United States Court of Appeals,
Eleventh Circuit.
No. 94-4252.
In re Daniel BOONE and Sara Boone, Debtors.
COMMUNITY BANK OF HOMESTEAD, Plaintiff-Appellant,
v.
Daniel BOONE, Sara Boone, Defendants-Appellees.
May 23, 1995.
Appeal from the United States District Court for the Southern
District of Florida. (No. 93-1152-CIV-SMA, Sidney M. Aronovitz,
Judge.
Before COX and BLACK, Circuit Judges, and FAY, Senior Circuit
Judge.
PER CURIAM:
Daniel and Sara Boone (the Boones) brought a bankruptcy
adversary proceeding against Community Bank (the Bank), claiming
that the Bank had tortiously interfered with the sale of the
Boones' house. The bankruptcy court awarded the Boones actual and
punitive damages. The district court affirmed the judgment, and
the Bank appeals. Concluding that there is no federal jurisdiction
over the claim, we reverse and remand with instructions to vacate
the bankruptcy court's judgment and dismiss the claim for want of
jurisdiction.
Background
In 1985, the Boones purchased a house in Homestead, Florida,
with a $59,000 mortgage loan from the Bank. Three years later, the
Bank lent $45,000 to the Boones' wholly owned corporation, Daniel
Boone Farms, Inc. The Boones guaranteed the corporate loan. The
guarantee was unsecured, but the home mortgage agreement contained
a "dragnet clause" that purported to secure not only the mortgage
debt but also all future debts the Boones would owe the Bank. In
June 1989, Daniel Boone Farms defaulted on the Bank's loan, making
the Boones individually liable for the corporate debt.
Also in June 1989, the Boones contracted to sell their house
to Mr. and Mrs. Douglas Ulmer for $91,000. A closing date was set
for late July. A week after entering the contract to sell their
house, the Boones individually filed a petition in bankruptcy under
chapter 7. The mortgage debt at the time of filing was $53,000,
and the Boones owed $45,783 on the guarantee.
Shortly before the scheduled closing on the sale of the
Boones' house, the Bank sent the closing agent an "estoppel letter"
informing the agent of the outstanding balance on the mortgage.
Two days later, and only four days before closing, the Bank sent a
second estoppel letter claiming $97,664 of the proceeds from the
sale. The higher figure represented the sum of the mortgage debt
and the debt on the corporate guarantee. The Bank claimed that the
dragnet clause of the mortgage agreement effectively secured the
debt owed on the guarantee.
Because it appeared from the estoppel letter that the Boones
would receive no proceeds from the sale of their house, they
refused to complete the closing. At the time of trial in the
bankruptcy court, the house remained unsold, and the Boones
continued to make mortgage payments on it. To that time, the
Boones had paid about $10,000 in additional mortgage payments,
homeowners' insurance, and property taxes because they had not sold
the house as scheduled.
The Boones brought a bankruptcy adversary proceeding against
the Bank, seeking a determination of the extent of the Bank's lien
on their house, an order compelling the Bank to accept that amount
in satisfaction of the lien, and compensatory and punitive damages
for the Bank's tortious interference with the contract for the sale
of their house. The tortious interference claim rests on Florida
law. The bankruptcy court rejected the Bank's challenge to its
jurisdiction over the state-law claim and conducted separate trials
on liability and damages. The court awarded the Boones $10,199 in
compensatory damages and $30,596 in punitive damages on their
tortious interference claim.
The Bank appealed to the district court, challenging the
bankruptcy court's jurisdiction to render judgment on the tort
claim. Concluding that the tortious interference claim was a core
matter "arising in a case under title 11," 28 U.S.C. §§ 157(b)(1),
1334(b), the district court affirmed. The court reasoned that the
claim arose in a chapter 11 case because the claim arose after the
Boones filed a petition in bankruptcy. The Bank appeals.
Issue and Standard of Review
The Bank contends that the district court had no bankruptcy
1
jurisdiction over the Boones' state-law tort claim. This court
reviews de novo the district court's conclusions of law. Miller v.
Kemira, Inc. (In re Lemco Gypsum, Inc.), 910 F.2d 784, 786 (11th
Cir.1990).
Discussion
1
The Bank raises other issues as well, but because of our
disposition of the case on this issue we need not reach them.
Title 28, section 1334(b) creates federal jurisdiction over
"civil proceedings arising under title 11 or arising in or related
to a case under title 11." Thus, for federal bankruptcy
jurisdiction to exist, a case must at minimum "relate to" a case
under title 11. Wood v. Wood (In re Wood), 825 F.2d 90, 93 (5th
Cir.1987).
The usual articulation of the test for determining whether a
civil proceeding is related to bankruptcy is whether the
outcome of the proceeding could conceivably have an effect on
the estate being administered in bankruptcy.... 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.
In re Lemco, 910 F.2d at 788 (quoting Pacor, Inc. v. Higgins, 743
F.2d 984, 994 (3d Cir.1984)); see also Celotex Corp. v. Edwards,
--- U.S. ----, ----, 115 S.Ct. 1493, ----, --- L.Ed.2d ---- (1995)
(citing Pacor, Inc. with approval, although not explicitly adopting
its relatedness test).
The Boones' claim against the Bank for intentional
interference with the sale of their house falls outside even the
broad sweep of section 1334(b) related-to jurisdiction. The Boones
fail to proffer any effect that the outcome of the tortious
interference claim could have on their bankruptcy estate. The
conduct giving rise to the claim occurred after the petition in
bankruptcy, and therefore the cause of action is not property of
the estate. See 11 U.S.C. § 541(a). Accordingly, any damages
would belong solely to the Boones. Moreover, because the Boones
sought liquidation under chapter 7 rather than reorganization under
chapter 11 or 13, the financial boon provided by any damage award
would not affect their compliance with a reorganization plan. Cf.
Celotex Corp., --- U.S. at ----, 115 S.Ct. at ---- (observing that
bankruptcy jurisdiction may be broader in reorganization cases than
in liquidation). Furthermore, nothing in the record indicates that
any of the Bank's unsecured claims against the Boones were
nondischargeable. The Bank thus can claim no setoff that would
affect the size of the Bank's claims against the estate. See 4
Collier on Bankruptcy ¶ 541.05, at 541-24 (Lawrence P. King ed.,
1995).
Rather than positing any effect that their tortious
interference claim has on the bankruptcy estate, the Boones assert
that the proceeding is a core proceeding, as defined in 28 U.S.C.
§ 157(b)(1), (2), for two primary reasons. First, they contend,
the tort claim is a core proceeding because it was brought with two
other core proceedings, one concerning the extent of the Bank's
lien and another involving the dischargeability of the debt arising
from the corporate guarantee. Second, according to the Boones,
their role as debtors in the chapter 7 case makes the tortious
interference claim a core proceeding.2
We reject both arguments. First, although the claim to
determine the extent of the Bank's lien and the tortious
interference claim will share the common factual issue of the
effect of the dragnet clause, this "common issue[ ] of fact between
2
The Boones also argue that their tortious interference suit
is a core proceeding as defined in 28 U.S.C. § 157(b)(2)(O ):
"[a] proceedin[g] affecting ... the adjustment of the
debtor-creditor ... relationship." We disagree. Although the
tort claim has an effect on the relationship between the Boones
and the Bank, it does not affect the contracts that give rise to
their debtor-creditor relationship. Thus, it does not "adjust"
the debtor-creditor relationship in any way.
a civil proceeding and a controversy involving the bankruptcy
estate does not bring the matter within the scope of § 1334(b)."
In re Lemco, 910 F.2d at 789. As we observed in Lemco, judicial
economy itself does not justify jurisdiction. Id. Second, the
mere fact that the Boones are both debtors and plaintiffs does not
give rise to bankruptcy jurisdiction over their claim. Because the
outcome of their tortious interference suit has no conceivable
effect on the estate or the administration of it, the Boones are,
in a sense, not acting as debtors. The role of debtor is defined
by the panoply of rights and duties arising from the petition in
bankruptcy; the outcome of the tortious interference claim will
not alter those rights and duties in any way. Hence, "[t]o fall
within the court's jurisdiction, the plaintiffs' claims must affect
the estate, not just the debtor." In re Wood, 825 F.2d at 94.
The lack of effect on the estate is thus fatal to bankruptcy
jurisdiction over the claim. The Boones allege no alternative
basis for federal jurisdiction. Accordingly, we hold that the
district court, and therefore the bankruptcy court, lacked
jurisdiction over the claim.
Conclusion
Concluding that the district court and bankruptcy court had no
jurisdiction over the Boones' claim of tortious interference with
the contract to sell their house, we REVERSE and REMAND with
instructions to vacate the bankruptcy court's judgment and dismiss
the claim for want of jurisdiction.
REVERSED and REMANDED.