Opinion
Case No. 04-12076-SSM, Adversary Proceeding No. 04-1240.
October 20, 2004
Nancy Olszewski Ryan, Esquire, Law Offices of Robert Weed, Alexandria, VA, Counsel for the plaintiff.
Richard G. Hall, Esquire, Annandale, VA, Counsel for the defendant.
MEMORANDUM OPINION
A hearing was held in open court on October 19, 2004, on the defendant's motion to dismiss the complaint or in the alternative for summary judgment. The court ruled from the bench that the motion would be denied with respect to the pleaded cause of action for violation of the automatic stay and for an injunction but would be granted with respect to the pleaded cause of action for violation of the Fair Debt Collection Practices Act ("FDCPA") unless, within ten days, the plaintiff filed a motion for withdrawal of the reference. The purpose of this memorandum opinion is to set forth more fully, for the benefit of the parties, the reasons for the court's ruling with respect to the FDCPA claims.
Background
This is an action to recover damages for violation of the automatic stay and the Federal Fair Debt Collection Practices Act, 15 U.S.C. § 1692 et seq. The plaintiff is Debra Gates. She filed a voluntary petition for relief under chapter 7 of the Bankruptcy Code in this court on May 7, 2004, and received a discharge on August 23, 2004. The defendant, Anthony Reginald Didonato, owns and operates a collection agency in Fairfax, Virginia, known as Rapid Recovery Credit Collections. Among the debts listed on the plaintiff's bankruptcy schedules was $685.00 owed to Dr. Mays (a chiropractor) in care of Rapid Recovery. It is alleged that the plaintiff told "Tony" at Rapid Recovery of her intent to file bankruptcy. In any event, the clerk's notice of the commencement of the bankruptcy case was mailed to Rapid Recovery on May 13, 2004.
As most recently amended, the complaint also adds a count for violation of the discharge injunction.
The trustee has filed a report of no distribution, and there is no on-going administration of the bankruptcy case. However, the case has not yet been formally closed.
Thereafter, it is alleged, Rapid Recovery submitted to the plaintiff's bank on or about June 16, 2004, what was purported to be a "preauthorized" check for $50.00 drawn against her checking account. While the facts at this point remain in dispute, it appears that the $50.00 was deducted from the plaintiff's account but was restored by the bank approximately three weeks later after she made a fraud complaint. The complaint also alleges that in August 2004, following issuance of the discharge, two "threatening and intimidating" messages from Rapid Recovery were left on her sisters' telephone answering machine. Finally, it is alleged that in September 2004, Rapid Recovery again attempted — unsuccessfully this time — to withdraw funds from the debtor's account (which by this time had been closed and the funds transferred to another account).
Discussion A.
The reasons for denying the motion to dismiss or for summary judgment with respect to the alleged violation of the automatic stay were set forth on the record at the hearing and need not be repeated. Additionally, the court held, with respect to the claims under the FDCPA, that only post-petition claims were pleaded and that the plaintiff had standing to assert them. However, even though the plaintiff has standing, there remains the question of this court's subject-matter jurisdiction to entertain those claims.
B.
Bankruptcy courts, like other Federal courts, are courts of limited jurisdiction and must be constantly alert to overstepping their jurisdictional bounds. Poplar Run Five Ltd. P'ship v. Virginia Elec. Power Co. (In re Poplar Run Five Ltd. P'ship), 192 B.R. 848, 854-55 (Bankr. E.D. Va. 1995) (dismissing post-confirmation action to recover security deposit from electric company for want of subject matter jurisdiction). Under 28 U.S.C. §§ 1334(a) and (b) and 157(a) and the general order of reference from the United States District Court dated August 15, 1984, this court has jurisdiction over bankruptcy "cases" as well as over civil proceedings "arising under" the Bankruptcy Code, "arising in" a bankruptcy case, or "related to" a bankruptcy case.
A proceeding "arises under" the Bankruptcy Code if federal bankruptcy law creates the cause of action or if the plaintiff's right to relief necessarily depends on resolution of a substantial question of federal bankruptcy law. Poplar Run Five, 192 B.R. at 855. Proceedings "arising in" a bankruptcy case are those that "are not based on any right expressly created by [the Bankruptcy Code], but nevertheless, would have no existence outside of the bankruptcy." Bergstrom v. Dalkon Shield Claimants Trust (In re A.H. Robins Co.), 86 F.3d 364, 372 (4th Cir. 1996) (quoting Wood v. Wood (Matter of Wood), 825 F.2d 90, 97 (5th Cir. 1987)); Grausz v. Englander, 321 F.3d 467 (4th Cir 2003) (debtor's malpractice claim against his bankruptcy attorney for acts committed during the case "arises in" the bankruptcy case within the meaning of 28 U.S.C. § 1334). Finally, the "related to" category of proceedings is "quite broad and includes proceedings in which the outcome could have an effect upon the estate being administered." Bergstrom, 86 F.3d at 372 (citing Pacor, Inc. v. Higgins, 743 F.2d 984, 994 (3rd Cir. 1984)) (explaining that the test is whether "the outcome of that proceeding could conceivably have any effect on the estate being administered" or "could alter the debtor's rights, liabilities, options, or freedom of action"). Nevertheless, the "related to" category is not so broad as to encompass litigation of claims arising under state law or non-bankruptcy Federal law that will not have an effect on the bankruptcy estate, simply because one of the litigants filed a petition in bankruptcy. See New Horizon of N.Y., LLC v. Jacobs, 231 F.3d 143 (4th Cir. 2000) (district court lacked even "related to" jurisdiction over state law claims by entity formed to purchase debtor's assets in accordance with a confirmed plan against parties who allegedly interfered with the sale).
The plaintiff does not contend that the claims under the FDCPA "arise under" the Bankruptcy Code. Whether they "arise in" a bankruptcy case is a closer question given the somewhat broad view of "arising in" jurisdiction taken by the Fourth Circuit in Grausz. Nevertheless, this court believes that something more is required to sustain "arising in" jurisdiction in a chapter 7 case than simply the fact that the relevant actions occurred, in a temporal sense, during the pendency of the case. Finally, even though the FDCPA claims are based on the same conduct that is alleged to have violated the automatic stay and the discharge injunction, the court is unable to find that they are "related to" the debtor's bankruptcy case within the meaning of Section 1334, since recovery will not, even indirectly, benefit the bankruptcy estate or vindicate a right protected by the Bankruptcy Code. Put another way, it is not sufficient that the claims are "related to" other claims over which this court has subject-matter jurisdiction; they must be related to the bankruptcy case itself.
C.
It is true, as the plaintiff eloquently argues, that judicial economy would be promoted by having all claims disposed of in a single trial, since they arise from a single set of facts. In this connection, 28 U.S.C. § 1367(a), which was enacted by the Judicial Improvements Act of 1990, provides as follows:
[With certain exceptions], in any civil action of which the district courts have original jurisdiction, the district courts shall have supplemental jurisdiction over all other claims that are so related to claims in the action within such original jurisdiction that they form part of the same case or controversy under Article III of the United States Constitution. Such supplemental jurisdiction shall include claims that involve the joinder or intervention of additional parties.
(emphasis added). Section 1367 is essentially a codification of the judicially-developed doctrines of ancillary and pendent jurisdiction. Susan Block-Lieb, "The Case Against Supplemental Bankruptcy Jurisdiction: A Constitutional, Statutory, and Policy Analysis," 62 Fordham L.Rev. 721, 743 (1994); see also United Mine Workers of Am. v. Gibbs, 383 U.S. 715, 725-29, 86 S. Ct. 1130, 1138-40, 16 L. Ed. 2d 218 (1966). However, the question of whether a bankruptcy court is empowered to exercise supplemental jurisdiction is quite controversial and has divided the courts. See generally Block-Lieb, supra (conceding that "the majority of courts that have addressed the issue have concluded that both district courts and non-Article III bankruptcy courts are empowered to exercise supplemental bankruptcy jurisdiction" but arguing that the exercise of such jurisdiction even by a district court is inconsistent with the primary purpose of bankruptcy jurisdiction, which is the efficient administration of a bankruptcy estate, and its exercise by a non-Article III bankruptcy court unconstitutional). Compare Walker v. The Cadle Co. (In re Walker), 51 F.3d 562, 572 (5th Cir. 1995) (concluding bankruptcy courts have no authority to exercise supplemental jurisdiction), with Jones v. Woody (In re W.J. Services, Inc.), 139 B.R. 824, 826 (Bankr. S.D. Tex. 1992) (as unit of the district court, bankruptcy court may exercise supplemental jurisdiction).
The better-reasoned conclusion, this court believes, is that bankruptcy courts may not exercise supplemental jurisdiction. The subject-matter jurisdiction of federal district courts is set forth in several sections of Title 28, United States Code. Congress has authorized district courts to refer to bankruptcy judges only those cases and proceedings in which jurisdiction arises under Section 1334. See 28 U.S.C. § 157(a). There is no equivalent provision allowing the district court to refer proceedings in which jurisdiction arises under other sections, including Section 1367, to bankruptcy judges. Accordingly, notwithstanding the obvious judicial economy that would result from this court exercising jurisdiction over the Fair Debt Collection Practices Act claims, the court reluctantly concludes that it is without power to do so.
D.
That leaves the question of a proper remedy. One possibility is simply to dismiss the FDCPA claims without prejudice to refiling them in the United States District Court. The automatic stay and discharge injunction issues are unquestionably within this court's subject-matter jurisdiction and would be tried here. To what extent any factual findings made by this court would be accorded collateral estoppel effect in the District Court would be for that court to determine. There is, however, a risk that a second trial might be required in the District Court, which would obviously increase the costs to both parties. That risk would be avoided if the District Court were to withdraw the reference of the bankruptcy issues so that the entire action could be tried in the District Court. This court exercises jurisdiction in bankruptcy cases and proceedings only as a result of a reference from the District Court. See 28 U.S.C. § 157(a) and the general order of reference from the United States District Court for the Eastern District of Virginia dated August 15, 1984. The District Court, however, may withdraw the reference "for cause shown," either on its own motion or on motion of a party in interest. 28 U.S.C. § 157(d). An argument can certainly be made that withdrawal of the reference is appropriate to allow a single trial of the automatic stay, discharge injunction, and FDCPA claims, over all of which the District Court unquestionably has jurisdiction. Whether the District Court would find the requisite "cause" if requested to withdraw the reference is obviously a matter for its determination. And it may be that the plaintiff, for cost or other reasons, would prefer not to try her bankruptcy claims in the District Court. Accordingly, the Fair Debt Collection Practices Act claims will stand dismissed unless, within 10 days of the order reflecting this court's ruling, the plaintiff files a motion for withdrawal of the reference and the motion is thereafter granted by the District Court.
Indeed, the District Court may determine that this court's analysis of the jurisdictional issue is incorrect, and that this court's subject-matter jurisdiction extends to all the claims, which would then moot any need for withdrawal of the reference.
A separate order will be entered consistent with this opinion and with the court's oral ruling.