Holt et al v. Green et al, No. 2:2015cv00407 - Document 12 (D. Nev. 2016)

Court Description: ORDER that the Order Denying Appellant's Motion for Remand and/or Abstention is AFFIRMED. Signed by Chief Judge Gloria M. Navarro on 3/10/16. (Copies have been distributed pursuant to the NEF: cc USBC - MMM)
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Holt et al v. Green et al Doc. 12 1 UNITED STATES DISTRICT COURT 2 DISTRICT OF NEVADA 3 4 5 6 TRUMAN HOLT, Trustee for the HOWARD FAMILY TRUST dated AUGUST 21, 1998, and OSCAR BRANNON HOWARD, III, beneficiary of the HOWARD FAMILY TRUST, 7 Appellants, vs. 8 9 GLOYD GREEN and GAIL HOLLAND, Appellees. 10 11 ) ) ) ) ) ) ) ) ) ) ) ) ) Case No.: 2:15-cv-00407-GMN ORDER In this bankruptcy appeal, Appellant Howard Family Trust (“Appellant”) seeks review 12 13 under 28 U.S.C. § 158(a)(1) of an order entered by the United States Bankruptcy Court for the 14 District of Nevada (the “Bankruptcy Court”) denying Appellant’s Motion for Remand and/or 15 Abstention. Appellant asks the Court to reverse the Bankruptcy Court’s Order. Appellant filed 16 an Opening Brief (ECF No. 9). Appellees Gloyd Green and Gail Holland (“Debtors”) filed an 17 Answering Brief (ECF No. 10), and Appellant filed a Reply Brief (ECF No. 11). 18 I. BACKGROUND 19 Debtors filed Chapter 11 bankruptcy on September 3, 2014. (Tr. of Mot. Hr’g 9:10–12, 20 ECF No. 8-7). However, prior to Debtors’ initiation of the bankruptcy proceedings, Appellant 21 initiated a state court action (the “State Action”) against Debtors on September 5, 2012. 22 (Compl., ECF No. 8-2). In the State Action, Appellant asserted the following claims against 23 Debtors: (1) unjust enrichment; (2) conversion; (3) embezzlement; (4) breach of fiduciary duty; 24 (5) civil theft; (6) constructive fraud; (7) declaration of an equitable lien; (8) breach of 25 constructive trust; (9) actual fraud; and (10) unfair and deceptive trade practice. (Id. ¶¶ 19–87). Page 1 of 6 Dockets.Justia.com 1 Shortly before judgment was entered in the State Action, Debtors filed Chapter 11 2 bankruptcy. Subsequently, on December 11, 2014, Debtors initiated an adversary proceeding 3 in the Bankruptcy Court by filing a complaint to remove the State Action. (Tr. of Mot. Hr’g 4 9:21–25). That same day, Appellant initiated an adversary proceeding in the Bankruptcy Court 5 objecting to the discharge of their claims pursuant to 11 U.S.C. §§ 523 (a)(2), (a)(4), and (a)(6). 6 (Id. 10:8–13). On December 30, 2014, Appellant filed a Motion for Remand and/or Abstention 7 of the State Action, which was denied by the Bankruptcy Court at a hearing held on February 8 13, 2015 and in a written order on February 18, 2015. (Id. 10:14–18, 18:18–19; Order Den. 9 Mot. for Remand and/or Abstention, ECF No. 9-1). On March 2, 2015, Appellant filed a 10 Notice of Appeal, appealing from the Order Denying Motion for Remand and/or Abstention. 11 (ECF No. 8) 12 II. 13 LEGAL STANDARD The Court reviews de novo the Bankruptcy Court’s conclusions of law, “including its 14 interpretation of the Bankruptcy Code.” In re Rains, 428 F.3d 893, 900 (9th Cir. 2005). On 15 appeal, a district court “may affirm, modify, or reverse a bankruptcy judge’s judgment, order, 16 or decree or remand with instructions for further proceedings.” E.g., Cesar v. Charter 17 Adjustments Corp., 519 B.R. 792, 795 (E.D. Cal. 2014). “Findings of fact, whether based on 18 oral or documentary evidence, shall not be set aside unless clearly erroneous, and due regard 19 shall be given to the opportunity of the bankruptcy court to judge the credibility of the 20 witnesses.” Matter of Pizza of Haw., Inc., 761 F.2d 1374, 1379 (9th Cir. 1985). “The existence 21 of subject-matter jurisdiction, the scope of a bankruptcy court’s inherent authority, and the 22 scope of its power to act under 11 U.S.C. § 105, are questions of law that we review de novo.” 23 In re Johnson, 346 B.R. 190, 193 (B.A.P. 9th Cir. 2006). “The issue of mandatory abstention 24 turns upon the jurisdiction question and the construction of pertinent statutes and is therefore a 25 Page 2 of 6 1 question of law subject to de novo review.” In re DeLorean Motor Co., 155 B.R. 521, 524 2 (B.A.P. 9th Cir. 1993). 3 III. 4 DISCUSSION First, Appellant argues that the Bankruptcy Court made an error of law by asserting 5 subject matter jurisdiction over the State Action. (Opening Br. 6:2–4, ECF No. 9). Second, 6 Appellant argues that the Bankruptcy Court made an error of law when it held that mandatory 7 abstention of the State Action was not required. (Id. 6:5–6). 8 A. Subject Matter Jurisdiction 9 “As set forth in § 157(a), Congress has divided bankruptcy proceedings into three 10 categories: those that ‘aris[e] under title 11’; those that ‘aris[e] in’ a Title 11 case; and those 11 that are ‘related to a case under title 11.’” Stern v. Marshall, 131 S. Ct. 2594, 2596 (2011). 12 “Bankruptcy judges may hear and determine … all core proceedings arising under title 11, or 13 arising in a case under title 11.” 28 U.S.C. § 157(b)(1). However, in non-core proceedings, 14 those that are related to a case under title 11, a bankruptcy judge may only “submit proposed 15 findings of fact and conclusions of law to the district court.” 28 U.S.C. § 157(c)(1). Section 16 157(b)(2) lists 16 categories of core proceedings. 17 Here, the Bankruptcy Court held that the claims in the State Action were core 18 proceedings under, inter alia, 28 U.S.C. § 157(b)(2)(B), which provides for the “allowance or 19 disallowance of claims against the estate or exemptions from property of the estate, and 20 estimation of claims or interests … but not the liquidation or estimation of contingent or 21 unliquidated personal injury tort or wrongful death claims against the estate.” (Tr. of Mot. Hr’g 22 15:10–15, ECF No. 8-7). However, Appellant argues that the claims in the State Action are not 23 core proceedings because the claims are “for personal injury torts based entirely on Nevada 24 law.” Specifically, Appellant argues as follows: 25 Appellant concedes the Bankruptcy Court was correct when it said Appellant’s claims against the Debtors “necessarily implicate Page 3 of 6 1 2 3 4 5 6 7 8 allowance or disallowance of claims, and in particular and significantly, as well, dischargeability which are certainly core proceedings under 28 U.S.C. Section 157(b)(2)(B) and (I)” However, the Bankruptcy Court’s role is limited as to whether to allow or disallow Appellant’s claim, and to determine its dischargability, not as liquidator of the personal injury tort claims. Liquidation of the personal injury tort claim would be left to the state court, while the Bankruptcy Court would still reserve its traditional functions. (Opening Br. 11:5–12). Courts are split as to what constitutes a “personal injury tort” under 28 U.S.C. § 157(b). 9 Courts adopting the narrowest definition of the term hold that a personal injury tort claim 10 requires an actual physical injury. See, e.g., Massey Energy Co. v. W. Va. Consumers for 11 Justice, 351 B.R. 348, 351 (E.D. Va. 2006); Perino v. Cohen (In re Cohen), 107 B.R. 453, 455 12 (S.D.N.Y. 1989). Courts adopting the most expansive definition of the term find that a 13 personal injury tort claim is not limited to a claim involving bodily injury. See, e.g., Hansen v. 14 Borough of Seaside Park (In re Hansen), 164 B.R. 482, 486 (D.N.J. 1994); In re Erickson, 330 15 B.R. 346, 349 (Bankr. D. Conn. 2005); Rizzo v. Passialis (In re Passialis), 292 B.R. 346, 352 16 (Bankr. N.D. Ill. 2003). According to this view, the term “embraces a broad category of private 17 or civil wrongs or injuries for which a court provides a remedy in the form of an action for 18 damages, and includes damage to an individual’s person and any invasion of personal rights, 19 such as libel, slander and mental suffering.” Boyer v. Balanoff (In re Boyer), 93 B.R. 313, 317 20 (Bankr. N.D.N.Y. 1988) (citing Black’s Law Dictionary 707, 1335 (5th ed.1979)). 21 Some courts have reached a middle ground between the narrow and expansive views by 22 looking to whether a claim falls within the purview of a personal injury tort claim under the 23 expansive view, yet retaining bankruptcy jurisdiction over the claim if it has “earmarks of a 24 financial, business or property tort claim, or a contract claim.” In re Ice Cream Liquidation, 25 Inc., 281 B.R. 154, 161 (Bankr. D. Conn. 2002); Adelson v. Smith (In re Smith), 389 B.R. 902, 908 (Bankr. D. Nev. 2008). The middle ground encompasses torts involving bodily and Page 4 of 6 1 reputational harm, without including those personal injury torts designated by statute only. 2 Smith, 389 B.R. at 908. The Smith court found this approach the most appealing because “it is 3 closely aligned with what are traditionally thought of as the ‘common law torts;’ and while it 4 includes emotional and reputational harms, it does not go so far as to allow nonbankruptcy law 5 to define certain torts as personal injury torts.” Id. 6 Regardless of which approach the Court chooses, it is clear that the claims of the State 7 Action cannot be classified as personal injury tort claims. The claims of the State Action 8 include unjust enrichment, conversion, embezzlement, breach of fiduciary duty, civil theft, 9 constructive and actual fraud, declaration of an equitable lien, breach of constructive trust, and 10 unfair and deceptive trade practice. (See Compl., ECF No. 8-2). Because these claims have 11 financial, business, property, and contract characteristics, they do not fall within the purview of 12 personal injury tort claims under any of the three views explained above. Accordingly, the 13 Court affirms the Bankruptcy Court’s finding that the claims removed from the State Action are 14 core proceedings. 15 B. Mandatory Abstention 16 In cases related to—rather than arising under or arising in—the bankruptcy case, a 17 district court shall abstain from hearing the action and remand the action back to state court. 28 18 U.S.C. § 1334(c)(2) (“with respect to which an action could not have been commenced in a 19 court of the United States absent jurisdiction under this section, the district court shall abstain 20 from hearing such proceeding if an action is commenced, and can be timely adjudicated, in a 21 State forum of appropriate jurisdiction.”). Abstention is mandatory in cases where: (1) the 22 motion to remand is timely; (2) the underlying complaint contains only state law claims; (3) the 23 underlying complaint is a non-core proceeding merely “related to” the bankruptcy case; (4) 24 there is a lack of independent federal jurisdiction; (5) the action was filed in state court; (6) the 25 Page 5 of 6 1 state can timely adjudicate the action; and (7) the state court has jurisdiction. See In re Kold, 2 158 B.R. 175, 178 (C.D. Cal. 1993). 3 Here, because mandatory abstention requires a non-core proceeding, the Bankruptcy 4 Court held that mandatory abstention could not apply. (Tr. of Mot. Hr’g 15:24–16:2). The 5 Court agrees and affirms the Bankruptcy Court’s findings and holding as to mandatory 6 abstention. 7 IV. 8 9 10 CONCLUSION IT IS HEREBY ORDERED that the Order Denying Appellant’s Motion for Remand and/or Abstention is AFFIRMED. DATED this _____ day of March, 2016. 10 11 12 13 14 15 16 ___________________________________ Gloria M. Navarro, Chief Judge United States District Judge 17 18 19 20 21 22 23 24 25 Page 6 of 6