ROBERT J. FARIS, Bankruptcy Judge.
In this adversary proceeding, the Debtor, Leonard Horowitz, and his domestic and business partner, Sherri Kane, seek monetary and injunctive relief regarding real property located at 13-3775 Pahoa-Kalapana Road, Pahoa, Hawaii 96778 (the "Property"). Defendants Paul Sulla, Jason Hester, The Office of the Overseer, A Corporate Sole and its Successor, Over and For the Popular Assembly of Revitalize, A Gospel of Believers ("GOB"), and Stephen Whittaker (collectively "Moving Defendants") seek dismissal of the complaint pursuant to Federal Rule of Civil Procedure 12(b)(1) and (6), for lack of subject matter jurisdiction and failure to state a claim. Alternatively, the Moving Defendants ask the court to abstain pursuant to 28 U.S.C. § 1334(c). For the following reasons, I will grant the motion.
In 2004, Debtor Leonard Horowitz bought the Property from Cecil Loran Lee. Dr. Horowitz made a promissory note in favor of Mr. Lee in the original principal amount of $350,000.00. The note was secured by a mortgage on the Property.
On June 15, 2005, Mr. Lee filed a foreclosure action ("2005 state court lawsuit")
Philip Maise, who had his own judgment against Mr. Lee,
In 2009, while the 2005 state court lawsuit was pending, Mr. Lee assigned the promissory note and mortgage to himself in his capacity as Overseer of GOB. About a month later, Mr. Lee died.
The court eventually rejected most of Mr. Hester's claims, including his prayer for foreclosure. The court apparently determined that Dr. Horowitz had failed to keep the property insured, but rather than permitting foreclosure of the mortgage, the court compelled Dr. Horowitz to obtain insurance.
Mr. Hester then claimed that Dr. Horowitz failed to make payments under the promissory note and commenced a nonjudicial foreclosure. On May 11, 2010, Mr. Sulla, as counsel for Mr. Hester, recorded a Mortgagee's Affidavit of Foreclosure Under Power of Sale, in which Mr. Sulla attested that the nonjudicial foreclosure sale occurred on April 20, 2010, and that the Property was sold to Mr. Hester, as successor overseer of GOB, for $175,000.00.
On June 14, 2011, Mr. Hester quitclaimed the Property from himself, as successor overseer of GOB, to himself, in his individual capacity.
Despite the 2010 nonjudicial foreclosure, RBOD quitclaimed the Property to Dr. Horowitz and Ms. Kane on July 11, 2012.
On August 11, 2014, Mr. Hester filed an action (the "2014 state court lawsuit") in state court against Dr. Horowitz, Ms. Kane, RBOD, and other defendants, in which Mr. Hester sought (among other relief) to quiet his title to the Property. The 2014 state court lawsuit was removed to federal court.
In the meantime, Dr. Horowitz filed a civil rights case against Mr. Sulla in the federal district court in this district (the "USDC case").
Dr. Horowitz's bankruptcy case and this adversary proceeding were both filed on March 9, 2016, before he and Ms. Kane were evicted from the Property. Dr. Horowitz and Ms. Kane allege a wide variety of misconduct on the part of Mr. Sulla, Mr. Hester, the judges who presided over the state court lawsuits, and others. In essence, they ask this court to overturn the final judgments of the state court.
The Moving Defendants argue that this court lacks subject matter jurisdiction to hear the claims asserted by the Plaintiffs. I disagree in part.
The federal district courts have "original and exclusive jurisdiction" over all bankruptcy cases and original but nonexclusive jurisdiction over "all civil proceedings arising under title 11, or arising in or related to cases under title 11."
The phrases "arising under title 11," "arising in a case under title 11," and "related to a case under title 11" are terms of art.
The Moving Defendants correctly argue that none of the claims in this adversary proceeding "arise under" the Bankruptcy Code. Although the complaint does not clearly articulate its legal basis, it appears that those claims are based entirely on state law or nonbankruptcy federal law. The Moving Defendants are also correct that the claims in this case do not "arise in" the bankruptcy case because none of those claims are peculiar to the bankruptcy process; all of them could be asserted even if Dr. Horowitz had never sought bankruptcy relief (and most if not all of them were asserted before the bankruptcy filing).
But, contrary to the Moving Defendants's argument, some of the claims asserted in this adversary proceeding fall under "related to" jurisdiction. If Dr. Horowitz is successful, his bankruptcy estate will gain money or property, and that is enough to make this proceeding a "related to" proceeding. The Moving Defendants argue that the plaintiffs cannot prevail, but that argument confuses the merits of the plaintiffs' claims with the court's power to decide them. Therefore, the bankruptcy court has subject matter jurisdiction of Dr. Horowitz's claims.
Ms. Kane's claims are in a separate category, however. Ms. Kane is not a debtor in bankruptcy. Any recovery which she makes will not affect any bankruptcy case.
Therefore, I will dismiss Ms. Kane's claims for lack of subject matter jurisdiction.
The Moving Defendants argue that the requirements for mandatory abstention are met. I disagree.
28 U.S.C. § 1334(c)(2) states:
Thus, the court must abstain if each of the following seven elements are met:
In this adversary proceeding, factors 1, 3, 5, 6, and 7 may be met. The Moving Defendants timely filed their motion. For the reasons given below, this adversary proceeding is noncore. A state court action encompassing virtually all, if not all, of the claims alleged in the adversary complaint has already commenced. The state court could timely adjudicate those claims; indeed, the state court has already adjudicated them. The state court has jurisdiction to decide those claims.
But the second and fourth factors are not met. The complaint alleges federal civil rights, RICO, and FDCPA claims, not just state law claims. A federal district court could have jurisdiction over those claims by virtue of its federal question jurisdiction, and could also have supplementary jurisdiction of the state law claims.
Because two of the seven requirements for mandatory abstention are not met, this adversary proceeding does not qualify for mandatory abstention.
28 U.S.C. § 1334(c)(1) provides for discretionary abstention:
According to the Ninth Circuit, a court should consider twelve factors in determining whether discretionary abstention is appropriate:
The court must weigh each of these factors against the others. Unlike mandatory abstention, a court can apply discretionary abstention even if fewer than all of the factors weigh in favor of abstention.
If anything, abstention would have a beneficial effect on the administration of the estate. The state court has decided all, or virtually all, of the claims asserted in this adversary proceeding. Even assuming that Dr. Horowitz and Ms. Kane are entitled to relitigate those issues, doing so would delay this case and drive up its cost. Thus, this factor weighs in favor of abstention.
There are no issues of bankruptcy law in this adversary proceeding. This factor weighs in favor of abstention.
The applicable law is not over-complicated or novel. Thus, this factor weighs against abstention.
Dr. Horowitz and Ms. Kane have asserted virtually all, if not all, of the claims in this adversary proceeding in the USDC case or the 2014 state court lawsuit. Thus, this factor weighs in favor of abstention.
The federal district court would have "federal question" jurisdiction of the civil rights, FDCPA, and RICO claims. But the district court has already chosen to stay the USDC case, effectively declining to exercise that jurisdiction. Accordingly, this factor weighs slightly in favor of abstention.
Dr. Horowitz's claims are related to his bankruptcy case because, if he prevails, his estate will be augmented. But Ms. Kane's claims have nothing to do with any bankruptcy case. This factor is in equipoise.
This factor requires me to consider whether this proceeding is core or noncore in whole or in part.
The proceedings subject to bankruptcy court jurisdiction are divided into "core" bankruptcy proceedings and "noncore" proceedings.
In 1978, Congress enacted the Bankruptcy Code, which (among many other things) dramatically increased the powers of bankruptcy judges. The Code "mandated that bankruptcy judges `shall exercise' jurisdiction over `all civil proceedings arising under title 11 or arising in or related to cases under title 11.'"
In 1982, the United States Supreme Court held, in the Marathon case,
Congress amended the statutes in 1984 in an attempt to solve the constitutional problem identified in Marathon. Congress gave the district courts "original and exclusive jurisdiction of all cases under Title 11,"
Congress further divided bankruptcy court jurisdiction into "core proceedings" and so-called "noncore" proceedings. The core/noncore distinction matters for at least two purposes.
First, bankruptcy court decisions in core and noncore proceedings are subject to different standards of appellate review. In core proceedings, bankruptcy judges can render final judgments that are reviewed under the usual appellate standard (findings of fact are reviewed for clear error and conclusions of law are subject to de novo review).
Second, the core/noncore distinction plays a significant role in the bankruptcy court's decision whether to grant or deny an abstention motion. Whether an action is a core or a noncore proceeding is a factor to be considered in making both mandatory and permissive abstention rulings.
Core proceedings consist of all actions "arising under" title 11 and also those "arising in" a case under title 11.
This history shows that Congress invented the concept of "core proceedings" to address the constitutional problem identified in Marathon. Therefore, in case of doubt, the statutory definition of "core proceedings" should be interpreted to exclude proceedings in which the Constitution precludes a bankruptcy judge from entering final judgment under Marathon, i.e., claims by representatives of the estate against non-consenting third parties to recover money or property for the estate on non-bankruptcy law grounds.
As I have noted above, Dr. Horowitz's claims all turn on state law or nonbankruptcy federal law; thus, Dr. Horowitz's claims are "related to," noncore proceedings. (As is also noted above, Ms. Kane's claims are not even "related to" any bankruptcy case, but if they were, those claims would be noncore.) Dr. Horowitz contends that this action is a core proceeding under § 157(b)(2)(A), "matters concerning the administration of the estate;" subsection (E), "orders to turn over property of the estate;" subsection (H), "proceedings to determine, avoid, or recover fraudulent conveyances;" and subsection (O), "other proceedings affecting the liquidation of the assets of the estate or the adjustment of the debtor-creditor or the equity security holder relationship . . . ." But these provisions must be read against the background of Marathon. Under Marathon, a bankruptcy judge cannot enter final judgment on Dr. Horowitz's claims. The seventh factor therefore strongly favors abstention.
Because none of the claims in this case are "core proceedings," severing the state law claims would leave nothing for this court. Therefore, the eighth factor strongly favors abstention.
The extensive record in the state court proceedings, and the number, volume, and venom of the plaintiffs' filings, make it clear that this adversary proceeding would be burdensome. The burden is particularly unwarranted because the state court has already decided the case against the plaintiffs. This factor weighs in favor of abstention.
The Debtor and Ms. Kane are clearly engaged in forum shopping. The state court and the district court have ruled against them. They have more or less admitted that they came to this court hoping for a better outcome. This factor weighs heavily in favor of abstention.
The Plaintiffs have requested a jury trial on the claims asserted in their complaint, and appear to be entitled to one. Because the bankruptcy court in this district does not have the power to conduct jury trials, this factor weighs in favor of abstention.
The majority of the parties to this case are nondebtors. Only one of the two plaintiffs, and none of the defendants, is in bankruptcy.
Under the Tucson Estates analysis, the facts of this case heavily favor the exercise of discretionary abstention under 28 U.S.C. § 1334(c)(1). Therefore, discretionary abstention is appropriate.
For these reasons, all claims against the Moving Defendants in this adversary proceeding are DISMISSED.
SO ORDERED.