BENJAMIN P. HURSH, Bankruptcy Judge.
At Butte in said District this 31
In this Chapter 11
In their Motion, Movants specifically request that the Court issue an order (i) confirming that the Court holds exclusive jurisdiction over the causes of action asserted by Maschmedts in the State Action, (ii) finding that the State Action violates the injunctions, releases, and terms of the sale contained in the Plan, (iii) directing the Maschmedts to dismiss the State Action, and (iv) permanently enjoining the Maschmedts from continuing the State Action, or seeking other similar relief in any other forum.
Maschmedts oppose the Motion arguing that this Court does not have jurisdiction under 28 U.S.C. §§ 1334 and 157, or alternatively, that the "law of the case" doctrine controls the outcome of the Motion (ECF No. 202) ("Maschmedts' Objection").
At the hearing, Johannsen testified and the parties agreed to the admission of the Exhibits submitted by both parties.
Debtor filed its petition on March 31, 2014. Prior to filing its petition, Debtor owned property in Flathead County, Montana for development purposes. Maschmedts acquired Lot 1 in 2007 with a purchase price of $495,000.00. Beginning in 2008, Debtor encountered difficulty selling its inventory of lots. In August 2013, suit was filed against Debtor alleging among other things, that Debtor had failed to provide certain amenities that were referenced in the underlying lot sales agreements. Six months later, in February 2014, this suit was settled. Maschmedts were not a party to this suit. A month later, in March, a second suit was filed against Debtor alleging substantially similar claims and seeking similar relief. Maschmedts were not a party to this suit.
Debtor's Plan was a liquidating plan that provided for the sale of all of Debtor's assets, including property formerly owned by the Homeowner's Association ("HOA"), to the Plan Funder, GFY87, free and clear of all claims and interests. In addition to acquiring the Debtor's assets, the Plan also contemplated that the Plan Funder would acquire each of the lots that had been sold to third parties by the Debtor from their existing owners, which included Maschmedts, Little/Stevenson, Ruxin, Forsee, and Witherill (the "Homeowner Lots"). The Plan also provided for the dissolution of the Debtor and the HOA.
Terms and provisions found in the Plan included the following defined terms:
Article I, ¶ 51 of the Plan.
Article I, ¶ 52 of the Plan.
Article I, ¶ 70 of the Plan.
Article I, ¶ 78 of the Plan.
Article I, ¶ 79 of the Plan.
Article I, ¶ 85 of the Plan.
Along with the forgoing defined terms, the means for implementation of the Plan were included in the Plan:
Article IV, ¶ A of the Plan.
Article IV, ¶ B of the Plan.
Article IV, ¶ J of the Plan.
Other provisions of the Plan provide for a compromise, settlement of claims, interests and controversies, under Rule 9019 subject to the caveat "except as otherwise specifically provided in the Plan or in any contract, instrument, or other agreement or document pursuant to the Plan[.]" Article VIII, ¶ A. Later, ¶¶ D, E, and F, outline Debtor, Defendant, and Plaintiff Releases (the "Releases"). Article VIII, also includes broad exculpation and injunction provisions that when read together limit liability of parties, and further permanently enjoin and preclude after the effective date a wide range of actions, including the commencement or continuation that was the subject of compromise or settled under the Plan." ¶¶ F, G of Article VIII of the Plan.
Finally, the Plan states, "[n]otwithstanding the entry of the Confirmation Order and the occurrence of the Effective Date, on and after the Effective Date, the Bankruptcy Court shall retain jurisdiction over the Chapter 11 Case and all matters, arising out of, or related to, the Chapter 11 Case and the Plan." Article XI of the Plan.
The Plan, as proposed by Debtor, classified Maschmedts' claim as a "Homeowner Claim" under Class 6. Under the terms of the Plan, Maschmedts would be paid $400,000.00, and convey Lot 1 to GFY87. Maschmedts filed a Limited Objection to Confirmation of Plan (the "Limited Objection"), which provided:
ECF No. 142. The Limited Objection further provided:
Id.
On November 5, 2014, the Maschmedts and Debtor filed a Stipulation in which the Maschmedts agreed to withdraw their Limited Objection on the condition that any order confirming the Plan include the following language:
ECF No. 158. In addition to the above, Maschmedts would not sell, and would retain their Lot 1.
An order confirming the Plan was entered on November 7, 2014 (the "Confirmation Order"). According to the Ballot Report, Maschmedts were the only voting creditor that rejected the Plan. The Confirmation Order referred to Article VIII of the Plan and found that the releases, exculpations, and injunctions set forth in the Plan and implemented by this Confirmation Order are fair, equitable, reasonable, and . . . are an essential component of the Plan Settlement Term Sheet." ¶ L of the Confirmation Order. And that, "failure to implement the injunction, exculpation, and releases would seriously impair the Debtor's ability to confirm the Plan." Id. The Confirmation Order further found that Debtor and Plan Funder were entitled to the protections of § 363(m) of the Bankruptcy Code, and that except as expressly provided elsewhere, all of Debtor's right, title and interest in the assets acquired by the Plan Funder would vest in the Plan Funder, free and clear of all claims. ¶ P of the Confirmation Order.
The Confirmation Order provided that all "Third Party Claims and Interests of any kind whatsoever against or in the Debtor or the Debtor's assets . . . are forever barred, estopped, and permanently enjoined[.]" However, such provision was subject to a caveat providing "[e]xcept as otherwise expressly permitted by the Plan or this Confirmation Order[.]" ¶10 of the Confirmation Order. Finally, "[u]pon the Closing, and except as otherwise expressly provided in the documentation effectuating the Plan Funder Sale, the Plan Funder shall not be liable for any Third Party Claims and Interest against or in, or obligations of, the Debtor or any of the Debtor's predecessors or affiliates, as a result of having purchased the Debtor's assets." ¶12 of the Confirmation Order.
Following confirmation, and consistent with the Plan and Confirmation Order, the Plan Funder acquired all of Debtor's assets, the HOA's assets, and each of the Homeowner Lots, except Maschmedts. The Debtor and HOA were dissolved. A final decree was entered January 7, 2015.
Maschmedts filed suit against the Plan Funder and others on December 21, 2015. The original complaint included claims for: declaratory judgment; injunctive relief; breach of contract; breach of implied covenant of good faith and fair dealing; negligent misrepresentation; actual fraud; constructive fraud; unjust enrichment; conversion; unfair trade practices; and consumer protection (the "Complaint").
On February 3, 2016, the Plan Funder and other defendants in the State Action removed the case to the U.S. District Court for the District of Montana (the "District Court"). According to the Amended Notice of Removal, removal was appropriate based on the diversity of the defendants, and federal question jurisdiction. Movants argued before the District Court that the removed case was closely related to this bankruptcy case under 28 U.S.C. § 1334(b).
Maschmedts opposed removal and filed a motion for remand (the "Removal Proceeding"). Maschmedts prevailed and the case was remanded to state court. According to the District Court:
ECF No. 223, Ex. 10, District Court Order July 21, 2016.
Following remand, Maschmedts amended their Complaint. The FAC was filed with the State Court and added the Debtor as a defendant, and added causes of action against the Debtor.
"[T]he source of the bankruptcy court's subject matter jurisdiction is neither the Bankruptcy Code nor the express terms of the Plan. The source of the bankruptcy court's jurisdiction is 28 U.S.C. §§ 1334 and 157." In re U.S. Brass Corp., 301 F.3d 296, 303 (5th Cir. 2002). The mere retention of jurisdiction in a chapter 11 plan is insufficient for establishing a bankruptcy court's post confirmation jurisdiction, absent jurisdiction under 28 U.S.C. §§ 1334 and 157. Section 1334(b) authorizes the bankruptcy courts to exercise jurisdiction of "all civil proceedings arising under title 11, or arising in or related to cases under title 11." Matters that are core proceedings are identified by 28 U.S.C. § 157. Since a plan has already been confirmed in this case, a determination of this Court's post-confirmation jurisdiction and its limits hinges upon the "close nexus" test as adopted by the Ninth Circuit in In re Pegasus Gold Corp., 394 F.3d 1189, 1194 (9th Cir. 2005).
Ultimately, "the test requires, particularized consideration of the facts and posture of each case, as the test contemplates a broad set of sufficient conditions and retains a certain flexibility." In re Wilshire Courtyard, 729 F.3d 1279, 1289 (9th Cir. 2013) (internal citation and quotation marks omitted). Along with defining the test, the Wilshire court stated:
Movants contend that the State Action violates the terms of the Plan and Confirmation Order
With the exception of their jurisdictional argument (i.e., that the Court lacks jurisdiction to even consider the Motion), Maschmedts' opposition to the Motion relies entirely on specific provisions in the Plan and Confirmation Order, and argues that those provisions explicitly excluded Maschmedts from the injunctions and releases contained within the Plan and Confirmation Order.
A close nexus exists where a proceeding requires interpretation of an order confirming a bankruptcy plan. Wilshire, 729 F.3d at 1289. Like in Wilshire, the "ultimate merits question depends in part on the interpretation of the confirmed Plan." This implicates the Plan, as well as the Confirmation Order. As explained in Wilshire, "interpretation" for purposes of the close nexus test broadly contemplates not only a plan, but also any confirmation order. Id. Wilshire relied on Travelers Indemnity Company v. Bailey, 557 U.S. 137, 151, 129 S.Ct. 2195, 174 L.Ed.2d 99 (2009), for the proposition that, "it is well recognized that a bankruptcy court has the power to interpret and enforce its own orders." Wilshire, 729 F.3d at 1289.
Reconciliation of the parties conflicting interpretations of the Plan and Confirmation Order demands that the Court interpret both documents, in conjunction with the FAC. Although the claims may be based on state law, whether Maschmedts may pursue those claims depends upon the terms of the Plan and Confirmation Order. Thus, the briefing by the parties demonstrates that the parties need this Court's interpretation of the Plan, and Confirmation Order to resolve their conflicting positions. Thus, notwithstanding Maschmedts' arguments to the contrary, this Court has "related to" jurisdiction to consider the merits of this post-confirmation matter. Specifically, to provide an interpretation of the Plan and Confirmation Order and determine whether the Maschmedts' claims in the State Action, are barred in whole or in part, by the injunctions, releases, and terms of the sale contained in the Plan and Confirmation Order.
A bankruptcy court may enter final judgments and orders in core matters, but not in "non-core" matters. See In Re Resorts Int'l, Inc., 372 F.3d 154, 162 (3
Abstention at this stage of the proceedings will not serve the interests of justice, comity with the state courts, or demonstrate respect for state law. Maschmedts urge this Court to abstain and, "return the case to the Montana Eleventh Judicial District Court, Flathead County, Montana where this litigation began in 2015," if the Court concludes that it has related to jurisdiction.
28 U.S.C. § 1334(c)(1). Maschmedts point to a series of factors in support of their argument, but neither of the factors identified, nor the reasons delineated at 28 U.S.C. § 1334(c)(1) persuade this Court that abstention is appropriate.
Since adjudication of the issues in the Motion turns in part on the scope and breadth of the releases, sale terms and the injunction in the Confirmation Order, this Court's interpretation of that Order is entitled to substantial deference. In re Bernard L. Madoff Inv. Secs. LLC, 740 F.3d 81, 87 n. 7 (2d Cir. 2014) ("The scope of an injunction turns upon the intent and effect of the bankruptcy court's order, and, thus, `[a] bankruptcy court's interpretation of its own order warrants customary appellate deference.'" (quoting Casse v. Key Bank Nat'l Ass'n (In re Casse), 198 F.3d 327, 333 (2d Cir.1999)). Given the recognition that the Court that issued the order is likely best equipped to interpret it, this Court has difficulty concluding that the interests of justice, comity, or respect for state law will be well served by asking the State Court to parse through and interpret the Plan and Confirmation Order. This is a task better suited for this Court, and a burden that it should shoulder. As a result, permissively abstaining at this stage of the proceeding would not serve the interests of 28 U.S.C. § 1334(c)(1), so the Court declines to do so at this time.
Maschmedts' arguments that this Court should reach the same conclusion as the District Court, or apply the law of the case doctrine are not persuasive. The issues presented to the District Court in the Removal Proceeding are distinguishable from the issues presented to this Court. In the Removal Proceeding, Movants sought to persuade the District Court that it had "related to" jurisdiction to consider the merits of the Maschmedts' complaint. Having considered Pegasus, the District Court concluded there was no close nexus for purposes of establishing "related to" jurisdiction that would permit the District Court to determine the merits of the Maschmedts' claims.
This Court is not being asked to decide the merits of the Maschmedts' claims. This Court is tasked with determining whether the Maschmedts' claims in the FAC, are barred in whole or in part, by the injunctions, releases, and terms of the sale contained in the Plan and Confirmation Order. These inquiries are fundamentally different. Not surprisingly given the different inquiries, this Court has relied heavily on Wilshire, Wilshire's distillation and reaffirmation of Pegasus, and Wilshire's reliance on the Traveler's decision, in reaching a different conclusion.
To the extent Maschmedts argue this Court is bound by the "law of the case doctrine," this Court disagrees. The law of the case doctrine involves adherence to an appellate court decision in future proceedings. Herrington v. County of Sonoma, 12 F.3d 901, 904 (9th Cir. 1993). There is no appellate court decision within this proceeding for this Court to follow.
Applying the close nexus test as articulated in Wilshire, this Court concludes that Movants have established this Court has related to jurisdiction under 28 U.S.C. § 1334 for purposes of determining whether the Maschmedts' claims in the FAC are barred in whole or in part, by the injunctions, releases, and terms of the sale contained in the Plan and Confirmation Order; that the matter is core under 28 U.S.C. § 157; and, that consistent with those conclusions, this Court must review and interpret the Plan and Confirmation Order and determine which, if any, of Maschmedts' claims are the subject to the releases and injunctions, or otherwise barred by the Plan and Confirmation Order.
Having concluded, as a threshold matter, that this Court has the jurisdiction to hear and decide Movants' Motion, the Court now turns to the merits of Movants' Motion. At the hearing, the parties discussed the possibility of an additional hearing and/or briefing. The Court will grant the parties time to meet and confer on whether additional briefing and/or a hearing is necessary.
The Court is cognizant that this Memorandum of Decision may not address all of the issues raised in the parties' briefing, but a decision on jurisdiction is a prerequisite to any further ruling. Further, the Court recognizes that its decision may color the manner in which the parties consider the issues. Accordingly, for the reasons discussed above, the Court will enter a separate order providing as follows:
