Bank of Louisiana v. Craig's Stores of Texas, Inc.

REVISED OCTOBER 10, 2001
UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
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No. 00-20383

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CRAIG’S STORES OF TEXAS, INC.,

Debtor.
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BANK OF LOUISIANA,

Appellant,

versus

CRAIG’S STORES OF TEXAS, INC.,

Appellee.

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Appeal from the United States District Court
for the Southern District of Texas
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October 3, 2001

Before JONES, DeMOSS, and BENAVIDES, Circuit Judges.

EDITH H. JONES, Circuit Judge:

The district court perceptively concluded that the

exercise of bankruptcy court jurisdiction over this contract

dispute, which arose after the debtor’s Chapter 11 plan was

confirmed, was improper. Agreeing with other circuit courts that
bankruptcy court jurisdiction does not last forever, we affirm the

vacation and dismissal of the bankruptcy court judgment.

The debtor, Craig’s Stores, has done business with Bank

of Louisiana since 1989, using the Bank to administer Craig’s in-

house private label credit card program and thus to assist in

financing Craig’s operations by buying the company’s receivables.

The parties’ complex arrangement continued after Craig’s sought

Chapter 11 bankruptcy protection in 1993, and their contract was

assumed as part of the debtor’s reorganization plan confirmed in

December 1994.1

Eighteen months later, in mid-1996, Craig’s sued the Bank

in the bankruptcy court, asserting state law claims for damages

alleged to have arisen in 1994 and 1995. Neither the Bank nor the

bankruptcy court questioned the court’s jurisdiction. The case

moved forward, culminating in a 12-day trial that aired the

parties’ mutual grievances and resulted in a quarter-million dollar

judgment for Craig’s.

The Bank appealed to the district court on several

points, none of which touched on jurisdiction. At a 1998 hearing

convened to discuss the merits of the appeal, the district court

inquired sua sponte how the bankruptcy court could exercise

1
The confirmation order retained bankruptcy court jurisdiction, but
only to the extent of matters regarding confirmation and completion of the
debtor’s plan.

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jurisdiction over a post-confirmation, state law-based contract

dispute. Further briefing by the parties failed to persuade the

district court that jurisdiction originally existed over the

adversary proceeding in bankruptcy court, and the district court

dismissed it for lack of jurisdiction.2 Craig’s appealed.

Craig’s contends that the bankruptcy court had

jurisdiction to resolve its dispute with the Bank because (a) the

parties’ contract existed before confirmation; (b) the contract was

assumed in the plan of reorganization; (c) the resolution of the

claim could affect Craig’s ability to make payments under the plan;

and if all else fails, (d) the Bank’s “counter-claim” to convert

the confirmed case to Chapter 7 invoked jurisdiction sufficient to

include Craig’s original suit against the Bank.

The first three factors are subsumed in Craig’s theory

that so long as a bankruptcy case remains open, jurisdiction exists

if a dispute is “related to” the bankruptcy, 28 U.S.C. § 1334(b),

that is, if the outcome of the proceeding could conceivably have an

effect on the debtor’s estate. See In re Wood, 825 F.2d 90, 93

(5th Cir. 1987). Some circuits have utilized this theory, which

originated to describe the scope of bankruptcy jurisdiction during

the pendency of the case, to assess jurisdiction after confirmation

2
The court alternatively reversed because the bankruptcy court
erroneously admitted expert witness testimony for Craig’s, and because Craig’s
failed to prove that its losses were caused by the Bank.

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of a reorganization plan, but they have not applied it on post-

confirmation facts like those before us. See, e.g., In re C F & I

Fabricators of Utah, Inc., 150 F.3d 1233, 1237 (10th Cir. 1998);

U.S. Trustee v. Gryphon at the Stone Mansion, Inc., 166 F.3d 552,

555-56 (3d Cir. 1999); In re Wolverine Radio Co., 930 F.2d 1132,

1140-43 (6th Cir. 1991).

The more persuasive theory of post-confirmation

jurisdiction, however, attaches critical significance to the

debtor’s emergence from bankruptcy protection. As the Seventh

Circuit put it,

Once the bankruptcy court confirms a plan of
reorganization, the debtor may go about its business
without further supervision or approval. The firm also
is without the protection of the bankruptcy court. It
may not come running to the bankruptcy judge every time
something unpleasant happens.

Pettibone Corp. v. Easley, 935 F.2d 120, 122 (7th Cir. 1991).

After a debtor’s reorganization plan has been confirmed, the

debtor’s estate, and thus bankruptcy jurisdiction, ceases to exist,

other than for matters pertaining to the implementation or

execution of the plan. In re Fairfield Communities, Inc., 142 F.3d

1093, 1095 (8th Cir. 1998); In re Johns-Manville Corp., 7 F.3d 32,

34 (2d Cir. 1993). No longer is expansive bankruptcy court

jurisdiction required to facilitate “administration” of the

debtor’s estate, for there is no estate left to reorganize. This

theory has antecedents in our court’s jurisprudence, which has

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observed that the reorganization provisions of the former

Bankruptcy Act “envisage[] that out of the proceedings will come a

newly reorganized company capable of sailing forth in the cold,

cruel business world with no longer the protective wraps of the

federal Bankruptcy Court.” In re Seminole Park & Fairgrounds,

Inc., 502 F.2d 1011, 1014 (5th Cir. 1974). Because it comports

more closely with the effect of a successful reorganization under

the Bankruptcy Code than the expansive jurisdiction cases, we adopt

this more exacting theory of post-confirmation bankruptcy

jurisdiction.

Viewed from the narrower perspective, it is clear that

Craig’s claim against the Bank principally dealt with post-

confirmation relations between the parties. There was no

antagonism or claim pending between the parties as of the date of

the reorganization. The fact that the account management contract

existed throughout the reorganization and was, by implication,

assumed as part of the plan is of no special significance. And

even if such circumstances might bear on post-confirmation

bankruptcy court jurisdiction, no facts or law deriving from the

reorganization or the plan was necessary to the claim asserted by

Craig’s against the Bank. Finally, while Craig’s insists that the

status of its contract with the Bank will affect its distribution

to creditors under the plan, the same could be said of any other

post-confirmation contractual relations in which Craig’s is

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engaged. In sum, the state law causes of action asserted by

Craig’s against the Bank do not bear on the interpretation or

execution of the debtor’s plan and therefore do not fall within the

bankruptcy court’s post-confirmation jurisdiction. See 11 U.S.C.

§ 1142(b).

In re Case, 937 F.2d 1014 (5th Cir. 1991), is not to the

contrary. In Case, this court held that a post-confirmation

dispute over a promissory note provided for in the debtor’s

reorganization plan was a core proceeding under 28 U.S.C. § 157.

See id. at 1017, 1019-20. The note was executed in settlement of

a creditor’s claim as part of the reorganization plan itself. See

id. at 1017. Unlike the dispute in Case, the post-confirmation

dispute at issue in this appeal has nothing to do with any

obligation created by the debtor’s reorganization plan. Compare In

re Nat’l Gypsum Co., 118 F.3d 1056, 1064 (5th Cir. 1997) (holding

that action seeking declaratory judgment as to whether confirmation

order bars collection of asserted preconfirmation liability is core

proceeding under 28 U.S.C. § 157).

In a last-ditch effort to bootstrap jurisdiction, Craig’s

relies on a separate post-confirmation adversary proceeding that

the Bank commenced in bankruptcy court two months after Craig’s

filed the contract-based lawsuit. The Bank sought to require the

debtor to cure defaults in the parties’ contract or, in the

alternative, to convert the case to Chapter 7. Craig’s asserts

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that this adversary proceeding was consolidated with its contract

claim, and that the two were tried together. This is not entirely

accurate. The Bank withdrew its motion to convert after Craig’s

placed certain disputed sums in escrow. The court never considered

or ruled upon the withdrawn motion to convert. That motion cannot

be used to establish, retroactively, the bankruptcy court’s

jurisdiction.

For the foregoing reasons, the judgment of the district

court, which vacated and dismissed the adversary proceeding in

bankruptcy court, is AFFIRMED.

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