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#2334 signed 7-15-97



In Re:



CASE NO. 97-40660-13




v. ADV. NO. 97-7072



This proceeding is before the Court on the defendant's suggestion the Court lacks jurisdiction. Defendant Ward A. Thompson appears by counsel Chris Miller. The plaintiff-debtor appears by counsel John Hooge. The Court has reviewed the relevant pleadings and is now ready to rule.


The procedural posture of this case is somewhat unusual. The debtor filed a chapter 13 bankruptcy petition on March 17, 1997. Ten days later, he filed a "Motion to Avoid Security Interest and [For] Determination of Validity of Quit-Claim Deed," attacking Thompson's claimed ownership of certain real property ("the Property"), part of a dispute that was then pending in state court in Jefferson County, Kansas. Thompson, who also contends the debtor owes him money, opposed that motion and filed his own motion for relief from the automatic stay. At a hearing on the motions, the Court ruled the parties should proceed with discovery in the state court case, and advised the debtor that the relief he sought required an adversary proceeding rather than a motion. A month later, the debtor filed the above-captioned adversary proceeding, essentially repeating in his complaint the allegations he had made in his motion. In Thompson's answer to the complaint, he made a counterclaim under 11 U.S.C.A. §523, alleging the debtor's debt to him should be nondischargeable because the debtor obtained money by false representations and entered into written agreements with Thompson with the intent to willfully and maliciously injure him. Thompson also alleged the Court did not have jurisdiction to determine the ownership of the Property.

The debtor claims that he can neither read nor write and that Thompson knew and took advantage of this, but Thompson contends that the debtor can read and write. The debtor originally owned the Property, but gave Thompson a quit-claim deed as security for an appearance bond. Thereafter, he and another person borrowed money from Thompson on a number of occasions, and Thompson claims the debtor agreed the deed should continue to serve as security for these loans. Eventually, according to Thompson, the borrowers defaulted and he realized on his collateral by recording the deed. The debtor and his co-borrower later signed a lease to rent the Property from Thompson. Nevertheless, the debtor argues he repaid the appearance bond obligation and had at other times paid off the current balance due on Thompson's loans. He contends Thompson gave no consideration for a transfer of the Property through the quit-claim deed. Thompson alleges the debtor and his co-borrower defaulted on the payments due under the lease, so he filed the state court lawsuit, a forcible detainer action. In the bankruptcy case, Thompson claims the debtor still owes him some money on the loans he had made to the debtor and his co-borrower.

Some time after Thompson filed suit, the debtor filed for bankruptcy. The debtor proposed a chapter 13 plan under which he will make payments from his earnings and, if he should recover the Property from Thompson, he will sell it and pay a portion of the proceeds to the chapter 13 trustee for distribution to his creditors. The debtor wants this Court to determine all the parties' disputes, but Thompson wants to continue with the state court litigation.


Having considered the relevant circumstances and the parties' arguments, the Court concludes that it should abstain from hearing that portion of the parties' dispute which is pending in state court. Abstention is governed by 28 U.S.C.A. §1334(c), which provides:

(c)(1) Nothing in this section prevents a district court in the interest of justice, or in the interest of comity with State courts or respect for State law, from abstaining from hearing a particular proceeding arising under title 11 or arising in or related to a case under title 11.

(2) Upon timely motion of a party in a proceeding based upon a State law claim or State law cause of action, related to a case under title 11 but not arising under title 11 or arising in a case under title 11, with respect to which an action could not have been commenced in a court of the United States absent jurisdiction under this section, the district court shall abstain from hearing such proceeding if an action is commenced, and can be timely adjudicated, in a State forum of appropriate jurisdiction.

Thompson's forcible detainer lawsuit and the debtor's counterclaim contesting the validity of Thompson's ownership of the Property are not based on any provisions of title 11, the Bankruptcy Code, and so do not "arise under title 11." Since the claims were being litigated before the debtor filed for bankruptcy, the Court does not believe they can be considered to be matters "arising in" the debtor's bankruptcy case, either. Consequently, they are only "related to" the debtor's case and §1334(c)(2) could apply to them. The Court is aware of no basis for federal jurisdiction over this dispute other than the debtor's bankruptcy filing. The parties' dispute over the ownership of the Property concerns only questions of state law. Obviously, Thompson's suit (and the debtor's counterclaim) was already begun in state court and can be adjudicated there. Though no evidence has been presented about the state court's ability to timely adjudicate the dispute, the debtor's plan makes clear that immediate adjudication is not necessary to confirmation because the plan will include money from the sale of the Property only if the debtor succeeds in wresting ownership from Thompson through litigation. If he fails to reacquire the Property, the debtor can still fulfill his plan obligations by making payments only from his earnings. Any money obtained from the Property would be a bonus to his creditors. Therefore, adjudication of the ownership of the Property within the three-year duration of the debtor's plan would be sufficiently timely, a deadline the Court is sure the state court will meet. The only remaining question the Court has about whether §1334(c)(2) has been satisfied is whether Thompson's pleadings should be construed to make a timely motion to abstain. However, even if they should not, the Court believes the considerations discussed above indicate permissive abstention under §1334(c)(1) is appropriate.

The Court concludes that it will abstain from hearing the debtor's claims about his legal or equitable ownership of the Property and permit that part of the litigation, along with Thompson's forcible detainer action, to proceed in the state court. The Court will, however, retain jurisdiction to consider Thompson's §523 counterclaim and that part of the debtor's complaint which is based on bankruptcy avoidance powers and the proper treatment in bankruptcy of Thompson's claim if the state court determines the debtor is the owner of the Property.


Dated at Topeka, Kansas, this _____ day of July, 1997.





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