Burns v. First Citizens Bank & Trust Co. (In re Rainbow Security Inc.)

173 B.R. 508, 1994 Bankr. LEXIS 1994
CourtDistrict Court, M.D. North Carolina
DecidedMarch 9, 1994
DocketBankruptcy No. B-93-11252C-7W; Adv. No. 93-6002
StatusPublished
Cited by9 cases

This text of 173 B.R. 508 (Burns v. First Citizens Bank & Trust Co. (In re Rainbow Security Inc.)) is published on Counsel Stack Legal Research, covering District Court, M.D. North Carolina primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Burns v. First Citizens Bank & Trust Co. (In re Rainbow Security Inc.), 173 B.R. 508, 1994 Bankr. LEXIS 1994 (M.D.N.C. 1994).

Opinion

MEMORANDUM OPINION

WILLIAM L. STOCKS, Bankruptcy Judge.

This adversary proceeding came before the court on February 16, 1994, for hearing upon the third-party defendants’ motion pursuant to Federal Rule 12(b)(1) and Bankruptcy Rule 7012 to dismiss the third-party complaint for lack of subject matter jurisdiction. Having considered the briefs filed by the parties and the arguments of their counsel, [510]*510the court has concluded that the motion should be denied.

This adversary proceeding began as a preference action by the trustee against the defendant and third-party plaintiff, First Citizens Bank & Trust Company. The preference claim arose out of a $74,709.94 payment which was made to First Citizens on or about April 8, 1993. First Citizens filed answer denying certain of the preference allegations and raising an affirmative defense in which it asserted, inter alia, that the $74,709.94 payment in question had been made to First Citizens by Horace L. Flowers, Sr., an officer and shareholder of the debtor, rather than having been made to First Citizens by the debtor. According to the affirmative defense, Flowers was the initial transferee of the debtor and First Citizens was the immediate transferee of the initial transferee as defined in § 550(a)(2). First Citizens also filed a third-party complaint naming as third-party defendants, Horace L. Flowers, Sr. and Kathleen P. Flowers. In the third-party complaint First Citizens alleged that prior to First Citizens making a loan to the debtor the Flowers had executed and delivered to First Citizens a guaranty of the obligations of the debtor, that the Flowers had secured the guaranty with a deed of trust on real property owned by the Flowers and that First Citizens was entitled to recover from the Flowers all sums which might be recovered by the trustee from First Citizens. First Citizens also alleged that in exchange for the $74,709.90 payment it had released and satisfied the deed of trust from the Flowers which secured their guaranty and prayed that any judgment in its favor against the Flowers be given the same priority and effect that the deed of trust had before it was released and satisfied of record. In addition to filing an answer to the third-party complaint, the Flowers also filed a separate motion to dismiss on the grounds of lack of subject matter jurisdiction.

In ruling upon the motion to dismiss, the court must look to the pleadings for the facts upon which the jurisdictional determination is to be made. In doing so, the pleadings should be construed in the light most favorable to the party opposing the motion to dismiss for lack of subject matter jurisdiction. If the complaint states facts sufficient to support the inference that subject matter jurisdiction exists, the motion must be denied. Espinosa v. Norfolk & Western Railway Co., 750 F.Supp. 819, 823 (E.D.Mich.1990). The facts alleged in the complaint, for purposes of the motion to dismiss, are assumed to be true and the complaint should not be dismissed unless it appears to a certainty that jurisdiction would not exist under any state of facts which could be proven in support of the claim alleged in the complaint. Adams v. Bain, 697 F.2d 1213 (4th Cir.1982); see generally 5A C. Wright & A. Miller, Federal Practice & Procedure, § 1350 at 218-220 and § 1363 (1990). While these are standards of consideration which have been applied in the district court under Rule 12(b)(1) of the Federal Rules, they apply with equal force in dealing with motions to dismiss which are filed in adversary proceedings pending in the bankruptcy court. Accordingly, the court will be guided by these same standards in dealing with the motion to dismiss which presently is before the court.

The trustee’s preference action is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(f) and, as such, clearly within the jurisdiction of the bankruptcy court pursuant to 28 U.S.C. § 1334(b), 28 U.S.C. § 157(b)(1) and the reference from the district court. Without questioning such jurisdiction over the trustee’s preference action the third-party defendants argue that the bankruptcy court lacks jurisdiction over the third-party claim which has been asserted against them. The third-party defendants assert that the third-party claim is not a matter or proceeding “arising under” Title 11 or “arising in or related to” a case under Title 11 and therefore is outside the jurisdiction granted by 28 U.S.C. § 1334. In dealing with the jurisdiction question raised in this case it is not necessary to distinguish between proceedings “arising under”, “arising in a case under” or “related to a case under” Title 11. This is true because these statutory references operate conjunctively to define the scope of jurisdiction under § 1334. It is necessary only to determine whether a matter is at least “relat[511]*511ed to” the bankruptcy case. If so, jurisdiction exists and the motion to dismiss for lack of jurisdiction must be denied. In re Wood, 825 F.2d 90, 93 (5th Cir.1987); In re Opti-Gage, Inc., 128 B.R. 189, 193 (Bankr.S.D.Ohio 1991).

While not the only test for determining when a matter is “related” to a bankruptcy case, one such test which is appropriate is whether the outcome of the proceeding could conceivably have any effect on the estate being administered in bankruptcy. This test is widely accepted in cases which have been decided at the circuit court level, the district court level and the bankruptcy level and is the test which is adopted in the present case. Unfortunately, the application of the test has been far less consistent than has been the acceptance of the test. The result is that some cases seemingly have reached opposite conclusions regarding jurisdiction when applying the same test to fact situations which are very similar. In attempting to resolve the jurisdiction question in this case the court has looked primarily to those cases involving suits or third-party claims against guarantors or sureties of a debtor’s obligations which were brought by a creditor or some party other than the trustee or the debtor. Even with this narrowed scope of consideration the cases are not entirely consistent. However, in this case the court is convinced that the eases which have sustained jurisdiction over claims against such guarantors and sureties are correct and that jurisdiction should be sustained in the present case. In re Red Ash Coal & Coke Corp., 83 B.R. 399 (Bankr.W.D.Va.1988), involved the question of whether the bankruptcy court had jurisdiction over a claim by a creditor against the guarantor of a debtor’s obligations which had been removed to the bankruptcy court as a part of a suit which had been pending in the state court. The court recognized that a guarantor who paid a debt of the debtor would have a claim for indemnity and concluded that the outcome of the suit against the guarantor necessarily would affect that creditor’s status, vis-a-vis, other creditors.

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173 B.R. 508, 1994 Bankr. LEXIS 1994, Counsel Stack Legal Research, https://law.counselstack.com/opinion/burns-v-first-citizens-bank-trust-co-in-re-rainbow-security-inc-ncmd-1994.