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McDaniel v. ABN AMRO Mortgage Group

March 8, 2007

ITESCA L. MCDANIEL, PLAINTIFF-APPELLANT,
v.
ABN AMRO MORTGAGE GROUP, DEFENDANT-APPELLEE.



The opinion of the court was delivered by: Judge Thomas M. Rose

Bky. No. 04-41069

ENTRY AND ORDER REMANDING MATTER TO BANKRUPTCY COURT FOR ADJUDICATION ON THE MERITS

Adv. Proc. No. 05-3093

This is an appeal of an Order of Abstention (the "Order") entered by Bankruptcy Judge Lawrence S. Walter in an adversary proceeding in the United States Bankruptcy Court for the Southern District of Ohio, Western Division at Dayton.*fn1 The adversary proceeding was brought by Debtor Itesca L. McDaniel in her Chapter 13 bankruptcy proceeding. It was brought against ABN AMRO Mortgage Group ("ABN AMRO") who has filed a proof of claim in McDaniel's Chapter 13 bankruptcy proceeding. The adversary proceeding was also brought against Oaktree Mortgage Group, Inc. ("Oaktree"), Robert L. Zelina ("Zelina") and Kenneth S. Davis ("Davis").

Zelina and Davis have submitted no response to the adversary complaints and default judgment motions are pending. McDaniel has advised the Bankruptcy Court that she will voluntarily dismiss her claims against Oaktree because she has confirmed that Oaktree has dissolved and no assets are available. Therefore, the only disputed adversary claim is McDaniel's Home Ownership Equity Protection Act ("HOEPA")*fn2 claim against ABN Amro brought pursuant to 15 U.S.C. §1639. McDaniel's HOEPA claim against ABN AMRO demands damages and alleges rescission of a mortgage loan to her from ABN AMRO and Interfirst Mortgage based upon alleged errors in calculations and disclosures at the loan closing.

McDaniel's Chapter 13 Plan was approved without objection by the Bankruptcy Court on March 15, 2005. Plan Modification Motions filed on July 13 and July 18 were also approved by the Bankruptcy Court. The Plan Modifications authorize the Trustee to make monthly mortgage payments to ABN AMRO.

ABN AMRO filed a motion to dismiss the adversary proceeding against it which was granted by the Bankruptcy Court. The motion to dismiss resulted in confusion as to which counsel was representing ABN AMRO and issues regarding whether appropriate notice of the motion to dismiss was provided to McDaniel. The decision granting the motion to dismiss was subsequently vacated. The motion to dismiss, therefore, is currently fully briefed by McDaniel and ABN AMRO and ripe for decision.

The Bankruptcy Court then raised the issues of jurisdiction and abstention sua sponte. Following briefing by the parties, the Bankruptcy Court entered the Order dismissing the adversary proceeding based upon permissive abstention pursuant to 28 U.S.C. § 1334(c)(1). McDaniel then appealed the abstention Order to this Court.

The analysis begins with a discussion of the subject matter jurisdiction of this Court and of the Bankruptcy Court. Further, whether a bankruptcy court has jurisdiction and how that jurisdiction is exercised are two different matters.

EXISTENCE OF BANKRUPTCY COURT'S JURISDICTION

Subject matter jurisdiction over bankruptcy matters is conferred on district courts by 28 U.S.C. § 1334. In re Elder-Beerman Stores, Case Nos. 95-33643, C-3-96-378, C-3-97-299, 97-3189, 1997 WL 1774875 at *1 (S.D.Ohio Aug. 1,1997). Section 1334 establishes four categories of cases which are within the jurisdiction of the district court. In re Nationwide Roofing & Sheet Metal, Inc., 130 B.R. 768, 772 (Bankr. S.D.Ohio 1991). The four categories are in two groups that distinguish between "cases" and "proceedings."

First, section 1334 provides that district courts have original and exclusive jurisdiction of all "cases under" Title 11.*fn3 Elder-Beerman, 1997 WL 1774875 at *1. Section 1334 also provides that district courts have original but not exclusive jurisdiction over three additional categories of cases. Id. The three additional categories are all civil "proceedings arising under" Title 11, all civil "proceedings arising in" a case under Title 11 and all civil "proceedings related to" cases under Title 11. Id.; see also Nationwide, 130 B.R. at 772-73.

"The first category, cases under Title 11, describes the underlying bankruptcy case upon which all subsequent proceedings rest." Nationwide, 130 B.R. at 773. A case in this category is commenced by the filing of a petition for bankruptcy. In re Adelphia Communications Corp., 307 B.R. 404, 412 n.22 (Bankr. S.D.N.Y. 2004).

The second category, civil "proceedings arising under" Title 11, includes federal question claims where relief is sought based upon a right created by Title 11. Adelphia, 307 B.R. at 413. Examples of "proceedings arising under" Title 11 include causes of action to recover fraudulent conveyances and avoidance actions. In re United Security & Communications, Inc., 93 B.R. 945, 951 (Bankr. S.D.Ohio 1988). Many "arising under proceedings" litigated in bankruptcy cases also fall into the "proceedings arising in" category. Adelphia at 413-14.

The third category is civil "proceedings arising in" a case under Title 11. "Proceedings arising in" a case under Title 11 are proceedings "that are not based on any right expressly created by Title 11, but nevertheless, would have no existence outside of the bankruptcy." Nationwide, 130 B.R. at773 (citing Wood v. Wood (Matter of Wood), 825 F.2d 90, 97 (5th Cir. 1987)). Examples of "proceedings arising in" a case under Title 11 include administrative matters; counterclaims by the estate against persons filing claims against the estate; orders to turn over property of the estate and determinations of the validity, extent or priority of liens. United Security, 93 B.R. at 951.

The fourth category, civil "proceedings related to" cases under Title 11, are proceedings from which the outcome could conceivably have an effect on the estate being administered in bankruptcy. Nationwide, 130 B.R. at773. A "related to proceeding" could have been commenced in federal or state court independently of the bankruptcy case. Beasley v. Personal Finance Corp., 279 B.R. 523, 532 (S.D.Miss. 2002). An example of "proceedings related to" case under Title 11 is a state law cause of action brought by a debtor against an insurance company for fraud. Id. at 523.

Having set forth the relevant law regarding jurisdiction of district courts, the analysis turns to reference of cases by district courts to bankruptcy courts. Reference to bankruptcy courts of bankruptcy matters is governed by 28 U.S.C. § 157(a). Elder Beerman, 1997 WL 1774875 at *1.Section 157(a) provides that a district court may provide that any or all cases in any of the four categories under Title 11 shall be referred to the bankruptcy judges for the district. Id. This district has provided for such reference.

In this case, the district court has jurisdiction over McDaniel's Chapter 13 case as a "case under" Title 11. Further, there is no dispute that McDaniel's adversary claims are at least civil "proceeding related to" her bankruptcy case. The claims against ABN AMRO, Oaktree, Zelina and Davis have a substantial bearing on McDaniel's debts and could, therefore, conceivably have an effect on her bankruptcy estate. As a result, the district court has jurisdiction over McDaniel's bankruptcy claim and over her adversary claim.

As provided by this district, McDaniel's claims have been referred to the Bankruptcy Court for the Southern District of Ohio, Western Division at Dayton. Therefore, the Bankruptcy Court has jurisdiction over McDaniel's bankruptcy claim and over her adversary claims. The analysis next turns to how a bankruptcy court exercises this jurisdiction.

EXERCISE OF BANKRUPTCY COURT'S JURISDICTION

Section 157 sets forth the provisions which govern the manner in which a bankruptcy court exercises its jurisdiction. Nationwide, 130 B.R. at 774. Bankruptcy judges have the power to hear and determine all "cases under" Title 11 and to enter final orders in "proceedings arising in" a case under Title 11 or "proceedings arising under" Title 11.*fn4 In re Statewide Pools, Inc., 126 B.R. 877, 880 (Bankr. S.D.Ohio 1991).

Absent consent by the parties, a bankruptcy judge enters findings of fact and conclusions of law regarding "proceedings related to" cases under Title 11. Id. Absent consent by the parties, only district judges may enter final orders in "proceedings related to" Title 11. Id.

In this case, the record does not indicate whether the Bankruptcy Court has determined whether McDaniel's adversary claim is a "proceeding arising under," a "proceeding arising in" or a "proceeding related to" a Title 11 claim. However, both parties have consented to a determination of McDaniel's adversary claim by the Bankruptcy Court. Further, the Bankruptcy Court agrees because it entered a final order and not findings of fact and conclusions of law. Therefore, the Bankruptcy court has the power to enter final orders regarding the adversary claim and has done so. The analysis next turns to this Court's jurisdiction to adjudicate the appeal of the Bankruptcy Court's Order.

DISTRICT COURT'S JURISDICTION TO HEAR THE APPEAL

A district court has jurisdiction to hear appeals from a bankruptcy court's final judgments, orders and decrees. 28 U.S.C. § 158(a)(1). Further, the appeal may be taken to the district court for the judicial district in which the bankruptcy judge is setting. 28 U.S.C. § 158(a)(3).

In this case, the Bankruptcy Court entered a final order and both McDaniel and ABN AMRO have consented to have the appeal of the Order heard by this Court. Therefore, this Court has jurisdiction to hear McDaniel's appeal of the Order. The analysis next turns to the abstention doctrine.

ABSTENTION

The Order provides that the Bankruptcy Court is voluntarily abstaining from hearing McDaniel's adversary proceeding. Because this adversary proceeding falls into one of the "arising under," "arising in" or "related to" categories of proceedings, it is subject to the abstention provisions in 28 U.S.C. § 1334(c). In re Middlesex Power Equipment & Marine, Inc., 292 F.3d 61, 67 (1st Cir. 2002). Section 1334(c)(1) provides for permissive abstention and section 1334(c)(2) provides for mandatory abstention.

Mandatory Abstention

Mandatory abstention requires a bankruptcy court to abstain from determining a proceeding based upon a State law cause of action where the proceeding is "related to" a case under Title 11 if such proceeding is commenced in and can be timely adjudicated in a State forum of appropriate jurisdiction. 28 U.S.C. § 1334(c)(2). For mandatory abstention to apply, there must be a timely motion by a party to the proceeding, and the proceeding must: (1) be based on a state law claim or cause of action; (2) lack a federal jurisdictional basis; (3) be commenced in a state forum of appropriate jurisdiction; (4) be capable of timely adjudication; and (5) be a non-core proceeding. In re Dow Corning Corp., 113 F.3d 565, (6th Cir. 1997)(citing In re Dow Corning, 86 F.3d 482, 497 (6th Cir. 1996), cert. denied, 117 S.Ct. 178 (1997)). In this case, the Bankruptcy Court has not made a core, non-core determination. However, the mandatory abstention provision does not apply because no proceeding has been commenced in a State forum and the proceeding does not lack a federal jurisdictional basis.

Permissive Abstention

A court may permissively abstain from hearing a case under Title 11 where abstention is in the interest of justice or in the interest of comity with ...


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