Opinion
Case No. 99-51514.
May 3, 2007
OPINION DENYING DEBTOR'S MOTION REGARDING SUBJECT MATTER JURISDICTION IN RELATION TO DEBTOR'S COMPETENCY AND GUARDIAN AD LITEM APPOINTMENT
Before the Court is the Debtor's motion requesting the Court to (a) declare that it lacks subject matter jurisdiction with regard to (1) the Court's previous appointment of a Guardian Ad Litem ("GAL"), as well as (2) any future hearing in the Bankruptcy Court which is designed, or would have the effect of terminating that appointment, and/or, (b) have this Court abstain from any such future hearing on the GAL appointment/termination issue. The trustee of the Debtor's bankruptcy estate submitted a response that is neutral with regard to the continuation of the GAL and opposes abstention and any order requiring the trustee to pursue the appointment of a GAL in state court. Thomas Van Fossen, a creditor, requested in his answer that the Court find it does have subject matter jurisdiction to appoint a GAL.
I. Introduction
Joseph Edward Kloian ("the Debtor") filed for bankruptcy protection on July 20, 1999. Due to the many difficulties encountered in administering this case, the Court ordered the appointment of a Guardian Ad Litem on February 12, 2003 (docket number 1422) ("Appointment Opinion"). Ronald L. Rose was appointed GAL on March 26, 2003. The Court of Appeals has twice addressed appeals from that appointment. The first appeal to that court affirmed the District Court's dismissal of the Debtor's appeal of the Appointment Opinion and its effectuating Order for failure to comply with procedural rules. In re Kloian (Kloian v. Simon), 137 Fed. Appx. 780 (6th Cir. June 10, 2005). The second time that Court visited the matter, was in In re Kloian (Kloian v. Simon), 179 Fed. Appx. 262 (6th Cir. May 1, 2006). As respects its latter decision (in which there is no mention of the jurisdictional argument the Debtor now makes) that Court (1) affirmed the District Court's decision denying Debtor a competency hearing because of the Debtor's failure to support his motion with any evidence that he was then competent; and (2) said that Debtor was free to seek another competency hearing. Debtor may be seen as now having done so, but incident thereto, has also raised what Debtor asserts is a question of jurisdiction. If a jurisdictional question is truly involved, and if on a jurisdictional basis it was decided in favor of Debtor's position, in additional to affecting a new competency hearing it arguably might have adverse ramifications on this Court's original 2003 GAL appointment. As this Court is concluding both that a jurisdictional question is not involved, and that even if it were, jurisdiction exists, no more is going to be said on the latter point.
This case arose prior to the enactment and effective date of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA), Pub.L. No. 109-8 119 Stat. 23. Accordingly, all references herein are to the pre-BAPCPA Code in effect when the Debtor's petition was filed. 11 U.S.C. §§ 101- 1330 (2000).
Relevant also to the contextual framework of this Motion is the pendency of other proceedings on the competency question. Debtor, in pro per, has filed a request in the Court of Appeals for the Sixth Circuit for a Writ of Mandamus requiring this Bankruptcy Court to hold a hearing within 30 days, to determine the Debtor's competency, or abstain; and (b) requiring this Bankruptcy Court to stay the order appointing the GAL and all other proceedings until after the competency and GAL disqualification issues are determined. In that pleading Debtor requests, among other things, that the Court of Appeals direct this Court, in connection with any new competency hearing, to either (1) apply Michigan Probate law to that proceeding, or (2) abstain and have the matter of his ongoing competency determined by a Michigan Probate Court. Additionally, in this Court, Debtor has by pending motion(s), requested certain rulings in advance of any new competency hearing in this Court relative to (a) who has the burden of proof; (b) what is to be the standard of proof; (c) what is the appropriate definition or articulation of incompetency necessary to support the continuation of the GAL appointment; and (d) whether or not Debtor is entitled to a jury trial in a Bankruptcy Court hearing on the competency issue or termination of the existing GAL appointment. There is fair overlap on necessarily involved legal issues between (1) this latter matter; (2) the subjects of the Court of Appeal's Writ of Mandamus request, and (3) the legal issues involved in this Motion on the jurisdictional issue. It arises by reason of the essential and basic common theme of Debtor's arguments in them that either the Bankruptcy Court does not have jurisdiction because the matter of Debtor's competency is exclusively a state court matter, or, if it does have jurisdiction, it must apply exactly the same procedural and substantive rules to determine competency as the Michigan Probate court would if it were hearing the issue.
Under the circumstances a case might be made for this Court waiting until the Court of Appeals acts on the request for the Writ of Mandamus before doing anything else. However, that risks to some extent providing further fodder for Debtor's unjustified complaint that this Court has not been acting sufficiently expeditiously or responsively to the Court of Appeal's earlier indication of the availability to Debtor of a further competency hearing. Rightly or wrongly, this Court has concluded it should proceed to decide in due course what is before it, understanding full well that those decisions could be affected by the disposition of the Writ of Mandamus request. Hopefully, the Court of Appeals will adopt the view that in the first instance it is up to the Bankruptcy Court to make these decisions and thereafter the appellate process to deal with their correctness.
The recited scattergun approach of the Debtor to the jurisdictional issue he now raises, among other things, requires a sorting out of what are clearly "jurisdictional" issues and what are not. Those that are not, including abstention, in this Court's view should be seen as either (a) legally foreclosed from further consideration by this Court on law of the case grounds by reason of the recited prior litigative history on the competency issue or, (b) not appropriate on their merits.
The Court of Appeal's mandamus filing occurred after this Court's hearing on the Motion which is the subject of this Opinion.
As this Court perceives it, the issue before this Court in this Opinion is strictly whether or not this Court has jurisdiction to appoint a Guardian Ad Litem (or more accurately) to now terminate the existing GAL on grounds the Debtor has become competent. Accordingly, the Court will forego any discussion of other somewhat related subjects or the underlying facts of the case which initially led to the appointment of the GAL, all of which were covered in the Appointment Opinion.
II. Subject Matter Jurisdiction
Preliminarily the Court believes it important to observe that because Debtor poses the issue of the initial GAL appointment or termination of that appointment, as one involving "jurisdiction" does not necessarily make it so. No one does (or can) argue that the Bankruptcy Court does not have jurisdiction of the Debtor's bankruptcy case itself or the Debtor individually himself incident thereto. It is this Court's primary view that the Debtor's competency to properly deal with the administration of the bankruptcy estate whether for his benefit and protection or for the benefit of the other interested parties, is a lesser and included, and non-jurisdictional, aspect of the administration of the bankruptcy estate. Jurisdiction over the bankruptcy case itself, both as a matter of inherent power and by virtue of 11 U.S.C. § 105(a), requires that conclusion. The latter specifically empowers the Bankruptcy Court to carry out the provisions of the Bankruptcy Code i.e.: administration of a bankruptcy estate, as well as implement applicable court rules — which, in this case is basically Fed.R.Civ.P. 17(c) dealing with incompetency, which is made applicable to this contested matter by virtue of Fed.R.Bankr.P. 9014(c). One Court has said, albeit in a diversity case involving a litigant's capacity to sue or be sued, "The question of a litigant's capacity or right to sue or be sued does not affect the subject matter jurisdiction of the District Court." Summers v. Interstate Tractor Equipment Co., 466 F.2d 42, 50 (9th Cir. 1972). The reasoning for that conclusion in this Court's view is similarly applicable to the matter of a debtor's personal competency in a chapter 7 bankruptcy context.
Take for example a diversity case in the District Court where sometime during the proceedings, the question of the competency of one of the parties arises, and it was felt necessary to invoke the provisions of Fed.R.Civ.P 17(c) to appoint a guardian ad litem for that party. It seems beyond argument that the appointment of that guardian ad litem does not at that point cause the loss by the District Court of jurisdiction over that case or the person of the party for whom the guardian was appointed. Indeed inherent in the very concept of enabling such an appointment is the idea that the case (and jurisdiction over the parties) should continue but in a mode which protects the interests of the incompetent party. The same could be said for a District Court case jurisdiction of which is based on a federal question. Indeed, the federal question jurisdictional example is more akin to the situation where the case involved is a bankruptcy case.
Finally, important note should be taken of Fed.R.Bankr.P 1016 which provides that incompetency of a debtor in a chapter 7 case does not abate the case and that "the estate shall be administered and the case concluded in the same manner, as far as possible, as though. . . . . . . the incompetency has not occurred." That belies any loss of jurisdiction by reason of the appointment of a guardian ad litem and indeed reinforces the notion that the Bankruptcy Court's jurisdiction is meant to continue notwithstanding such an appointment. That this Court might be required to apply the procedural or substantive law of some state (Michigan in this case) in deciding the issue of competency or indeed ay other issue in a matter over which it otherwise has jurisdiction, does not perforce deprive the Bankruptcy Court of the "jurisdiction" to decide the competency or other issue. Bankruptcy Courts do, and indeed are mandated to, apply state law all of the time — and do so without its jurisdiction over the case or the parties being lost in midstream. Finally, as noted, this Court is in the position of having been specifically directed by the Court of Appeals to afford the Debtor a further competency hearing (presumably in the Bankruptcy Court), if the Debtor presents appropriate additional evidence warranting same. Thus, for all of the indicated reasons, the Court concludes the competency of the Debtor is not a jurisdictional issue.
That said, given the litigious history of the case and this Court's desire to deal with questions raised on the basis they have been raised, it will also address the issue on the possibility that it might be considered a "jurisdictional" issue. As noted, there can be little or no question about the Bankruptcy Court's jurisdiction over the person and estate of a debtor who voluntarily filed this bankruptcy case. Subject matter jurisdiction essentially refers to jurisdiction over the type or class of case to which the particular case belongs. Once it attaches it necessarily includes jurisdiction and the ability to adjudicate whatever is involved in that case, except such matters as are clearly excepted therefrom by applicable statute or rule. Here we are dealing with a chapter 7 bankruptcy case the essence and administration of which as primarily an in rem proceeding, involves the collection and liquidation of non-exempt assets and their distribution to creditors. The statutory obligation of a debtor to cooperate with a trustee in the administration of an estate inferentially and necessarily carries with it the jurisdiction to enforce and make that obligation meaningful and effective, both for purposes of administration of the bankruptcy estate and the protection of an incompetent debtor's interests.
While this case could be seen as testing the limits of the concept, it is true that jurisdiction of a court may generally be raised at any time by a motion of a party or by the court sua sponte and even at the highest appellate level. Mansfield v. Swan, 111 U.S. 379, 382-83; 4 S.Ct. 510; 28 L.Ed. 462 (1884) (see Capron v. Van Noorden, 2 Cranch 126 (1804) where jurisdiction was first raised at the Supreme Court). Even if the party against whom the error is committed does not complain of being prejudiced by a lack of jurisdiction, the nature of jurisdiction in the United States is "inflexible and without exception." Id. at 382. Only Congress may determine the lower federal courts' subject matter jurisdiction. U.S. Const., Art. III, § 1. Even if both parties desire the Court to exercise jurisdiction, it may only do so if jurisdiction has been granted by Congress. Mansfield v. Swan, 111 U.S. at 384. A party may raise the issue of subject matter jurisdiction at anytime including after trial and entry of a judgment. Arbaugh v. Y H Corp., 546 U.S. 500; 126 S.Ct. 1235; 163 L.Ed. 1097 (2006). Rules do not expand or contract jurisdiction. See Bankr. Rule 9030 and Fed.R.Civ.P. 82. The Bankruptcy Rules prescribe rules of practice and procedure. Kontrick v. Ryan, 540 U.S. 443, 453; 124 S.Ct. 906; 157 L.Ed. 867 (2004).
Jurisdiction in the federal courts is determined by title 28. Section 1334 gives the district courts jurisdiction in all cases under title 11, all civil proceedings under title 11, or arising in or related to cases under title 11.28 U.S.C. § 1334(a) and (b). The bankruptcy court has jurisdiction pursuant to § 157 for any and all proceedings arising under title 11 or related to a case under title 11. 28 U.S.C. § 157(a). Section 1334(c) has mandatory abstention requirement and guidelines allowing for permissive abstention. The first question, therefore, is whether a proceeding to determine whether the appointment or termination of a previously appointed Bankruptcy GAL is justified, as arising under title 11, or at least related to case under title 11. The second question is whether there is a probate exception. The final question (which may or may not be "jurisdictional") is whether, if there is subject matter jurisdiction, is abstention otherwise appropriate.
The Debtor argues in footnote 4 of his brief that allowing the appointment of a GAL because the Debtor was and is unable to fulfill his duties would mean that the Court would have subject matter jurisdiction over criminal matters as well. Section 1334 expressly limits jurisdiction to civil matters, and it is that limitation that prevents subject matter jurisdiction in criminal cases, and not the reasoning used by the Debtor. See 28 U.S.C. § 1334(b).
III. "Related to" Jurisdiction
While a strong argument can be made that appointment of a GAL is a matter "arising in" a bankruptcy case, because it is incident to and a lesser and included part of that case, an even stronger argument is that a competency hearing to appoint a GAL is, at the very least, a "related to" proceeding under 28 U.S.C. § 1334. The test for such articulated by the Sixth Circuit in Robinson v. Michigan Consol. Gas Co. Inc., is whether "the outcome could have any effect on the estate being administered in bankruptcy," or in other words would the proceeding "alter the debtor's rights, liabilities, options, or freedom of action (either positively or negatively) and which in any way impacts upon the handling and administration of the bankruptcy estate." 918 F.2d 579, 583 (6th Cir. 1990) (emphasis added). The Sixth Circuit specifically enunciated that "the proceeding need not be against the debtor or against the debtor's property." Id.
The appointment of a GAL for the purposes of the bankruptcy case (and only the bankruptcy case) is clearly "related to" the bankruptcy case. First, the appointment of a GAL is designed to give substance and effect to the rights and interests of an important party in interest — the debtor; second, the Court specifically enumerated in its Appointment Opinion its concern that the Debtor "has already wasted considerable assets in this case by his countless, often meritless objections." Appointment Opinion at *29. The Court further stated in the Appointment Opinion that the "Debtor's incapacities have stalled this case to a degree that it violates the other parties' rights to the timely determination of their claims and various requests for different kinds of relief or judicial actions, and otherwise severely prejudices Trustee's and the Court's ability to administer the estate." Id. The Debtor's said actions — factual findings as yet not overturned — adversely affected the administration of the bankruptcy estate. Accordingly, the Court, at the very least, has "related to" jurisdiction under 28 U.S.C. § 1334(b) to appoint a GAL or terminate a prior GAL appointment in a bankruptcy case.
IV. The Probate Exception
The Debtor additionally argues that the probate exception prevents the bankruptcy court from appointing a GAL because competency hearings are held by state probate courts or their equivalents. The probate exception stems from the Judiciary Act of 1789. Marshall v. Marshall, 547 U.S. 293; 126 S.Ct. 1735; 164 L.Ed. 480 (2006). The grant of equity jurisdiction in the Judiciary Act of 1789 was that of the English Court of Chancery in 1789 and did not extend to probate matters. Markham v. Allen, 326 U.S. 490, 494; 66 S.Ct. 296; 90 L.Ed. 256 (1946). The Supreme Court has since had occasion to define the meaning of the probate exception, and it is therefore unnecessary to delve into equity jurisdiction in the English Chancery Courts in the late 18th century. Both Markham and Marshall clearly state that a probate exception exists, but the Court in both cases found that federal subject matter jurisdiction did exist due to the extremely narrow interpretation of the probate exception. Marshall states that the probate exception is no more that the general principle that when one court, in the probate exception — a probate court, is exercising in rem jurisdiction over res, a second court, that would be a federal court in this instance, will not assume in rem jurisdiction over the same res. Marshall v. Marshall, 547 U.S. 293 (2006) (interpreting the holding of Markham). The Supreme Court further stated,
the probate exception reserves to state probate courts the probate or annulment of a will and the administration of a decedent's estate; it also precludes federal courts from endeavoring to dispose of property that is in the custody of a state probate court. But it does not bar federal courts from adjudicating matters outside those confines and otherwise within federal jurisdiction. Id.
The probate exception applies to probating a will, not to any issue a probate court might handle. Quite simply in the case at bar, the Court is not attempting to probate a will, annul a will, or administer a decedent's estate. There is no will to probate or annul, and the Debtor is alive and consequently not a decedent. The Court is trying to administer a bankruptcy estate, and a GAL in the bankruptcy case may be necessary to do so.
V. Abstention
On the possibility the Court might determine that at a minimum there is "related to" jurisdiction, the Debtor in his motion has alternately requested that the Court abstain, pursuant to 28 U.S.C. § 1334. In this Court's view, abstention presupposes the existence of jurisdiction in the Bankruptcy Court but creates circumstances where it should or might be ceded to a state court. Abstention is thus not a "jurisdictional" issue as such and thus, among other things, can be waived or precluded from being considered quite apart from the merits of the abstention argument. The previously recited litigated history of the competency issue involving Debtor (whether or not the abstention issue was previously raised) makes a very strong argument that the Debtor has waived the right to now assert the abstention question, irrespective of the timeliness requirement involved in the merits of the abstention issue itself — a requirement that is hereinafter referred to. Presumably in raising the abstention issue, the Debtor is referencing 28 U.S.C. § 1334(c)(2)'s mandatory abstention requirement: "Upon a timely motion of a party in a proceeding based on a State law claim or State law cause of action . . . the district court shall abstain from hearing such a proceeding. . . ." Six requirements must be met to qualify for mandatory abstention. In re Consulting Actuarial Partners Ltd. P'ship, 72 B.R. 821, 827-8 ((1) timely motion; (2) state law claim or cause of action; (3) "related to" jurisdiction; (4) jurisdiction only exists due to § 1334; (5) an action must have been commenced in the state court; and (6) timely adjudication is available in the state court). Few courts have construed the meaning of the word timely. In re Novak, 116 B.R. 626, 628 (N.D. Ill. 1990) (finding that waiting one year after answering the original complaint was not timely). The court in Novak stated the rule in the Northern District of Illinois to be that "a party acts as soon as possible after he or she should have learned the grounds for such a motion." Id. See also In re Waugh, 165 B.R. 450, 452 (Bankr. E.D. Ark. 1994) (motion filed four months after commencement of proceeding was not timely). In In re Acolyte Elec. Corp. v. City of New York, the court justified finding that a motion was timely because there was "no prejudice or change in position between the dates" to justify holding the motion untimely. 69 B.R. 155, 179 (Bankr. E.D.N.Y. 1986).
In contrast, the following cases did find that a motion was timely: In re Adams, 133 B.R. 191, 195 (BankrW.D.Mich. 1991) (motion timely when filed within 21 days of original application for removal); Acolyte Elec. Corp. v. City of New York, 69 B.R. 155, 177 (Bankr.E.D.N.Y. 1986) (motion timely when filed less than two months after filing of adversary complaint); In re Consulting Actuarial Partners, Ltd. Ptn., 72 B.R. 821, 827-28 (Bankr.S.D.N.Y. 1987) (timely motion was a cross motion in response to the debtor's motion for a preliminary injunction); In re Chiodo, 88 B.R. 780, 781 (W.D.Tex. 1988) (motion timely filed when filed within one month after third party became a party and with initial pleading); In re Fulfer, 159 B.R. 921, 923 (Bankr.D.Idaho 1993) (finding motion filed four months after initial removal petition was timely); Bowen Corp., Inc. v. Security Pacific Bank Idaho, F.S.B., 150 B.R. 777, 782 (Bankr.D.Idaho 1993) (motion filed within six days of the removal action was timely); In re Ascher, 128 B.R. 639, 644 (Bankr.N.D.Ill. 1991) (motion for abstention was timely when filed 11 days after motion for removal); Allied Mechanical and Plumbing Corp. v. Dynamic Hostels Housing Development Fund Co., Inc. (In re Allied Mechanical and Plumbing Corp.), 62 B.R. 873, 877 (Bankr.S.D.N.Y. 1986) (motion filed within 20 days of answer and within three months of the filing of an adversary proceeding was timely).
The Debtor has not brought to the attention of this Court any current competency action pending in state probate court or any such action that was pending at the time of the original GAL appointment. The lack of such in and of itself precludes abstention. Additionally, given that the GAL was appointed four years ago and the issue has been to the Court of Appeals, twice, this Court must also, and alternatively, conclude that the motion for mandatory abstention is not timely filed. The Debtor has not acted as soon as possible upon learning the grounds for this motion, and after four years of litigating this issue, positions have assuredly changed since the GAL was appointed, the undoing of which must be avoided. Since a state court action is not currently pending, and the motion was not timely filed, elements requiring mandatory abstention are not present.
Additionally, 28 U.S.C. § 1334(c)(1) allows for permissive abstention in the interest of justice or comity. This Court, given the history of this case, certainly has a strong and vested interest in expediting administration of this estate. Virtually the only items standing in the way of substantially completing that administration (assuming no further proceedings will be needed to seek out assets to satisfy claims) are the finalization of two claims, one of which is in the process of being determined and hopefully negotiated to the point of some settlement, and the other on which an evidentiary hearing has been set. As to the matter of Debtor's competency, if that is what this Court is required to do (and that is another issue that this Court has under consideration and will be deciding) this Court is perfectly capable of discerning, following and applying applicable state court rules in revisiting Debtor's competency. Applying the permissive abstention criteria, contrary to Debtor's view, justice to both Debtor (if he would but realize it) and the other interested parties in this bankruptcy case, requires that the matter of Debtor's competency not be arrogated to the state courts, Debtor's endless and amply demonstrated litigious tendencies will likely initiate new rounds of rehearings and appeals there with the Dickensian results and consequent delays in finalizing the administration of the bankruptcy case, Dickens' Bleak House case of Jarndyce vs. Jarndyce epitomizes. Comity requires that this Court not unleash that possibility upon the state courts. Accordingly, this Court does not find either mandatory or permissive abstention appropriate.
VI. Conclusion
In sum: (1) the matter of the Debtor's competency and the need for the appointment or continuation of a prior appointment of a GAL is not a "jurisdictional" question; (2) even if it is a jurisdictional question, jurisdiction clearly exists; and (3) neither mandatory nor permissive abstention is called for under the circumstances of this case. Accordingly, the Debtor's motion is denied. An order to that effect is being entered contemporaneously.