The decision illustrates the distinction between "bankruptcy standing" and "constitutional standing" to sue in federal courts.Jurisdiction Over Estate Property in BankruptcyFederal district courts have "original and exclusive jurisdiction" of all "cases" under the Bankruptcy Code. 28 U.S.C. § 1334(a). District courts also have "original but not exclusive jurisdiction of all civil proceedings arising under" the Bankruptcy Code, "or arising in or related to cases" under the Bankruptcy Code. 28 U.S.C. § 1334(b).

It may be fair to say that non-US entities involved in a chapter 15 case, the mechanism through which US courts recognize foreign insolvency proceedings, do not anticipate having to litigate claims raised in the chapter 15 case outside of the bankruptcy court. This may be due in large part to 28 U.S.C. § 1334(c)(1), an abstention statute applicable in chapter 15 bankruptcy proceedings.Abstention is a doctrine created by both case law and statute that discourages US federal courts from hearing cases or determining specific issues within its jurisdiction and, instead, deferring to the authority of state courts that have a greater interest or expertise in that issue. Put more simply, the doctrine permits (and sometimes requires) a US federal court to refuse to hear a case if doing so would intrude upon the powers of a state court when the state court is capable of rendering a ruling on the issue.The abstention statute applicable in bankruptcy, 28 U.S.C. § 1334(c)(1), provides that “except with respect to a case under chapter 15 of title 11, nothing in this section prevents a [federal] district court in the interest of justice, or in the interest of comity with State courts or respect for State law, from abstaining from hearing a particular proceeding” in a bankruptcy case. Given the express languag

So how can it be that a former Chapter 7 debtor could sue its former lawyer, whose engagement by the Chapter 7 trustee had been approved by the bankruptcy court, in state court for malpractice in settling cases with the approval of the bankruptcy court without permission of the bankruptcy court? The answer, according to the Fourth Circuit in Conway v. Smith Development, Inc., is that abstention under 28 U.S.C. §1334(c)(1) may deprive federal courts of jurisdiction to determine if the Barton doctrine applies.Smith Development, Inc., a luxury home builder, filed a Chapter 11 bankruptcy case. Martin Conway and his firm represented Smith Development. While Smith Development was a Chapter 11 debtor-in-possession, Conway filed on its behalf three adversary proceedings against home buyers who had defaulted under their purchase contracts. Before those adversary proceedings were resolved, Smith Development’s case was converted to a case under Chapter 7.The Chapter 7 trustee, with bankruptcy court approval, retained Conway as special counsel to prosecute the adversary proceedings on behalf of the bankruptcy estate. The three adversary proceedings were later settled, also with bankruptcy court approval.Nearly seven years after the Chapter 7 case was closed, Smith Development sued Conway and his firm in state court for malpractice arising from their representation of Smith Development as a Chapter 11 debtor and th

h. On orders from the Public Utility Commission of Texas (the “PUCT”), ERCOT also ordered cuts in electricity consumption in the form of forced power outages across the state. One of the retail energy providers affected by ERCOT’s management of the electricity market during Uri was Just Energy Group, Inc. (“Just Energy”). As a result of ERCOT’s pricing of electricity, Just Energy claimed it received invoices from ERCOT totaling approximately $335 million for the operating days of February 13, 2021 through February 20, 2021. Lacking sufficient liquidity to pay the ERCOT invoices, Just Energy filed bankruptcy proceedings in Canada and then filed ancillary Chapter 15 proceedings in the Bankruptcy Court. Under protest, Just Energy eventually paid the charges to ERCOT, disputing around $274 million of the invoiced amounts through the commencement of an adversary proceeding in the Bankruptcy Court. In response ERCOT filed a motion to dismiss arguing, among other things, that notwithstanding 28 U.S.C. §1334(c), mandatory abstention under the Burford doctrine required the Bankruptcy Court to dismiss Just Energy’s complaint because of the state law issues raised by Just Energy. The Bankruptcy Court granted in part and denied in part ERCOT’s motion to dismiss. ERCOT timely appealed the Bankruptcy Court’s partial dismissal directly to the Fifth Circuit based on the Bankruptcy Court’s certification of a direct appeal. The Fifth Circuit determined that abstention was appropriate, vacated the Bankruptcy Court’s order, and remanded the adversary proceeding with instructions to determine the appropriate trajectory of this case after abstention. The Bankruptcy Court abstained and issued an order staying the adversary proceeding pending further proceedings in Texas state court. The Fifth Circuit’s ruling hinged on the application of the Burford doctrine in the bankruptcy context and the determination that four of the five Burford factors (discussed below) weighed in favor of abstention.Burford Analysi

Following the Debtor’s Chapter 7 bankruptcy filing, he initiated an adversary proceeding demanding the Social Security Administration repay the amount it collected from the Debtor on account of an overpayment he received for almost a year and a half. In overturning the district court’s decision, the Fifth Circuit found that the plain language of 42 U.S.C. § 405(h) did not bar bankruptcy courts from relying on their general bankruptcy jurisdictional grant under 28 U.S.C. § 1334(b) to hear the Debtor’s case.What Happened?Kenneth Benjamin (the Debtor or Benjamin) was the designated beneficiary of his sister’s disability benefits.

This blog will be presented in a 3-part series to examine a bankruptcy court’s subject matter jurisdiction in legal malpractice actions, and the potential effect of the abstention statutes.Bankruptcy Court subject matter jurisdiction District Courts, including Bankruptcy Courts, have original and exclusive jurisdiction over all cases arising under Title 11. 28 U.S.C. 1334(a). District Courts also have original, but not exclusive jurisdiction over cases arising under Title 11, or arising in or related to cases under Title 11.

Bankruptcy Jurisdiction and Rejection of Executory ContractsBy statute, U.S. district courts are given "original and exclusive" jurisdiction over every bankruptcy "case." 28 U.S.C. § 1334(a). In addition, they are conferred with nonexclusive jurisdiction over all "civil proceedings arising under" the Bankruptcy Code as well as civil proceedings "arising in or related to cases under" the Bankruptcy Code. 28 U.S.C. § 1334(b).

Dondero sought discovery from Alvarez and Farallon regarding certain claims-trading that occurred shortly after a Chapter 11 plan was confirmed in the Highland bankruptcy case. Alvarez and Farallon removed the Rule 202 Proceeding to bankruptcy court pursuant to 28 U.S.C. §1452(a)—asserting that it was “related to” the Highland bankruptcy case, as contemplated by 28 U.S.C. §1334(b).Following removal to bankruptcy court, Dondero filed a motion to remand the case back to state court (the “Motion to Remand”), arguing that a pre-suit discovery mechanism under Rule 202 is not a “claim” or “cause of action” in a “civil action” that is subject to removal under 28 U.S.C. §1452(a). Specifically, he urged that there is no live case or controversy yet.

Executive SummaryA recent decision from the United States Bankruptcy Court for the Northern District of Texas, In re Care Ctrs., LLC, No. 18-33967, 2020 Bankr. LEXIS 3205 (Bankr. N.D. Tex. Nov. 12, 2020), examined (1) the scope of bankruptcy court subject-matter jurisdiction for post-confirmation actions filed in state court and removed to bankruptcy court; and (2) when the court must or should abstain and remand a proceeding back to the court where the action was originally brought.The bankruptcy court held that it had subject matter jurisdiction in the current case, and that the well-pleaded complaint rule does not apply to actions that “arise in” a bankruptcy case pursuant to 28 U.S.C. § 1334. In addition, the court concluded that it is not required to abstain from the action nor should it according to the doctrine of permissive abstention.

Bankruptcy Jurisdiction and Rejection of Executory ContractsBy statute, U.S. district courts are given "original and exclusive" jurisdiction over every bankruptcy "case." 28 U.S.C. § 1334(a). In addition, they are conferred with nonexclusive jurisdiction over all "proceedings arising under" the Bankruptcy Code as well as proceedings "arising in or related to cases under" the Bankruptcy Code. 28 U.S.C. § 1334(b).