South Central v. Oak Baptist, No. 21-20559 (5th Cir. 2022)

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Fountain of praise, a church, leased space to Central Care Integrated Health Services. Shortly after the execution of the lease, the relationship soured when the parties disagreed on the frequency and amount of rent payments. Eventually, Fountain of Praise terminated the lease and successfully evicted Central Care from the premises.

Subsequently, Central Care filed for Chapter 11 reorganization. Central Care then sued Fountain of Praise in state court, claiming breach of contract and unjust enrichment. Fountain of Praise then removed the case to bankruptcy court as an adversary proceeding. The bankruptcy court entered judgment in favor of Fountain of Praise, finding that any breach was excusable due to Central Care's failure to make timely rent payments and that Central Care lacked the requisite interest in the property for an unjust enrichment claim.

Central Care appealed, and the district court judge assigned to the case reassigned the case to a magistrate judge who affirmed the bankruptcy court's judgment.

On appeal, the Fifth Circuit vacated the magistrate judge's order, finding that the district court improperly authorized referral of the
appeal from a bankruptcy court decision to a magistrate judge. Under 28 U.S.C. Section 158, appeals from a bankruptcy court must be heard either by the district court or a panel of bankruptcy court judges.

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Case: 21-20559 Document: 00516376993 Page: 1 Date Filed: 06/30/2022 United States Court of Appeals for the Fifth Circuit United States Court of Appeals Fifth Circuit FILED June 30, 2022 No. 21-20559 Summary Calendar Lyle W. Cayce Clerk In the Matter of: South Central Houston Action Council, doing business as Central Care Integrated Health Services, Debtor, South Central Houston Action Council, doing business as Central Care Integrated Health Services, Appellant, versus Oak Baptist Church, doing business as The Fountain of Praise, Appellee. Appeal from the United States District Court for the Southern District of Texas USDC No. 4:20-CV-2194 Before Jones, Elrod, and Higginson Circuit Judges. Edith H. Jones, Circuit Judge: Case: 21-20559 Document: 00516376993 Page: 2 Date Filed: 06/30/2022 No. 21-20559 Fountain of Praise, a church that owns a large commercial building, leased space to Central Care Integrated Health Services to open a low-cost medical clinic for residents in the area around the building. The contractual relationship between Fountain of Praise and Central Care soured as soon as the clinic opened. Among other things, the parties quarreled over the amount and timing of rent payments and which party bore responsibility for fixing a leaky roof. Eventually, Fountain of Praise terminated the lease and successfully evicted Central Care from the premises. In the meantime, Central Care filed for Chapter 11 reorganization. Central Care then sued Fountain of Praise in state court, alleging breach of contract and unjust enrichment claims. Fountain of Praise removed the case to the bankruptcy court as an adversary proceeding related to Central Care’s bankruptcy case. In the bankruptcy court, Fountain of Praise moved for summary judgment on all of Central Care’s claims against it. The bankruptcy court granted summary judgment on all accounts, concluding that Central Care’s failure to make timely rent payments excused any breach by Fountain of Praise and that Central Care lacked the requisite interest in the property for an unjust enrichment claim. Central Care appealed the order granting summary judgment to the district court. At the parties’ request, and with their consent, the district court reassigned the matter to a magistrate judge under 28 U.S.C. § 636(c). The magistrate judge affirmed the bankruptcy court’s judgment. Central Care now seeks review in this court. This court has an obligation to consider the basis of the district court’s jurisdiction sua sponte before addressing the merits of a dispute. Bridgmon v. Array Systems Corp., 325 F.3d 572, 575 (5th Cir. 2003). We must vacate the judgment because the district court improperly authorized referral of the appeal from a bankruptcy court decision to a magistrate judge. See Minerex 2 Case: 21-20559 Document: 00516376993 Page: 3 Date Filed: 06/30/2022 No. 21-20559 Erdoel, Inc. v. Sina, Inc., 838 F.2d 781, 786 (5th Cir. 1988). In Minerex, this court held that, notwithstanding the broad latitude for referring matters to magistrate judges under 28 U.S.C. § 636(c), the statute governing appeals from bankruptcy decisions, 28 U.S.C. § 158, plainly and solely allows appeals to “be taken either to (i) the District Court or (ii) to a panel of bankruptcy judges.” 1 Id. at 786. “[H]ad Congress meant for its appeals scheme to include the potential for reference to a magistrate,” the court explained, “Congress would have expressly so provided,” but it “did not do so.” Id. We therefore VACATE the magistrate judge’s judgment and REMAND to the district court for further proceedings consistent with this opinion. 1 Importantly, subsequent cases explained that a district judge may refer bankruptcy appeals for a report and recommendation so long as the district court “engaged in an independent consideration of the issues . . . .” In re Foreman, 906 F.2d 123, 125-26 (5th Cir. 1990), abrogated on other grounds by Grogan v. Garner, 498 U.S. 279, 291, 111 S. Ct. 654, 661 (1991). 3

Primary Holding

The Fifth Circuit vacated the magistrate judge's order granting summary judgment in favor of Defendant, finding that the district court improperly referred the appeal of a bankruptcy court ruling to a magistrate judge.

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