BOYCE F. MARTIN, Jr., Circuit Judge.
This case presents the question of the extent of the district court's bankruptcy jurisdiction under 28 U.S.C. § 1471(b)
While the debtors' pattern of business operations is not entirely clear, it appears that Salem Mortgage Company and related debtor and nondebtor corporations acted as mortgage brokers prior to bankruptcy. Borrowers who were unable to obtain credit from any other source were made loans secured by first, second, or wraparound mortgages on their residences; substantial "attorney" or "broker" fees were allegedly charged in connection with some of the loans. These mortgages were assigned to individuals, groups, corporations, or associations as investment vehicles. It is alleged that the actions of Salem and related parties were less than punctilious, and in particular that the mortgagors have possible claims against them for, inter alia, fraud, deceit, usury, breach of fiduciary duty, violations of the Michigan Consumer Protection Act, Mich.Comp.Laws Ann. §§ 445.901-.922, violations of the Truth in Lending Act, 15 U.S.C. §§ 1601-1667e, and misappropriation of escrow funds. The investors are mostly unsophisticated senior citizens and the victims of admitted securities fraud.
Salem and three related corporations filed separate voluntary petitions under chapter 11 of the Bankruptcy Code on March 30, 1983. The bankruptcy court ordered the petitions of the four debtors, Salem, Fidelity Fund, Inc., Fidelities Securities Corporation, and Nationwide Mortgage Company, consolidated for administration and appointed Thomas J. Barrow as trustee for all four debtors.
The major parties in interest
The bankruptcy court on June 14, 1983, approved temporary classes for the purpose of considering the proposed settlement and conditionally approved the proposed consent judgment. Both mortgagors and assignees could opt out of the action,
The proposed order was reviewed by the district court in accordance with the Interim Rule. See White Motor Corp. v. Citibank, 704 F.2d 254, 266-67 (6th Cir.1983). The district court for the first time raised the question whether it possessed subject matter jurisdiction. After oral argument and the consideration of briefs, the court concluded in a memorandum and order dated June 22, 1984, that it did not have subject matter jurisdiction under 28 U.S.C. § 1471(b) over the adversary proceeding. Kelley v. Salem Mortgage Co., 41 B.R. 420 (E.D.Mich.1984). Both plaintiffs and defendants appealed. We find jurisdiction and therefore reverse.
To begin our review it should be noted that the district court filed its order on June 22, 1984, and the notice of appeal was filed on July 16, 1984. The appeal was thus taken six days after the effective date of the Bankruptcy Amendments Act and this appeal is subject to its provisions.
Bankruptcy appeals under the Bankruptcy Reform Act were governed by 28 U.S.C. § 1293. Appeals are now authorized by 28 U.S.C. § 158, which provides:
Bankruptcy Amendments and Federal Judgeship Act of 1984, Pub.L. No. 98-353, sec. 104(a), § 158, 98 Stat. 333, 341 (emphasis added). We need not now resolve the question whether this case can be treated as having been referred to the bankruptcy judge under section 157, as required by section 158, as we find an alternative basis for jurisdiction in 28 U.S.C. § 1291, which gives us jurisdiction from "all final decisions of the district courts."
The final paragraph of the district court's order says only that "the proposed order ... must be DISMISSED because it includes the compromise of the claims of a group of investors over whom the federal courts do not have subject matter jurisdiction." Standing by itself, this would leave open the question whether the district court intended to dismiss the entire adversary proceeding, or merely intended the parties to go back and fashion a settlement including only those parties for whom jurisdiction could be found. The question is quickly resolved by the immediately preceding sentence: "We find that this adversary proceeding does not meet either prong of this test for determining whether a dispute is `related to' a bankruptcy action." We are satisfied that there was a final judgment giving us appellate jurisdiction, and we now turn to the merits of the appeal.
The current grant of bankruptcy jurisdiction in the district courts is found in 28 U.S.C. § 1334(a)-(b) which is the present version of what was formerly 28 U.S.C. § 1471(a)-(b). There is little legislative history of the present section 1334. For the
The initial version of the Senate bill, S. 2266, introduced on October 31, 1977, gave the district court a much more constricted jurisdictional grant than the House bill. S. 2266, 95th Cong., 1st Sess. § 202 (1977). This bill subsequently was amended to bring the jurisdictional provisions closer to the House version, S. 2266, 97th Cong., 2d Sess. § 216 (1978), reprinted in 3 Collier on Bankruptcy VII-1, 605-06 (L. King 15th ed. App.1985), and it was these provisions that ultimately became law in 28 U.S.C. § 1471(a)-(b).
Courts have developed different tests in determining whether subject matter jurisdiction exists in a proceeding claimed to be "related to" a particular bankruptcy case. Some courts would find jurisdiction "only where the action clearly involved property of the estate ... or where a determination of the controversy is required for the proper administration or reorganization of the estate...." In re General Oil Distributors, Inc., 21 B.R. 888, 892 n. 13. (Bankr.E.D.N.Y.1982) (citations omitted). Another test finds jurisdiction "whenever `the outcome of the proceeding could conceivably have any effect upon the estate being administered in bankruptcy.'" Id. (citing Mazur v. U.S. Air Duct Corp., 8 B.R. 848, 851 (Bankr.N.D.N.Y.1981) (emphasis in original)). Although situations may arise where an extremely tenuous connection to the estate would not satisfy the jurisdictional requirement, we believe that a broader interpretation of the statute more closely reflects the congressional intent in adopting the new bankruptcy laws.
The proposed order in this case provided that the plaintiff classes would release all claims against the debtors arising from the mortgage transactions except for claims concerning the alleged misappropriation of escrow funds. The order also provided that the debtors pay civil penalties under the Michigan Consumer Protection Act. The corporations' penalties are to be subordinated to the claims of the general creditors. Resolution of the dispute, moreover, will affect the liability of the debtors to the investors. For example, to the extent the value of the mortgages is reduced by their reformation, the investors may have an action against the debtors such as breach of the assignment agreement. Because of the nature of these mortgage transactions, we hold that this dispute is sufficiently related to the estate of the bankrupt such that the district court had jurisdiction over the subject matter under 28 U.S.C. § 1471, now 28 U.S.C. § 1334, and thus improperly dismissed the proceeding.
The objectors to approval of the order of the bankruptcy court argue strongly that approval would be in conflict with the Third Circuit. However, we do not find the analysis in Pacor, Inc. v. Higgins, 743 F.2d 984 (3d Cir.1984) to be compelling in this case. In Pacor, the plaintiff brought a state court action for work-related exposure to asbestos against the product's supplier. The supplier filed a third-party complaint impleading the original manufacturer. After the manufacturer entered chapter 11 bankruptcy proceedings, the supplier sought to remove the entire controversy to bankruptcy court. The Third Circuit held that the action between the supplier and manufacturer was removable, but that the original action against the supplier was not related to a case in bankruptcy and therefore could not be removed. As Judge Graves stated in a subsequent proceeding in this case, "Pacor would require the Debtor to be bound by res judicata or collateral estoppel, or, in the alternative, a
We note that this jurisdictional grant was simultaneously qualified by the abstention provision of 28 U.S.C. § 1471(d) in the 1978 Act, see supra note 1, now 28 U.S.C. § 1334(c), see supra note 4. Although section 1334(c)(2) does not apply to pending cases, Bankruptcy Amendments and Federal Judgeship Act of 1984, Pub.L. No. 98-353, § 122(b), 98 Stat. 333, 346, the limitations in section 1334(c)(1) are sufficient to keep federal jurisdiction from becoming overextended. Congress wisely chose a broad jurisdictional grant and a broad abstention doctrine over a narrower jurisdictional grant so that the district court could determine in each individual case whether hearing it would promote or impair efficient and fair adjudication of bankruptcy cases. See Note, Selective Exercise of Jurisdiction in Bankruptcy-Related Civil Proceedings, 59 Tex.L.Rev. 325, 334-36 (1981). The degree to which the related proceeding is related to the bankruptcy case, as a practical matter, will doubtless be an important factor in the decision whether to abstain. The present posture of this case is that no decision to abstain has as yet been made and we make no comment on the appropriateness of abstention.
The judgment is reversed and the case is remanded for further proceedings. No costs are awarded.
The Bankruptcy Amendments Act amended section 402(b) of the Bankruptcy Reform Act to provide that the provisions of Title II "shall not be effective," except for certain exceptions, not relevant here, enumerated in section 402(c)-(d). Bankruptcy Amendments and Federal Judgeship Act of 1984, Pub.L. No. 98-353, § 113, 98 Stat. 333, 343. The Bankruptcy Amendments Act also amended section 402(b), (e) to provide that the provisions of Title II and sections 335(a) and 336(a) of the Bankruptcy Reform Act "shall take effect on the date of enactment of the Bankruptcy Amendments and Federal Judgeship Act of 1984." Id. § 121(a), 98 Stat. at 345. Sections 335(a) and 336(a) of the Bankruptcy Reform Act, made effective by section 402(e), made only minor changes in the jurisdiction of the district courts of Guam and the Virgin Islands and were in any case superseded by an Act of Oct. 5, 1984, Pub.L. No. 98-454, §§ 702, 801, 98 Stat. 1732, 1737, 1741. The primary effect of section 121(a) of the Bankruptcy Amendments Act is to continue the provisions of Title II of the Bankruptcy Reform Act, and that is in irreconcilable conflict with section 113 of the Bankruptcy Amendments Act. An excellent account of the circumstances leading up to this and other bankruptcy confusions may be found in Countryman, Scrambling to Define Bankruptcy Jurisdiction: The Chief Justice, the Judicial Conference, and the Legislative Process, 22 Harv.J. On Legis. 1 (1985).
The provisions of Title II must be deemed effectively repealed wherever they are supplanted by the specific provisions of Bankruptcy Amendments Act or other circumstances show that Congress must have intended repeal. With regard to section 1471, congressional intention cannot be in doubt. The purpose of the Bankruptcy Amendments Act was to reform bankruptcy jurisdiction, and it is inconceivable that Congress would carry out that task and then intentionally continue the jurisdictional provisions struck down in Northern Pipeline.
Brief of Defendant-Appellant Thomas J. Barrow as Trustee of Salem Mortgage Company, et al., at 11-12.
The proposed order explicitly gave assignees a claim against Salem's estate for any credit given to second mortgage corporation borrowers or wraparound mortgage borrowers for "broker" or "attorney" fees. Presumably assignees would also retain a claim against the debtors for any loss on their investment caused by the debtors' fraud.
The settlement also provided that Salem, Mutual, Nationwide, and Joseph Steingold would pay civil penalties of $25,000.00 each under the Michigan Consumer Protection Act, the corporations' penalties to be subordinated to the claims of their general creditors.
Bankruptcy Amendments and Federal Judgeship Act of 1984, Pub.L. No. 98-353, § 122, 98 Stat. 333, 346. The reference to pending cases in section 122(b) implies that, except for those subsections specifically excepted in section 122(b) (which are not relevant here), the provisions of Title I of the Bankruptcy Amendments Act apply to pending cases. That is the general rule, Bradley v. School Board, 416 U.S. 696, 711, 94 S.Ct. 2006, 2016, 40 L.Ed.2d 476 (1974), and the legislative history indicates that at least one Senate conferee thought the Act would apply to pending cases. 130 Cong.Rec. S8896 (daily ed. June 29, 1984) (statement of Sen. Hatch), reprinted in 1984 U.S.Code Cong. & Ad.News 590, 605-06. This Circuit explicitly held in In re White Motor Credit, 761 F.2d 270, 272-73 (6th Cir.1985), that section 122 "makes all the provisions of the 1984 Bankruptcy Act applicable to pending cases, except the mandatory abstention provision and the jury trial provision for tort cases."
The Ninth Circuit has held that section 158 forms the exclusive grant of appellate jurisdiction in bankruptcy, In re Teleport Oil Co., 759 F.2d 1376 (9th Cir.1985) (per curiam), and this is in accord with some cases applying section 1293 prior to the Bankruptcy Amendments Act. In re International Horizons, 689 F.2d 996, 1000 n. 6 (11th Cir.1982); Universal Minerals v. C.A. Hughes & Co., 669 F.2d 98, 101 n. 3 (3d Cir.1981). However, the failure of section 158 to grant appellate jurisdiction in cases not referred to bankruptcy judges under section 157 shows that it is not a "comprehensive and exclusive scheme," id.; Congress is unlikely to have sub silentio removed the right to appellate review in these cases. Nor are grants of jurisdiction normally exclusive: for example, the grant of federal question jurisdiction in 28 U.S.C. § 1331 is not exclusive of other jurisdictional bases. Congress certainly appears to have assumed that section 1291 would be available for bankruptcy appeal, for that provision was at one point proposed to be the exclusive source of our jurisdiction. See S.Rep. No. 989, 95th Cong., 2d Sess. 18, reprinted in 1978 U.S.Code Cong. & Ad.News 5787, 5804. At least five other circuits, including the Third Circuit in a case implicitly overruling Universal Minerals, have looked to section 1291 to find appellate bankruptcy jurisdiction. In re King Memorial Hospital, 767 F.2d 1508 (11th Cir.1985) (per curiam); In re Martin-Trigona, 763 F.2d 135, 138 (2d Cir.1985); In re Amatex Corp., 755 F.2d 1034, 1038-39 & n. 4 (3d Cir.1985); John E. Burns Drilling Co. v. Central Bank, 739 F.2d 1489, 1491-92 (10th Cir.1984) (per curiam); In re UNR Industries, 725 F.2d 1111, 1115 (7th Cir.1984).
After the Supreme Court struck down section 1471(c) in Northern Pipeline Construction Co. v. Marathon Pipe Line Co., 458 U.S. 50, 102 S.Ct. 2858, 73 L.Ed.2d 598 (1982), Congress enacted the new jurisdictional statute in 28 U.S.C. § 1334. Bankruptcy Amendments and Federal Judgeship Act of 1984, Pub.L. No. 98-353, § 101, 98 Stat. 333, 333; see supra notes 3-4. Section 1334(a)-(b) retains the prior jurisdictional language, and there is every reason to believe that Congress had no desire to contract the jurisdictional grant in any way. Congress could, after all, have easily cured the constitutional infirmity announced in Northern Pipeline by restricting the bankruptcy courts to their prior jurisdiction under the Bankruptcy Act of 1898.
S.Rep. No. 989, supra note 15, at 153-54, reprinted in 1978 U.S.Code Cong. & Ad.News at 5939-40.