FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
In re: DOUGLAS RAY,
Debtor.
No. 09-60005
BATTLE GROUND PLAZA, LLC, BAP No.
Appellant, WW-08-1104-
v. KaJuPa
DOUGLAS RAY; ESTATE OF IRWIN OPINION
JESSEN; DEAN MALDONADO,
Appellees.
Appeal from the Ninth Circuit
Bankruptcy Appellate Panel
Pappas, Jury, and Kaufman, Bankruptcy Judges, Presiding
Argued and Submitted
August 31, 2010—Seattle, Washington
Filed October 25, 2010
Before: Michael Daly Hawkins, M. Margaret McKeown and
Carlos T. Bea, Circuit Judges.
Opinion by Judge Hawkins
17467
17470 IN RE RAY
COUNSEL
Ben Shafton, Caron, Colven, Robison & Shafton, Vancouver,
Washington, for the appellant.
Russell D. Garrett and Todd A. Mitchell, Bullivant Houser
Bailey PC, Vancouver, Washington, for the appellees.
OPINION
HAWKINS, Senior Circuit Judge:
On an issue of first impression, we examine whether a
bankruptcy court retains jurisdiction over a collateral attack—
based on a state breach of contract theory—on its previous
sale order, having already approved a Chapter 11 Plan,
including the sale of real property, closed the case, overseen
payment of creditors, and discharged the debtor. Determining
that the bankruptcy court lacked jurisdiction, we reverse the
Bankruptcy Appellate Panel (“BAP”) and remand with
IN RE RAY 17471
instructions to vacate the bankruptcy court’s judgment for
lack of jurisdiction.
I. BACKGROUND
A. Factual Background
Douglas M. Ray (the “Debtor”) filed a Chapter 11 petition
on August 10, 2005. At that time, the Debtor and Irwin P.
Jessen (“Jessen”) were co-owners of commercial real estate
consisting of a shopping center commonly known as the Bat-
tle Ground Plaza Shopping Mall (“Battle Ground Mall”).
In December 2000, the Debtor and Jessen (together the
“Sellers”) entered into a purchase and sale agreement (the
“Battle Ground Mall Agreement”) with Battle Ground Plaza,
LLC (“BG Plaza”) for the sale of the Battle Ground Mall.1
The Agreement gave BG Plaza a right of first refusal for an
undeveloped, one-half acre adjoining parcel (the “½-Acre
Parcel”) also owned by the Sellers.
The bankruptcy court confirmed the Third Amended Plan
of Reorganization (the “Plan”) on March 7, 2002. The Plan
referenced the Debtor’s sale of the Battle Ground Mall to BG
Plaza, but noted the sale had yet to close due to discovery of
“adverse environmental conditions.” The Plan also expressed
the Debtor’s intention to sell his interest in the ½-Acre Parcel,
either to BG Plaza pursuant to its first refusal rights, to his
partner Jessen, or to another party altogether.
Subsequently, the Sellers decided to jointly convey their
interest in the ½-Acre Parcel. On May 18, 2005, Dean Mal-
donado (“Maldonado”) signed and tendered a purchase and
sale agreement (the “Maldonado Agreement”) for the ½-Acre
Parcel. The Maldonado Agreement included language making
1
The agreement was actually with BG Plaza’s predecessor in interest,
Bruce Feldman, Inc., an immaterial fact on appeal.
17472 IN RE RAY
Maldonado’s duty to close the transaction contingent on his
review of any “cross parking agreements,” i.e., any agree-
ments that may have existed providing the ½-Acre Parcel the
right to use the Battle Ground Mall’s parking lot and vice
versa.
Following the Maldonado Agreement, Jessen’s attorney
sent a letter to BG Plaza, notifying it of the Sellers’ intended
sale of the ½-Acre Parcel. Rather than exercising or declining
its first refusal rights, BG Plaza claimed its rights were “not
ripe until the underlying sale [of the Battle Ground Mall] is
closed.”
The Sellers responded in turn by executing the Maldonado
Agreement. The Debtor then moved the bankruptcy court to
approve the sale, which it did in a July 5, 2005 order, pursuant
to 11 U.S.C. § 363. BG Plaza, which received notice of the
proposed sale, did not object to or appeal this Sale Order,
though, in any event, the ½-Acre Parcel was not ultimately
sold pursuant to it.
In August 2005, Jessen’s counsel prepared a Reciprocal
Easement Agreement (“the Easement”) and sent copies to the
Debtor’s attorney, the Sellers’ real estate agent, and Mal-
donado. The Easement created valuable cross parking rights
for the ½-Acre Parcel in the existing parking areas of the Bat-
tle Ground Mall. The parties did not execute the Easement
agreement at this time, nor is there evidence the Sellers
brought the Easement to BG Plaza’s attention.
During a pre-closing due diligence survey of the ½-Acre
Parcel, Maldonado discovered a sewer pipe requiring
removal. The parties subsequently agreed to a reduction of the
purchase price and an extension of closing until November
15. Notified of the new purchase price, BG Plaza gave notice
of its intent to exercise its first refusal rights, providing a
$5,000 promissory note, stating principal and interest would
be payable by December 19, 2005.
IN RE RAY 17473
Shortly thereafter, the Debtor moved the bankruptcy court
(with notice to BG Plaza) to approve the sale of the ½-Acre
Parcel to Maldonado.
BG Plaza promptly took two actions. First, it filed a motion
objecting to the proposed sale, asserting it violated the condi-
tions of its first refusal rights. Second, it requested copies of
“all parking agreements” that Maldonado had previously
requested from the Sellers pursuant to the Maldonado Agree-
ment. Sellers did not answer this request, apparently conclud-
ing that BG Plaza, having responded to the terms of the
Maldonado Agreement with a promissory note containing
materially different terms, no longer had an “interest in the
property and had no reason to have a copy” of the parking
agreements.
Following a hearing,2 the bankruptcy court approved the
sale of the ½-Acre Parcel to Maldonado “free and clear of all
liens and encumbrances . . . including but not limited to the
right of first refusal granted to [BG Plaza].” The bankruptcy
court found BG Plaza’s attempted exercise of its right of first
refusal failed to mirror the Maldonado Agreement, because it
allowed until December 19 to determine whether to even pro-
ceed with the purchase and proposed an extension of the clos-
ing. Subsequently, the bankruptcy court denied BG Plaza’s
motion for reconsideration. BG Plaza failed to either appeal
the sale order or seek a stay necessary to prevent a direct
appeal from becoming moot. See 11 U.S.C. § 363(m).
Sellers and Maldonado then executed the Easement, and
the Sellers conveyed the ½-Acre Parcel by statutory warranty
deed to an assignee of Maldonado. The Debtor’s share of the
sale enabled him to pay the remaining creditors under the
Plan, and, on December 29, 2005, the bankruptcy court issued
a Final Decree closing the Chapter 11 Case.
2
BG Plaza received notice of the hearing and filed an objection to the
approval of the sale to Maldonado.
17474 IN RE RAY
Some six months later, Maldonado sought approval to con-
struct a commercial development on the ½-Acre Parcel, which
resulted in BG Plaza obtaining a copy of the Easement—it
claims for the first time—after Maldonado sought municipal
site plan approval.
B. Procedural History
Claiming it only just discovered the Easement, BG Plaza
commenced a lawsuit in Clark County Superior Court (the
“state court action”) against the Debtor, Jessen, Maldonado,
and Maldonado’s successor entities, alleging breach of its first
refusal rights, and seeking specific performance as well as
damages and declaratory relief. BG Plaza primarily alleged
the Sellers failed to advise BG Plaza of the Sellers’ intent to
execute the Easement.
Rather than determine the res judicata effect of the Sale
Order, the state court thought it appropriate to “remand” the
action to the bankruptcy court, pending the bankruptcy court’s
determination that it retained jurisdiction.
Thus, on the Debtor’s motion and over BG Plaza’s objec-
tion, the bankruptcy court reopened the Debtor’s case in Janu-
ary 2007. At a hearing on the bankruptcy court’s jurisdiction,
the court noted that it was “very reluctant . . . to assert juris-
diction,” but concluded that if it declined to do so, BG Plaza
would be unable to obtain specific performance of its first
refusal rights without invalidating the court’s Sale Order.
Therefore, the bankruptcy court entered an order retaining
jurisdiction over the breach of contract claims.
Jessen’s estate—he had now passed away3—sought sum-
mary judgment, claiming no disputed facts could show Jessen
and the Debtor had failed to provide BG Plaza with sufficient
3
Since Jessen’s estate notes that it continues to refer to itself as “Jessen”
in its briefs “for convenience,” we do the same.
IN RE RAY 17475
notice of all conditions on which they would have sold the ½-
Acre Parcel to Maldonado. The bankruptcy court granted
summary judgment, reasoning that its previous orders approv-
ing the sale were final and not subject to collateral attack by
BG Plaza in state court, and, in any event, the Sellers com-
plied with the terms of the right of first refusal. After the
bankruptcy court denied its motion to reconsider, BG Plaza
appealed to the BAP.
On December 31, 2008, the BAP affirmed the bankruptcy
court’s finding of jurisdiction in a Memorandum disposition.
BG Plaza timely appealed.
II. STANDARD OF REVIEW
Review of the bankruptcy court’s finding that it had juris-
diction is de novo. Piombo Corp. v. Castlerock Props. (In re
Castlerock Props.), 781 F.2d 159, 161 (9th Cir. 1986).
III. DISCUSSION
In determining the scope of a bankruptcy court’s jurisdic-
tion, our analysis begins with the statutory scheme because
the “jurisdiction of the bankruptcy courts, like that of other
federal courts, is grounded in, and limited by, statute.”
Celotex Corp. v. Edwards, 514 U.S. 300, 307 (1995).
[1] Two statutes, 28 U.S.C. §§ 157(a) and 1334,4 allow dis-
trict courts to refer proceedings arising in, arising under, or
related to the Bankruptcy Code, to bankruptcy courts. With
some limited exceptions not at issue here, Section 1334 pro-
vides that bankruptcy courts have “jurisdiction of all civil pro-
ceedings arising under title 11, or arising in or related to cases
under title 11.” § 1334(b); see generally Collier on Bank-
ruptcy §§ 3.01-3.03 (Alan N. Resnick & Henry J. Sommer
4
All statutory provisions cited in this Opinion refer to Title 28 of the
United States Code, unless otherwise stated.
17476 IN RE RAY
eds., 16th ed. 2010). Section 157(b)(1) provides that “Bank-
ruptcy judges may hear and determine all cases under title 11
and all core proceedings arising under title 11, or arising in a
case under title 11” that are referred to it by the district court.
Congress also provided a non-exhaustive list of core proceed-
ings, see § 157(b)(2), and indicated a matter may be a core
proceeding even if state law may affect its outcome,
see § 157(b)(3); see also Marshall v. Stern (In re Marshall),
600 F.3d 1037, 1054 (9th Cir. 2010).
[2] The result is that bankruptcy courts have jurisdiction to
hear a broad array of issues, but the exercise of their jurisdic-
tion to enter any final order or judgment is limited to (1)
“cases under title 11,” § 157(b)(1); (2) “core” bankruptcy pro-
ceedings that either “arise under” the Bankruptcy Code or
“arise in” a case under the Code, id.; or (3) cases in which all
interested parties “consent” to the bankruptcy court having
jurisdiction to enter a final order in a matter that is “related
to” a case under the Bankruptcy Code, § 157(c)(2); see also
N. Pipeline Constr. Co. v. Marathon Pipe Line Co., 458 U.S.
50 (1982); Harris v. Wittman (In re Harris), 590 F.3d 730,
737 & n.3 (9th Cir. 2009).
In addition, bankruptcy courts retain jurisdiction to enter
findings of fact and conclusions of law—which the district
court is free to adopt or disregard after de novo review,
§ 158(a)—in (1) “non-core” proceedings that either “arise
under” the Bankruptcy Code, “arise in” a case under the
Code, or “relate to” a case under the Code, see §§ 157(a), (b)
and 1334; or (2) “core” proceedings that “relate to” a case
under the Bankruptcy Code, but neither “arise under” the
Code nor “arise in” a case under the Code, id.
Finally, even if a bankruptcy court does not have “arising
under” jurisdiction, it can retain jurisdiction under a theory of
ancillary jurisdiction if re-opening the case is necessary “(1)
to permit disposition by a single court of factually interdepen-
dent claims, [or] (2) to enable [the bankruptcy] court to vindi-
IN RE RAY 17477
cate its authority and effectuate its decrees.” See Sea Hawk
Seafoods, Inc. v. Alaska (In re Valdez Fisheries Dev. Ass’n,
Inc.), 439 F.3d 545, 549 (9th Cir. 2006) (citing Kokkonen v.
Guardian Life Ins. Co. of Am., 511 U.S. 375, 379-80 (1994)).
We consider each of these possible bases of jurisdiction in
turn.
A. Statutory Jurisdiction
1. “Arising In” or “Arising Under” Jurisdiction
Jessen takes the position that we should affirm the BAP
because the state court action “required resolution of a sub-
stantial question of bankruptcy law” and was, therefore, a
core proceeding. However, neither the decisions underlying
the BAP’s disposition, nor the cases Jessen cites on appeal,
compel the conclusion that BG Plaza’s state court action arose
under the bankruptcy code. Instead, the better understanding
of this case is as a run-of-the-mill collateral attack in which
BG Plaza was free to bring its breach of contract action in
state court, which, in turn, would have been obligated to
examine the preclusive effects of the bankruptcy court’s unap-
pealed Sale Order, issued over BG Plaza’s opposition.
Congress non-exhaustively enumerated what constitutes a
“core” proceeding in 28 U.S.C. § 157(b)(2). The proceedings
listed include matters affecting the administration of the
estate, determination of the validity, extent, or priority of
liens, and other proceedings affecting the liquidation of the
assets of the estate or the adjustment of the debtor-creditor
relationship. § 157(b)(2)(A), (K), (O). “[The] section, how-
ever, does not enumerate examples of, or define what consti-
tutes, ‘non-core’ proceedings.” Dunmore v. United States, 358
F.3d 1107, 1114 (9th Cir. 2004). We have addressed this
question, holding proceedings to be “non-core” ”if they do not
depend on the Bankruptcy Code for their existence and they
could proceed in another court.” Id. (internal citation omit-
17478 IN RE RAY
ted). In another articulation, we stated a core proceeding is
one that “invokes a substantive right provided by title 11 or
. . . a proceeding that, by its nature, could arise only in the
context of a bankruptcy case.” Gruntz v. County of L.A. (In re
Gruntz), 202 F.3d 1074, 1081 (9th Cir. 2000) (internal quota-
tion marks omitted).
[3] Here, BG Plaza’s claim for breach of contract arising
out of the Sellers’ purported failure to comply with the right
of first refusal does not, “by its nature . . . arise only in the
context of a bankruptcy case.” Id. A matter “arises under” the
Bankruptcy Code if its existence depends on a substantive
provision of bankruptcy law, that is, if it involves a cause of
action created or determined by a statutory provision of the
Bankruptcy Code. In re Harris, 590 F.3d at 737; Eastport
Assocs. v. City of L.A. (In re Eastport Assocs.), 935 F.2d
1071, 1076 (9th Cir. 1991) (citing Wood v. Wood (In re
Wood), 825 F.2d 90, 96 (5th Cir. 1987)); Collier on Bank-
ruptcy § 3.01[3][c][i]. Because the theory of its claim is a
state law contract action independent of the bankruptcy case,
BG Plaza’s claim against the Sellers is not one “arising
under” the Bankruptcy Code.
[4] A proceeding “arises in” a case under the Bankruptcy
Code if it is an administrative matter unique to the bankruptcy
process that has no independent existence outside of bank-
ruptcy and could not be brought in another forum, but whose
cause of action is not expressly rooted in the Bankruptcy
Code. See In re Marshall, 600 F.3d at 1054-5; Collier on
Bankruptcy § 3.01[3][c][iv]. Here, too, BG Plaza’s Washing-
ton breach of contract claim does not depend on an adminis-
trative matter unique to the bankruptcy process that has no
independent existence outside of the bankruptcy court and
could not be brought in another forum.
None of the cases Jessen cites or on which the BAP relied
persuades us otherwise. The BAP first considered Beneficial
Trust Deeds v. Franklin (In re Franklin), in which the
IN RE RAY 17479
plaintiffs-debtors’ property was sold pursuant to a settlement
of a second bankruptcy petition, notwithstanding debtors’ fil-
ing of a third petition, which they claimed renewed the auto-
matic stay preventing valid sale of the property. 802 F.2d 324,
325 (9th Cir. 1986). The plaintiffs sought relief in state court
to, inter alia, set aside the trustee’s foreclosure sale and to
cancel recorded deeds resulting from the sale. Id. at 325-26.
We held that, where the subsequent collateral attack turned on
whether or not the bankruptcy judge’s “order . . . entering the
stipulation of the parties had the effect of preventing the auto-
matic stay imposed by the filing of the Debtors [sic] third
bankruptcy petition from interfering with the” sale, the bank-
ruptcy court retained jurisdiction. Id. at 326.
In other words, we found “arising under” jurisdiction in In
re Franklin because the relevant contract was a stipulated set-
tlement of the bankruptcy proceeding, and the issue the plain-
tiffs attempted to bring in state court was the effect of the
stipulation on the automatic stay provision, a fundamental
aspect of the Bankruptcy Code. Id.; see 11 U.S.C. § 362.
Here, on the other hand, BG Plaza sought to bring a breach-
of-contract claim created under Washington law based on a
right of first refusal agreement entered into entirely indepen-
dently of the bankruptcy action.
The BAP also cited McCowan v. Fraley (In re McCowan),
296 B.R. 1, 4 (B.A.P. 9th Cir. 2003), but this case also fails
to compel a finding that the bankruptcy court had arising-
under jurisdiction. In In re McCowan, after a Chapter 7 case
had closed, a creditor attempted to execute on a judgment the
bankruptcy court had previously entered fixing the amount of
the debtor’s nondischargeable debt to the creditor. Id. at 2.
The bankruptcy court concluded it had “jurisdiction to deter-
mine the dischargeability of a debt owed by a bankruptcy
debtor,” because “such a proceeding ‘arises under’ the Bank-
ruptcy Code, because it is a cause of action created by § 523
of the Bankruptcy Code.” Id. at 3 (internal citation omitted).
17480 IN RE RAY
[5] Here, in contrast, the cause of action was not under the
Bankruptcy Code at all; it was indisputably under Washington
contract law. Further, the determination BG Plaza sought was
not whether Ray had discharged his bankruptcy debts—he
had—but whether the Sellers (which included a non-debtor
party) had breached the terms of the right of first refusal. The
action in In re McCowan was for the direct enforcement of
the bankruptcy court’s order, a very different posture from the
case before us.5
Finally, the BAP relied on its opinion in Aheong v. Mellon
Mortgage Co. (In re Aheong), 276 B.R. 233 (B.A.P. 9th Cir.
2002), but that case is easily distinguishable. There, a debtor
filed an emergency state court motion claiming an order
granting the creditor’s writ of possession for debtor’s resi-
dence was void because it was obtained in violation of the
bankruptcy court’s automatic stay. Id. at 237. The state court
granted a stay to allow time for clarification from the bank-
ruptcy court. The bankruptcy court in turn granted the credi-
tor’s Motion to Annul the Stay on the grounds that the debtor
had violated a General Order of the bankruptcy court regard-
ing noticing the state court of the federal bankruptcy filing. Id.
Thus, in In re Aheong, the bankruptcy court had jurisdic-
tion to consider annulling a stay in the bankruptcy proceeding
because, as the BAP rhetorically asked, “What could be more
‘under’ Title 11 than the automatic stay and the right to seek
to annul it?” Id. at 250 (citations omitted). Given the role the
automatic stay plays in bankruptcy proceedings, we agree
with this aspect of In re Aheong’s reasoning, and conclude
that it actually serves to distinguish the breach of contract
action here.
5
In re McCowan’s statement that, “[i]t is not relevant to the analysis
whether the underlying bankruptcy case has been closed,” may be helpful
to Jessen, but such a rule is a necessary, not a sufficient, condition of juris-
diction here. 296 B.R. at 4.
IN RE RAY 17481
Jessen’s citation to Hawaiian Airlines, Inc. v. Mesa Air
Group, Inc., 355 B.R. 214 (D. Haw. 2006), is no more helpful
to his claim of jurisdiction. He relies on its statement that “[a]
post-confirmation proceeding involving a bankruptcy court’s
enforcement of its own order is a core proceeding.” Id. at 219.6
Putting aside for a moment the analytical overlap with our
inquiry into ancillary jurisdiction below, Hawaiian Airlines
involved the alleged breach of a confidentiality agreement
entered into “pursuant to the bankruptcy court’s Plan Proce-
dures Order,” and was between one of the parties and the
bankruptcy trustee, id. at 220, a plainly different posture from
this case.
Finally, in a case handed down after the parties’ initial
appellate briefing, we recently elaborated on the applicable
standard. In In re Harris, we explained, “A civil proceeding
‘arises in’ a Title 11 case when it is not created or determined
by the bankruptcy code, but where it would have no existence
outside of a bankruptcy case.” 590 F.3d at 737. There, a
Chapter 7 debtor brought a state court action against the bank-
ruptcy trustee and other representatives of the estate, claiming
the defendants breached a settlement agreement entered into
during the course of the bankruptcy proceedings, which was
related to the administration of estate assets. Id. at 734-35. We
held that the “claim arose in [the debtor’s] bankruptcy case
because it could not exist independently of his bankruptcy
case.” Id. at 738; see also Maitland v. Mitchell (In re Harris
Pine Mills), 44 F.3d 1431, 1435-38 (9th Cir. 1995).
6
Jessen also discusses two additional cases. First, he cites State of Mon-
tana v. Goldin (In re Pegasus Gold Corp.), 394 F.3d 1189 (9th Cir. 2005),
which we consider below. Second, he cites the discussion in Fietz v. Great
Western Savings (In re Fietz), 852 F.2d 455, 456 (9th Cir. 1988), of pre-
confirmation matters, but our reasoning in In re Fietz is necessarily less
on point than In re Pegasus Gold Corp., which is a more recent case and
determined the “close nexus” test should apply when the bankruptcy estate
is post-confirmation. See In re Pegasus Gold Corp., 394 F.3d at 1194.
17482 IN RE RAY
[6] Although we found jurisdiction proper in In re Harris,
the facts there are easily distinguishable and our reasoning
supports finding the bankruptcy court here lacked jurisdiction.
Here, the claims involve a piece of property a third party was
trying to purchase from the Debtor and his non-bankruptcy
partner, and the state court action is a breach of contract
action claiming the Sellers did not honor the terms of the right
of first refusal, which itself was created under Washington
law rather than as part of the bankruptcy proceeding. Thus,
following our reasoning in In re Harris, an action for breach
of the right of first refusal can exist independently of the
bankruptcy case, and does not arise under Title 11. See 590
F.3d at 737-38.
2. “Related to” Jurisdiction
[7] Of course, even if the state court action did not arise
under the bankruptcy code, it could still be “related to” a
bankruptcy case such that the bankruptcy court retains juris-
diction to provide findings of fact and conclusions of law to
the district court. See 28 U.S.C. § 157(c)(1). Although “post-
confirmation bankruptcy court jurisdiction is necessarily more
limited than pre-confirmation jurisdiction,” the set of cases
“related to” a bankruptcy case is “much broader” than the set
of “arising under” cases. In re Pegasus Gold Corp., 394 F.3d
at 1193, 1194. In considering whether a bankruptcy court has
jurisdiction over a state contract action related to a post-
confirmation liquidation plan, we have adopted the “close
nexus” test, explaining 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
over the matter.” Id. at 1194.
In attempting to demonstrate how the state court action is
“related to” the bankruptcy proceeding, Jessen claims that “al-
tering the rights in the property so long after the disposition
of the property could set off a chain reaction that would
include the estate, the buyers, title companies, insurance com-
IN RE RAY 17483
panies, and other far reaching parties.” We disagree and find
the state court action lacking a close nexus to the bankruptcy
plan or proceeding.
Our decision in In re Valdez Fisheries, 439 F.3d at 545, is
instructive. There, we found the bankruptcy court lacked “re-
lated to” jurisdiction to interpret a settlement agreement
between two creditors in a suit brought after the closing and
dismissal of the underlying bankruptcy case. Id. at 546-47.
The debtor there claimed that creditor seafood processing
plant had fraudulently conveyed funds to repay a state loan
rather than paying its prioritized creditors. Id. The debtor and
creditor subsequently entered into a settlement agreement
requiring dismissal of all claims between them and stating the
bankruptcy court would continue to have jurisdiction over the
settlement. Id. at 547. Shortly after the termination of the
bankruptcy proceedings, the creditor sued the State of Alaska
in state court, claiming its Division of Investments was the
recipient of the fraudulent conveyance from the debtor, which
repaid over $2 million in State loans before paying the sea-
food processor. Id. Like here, the state court directed the par-
ties to seek a determination on the scope of the settlement
agreement in the bankruptcy court, which in turn found it had
jurisdiction over the proceeding as one related to bankruptcy.
Id.
The district court affirmed, but we reversed, finding that
reopening the bankruptcy case to determine liability between
the creditor and the state “could not conceivably alter the
debtor’s rights, liabilities, options, or freedom of action or in
any way impact upon the handling and administration of the
bankrupt estate.” Id. at 547-48 (internal quotation marks and
alterations omitted). We distinguished In re Pegasus Gold
Corp., explaining that there we had “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.” Id. at 548. Instead, we rea-
17484 IN RE RAY
soned, the bankruptcy court in In re Valdez Fisheries had no
role in the resolution of the dispute and was “involved only
fortuitously because the dispute implicate[d] the terms of a
settlement agreement approved by the court as a precondition
of the dismissal of [the] bankruptcy.” Id.
That statement of our rationale could be substituted here
verbatim if we replaced “settlement agreement” with “sale
order.” BG Plaza is similarly situated to the seafood processor
in In re Valdez Fisheries—pleading a potentially fraudulent
conveyance in state court—and Maldonado is situated simi-
larly to the state of Alaska—as a recipient of property from
the bankruptcy estate in a case the bankruptcy court has dis-
missed and in which it has entered a final decree.7
[8] There is no doubt that BG Plaza’s claims would under-
mine the effect of the bankruptcy court’s well-reasoned deter-
mination that Sellers did not violate the right of first refusal.
However, such attacks in a second court are routine—and rou-
tinely rejected, and Jessen offers no convincing argument why
that fact alone creates jurisdiction under § 1334(b). See
Charles Alan Wright, Arthur R. Miller & Edward H. Cooper,
Federal Practice & Procedure § 4405 (2d. ed. 1988)
(“Ordinarily both issue preclusion and claim preclusion are
enforced by awaiting a second action in which they are
pleaded and proved by the party asserting them,” and “[t]he
first court does not get to dictate to other courts the preclusion
consequences of its own judgment.”). Therefore, the bank-
7
The situation here may not be identical because in addition to the third
party defendants (here Maldonado and Jessen), the debtor (Ray) was
named in the state court complaint; however, the core insights that the
bankruptcy proceeding is over, that a ruling on the state court claim by the
state court would not affect the bankruptcy estate, and that the state court
claim should look to the preclusive effect of that proceeding, remain the
same. See 439 F.3d at 548. Further, it is not perfectly clear from In re
Valdez Fisheries that the debtor was not also a defendant in the subsequent
state court suit, id. at 546-47, so the case may not even be distinguishable
on that ground.
IN RE RAY 17485
ruptcy court did not retain “related to” jurisdiction for this
breach of contract action that could have existed entirely apart
from the bankruptcy proceeding and did not necessarily
depend upon resolution of a substantial question of bank-
ruptcy law. See In re Harris, 590 F.3d at 737; In re Valdez
Fisheries, 439 F.3d at 546.
B. Ancillary Jurisdiction
Jessen also argues the bankruptcy court retained ancillary
jurisdiction because “the Bankruptcy Court was asked by Ray
and by the state court to effectuate its own prior Sale Orders.”
The BAP found ancillary jurisdiction as well, holding that
“the bankruptcy court had ancillary jurisdiction to interpret
and enforce its prior orders.”
[9] “Ancillary jurisdiction may rest on one of two bases:
(1) to permit disposition by a single court of factually interde-
pendent claims, and (2) to enable a court to vindicate its
authority and effectuate its decrees.” In re Valdez Fisheries,
439 F.3d at 549 (citing Kokkonen, 511 U.S. at 379-80). Jessen
only invokes the bankruptcy court’s need to effectuate its
decrees.
The Supreme Court has explained that it has never “relied
upon a relationship so tenuous as the breach of an agreement
that produced the dismissal of an earlier federal suit” to sup-
port ancillary jurisdiction. Kokkonen, 511 U.S. at 379. We
have elaborated that a bankruptcy court has subject matter
jurisdiction to interpret orders entered prior to dismissal of the
underlying bankruptcy case, In re Franklin, 802 F.2d at
326-27, “and to dispose of ancillary matters such as an appli-
cation for an award of attorney’s fees for services rendered in
connection with the underlying action,” Tsafaroff v. Taylor
(In re Taylor), 884 F.2d 478, 481 (9th Cir. 1989). Alterna-
tively, “[t]he bankruptcy court does not have jurisdiction,
however, to grant new relief independent of its prior rulings
once the underlying action has been dismissed.” Id.
17486 IN RE RAY
The BAP again relied on In re Aheong, invoking language
explaining that, there, “[b]y granting [a] Motion to Annul the
Stay the bankruptcy court was acting to ‘interpret’ and ‘effec-
tuate’ General Order No. 1, which directed Debtor to notify
[the creditor] and the state court of her bankruptcy filing and
provided that ‘failure to give such notice . . . may constitute
cause for nullification of the automatic stay.” 276 B.R. at 240.
The BAP found the situation here analogous because, it rea-
soned, “BG Plaza LLC’s action for specific performance . . .
would, if successful, eviscerate the previously approved sale
of the Debtor’s interest in the ½-Acre parcel.”
“Ordinarily, once the bankruptcy court confirms a plan of
reorganization . . . [a] debtor is usually without the protection
of the bankruptcy court.” Hillis Motors, Inc. v. Haw. Auto.
Dealers’ Ass’n, 997 F.2d 581, 589 (9th Cir. 1993). This is
why, for example, we have rejected ancillary jurisdiction
when a party sued on the terms of a settlement agreement
after the bankruptcy case had closed and the estate was set-
tled. In re Valdez Fisheries, 439 F.3d at 549-50. It is also why
the BAP has rejected ancillary jurisdiction on attorneys fees—
a subject which would normally be within a court’s ancillary
jurisdiction—effectively requiring a state court to rule, when
the debtor-defendant fighting fees claimed the fees were
secured fraudulently because the attorney failed to disclose
required information to the bankruptcy court. Elias v.
Lisowski Law Firm, CHTD (In re Elias), 215 B.R. 600, 603-
17 (B.A.P. 9th Cir. 1997).8
8
Nor does the bankruptcy court’s express retention of jurisdiction,
alone, bring this case within its ancillary jurisdiction. Jessen highlights
language from the order confirming the Plan, stating the bankruptcy court
“shall retain jurisdiction of this case to determine any controversies in
connection with assets of the bankruptcy estate.” But Jessen fails to cite
a single case suggesting this language can support jurisdiction, which is
constitutionally limited, see N. Pipeline Constr. Co. v. Marathon Pipe
Line Co., 458 U.S. 50 (1982), a particular failure given the burden of dem-
onstrating jurisdiction lies with the party asserting it. See Kokkonen, 511
U.S. at 377. Nor, at oral argument, could Jessen provide any limiting prin-
ciple that would ever cut off the bankruptcy court’s jurisdiction to re-visit
its previous decisions in closed cases.
IN RE RAY 17487
[10] In short, hearing a breach of contract claim predicated
on evidence that came to light after a bankruptcy case had
closed, its creditors paid, and the debtor discharged, stretches
the limits of the bankruptcy court’s ancillary jurisdiction too
far, going beyond what is necessary for the bankruptcy court
to “effectuate its decrees.” Kokkonen, 511 U.S. at 380. This
conclusion is supported by the record, which demonstrates the
bankruptcy judge’s reluctance to accept jurisdiction and his
recognition that particularly the inclusion of Jessen and Mal-
donado seemed to raise issues beyond the Debtor’s bank-
ruptcy case.
[11] “[O]nce the bankruptcy court confirms a plan of reor-
ganization, the debtor is free to go about its business without
further supervision or approval of the court, and concomi-
tantly, without further protection of the court.” Sw. Marine,
Inc. v. Danzig, 217 F.3d 1128, 1140 (9th Cir. 2000) (internal
citations omitted). Reopening of the bankruptcy claim is rare,
and only used when necessary to resolve bankruptcy issues,
not to adjudicate state law claims that can be adjudicated in
state court.
IV. CONCLUSION
[12] For the foregoing reasons the bankruptcy court lacked
jurisdiction over the state law breach of contract claims, and
the case must be dismissed. The Clark County Court was per-
fectly capable of taking jurisdiction and assessing whether BG
Plaza’s claim is precluded given that the sale had already been
finalized and approved in the previous bankruptcy proceed-
ing.
REVERSED and REMANDED for further proceedings
consistent with this Opinion.