Community Bank of Homestead v. Boone

                    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.