Sea Hawk Seafoods v. State of Alaska ( 2006 )

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
In re: VALDEZ FISHERIES 
DEVELOPMENT ASSOCIATION, INC.,
Debtor. No. 04-35319
D.C. No.
SEA HAWK SEAFOODS, INC.,  CV-03-00192-A-
Plaintiff-Appellant, RRB
v. OPINION
STATE OF ALASKA,
Defendant-Appellee.

Appeal from the United States District Court
for the District of Alaska
Ralph R. Beistline, District Judge, Presiding
Argued and Submitted
December 5, 2005—Seattle, Washington
Filed February 22, 2006
Before: Ronald M. Gould and Marsha S. Berzon, Circuit
Judges, and William W Schwarzer,* Senior District Judge.
Opinion by Judge Schwarzer
*The Honorable William W Schwarzer, Senior United States District
Judge for the Northern District of California, sitting by designation.
1919
1922 IN RE VALDEZ FISHERIES DEVELOPMENT ASSOC.
COUNSEL
Michael T. Schein, Reed Longyear Malnati & Ahrens, PLLC,
Seattle, Washington, for the plaintiff-appellant.
Mary Ellen Beardsley, Assistant Attorney General, Anchor-
age, Alaska, for the defendant-appellee.
OPINION
SCHWARZER, Senior District Judge:
We must decide whether a bankruptcy court, which had
approved a settlement agreement, had jurisdiction to interpret
that agreement in an adversary proceeding between two credi-
tors brought after the closing and dismissal of the underlying
bankruptcy case. We conclude that, in the circumstances of
this case, the bankruptcy court lacked jurisdiction and we
therefore reverse the district court’s order.
FACTS
Appellant Sea Hawk Seafoods, Inc., (“Sea Hawk”) owns a
seafood processing plant in Valdez, Alaska. In April 1995,
Sea Hawk brought suit in the Alaska Superior Court against
Valdez Fisheries Development Association (“VFDA”) for
breach of contract arising out of a failed agreement to sell its
processing plant. In August 1997, the Superior Court entered
judgment for Sea Hawk against VFDA for over $2 million.
Alaska’s Division of Investments then called VFDA’s loans
aggregating in excess of $7 million. In response, VFDA deliv-
IN RE VALDEZ FISHERIES DEVELOPMENT ASSOC. 1923
ered to the State approximately $1.65 million in cash and over
$400,000 in accounts receivable.
Sea Hawk then filed a petition in the Superior Court nam-
ing the State of Alaska as a party and challenging the transac-
tions between VFDA and the State as void under state
fraudulent conveyance law. The court did not rule on the peti-
tion. After the Alaska Supreme Court denied VFDA’s request
for a stay of the judgment against it, VFDA filed for Chapter
11 protection and filed a Notice of Automatic Stay. Sea
Hawk’s motion for relief from the automatic stay was denied.
After a period of negotiation, Sea Hawk and VFDA in 1999
entered into a settlement agreement (the subject of this pro-
ceeding). The State was not a party to that agreement. The
agreement provided, among other things, that the parties
would “dismiss[ ] all pending litigation between the two par-
ties, with prejudice” and that the bankruptcy court shall have
“continued jurisdiction over . . . the interpretation . . . of . . .
th[e] Settlement Agreement.” The bankruptcy court approved
the settlement agreement and dismissed the Chapter 11 pro-
ceeding. On June 24, 1999, the court entered a final decree
closing the VFDA bankruptcy.
Sea Hawk promptly returned to state court and sought a rul-
ing on its fraudulent conveyance claim against the State. The
State objected on the ground that the settlement agreement
protected it as well as VFDA. The court directed the parties
to seek a determination of the scope of the agreement from
the bankruptcy court. The Alaska Supreme Court affirmed
that ruling. Sea Hawk then moved to reopen the bankruptcy
case to obtain a determination of whether the agreement
released its fraudulent conveyance claim against the State. At
the direction of the court, Sea Hawk filed an adversary pro-
ceeding against the State. The court ruled that it had jurisdic-
tion over this proceeding as one related to the bankruptcy.
After further proceedings, the court entered a stipulated final
order finding that the settlement agreement released Sea
1924 IN RE VALDEZ FISHERIES DEVELOPMENT ASSOC.
Hawk’s claim against the State, but preserving Sea Hawk’s
objection to the bankruptcy court’s jurisdiction. Sea Hawk
appealed to the district court, which affirmed, but on the
ground that by approving the settlement agreement, the bank-
ruptcy court retained jurisdiction to interpret it. This timely
appeal followed.
DISCUSSION
We review a bankruptcy court’s determination of its juris-
diction de novo. In re G.I. Indus., Inc., 204 F.3d 1276, 1279
(9th Cir. 2000). Where bankruptcy jurisdiction can be exer-
cised at the discretion of the court, review is for abuse of dis-
cretion. In re Castillo, 297 F.3d 940, 944-45 (9th Cir. 2002).
I. “RELATED TO” JURISDICTION
[1] The bankruptcy court held that it had jurisdiction over
Sea Hawk’s adversary proceeding against the State under 28
U.S.C. § 1334(b) (2000). That section grants district courts
(and bankruptcy courts by reference) “original but not exclu-
sive jurisdiction of all civil proceedings . . . related to cases
under title 11.” § 1334(b) (emphasis added). In In re Fietz,
this Court adopted the Third Circuit’s articulation of the test
for determining whether a civil proceeding is related to bank-
ruptcy, stating that an action is related to bankruptcy if “the
outcome of the proceeding could conceivably have any effect
on the estate being administered in bankruptcy.” 852 F.2d
455, 457 (9th Cir. 1988) (quoting Pacor, Inc. v. Higgins, 743
F.2d 984, 994 (3d Cir. 1984)). In Fietz, the Court held that
there was no “related to” jurisdiction over a claim, though
part of the bankruptcy estate, if it was filed after the Chapter
13 plan had been confirmed and all of the property of the
estate had vested in the debtor. Id. at 458-59.
[2] Here, when Sea Hawk filed its adversary proceeding,
VFDA’s Chapter 11 case had been dismissed and a final
decree entered. When the bankruptcy court later reopened the
IN RE VALDEZ FISHERIES DEVELOPMENT ASSOC. 1925
bankruptcy case, it did so “for the limited purpose of making
a determination of whether the Settlement Agreement . . .
releases Sea Hawk’s state court claims against the State of
Alaska.” That determination could not conceivably “alter the
debtor’s rights, liabilities, options, or freedom of action . . .
[or] in any way impact[ ] upon the handling and administra-
tion of the bankrupt estate.” Fietz, 852 F.2d at 457 (quoting
Pacor, 743 F.2d at 994); see In re Hanks, 182 B.R. 930, 935
(Bankr. N.D. Ga. 1995) (“the enforcement of the settlement
agreement cannot have a conceivable effect on the bankruptcy
case as no case is in existence at that time”).
The State argues that to preserve the bankruptcy court’s
ability to interpret its prior rulings, a different standard applies
to postconfirmation proceedings. The Third Circuit, after
reviewing the post-confirmation cases, concluded that “the
essential inquiry appears to be whether there is a close nexus
to the bankruptcy plan or proceeding sufficient to uphold
bankruptcy court jurisdiction.” In re Resorts Int’l. Inc., 372
F.3d 154, 166-67 (3d Cir. 2004). The court concluded that
matters affecting the interpretation, implementation, consum-
mation, execution, or administration of the confirmed plan
will typically have the requisite close nexus. We adopted the
close nexus test in In re Pegasus Gold Corp., 394 F.3d 1189,
1194 (9th Cir. 2005). There, we found the requisite close
nexus to exist where the post-confirmation claims asserted
that the defendant breached the Reorganization Plan and
where the outcome of those claims could affect the implemen-
tation and execution of the Plan.
This is not a proceeding falling within the rationale of the
close nexus test. Here, there was no confirmed plan and there
is no claim that the dispute between two creditors, Sea Hawk
and the State, would have any effect on the now-closed bank-
ruptcy estate. The bankruptcy court has no role in the resolu-
tion of the creditors’ dispute, and it is involved only
fortuitously because the dispute implicates the terms of a set-
tlement agreement approved by the court as a precondition of
1926 IN RE VALDEZ FISHERIES DEVELOPMENT ASSOC.
the dismissal of VFDA’s bankruptcy. But that agreement has
been fully implemented with respect to VFDA.1
The bankruptcy court did not consider dismissal of
VFDA’s bankruptcy to automatically divest it of jurisdiction
over a related case. It reasoned that after dismissal, the court
has discretion to retain jurisdiction over a related proceeding,
citing In re Carraher, 971 F.2d 327, 328 (9th Cir. 1992). Car-
raher’s fraud case had originally been filed in state court but
was then removed to bankruptcy court as a related case
because of the pendency of a bankruptcy case. When the
underlying bankruptcy case was dismissed, the bankruptcy
court decided to retain jurisdiction of the fraud case. This
court held that “bankruptcy courts are not automatically
divested of jurisdiction over related cases when the underly-
ing bankruptcy case is dismissed.” Id. Whether to retain juris-
diction of such cases is within the bankruptcy court’s
discretion, guided by considerations of economy, conve-
nience, fairness and comity. Id.Carraher does not support the bankruptcy court’s decision.
It stands for the proposition that a bankruptcy court may
retain jurisdiction over a related proceeding pending at the
time of the dismissal of the bankruptcy case. It does not sup-
port the assertion of bankruptcy jurisdiction over a proceeding
initiated subsequent to the dismissal of the bankruptcy case.
Thus, had the state court fraudulent conveyance action been
removed to the bankruptcy court while the bankruptcy case
was open, that court, in its discretion, could have retained
jurisdiction after the dismissal of the bankruptcy case. But the
fact that it might have been removed does not provide a basis
for bankruptcy jurisdiction over a later filed proceeding.
1
The bankruptcy court itself noted, in an order ending the accrual of the
Trustee’s fees, that this dispute does “not appear to affect the bankruptcy
estate or the debtor.”
IN RE VALDEZ FISHERIES DEVELOPMENT ASSOC. 1927
II. RETAINED JURISDICTION OVER THE
SETTLEMENT AGREEMENT
The district court affirmed the bankruptcy court’s order on
a different theory, holding that when that court approved the
settlement agreement between VFDA and Sea Hawk, it was
thereby adopting the terms of the settlement agreement as part
of its order. This, it held, was sufficient for it to have implic-
itly retained jurisdiction over that agreement.
[3] Bankruptcy courts are courts of limited jurisdiction.
Having concluded that there was no “related to” jurisdiction
over this proceeding, we next consider whether the bank-
ruptcy court had ancillary jurisdiction. Ancillary jurisdiction
may rest on one of two bases: (1) to permit disposition by a
single court of factually interdependent claims, and (2) to
enable a court to vindicate its authority and effectuate its
decrees. Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S.
375, 379-80 (1994). Only the second basis is relevant in this
case. Thus, the question here is whether the bankruptcy
court’s jurisdiction over this proceeding is necessary in order
to vindicate its authority or effectuate its decree. Where a set-
tlement agreement led to the dismissal of a case, a court has
jurisdiction to vindicate its authority or effectuate its decree
if the court’s dismissal order explicitly retained jurisdiction or
incorporated the terms of the settlement agreement. Id. at 381.
Otherwise, enforcement of the settlement agreement is for
state courts. Id. at 382.
[4] Here, the bankruptcy court entered an order approving
the settlement agreement and a second order dismissing the
case, reciting the prior approval and stating that “[t]he condi-
tions of the settlement hav[e] been fulfilled.” The orders nei-
ther “retain[ed] jurisdiction” over the settlement agreement
nor incorporated “the parties’ obligation to comply with [its]
terms.” Id. at 381.
The State seeks to distinguish Kokkonen on two grounds.
First, it argues that Kokkonen does not apply because the set-
1928 IN RE VALDEZ FISHERIES DEVELOPMENT ASSOC.
tlement agreement here required and received the bankruptcy
court’s approval. But Kokkonen specifically states that “[t]he
judge’s mere awareness and approval of the terms of the set-
tlement agreement do not suffice to make them part of his
order.” Id. It noted that even in a dismissal under Federal Rule
of Civil Procedure 41(a)(2), which requires a court order,
enforcement of the settlement agreement is for state courts in
the absence of a specific retention of jurisdiction or a condi-
tion requiring the parties’ compliance with the terms of the
settlement agreement. Id. at 381-82; see also O’Connor v.
Colvin, 70 F.3d 530, 532 (9th Cir. 1995) (stating that “even
a district court’s expressed intention to retain jurisdiction is
insufficient to confer jurisdiction if that intention is not
expressed in the order of dismissal”); Hagestad v. Tragesser,
49 F.3d 1430, 1433 (9th Cir. 1995) (holding that even though
the district court had announced that it would oversee the
drafting of settlement papers and the construction and execu-
tion of the settlement, it had not retained jurisdiction).
Next, the State argues that Kokkonen involved enforcement
of a settlement agreement, while this proceeding is brought to
interpret an agreement. It relies on dicta in two Ninth Circuit
cases stating that a bankruptcy court “retains subject matter
jurisdiction to interpret orders entered prior to dismissal of
the underlying bankruptcy case.” In re Taylor, 884 F.2d 478,
481 (9th Cir. 1989) (citing In re Franklin, 802 F.2d 324, 326-
27 (9th Cir. 1986)). We need not decide the efficacy of these
statements in light of the subsequent decision in Kokkonen.
Suffice it to say that neither Franklin nor Taylor supports
bankruptcy court jurisdiction over this proceeding. In Frank-
lin, the court found that the bankruptcy court had “arising
under” jurisdiction under 28 U.S.C.§ 1334(b) of a declaratory
judgment action to determine the validity of a prior stay order
issued by another bankruptcy judge. 802 F.2d at 326. In Tay-
lor, the court held that the bankruptcy court lacked jurisdic-
tion to grant relief from a stay order entered in a prior
bankruptcy case that had been dismissed. 884 F.3d at 481. We
find these cases not remotely apposite to the matter before us.
IN RE VALDEZ FISHERIES DEVELOPMENT ASSOC. 1929
So far as the application of the Kokkonen principle is con-
cerned, we find no relevant difference between a proceeding
to enforce a settlement agreement and one to interpret it.
[5] We have considered the other arguments advanced by
the State and find them without merit. We conclude that
because this proceeding between Sea Hawk and the State is
not one to “vindicate the [court’s] authority” or to “effectuate
its decree,” Kokkonen, 511 U.S. at 380, the bankruptcy court
lacked jurisdiction.
CONCLUSION
For the reasons stated, the order of the district court is
REVERSED.