HENRY J. BOROFF, Bankruptcy Judge.
Before the Court is a "Motion for Partial Summary Judgment Confirming the Court's Ability to Enter Judgment Under the Massachusetts Wage Act or, in the Alternative, for Abstention on the Issue of Liability and Amount Due to Plaintiffs" (the "Summary Judgment Motion") filed by the plaintiffs in this dischargeability action (the "Plaintiffs") against the debtor, Wen Jing Huang (the "Debtor").
The Debtor filed a voluntary petition under Chapter 13 of the United States Bankruptcy Code (the "Bankruptcy Code" or the "Code")
On May 27, however, Millennium filed an Amended Schedule E in its case (which had also been converted to one under Chapter 7) disclosing debts owed to various employees (the "Creditor Employees") on account of asserted wage claims. Those Creditor Employees ultimately filed a motion in the Millennium case seeking allowance and payment of $52,573.40 in administrative wage claims (the "Administrative Claims Motion"), which they maintain accrued while Millennium operated in Chapter 11. The Chapter 7 trustee (the "Millennium Trustee") opposed, primarily on the grounds that the Millennium estate had inadequate funds to pay the claims immediately and that Chapter 7 administrative expenses were likely to exhaust the projected available funds. The Millennium Trustee eventually reached a settlement with the Creditor Employees, agreeing that the administrative claims would be deemed allowed in the amounts claimed, but paid only if sufficient funds remained in the estate to make a distribution to the holders of Chapter 11 administrative expense claims. To date, no distribution in the Millennium case has been made.
The Creditor Employees, however, also maintain that the Debtor is individually liable for the unpaid wages under Massachusetts General Laws ("MGL") ch. 149, §§ 148 and 150 (the "Massachusetts Wage Act"). In the Debtor's individual Chapter 7 case, 12 of the 16 Creditor Employees filed proofs of claim for those unpaid wages (the "Claimants"). And on October 5, 2012, the Creditor Employees (here, the Plaintiffs) filed the instant complaint (the "Complaint"; the "Adversary Proceeding")
On April 9, 2013, the Debtor filed an objection to the Creditor Employees' proofs of claim (the "Claims Objection"). In the Claims Objection, the Debtor again argued that she is not personally liable for any unpaid wages under the Massachusetts Wage Act and again disputed the scope of any unpaid wages, maintaining that all or part of each claim was satisfied by Millennium. The Claimants have responded in opposition to the Claims Objection, and the matter remains pending.
Presently before the Court are two motions filed by the Plaintiffs. In the Consolidation Motion, the Plaintiffs have asked that the pending Claims Objection be consolidated with the Adversary Proceeding. And in the Summary Judgment Motion, the Plaintiffs seek a determination as to the scope of this Court's subject matter jurisdiction with regard to the liquidation of their claims under the Massachusetts Wage Act. The Debtor objected to both motions, and the Court took the matters under advisement.
The Plaintiffs first request consolidation of the Claims Objection and the Adversary Proceeding pursuant to Federal Rule of Civil Procedure (the "Federal Rules") 42, made applicable to these proceedings by Federal Rule of Bankruptcy Procedure (the "Bankruptcy Rules") 7042. Noting that the Claims Objection challenges proofs of claim filed by 12 of the 16 Plaintiffs, which proofs of claim represent the same debts alleged to be nondischargeable in this Adversary Proceeding, the Plaintiffs maintain that the factual and legal questions at issue in the two matters overlap — i.e., both require a determination of the Debtor's liability under the Massachusetts Wage Act and the extent to which any debt has been satisfied.
The Plaintiffs argue that the benefits of consolidation outweigh any potential costs, as consolidation will avoid re-litigation of the Debtor's liability and the amount of outstanding unpaid wages, and will allow discovery to proceed more efficiently by avoiding separate discovery processes and schedules. Furthermore, the Plaintiffs maintain that, because both the Claims Objection and the Adversary Proceeding are in their preliminary stages, there will be no delay occasioned by consolidation and no prejudice to the Debtor.
The Debtor, however, attempts to distinguish the issues raised in the Claims Objection from those raised in the Adversary Proceeding, maintaining that consolidation is not appropriate because the matters involve separate legal and factual issues. According to the Debtor, while the existence and amount of liability are at issue in the Claims Objection proceeding, the dischargeability questions in the Adversary Proceeding involve different factual and legal determinations regarding the Debtor's
Through the Summary Judgment Motion, the Plaintiffs seek a determination that this Court has subject matter jurisdiction to determine not only the dischargeability of the Massachusetts Wage Act claims against the Debtor, but also to liquidate the amount of those claims and enter judgment accordingly. Recognizing the jurisprudential split on the question of whether a bankruptcy court has subject matter jurisdiction to liquidate a debt in the context of an adversary proceeding challenging the dischargeability of that debt, the Plaintiffs urge this Court to adopt the majority position and hold that it does, indeed, possess the requisite jurisdiction.
The Debtor opposes, arguing that this Court does not have subject matter jurisdiction to enter a money judgment in connection with a nondischargeability proceeding brought under 11 U.S.C. § 523(a). The Debtor urges the Court to reject the majority position and instead follow the reasoning of the Bankruptcy Appellate Panel for the First Circuit (the "BAP") articulated in Cambio v. Mattera (In re Cambio), 353 B.R. 30 (1st Cir. BAP 2004), and conclude that the Court does not have jurisdiction to determine the Debtor's liability or to liquidate the Plaintiffs' claims under the Massachusetts Wage Act. Relying on Cambio, the Debtor contends that, in the context of a dischargeability proceeding, the bankruptcy court has jurisdiction only to decide the discrete issue of dischargeability, and not to determine the totality of the claims, counterclaims, and defenses that could be asserted under nonbankruptcy law.
In response, the Plaintiffs attempt to differentiate Cambio by noting that, in Cambio, the facts relevant to the dischargeability of the debt were not "inextricably intertwined" with the facts relevant to the legitimacy or amount of that debt. June 11, 2013 Hr'g Tr. 6:11-7:23, ECF No. 88. The Plaintiffs would further have the Court distinguish Cambio on grounds that in this case, unlike the case before the BAP, there may be assets recoverable for distribution, since the Complaint also alleges that the Debtor used assets of her individual bankruptcy estate and the Millennium estate without Court authorization. Therefore, according to the Plaintiffs, a determination of the amount of the underlying claims may have some impact on the bankruptcy estate and thus falls within the Court's subject matter jurisdiction.
Federal Rule 42, made applicable in adversary proceedings by Bankruptcy Rule 7042, provides for the consolidation of proceedings that "involve a common party and common issues of fact or law." Cruickshank v. Clean Seas Co., 402 F.Supp.2d 328, 340 (D.Mass.2005) (quoting Seguro de Servicio de Salud de P.R. v. McAuto Sys. Group, Inc., 878 F.2d 5, 8 (1st Cir.1989)) (emphasis in original). As the Cruickshank court explained, "[o]nce
Consolidation of the Claims Objection and Adversary Proceeding is appropriate here. Despite the Debtor's assertions to the contrary, the legal and factual issues not only overlap, but appear to be largely identical in the two proceedings. Indeed, the objections raised by the Debtor to the proofs of claim filed in the main case are identical to those raised in the Answer filed in the Adversary Proceeding. To the extent that the question of dischargeability under § 523(a) involves additional factual or legal issues regarding the Debtor's actions and intent, those additional legal and factual questions remain substantially intertwined with the facts underlying the claims asserted through the proofs of claim, as well as with the Debtor's defenses to those claims.
Given the legal and factual overlap between the issues implicated by the Claims Objection and the Complaint, any possible burden imposed by the consolidation of the actions is far outweighed by the benefits that will inure to the administration of the proceedings and to both parties if the matters are tried in tandem. Rather than attempting to bifurcate discovery and litigation where such dissection may be difficult, if not impossible, the parties can proceed with one discovery and trial schedule, and the Court will not be forced to untangle a knot of interrelated factual and legal issues. Accordingly, this Court will grant the Consolidation Motion.
Before delving into the specifics of this Court's jurisdiction, a point of clarification regarding the precise issue before the Court is required. The parties query whether in this, as in other dischargeability proceedings, the Court should, can, or will enter a "money judgment." This Court has routinely stated, both in hearings and in written memoranda, that it will not issue "money judgments" in the context of dischargeability proceedings. See, e.g., A.J. Rinella & Co., Inc. v. Bartlett (In re Bartlett), 397 B.R. 610, 623 n. 13 (Bankr.D.Mass.2008). In so stating, the Court's use of the term "money judgment" has always been intended to refer to a judgment enforceable by execution from this Court. See Mullarkey, 410 B.R. at 356 n. 19 (stating that the Court's determination of nondischargeability "does not constitute a money judgment enforceable by execution from this Court").
This Court, however, will continue to use the term "money judgment" to refer only to a judgment that entitles a party to enforcement of the judgment in this Court. And the Court will continue to deny any requests to issue money judgments in the context of dischargeability proceedings, as the Court continues to believe that such enforcement actions are beyond the scope of its subject matter jurisdiction.
The issue presently before the Court — and the issue that continues to divide courts across the nation and within this district — is not whether a bankruptcy court has subject matter jurisdiction to issue a "money judgment" (as defined by this Court). This Court has consistently concluded previously that it does not. Rather, the question presented is whether, in the context of a dischargeability proceeding, this Court has the subject matter jurisdiction to liquidate or quantify the underlying debt and to determine the debtor's liability thereon. And for the reasons
Having clarified that the issue before the Court is whether a bankruptcy court possesses subject matter jurisdiction to determine the amount and existence of a debt alleged to be nondischargeable when that debt is based on a claim that arises under state (or other nonbankruptcy) law, it is best to start at the beginning:
Vienneau v. Saxon Capital, Inc. (In re Vienneau), 410 B.R. 329, 333-34 (Bankr. D.Mass.2009).
"Because `[n]othing is more directly at the core of bankruptcy administration... than the quantification of all liabilities of the debtor,' the bankruptcy court's determination whether to allow or disallow a claim is a core function." S.G. Phillips Constructors, Inc. v. City of Burlington, Vermont (In re S.G. Phillips Constructors, Inc.), 45 F.3d 702, 705 (2d Cir. 1995) (quoting In re BKW Sys., Inc., 66 B.R. 546, 548 (Bankr.D.N.H.1986)); see also Cox v. Cox (In re Cox), 247 B.R. 556, 569 (Bankr.D.Mass.2000); 28 U.S.C. § 157(b)(2)(B). Accordingly, for those Plaintiffs who are also Claimants in the Debtor's main case and to whose proofs of claim the Debtor has objected, the Court unquestionably has the jurisdiction to determine the Debtor's liability for, and the amount of, those debts.
But four of the Plaintiffs have not filed proofs of claim in the main case. As to them, the question remains — does the Court have jurisdiction to determine the Debtor's liability for and to liquidate the amount of those debts? Some courts would say "no"
Cambio, 353 B.R. at 32-33 (additional citations omitted).
If the use of the term "money judgment" in Cambio and the decisions cited therein were limited only to executable judgments, this Court would gladly join with the minority and adopt the "limited approach." However, in both Thrall and Cambio, the term "money judgment" is used in the broader sense as shorthand for a judgment that liquidates the amount of the underlying debt. At first reading, in fact, the Thrall court appears to agree with the majority that a bankruptcy court has the authority to liquidate a debt in connection with a dischargeability proceeding, noting that the "declaratory" judgment the court entered in the case "determines that a debt is nondischargeable and quantifies it." Thrall, 196 B.R. at 962 (emphasis supplied). Later in its opinion, however, the Thrall court opines that it is only the claims allowance process pursuant to § 502 that constitutes an "action to determine the debt," id. at 966, while a dischargeability proceeding "only defines the scope of the discharge and does not substitute for a full and complete determination of all claims and defenses which can be asserted under non-bankruptcy law," id. at 968. Thus, in the view of the Thrall court, a judgment in a dischargeability proceeding, even where the debt is "quantified" in the judgment, would merely "set the outside boundary of a debtor's post-discharge liability." Id. at 973 (emphasis supplied). And in Cambio, the majority opinion similarly appears to use the term "money judgment" to encompass any judgment that liquidates the underlying debt. See Cambio, 353 B.R. at 37 (Rosenthal, J., dissenting) ("I see no basis to deviate from the unanimous Circuit law which holds that there is federal bankruptcy jurisdiction to liquidate and enter a money judgment on a non-dischargeable debt.... I would find that the bankruptcy court had jurisdiction to determine the amount of damages.") (emphasis supplied).
In Cambio, the majority agreed with the Thrall court's analysis, at least in the context of a no-asset Chapter 7 case. The BAP concluded that the bankruptcy court did not have the jurisdiction to liquidate the debt involved in the dischargeability action before it, since "the only effect of
But underlying the Thrall and Cambio courts' analyses are two assumptions with which this Court cannot agree. The first is the assumption that a matter having no effect on the bankruptcy estate cannot constitute either a "core" or "related to" matter within the bankruptcy courts' jurisdiction. Thrall, 196 B.R. at 968-69; Cambio, 353 B.R. at 34. True, the question of whether the outcome of a particular matter may have an effect on the bankruptcy estate is often of paramount consideration in determining the bankruptcy court's jurisdiction, and this Court has often relied on that consideration in determining its lack of jurisdiction over particular matters.
But subject matter jurisdiction is also granted to the bankruptcy courts over matters involving neither estate administration nor creditors' distribution. Instead, core proceedings include any matter that "involves a substantive right provided by title 11 or [] is a procedure that, by its nature, could arise only the context of a bankruptcy case." Cox, 247 B.R. at 569 (quoting Adams, 212 B.R. at 715).
"Receiving a discharge is integral to the bankruptcy scheme, is unique to bankruptcy law, and is a core matter under 28 U.S.C. § 157(b)(2)(I)." Smyrna Childcare Ctrs., LLC v. Melton (In re Melton), 2013 WL 2383657, *2 (Bankr.N.D.Ga. May 20, 2013). As such, determinations that affect the scope of that discharge necessarily "arise in" or "arise under" the Bankruptcy Code. They fall squarely within the bankruptcy court's core jurisdiction, regardless of the whether there is a potential impact on the bankruptcy estate or the distribution to creditors.
Section 523(a) provides that a discharge in a bankruptcy case "does not discharge an individual debtor from any debt" that falls into one of the exceptions enumerated in subsections (1) through (19), 11 U.S.C. § 523(a) (emphasis supplied), and 28 U.S.C. § 157(b)(2)(I) provides that "determinations as to the dischargeability of particular debts" are core proceedings. 28 U.S.C. § 157(b)(2)(I) (emphasis supplied). A "debt" is defined by the Bankruptcy Code as a "liability on a claim." 11 U.S.C. § 101(12). A "claim," in turn, is defined (in relevant part) as a "right to payment." 11 U.S.C. § 101(5)(A).
Accordingly, in the context of the dischargeability proceeding, the bankruptcy court is not only tasked with determining whether the circumstances for nondischargeability enumerated in § 523(a) are established, but must also necessarily determine the scope of the debtor's "liability on [the] claim" and the creditor's "right to payment." See Melton, 2013 WL 2383657, at *2 ("in order for this Court to decide whether Plaintiff's claims are non-dischargeable, the Court must first ascertain the claim ... [b]efore this Court can determine if a debt is non-dischargeable, it must determine the debt because only then can it determine if it was "for" fraud, willful and malicious injury and the like").
Id. at 914 n. 598 (emphasis supplied).
In short, this Court holds that a determination of the amount of a claim deemed not discharged, (unless the Court abstains as described below) is an essential element of the dischargeability proceeding — a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(I)
Because the Court holds that it may hear and determine, as core matters, the parties' dispute regarding the validity and extent of the debts at issue in this dischargeability proceeding, the Plaintiffs' alternative request for abstention is essentially moot. It may be appropriate, in some dischargeability proceedings, for the Court to abstain from deciding discrete and severable matters regarding the liquidation of the underlying debt, see 28 U.S.C. § 1334(c)(1) (with respect to "a proceeding arising under title 11 or arising in or related to a case under title 11," the court may abstain "in the interest of justice, or in the interest of comity with State courts or respect for State law"); see also New England Power & Marine, Inc. v. Town of Tyngsborough (In re Middlesex Power Equip. & Marine, Inc.), 292 F.3d 61 (1st Cir.2002), but the Court declines to exercise such discretion in this case.
While the "precise factors that a court must consider" have not been enumerated by the First Circuit, "factors that other courts have considered" that have been "expressly mentioned" by the First Circuit include:
Haber v. Massey, 904 F.Supp.2d 136, 147 (D.Mass.2012). None of those considerations are applicable here.
For all the foregoing reasons, the Court finds that consolidation of the Claims Objection and the Adversary Proceeding is appropriate, and will GRANT the Plaintiffs' Consolidation Motion. Further, the Court rules that the determination of the amount of the debts, as well as the Debtor's liability therefor, which underlie the Plaintiffs' nondischargeability Complaint, constitute core matters over which this Court has subject matter jurisdiction pursuant to 28 U.S.C. §§ 1334(b) and 157(b). Accordingly, the Plaintiffs' Summary Judgment Motion will also be GRANTED. Orders in conformity with this Memorandum shall issue forthwith.
Ziino v. Baker, 613 F.3d 1326, 1328 (11th Cir.2010) (additional citation omitted).
Id. Accordingly, in order to enforce a nondischargeable debt, plaintiffs must avail themselves of the procedures for enforcing that judgment in a nonbankruptcy court of competent jurisdiction. See also id. at 119 n.25, 127 n.82.
Because, as evidenced by the defenses raised by the Debtor in this case, the scope of the underlying debt is often at issue in dischargeability proceedings, the liquidation of the debt is, if not a core matter, at least "related to" the dischargeability action.
First, at least with regard to the Wood case, the Court disagrees with that court's underlying premise that the "amount of the debt is patently unnecessary to a determination that it is nondischargeable." 2013 WL 4478902, at *2. More importantly, however, Stern involved a counterclaim by the debtor which, in its view, was not necessary to resolution of the core matter before the bankruptcy court (the validity of a proof of claim). 131 S.Ct. at 2611, 2617-18. Here, because the determination of the validity and amount of a nondischargeable debt are not only prescribed by the Bankruptcy Code and relevant jurisdictional statute, but are also directly intertwined with the dischargeability determination, Stern's holding regarding the constitutional limitations of the bankruptcy courts' jurisdiction is inapplicable. See Melton, 2013 WL 2383657, at *2; Conley, 482 B.R. at 206-07; Anthony v. Hobbs (In re Hobbs), 2012 WL 4434469, *5 (Bankr.E.D.Texas Sept. 24, 2012); Deitz v. Ford (In re Deitz), 469 B.R. 11, 23-24 (9th Cir. BAP 2012); Justmed, Inc. v. Byce (In re Byce), 2011 WL 6210938, *3 (D.Idaho Dec. 14, 2011); Farooqi v. Carroll (In re Carroll), 464 B.R. 293, 309-313 (Bankr.N.D.Texas 2011); Dragisic v. Boricich (In re Boricich), 464 B.R. 335, 337 (Bankr. N.D.Ill.2011).
