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#2270 signed 9-16-96

IN THE UNITED STATES BANKRUPTCY COURT

FOR THE DISTRICT OF KANSAS



In Re:

HOMESTEAD LAND TITLE COMPANY,

DEBTOR

CASE NO. 92-41602-7

CHAPTER 7

STEVEN J. MARTENS,

PLAINTIFF,

v.

CAPITAL CITY STATE BANK AND TRUST,

DEFENDANT

ADV. NO. 93-7130



ORDER DENYING MOTION TO ALLOW FILING

OF THIRD PARTY COMPLAINT

This proceeding is before the Court on a motion to allow a third party complaint to be filed. Defendant Capital City State Bank and Trust (the Bank) appears by counsel Gary H. Hanson of Stumbo, Hanson & Hendricks of Topeka, Kansas. Plaintiff Steven J. Martens, the chapter 7 trustee of the debtor's estate, appears by counsel Ann Lamborn Baker of Wright, Henson, Somers, Sebelius, Clark & Baker of Topeka, Kansas, and Edward J. Nazar of Redmond, Redmond & Nazar of Wichita, Kansas. The Court has reviewed the relevant pleadings and is now ready to rule.

For purposes of this motion, the following facts may be assumed to be true. The Bank is the successor to Southwest Bank & Trust through a purchase and merger that occurred some time after the events which gave rise to the trustee's claims against the Bank. As part of the purchase and merger, two parties made representations and warranties to the Bank, and agreed to indemnify it for any loss resulting from a breach of those warranties and for attorney fees resulting from defending against any claims for such a breach.

The court's docket and the pleadings that have been filed disclose the following facts. The trustee sued the Bank (as the successor to Southwest Bank & Trust) in September 1993. His complaint clearly alleges all the actions he contends make the Bank liable to the bankruptcy estate were performed by Southwest Bank & Trust and its employees. The Bank filed its answer in October 1993. The parties undertook discovery, and eventually filed opposing motions for summary judgment. The last pleading related to those motions was filed in November 1994. The Court ruled on the motions this past April. On June 25, the Bank filed the present motion. The trustee objects, contending the Court does not have subject-matter jurisdiction of the third-party complaint and the Bank delayed too long before filing it.

The Court believes it is clear the Bank's claim for indemnity could not affect the bankruptcy estate, and so would not fall within the Court's subject-matter jurisdiction over matters "related to" the debtor's bankruptcy case. See 28 U.S.C.A. §1334(b). However, the Court is aware that federal courts may sometimes exercise so-called ancillary jurisdiction over matters not otherwise within their jurisdiction, and that indemnity claims are a common subject of such jurisdiction. See 6 Wright, Miller & Kane, Fed. Prac. & Pro. Civil 2d, §1444 (1990). The extent to which bankruptcy courts may exercise ancillary jurisdiction is less familiar to the Court, and in light of the peculiar nature of bankruptcy court jurisdiction, the Court is not inclined to assume the usual rules apply. This case, though, may be resolved without delving into that mysterious realm.

Federal Rule of Civil Procedure 14(a), made applicable here by Bankruptcy Rule 7014, provides in pertinent part:

At any time after commencement of the action a defending party, as a third-party plaintiff, may cause a summons and complaint to be served upon a person not a party to the action who is or may be liable to the third-party plaintiff for all or part of the plaintiff's claim against the third-party plaintiff. The third-party plaintiff need not obtain leave to make the service if the third-party plaintiff files the third-party complaint not later than 10 days after serving the original answer. Otherwise the third-party plaintiff must obtain leave on motion upon notice to all parties to the action.

A leading treatise on federal civil procedure indicates courts are generally liberal in granting late-filed motions under this rule, but "a motion to bring in a third party may be denied when the delay amounts to laches, especially when prejudice to the parties or delay of the trial will result, or when the movant cannot reasonably explain the delay." 6 Wright, Miller & Kane, Fed. Prac. & Pro. Civil 2d, §1454 at 426-28. The original complaint should have alerted the Bank to its potential indemnity claim here, and its proposed complaint states it sent notice of its claim to the proposed third-party defendants in August 1994. Yet the Bank has offered no explanation, in either its motion or its response to the trustee's objection, why it waited for over thirty months after filing its answer to seek permission to file the complaint.

It also seems likely the third-party complaint would unduly delay the resolution of this proceeding. The new defendants would have to be permitted to perform their own discovery. They might raise defenses based on their agreement with the Bank, a document irrelevant to the disputes presently before the Court.

Under the circumstances, the Court believes the Bank's motion must be denied. While this ruling will leave the Bank subject to the risk of conflicting decisions about liability based on the facts alleged in the trustee's complaint, it was apparently not averse to that risk for thirty months and has only itself to blame for not being allowed to avoid the risk now.

IT IS SO ORDERED.

Dated at Topeka, Kansas, this _____ day of September, 1996.













__________________________________

JAMES A. PUSATERI

CHIEF BANKRUPTCY JUDGE

 

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