IN RE: The Guild and Gallery Plus, Inc. v. Maggio

Opinions of the United
1996 Decisions States Court of Appeals
for the Third Circuit

1-4-1996

IN RE: The Guild and Gallery Plus, Inc. v. Maggio
Precedential or Non-Precedential:

Docket 95-5295

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 UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT

No. 95-5295

IN RE:

THE GUILD AND GALLERY PLUS, INC.
Debtor

JOHN B. TORKELSEN
Appellant

v.

CARMEN J. MAGGIO

On Appeal from the United States District Court
for the District of New Jersey
(D.C. No. 94-cv-05619)

Argued November 28, 1995
BEFORE: MANSMANN, COWEN and SEITZ
Circuit Judges

(Filed January 4, 1996)

William J. Brennan, III (argued)
Grayson Barber
Smith, Stratton, Wise, Heher & Brennan
600 College Road East
Suite 4200
Princeton, New Jersey 08540

COUNSEL FOR APPELLANT
JOHN B. TORKELSEN

Allan M. Harris (argued)
Ravin, Greenberg & Marks
101 Eisenhower Parkway
Roseland, New Jersey 07068

COUNSEL FOR APPELLEE
CARMEN J. MAGGIO

1
 OPINION

COWEN, Circuit Judge.

The question presented in this case is whether various

state-law claims against a bankruptcy trustee in his individual

capacity can be either a "core" bankruptcy proceeding under 28

U.S.C. § 157(b)(2)(A) ("matters concerning the administration of

the estate") or a noncore, related proceeding under 28 U.S.C.

§158(c)(2). The plaintiff alleged that the trustee negligently

lost or intentionally stole property that at one time was in the

estate's possession, but was never "property of the [bankrupt]

estate," as defined in 11 U.S.C. § 541. Both the bankruptcy

court and the district court below held that such a case was a

"core proceeding," which the bankruptcy court had the power to

decide, subject to ordinary appellate review.

As it is uncontroverted that the property alleged to

have been lost or stolen by the trustee (a painting held by the

debtor in its capacity as a bailee) was never "property of the

estate," as defined by § 541(a)(1) of the Bankruptcy Code, and as

it is equally undisputed that the outcome of appellant's suit

against the trustee would have no effect on the bankrupt estate,

we conclude that this case is neither a core proceeding nor a

noncore, related proceeding under controlling precedent. Because

the courts below lacked subject matter jurisdiction to consider

appellant's actions against the trustee, we will reverse the

order of the district court entered March 31, 1995, and remand

2
this matter to the district court with instructions that it

remand the matter back to the bankruptcy court with a direction

that the bankruptcy court dismiss the complaint for lack of

subject matter jurisdiction.
I.

The Guild and Gallery Plus, Inc., ("the Gallery") filed

a petition under Chapter 11 of the Bankruptcy Code while the

Gallery was in possession of seventeen paintings owned by

appellant John B. Torkelsen. Torkelsen had sent these paintings

to the Gallery for storage while renovations were being done on

his home. One of the paintings was entitled "Summertime--

Collecting Wild Flowers--1902" by Peter Mark Monstadt ("the

Summertime painting").

On December 7, 1991, after the Chapter 11 petition had

been filed, Torkelsen sent his fiancee, Pamela Rogers, his

attorney, Penny Bennett, his brother, his son and an unidentified

third man ("the Torkelsen party") to the Gallery in order to

remove all seventeen paintings and bring them back to him. When

the Torkelsen party arrived at the Gallery, Anton Borics, who

supervised the Gallery on behalf of the trustee, Carmen J.

Maggio, opposed the removal of the paintings. Alarmed, Borics

contacted Maggio by phone. Maggio also objected to the removal

of the paintings. Nonetheless, when it became clear that the

Torkelsen party was determined to remove all of the paintings

immediately, Maggio agreed, albeit under duress, that the

3
paintings could be removed.1 Maggio insisted, however, that the

Torkelsen party provide him with a written list of everything

that had been removed from the Gallery.

Pursuant to Maggio's request, attorney Penny Bennett

prepared a receipt for the paintings that had been removed from

the Gallery on December 7. Attorney Bennett, Pamela Rogers and

Julie Lapitino, a Gallery employee, signed the receipt. It

provided that "The undersigned hereby acknowledge that seventeen

(17) pieces of art owned by John Torkelsen were removed from the

Guild Gallery on this day. The undersigned have confirmed that

the attached inventory dated June 12, 1991, entitled Guild

Gallery, accurately lists and identifies the seventeen pieces of

art concerned." App. at 480.

Shortly thereafter, Torkelsen conducted an unsuccessful

search for the Summertime painting. Torkelsen assumed that the

painting had been left behind at the Gallery. In a letter dated

December 9, 1991, Torkelsen's attorney requested that Maggio

return the Summertime painting. Maggio responded by advising

counsel to file the appropriate motion. On December 20, 1991,

Torkelsen filed a motion for reclamation of property seeking to

recover the Summertime painting.

On December 27, 1991, Maggio instructed Gallery

employee Diane Lane to search for the Summertime painting in the

1
Removal of the paintings at this time violated the automatic
stay provisions of the Bankruptcy Code. See 11 U.S.C. § 362(a).
Pursuant to a Consent Order entered April 10, 1992, Torkelsen
agreed to pay $8,000.00 in attorneys' fees to the trustee and
$1,000.00 in punitive damages to the General Estate Fund for
having violated the automatic stay.

4
Gallery's storage areas. On the same day, Lane claimed to have

located the Summertime painting at the Gallery. On January 7,

1992, based upon Lane's representation, Borics wrote Maggio a

letter advising him that the Gallery was still in possession of

one of Torkelsen's paintings. Maggio then agreed, by consent

order dated March 16, 1992 ("Consent Order"), to return the

Summertime painting. The Consent Order provided that the trustee

would "abandon, turn over and arrange for movant to retrieve

`Summertime--Collecting Flowers--1902' by Peter Mark Monstadt,

within 10 days from the date hereof. . . . " App. at 450.

After the bankruptcy court had approved the Consent

Order, the Summertime painting could not be located. Unable to

retrieve his property, Torkelsen filed an adversary complaint

against Maggio in the Bankruptcy Court for the District of New

Jersey "seeking damages for the loss of the `Summertime' painting

based on theories of wrongful possession, negligence, res ipsa

loquitur, bailment, conversion and breach of warranty." In re

Guild & Gallery, No. 94-5619, slip op. at 3 (D.N.J. Mar. 31,

1995). Maggio filed a counterclaim seeking to: (1) vacate the

Consent Order due to mistake of fact; (2) require Torkelsen to

defray any loss by collecting insurance proceeds covering the

Summertime painting; and (3) recover damages against Torkelsen

resulting from the trespass that occurred on December 7, 1991.

On August 16-17, 1994, this case was tried. On the day

before the trial commenced, a conference call was held in which

the court and counsel for both parties participated. During this

conversation, the court informed the parties that since all of

5
Torkelsen's claims against the trustee hinged upon the factual

contention that the Summertime painting remained in the Gallery

after December 7, 1991, the court would hear the parties'

evidence on this specific issue and make a finding of fact before

other matters would be considered. Counsel for both parties

consented to this arrangement.

On August 17, 1994, the bankruptcy court found that

Torkelsen had not proved by a preponderance of the evidence that

the Summertime painting remained at the Gallery after December 7,

1991. In reaching this decision, the court "placed significance,

among other things, . . . on the credibility of the witnesses

that [it] had the opportunity to observe. . . . " App. at 441-

42. The bankruptcy court did not find Diane Lane's testimony to

be convincing. On the issue of whether Lane had identified the

Summertime painting in the Gallery on December 27, the court

noted Lane's "subsequent doubt and contradictory testimony" and

her inability "to confirm that the painting that she saw on

December 27th was, in fact, Summertime." Id. at 437. Thus, the

court concluded that any statements by Maggio, Borics or the

trustee's attorney that the Summertime painting had been located

in the Gallery after December 7 were based solely upon their

erroneous belief about the accuracy of Lane's report.

As for the receipt which certified that seventeen

paintings had been removed, the bankruptcy court noted that the

three women who signed the receipt on December 7, 1991, had

testified to their belief in its accuracy on that date. Moreover,

the court observed that at least two of the women had compared

6
the list, double-checked it, and concluded that all of

Torkelsen's paintings had been accounted for, including the

Summertime painting.

On August 17, 1994, the bankruptcy court granted the

first count of Maggio's counterclaim seeking to vacate the

Consent Order on the ground that it was based upon a mistake of

fact. All of Torkelsen's claims against Maggio were dismissed

with prejudice. Maggio's remaining counterclaims also were

dismissed with prejudice.

On September 6, 1994, Torkelsen filed a motion with the

bankruptcy court seeking to have the bankruptcy judge recuse

himself from the case before a final order was entered. On

September 26, a hearing was held on the recusal motion. The

motion was denied the following day. The bankruptcy court's

final order dismissing all of Torkelsen's claims was entered on

October 11, 1994.2

Torkelsen appealed to the United States District Court

for the District of New Jersey. By order dated March 31, 1995,

the district court affirmed all aspects of the bankruptcy court's

decision. This appeal followed.
II.

Jurisdiction over Title 11 matters "lies with the

district court. However, the district court routinely refers

most bankruptcy cases to the bankruptcy court." In re Marcus

2
Since this case is to be dismissed on jurisdictional grounds, we
express no view on the question whether the bankruptcy court's
factual finding that the Summertime painting was removed from the
Gallery on December 7, 1991, was clearly erroneous.

7
Hook Dev. Park, Inc., 943 F.2d 261, 264 n.3 (3d Cir. 1991)

(citation omitted). See 28 U.S.C. § 157(a). "It is well-settled

that the bankruptcy court potentially has jurisdiction over four

types of title 11 matters, pending referral from the district

court: (1) cases under title 11, (2) proceedings arising under

title 11, (3) proceedings arising in a case under title 11, and

(4) proceedings related to a case under title 11." Marcus Hook,

943 F.2d at 264. See 28 U.S.C. § 1334. We have jurisdiction to

review the final order of the district court pursuant to 28

U.S.C. § 158(d) and 28 U.S.C. § 1291.

Although neither party has challenged the bankruptcy

and district courts' jurisdiction to adjudicate Torkelsen's

claims, "we are obligated to do so on our own motion if a

question thereto exists." Liberty Mut. Ins. Co. v. Wetzel, 424

U.S. 737, 740, 96 S. Ct. 1202, 1204 (1976). "An appellate court

must satisfy itself not only of its own jurisdiction, but also of

the jurisdiction of the courts under review." Pomper v.

Thompson, 836 F.2d 131, 132 (3d Cir. 1987) (per curiam) (citing

Mitchell v. Maurer, 293 U.S. 237, 55 S. Ct. 162 (1934)). "[W]e

cannot ignore matters that bring into question the existence of

federal jurisdiction." Thermice Corp. v. Vistron Corp., 832 F.2d
248, 251 (3d Cir. 1987) (citations omitted).
III.

A.

1.

28 U.S.C. § 157(b)(1) provides that "Bankruptcy judges

may hear and determine all cases under title 11 and all core

8
proceedings arising under title 11, or arising in a case under

title 11. . . . " Section 157(b)(2) sets forth a nonexhaustive

listing of core proceedings. In the instant case, we must decide

whether Torkelsen's claims against the trustee fall within the

scope of § 157(b)(2)(A); that is, "matters concerning the

administration of the estate." In order to develop an

understanding of the genesis and purpose of the distinction

between core and noncore proceedings under the Bankruptcy

Amendments and Federal Judgeship Act of 1984 ("1984 Act"), Pub.

L. No. 98-353, Title I, § 101(a), 98 Stat. 333 (1984), it is

instructive to look to the Acts of Congress that preceded the

promulgation of the 1984 Act as well as current Supreme Court

doctrine on the power of Article I bankruptcy courts to hear and

decide cases.

For eighty years, bankruptcy court jurisdiction was

governed by the Bankruptcy Act of 1898, ch. 541, 30 Stat. 544

(1898). One commentator has described the jurisdictional scheme

of the 1898 Act in the following terms:
The Bankruptcy Act of 1898 vested original
jurisdiction over all bankruptcy matters in the United
States District Courts. In turn, the district judges
referred certain matters to bankruptcy referees. There
were two main types of bankruptcy matters under the Act
of 1898: "proceedings" and "controversies."
"Proceedings" generally involved the administration of
the bankrupt's estate and were solely within the
province of the bankruptcy court. "Controversies" were
collateral disputes arising out of bankruptcy
proceedings. These matters involved the trustee and
third parties and could be heard by either the
bankruptcy court or by a non-bankruptcy court that had
jurisdiction. While proceedings fell within the
"summary jurisdiction" of the bankruptcy court,
controversies sometimes required the court to exercise

9
 "plenary jurisdiction." The two types of jurisdiction
differed in the following manner. Matters within the
summary jurisdiction of the bankruptcy court could be
adjudicated through the use of more expeditious modes
of procedure, with the court sitting in equity. The
district court qua bankruptcy court could hear these
matters; however, a bankruptcy referee usually
rendered final judgment on such matters, subject only
to "review" by the district court. In contrast,
plenary jurisdiction was exercised only by the district
court or state courts, following their general rules of
procedure. According to some estimates, as much as
fifty percent of all litigation under the Act of 1898
concerned whether the matter was within the bankruptcy
court's summary jurisdiction.

Thomas S. Marion, Core Proceedings and "New" Bankruptcy

Jurisdiction, 35 DePaul L. Rev. 675, 676-77 (1986) (hereinafter

New Bankruptcy Jurisdiction). Under appropriate circumstances,

we may look to cases decided under the 1898 Act for guidance in

determining whether a matter is a core proceeding. See Beard v.

Braunstein, 914 F.2d 434, 444 (3d Cir. 1990).

In 1978, Congress sought to establish a more efficient

bankruptcy scheme that would avoid the confusion inherent in the

summary/plenary distinction. Through the enactment of the

Bankruptcy Reform Act of 1978, Pub. L. No. 95-598, 92 Stat. 2549

(1978), Congress made an attempt to
centralize bankruptcy jurisdiction and expedite the
administration of bankruptcy cases . . . . The Reform
Act conferred on district courts original and exclusive
jurisdiction over all "cases" under title 11. It also
gave district courts original and concurrent
jurisdiction of all civil proceedings arising from or
related to cases under title 11. In turn, the Reform
Act gave the bankruptcy courts "all of the jurisdiction
conferred by [the Reform Act] on the district courts."
This comprised jurisdiction over any action involving
the debtor, including many actions that would have
required a plenary suit under the Act of 1898. Eighty
years of litigation over the summary-plenary

10
 distinction were abandoned in favor of a simplified
bankruptcy court system.

Marion, New Bankruptcy Jurisdiction, supra, at 678. See Hays &

Co. v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 885 F.2d

1149, 1159 (3d Cir. 1989) ("[T]he dichotomy between plenary and

summary jurisdiction" was "the evil the Reform Act was designed

to address."). The Supreme Court, however, in Northern Pipeline

Construction Co. v. Marathon Pipe Line Co., 458 U.S. 50, 102 S.

Ct. 2858 (1982) (plurality opinion), struck down the more

efficient jurisdictional scheme of the 1978 Act. The Marathon

Court held that the power the 1978 Act purported to delegate to

Article I bankruptcy judges violated Article III, § 1 of the

Constitution.

The facts underlying the Marathon case are as follows.

In January 1980, Northern Pipeline filed a Chapter 11

reorganization petition in the Bankruptcy Court for the District

of Minnesota. Two months later Northern Pipeline filed suit

against Marathon seeking damages for alleged breaches of contract
and warranty, as well as for alleged misrepresentation, coercion,

and duress. The parties involved were not diverse, nor did the

case present a substantial federal question. The only nexus

between Northern Pipeline's claims and the bankruptcy was the

fact that Northern Pipeline was a debtor in a Chapter 11 business

reorganization.

The Marathon Court held that an Article I bankruptcy

court could not exercise "The judicial Power" over Northern

Pipeline's contract and fraud claims. The plurality observed

11
that "the restructuring of debtor-creditor relations, which is at

the core of the federal bankruptcy power, must be distinguished

from the adjudication of state-created private rights, such as

the right to recover damages that is at issue in this case." Id.

at 71, 102 S. Ct. at 2871. The plurality was unimpressed with

the conduit notion of the Bankruptcy Reform Act of 1978, pursuant

to which jurisdiction was first granted to the district court and

then transferred to the bankruptcy courts. Justice Brennan

concluded that the 1978 Act was unconstitutional because it

impermissibly vested "all `essential attributes' of the judicial

power of the United States in the `adjunct' bankruptcy court."

Id. at 84-85, 102 S. Ct. 2878.

The Supreme Court's decision in Marathon had

potentially far-reaching implications. In reaction to Marathon,

Congress enacted the 1984 Act, which made important changes in
the structure of the bankruptcy court system. As in
the Reform Act, the district courts are vested with
original and exclusive jurisdiction over all cases
under title 11, and original and concurrent
jurisdiction over all proceedings arising under or
related to title 11. The critical difference between
the Reform Act and the Act of 1984 is that under the
latter, bankruptcy courts do not exercise all
jurisdiction vested in district courts. Instead, the
bankruptcy court is established as a unit of the
district court to which the district court may refer
any or all cases and proceedings. The district court
may revoke this reference on its own motion or on
timely motion of any party, for cause shown. Thus, the
district court, in form, has complete control over what
actions the bankruptcy court hears. Under the Reform
Act, the district court had no such power.

The Act of 1984 contains additional limitations on
the bankruptcy court's jurisdiction. Proceedings are
divided into "core proceedings" and "proceedings that
are not core proceedings" ("non-core proceedings").

12
 Bankruptcy judges may hear and finally determine all
cases under title 11 and all core proceedings, subject
to appeal to the district court. The bankruptcy judge
may also hear non-core proceedings. However, if the
parties do not consent to final judgment in a non-core
proceeding in bankruptcy court, the bankruptcy judge
merely submits proposed findings of fact and
conclusions of law to the district judge. If a party
objects to a particular matter, the district judge must
conduct a de novo review of that matter.

Marion, New Bankruptcy Jurisdiction, supra, at 681-82. Although

there was some question after the 1984 Act was passed as to

whether the new bankruptcy legislation ran afoul of Marathon,

subsequent Supreme Court decisions have interpreted the Marathon

decision narrowly. See Thomas v. Union Carbide Agricultural

Prods., Co., 473 U.S. 568, 584, 105 S. Ct. 3325, 3334 (1985)

(interpreting Marathon as holding "only that Congress may not

vest in a non-Article III court the power to adjudicate, render

final judgment, and issue binding orders in a traditional

contract action arising under state law, without consent of the

litigants, and subject only to ordinary appellate review");

Commodity Futures Trading Comm'n v. Schor, 478 U.S. 833, 106 S.

Ct. 3245 (1986) (same).
2.

The bankruptcy court and the district court both

concluded that this case was a core proceeding under 28 U.S.C.

§157(b)(2)(A) ("matters concerning the administration of the

estate"). Both the district court and the bankruptcy court read

this section too broadly.

Our circuit precedents have "held that a proceeding is

core under section 157 if it invokes a substantive right provided

13
by title 11 or if it is a proceeding that, by its nature, could

arise only in the context of a bankruptcy case." In re Marcus

Hook Dev. Park Inc., 943 F.2d 261, 267 (3d Cir. 1991) (citations

and internal quotation marks omitted). In support of its ruling

that this case was a core proceeding, the bankruptcy court

relied, inter alia, on the decision of the Court of Appeals for

the Fifth Circuit in In re Wood, 825 F.2d 90 (5th Cir. 1987),

which observed that
the phrases "arising under" and "arising in" are
helpful indicators of the meaning of core proceedings.
If the proceeding involves a right created by the
federal bankruptcy law, it is a core proceeding; for
example, an action by the trustee to avoid a
preference. If the proceeding is one that would arise
only in bankruptcy, it is also a core proceeding; for
example, the filing of a proof of claim or an objection
to the discharge of a particular debt. If the
proceeding does not invoke a substantive right created
by the federal bankruptcy law and is one that could
exist outside of bankruptcy it is not a core
proceeding; it may be related to the bankruptcy
because of its potential effect, but under section
157(c)(1) it is an "otherwise related" or non-core
proceeding.

Id. at 97.
We conclude, however, that applying this standard to

the present matter warrants a result contrary to that reached by

the bankruptcy court. The claims that Torkelsen raises against

the trustee need not "arise only in bankruptcy." Torkelsen's

state law claims are not comparable to the filing of a proof of

claim or raising an objection to a discharge of a particular

debt, the examples provided by Wood. Moreover, Torkelsen's

claims certainly could exist outside of bankruptcy; they could

14
all be filed in a state court. The same analysis is supported by

our own Circuit precedents. This case is not a core proceeding

because Torkelsen's claims neither "invoke[] a substantive right

provided by title 11," nor could this action "arise only in the

context of a bankruptcy case." Marcus Hook, 943 F.2d at 267. See

In re Gardner, 913 F.2d 1515, 1518 (10th Cir. 1990) (per curiam)

("Actions which do not depend on the bankruptcy laws for their

existence and which could proceed in another court are not core

proceedings.").
B.

The language of § 157(b)(2)(A) would appear to

encompass an extraordinarily broad number of claims. Indeed, the

Editor-in-Chief of Collier's has commented that "[w]hile estate

administration matters are not defined, the clause appears to

contemplate a very broad panoply of proceedings integral to a

case under the Code. Its overbreadth may, in fact, render the

remaining clauses unnecessary." Lawrence P. King, Symposium on

Bankruptcy: Jurisdiction and Procedure Under the Bankruptcy

Amendments of 1984, 38 Vand. L. Rev. 675, 688 (1986).

Even if we were to interpret the language of

§157(b)(2)(A) in the broadest possible manner consistent with the

Constitution, this case still would not qualify as a core

proceeding. Assuming arguendo that Maggio engaged in all of the
conduct that Torkelsen alleges and that such conduct was

administrative in nature, our inquiry under § 157(b)(2)(A) does

not end there. Section 157(b)(2)(A) refers to "matters

concerning the administration of the estate." Since it is

15
uncontroverted that the Summertime painting is not part of the

bankrupt estate, the trustee's alleged misconduct does not fall

within the plain language of this provision.

Section 541 of the Bankruptcy Code, which defines the

parameters of the bankrupt estate, compels this result. Property

of the estate includes "wherever located and by whomever held[,]

. . . all legal or equitable interests of the debtor in property

as of the commencement of the case." 11 U.S.C. § 541(a)(1). The

legislative history of § 541 describes the expansive reach of

this provision:
Under paragraph (1) of subsection (a), the estate is
comprised of all legal and equitable interests of the
debtor in property, wherever located, as of the
commencement of the case. The scope of this paragraph
is broad. It includes all kinds of property, including
tangible or intangible property, causes of action, . .
. as well as property recovered by the trustee under
section 542 . . . if the property recovered is merely
out of the possession of the debtor, yet remained
"property of the debtor." The debtor's interest in
property also includes "title" to property, which is an
interest, just as are a possessory interest, or
leasehold interest, for example.

S.Rep. No. 989, 95th Cong., 2d Sess. 82, reprinted in 1978

U.S.C.C.A.N. 5787, 5868.

The Supreme Court affirmed the broad scope of

§541(a)(1) in United States v. Whiting Pools, Inc., 462 U.S. 198,

103 S. Ct. 2309 (1983). After citing the definition of "estate"

articulated in § 541 and describing the powers of the trustee

with regard to the estate under 11 U.S.C. § 363, the Court

observed that "[a]lthough these statutes could be read to limit

the estate to those `interests of the debtor in property' at the

16
time of the filing of the petition," the Court "view[ed] them as

a definition of what is included in the estate, rather than a

limitation." Id. at 203, 103 S. Ct. at 2312. The Court stated

that "[b]oth the congressional goal of encouraging

reorganizations and Congress' choice of methods to protect

secured creditors suggest that Congress intended a broad range of

property to be included in the estate." Id. at 204, 103 S. Ct.

at 2313.

Justice Blackmun's opinion also provided examples of

property interests that do not fall within the scope of § 541.

The Court observed that the legislative history of § 541

"indicates that Congress intended to exclude from the estate

property of others in which the debtor had some minor interest

such as a lien or bare legal title." Id. at 205 n.8, 103 S. Ct.

at 2314 n.8. The Court further stated that "[w]e do not now

decide the outer boundaries of the bankruptcy estate. We note

only that Congress plainly excluded property of others held by

the debtor in trust at the time of the filing of the petition."

Id. at 205 n.10, 103 S. Ct. at 2314 n. 10.

The Gallery estate held Torkelsen's paintings as a

bailee. Collier's describes the manner in which bailments should

be analyzed under § 541:
[I]t became well settled under the Bankruptcy Act that
absent state statutory enactment to the contrary, if
property was in the debtor's hands as bailee. . ., the
trustee held it as such, and the bailor . . . could
recover the property or its proceeds. Under the Code,
section 362 will automatically stay the bailor . . .
from divesting the debtor of possession, and the estate
will include the debtor's rights under the bailment . .
. contract.

17
4 COLLIER ON BANKRUPTCY, ¶ 541.08[2], at 42-43 (15th ed. 1995)

(emphasis added). See Borman v. Raymark Indus., Inc., 946 F.2d

1031, 1035 (3d Cir. 1991) ("[T]he automatic stay was intended to

apply to actions that do not necessarily involve property of the

estate.").

Pursuant to this analysis, the debtor's rights under

the bailment agreement, i.e., whatever funds Torkelsen owed to

the estate pursuant to the bailment agreement, would fall within

the definition of "property of the estate."3 The Summertime

painting itself, however, was not property of the estate, even

under the expansive definition set forth in § 541 of the

Bankruptcy Code. The estate had no security interest in the

painting. Upon satisfaction of bailment agreement, the painting-

-which the estate never claimed as its own--had to be returned.

This understanding was formalized in the Consent Order. Since

the Summertime painting was not part of the bankrupt estate, then

a fortiori this matter cannot fall within § 157(b)(2)(A), which

can only be applied to matters concerning the administration of

the bankrupt estate.

At oral argument before this court, Maggio argued that

although the Summertime painting was not part of the bankrupt

estate, this proceeding is nonetheless a core matter concerning

estate administration because prior to the bankruptcy court's

approval of the Consent Order on March 16, 1992, no formal

3
The specifics of the bailment agreement between Torkelsen and
the Gallery are not part of the record.

18
adjudication had been made regarding the issue of who owned the

Summertime painting. Thus, the argument goes, any alleged

wrongdoing up until that time would still fall within the scope

of § 157(b)(2)(A).

This argument must be rejected. The plain language of

§ 157(b)(2)(A) applies only to property of the bankrupt estate.

Torkelsen petitioned the bankruptcy court for a determination

that the Summertime painting was his property and obtained the

benefit of a court order confirming that fact on March 16, 1992.

Maggio cannot now, in the face of a conclusive legal

determination that the Summertime painting is not property of the

estate, argue that Torkelsen's claims--which have no bearing upon

the estate whatsoever--nonetheless fall within the provision of

the Bankruptcy Code that by its terms applies only to the

administration of estate property. See Howell Hydrocarbons, Inc.

v. Adams, 897 F.2d 183, 190 (5th Cir. 1990) ("Whatever else a

core proceeding must be, it must involve a decision that

ultimately affects the distribution of the debtor's assets.").

Torkelsen seeks nothing from the Gallery estate itself.

Torkelsen's action in no way implicates "the restructuring of

debtor-creditor relations, which is at the core of the federal

bankruptcy power. . . . " Marathon, 458 U.S. at 71, 102 S. Ct.
at 2871. Moreover, as Marathon illustrates, even if the estate

has a direct financial interest in a claim that a party proposes

to litigate in bankruptcy court, this fact, by itself, does not

provide an adequate jurisdictional foundation. That the estate

has no interest, financial or otherwise, in the outcome of the

19
dispute between Torkelsen and the trustee renders Maggio's

argument that this is a core proceeding untenable. We therefore

conclude that the actions that Torkelsen brought against the

trustee were not core proceedings under 28 U.S.C. § 157(b)(2)(A).
IV.

It remains to be determined, therefore, whether this

case is nevertheless a noncore, related proceeding. The

applicable test to determine whether an action brought in

bankruptcy court qualifies as a noncore, related proceeding was

set forth in the landmark decision of Pacor, Inc. v. Higgins, 743

F.2d 984 (3d Cir. 1984). The Pacor court held that "the test for

determining whether a civil proceeding is related to bankruptcy

is whether the outcome of that proceeding could conceivably have

any effect on the estate being administered in bankruptcy." Id.

at 994. The court further observed that "the proceeding need not

necessarily be against the debtor or against the debtor's

property. An action is related to bankruptcy if the outcome

could alter the debtor's rights, liabilities, options, or freedom

of action (either positively or negatively) and which in any way

impacts upon the handling and administration of the bankrupt

estate." Id. Furthermore, "the mere fact that there may be

common issues of fact between a civil proceeding and a

controversy involving the bankruptcy estate does not bring the

matter within the scope of section 1471(b).4 Judicial economy

itself does not justify federal jurisdiction." Id. See In re

4
28 U.S.C. § 1471 is the precursor of 28 U.S.C. § 1334. The same
analysis applies. See Marcus Hook, 943 F.2d at 264 n.4.

20
Bobroff, 766 F.2d 797, 802 (3d Cir. 1985) (rejecting argument

that "related to" jurisdiction "is intended to mirror the

principle of pendent jurisdiction"); see generally Susan Block-

Lieb, The Case Against Supplemental Bankruptcy Jurisdiction: A

Constitutional, Statutory, And Policy Analysis, 62 Fordham L.

Rev. 721 (1994).

The test that Judge Garth articulated in Pacor has been

enormously influential. Pacor not only governs our analysis

here, but its cogent analytical framework has been relied upon by

our sister circuits more than any other case in this area of the

law. The Fourth, Fifth, Eighth, Ninth and Eleventh Circuits have

adopted Pacor without modification. See In re Lemco Gypsum,

Inc., 910 F.2d 784, 788 (11th Cir. 1990) ("We join the majority

of the circuits that have adopted the Pacor formulation."); In

re Fietz, 852 F.2d 455, 457 (9th Cir. 1988) ("We . . . adopt the

Pacor definition. . . . We reject any limitation on this

definition; to the extent that other circuits may limit

jurisdiction where the Pacor decision would not, we stand by

Pacor."); Wood, 825 F.2d at 93 ("Courts have articulated various

definitions of `related,' but the definition of the Court of

Appeals for the Third Circuit appears to have the most support. .

. We adopt it as our own."); In re Dogpatch U.S.A., Inc., 810
F.2d 782, 786 (8th Cir. 1987) (adopting the Pacor test); A.H.

Robins Co. v. Piccinin, 788 F.2d 994, 1002 n.11 (4th Cir.) ("The

accepted definition of the `related to' in these statutes is that

21
declared in Pacor. . . ."), cert. denied, 479 U.S. 876, 107 S.

Ct. 251 (1986).5

We elaborated upon Pacor in In re Marcus Hook. There,

we stated that "[a] key word in [the Pacor test] is conceivable.

Certainty, or even likelihood, is not a requirement. Bankruptcy

jurisdiction will exist so long as it is possible that a

proceeding may impact on the debtor's rights, liabilities,

options, or freedom of action or the handling and administration

of the bankrupt estate." Marcus Hook, 943 F.2d at 264 (emphasis

added) (citations and internal quotation marks omitted).

Torkelsen's cause of action against the trustee does

not satisfy the requirements for relatedness set forth in Pacor.

As previously mentioned, the Summertime painting was not the

property of the bankrupt estate. "If the action does not involve

property of the estate, then not only is it a noncore proceeding,

it is an unrelated matter completely beyond the bankruptcy

court's subject-matter jurisdiction." In re Gallucci, 931 F.2d

738, 742 (11th Cir. 1991). See Bobroff, 766 F.2d at 804

(debtor's tort claims that did not accrue until after the filing

of the bankruptcy petition were not "property of the estate;"

therefore, "the district court did not have jurisdiction to

5
Even for those circuits that have not formally adopted Pacor,
Judge Garth's opinion has provided an indispensable and
frequently cited frame of reference, a veritable beacon on the
uncharted and perilous waters of bankruptcy subject matter
jurisdiction. The references to Pacor in Shepard's Citations are
legion. When federal courts must consider whether an issue is a
related proceeding, the starting point has universally been
Pacor.

22
adjudicate them as being `related to' the debtor's bankruptcy

proceeding").

Neither party has satisfactorily demonstrated how the

claims that Torkelsen has asserted involving the trustee's

handling of Torkelsen's property could possibly have any bearing

upon the estate being administered in bankruptcy. Nor would any

judgment obtained have any "effect on the arrangement, standing,

or priorities of [the estate's] creditors." Pacor, 743 F.2d at

995-96. All of Torkelsen's claims are asserted only against the

trustee in his "individual capacit[y], and there is no claim of

vicarious liability on the part of the debtors or the estate."

Howell Hydrocarbons, 897 F.2d at 190. The ultimate disposition

of Torkelsen's claims would not impact upon the Gallery's

"rights, liabilities, options, or freedom of action or the

handling and administration of the bankrupt estate." Marcus

Hook, 943 F.2d at 264 (citations and internal quotation marks

omitted).

Torkelsen argues, however, that this case is a related,

noncore matter because the Consent Order directing Maggio to

return the painting to Torkelsen and the trustee's failure to do

so affected the handling and administration of the bankrupt

estate. Torkelsen also maintains that "Maggio's status as a

trustee was sufficient to create bankruptcy court jurisdiction. .

. ." Appellant's Reply Br. at 6. Both of these contentions must

be rejected. Torkelsen's argument that the Consent Order can be

utilized to support a finding of subject matter jurisdiction over

claims that otherwise could not be heard in bankruptcy court is

23
without merit. Pacor cannot be read to countenance this sort of

bootstrapping. At a minimum, Marathon requires that all claims

filed in bankruptcy court must be able to stand on their own as

either core or related proceedings.

Torkelsen's alternate assertion that Maggio's status as

trustee was sufficient to create bankruptcy court jurisdiction

must also be rejected. Surely not every suit against a trustee,

regardless of how tenuous its connection to a bankrupt estate,

automatically confers jurisdiction simply because the trustee is

named as a party. See In re McKinney, 45 B.R. 790, 792 (Bankr.

W.D. Ky. 1985) (Subject matter jurisdiction is not "created by

the fact that the trustee holds his office by court

appointment.").

Discussing the current boundaries of bankruptcy court

jurisdiction, one commentator has observed that
despite the expansion of bankruptcy jurisdiction, that
jurisdiction is still sharply limited. . . [T]he limits
of the system's jurisdiction are defined by reference
to a res. . . The res in question is not a particular
piece of property; it is the debtor's financial
affairs. . . Proceedings affecting the res are within
the court's jurisdiction; proceedings not affecting
the res are not.

Richard H. Gibson, Home Court, Outpost Court: Reconciling
Bankruptcy Case Control With Venue Flexibility in Proceedings, 62

Am. Bankr. L.J. 37, 64 (1988). Torkelsen's actions against the

trustee, wherever they may proceed, would have no impact upon the

financial affairs of the bankrupt estate. See Gallucci, 931 F.2d

at 742 (noting the "general principle of bankruptcy law" that "if

the resolution of litigation cannot affect the administration of

24
the estate, the bankruptcy court does not have jurisdiction to

decide it").

Since the claims asserted here fail to satisfy the

Pacor standard, the district court lacked subject matter

jurisdiction to hear Torkelsen's state-law claims against the

bankruptcy trustee. We therefore will reverse the district

court's March 31, 1995, order and remand this matter to the

district court. The district court will be instructed to further

remand the matter to the bankruptcy court with a direction that

the case be dismissed for want of jurisdiction.

25