Wade v. Chase Manhattan Mtge ( 2002 )

IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
No. 01-60520
In the Matter of: DAVID WADE and JEANETTE WADE.
Debtors,
__________________
DAVID WADE and JEANETTE WADE,
Appellees,
versus
CHASE MANHATTAN MORTGAGE CORPORATION,
Appellant.
Appeal from the United States District Court for
the Southern District of Mississippi
(USDC No. 3:00-CV-73)
_______________________________________________________
August 2, 2002
Before REAVLEY, SMITH and DENNIS, Circuit Judges.
PER CURIAM:*
This appeal is dismissed for want of jurisdiction.
*
Pursuant to 5TH CIR. R. 47.5, the Court has determined that this opinion should not be
published and is not precedent except under the limited circumstances set forth in 5TH CIR. R.
47.5.4.
There has been no certification to warrant interlocutory appeal. The district court
referred to the bankruptcy court’s order as interlocutory, as does Chase’s notice of
appeal; but Chase contends in this court that the judgment is final under 28 U.S.C. §
158(d). That is untenable. Chase’s defense to the Wades’ suit, that their claims were
property of the former bankruptcy estate, has been rejected. Nothing more. The merits
of the Wade claims have not been addressed. That remains in the district court, and
apparently still as an adversary proceeding in the bankruptcy court. This is comparable to
the case of In re Greene County Hospital, 835 F.2d 589 (5th Cir. 1988), where we
dismissed an appeal from a bankruptcy court’s order on its jurisdiction.
Appeal dismissed.
2
JERRY E. SMITH, Circuit Judge, dissenting:
The majority concludes that because the parties have more
litigation ahead of them, the district court’s order is not
final and not appealable. While this may be correct under 28
U.S.C. § 1291, that is not the statute before us.
Bankruptcy appeals are governed by 28 U.S.C. § 158, In re
Moody, 817 F.2d 365, 366 (5th Cir. 1987), which employs a “more
flexible notions of finality.” In re Greene County Hosp., 835
F.2d 589, 593 (5th Cir. 1988).1 The majority overlooks our
§ 158 caselaw and thereby reaches a wrong result. I would
conclude that we have jurisdiction and would decide that some
of the claims belong to the Wades and some to Chase Mortgage.
Accordingly, I respectfully dissent.
I.
“To be appealable, an order must be final with respect to
a single jurisdictional unit . . . . For the purposes of
§ 1291, the single jurisdictional unit is the case as a whole.”
Id. at 593-94. For purposes of § 158, by contrast, the
bankruptcy order need only “resolve a discrete unit in the
1
Accord In re Bartee, 212 F.3d 277, 282 (5th Cir. 2000); In re Orr, 180
F.3d 656, 659 (5th Cir. 1999).
larger case.” Id. at 595. We have held that a “bankruptcy
court’s recognition of a creditor’s security interest is a
final order [because s]uch an order conclusively establishes
a claim against the estate.” Id. (citing In re Lift & Equip.
Serv., Inc., 816 F.2d 1013 (5th Cir. 1987)). “Similarly, a
turnover order, ordering an individual to turn over an antique
coin, is final, settling authoritatively the inclusion of a
piece of property in the estate.” Id. (citing In re Moody, 817
F.2d 365 (5th Cir. 1987)). The relevant question is whether
the order “conclusively determine[s] substantive rights.” Id.
(internal quotation marks omitted).
The district court characterized the bankruptcy court’s
order as interlocutory.2 If the bankruptcy order was interloc-
utory, then the district court’s affirmance of it was, as well,
and we have no jurisdiction. See Wood & Locker, 868 F.2d at
142 (“[A] district court’s decision on appeal from a bankruptcy
court’s interlocutory order is not a final order for purposes
of further appellate review unless the district court order in
some sense ‘cures’ the nonfinality of the bankruptcy court
order.”). But, we cannot defer to the district court’s
2
The district courts, unlike the courts of appeals, may take
jurisdiction of interlocutory appeals from the bankruptcy court. 28 U.S.C.
§ 158(a).
4
assessment on this issue. Moody, 817 F.2d at 366-67; Bartee,
212 F.3d at 283. Instead, we must judge the finality of the
bankruptcy court order for ourselves. Moody, 817 F.2d at 366-
67.
Almost all the confusion over our jurisdiction arises from
the unusual procedural posture of this case. Once we step back
and understand the effects of the bankruptcy court’s ruling,
it becomes apparent that it is a final order.
The Wades’ bankruptcy proceeding had already closed; Chase
Mortgage moved to reopen it, arguing that because the state law
claims belonged to the estate, the case was one “arising under”
or “related to” bankruptcy law. 28 U.S.C. § 157(a). The case
was referred to the bankruptcy court to decide one
questionSSwhether the state law claims belong to the Wades or
the estate. Once the bankruptcy court (and the district court
on appeal) concluded that the claims belong to the Wades, they
re-closed the Wades’ bankruptcy case.
All proceedings before the bankruptcy court are now over,
and the Wades’ bankruptcy case is again closed. There are no
remaining factual disputes for the bankruptcy court to resolve.
See In re Aegis Specialty Mktg. Inc., 68 F.3d 919, 921 (5th
Cir. 1995). The district court’s decision “ends the litigation
5
on the merits and leaves nothing for the court to do but
execute the judgment.” Orr, 180 F.3d at 659. So, the decision
easily passes § 158's flexible definition of finality. Id.
The fact that there may be additional litigation in Mis-
sissippi’s state courts or in federal district court does not
affect our analysis. See In re Adams, 809 F.2d 1187, 1188-89
(5th Cir. 1987). That litigation will cover Mississippi tort
law. The bankruptcy litigation and all appeals under § 158 are
now over. Chase Mortgage will not have a second opportunity
to appeal under § 158.
We confronted a similar situation in Adams. The case
began as a state court suit. Id. at 1188. When the defendant
declared chapter 13 bankruptcy, he removed the state claims to
bankruptcy court. Id. The plaintiffs, apparently misconstru-
ing the scope of their bankruptcy remedies, voluntarily
dismissed the state suit. Later, they realized their error and
had the bankruptcy court reinstate the state court suit. Id.
The district court affirmed the bankruptcy court’s order of
reinstatement, dismissed the appeal, and remanded to state
court. Id. We held that the bankruptcy court order reinstat-
ing the lawsuit and the district court order dismissing the
6
appeal were final, reviewable orders under § 158(d).3 Id. at
1189. In Adams, as in this case, the parties had yet to
litigate their state law claims, but because the court’s order
resolved all bankruptcy issues between the parties, we deemed
it reviewable.
In re Greene County Hospital does not alter this analysis.
We stated that “denial of a motion to dismiss for lack of
subject matter jurisdiction is not a final order” under §
158(d). Greene, 835 F.2d at 596. Superficially, this language
sounds relevant to the Wades’ caseSSthe bankruptcy court in the
Wades’ case also refused to dismiss their claims for lack of
subject matter jurisdiction. But the similarity ends there.
In Greene, a creditor moved to dismiss a hospital’s
bankruptcy petition on the ground the hospital was not eligible
to file for bankruptcy. The bankruptcy court ruled that the
hospital could file under chapter 9, and the district court
affirmed. Id. We ruled that a bankruptcy court’s finding that
it has subject matter jurisdiction over a bankruptcy petition
is not an appealable, final order under § 158. Greene, 835
F.2d at 590.
3
We noted that 28 U.S.C. § 1452 precluded us from reviewing the
district court’s remand order. Adams, 809 F.2d at 1189.
7
In the Wades’ case, however, the bankruptcy court did not
rule that it had subject matter jurisdiction to decide the
Wades’ state tort claims. The appeal before us does not
involve the bankruptcy court’s subject matter jurisdiction at
all. The bankruptcy court ruled that certain property (the
state tort claims) belongs to the Wades, not the estate.
Accordingly, the decision is one over whether property is
included in the estate, one we deem final under § 158. Cf.
Moody, 817 F.2d at 368 (bankruptcy court’s turnover order
final); In re England, 975 F.2d 1168, 1172 (5th Cir. 1992) (“An
order which grants or denies an exemption will be deemed a
final order for the purposes of 28 U.S.C. § 158(d).”).
The district and bankruptcy courts’ references to the
Wades’ standing to litigate4 do not change our analysis. In
this case, stating the Wades have standing to assert the claims
is just another way of stating the claims belong to them, not
to the estate.
The instant case is fundamentally different from Greene.
The district court in Greene remanded to the bankruptcy court
so it could begin administering the petition. “[T]he entire
4
The district court order, for example, concluded “that the lawsuit in
question belongs to the [Wades], and not the estate, and that the [Wades] have
standing to pursue the lawsuit.”
8
bankruptcy proceeding remain[ed] before the parties.” Greene,
835 F.2d at 590. Here, by contrast, there is no remand to the
bankruptcy court for further proceedings or factfindings; the
bankruptcy case is closed, and there will be no more § 158
appeals. Accordingly, the decision was final under § 158(d),
and the majority errs in refusing to address Chase Mortgage’s
appeal.
II.
In reviewing an appeal from a bankruptcy court, we apply
the same standard as did the district court. In re Pro-Snax
Distribs., Inc., 157 F.3d 414, 419-20 (5th Cir. 1998). Whether
a cause of action belongs to the debtor individually or is
property of the bankruptcy estate is a pure question of law we
review de novo. In re Swift, 129 F.3d 792, 795 (5th Cir.
1997).
The best way to begin the discussion is to understand what
this case is not about. Chase Mortgage argues that the Wades’
state law claims are “really” claims that Chase Mortgage
violated the automatic stay under 11 U.S.C. § 362(h)5; viola-
5
“An individual injured by any willful violation of a stay provided by
this section shall recover actual damages, including costs and attorneys’
fees, and, in appropriate circumstances, may recover punitive damages.” 11
U.S.C. § 362(h).
9
tions of the automatic stay are always property of the estate;
therefore, the Wades’ claims are property of the estate. But
the Wades have raised only state law claims and repeatedly have
confirmed that they do not seek damages for violations of the
automatic stay.
Chase Mortgage’s brief never asserts that § 362(h)
preempts overlapping state law causes of action, and at oral
argument Chase Mortgage explicitly repudiated any preemption
claim. This court has no authority to rewrite the Wades’ state
law claims as § 362(h) claims for violations of the automatic
stay, and Chase Mortgage’s arguments on this point miss the
mark.
The Wades devote much of their brief to arguing that
because their legal claims accrued after they filed their
bankruptcy petition, 11 U.S.C. § 541(a)(1)’s rule that the
estate includes “all legal or equitable interests of the debtor
in property as of the commencement of the case” does not apply
to their claims. But Chase Mortgage never raises this issue;
to the contrary, their brief concedes this point. Chase is
left with one remaining argument, that under 11 U.S.C. § 541-
(a)(7), the claims belong to the estate.
10
If Chase Mortgage is correct, and the causes of action
belong to the estate, the trustee has exclusive standing to
assert them, and the Wades’ claims should be dismissed for lack
of standing. See In re Educators Group Health Trust, 25 F.3d
1281, 1284 (5th Cir. 1994). The fact that the bankruptcy case
already may have closed when a claim accrued or was first
asserted does not affect the analysis. “Any property not
abandoned by the trustee under [11 U.S.C. § 554(a) or (b)]
remains part of the estate even after closure of the bankruptcy
case.” Correll v. Equifax Check Servs., Inc., 234 B.R. 8, 10
(D. Conn. 1997) (citing In re Drexel Burnham Lambert Group,
Inc., 160 B.R. 508, 514 (S.D.N.Y. 1993)); 11 U.S.C. § 554(d).
When the Wades’ filed their chapter 7 petition on July 31,
1997, an estate was created under 11 U.S.C. § 541, which
defines “property of the estate”: It lists seven categories;
all property claimed by the estate must fit into one of them.
Subsection 541(b) then lists exceptions to these seven
categories.
Section 541(a)(7) defines property of the estate to
include “[a]ny interest in property that the estate acquires
after commencement of the case.” 11 U.S.C. § 541(a)(7).
“[F]or example, if the estate enters into a contract, after the
11
commencement of the case, such a contract would be property of
the estate.” H.R. REP. NO. 103-835, reprinted in 1994
U.S.C.C.A.N. 3340 (legislative statements). “Property” under
§ 541(a)(7) “includ[es] causes of action sounding in tort.”
In re Doemling, 127 B.R. 954, 955 (W.D. Pa. 1991).6
Section 541(a)(7) was not added until 1994, and our
circuit has yet to define its scope. Other courts interpreting
§ 541(a)(7) have split into two camps. One reading holds that
all property the debtor obtains before the bankruptcy case
closesSSwhether he obtains it pre- or post-petitionSSis property
of the estate unless a provision of § 541(b) specifically
excludes it from the estate. See, e.g., Correll, 234 B.R. at
10-11; In re Acton Foodservices Corp., 39 B.R. 70, 72 (D. Mass.
1984); Bostonian v. Liberty Sav. Bank, 61 Cal. Rptr. 2d 68, 73
(Cal. Ct. App. 1997).7
But, this reading contradicts the language and structure
of § 541(a). If all debtor property belongs to the estate
unless excluded by § 541(b), then § 541(a)(1)’s distinction
between pre- and post-petition assets (that only the debtor’s
6
Accord In re O’Dowd, 233 F.3d 197 (3d Cir. 2000); Correll, 234 B.R. at 10-11; In re Tomaiolo, 205
B.R. 10 (D. Mass. 1997); In re Griseuk, 165 B.R. 956, 958 (M.D. Fla. 1994); Bostonian v. Liberty Sav. Bank, 61
Cal. Rptr. 2d 68, 73 (Cal. Ct. App. 1997).
7
In re Griseuk, 165 B.R. at 958, also applied this framework but
grounded its holding in the fact that the debtors filed under chapter 11.
12
interests “at the commencement of the case” belong to the
estate) is meaningless. In re Doemling sets forth the better
reading:
Section 541(a)(1) specifically limits the property of
the estate to the debtor's property interest as they
exist when the case is commenced. Section 541(a)(7)
does not in any way undermine the goal of
establishing a critical time at which to determine
which of debtor’s property becomes part of the
estate. Instead, it focuses on property interests
acquired by the estate after the commencement of the
case. Obviously, after the commencement of the case,
the estate has an existence that is completely sep-
arate from that of the debtor. Section 541(a)(7)
covers only property that the estate itself acquires
after the commencement of the proceeding. Hence,
there is absolutely no support for the . . . claim
that all the debtor’s property, whether obtained pre-
or post-petition, is property of the estate unless
specifically excluded.
Id. at 956; see also In re O’Dowd, 233 F.3d 197, 203-04 (3d
Cir. 2000); In re Tomaliolo, 205 B.R. 10, 16 (D. Mass. 1997);
In re Osborn, 83 F.3d 433, 1996 WL 196695, at *5 (10th Cir.
Apr. 24, 1996) (unpublished) (table).
According to the Doemling view, § 541(a)(7) merely
preserves the distinction between the debtor and the chapter
7 estate. The debtor and the estate are completely separate
entities; all property the debtor acquires belongs to the
debtor, and all property the estate acquires belongs to the
estate.
13
As Doemling illustrates, the Correll/Acton/Bostonian
reading often would lead to absurd results. In Doemling, five
months after she filed for chapter 7 bankruptcy, Doemling was
hit by a drunk driver. The court held that her personal injury
suit from this accident belonged to the Doemlings:
The Doemlings acquired whatever property interest
they have in that cause of action in their personal
capacities. The estate did not acquire this cause of
action independent of the Doemlings. Any recovery in
this cause of action would be to compensate the Doem-
lings for injuries to their persons. It would not
compensate for any injury to the estate itself.
Thus, section 541(a)(7) is inapplicable because . . .
it is limited to property acquired post-petition by
the estate as opposed to property acquired by the
debtors.
Doemling, 127 B.R. at 956. Doemling’s suit was wholly
unrelated to the estate property or any “property that the
estate acquires after commencement of the case,” 11 U.S.C.
§ 541(a)(7). Yet, under the rule of Correll, Acton, and
Bostonian, it would belong to the estate, because no section
of § 541(b) specifically excludes it.8
8
Griseuk, 165 B.R. at 958, held that a debtor’s personal injury claim
was property of the estate, so the debtor had no standing to bring it.
Griseuk, however, was a chapter 11 case, and the court left open the
possibility it would reach a different result in a chapter seven suit,
explaining that “[i]n contrast to the establishment of two separate estates at
the time of an individual debtor filing a Chapter 7 case, only one estate is
established at the filing of a typical Chapter 11 case.” Id. (internal
quotation marks omitted).
14
The Third Circuit applied Doemling’s framework in holding
that a debtor’s legal malpractice claim against her former
bankruptcy lawyer belonged to the estate. The court explained
that
the inquiry often depends on whether the estate or
the debtor suffers the harm. Accordingly, only in
the post-petition situation where the debtor is
personally injured by the alleged malpractice, while
the estate is concomitantly not affected, is it
appropriate to assign the malpractice to the
debtor. . . . Here, any alleged malpractice
resulting from the omission of claims in the Sevak
Action would affect only the estate, not [the debt-
or], because it would have reduced the value of the
Sevak Action, which was property of the estate.
O’Dowd, 233 F.3d at 204.
A court in the District of Massachusetts similarly ruled
that a debtor’s legal malpractice suit alleging the bankruptcy
attorney wrongly converted the case from chapter 11 to chapter
7, belonged to the estate:
If the [attorney’s] services were deficient with
respect to the conversion to chapter 7, the estate’s
rights were abridged. Liquidation under chapter 7
typically produces less for creditors than does a
confirmed chapter 11 plan. To the extent the Debtor
incurred a resulting loss, so did the creditors, who
are the estate’s prime beneficiaries. Any loss to
the Debtor was derivative of the estate’s loss. It
follows that this claim was acquired by the estate
under section 541(a)(7).
15
Tomaiolo, 205 B.R. at 16.9
In an unpublished opinion, the Tenth Circuit also relied
on Doemling to decide whether a set of legal malpractice claims
belonged to the debtors or the estate. Osborn, 1996 WL 196695,
at *5. The debtors alleged that their attorney failed to claim
their home as an exempted homestead and advised them to enter
an in personam judgment that rendered $225,000 of their debts
nondischargeable. Id. In holding that the claims against the
attorney were property of the debtors, the court explained:
[The attorney’s] negligence caused a $225,000
judgment to be entered against the [debtors]
personally. His negligence did not harm the estate.
The legal malpractice action seeks to recover for
injury to the [debtors] personally, not for injury to
the estate, and therefore is more appropriately
considered property of the [debtors] than of the
estate.
Id.
I too would adopt the rule of Doemling: When a cause of
action arises after the commencement of the bankruptcy estate,
we ask whether the claims seek recovery for harm to the estate
or to the debtors in their individual capacities. If the harm
befalls estate property, the claim is property of the estate;
if the harm befalls the debtor’s person or personal property,
9
But see Acton, 39 B.R. at 72.
16
the claim is property of the debtors. Applying this framework
to the Wades, I would conclude that some of their claims belong
to the estate and some to the Wades.
The Wades’ claim that in March 1998, Chase Mortgage and
Chase Bank entered into a conspiracy to transfer funds held for
the Mississippi mortgage to pay for insurance on the Indiana
property, belongs to the estate. Once the Wades filed on July
31, 1997, they assumed “an identity independent of the
bankruptcy estate.” Doemling, 127 B.R. at 955. This claim
affects the value of the mortgages, both of which became
property of the estate under § 541(a)(1); it does not affect
the value of the Wades’ personal property. Even though the
Wades allege that this mismanagement harmed them, any loss to
them is derivative of loss to the estate. Tomaiolo, 205 B.R.
at 16.
The Wades also claim that Chase Mortgage wrongly charged
them for attorney’s fees. This would be a personal debt, see
In re Brannan, 40 B.R. 20, 23-24 (N.D. Ga. 1984), not an estate
debt. Because this debt must be paid from the Wades’ personal
property, not from estate property, the claim belongs to the
Wades. If they are suing for personal hardships caused by
Chase Mortgage’s harassment (e.g., personal time spent
17
answering these harassing letters), these claims also belong
to them. Like the car accident in Doemling, any harassment
that occurred after the Wades filed their chapter 7 petition
affected them in their personal capacity. It did not reduce
the value of any estate asset.
Finally, any claim the Wades bring to recover their lump
sum payment of $3,032.68, belongs to them. The alleged
contract is confusingSSit involves mortgages that had already
been assigned to the estateSSand some of the Wades’ claims
concerning it may be moot.10 But the merits of the Wades’ state
law claims are not before us, only the question of who owns
them. Because the Wades entered this contract after they filed
for bankruptcy, the contract rights and debts they incurred
belong to them. See id. Accordingly, any suit to recover
these personal rights and debts belong to them as well.
For these reasons, I would affirm the district court with
regard to the claims of collusion and breach of fiduciary
duties by Chase Mortgage and Chase Bank, and reverse with re-
gard to the remaining claims. Unfortunately, the majority
fails to address these claims. I respectfully dissent.
10
The Wades initially listed their Mississippi mortgage for
reaffirmation, but the bankruptcy court granted discharge before the
reaffirmation was administered. Thus, Wades’ claim that Chase Mortgage failed
to send a letter reaffirming the debt is likely moot.
18
19