Opinion
Civ. No. 02-1333 (DRD), Bankruptcy Case Nos. 89-10119 (RG), 89-10120 (RG), 89-10461 (RG), 89-10462 (RG), Adv. Proc. No. 97-2283 (RG).
December 18, 2002
David H. Pinkus, Esq., Bressler, Amery Ross, P.C., Morristown, NJ, Florham Park, NJ, Attorney for Plaintiff-Appellant.
Alan E. Kraus, Esq., Latham Watkins, Newark, NJ, Attorney for Defendant-Appellee.
OPINION
Plaintiff-Appellant J. Louis Binder (the "Trustee" or the "Litigation Trustee"), in his capacity as Trustee of the Resorts International, Inc., Litigation Trust (the "Trust" or the "Litigation Trust"), appeals from an order of the Bankruptcy Court for this District dismissing for lack of subject matter jurisdiction his claims against Defendant-Appellee Price Waterhouse Co. ("PW") for negligence and breach of contract in connection with its engagement by the Litigation Trust. Because Appellant's claims are sufficiently related to the bankruptcy case from which the Trust emerged (for the purposes of 28 U.S.C. § 1334(b)), and because the Bankruptcy Court therefore has jurisdiction over those claims, the Bankruptcy Court's decision will be reversed.
As the account below makes clear, there have been two trustees of the Litigation Trust. Subsequent references to the "Litigation Trustee" or to the "Trustee" should he understood to refer to the occupant of the position at the relevant time.
Because the order involves a controlling question of law concerning which there are substantial grounds for difference of opinion, and because resolution of that question will materially advance the ultimate termination of the litigation, the order reversing the Bankruptcy Court's decision will be certified for immediate appeal pursuant to 28 U.S.C. § 1292(b).
BACKGROUND
The following account of facts relevant to the jurisdictional analysis and the present appeal is drawn substantially from the statement of facts appearing in the Bankruptcy Court's opinion, from the Complaint, and from the documents to which they refer.
The events giving rise to this proceeding grow out of the bankruptcy cases of Resorts International, Inc., and associated entities (collectively the "Debtor"), commenced in November and December of 1989 and consolidated in December of 1989.
On August 28, 1990, the Bankruptcy Court issued an order confirming the Second Amended Joint Plan of Reorganization (the "Plan"). Pursuant to the Plan, the Litigation Trust was to be created for the benefit of certain creditors. On September 17, 1990 a Litigation Trust Agreement (the "Trust Agreement" or the "Agreement") was entered into between the Debtor and the Litigation Trust.
The Plan empowered the Litigation Trust to prosecute various claims (the "Litigation Claims") originally held by the Debtor against Donald Trump and affiliated entities (the "Trump Parties") arising from the 1988 leveraged buyout of the Taj Mahal resort by Trump from the Debtor. Specifically, Section 7.10 of the Plan provided,
The Litigation Trustee shall retain and preserve the Litigation Claims for enforcement, as representative of and successor to the Reorganizing Entities in accordance with Bankruptcy Code §§ 1123(b)(3)(B) and 1145(a).
11 U.S.C. § 1123(b)(3)(B) provides
(b) Subject to subsection (a) of this section, a plan may — . . .
(3) provide for — . . .
(B) the retention and enforcement by the debtor, by the trustee, or by a representative of the estate appointed for such purpose, of any . . . claim or interest [belonging to the debtor or to the estate]. . . .
The Litigation Claims were assigned to the Litigation Trustee upon the formation of the Trust. Units representing beneficial interests in the Trust were assigned to certain creditors pursuant to the Plan. In addition, the Plan and the Trust Agreement required the Debtor to provide the Litigation Trust with an irrevocable letter of credit in the amount of $5,000,000 to enable the Trust to pursue the Litigation Claims. Representatives of the unit holders of the Trust elected Kenneth R. Feinberg as the Litigation Trustee, pursuant to an April 17, 1990 order of the Bankruptcy Court. Subsequently, by order dated August 17, 1994, Appellant replaced Feinberg as Trustee. On May 28, 1991, the Litigation Trust, the Debtor, and the Trump Parties settled the Litigation claims, the Trump Parties paying $12,000,000 into the Trust pursuant to the settlement.
The balance of the funds made available under the letter of credit was to inure to the Litigation Trust on resolution of the Litigation Claims.
The Trust Agreement required the Trustee to retain an independent public accounting firm to audit the books and records of the Trust and perform other reviews and/or audits that Trustee deemed appropriate; and it provided that the Trustee "shall pay such accounting firm reasonable compensation from the Trust Assets" for its services. The Trust Agreement also required the Trustee to produce and furnish to the unit holders (at least annually) reports detailing all the Trust's transactions and disbursements; and the Agreement also required that such reports would be audited by the accounting firm retained pursuant to the Agreement. On or about November 1, 1990, Feinberg retained Appellee to audit certain of the Litigation Trust accounts and to perform tax-related work for the Trust. In 1994 Appellee was dismissed by Appellant; and on April 15, 1997, Appellant filed this adversary proceeding against Appellee, alleging numerous instances of professional negligence and breaches of contract.
Appellant's principal allegation is that PW erred by reporting in its audit reports that certain interest that accrued on funds held in Litigation Trust accounts belonged to the Debtor rather than the Trust. That interest was the subject of a dispute between the Debtor and the Litigation Trust — a dispute which the Bankruptcy Court decided in part in favor of the Debtor and in part in favor of the Trust. The Complaint alleges that to the extent that the Bankruptcy Court approved the Debtor's claim to the interest, it relied on the PW reports, and that PW's alleged errors thus resulted in injury to the Trust. The Complaint also alleges that even to the extent that the Trust prevailed in the dispute over interest, PW's erroneous characterization of the funds caused it to incur unnecessary costs in defending its entitlement.
The Complaint also alleges numerous errors in tax advice (both substantive and procedural) provided to Feinberg in his capacity as Trustee. It also alleges failure to properly review and interpret foundation documents of the Trust "integral to the performance of a proper audit," and failure to detect and report excessive fees drawn by Feinberg. Appellant seeks damages and the disgorgement of fees paid to PW.
The request for disgorgement is not entirely clear from the face of the Complaint. But Appellant confirmed that he seeks such relief in the papers he submitted to the Bankruptcy Court in connection with the motion to dismiss that is the subject of this appeal.
Article VIII of the Trust Agreement provides,
The Bankruptcy Court shall retain exclusive jurisdiction over the Litigation Claims and Counterclaims, the Trust, the Trustee and the Trust Assets, as provided for in the Plan, including, without limitation, the determination of all controversies and disputes arising under or in connection with this Trust Agreement.
Article XI of the Plan provides,
Section 11.1 Jurisdiction of the Bankruptcy Court. Following the Effective Date, the Bankruptcy Court will retain jurisdiction of the Reorganizing Cases for the following purposes:
. . .
(c) To ensure that the distribution to Holders of Claims and Interests are [sic] accomplished as provided herein;
. . .
(h) To hear and determine disputes arising in connection with the Plan or its implementation, including disputes arising under agreements, documents or instruments executed in connection with this Plan;
(I) To construe and to take any action to enforce the Plan and issue such orders as may be necessary for the implementation, execution, and consummation of the Plan;
. . .
(o) To hear and determine any other matters not inconsistent with Chapter 11 of the Bankruptcy Code.
DISCUSSION
I. Subject Matter JurisdictionJurisdiction over this appeal is provided by 28 U.S.C. § 158. The Bankruptcy Court's decision on jurisdiction is subject to de novo review. See In re Marcus Hook Dev. Park, Inc., 943 F.2d 261, 263 (3d Cir. 1991). The Bankruptcy Court correctly concluded that PW's challenge to its jurisdiction is facial rather than factual. Accordingly, the following discussion assumes the truth of the allegations in the Complaint.
A defendant may challenge whether subject matter jurisdiction exists in one of two ways — facial or factual. 5A Wright and Miller, Federal Practice and Procedure: Civil 2d § 1350; 2 Moore's Federal Practice § 12.30 (Matthew Bender 3d ed.). A facial challenge to jurisdiction asserts that the plaintiff's complaint, on its face, does not allege sufficient grounds to establish subject matter jurisdiction. Cardio-Medical Ass'n v. Crozer-Chester Med. Ctr., 721 F.2d 68, 75 (3d Cir. 1983). "[T]he court in assessing a Rule 12(b)(1) motion based on the pleadings must assume that the allegations contained in the complaint are true." Id. In considering a factual challenge to jurisdiction, the court may rely on affidavits and other such competent evidence. Land v. Dollar, 330 U.S. 731, 735 (1947);Tanzymore v. Bethlehem Steel Corporation, 457 F.2d 1320, 1323 (3d Cir. 1972); Donio v. United States, 746 F. Supp. 500, 504 (D.N.J. 1990). The plaintiff ultimately bears the burden of proving jurisdiction. See Mortensen v. First Federal Sav. and Loan Ass'n, 549 F.2d 884, 891 (3rd Cir. 1977).
The Bankruptcy Court has subject matter jurisdiction over Appellant's claims. The relevant case law makes it clear that a bankruptcy court may exercise jurisdiction over cases arising from the conduct of professionals involved in the administration of the bankruptcy estate; and although claims arising from a post-confirmation trust are not as clearly related to the administration of the estate as those arising from pre-confirmation engagements, at least in this case the terms on which the Litigation Trust was created and its practical role in the Plan lead to the conclusion that claims arising from professional misconduct in the Trust's affairs are sufficiently related to the bankruptcy case to be within the jurisdiction of the Bankruptcy Court.
Under 28 U.S.C. § 1334(b), a bankruptcy court potentially has jurisdiction over four types of Title 11 matters: (1) cases under Title 11, (2) proceedings arising under Title 11, (3) proceedings arising in a case under Title 11, and (4) proceedings related to a case under Title 11. Marcus Hook, 943 F.2d at 264. (citations omitted). Because the outer limits of jurisdiction are defined by the broadest of these categories, in deciding whether jurisdiction exists over a given claim, a court must determine only whether it is at least "related to" a case under Title 11.Marcus Hook 943 F.2d at 264. A proceeding is related to the bankruptcy if "the outcome of that proceeding could conceivably have any effect on the estate being administered in bankruptcy."Id (quoting Pacor, Inc. v. Higgins, 743 F.2d 984, 994 (3d Cir. 1984) (emphasis omitted)). Bankruptcy jurisdiction will exist so long as it is possible that a proceeding may impact on "`the debtor's rights, liabilities, options, or freedom of action' or the `handling and administration of the bankruptcy estate.'" Marcus Hook, 943 F.2d at 264 (quoting In re Smith, 866 F.2d 576, 580 (3d Cir. 1989)).
Proceedings arising under Title 11 or arising in Title 11 cases are classified as "core" bankruptcy proceedings. See 28 U.S.C. § 157 (setting forth a non-exhaustive list of core proceedings); In re Guild Gallery Plus, Inc., 72 F.3d 1171, 1178 (3d Cir. 1996). More precisely, a proceeding is core if it "invokes a substantive right provided by title 11 or if it is a proceeding that, by its nature, could arise only in the context of a bankruptcy case." Marcus Hook, 943 F.2d at 267 (citations and internal quotation marks omitted). Bankruptcy courts may hear and determine core cases, with their decisions subject to appeal to the district court. See 28 U.S.C. § 157(b); 1 Collier on Bankruptcy ¶ 3.02[2] (Alan N. Resnick Henry J. Sommer eds., 15th ed. rev. 2002). Where a case is merely "related to" a case under Title 11, it is "non-core"; and absent the consent of the parties the bankruptcy court may only prepare proposed findings of fact and conclusions of law subject to de novo review by the district court. See 28 U.S.C. § 157(c); 1 Collier on Bankruptcy ¶ 3.03.
The jurisdiction of a bankruptcy court extends to professional malpractice claims, such as those at issue in the present case, arising from work connected to the administration of estates in bankruptcy. See Southmark Corp. v. Coopers Lybrand (In re Southmark Corp.), 163 F.3d 925 (5th Cir. 1999); Billing v. Ravin, Greenberg Zakin, (P.A.) (In re Billing), 150 B.R. 563 (D.N.J. 1993), rev'd on other grounds, 22 F.3d 1242 (3d Cir. 1993). In Southmark, the debtor sought to recover damages for the defendant accounting firm's alleged failure to properly assess the debtor's potential claims against a third party. In Billing, debtors sued their counsel for malpractice in the conduct of their Chapter 11 proceedings. In each case the court concluded that bankruptcy jurisdiction was proper — in fact determining that the claims at issue fell within core bankruptcy jurisdiction. In deciding that the claims were core as opposed to non-core bankruptcy matters, the Southmark court noted,
The accountant, Coopers Lybrand, had been retained by the court appointed examiner. 163 F. 3d at 925.
A sine qua non in restructuring the debtor-creditor relationship is the court's ability to police the fiduciaries, whether trustees or debtors-in-possession and other court-appointed professionals, who are responsible for managing the debtor's estate in the best interest of creditors.163 F.3d at 931. The court also observed,
Supervising the court-appointed professionals also bears directly on the distribution of the debtor's estate. If the estate is not marshaled and liquidated or reorganized expeditiously, there will be far less money available to pay creditors' claims. Excessive professional fees or fees charged for mediocre or, worse, phantom work also cause the estate and the creditors to suffer.Id.
Although the present case is by no means identical to eitherSouthmark or Billing, these cases do provide substantial authority for the exercise of jurisdiction over Appellant's claims. The grounds on which they might be distinguished are ultimately not persuasive.
The fact that Appellant's claims arise from the post-confirmation affairs of the Litigation Trust does not defeat jurisdiction. While the jurisdiction of a bankruptcy court diminishes with confirmation, it clearly does not disappear entirely: in numerous cases courts have exercised, approved, or recognized the existence of jurisdiction post-confirmation, see, e.g., Bergstrom v. Dalkon Shield Claimants Trust (In re A.H. Robins Co.), 86 F.3d 364, 371-73 (4th Cir. 1996); U.S. Trustee v. Gryphon at Stone Mansion, Inc., 166 F.3d 552 (3d Cir. 1999);Trans World Airlines v. Karabu Corp., 196 B.R. 711 (Bankr. D. Del. 1996); Plotner v. ATT Corp., 224 F.3d 1161 (10th Cir. 2000); In re U.S. Lines, Inc., 169 B.R. 804, 815-16 (Bankr. S.D.N.Y. 1994), rev'd 220 B.R. 5 (S.D.N.Y. 1997) (holding that jurisdiction was non-core rather than core), rev'd, 197 F. 3d 631 (2d Cir. 1999) (agreeing with bankruptcy court that jurisdiction was core). Also, some post-confirmation jurisdiction is provided by statute and by rule. See 11 U.S.C. § 1142(b) (authorizing the bankruptcy court to issue orders "necessary for the consummation of the plan"); Fed.R.Bankr.P. 3020(b), (providing that "[n]othwithstanding the entry of the order of confirmation, the court may enter all orders necessary to administer the estate"). The principal considerations that curtail bankruptcy jurisdiction post-confirmation are not compelling on the facts of this case, and Appellant's claims fall within the boundaries of post-confirmation jurisdiction that can be inferred from the relevant cases.
Appellee and the Bankruptcy court emphasize thatSouthmark and Billing both involved the conduct of professionals post-petition and pre-confirmation; and it was largely on the basis of that distinction that the Bankruptcy Court declined to view these cases as supporting the exercise of jurisdiction here over claims arising post-confirmation.
As a general matter, post-confirmation jurisdiction, like jurisdiction over pre-confirmation matters, is governed by thePacor test, with jurisdiction proper over cases that could "conceivably have any effect on the estate being administered in bankruptcy." See Gryphon, Inc., 166 F.3d at 556 (applying thePacor test in a case involving post-confirmation claims). However, special considerations dictate that the application of the Pacor test provides jurisdiction over a narrower range of cases post-confirmation than pre-confirmation. First, because confirmation commonly vests all the property of the estate in the reorganized debtor, see 11 U.S.C. 1141(b) ("Except as otherwise provided in the plan or the order confirming the plan, the confirmation of a plan vests all of the property of the estate in the debtor."), the scope of the estate and of its administration is diminished. See, e.g., In re Haws 158 B.R. 965, 969 (Bankr. S.D. Tex. 1993). Indeed, to the extent that confirmation in such cases could be said to terminate the estate entirely, a strictly literal application of the Pacor test would divest bankruptcy courts of all jurisdiction over post-confirmation matters. Second, courts have recognized the importance of striking a balance between the need to retain jurisdiction post-confirmation and the need to release the debtor from the "tutelage" associated with reorganization, "a period which may limit and hamper the corporation's activities and throw doubt upon its responsibility." In re Greenley Energy Holdings of Pennsylvania, 110 B.R. 173, 180 (Bankr. E.D. Pa. 1990) (quotingNorth American Car Corp. v. Peerless Weighing Vending Machine Corp., 143 F.2d 938, 940 (2d Cir. 1944) and In re Cinderella Clothing Industries, Inc., 93 B.R. 373, 376 (Bankr. E.D. Pa. 1988)) (internal quotation marks omitted).
Such a result would of course be inconsistent with the statutory scheme and the case law. Perhaps in order to avoid such theoretical difficulties, some courts have applied or approved variants of the Pacor test to post-confirmation jurisdictional questions, suggesting that jurisdiction is proper over matters that "significantly affect consummation of the plan as confirmed," Haws, 158 B.R. at 970, discussed in Donaldson v. Bernstein, 104 F.3d 547, 553 (3d Cir. 1997), or that "conceivably could affect the debtor's ability to consummate the confirmed plan." Trans World Airlines, 196 B.R. at 714; see also In re MAI Sys. Corp., 178 B.R. 50, 52 (Bankr. D. Del. 1995) (noting that the language of 28 U.S.C. § 1334 does not limit its broad jurisdictional grant to pre-confirmation proceedings). More precisely (and perhaps more narrowly) some courts have (as the Donaldson court observed) defined jurisdiction as reaching proceedings designed to interpret, enforce or aid the operation of the reorganization plan.Donaldson, 104, F.3d at 552 (mentioning In re Erie Hilton Joint Venture, 137 B.R. 165, 170 (Bankr. W.D. Pa. 1992). It should be noted however that to the extent that such a formula limits post-confirmation jurisdiction to matters covered by 11 U.S.C. § 1142(b), the Court of Appeals has rejected it. See Gryphon, 166 F.3d at 556 (noting that § 1142(b) does not provide that action to ensure consummation of a plan is the only action a bankruptcy court may take after confirmation).
In addition to these considerations, some courts have insisted that a bankruptcy court may exercise jurisdiction post-confirmation only over matters for which jurisdiction is specifically retained by the terms of the confirmation. See, e.g., In re Johns-Manville Corp., 7 F.3d 32, 34 (2d Cir. 1993). However the Court of Appeals appears to have rejected such a position, at least implicitly, see Gryphon, 166 F.3d 552 (approving jurisdiction in the absence of a specific provision retaining it over the matter at issue); but see Donaldson v. Bernstein, 104 F.3d 547, 552 (3d Cir. 1997) (declining to decide whether express retention of jurisdiction is required). Even if claims did have to fall within the scope of a retention provision for the Bankruptcy Court to have jurisdiction over them, jurisdiction would nevertheless be proper over Appellant's claims: the retention provisions in the Plan and the Trust Agreement are broad enough to embrace them.
Although these factors properly tend to restrict the bankruptcy court's post-confirmation jurisdiction in many cases, in this case they do not operate to defeat jurisdiction over Appellant's claims. In this case confirmation did not vest all the property of the estate in the reorganized Debtor. Rather it vested a large segment of that property in the Litigation Trust; and, pursuant to a specific provision of bankruptcy law, 11 U.S.C. § 1123, it conferred upon the Trustee the authority to administer that property as a "representative of the estate," ultimately for the benefit of the creditors who became stakeholders in the Trust. Accordingly, in the present case confirmation did not terminate the estate with respect to the property vested in the Litigation Trust; and the Trust represented a partial continuation of the estate. Consequently, the jurisdiction of the bankruptcy court over proceedings arising from the affairs of the Litigation Trust is not substantially different from its jurisdiction over similar matters pre-confirmation, and it should have the power to hear claims of professional malpractice in the administration of the Trust under the authority of cases such as Southmark andBilling.
It should be noted that even where courts have reasoned that the estate (and therefore bankruptcy jurisdiction) is diminished or substantially eliminated by the vesting of estate property in the debtor, they have implied that jurisdiction is still appropriate over proceedings that affect the disposition of property specifically designated as a source of funding for the plan. See, e.g., Haws 158 B.R. at 969-71 (rejecting jurisdiction over legal claims (arising from pre-petition conduct allegedly injuring debtor) deemed "non-plan assets"; also noting that jurisdiction may be proper over "management of the former estate as it was treated and disposed of in a confirmed plan of reorganization" but that, for jurisdiction to be properly exercised, claims must "relate back to the estate as it existed at confirmation.")
In addition, the position of the Litigation Trust in the scheme established by the Plan permits the Bankruptcy Court to exercise jurisdiction over the present case without implicating the concerns that arise from unduly protracted bankruptcy court supervision of a reorganized debtor. The Trustee asserts claims arising from the management of property that, instead of vesting the Debtor, was retained under the Plan by a representative of the estate as a source of funds to benefit creditors. Continued bankruptcy court jurisdiction over such matters does not in any way infringe upon the post-confirmation operations of the reorganized debtor or threaten to keep the debtor under unnecessary supervision; and the need to limit the role of the court in the debtor's affairs does not provide a justification for excluding Appellant's claims from the jurisdiction of the Bankruptcy Court.
The proposition that the affairs of post-confirmation trusts are effectively those of the estate (or at least analogous to those of the estate) for jurisdictional purposes is confirmed by cases in which courts have exercised or recognized jurisdiction over claims arising from the activities or administration of post-confirmation trusts. See Bergstrom, 86 F.3d 364; Plotner, 224 F.3d 1161; In re U.S. Lines, Inc., 169 B.R. at 815-16; U.S. v. Unger, 949 F.2d 231, 233-35 (8th Cir. 1991) (discussing jurisdiction in the event of trustee's breach of fiduciary duty).
Although Bergstrom is arguably distinguishable from this case because it involved the allocation of trust assets between claimants and attorneys under the terms of a plan, it does provide a clear refutation of any categorical argument that the transfer of property to a post-confirmation trust substantially removes it from bankruptcy court's jurisdiction.
Other factors that the Bankruptcy Court viewed as distinguishing the present case from Southmark also do not provide substantial arguments against jurisdiction. The Court emphasized that, although the Trust Agreement required the Trustee to employ an accounting firm and stipulated (at least in some respects) the duties it should perform, PW was not specifically mentioned in either the Plan or the Trust Agreement, that it was not appointed or approved by the Bankruptcy Court, and that its duties were not set forth extensively or in detail. To be sure, the fact that PW's duties are described only to a limited extent in the key documents might weigh somewhat against jurisdiction because it might suggests that PW's activities were not viewed as significant to the operation of the plan. However, as the case law indicates (and indeed as events in the present case confirm), the activities of professionals engaged by representatives of the estate are inherently likely to have a substantial effect on the administration of the estate; and Appellant's claims here arise from alleged negligence affecting the allocation of property between the Debtor and the trust, and touching upon the fiduciary duties of the Trustee himself. Because PW's work inevitably had a considerable effect on the administration of the Trust, which was effectively if not literally a continuation of the estate, the adjudication of claims arising from that work is within the Bankruptcy Court's jurisdiction.
The claims include allegations that PW made mistakes in the allocation of interest on funds held by the Trust and failure to detect the payment of excessive fees to the Trustee.
The Bankruptcy Court also sought to distinguish Appellant's claims from those asserted in Southmark by suggesting that the injury for which Appellant seeks to recover is significantly different from the injury claimed in Southmark. The Bankruptcy Court pointed to the following passage in Southmark and suggested that it provided the basis for a distinction between that case and the present one:
Even more significant, the claim against Coopers is not just for malpractice, but for the value of the asset which Coopers was to assist Southmark in recovering. If Coopers had done the job for which it was retained, according to Southmark's allegations, Southmark would have filed a claim in the Drexel bankruptcy and recovered a substantial sum for creditors. The claim against Coopers may therefore be viewed as one to recover an asset of Southmark's estate that Coopers let slip away.163 F.3d at 931. However, as Appellant observes, in fact theSouthmark court's characterization of the claims is readily applicable to Appellant's claims here (at least in part): a central allegation in Appellant's case is the charge that PW made mistakes that resulted in the mis-allocation of funds that rightly belonged to the Trust.
The Southmark court also analogized the action against Coopers in that case to a counterclaim directed against the accountant's administrative claim for fees payable by the estate. 163 F.3d at 931-32. Similar logic would support jurisdiction here, where Appellant alleges in effect that PW has charged the trust for fees based on inadequate work.
The Bankruptcy Court also distinguished Billing on the grounds that the claimed misconduct in that case involved malpractice during the course Chapter 11 proceedings, and Appellee notes that Billing involved allegations of failure to perform duties unique to Bankruptcy cases. Here by contrast Appellant claims instances of negligence that are in many ways not unique to the bankruptcy context. However, as Appellant points out, his claims do suggest that PW's alleged failure to do its job adequately was to some extent based on a misinterpretation of documents implicated in the plan. Although PW's duty is defined by state law, the circumstances in which it was performed are largely defined by the key terms of the Plan.
The Bankruptcy Court evidently regarded Falise v. American Tobacco Co., 241 B.R. 48 (E.D.N.Y. 1999), as perhaps the most informative authority in its analysis, perceiving it as closely analogous to the present case. In Falise, a Trust established in connection with the Chapter 11 plan of the bankrupt Johns-Manville Corporation (for the benefit of claimants suffering from asbestos related injuries) filed suit against cigarette manufacturers to compel them to contribute to the trust, contending that smoking had contributed to the harm caused by exposure to asbestos. The district court held that such claims were not within the jurisdiction of a bankruptcy court. Although there are a number of pertinent similarities between this case and Falise, those similarities are in the final analysis not compelling. Falise did indeed involve claims brought by a post-confirmation trust against parties that were not involved in the pre-confirmation bankruptcy proceedings. But the claims inFalise did not arise (as the claims here do) from conduct connected to the supervision of estate property, and (as theFalise court specifically noted) the Falise trust's claims against tobacco companies were claims that could have been asserted by Johns-Manville before the bankruptcy process ever began. 241 B.R. at 61. By contrast Appellant's claims here arose from PW's engagement by a representative of the estate.
Haws, 158 B.R. 965, another case on which the Bankruptcy Court focused (in part because it noted the apparent approval with which the Court of Appeals discussed the case inDonaldson, 104 F.3d at 553) is distinguishable on similar grounds. There the trustee of a liquidating trust brought claims (for the benefit of creditors) against former associates of the debtor for pre-petition conduct. Like the claims against tobacco manufacturers in Falise (but unlike the claims at issue here), the claims in Haws were not themselves property of the estate and did not arise from its affairs; and the court similarly declined to exercise jurisdiction over them.
Other prominent cases that have rejected jurisdiction over claims asserted post-confirmation are also distinguishable, most readily because they involved actions in which the reorganized debtor was a party, and therefore implicate concerns relating to the need to end bankruptcy court supervision of the debtor's affairs. See In re H L Developers, Inc., 178 B.R. 71 (Bankr. E.D. Pa. 1994); In re TransAmerican Natural Gas Corp., 127 B.R. 800 (S.D. Tex. 1991); Warren v. Calania Corp., 178 B.R. 279 (M.D. Fla. 1995).
PW and the Bankruptcy Court cite Celotex Corp. v. Edwards, 514 U.S. 300, 309 (1995), for the statement that "bankruptcy courts have no jurisdiction over proceedings that have no effect on the debtor." But in Celotex the Court was not called upon to consider jurisdiction over a post-confirmation trust such as the Litigation Trust here, which took control of assets of the estate for the benefit of creditors.
II. Certification under 28 U.S.C. § 1292(b)
28 U.S.C. § 1292(b) provides,
When a district judge, in making in a civil action an order not otherwise appealable under this section, shall be of the opinion that such order involves a controlling question of law as to which there is substantial ground for difference of opinion and that an immediate appeal from the order may materially advance the ultimate termination of the litigation, he shall so state in writing in such order. The Court of Appeals . . . may thereupon, in its discretion, permit an appeal to be taken from such order, if application is made to it within ten days after the entry of the order. . . .
The question of the Bankruptcy Court's subject matter jurisdiction over the present case satisfies all the criteria for certification under the statute. It is a controlling question of law because reversal on appeal would remove the case entirely from the jurisdiction of the Bankruptcy Court. As the discussion above suggests, it is also a question concerning which there are substantial grounds for difference of opinion. The case law provides a wide assortment of cases approximately but not perfectly analogous to the present one, and many of those imperfect precedents rejected the exercise of jurisdiction in situations that resembled this case in some respects. Especially given the uncertainties surrounding the exercise of Bankruptcy Court jurisdiction post-confirmation, a plausible argument can be made that Appellant's claims should not be heard by the Bankruptcy Court.
Finally, it is almost self-evident that an immediate appeal may advance the termination of the litigation. If the Court of Appeals were to determine that the Bankruptcy Court has no subject matter jurisdiction over Appellant's claims, this particular case at least would be concluded. An immediate appeal would prevent the considerable waste of time and resources that would occur if Appellant's claims were fully adjudicated in the Bankruptcy Court (and on appeal in this Court) only to be dismissed on jurisdictional grounds by the Court of Appeals.
Accordingly the order corresponding to this opinion will be certified for immediate appeal on the basis of the following controlling question of law:
Does a Bankruptcy Court have subject matter jurisdiction over claims of professional negligence and breach of contract asserted by the trustee of a post-confirmation litigation trust (established pursuant to a plan of reorganization) against an accounting firm engaged to perform work for that trust?
As permitted by § 1292, proceedings will be stayed until further order of this Court. Should the Court of Appeals agree that an immediate appeal is appropriate, proceedings in the Bankruptcy Court will be stayed pending a decision on the appeal. Should the Court of Appeals choose not to hear the appeal, the stay will be lifted.
Although a stay of proceedings is not mandated pending appeal under § 1292(b), here such a stay is manifestly appropriate in order to prevent the waste of time and resources that would occur if the case proceeded in the Bankruptcy Court and were ultimately dismissed by the Court of Appeals.
CONCLUSION
For the reasons stated above, the order of the Bankruptcy Court dismissing Appellant's claims for lack of subject matter jurisdiction will be reversed, and the case will be remanded to the Bankruptcy Court for further proceedings. Also for the reasons stated above, the order corresponding to this opinion will be certified for immediate appeal to the Court of Appeals, and proceedings on remand will be stayed until further order of this Court.