Jurisdiction: When Does a Bankruptcy Court Have Subject Matter Jurisdiction Over a Post-Confirmation Proceeding?
Case Note Re: Caillouet v. First Bank and Trust (In re Entringer Bakeries, Inc.), No. 07-30499, 2008 WL 4821613 (5th Cir. Nov. 6, 2008)
By: Jonathan L. Howell
April 2008
The bankruptcy court in Woodforest Partners, L.P. v. LDC 11c held that it had subject-matter jurisdiction over a post-confirmation adversary proceeding, denying a motion to dismiss made pursuant to Federal Rule of Civil Procedure 12(b)(1).1
LDC 11c ("LDC") entered into pre-petition contracts with EBCO Land Development, Ltd. ("EBCO") and Triple L Sales and Development, Ltd. ("Triple L") granting LDC an easement on the Properties to install natural gas pipelines. Later, on January 5, 2004, EBCO and its affiliates filed a petition for relief under chapter 11 of the Bankruptcy Code. On November 3, 2004, the bankruptcy court executed an order (the "Sale Order") approving the sale of three parcels of real property (the "Properties") free and clear of all liens, claims, and encumbrances pursuant to 11 U.S.C. § 363. LDC, despite having notice of the Sale Order, did not file an objection. On March 23, 2005, the court signed an order (the "Confirmation Order") confirming the Third Amended Chapter 11 Plan of Liquidation (the "Plan"). Pursuant to the Sale Order, which was incorporated into the Confirmation Order and the Plan, Woodforest Partners, L.P. and Woodforest Development, Inc. (collectively, "Woodforest") purchased the Properties believing they were free and clear of all encumbrances.
On December 10, 2007, Woodforest filed a complaint for declaratory judgment against LDC, seeking a judgment that: (1) the Properties are free and clear of all liens, claims, interests, and encumbrances; and (2) the contracts between LDC and Debtor were executory and rejected by the Confirmation Order. LCD subsequently filed a motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(1), asserting that the bankruptcy court lacked subject-matter jurisdiction to hear the matter.
In deciding the merits of LCD's motion, the court distilled a six-factor test from Bank of Louisiana v. Craig's Stores of Texas, Inc. (In re Craig's Stores of Texas), 266 F.3d 388 (5th Cir. 2001), and U.S. Brass Corp. v. Travelers Ins. Group, Inc. (In re U.S. Brass Corp.), 301 F.3d 296, 305 (5th Cir. 2002): (1) whether state law or bankruptcy law governs the suit; (2) whether the claim arose pre-petition or post-petition; (3) whether there are provisions in the confirmed plan expressly retaining jurisdiction; (4) whether substantial consummation occurred; (5) whether the reorganized debtor is a party; and (6) whether there are any indices of forum shopping. Applying these factors, the bankruptcy court held it had subject matter jurisdiction to decide the case. Bankruptcy law clearly determined the outcome. The disputed issues—whether the Sale Order terminated LCD's easement and whether the contracts between LCD and EBCO were rejected—arose pre-petition. The Plan expressly stated the bankruptcy court retained jurisdiction over post-confirmation matters, such as making sure the purpose, intent, terms, and conditions of the Plan were carried out. Substantial consummation had occurred, as the Plan was confirmed three years earlier, and there were no indicia of forum shopping. Accordingly, the court denied LCD's motion to dismiss, finding it post-confirmation subject-matter jurisdiction.
Woodforest Partners, L.P. v. LDC 11 c (In re EBCO Land Dev., Ltd.), No. 07-30519, 2008 WL 1766693 (Bankr. S.D. Tex. Apr. 17, 2008).
1LCD also filed a motion to dismiss based on Federal Rule of Civil Procedure 12(b)(6), which the court ultimately denied, finding Woodforest had pled sufficient facts in connection with the rejection of the contracts and the Sale Order to state a claim upon which the requested declaratory relief could be granted under Bell Atlantic Corp. v. Twombly, 127 S. Ct. 1955 (2007). Likewise, Woodforest filed a motion to dismiss LCD's counterclaim in accordance with Rule 12(b)(6), arguing any claim by LCD arising from the rejection of LCD's contracts should be brought against EBCO and the other debtors, not Woodforest. The court found Woodforest's argument persuasive and granted the motion.
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