Golding v. First Bank of Whiting

125 B.R. 224, 1991 U.S. Dist. LEXIS 3983, 1991 WL 43835
CourtDistrict Court, N.D. Indiana
DecidedFebruary 6, 1991
DocketNo. S88-226 (RLM)
StatusPublished

This text of 125 B.R. 224 (Golding v. First Bank of Whiting) is published on Counsel Stack Legal Research, covering District Court, N.D. Indiana primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Golding v. First Bank of Whiting, 125 B.R. 224, 1991 U.S. Dist. LEXIS 3983, 1991 WL 43835 (N.D. Ind. 1991).

Opinion

MEMORANDUM AND ORDER

MILLER, District Judge.

The appellants challenge the bankruptcy court’s dismissal of their adversary proceeding against The First Bank of Whiting (“First Bank”) on the grounds that it lacked subject matter jurisdiction. This court has jurisdiction over the appeal pursuant to 28 U.S.C. § 158(a).

Before seeking relief under Chapter 11, debtor R.F.I. Services Corporation had obtained loans from First Bank, secured by its accounts receivable. The appellants claim that in 1982 an officer of First Bank assured Richard Golding that if R.F.I. liquidated its assets, the bank would pay R.F. I.’s attorney fees out of the proceeds of the liquidation. In reliance upon this, the ap[226]*226pellants performed legal services for R.F.I. in the Chapter 11 proceeding. R.F.I. then converted its action to a Chapter 7 proceeding. First Bank obtained possession of R.F.I. assets, consisting largely of its accounts receivable, subject to its security interest.

The attorneys for R.F.I. sought to recover their fees from First Bank. They filed an adversary proceeding against First Bank and the trustee with the bankruptcy court, alleging that the court had jurisdiction pursuant to 11 U.S.C. § 506(c) and 28 U.S.C. §§ 157 and 1334, and that they had applied for compensation pursuant to 11 U.S.C. § 330. They sought an order directing First Bank to pay them compensation out of the liquidated assets pursuant to 11 U.S.C. § 506(c).

The trustee filed an answer stating that the assets had already been abandoned from the bankruptcy estate and that he had no interest in the any of the accounts receivable or the adversary proceeding.

First Bank moved for dismissal, claiming that the plaintiffs lacked standing to bring an action pursuant to § 506(c). Citing In re Codesco, Inc., 18 B.R. 225 (S.D.N.Y.1982), First Bank claimed that only the trustee in bankruptcy or debtor in possession could bring an action against a creditor under § 506.

The bankruptcy court decided that the question hinged not on the plaintiffs’ standing, but on its own subject matter jurisdiction, and concluded that because the accounts receivable had been abandoned from the bankruptcy estate, that property was no longer subject to the court’s limited jurisdiction. Based on the rationale of Matter of Xonics, 813 F.2d 127 (7th Cir.1987), the bankruptcy court held that it could not resolve disputes concerning property to which the trustee has disclaimed an interest; although the court retains jurisdiction over disputes that are related to the estate or that affect the amount of property available for distribution, its jurisdiction lapses if the distribution of abandoned property is of no consequence to the debtor or to other creditors.

The appellants raise three issues on appeal:

(1) whether the bankruptcy court had subject matter jurisdiction over their claim because it arose while the accounts receivable were property of the bankruptcy estate;
(2) whether the bankruptcy court had jurisdiction pursuant to 11 U.S.C. § 330; and
(3) whether, if their proceeding is a non-core proceeding, the appellees have consented to the bankruptcy court’s jurisdiction.

A bankruptcy court’s conclusions of law are reviewed de novo on appeal. In re Newman, 903 F.2d 1150 (7th Cir.1990); Colder v. Camp Grove State Bank, 892 F.2d 629 (7th Cir.1990). The bankruptcy court’s conclusions do not bind the district court and, unlike findings of fact, are entitled only to such deference as the district court sees fit to give them. In re Cricker, 46 B.R. 229 (N.D.Ind.1985); Rushville Production Credit Ass’n v. Mohr, 42 B.R. 1000 (S.D.Ind.1984); In re Schaller, 27 B.R. 959 (W.D.Wis.1983). The district court also must determine whether the bankruptcy court applied the proper legal standard to the facts. In re Stratton, 23 B.R. 284, 287 (D.S.D.1982).

Whether The Bankruptcy Court Had Subject Matter Jurisdiction

The appellants claim that the accounts receivable were property of the bankruptcy estate from the Chapter 11 petition’s filing until the bankruptcy trustee’s abandonment of the accounts receivable. During this time, the appellants were performing legal services for the debtor, enabling the debtor’s continued operation of its business. Consequently, the appellants claim that their services benefitted First Bank as a secured creditor by preserving the value of its collateral, and, therefore, the bankruptcy court had jurisdiction to determine how their claim will be satisfied out of the collateral which was eventually liquidated by the bank.

The appellants cite In re World Wines, Ltd., 77 B.R. 653 (N.D.Ill.1987), in which [227]*227the court held that it had jurisdiction to resolve a lessor’s claim against a secured creditor to recover rent arrearages and the costs of preserving the creditor’s collateral as an administrative expense under § 506(c). Although the court previously had lifted the automatic stay and allowed the secured creditor to dispose of all the debtor’s assets, the court stated that it had jurisdiction over the adversary proceeding brought by the lessor because the lessor’s claim arose while the lease was property of the estate.

First Bank relies on In re Xonics, 813 F.2d at 131-132, in which the Seventh Circuit concluded that bankruptcy jurisdiction does not extend to claims to property abandoned by the debtor which cannot possibly affect the other creditors. Noting the Xonics court’s statement that “it is the relationship of dispute to estate, and not of party to estate, that establishes jurisdiction”, 813 F.2d at 131, First Bank contends that the dispute raised in this adversary proceeding is unrelated to the estate, which has no interest in whether the debtor’s attorneys or First Bank prevails.

The appellants claim their dispute is a core proceeding within the meaning of 28 U.S.C. § 157, as it is one which invokes a substantive right provided by Title 11 or which could only arise in the context of a bankruptcy case. In re Wood, 825 F.2d 90, 97 (5th Cir.1987). They distinguish this case from Xonics in that Xonics involved a common law dispute of “the sort ordinarily resolved by state courts under the common law of contract and the Uniform Commercial Code.” 813 F.2d at 130.

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125 B.R. 224, 1991 U.S. Dist. LEXIS 3983, 1991 WL 43835, Counsel Stack Legal Research, https://law.counselstack.com/opinion/golding-v-first-bank-of-whiting-innd-1991.