Summary:
Following the filing of Ms. Murphy’s Chapter 7 bankruptcy, her ex-husband, Mr. Kozek, brought an adversary proceeding against her for malicious prosecution, seeking both monetary damages and a determination that any such award was nondischargeable pursuant to 11 U.S.C. § 523(a)(6). After a bench trial, to which both parties explicitly consented, the bankruptcy court found Ms. Murphy liable to Mr. Kozek in the amount of $8,274.94, which was nondischargeable. While the written judgment was pending, Ms. Murphy brought a Motion to Dismiss, alleging that the bankruptcy court lacked subject matter jurisdiction pursuant to 28 U.S.C. § 157(b)(5) to decide the malicious prosecution claim, as a personal injury tort. Mr. Kozek responded that the malicious prosecution claim was not a personal injury tort claim, but that if it was, the bankruptcy court should refer that portion of the suit to the district or a state court for determination.
In order to address the scope and limitations of its subject matter jurisdiction, the bankruptcy court began with a thorough review of the history of bankruptcy law, starting from the Bankruptcy Act of 1898 through the Bankruptcy Reform Act of 1978 and then Bankruptcy Amendments and Federal Judgeship Act of 1984, enacted in response to the Northern Pipeline decision, 458 U.S. 50, 102 S. Ct. 2858, 73 L.Ed.2d 598 (1982), and ultimately to Stern v. Marshall, 564 U.S. 462, 131 S. Ct. 2594, 180 L.Ed.2d 475 (2011). At the end of this recitation , the bankruptcy court concludes that “[a]lthough only the district courts possess jurisdiction over bankruptcy cases and proceedings, a district court may refer all this jurisdiction to its bankruptcy judges that serve as officers of that district court....” This referred jurisdiction is limited by 28 U.S.C. § 157(b)(1) to core proceedings, as set for in a non-exclusive list in § 157(b)(2), arising under the Bankruptcy Code or arising in the specific bankruptcy case. The bankruptcy court can, with the consent of the parties, enter final judgment in proceedings related to the bankruptcy or, absent such consent, issue proposed findings of fact and conclusions of law for de novo review by a district judge. Proceedings “arise under” the Bankruptcy Code by invoking statutorily created bankruptcy rights, whereas those “arising in” a bankruptcy case are not created specifically by the Bankruptcy Code, “but would have no existence outside the bankruptcy.” See Bergstrom v. Dalkon Shield Claimants Trust (In re A.H. Robins Co.), 86 F.3d 364, 372 (4th Cir. 1996).
The bankruptcy court, following Stanborough v. Valle (In re Valle), 469 B.R. 35 (Bankr. D. Idaho 2012) and Markwood Invs. Ltd. v. Neves (In re Neves), 500 B.R. 651 (Bankr. S.D. Fl. 2013), held that the dischargeability of a debt and the determination of the amount of that debt are so “integral” and “interwined” that both such “arise under” the Bankruptcy Code.
Alternatively, the malicious prosecution claim was “related to” the bankruptcy case under the test from Pacor, Inc. v. Higgins, 743 F.2d 984, 994 (3rd Cir. 1984), that “ the outcome of that proceeding could conceivably have any effect on the estate being administered in bankruptcy” or, as extended by Chen v. Huang (In re Huang), 509 B.R. 742, 753 n. 14 (Bankr. D. Mass. 2014), impacts rights, such as the extent of a debtor’s discharge, created by the Bankruptcy Code.
Accordingly, the bankruptcy court held that 28 U.S.C. § 157(b)(5), merely “dictates appropriate venues for adjudication of a personal injury tort or wrongful death claim” and is not a further limit on the subject matter jurisdiction. When “district court has jurisdiction over a personal injury tort or wrongful death claim under 28 U.S.C. § 1334, then so do its bankruptcy judges by referral under 28 U.S.C. § 157(a).” While admitting that this is “perhaps the most misunderstood bankruptcy ... statute” related to the structure of the judiciary (a confusion with is compounded by the apparent discreteness of bankruptcy courts, with their own clerks, local rules, filing systems, etc.), bankruptcy judges are judicial officers of the district court (contrasted with “district judges”) and may determine personal injury tort claims, either pursuant to 28 U.S.C. § 157(b)(2)(1), as a statutorily core “arising under” proceeding or, pursuant to 28 U.S.C. § 157(c), as the parties consented, as it is “related to” the bankruptcy case.
Commentary:
The question of whether the bankruptcy court could determine amount the malicious prosecution claim would have been more cleanly raised by early on declining to consent to the bankruptcy court hearing that portion of the adversary proceeding, as it would have removed the “related to” jurisdiction.
This opinion would also give authority for a bankruptcy court to determine the value of a debtor's pre-petition claims against other parties, since a liquidation of those amounts would be as “integral” and “interwined” in the allowance of exemptions as a determination of amounts owed were to discharge here.
For a copy of the opinion, please see:
Kozek v. Murphy- Bankruptcy Court Authority to Determine Personal Injury Tort Claim
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