BARBARA J. HOUSER, Bankruptcy Judge.
Before the Court is a motion to dismiss (the "Motion") the complaint in this adversary proceeding pursuant to Fed. R.
The First Adversary Proceeding was filed on May 16, 2006, prior to confirmation of the Plan, by Faulkner in his capacity as the chapter 11 Trustee of the Heritage estate. Trial of the First Adversary Proceeding occurred in January of 2009, post-confirmation. After the filing of post-trial proposed findings of fact and conclusions of law, post-trial briefs and this Court's issuance of its Memorandum Opinion on May 11, 2009, the Court entered judgment on July 13, 2009 (the "Judgment") against thirteen defendants—namely, Gary M. Kornman, Steadfast Investments, L.P., GMK Family Holdings, L.L.C., Tikchik Investment Partnership, L.P., Ettman Family Trust I, Strategic Leasing, L.P., Valiant Leasing, L.L.C., Executive Aircraft Management, L.L.C., Executive Air Crews, L.L.C., Vehicle Leasing, L.L.C., The Heritage Organization Agency, Inc., Heritage Properties, L.L.C., and Financial Marketing Services, Inc. (collectively, the "Judgment Debtors"). The Judgment avoided, pursuant to 11 U.S.C. §§ 544, 547 and 550, certain transfers found to be fraudulent and/or preferential. The Judgment further found the Judgment Debtors liable for the value of the property transferred, and awarded the Trustee a money judgment against each of the Judgment Debtors in various amounts, aggregating over $45 million. The Judgment further entitled the Trustee to "writs of execution and all other legal process to enforce this Final Judgment permitted by Federal Rule of Bankruptcy Procedure 7069, Federal Rule of Civil Procedure 69, and other applicable law." See Judgment, Docket No. 608 in the First Adversary Proceeding. A motion by the Judgment Debtors for a new trial was denied. Although the Judgment Debtors initially filed a notice of appeal, that appeal was subsequently dismissed. The Judgment is now final. Writs of execution issued from this Court on October 16, 2009 but to date,
On March 9, 2010, the Trustee registered the Judgment in the United States Bankruptcy Court for the Southern District of Texas, which commenced Miscellaneous Proceeding No. 10-MP0301, and began collection efforts there.
Perhaps because there is no mechanism for filing an adversary proceeding complaint within the context of a miscellaneous proceeding, see n. 1, supra, the Trustee moved in the Bankruptcy Court for the Southern District of Texas to sever the Complaint from the miscellaneous proceeding and to have a separate adversary proceeding commenced. See Docket No. 83 in Misc. Pro. No. 01-MP-0301. The defendants opposed that motion and argued that the Southern District of Texas was an improper venue. Bankruptcy Judge Marvin Isgur ordered the Trustee to file a response to that argument, and include an explanation "as to why the ... Complaint should not be transferred to the United States District Court for the Northern District of Texas." See Docket No. 203 in Misc. Pro. No. 10-MP-0301. Unpersuaded by the Trustee's briefing in response to this order, Judge Isgur entered an order severing the Complaint and transferring it to the United States District Court for the Northern District of Texas. See Docket No. 219 in Misc. Pro. No. 10-MP-0301. Upon receipt of the Complaint, the United States District Court for the Northern District of Texas entered an order referring the Complaint to this Court on October 29, 2010. The Complaint commenced Adversary Proceeding No. 10-3357 (the "Second Adversary Proceeding"), which was assigned to the undersigned, who presided over the Heritage bankruptcy case and the trial of the First Adversary Proceeding.
The Complaint alleges that it is brought under 11 U.S.C. § 550, 28 U.S.C. §§ 1963 and 2201, Federal Rule of Civil Procedure 69 and Federal Rule of Bankruptcy Procedure 7069. The Complaint further alleges that the bankruptcy court has jurisdiction over the action pursuant to 28 U.S.C. §§ 157, 1331, 1334, 1963 and 2201.
Compl., ¶¶ 11, 12.
The Kornman Defendants argue that the Complaint must be dismissed pursuant to Fed. R. Bankr.P. 7012 because this Court lacks post-confirmation jurisdiction over the claims asserted in the Second Adversary Proceeding. The Kornman Defendants argue that the Fifth Circuit has taken a narrow view of post-confirmation jurisdiction, as articulated in In re Craig's Stores of Texas, Inc., 266 F.3d 388 (5th Cir.2001) and its progeny. The Craig's Stores court announced the rule as follows: "after a debtor's reorganization plan has been confirmed, the debtor's estate, and thus bankruptcy jurisdiction, ceases to exist, other than for matters pertaining to the implementation or execution of the plan." Craig's Stores, 266 F.3d at 390. The Kornman Defendants argue that under this test, the Court lacks jurisdiction over the claims because the claims are not ancillary to the Judgment as a post-judgment collection action. Rather, the Kornman Defendants argue that the Second Adversary Proceeding is instead a new lawsuit that alleges new causes of action against new defendants, brought several years post-confirmation, and does not involve the interpretation, implementation or execution of the Plan. The Kornman Defendants further argue a dismissal of the Second Adversary Proceeding will not prejudice the Trustee because "to the extent that there were any fraudulent transfers made by any of the judgment debtors, [the Trustee] may step into the shoes of those judgment debtors by appropriate state law collection proceedings, and then bring causes of action for alleged fraudulent transfers if it is appropriate to do so under state fraudulent transfer law." Motion, ¶ 10.
In response, the Trustee advances two jurisdictional theories. First, the Trustee characterizes the Second Adversary Proceeding as a proceeding "supplementary to and in aid of enforcement of" the Judgment and argues that the Court has ancillary jurisdiction to enforce the Judgment because a court always has inherent jurisdiction to enforce, protect, and effectuate its own judgments. The Trustee argues that the jurisdiction of a court is not exhausted by the rendition of a judgment, but continues until that judgment is satisfied. The Trustee argues that this ancillary jurisdiction extends not only to proceedings to enforce its judgment directly, but also to any proceedings to secure or preserve the fruits or advantages of a judgment. Because the court's jurisdiction
Second, the Trustee argues that the Kornman Defendants' post-confirmation jurisdiction argument is irrelevant, because the Second Adversary Proceeding is not a new lawsuit—it is instead a supplementary proceeding in aid of enforcement of the Judgment, which is specifically authorized by Fed. R. Bankr.P. 7069. The Trustee distinguishes the Craig's Stores line of cases on the ground that none of them were cases brought to enforce a bankruptcy court judgment and thus did not involve the ancillary enforcement jurisdiction of the bankruptcy court. Further, the Trustee argues that to the extent that Craig's Stores applies, its test for post-confirmation jurisdiction is satisfied because a key feature of the Plan was the creation of the Plan Trust to pursue recovery on the claims asserted in the First Adversary Proceeding and thereafter enforcement of any judgment rendered in the First Adversary Proceeding. The Trustee notes that in the order confirming the Heritage Plan, the Court "retained jurisdiction to the fullest extent legally permitted, over the Bankruptcy Case, and any and all disputes or proceedings involving this Order, the Plan, and administration of the Creditor Trust."
The Court must first analyze its subject matter jurisdiction under section 1334 over the claims asserted in the Second Adversary Proceeding and then determine whether, and how, the scope of that jurisdiction is circumscribed post-confirmation.
Section 1334(b) lists three types of proceedings over which this Court has jurisdiction—those "arising under title 11,"
"Arising under" jurisdiction involves causes of action created or determined by a statutory provision of title 11. In re Wood, 825 F.2d at 96. "Arising in" jurisdiction is not based on a right expressly created by title 11, but is based on claims that have no existence outside bankruptcy. Id. at 97. "Related to" jurisdiction exists if "the outcome of that proceeding could conceivably have any effect on the estate being administered in bankruptcy." Celotex Corp. v. Edwards, 514 U.S. 300, 307 n. 6, 115 S.Ct. 1493, 131 L.Ed.2d 403 (1995); In re U.S. Brass Corp., 301 F.3d 296 (5th Cir.2002); In re Wood, 825 F.2d at 93. The Fifth Circuit has further stated that "an 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 ... in any way impacts upon the handling and administration of the bankrupt estate." U.S. Brass, 301 F.3d at 304; Feld v. Zale Corp. (In re Zale Corp.), 62 F.3d 746, 752 (5th Cir.1995) (internal citations omitted).
A cause of action under 11 U.S.C. § 550 is one which "arises under" title 11, In re Gandy, 299 F.3d 489, 496-97 (5th Cir.2002), as it invokes a right created by title 11 and is not available to a debtor outside of bankruptcy. Id. Accordingly, this Court has subject-matter jurisdiction over this claim, unless such jurisdiction is circumscribed post-confirmation, which will be addressed below.
The claim under Texas's Uniform Fraudulent Transfer Act ("TUFTA") does not invoke a right created by title 11, and clearly exists outside of bankruptcy. Therefore, at most, it is a "related to" claim under section 1334(b). In In re Ramirez, 413 B.R. 621 (Bankr.S.D.Tex.2009), the bankruptcy court concluded, relying in part on 28 U.S.C. § 157, that the TUFTA claim before it was a "core" proceeding—i.e., that it was either a proceeding which invoked a substantive right provided by title 11 or a proceeding that by its nature could only arise in the context of a bankruptcy case. See In re Wood, 825 F.2d at 97. Despite the fact that the TUFTA claim was "rooted in state law," the court concluded that the TUFTA claim before it was a core claim because it was a "federal claim under 11 U.S.C. § 544 as a result of the commencement of the bankruptcy case." Ramirez, 413 B.R. at 628.
Here, however, the Trustee has conceded that he "brings this action not as a bankruptcy trustee under Section 544 of the Bankruptcy Code, but as a judgment creditor with respect to the valid and unsatisfied Final Judgment." See Trustee's Resp. In Opp. To Def. Patricia Mason's Mot. For Partial Summ. J and Br. In
As the Kornman Defendants have pointed out, this Court's jurisdiction is more narrow during the post-confirmation period, as described by Fifth Circuit precedent. In In re Craig's Stores of Texas, Inc., 266 F.3d 388 (5th Cir.2001), the Fifth Circuit examined the contours of a bankruptcy court's post-confirmation jurisdiction. The facts in Craig's Stores were as follows: the debtor had a pre-petition contract with a bank to administer its credit card program and assist with financing by purchasing the debtor's receivables. In 1993, the debtor filed for relief under chapter 11. The contract with the bank was assumed during the bankruptcy case as part of the plan, which was confirmed in 1994. In mid-1996, the post-confirmation debtor sued the bank, asserting state law claims for damages alleged to have arisen in 1994 and 1995, pre-confirmation (and post-petition). The debtor argued that the bankruptcy court had jurisdiction over the dispute because the dispute involved a pre-confirmation contract, the contract was assumed under the plan, and the resolution of the dispute could affect the debtor's ability to make its plan payments.
The Fifth Circuit first noted that the cited factors "are subsumed in Craig's theory that so long as a bankruptcy case remains open, jurisdiction exists if a dispute is `related to' the bankruptcy ... that is, if the outcome of the proceeding could conceivably have an effect on the debtor's estate." Craig's Stores, 266 F.3d at 390. The Fifth Circuit rejected that view, instead stating that the debtor's emergence from bankruptcy protection carries "critical significance." Id. The Fifth Circuit stated that "[a]fter a debtor's reorganization plan has been confirmed, the debtor's estate, and thus bankruptcy jurisdiction, ceases to exist, other than for matters pertaining to the implementation or execution of the plan." Id. Applying this "more exacting theory" to the facts before it, the Fifth Circuit concluded that the debtor's claims against the bank
Id. at 391.
The Fifth Circuit also distinguished its earlier decision in In re Case, 937 F.2d 1014 (5th Cir.1991). Case involved a post-confirmation dispute over a promissory note provided for in the debtor's plan, and the Case court held that the dispute was a "core" proceeding. The note had been executed in settlement of a creditor's claim as part of the plan itself. The Fifth Circuit distinguished Case on the ground that the post-confirmation dispute in Craig's did not involve any obligation created by the plan.
The Fifth Circuit refined its analysis of post-confirmation jurisdiction in In re U.S. Brass Corporation, 301 F.3d 296 (5th Cir.2002). In U.S. Brass, the confirmed chapter 11 plan provided that certain claims against the debtor would be resolved in a court of competent jurisdiction and determined either by settlement or by final judgment. Post-confirmation, the debtor and certain claimants asked the bankruptcy court to approve an agreement to instead resolve the claims through arbitration. The bankruptcy court denied approval of that agreement, on the ground that the agreement would constitute a modification of a substantially-consummated plan in violation of 11 U.S.C. § 1127. On appeal, parties who had objected to the agreement argued that the bankruptcy court lacked jurisdiction to entertain the motion. The Fifth Circuit noted that it had rejected the expansive test for "related to" jurisdiction in the post-confirmation context in Craig's Stores, and noted that in the case before it, the debtor was still obligated under the plan to resolve the disputed claims. The claimants and the debtor wanted to resolve those claims through arbitration rather than litigation as provided for in the plan, and argued that the arbitration mechanism was consistent with the plan. The objectants relied, in opposing that motion, on the Code's prohibition on modification of a substantially consummated plan. The Fifth Circuit stated:
U.S. Brass, 301 F.3d at 305.
In Newby v. Enron Corp., 535 F.3d 325 (5th Cir.2008), a case cited by the Kornman Defendants, the Fifth Circuit was asked to consider whether the district court, in a removed action, maintained "related to" jurisdiction post-confirmation. The Newby court characterized three factors as being critical to its earlier decision in Craig's Stores: (1) the claims at issue in Craig's Stores dealt with the post-confirmation relations between the parties, (2) there was no antagonism or claim pending between the parties as of the date of confirmation, and (3) no facts or law deriving from the reorganization or plan were necessary to a resolution of the claims. In short, the Newby court noted that the Craig's Stores claims were post-confirmation claims based on post-confirmation activities.
With this framework in mind, this Court turns to its analysis of its post-confirmation jurisdiction in the Second Adversary Proceeding. First, the Court notes that neither party has made any effort to distinguish between the types of claims asserted in the Second Adversary Proceeding (i.e., those under section 550 of the Code and those asserted under state law) as they may relate to this Court's jurisdiction. However, the Court believes that such distinctions are necessary and appropriate.
As noted earlier, the Complaint in the Second Adversary Proceeding first asserts a claim brought pursuant to section 550—which is a "core" claim as the rights that form the basis of the claim arise under the Bankruptcy Code. The Kornman Defendants have failed to cite a single case—from any jurisdiction—in which a court has held that it lacks post-confirmation jurisdiction over chapter 5 claims.
In addition, the Court believes that the narrow test for post-confirmation jurisdiction as applied in Craig's Stores and its progeny was articulated in the context of proceedings which were merely "related to" a case under title 11—and not in proceedings which either "arose under" or "arose in" a case under title 11. Craig's Stores itself—which found jurisdiction lacking—discussed the standard in the context of applying the test for "related to" jurisdiction. See Pelican Refining Co. v. Adams and Reese, LLP, 2007 WL 1306808 (S.D.Tex. May 3, 2007) (noting that the Craig's Stores test applies to the "related to" jurisdiction prong, and finding a lack of jurisdiction over post-confirmation state law tort claims asserted by an assert purchaser at a bankruptcy sale against the debtor's professionals); In re Enron Corp. Securities, Derivative & ERISA Litigation, No. G-05-0012, 2005 WL 1745471 at * 1 (S.D.Tex. July 25, 2005) ("post-confirmation `related to' bankruptcy jurisdiction is restricted to matters pertaining to implementation or execution of the reorganization plan"); Malesovas v. Sanders, No. H-04-3122, 2005 WL 1155073 (S.D.Tex. May 16, 2005) (characterizing Craig's Stores test as determining the extent of "related to" jurisdiction); In re Cano, 410 B.R. 506 (Bankr.S.D.Tex. 2009) (noting that there may continue to be subject matter jurisdiction over proceedings "arising in" or "arising under" title 11 even post-closure and holding that bankruptcy court had subject matter jurisdiction over class action by chapter 13 debtors against mortgage lenders for misallocated plan payments and unauthorized fees collected post-discharge); see also In re Bradley, 989 F.2d 802 (5th Cir.1993)
Lastly, even if the more narrow test for post-confirmation jurisdiction is applied to the Trustee's claim under section 550, the Court believes that it is satisfied here. Neither Case, Craig's Stores, U.S. Brass, nor Newby should be read in isolation; the Fifth Circuit's views on post-confirmation jurisdiction are best distilled by a comparison of its cases on the subject. The Fifth Circuit found post-confirmation jurisdiction existed in Case, because the dispute in Case was a core proceeding that could "not be severed from the remainder of the bankruptcy court proceedings. The promissory note though satisfying a pre-bankruptcy debt, was confected in the general negotiations seeking to settle all claims against the estate and was necessary to the formulation of a reorganization plan which was acceptable to all creditors. The note was provided for in, and executed as an integral part of, the settlement agreement and reorganization plan which was confirmed by the bankruptcy court." Case, 937 F.2d at 1020. The Fifth Circuit thus held that a dispute involving that promissory note was a "core" proceeding over which the bankruptcy court had post-confirmation jurisdiction. Craig's Stores found jurisdiction lacking where jurisdiction was asserted to be "related to," rather than "core," and (1) the claim involved purely post-confirmation relations between the parties, (2) there was no antagonism or claim pending between the parties as of the date of confirmation, and (3) no facts or law deriving from the reorganization or the plan was necessary to resolution of the claim. The Fifth Circuit also noted that the fact that the status of the debtor's contract with the bank would affect the debtor's distribution to its creditors was not significant, because "the same could be said of any other post-confirmation contractual relations...." Craig's Stores, 266 F.3d at 391. The U.S. Brass court found post-confirmation jurisdiction existed where (1) bankruptcy law (as opposed to state law) would ultimately determine the dispute, and (2) the debtor had an obligation under the plan to resolve certain claims, and the motion before the bankruptcy court sought approval of one method of satisfying that plan obligation, and thus the motion impacted compliance with or completion of the plan. The Newby court found that post-confirmation jurisdiction continued to exist over claims that had been asserted pre-confirmation and which involved pre-confirmation activities. Here, the claim does not involve purely post-confirmation relations between the parties, since many (although not all) of the challenged transfers took place pre-confirmation, and some even took place pre-petition. There was antagonism pending between some (although not all) of the parties at the time of confirmation. For example, Steadfast Investments, L.P. is a judgment debtor by virtue of the Judgment (that resulted from the First Adversary Proceeding, asserted pre-confirmation), and is also alleged to be
Accordingly, and for all of the foregoing reasons, the Court concludes that it has post-confirmation jurisdiction over the Trustee's claim under section 550.
However, the Trustee's TUFTA claim stands on a different footing. While it is true here, as well, that there was antagonism between some (but not all) of the parties at the time of confirmation, and that some (but not all) of the challenged transfers took place pre-confirmation, it is also true that no bankruptcy law will be involved in the resolution of the TUFTA claim. No facts or law deriving from the reorganization will determine the dispute. As noted previously, the Trustee is not asserting this claim by virtue of his status as Trustee of Heritage's bankruptcy estate, as he was in connection with the First Adversary Proceeding. He is instead asserting rights as a judgment creditor—of entities who were never in bankruptcy at all. Therefore, it cannot be said that his prosecution of the TUFTA claim asserted here was a key feature of the Heritage Plan. For example, the Trustee, as a judgment creditor of Ettman Trust, which was never in bankruptcy, is suing Treasured Investment—an entity which was also never in bankruptcy and which was not even a party to the First Adversary Proceeding—to recover property that Ettman Trust is alleged to have fraudulently transferred to Treasured Investment. The fact that the Trustee got his judgment against Ettman Trust in a bankruptcy court seems of little legal significance.
Here, the TUFTA claim is merely "related to" a case under title 11, as it would have an existence outside of bankruptcy; it is not a core proceeding, and it is related to the bankruptcy in only the most general sense—really, only by the fact that the Trustee got his judgment against the non-debtors in the bankruptcy court. The TUFTA claim will involve new and different proof, beyond that already proffered during the First Adversary Proceeding—for example, the Trustee will have to prove the elements of a claim under TUFTA as to each of the Judgment Debtors—although in the First Adversary Proceeding, the Trustee proved the elements of his TUFTA claim only as to Heritage. The Court also notes that several of the transfers challenged in the Complaint were allegedly made by an entity called "The Oak Group"—which is a stranger to the First Adversary Proceeding and thus not a Judgment Debtor by virtue of the Judgment. In Berry v. McLemore, 795 F.2d 452 (5th Cir.1986), the Fifth Circuit held that a garnishment action seeking enforcement against third parties who were strangers to the underlying judgment instituted new proceedings, and the obligations of the new defendants were completely independent of the primary judgment.
For these reasons, the Court concludes that it lacks post-confirmation subject matter
The Court's conclusion that it lacks subject matter jurisdiction under section 1334 does not fully resolve this dispute. The Trustee argues that the jurisdictional determination under section 1334 is not dispositive, as this Court has ancillary jurisdiction over the TUFTA claim.
The Trustee argues that this Court has ancillary jurisdiction over the TUFTA claim, as a court has inherent enforcement jurisdiction under that doctrine. Specifically, the Trustee argues:
See Trustee's Resp. In Opp. To Mot. To Dismiss by Kornman Defs., pp. 4-5 (internal quotations and citations omitted). For this proposition, the Trustee cites many cases—the principal one of which is Peacock v. Thomas, 516 U.S. 349, 116 S.Ct. 862, 133 L.Ed.2d 817 (1996). All of them, however, (including Peacock) involved a dispute respecting a district court's exercise of ancillary jurisdiction. The Trustee next argues that
Trustee's Resp. In Opp to Mot. To Dismiss by Kornman Defs., p. 7. For this proposition,
In Berry v. McLemore, 795 F.2d 452 (5th Cir.1986), a plaintiff obtained a money judgment against a police officer arising from the use of unnecessary force and constitutional violations. The police officer failed to pay the judgment. The plaintiff filed garnishment actions against the officer's employer (a township) and its insurer. As to the township, the plaintiff argued that the township was liable to the police officer because the township had promised the police officer that it would pay any judgment that the plaintiff obtained. The district court directed a verdict for the township, but the Fifth Circuit reversed, concluding that the district court lacked ancillary jurisdiction over the garnishment action. The Fifth Circuit noted that garnishment actions against persons who were not parties to the original action are construed as independent actions from the primary action which established the judgment debt, and thus require an independent basis for federal jurisdiction. The Fifth Circuit, quoting from Riggs v. Johnson County, 73 U.S. 166, 6 Wall. 166, 18 L.Ed. 768 (1868), which is also cited to this Court by the Trustee, stated:
Berry v. McLemore, 795 F.2d at 455. However, the Fifth Circuit continued: "[t]his post-judgment jurisdiction, however, is limited to those actions that a court may take in that same action." Id. (emphasis added). The Fifth Circuit noted that
Id. at 455. The Fifth Circuit thus held that the district court could not exercise ancillary jurisdiction over the garnishment proceeding.
In In re Walker, 51 F.3d 562 (5th Cir. 1995), a debtor sued a mortgagee, alleging willful violation of the stay as a result of damage to her personal property after foreclosure of its security interest in her mobile home. The mortgagee responded and filed a third-party complaint against the person who had purchased the mobile home at issue from the mortgagee post-foreclosure, seeking contribution. So, at issue in Walker was pendent jurisdiction.
Id. (internal citations and quotations omitted).
A few years later, the United States Supreme Court decided Peacock, upon which the Trustee heavily relies. The facts in Peacock were as follows: an employee sued his former employer's officer on a veil-piercing theory, to impose liability on the officer for an unsatisfied judgment the employee had obtained in an ERISA action against his former employer. The district court pierced the corporate veil, and entered judgment against the officer. The Fourth Circuit affirmed, holding that the district court had properly exercised ancillary jurisdiction over the claim. In the course of doing so, the Fourth Circuit cited to Riggs v. Johnson County, 73 U.S. 166, 6 Wall. 166, 18 L.Ed. 768 (1867), a case also cited to this Court by the Trustee and distinguished by the Fifth Circuit in Berry v. McLemore, supra, for the proposition that the jurisdiction of a court is not exhausted by the rendition of a judgment but continues until the judgment is satisfied. The Fourth Circuit concluded that an attempt to pierce the corporate veil is a matter of substantive law that determines whether a shareholder can be liable for a judgment against the corporation. As such, the Fourth Circuit held that an attempt to pierce the corporate veil seeks to identify those parties against whom the judgment can be satisfied. "Because identification of those parties who are liable is necessarily antecedent to enforcement of the judgment against those parties, and because Riggs establishes that federal courts have `ancillary' jurisdiction over enforcement of judgments, it would seem that the federal courts' ancillary jurisdiction would extend to the instant attempt to pierce the corporate veil." Thomas v. Peacock, 39 F.3d 493, 500 (4th Cir.1994).
The United States Supreme Court disagreed. First, the Supreme Court held that a claim to pierce the corporate veil is not an independent claim but rather is a means of imposing liability on an underlying claim. Because the employee had alleged no underlying violation of ERISA as against the officer, the Supreme Court held that neither ERISA nor 28 U.S.C. § 1331 (the federal question jurisdictional statute) supplied the district court with subject matter jurisdiction over the veil-piercing claim. The Supreme Court next considered the doctrine of ancillary jurisdiction, and noted that a federal court "may exercise ancillary jurisdiction (1) to permit disposition by a single court of claims that are, in varying respects and degrees, factually interdependent; and (2) to enable a court to function successfully, that is, to manage its proceedings, vindicate its authority, and effectuate its decrees." Peacock, 516 U.S. 349, 116 S.Ct. 862. The Supreme Court noted that the case before it fell within neither category, because there was insufficient factual dependence between the employee's ERISA claims against his employer and the veil-piercing claims the employee asserted against the officer. In addressing the second category of claims over which federal courts may exercise ancillary jurisdiction—i.e., enforcement jurisdiction—the Supreme Court noted that "we have approved the exercise of ancillary jurisdiction over a broad range of supplementary proceedings involving third parties to assist in
Id. The Supreme Court further noted that in determining the reach of the federal courts' ancillary jurisdiction, "we have cautioned against the exercise of jurisdiction over proceedings that are entirely new and original, or where the relief sought is of a different kind or on a different principle than that of the prior decree." Id. It rejected the use of ancillary jurisdiction in the case before it, because the veil-piercing claim was founded not only upon different facts but also upon entirely new theories of liability. Moreover, and of significance, Peacock addressed the ability of a district court to exercise ancillary enforcement jurisdiction.
After Peacock was handed down, the Fifth Circuit decided In re Bass, 171 F.3d 1016 (1999). In Bass, judgment creditors of a Utah chapter 7 debtor (who had received a discharge and whose chapter 7 case had been closed) registered the judgment in the Bankruptcy Court for the Northern District of Texas. The judgment creditors then filed a garnishment and injunction suit against a trust which had been providing income to the judgment debtor. The Fifth Circuit held that the bankruptcy court in Texas lacked subject matter jurisdiction over the suit. The Fifth Circuit first held that there was no bankruptcy jurisdiction under 28 U.S.C. § 1334, because (1) the debtor's bankruptcy case in Utah had been closed, and thus there was no bankruptcy estate for the lawsuit to relate to, and (2) any recovery that might result from the garnishment would not accrue to creditors in general. The judgment creditors then argued that the bankruptcy court had ancillary, enforcement jurisdiction over the lawsuit. The Fifth Circuit soundly rejected that argument, stating that
Bass, 171 F.3d at 1023-24 (internal quotations and citations omitted; emphasis in original).
The Bass court's conclusion that the same principles counsel against a bankruptcy court's exercise of both pendent and ancillary jurisdiction is bolstered by the case law. The concept of ancillary jurisdiction has been codified, along with
Exxon Mobil Corp. v. Allapattah Servs., Inc., 545 U.S. 546, 559, 125 S.Ct. 2611, 162 L.Ed.2d 502 (2005); see also Griffin v. Lee, 621 F.3d 380, 385 ("the supplemental jurisdiction statute ... combines the doctrines of pendent and ancillary jurisdiction under a common heading") (quoting City of Chicago v. Int'l Coll. Of Surgeons, 522 U.S. 156, 164, 118 S.Ct. 523, 139 L.Ed.2d 525 (1997)).
Notwithstanding the Fifth Circuit's pronouncement in Bass, the Trustee argues that "this Court has inherent ancillary jurisdiction... by reason of the Court's power to enforce its Final Judgment of July 13, 2009." Trustee's Supp. Br., p. 5. The Trustee argues that Berry pre-dated the Supreme Court's decision in Peacock; thus, to the extent that Berry held that a supplementary garnishment proceeding exceeds the ancillary enforcement jurisdiction it has been overruled. The Trustee further argues that Peacock recognizes that supplementary proceedings may properly be brought against third parties who were not parties to the action that resulted in the judgment. The Court agrees, but notes that even if the Trustee's claims here are properly viewed as supplementary proceedings
The Trustee also argues that Peacock said that "much of the common-law doctrine of ancillary jurisdiction" was codified in 28 U.S.C. § 1367, and that several courts post-Peacock have recognized that there are two categories of ancillary jurisdiction—i.e., the category which permits disposition by a single court of claims that are factually interdependent and the category which permits a court to vindicate its authority and effectuate its judgments—but have concluded that the second category—i.e., inherent enforcement jurisdiction—has not been codified by section 1367. The Trustee cites five cases—four of them outside the Fifth Circuit. The fifth—Tittle v. Enron Corp., MDL N.O. 1446, 2008 WL 4166172 (S.D.Tex. Aug. 29, 2008)—did make such a distinction and suggested that inherent enforcement jurisdiction has not been codified by section 1367. However, Tittle involved a district court's exercise of ancillary jurisdiction, and to the extent the Trustee asserts that the Tittle case governs here, his argument cannot be reconciled with the Fifth Circuit's pronouncement in Bass. Whether the species of ancillary jurisdiction reserved for enforcement of judgments has been codified or not, the Fifth Circuit has ruled that bankruptcy courts cannot exercise it.
For all of these reasons, the Court concludes that it lacks, or may not exercise, ancillary jurisdiction over the Trustee's TUFTA claim.
For the reasons set forth in detail above, the Court concludes that it has post-confirmation subject matter jurisdiction under
The Trustee is directed to prepare an Order consistent with this Memorandum Opinion, circulate it to the Kornman Defendants' counsel for approval as to form, and submit it to the Court within fourteen days.
The Kornman Defendants' argument defies logic. As noted by the Fifth Circuit in U.S. Brass, "if a matter within the broad scope of § 1334(b) satisfies the more precise notion of a core proceeding, § 157 authorizes the bankruptcy court to decide the matter and enter a final judgment." U.S. Brass, 301 F.3d at 304 (emphasis added). In other words, "core" proceedings are a subset of actions over which the court has subject matter jurisdiction under section 1334(b). If a proceeding is a "core" proceeding, then by definition it is one over which the Court has subject matter jurisdiction under section 1334(b). It is not that the Court is looking to section 157—to the exclusion of section 1334—to establish jurisdiction. Rather, having found a proceeding to be "core" under section 157, the Court concludes that the proceeding must, by definition, be one over which the Court has section 1334(b) jurisdiction.
