Stephani W. Humrickhouse, United States Bankruptcy Judge
Pending before the court is the motion to dismiss filed by the defendants Coastal Carolina Developers, Inc.; Hanover Land, LLC; W and B Investment Company, Inc.; Coswald, LLC; B. Leon Skinner; and Walter T. Wilson (collectively, "defendants"), and the plaintiffs' response in opposition to the motion. Motions to dismiss also were filed in two related adversary proceedings associated with the underlying bankruptcy case (AP Nos. 13-00023-8-SWH and 13-00025-8-SWH). The defendants in all three of those proceedings (collectively, "the actions") filed a joint memorandum of law outlining the bases upon which they asserted that the court should dismiss all three actions for lack of subject matter jurisdiction. The debtor, on behalf of herself and the other plaintiffs in the actions, filed a joint memorandum of law in response. A hearing was held in Raleigh, North Carolina, on November 19, 2013. For the reasons that follow, the motions to dismiss will be allowed with respect to all three actions.
The debtor filed a voluntary petition seeking relief under chapter 11 of the Bankruptcy Code on January 13, 2012, and the debtor's plan of reorganization was confirmed on November 26, 2012. On February 8, 2013, three separate adversary proceedings were filed by, or on behalf of, the debtor, summarized by the debtor/plaintiffs as follows:
Plaintiffs' Mem. of Law in Opp. to Mot. to Dismiss at 2.
In their answers, defendants asserted a lack of subject matter jurisdiction under Rule 12(b)(1) as both a defense and as grounds for dismissal in the dissolution (AP-24) and breach of contract (AP-25) actions. Defendants did not specifically allege a lack of subject matter jurisdiction in the shareholder derivative action (AP-23), and instead moved to dismiss that proceeding under Rule 12(b)(6); however, those defendants subsequently joined in the joint memorandum of law filed in all three actions, which seeks dismissal under Rule 12(b)(1). A bankruptcy court may, sua sponte, consider the question of whether it has subject matter jurisdiction over a proceeding before it, which this court will do with respect to the shareholder derivative action. See Fed.R.Civ.P.
Plaintiffs maintain that the court has subject matter jurisdiction over the proceedings pursuant to 28 U.S.C. §§ 1334(b) and 157(a). Bankruptcy courts may exercise jurisdiction over civil proceedings arising under title 11, or arising in or related to cases under title 11. 28 U.S.C. § 1334(b). Plaintiffs do not suggest that their claims, all of which are based on state law, come within the ambit of "arising under" or "arising in" jurisdiction; rather, they maintain that this court has "related to" jurisdiction, within the meaning of both Schafer v. Nextiraone Federal, LLC, 2012 WL 2281828 *6-7 (M.D.N.C.2012) and Valley Historic Ltd, P'ship v. Bank of New York, 486 F.3d 831 (4th Cir.2007). The "burden of showing `related to' jurisdiction is on the party asserting it." Schafer, 2012 WL 2281828 *7.
Plaintiffs rely primarily on Schafer for the proposition that the actions satisfy the test for "related to" jurisdiction, which is, they contend, "whether the outcome of that proceeding could conceivably have any effect on the estate being administered in bankruptcy." Valley Historic, 486 F.3d at 836 (internal quotations omitted). Put another way, "[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 [it] in any way impacts upon the handling and administration of the bankruptcy estate." Id.
In Schafer, the district court found that "related to" jurisdiction was established with respect to the chapter 7 trustee's adversary proceeding against defendant BBNS (an entity that had partnered with the debtor in a federal Department of Defense contract), seeking to recover $3,000,000 on various state law theories. The specific issue before that court was whether BBNS could, on various jurisdictional grounds (none of which directly align with the issues in these proceedings), compel withdrawal of the reference to the bankruptcy court in favor of proceeding to trial in district court. The district court denied BBNS's motion, concluding that it "failed to carry its burden of demonstrating mandatory withdrawal." 2012 WL 2281828 *9. The court went on to conclude that the proceeding was not core, but was "related to" the bankruptcy case, such that the bankruptcy court could hear the proceeding and offer proposed findings of fact.
Ultimately, the Schafer court observed, "[i]t is plain that the outcome of the adversary proceeding here could alter the Debtor's rights and would impact the administration of the bankruptcy estate by bringing into it sums of money constituting damages for the Trustee's claims." 2012 WL 2281828 *8. It is this basic premise that underscores all three of the actions brought by plaintiffs: In sum, plaintiffs' position is that any recovery coming in the direction of the debtor (or, in AP-25, to an entity she wholly owns), is an innately good thing, which leads to a "natural outcome" of larger and potentially faster payouts to the unsecured class. Plaintiffs' Mem. of Law in Opp. to Mot. to Dismiss at 13. Specifically, plaintiffs contend that the actions are "related to" the debtor's bankruptcy case because:
Id. at 10.
In response, defendants argue that the court lacks subject matter jurisdiction to hear the proceedings under Rule 12(b)(1) and that the actions are not "related to" the bankruptcy case within the meaning of Valley Historic, particularly in light of the fact that the actions were filed post-confirmation and are, in the defendants' view, entirely disassociated from the plan itself. By way of overview, defendants assert:
Defs.' Joint Mem. of Law in Support of Mot. to Dismiss at 9 (internal citation omitted).
These actions, the defendants argue, are on-point with the facts and controlled by the legal analysis set out in Valley Historic. In that case, the debtor filed an adversary proceeding asserting breach of contract and tortious interference claims against the Bank of New York, after the debtor's plan had been confirmed and its creditors had been paid. There was, the court held,
Valley Historic, 486 F.3d at 837 (emphasis added). The Valley Historic court focused on the apparent disconnect between the adversary proceeding and the debtor's plan; specifically, how "neither the Plan
In response, plaintiffs insist that the causes of action, as well as any potential recovery therefrom, were incorporated into the debtor's plan, explaining that "[u]nlike the debtor in Valley Historic, Debtor did include, although not in plain language, the possibility that the recovery from the Actions would affect the implementation, execution, and administration of Debtor's confirmed plan because the payment[s] to general unsecured claimants are linked to distributions from entities in which Debtor has a membership interest or are wholly owned by the Debtor." Plaintiffs' Mem. of Law in Opp. to Mot. to Dismiss at 12-13. Plaintiffs also assert that "[e]ven if [the debtor] could make full payment without the aid of the Actions, which Debtor makes no representation that she can or cannot do, success in the Actions would certainly make it more likely that she will be able to fulfill her obligations in a more expeditious manner." Id. at 14.
On both points, the court disagrees. The court is of the view that "in plain language" is the only known accepted method of communicating a debtor's intentions with respect to implementation, execution, and administration of a plan, and believes the debtor did, in fact, represent that she could make full payment without aid of the actions, by seeking and receiving confirmation of a plan that proposes to do precisely that. The debtor's plan simply states that "the Debtor proposes to make payments under the Plan from funds on hand and income derived from the continued operation of her business activities." Plan, Part v. Means of Implementation and Execution of Plan. It does not say that the plan will be funded from actions brought against the debtor's businesses and business partners, and no plain meaning analysis could interpret "operations" as meaning dissolution of one of these businesses!
This court's focus is, as it must be, upon the express terms of the debtor's confirmed plan and the jurisdictional bases. or lack thereof, for the adversary proceedings. Returning to the Fourth Circuit's analysis in Valley Historic, which this court considers to be entirely on point, the plain fact is that the debtor's state law claims have no discernable connection to the bankruptcy case or to the debtor's confirmed chapter 11 plan. The claims forming the bases of these adversary proceedings were pre-confirmation property of the estate, and thus, since they were not treated in either the plan or the order confirming the plan, they became property of the debtor. 11 U.S.C. § 1141(b). But, as the Valley Historic court made clear: "[E]ven if the contract and tortious interference claims had remained in the bankruptcy estate post-confirmation, the Debtor would still have had to establish jurisdiction under § 1334(b), since § 1334(e) does not by itself create jurisdiction to conduct civil proceedings." 486 F.3d at 838. Here, as discussed above, there is no "close nexus" between the debtor's bankruptcy case and any of the three actions, the actions are not "related to" the bankruptcy case, and the court must dismiss the actions for lack of subject matter jurisdiction.
For the foregoing reasons, the defendants' motions to dismiss AP-23, AP-24, and AP-25 for lack of subject matter jurisdiction are
Those profits are defined in connection with the general unsecured claims set out in Class 8: "The term `Net Development Profits' means the profit distributions paid from the Development Companies [including CCD] which are attributable to and would otherwise have been payable to the Debtor, based on her ownership interest in the Development Companies, after (1) the payment of all debt service and operating expenses of the Development Companies, including any compensation for services paid to the Debtor, which may take the form of salary, guaranteed payments and/or distributions for services rendered; and (2) the funding of reasonable development and operating reserves." Id. Class 8 ¶ 3.b. The plan in no way suggests that the debtor will sue the very businesses from which she expects to receive operating profits.
