Bankruptcy Corner
Courts Cannot Reserve Jurisdiction They Do Not Have by Jason S . Rigoli
It is common practice for bankruptcy court order to contain language reserving jurisdiction over any disputes arising under the order . That reservation language alone may not be sufficient for the bankruptcy court to assert jurisdiction over a particular claim . The United States Court of Appeals , First Circuit , issued an opinion in Gupta v . Quincy Medical Center , – F . 3d –, 2017 WL 2389407 ( 1st Cir . June 2 , 2017 ), which provides a detailed delineation for analyzing when a court retains jurisdiction .
Facts
In Gupta , Quincy Medical Center , Inc ., QMC ED Physicians , Inc . and Quincy Physician Corporation ( the “ Debtors ”) executed an asset purchase agreement (“ APA ”) to sell substantially of their assets the day before filing voluntary petitions under Chapter 11 of the Bankruptcy Code and a Motion to Sell under §§ 363 and 365 of the Bankruptcy Code . The APA contained provisions regarding the retention and termination of employees of Debtors by Quincy Medical Center , a Steward Family Hospital , Inc . (“ Steward ”) the purchasing company . The Court subsequently issued an order approving the sale and the Debtors filed a plan of reorganization that was confirmed . Both the sale order and the plan contained provisions retaining jurisdiction by the bankruptcy court over any disputes arising under the sale order or plan .
Subsequent to the sale order being entered Steward terminated the employment of Apurv Gupta (“ Gupta ”) and Victor Munger (“ Munger ”), effective as of the sale date . Gupta and Munger “ sought severance from the Debtors by filing motions ... for ... administrative expenses ,” Gupta , at * 2 . The bankruptcy court denied the administrative expense claims because the provisions in the APA obligated Stewart and not the Debtors , however , the bankruptcy court then construed the motion as seeking
alternative relief against Stewart and exercised jurisdiction under the retention of jurisdiction provisions in the sale order and determined Stewart was liable for the severance under the APA . On appeal , the District Court subsequently concluded that the bankruptcy court lacked subject matter jurisdiction as the claims fell outside the statutory grants of jurisdiction and therefore , the reliance on the retention provision in the order “ did not change th [ e ] analysis .” Id . at * 3 . Gupta and Munger appealed to the First Circuit .
Jurisdiction of Bankruptcy Courts “ The general grant of bankruptcy jurisdiction is found in 28 U . S . C . § 1334 , which establishes two main categories of bankruptcy matters over which the district courts have jurisdiction : ‘ cases under title 11 ,’ 28 U . S . C . § 1334 ( a ), and “ proceedings arising under title 11 , or arising in or related to cases under title 11 ,’ 28 U . S . C . § 1334 ( b ).” Id . ( citations omitted ).
The Gupta Court went on to delineate the three types of proceedings set for the § 1334 ( a ) and ( b ). “ Arising under ” jurisdiction is when the Bankruptcy Code itself creates the cause of action . Id . ( citations omitted ). “ Arising in ” jurisdiction is when the proceeding is “‘ not based on any right expressly created by title 11 , but nevertheless , would have no existence outside of the bankruptcy ,’” Id . ( citations omitted ), essentially creating a “ but-for ” test where the “ proceeding by its nature , not its factual circumstance , could arise only in the context of a bankruptcy case .” Id . at * 6 . “ Related to ” are those proceedings “‘ which ‘ potentially have some effect on the bankruptcy estate , such as altering the debtor ’ s rights , liabilities , options , or freedom of action , or otherwise have an impact upon the handling and administration of the bankruptcy estate .’” Id . ( citations omitted ).
Application
In Gupta , the appellants sought to enforce the severance provisions of the APA , a state law contract issue . The fact that the bankruptcy court approved the
APA through the sale order did not create “ arising in ” jurisdiction , because the claims “ look like claims that could have arisen outside the bankruptcy context .” Id . at * 7 . There was no analysis of the sale order or any provision of bankruptcy law required to determine the claims . Id . at * 6 . The First Circuit concluded that the because the underlying claim did not fall within one of the three statutorily enumerated jurisdictional categories , the retention provision in the sale order , on its own , did not confer jurisdiction in the bankruptcy court . Id . at * 5
This article submitted by Jason S . Rigoli , Esq ., Furr Cohen , 2255 Glades Road , Suite 337W , Boca Raton , FL 33431 , jrigoli @ furrcohen . com .
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September 2017 Page 19
Bankruptcy Corner
Courts Cannot Reserve Jurisdiction They Do Not Have
by Jason S. Rigoli
It is common
practice for
bankruptcy court
order to contain
language reserving jurisdiction over any
disputes arising under the order. That
reservation language alone may not be
sufficient for the bankruptcy court to
assert jurisdiction over a particular claim.
The United States Court of Appeals, First
Circuit, issued an opinion in Gupta v.
Quincy Medical Center, – F.3d –, 2017
WL 2389407 (1st Cir. June 2, 2017),
which provides a detailed delineation
for analyzing when a court retains
jurisdiction.
Facts
In Gupta, Quincy Medical Center,
Inc., QMC ED Physicians, Inc. and
Quincy Physician Corporation (the
“Debtors”) executed an asset purchase
agreement (“APA”) to sell substantially
of their assets the day before filing
voluntary petitions under Chapter 11
of the Bankruptcy Code and a Motion
to Sell under §§ 363 and 365 of the
Bankruptcy Code. The APA contained
provisions regarding the retention and
termination of employees of Debtors by
Quincy Medical Center, a Steward Family
Hospital, Inc. (“Steward”) the purchasing
company. The Court subsequently issued
an order approving the sale and the
Debtors filed a plan of reorganization that
was confirmed. Both the sale order and
the plan contained provisions retaining
jurisdiction by the bankruptcy court over
any disputes arising under the sale order
or plan.
Subsequent to the sale order
being entered Steward terminated the
employment of Apurv Gupta (“Gupta”)
and Victor Munger (“Munger”), effective
as of the sale date. Gupta and Munger
“sought severance from the Debtors by
filing motions... for... administrative
expenses,” Gupta, at *2. The bankruptcy
court denied the administrative expense
claims because the provisions in the
APA obligated Stewart and not the
Debtors, however, the bankruptcy court
then construed the motion as seeking
September 2017
alternative relief against Stewart and
exercised jurisdiction under the retention
of jurisdiction provisions in the sale order
and determined Stewart was liable for the
severance under the APA. On appeal, the
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