Under 28 U.S.C. §1334, a federal district court has original jurisdiction over “all civil proceedings arising under title 11, or arising in or related to cases under title 11.” Significantly, Section 1334 does not distinguish between a court’s pre-confirmation and post-confirmation jurisdiction. In re Westinghouse Electric Company LLC, 2019 WL 3451372 (Bankr. S.D.N.Y. 2019). However, while the circuit courts have noted the broad expanse of “related to” jurisdiction, stating that bankruptcy courts may exercise such jurisdiction in cases where “the outcome could conceivably have any effect on the estate being administered in bankruptcy,” they also note that such jurisdiction does not extend indefinitely, particularly after confirmation of a plan and the closing of a case. In re Resorts Int’l, Inc., 372 F.3d 154, 164 (3rd Cir. 2004). Further, while Section 1334 does not expressly limit bankruptcy jurisdiction following plan confirmation, case law has long recognized that once a plan has been confirmed, a bankruptcy court’s jurisdiction over matters related to a case diminishes. In re EXDS, Inc., 352 B.R. 731 (Bankr .D.Del. 2006); In re Metro-Goldwyn-Mayer Studios Inc., 459 B.R. 550, 555 (Bankr. S.D.N.Y. 2011). Thus, especially in a post-confirmation scenario, bankruptcy courts should always exercise their “unflagging obligation to examine its subject matter jurisdiction at every stage of the proceeding,” even in the face of a broad plan provision related to the retention of jurisdiction. Valley Historic Ltd. v. Bank of New York, 486 F.3d 831, 838 (4th Cir. 2007).
According to In re General Media, Inc., 335 B.R. 66 (Bankr. S.D.N.Y. 2005), a party invoking the bankruptcy court’s post-confirmation jurisdiction must satisfy two requirements. First, the matter must have a “close nexus to the bankruptcy matter or proceedings, as when a matter affects the interpretation, implementation, consummation, execution, or administration of the confirmed plan or incorporated litigation trust agreement.” Second, the plan must provide for the retention of jurisdiction over the dispute. Id. at 73-74; see also, Metro-Goldwyn-Mayer Studios Inc., 459 B.R. at 556. Broadly speaking, the proceeding must affect some aspect of the plan – its meaning, its implementation or its consummation – to come within the court’s post-confirmation jurisdiction. General Media states that bankruptcy courts lack subject matter jurisdiction over a post-confirmation dispute where the case has been fully administered and any recovery will go to the reorganized debtor rather than its creditors. Further, even if the plan calls for future payments to creditors funded through operations, bankruptcy courts cannot hear a post-confirmation dispute simply because it might conceivably increase the recovery to creditors, as such a rationale would “endlessly stretch the bankruptcy court’s jurisdiction.” Id. at 75.
In In re Reliant Exploration, Ltd., 336 B.R. 286 (Bankr. S.D.Tex. 2005), the issue involved whether the court had jurisdiction over a lawsuit filed by a creditor trust (the “Trust”) against Opus Oil and Gas, Ltd. (“Opus”) for breach of the terms of an “Overriding Royalty Interest Conveyance” (the “ORRI Conveyance”) that was negotiated and executed by the Trust and approved by the bankruptcy court in connection with the confirmation of the debtor’s plan. Pursuant to the plan, Opus purchased all of the property leases of the debtor subject to the Overriding Royalty Interest (the “ORRI”), and agreed to grant the Trust an ORRI on all leases it acquired in the future. Opus thereby became the debtor’s successor to the ORRI Conveyance. The crux of this dispute was the manner in which the ORRI was to be calculated, i.e., whether the royalty was to be calculated on a global or well-by-well basis.
The court analyzed the jurisdiction components of Section 1334 and stated that this dispute did not “arise under” Title 11 as “no party in this case had filed a bankruptcy petition and, following confirmation of the [debtor’s] Plan, no additional issues [were] presented through [debtor’s] bankruptcy petition.” Id. at 289. This conclusion was based on the analysis that “arising under” jurisdiction only confers jurisdiction over issues that are specifically presented to it through a formal bankruptcy petition. Id. The court did not consider whether the dispute “arose in” Title 11, deciding it was only necessary to determine whether the matter was at least “related to” the bankruptcy. In this regard, the court held that the dispute was not related to the case, stating “the case at bar is a dispute between two non-debtors arises nearly three years after [debtor’s] Plan was confirmed and does not involve property of the bankruptcy estate.” Id. The court went on to state that merely because an action may share common facts with the bankruptcy does not confer “related to” jurisdiction to the court. Further, the fact that the ORRI was described in the plan, the ORRI Conveyance was executed shortly after the plan was confirmed and the ORRI Conveyance involved assets that formerly belonged to the debtor was not enough to establish “related to” jurisdiction under Fifth Circuit standards. This simply was a contract dispute regarding the contract entered post-confirmation. Id. at 290.
In In re Encompass Services Corp., 337 B.R. 864 (Bankr. S.D.Tex. 2006) the court identified six pertinent factors to consider in determining whether post-confirmation jurisdiction exists. The court should consider (1) when the claim at issue arose; (2) what provision in the confirmed plan exists for resolving disputes and whether there are provisions in the plan retaining jurisdiction for trying these suits; (3) whether the plan has been substantially consummated; (4) the nature of the parties involved; (5) whether state law or bankruptcy law applies; and (6) indices of forum shopping. Id. at 873.
In this case, Encompass filed for Chapter 11 relief. As part of its reorganization, Air Systems Acquisition, Inc. (“ASA”) purchased all assets of the debtor, including assignments of the executory contracts, pursuant to a Purchase and Sale Agreement (“PSA”) approved by the court. The PSA included a term prohibiting the transfer of assets not freely transferable without the consent of a third-party, and this agreement was incorporated in the confirmed plan. Subsequently, ASA sued Gilbane Building Company (“Gilbane”) for breach of contract in California state court. Gilbane then filed an adversary complaint against ASA and the debtors arguing that ASA has no standing to sue because the assignment from the debtor was invalid. It sought (i) a declaration that the assignment was invalid; (ii) a declaration that the subcontract remained property of the estate; and (iii) an injunction against ASA from further prosecuting the subcontract claims in California state court.
The court applied the six factor test. First, it evaluated when the claim arose. It noted cases holding that when claims arose prepetition, the court retains jurisdiction, particularly when the claim has been incorporated in the plan. In this scenario, actual litigation, or at least antagonism between the parties, must be present on the petition date for the court to assert jurisdiction. Id. at 873. In this case, the contract was in existence pre-petition. However, no active dispute existed between the parties prepetition, a factor that pointed to finding no jurisdiction. Next, the court considered the provisions of the plan. In this regard, while the plan could not confer or expand subject matter jurisdiction, retention of jurisdiction in the plan is a prerequisite to post confirmation jurisdiction. Such language existed in the instant plan favoring a finding of court jurisdiction; however, the adversary proceeding did not involve implementation of the plan because the sale of the debtor’s assets to ASA had already occurred prior to confirmation and the subcontract had already been completed pursuant to the plan. This favored a holding that the court had no jurisdiction. Finally, the court noted that “a confirmed plan is a contract in its own right. As such, it can be interpreted by any court of competent jurisdiction.” Id. at 874-75.
The court also considered whether substantial consummation of the plan had occurred. In this regard, the court noted that an action impacting a confirmed, but not substantially consummated plan would have an impact on the debtor-creditor relationship, a factor that favors continuing jurisdiction. The adversary in the instant case was not commenced until more than two years after the effective date, and the court presumed that the plan had been substantially consummated. Therefore, “the impact on the post confirmation distribution to creditors [was] insufficient for a finding of continuing jurisdiction.” Id. at 875. The court noted that the fact that neither party to the dispute was the debtor supported a finding of no jurisdiction. Finally, the court found indices of forum shopping, which factored against the court retaining jurisdiction.
In In re Shenango Group, Inc., 501 F.3d 338 (3rd Cir. 2007) the debtor was obligated under a confirmed plan to fully fund its Pension Plan to cover an increase in benefits to beneficiaries of so-called window pensions in 2000 and 2001 immediately upon Shenango’s determination to grant the enhanced benefits. Shenango contended that the plan did not require full funding of the increase in benefits at the time the decision was made to grant the window pensions. The retired beneficiaries asserted that the plan imposed such an obligation. The court held that the bankruptcy court had the jurisdiction to resolve this dispute. First, it noted that the debtor was a party to the dispute. Second, the dispute concerned the debtor’s plan and the interpretation of the plan’s provision relating to the debtor’s liability for fully funding any benefit increases to participants of the Pension Plan other than the retirees. This potential liability supplied the close nexus. Id. at 344.
In In re Sportsman’s Warehouse, Inc., 457 B.R. 372 (Bankr. D.Del. 2011), the debtor filed a motion seeking the authority to assume a lease agreement. The debtor listed the cure amount as zero, and the landlord never objected to the motion. Two weeks later, the court entered an order confirming the debtor’s plan. On the same day, the court entered an order granting the assumption motion. Six months after entry of the assumption order and confirmation of the plan, the landlord filed a complaint in state court alleging that the debtor was obligated to buy the property by the end of the lease, i.e., March of 2010. Through this complaint, the landlord sought to compel the debtor to perform under a put clause. The debtor filed an adversary proceeding asserting that the put provision was unenforceable. The landlord filed a motion to dismiss for lack of subject matter jurisdiction.
The court was required to decide whether it had subject matter jurisdiction over the dispute given its prior confirmation of the debtor’s plan of reorganization. In reaching its conclusion, it started by analyzing the concept of core and non-core jurisdiction. It noted that “after a debtor’s reorganization plan is confirmed, the bankruptcy court’s jurisdiction necessarily diminishes because the ‘bankruptcy estate’ ceases to exist . . .” Id. at 385. Citing to Binder v. Price Waterhouse & Co., LLP (In re Resorts Int’l, Inc.), 372 F.3d 154, 166-67 (3rd Cir. 2004), the court stated that in a post confirmation context, a “close nexus between the claim and the bankruptcy proceeding must be established to invoke the bankruptcy court’s ‘related to’ jurisdiction.” Id.
Under the facts of this case, the court held that such a close nexus existed. The court stated that the lease was assumed in the course of the debtor’s bankruptcy proceedings and, although the debtor’s plan had been subsequently confirmed, “the interpretation of the Lease Agreement may still affect the plan.” The court explained that if the lease imposed a mandatory purchase obligation, then the landlord may be entitled to post-petition breach of damages on account of the reorganized debtor’s failure to buy the property. “It is therefore conceivable that the resolution of Count I will have an impact on [the debtor’s] bankruptcy case.” Id. at 387. Stated another way, if the landlord was correct, its claim would affect the administration of the debtor’s plan and the distribution scheme provided under the confirmed plan. Id.
In In re Superior Air Parts, Inc., 516 B.R. 85 (Bankr. N.D.Tex. 2014), a Chapter 11 debtor, a manufacturer of after-market replacement parts for aircraft engines, filed motion to enforce terms of confirmed plan of reorganization, requesting that supplier return to debtor all of debtor’s property as set forth in the plan and confirmation order, including debtor’s proprietary information, including drawing or in supplier-created materials. The court described the dispute as follows:
The Plan addressed the Supplier Agreement. Pursuant to § 7.4 of the Plan, “[a]ll Executory Contracts and Unexpired Leases that have not been specifically assumed by the Debtor under the Plan shall be rejected as of the Effective Date.” Superior did not move to assume the Supplier Agreement, so pursuant to the Plan, Superior rejected the Supplier Agreement.
After the Plan was confirmed and consummated, Superior, now operating under the direction of its new owner, made the decision to resume its business relationship with TAE. Specifically, TAE apparently agreed to resume the manufacture/fabrication of aircraft parts to Superior’s specifications and Superior apparently agreed to resume purchasing such parts from TAE. However, according to Superior, it “ceased purchasing parts from [TAE] for pricing reasons and received the last shipment of parts on or about Spring, 2013,” approximately three and a half years after the Plan went effective and the new owner assumed control over Superior. Again, according to Superior, on April 24, 2013, it requested that TAE return to Superior all of its property as set forth in the Plan and Confirmation Order. In the Motion, Superior claims that TAE has failed to return Superior’s property as required by the Plan and Confirmation Order.
Superior Air Parts started its analysis by noting the Court has an independent obligation to determine whether subject-matter jurisdiction exists. It then concluded that it did not have subject matter jurisdiction. First it noted that the plan provision that affected the relationship between Superior and TAE did not involve any substantive right created under the Bankruptcy Code. “TAE’s alleged obligation to use Superior’s property only for Superior’s benefit and to return the property at the conclusion of the manufacturing relationship would have arisen regardless of Superior’s bankruptcy filing.” Id. at 95. Further, the claim did not arise during or in relation to the bankruptcy case.
Referencing to Bank of Louisiana v. Craig’s Stores of Texas, Inc. (In re Craig’s Stores), 266 F.3d 388 (5th Cir.2001), the court noted that there, 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. at 390. So, in Craig’s Stores, the bankruptcy court did not have jurisdiction because the state law contract claims arose out of a post-confirmation business relationship between the parties and “no facts or law deriving from the reorganization or the plan was necessary to the claim asserted” by the debtor. Id. at 391. The court further quoted Craig’s Stores as follows:
[F]irst, the claims at issue “principally dealt with post-confirmation relations between the parties;” second, “[t]here was no antagonism or claim pending between the parties as of the date of the reorganization;” and third, “no facts or law deriving from the reorganization or the plan [were] necessary to the claim.” Craig’s Stores, 266 F.3d at 391. Notwithstanding its statement that bankruptcy jurisdiction exists after plan confirmation only “for matters pertaining to the implementation or execution of the plan,” the facts in Craig’s Stores were narrow; they involved post confirmation claims based on post-confirmation activities.
Id at 335. The court then quoted Resorts International Financing, Inc. v. Price Waterhouse & Co. (In re Resorts International, Inc.) 372 F.3d 154, 168-69 (3rd Cir. 2004) as follows:
[T]he jurisdiction of the non-Article Ill bankruptcy courts is limited after confirmation of a plan. But where there is a close nexus to the bankruptcy plan or proceeding, as when a matter affects the interpretation, implementation, consummation, execution, or administration of a confirmed plan or incorporated litigation trust agreement, retention of post-confirmation bankruptcy court jurisdiction is normally appropriate.
The court concluded that while Superior certainly crafted its motion in a way that suggests that post-confirmation, related to jurisdiction existed – i.e., as a motion to enforce a specific provision of the Plan and Confirmation Order, upon a closer examination of the facts, it was apparent that Superior was attempting to litigate a post-confirmation business dispute through a bankruptcy court that no longer has jurisdiction to hear that dispute. The court stated that if Superior truly sought the return of its property pursuant to the Plan and Confirmation Order, the motion could and should have been brought many months, if not years, earlier than it was- i.e., within a reasonable time after the Plan became effective. Instead, Superior voluntarily resumed its business relationship with TAE post-confirmation and now asked for the return of its information and property not pursuant to the Plan and Confirmation Order, but because it voluntarily terminated its post-confirmation business relationship with TAE a few months before it filed the motion and years after its Plan was confirmed, consummated and fully implemented. Id. at 97.
Matthew T. Gensburg
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