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(4) the potential liability was more than incidental. Because "related to" jurisdiction was the only way to assert subject matter jurisdiction under section 1334(b), said the Third Circuit, the bankruptcy court correctly applied the "close nexus" test and appropriately found that the potential non-incidental liability provided the requisite close nexus. But what is interesting about this decision is the distinctions the court seems to draw between a plan trustee and the reorganized debtor and between litigation trust beneficiaries and creditors of the reorganized debtor.
* GAF Holdings, LLC v. Rinaldi (In re Farmland Indus., Inc.), 378 B.R. 829 (8th Cir. B.A.P. Dec. 2007) (Schermer, J.)
No bankruptcy jurisdiction over disputes among non-debtors stemming from a 363 sale.
Over three years after a section 363 sale of estate property and subsequent confirmation of a liquidating plan, an entity who failed to qualify as a bidder under applicable section 363 sale procedures commenced an action in the bankruptcy court asserting claims of civil conspiracy and similar actions under state law against the parties involved in the sales process, including the liquidating trust created under the confirmed plan. The bankruptcy court dismissed the complaint on the merits for failure to state a claim upon which relief could be granted. On this appeal, however, the Eighth Circuit B.A.P. reversed the bankruptcy court's dismissal on the merits, finding that the bankruptcy court lacked subject matter jurisdiction and should have dismissed the complaint without even reaching the merits.56 According to the panel, there was no "related to" jurisdiction because the action was among non-debtor entities and could serve no conceivable bankruptcy administrative purpose.57 Said the panel, the mere facts that the section 363 sale was central to the litigation and that the bankruptcy court had thrice ruled on the issues related to the sale did not generate subject matter jurisdiction.
* McClelland v. Grubb & Ellis Consulting Servs. Co. (In re McClelland), 377 B.R. 446 (Bankr. S.D.N.Y. Oct. 2007) (Morris, J.)
Professional malpractice action commenced after the professionals' fee award was a core proceeding and was not barred by the "law of the case" doctrine. The reorganized chapter 11 debtor commenced an action in state court alleging, inter alia, that the defendant committed professional malpractice during its appraisals of estate property which had been sold as key components of the confirmed plan. The defendant removed the malpractice action, and the reorganized debtor moved for a remand. The bankruptcy court declined to remand the case, finding that it was "somewhat disingenuous for the Debtor to attempt to pry these claims out of
56 The panel concluded the opinion by noting that the plaintiff/appellant changed its position with respect to subject matter jurisdiction on appeal, hoping to gain a tactical advantage by taking a second bite at the apple in another forum with subject matter jurisdiction. While the panel did not condone this strategy, it noted that there was no choice but to dismiss without reaching the merits, but that it was also confident the appellant's sudden change of heart would be unavailing and subject to judicial estoppel in another forum.
57
Citing Valley Historic Limited Partnership v. Bank of New York, 486 F.3d 831 (4th Cir. May 2007).
