of a case.'"77

"[T]he inquiry is multifaceted."78 The matter before the Resorts Court demonstrates in which circumstances a "close nexus" will not be found. In Resorts, the Court asked whether jurisdiction was proper over a post-confirmation state-law action by the trustee of a post-confirmation trust against a non-debtor accounting firm. The Court characterized the action as a dispute among non-debtors and concluded that the "close nexus" for "related to" jurisdiction was lacking, basing its decision on multiple facets of the proceeding:

In addition, the Court noted that (1) the bankruptcy court retained jurisdiction over the matter; (2) the trust-trustee's malpractice claim could not interfere with the implementation of the reorganization plan or liquidation trust; and (3) the resolution of the trust-trustee's primary claims did not depend upon the interpretation or construction of a plan provision or incorporated trust agreement.82 There was not a sufficiently "close nexus" between the trust-trustee's claims and the bankruptcy "plan or proceeding."83

3. Application to Triad's Defensive Class Action Claims.

Here, Triad's action was filed after the Confirmation Date. Thus, Triad bears the burden of persuading the Court that the claims have a sufficiently "close nexus."84 But, Triad has failed to do so.

Triad's action is deficient for reasons similar to those in Resorts. Triad asks the Court to hear a dispute between Triad and current "owners" of Triad-insured loans regarding whether Triad may avoid its liabilities against those owners. Based upon the pleadings, those current "owners" appear to be non-debtors. Moreover, like the claims considered by the Resorts Court, Triad's rescission claims do not appear to be "integral to the restructuring process" but instead "lack[] a close nexus to the bankruptcy plan or proceeding" and "affect[] only matters collateral to the bankruptcy process."85

a) Triad's action will not impact the estate. Confirmation of the Plan terminated the Debtors' estate. As such, there is technically no longer an estate to impact.

b) Triad's action will not impact the Debtors more than incidentally. Triad's class action claims seek equitable rescission against current "owners" of Triad-insured loans. According to the pleadings, however, it only appears to be non-debtors who would be impacted by Triad's private mortgage insurance. It would be too speculative to conclude that the Debtors may be impacted more than incidentally.

c) Triad's action will not impact the handling of the Debtors' former estate for the benefit of other creditors. According to Triad, the Trusts currently possess the Master Insurance Certificates. However, the Trust Beneficiaries are no longer creditors of the Debtors' estate. The Trust Beneficiaries exchanged their creditor status for the potential to receive distributions from the Trust. Since not a single party to this action suggests otherwise, it would be too speculative to conclude that Triad's action will impact the handling of the Debtors' former estate for the benefit of other creditors.

d) Triad's action will not impact the implementation of the Plan or incorporated Trust. There are no pleadings or evidence suggesting that Triad's action will impact the implementation of the Plan or incorporated Trust. It appears that the Trust Beneficiaries exchanged their creditor status with the knowledge that Triad may bring rescission claims against insured parties. And, for their part, the Trust Beneficiaries do not argue that they were misled regarding the contingent nature of the Trust's assets or liabilities. Without more, it would be too speculative to conclude otherwise.

e) Triad's action does not turn upon the interpretation or construction of a provision of the Plan or Trust. Whether Triad can rescind the contract will not be determined by reference to the Debtors' plan or incorporated trust agreement. Instead, Triad's claims arise under state law; although the Plan and Trust agreement might provide the bare context of the rescission action, this bare factual nexus is insufficient to confer bankruptcy jurisdiction.

Accordingly, as in Resorts, Triad's rescission action will not impact the Debtors' estate, the Debtors (more than incidentally), the implementation of the Plan and/or the incorporated Plan Trust, nor AHM's former creditors (as opposed to Trust beneficiaries). Moreover, the outcome of Triad's rescission claims does not turn upon the interpretation or construction of the plan or incorporated trust agreement. Triad has not persuaded the Court that the exercise of post-confirmation "related to" jurisdiction is proper.

CONCLUSION

The Court finds Triad has not met its burden to demonstrate that subject-matter jurisdiction is proper under title 28 of the Judicial Code. Specifically, Triad has failed to persuade this Court that its post-confirmation class-action to rescind the contracts (1) possesses a sufficiently "close nexus" to the plan or proceeding; (2) invokes a substantive right or cause of action created under the Code; or (3) by its nature, not its factual circumstance, could arise only in the context of a bankruptcy case. As such, this Court will grant Defendants' motions to dismiss for lack of subject-matter jurisdiction. An order will be issued.