Search by Case Name
Search by Case Number
Search by Keyword

#2060

IN THE UNITED STATES BANKRUPTCY COURT

FOR THE DISTRICT OF KANSAS

In Re:

CRAMER, INC.,

DEBTOR(S)

NO. 88-40275-11

CHAPTER 11

NATIONAL UNION FIRE INSURANCE COMPANY,

PLAINTIFF(S),

v.

CRAMER, INC., et al.,

DEFENDANT(S) )

ADV. NO. 93-7095

MEMORANDUM OF DECISION REGARDING

COURT'S JURISDICTION OF ADVERSARY PROCEEDING

This proceeding is before the Court for a determination whether the Court has jurisdiction to entertain it. Plaintiff National Union Fire Insurance Company (NUFIC) appears by counsel Gregory N. Pottorff of Turner and Boisseau of Overland Park, Kansas. The debtor appears by counsel Jonathan A. Margolies of McDowell, Rice & Smith of Kansas City, Missouri. Defendant Business Furniture, Inc. (BFI), appears by counsel Raymond T. Lyons of Connell, Foley & Geiser of Roseland, New Jersey. There are no other appearances. The Court has reviewed the relevant pleadings and is now ready to rule.

Shortly after the debtor filed for bankruptcy, it bought an insurance policy from NUFIC which provided $1,000,000 in aggregate primary products liability coverage. The policy covered claims arising between May 19, 1988, and May 19, 1989. By June 1993, NUFIC had paid over $777,000 on judgments or settlements of such claims. That month, after determining that the remaining covered claims sought more than the $222,962 balance of the policy, NUFIC filed this interpleader action pursuant to Federal Rule of Civil Procedure 22(1),(1) tendering that amount to the Court. It originally named eight people who were asserting claims covered by the policy, and later amended its complaint to add BFI, a corporation claiming a right to indemnity from the debtor. These defendants will be referred to as "the claimants" to distinguish them from the debtor, which is also named as a defendant but makes no claim to the money. None of the claimants resides in the District of Kansas, but one of them resides in the state where NUFIC is incorporated. NUFIC did not mention statutory interpleader under 28 U.S.C.A. §1335 until it briefed the question of this Court's jurisdiction over this case.

Two claimants failed to answer and NUFIC obtained a default judgment that they had no claim to the money. Some of the other claimants questioned this Court's jurisdiction to entertain the interpleader action, but resolution of that question was delayed while the parties tried to reach a settlement. They finally decided they could not resolve their differences, and the Court directed them to brief the jurisdiction question. NUFIC and the debtor filed briefs in support of jurisdiction and BFI one against. No other briefs have been filed.

The debtor's plan of reorganization was confirmed in May 1989, and certain plan modifications were approved in October 1990 and January 1991. The debtor and two of the claimants admitted in their answers NUFIC's assertion that the claimants were all members of class 8 under the plan. According to NUFIC, class 8 creditors are those whose claims are covered in whole or in part by insurance. Members of this class are permitted to proceed to settlement or judgment and to collect from the insurers, and to the extent the insurance does not cover the claims, the creditors are to receive stock in the debtor. At the time of confirmation, the debtor believed its insurance would cover all the claims that might be made, but it now appears the debtor was wrong.

DISCUSSION AND CONCLUSIONS

A. Interpleader under FRCP 22(1)

FRCP 22(1) provides in pertinent part:

Persons having claims against the plaintiff may be joined as defendants and required to interplead when their claims are such that the plaintiff is or may be exposed to double or multiple liability.

While NUFIC does not appear to face any danger of double or multiple liability, the courts tend to allow interpleader under the Rule when the plaintiff-stakeholder is faced with multiple vexation, e.g., multiple lawsuits. 7 Wright, Miller & Kane, Fed. Prac. & Pro. Civil 2d, §1704 at 501-03 (1986). Nevertheless, jurisdiction must rest on the usual bases of diversity of citizenship or a federal question. Id., §1703 at 498. The diversity that matters under the Rule is between the plaintiff and the claimants. Id. Since NUFIC is incorporated in Pennsylvania and one of the individual claimants resides there, diversity jurisdiction does not exist. The Court is aware of no authority for it to exercise diversity jurisdiction in any event. This means that federal jurisdiction here must be based on a federal question. Other than the statutory interpleader cause of action authorized by 28 U.S.C.A. §§1335, 1397, and 2361, which is discussed below, the debtor's bankruptcy seems to be the only possible source of a federal question in this proceeding.

Bankruptcy jurisdiction is conferred by 28 U.S.C.A. §1334(b), which gives district courts "original but not exclusive jurisdiction of all civil proceedings arising under title 11, or arising in or related to cases under title 11." Section 157(a) authorizes the district courts to refer any or all matters within this bankruptcy jurisdiction to the bankruptcy courts, as the District Court for the District of Kansas has done. Although NUFIC's petition says this proceeding is one "arising under" the debtor's bankruptcy case, the statute actually establishes three categories: proceedings arising under title 11, proceedings arising in cases under title 11, and proceedings related to cases under title 11. Although the debtor's plan contains provisions for this Court to retain jurisdiction of various matters, those provisions cannot extend jurisdiction beyond that granted by §1334(b). The category of "related to" proceedings is the least connected to the debtor's bankruptcy, and the only one the Court believes might be involved here.

To possibly fall within a bankruptcy court's related-to jurisdiction, a proceeding must be one that could have been brought in a federal or state court in the absence of bankruptcy; this category is further narrowed by a commonly-imposed requirement that the proceeding be one that could conceivably have any effect on the bankruptcy estate. See 1 Collier on Bankruptcy, ¶3.01(c)(iv) (15th ed. 1994). Although NUFIC has named the debtor as a defendant, the debtor actually has no claim to the money payable under the policy. The only impact NUFIC'S action could have on the debtor is to change the recipients of the debtor's preferred stock under the terms of its plan. This connection is so tenuous that the Court believes jurisdiction does not exist under §1334(b). Neither NUFIC nor the debtor has explained why the debtor has any interest in the division of the insurance proceeds and its stock among the claimants.

In a case somewhat similar to this one, where a post-confirmation proceeding was brought by several people who claimed they actually owned some of the debtor's stock which the plan said was owned by a certain individual and sought to enforce alleged agreements to receive part of the distributions directed under the plan to that person, the bankruptcy court concluded it had no jurisdiction to resolve the dispute between these non-debtors. In re Greenley Energy Holdings of Pennsylvania, Inc., 110 B.R. 173, 180-85 (Bankr.E.D.Pa. 1990). The court declared it had no jurisdiction to "interpret" unambiguous plan provisions, and having reviewed it, concluded the plan unambiguously directed the distributions to the one shareholder. If anything, where the plan contains a mistake about existing facts or a possible misrepresentation, the argument for asserting bankruptcy jurisdiction is stronger than the situation in the present case where a plan provision was based on a projection that turned out to be wrong.

NUFIC contends Article 10.2 of the debtor's confirmed plan gives this Court exclusive jurisdiction of this proceeding. That Article provides: "The Court shall have exclusive jurisdiction to resolve all controversies, suits and disputes that may arise in connection with the interpretation, enforcement, consummation, implementation or administration of this plan." The language is broad, but this dispute does not come within it. As NUFIC indicates, the plan provided for claims like those of the claimants to be paid by insurance to the extent of the policy limits and then to be paid with stock in the debtor. Nothing indicates the insurance policy proceeds were to be paid in any way other than on a first-come-first-serve basis. Any lack of clarity on this point was erased by NUFIC's unchallenged actions in paying settlements as they occurred and judgments as they were entered without providing for some equitable distribution of the proceeds in the event they turned out to be insufficient to satisfy all claims against them. Although the debtor anticipated that the policy would cover all claims that would be made, the plan nevertheless provided for the possibility the claims would exceed the policy limits. After paying out over three-fourths of its policy limit, NUFIC now asks the Court to change the terms of the plan and equitably divide the balance of the insurance policy proceeds among the remaining claimants. Consequently, this proceeding is an attempt to modify the plan, rather than to interpret, enforce, consummate, implement, or administer it.

Section 1127(b) provides that post-confirmation modification of a plan is possible only before "substantial consummation" of the plan. In June 1993, the debtor filed a motion for a final decree, representing that the case had been "fully administered," a phrase used in Federal Rule of Bankruptcy Procedure 3022 to encompass, among other things, the requirements for "substantial consummation" as defined in §1101(2). No objections were filed and the final decree was entered. Thus, it is too late to modify the debtor's plan now. Under similar circumstances, in In re Joint Eastern and Southern District Asbestos Litigation, 982 F.2d 721, 745-749 (2d Cir. 1992) (2 to 1 decision), modified on other grounds, 993 F.2d 7 (1993), the Second Circuit ruled that §1127(b) barred the lower courts from relying on bankruptcy jurisdiction to authorize them to restructure the mechanism established in the confirmed Johns-Manville Corporation plan to pay tort claimants injured by asbestos, at least where the plan did not include any provision for the mechanism to be modified.

In the absence of subject-matter jurisdiction based on bankruptcy or diversity of citizenship, the Court is not aware of any federal court that would have jurisdiction of the subject matter of NUFIC's action under FRCP 22(1), so 28 U.S.C.A. §1631, which requires a federal court with no jurisdiction to transfer a proceeding to a federal court which has jurisdiction if there is one and "it is in the interest of justice," is not applicable here.

B. Interpleader under 28 U.S.C.A. §1335

Besides FRCP 22(1), a statute also authorizes interpleader actions. 28 U.S.C.A. §1335. Although the remedy provided is generally the same, the jurisdiction and venue requirements are very different. See 7 Wright, Miller, & Kane, Fed. Prac. & Pro. Civil 2d, §1703 at 498-99 (1986). Since NUFIC cited the interpleader statute in its brief, the Court will also consider whether it might have jurisdiction under the statute.

Section 1335 provides that district courts have original jurisdiction of interpleader suits involving money or property worth $500 or more if "[t]wo or more adverse claimants, of diverse citizenship as defined in section 1332 of this title, are claiming or may claim to be entitled" to the fund being submitted to the court. So long as at least two of the claimants are citizens of different states, as they are here, the diversity requirement is satisfied. State Farm Fire & Casualty Co. v. Tashire, 386 U.S. 523, 530-31 (1967).

Venue of interpleader actions is controlled by §1397, which provides that actions under §1335 may be brought where one or more of the parties claiming an interest in the money or property "reside." Although this statute is stated permissively, there appears to be no provision allowing any alternative venue for interpleader actions. See Metropolitan Life Ins. Co. v. Chase, 294 F.2d 500 (3d Cir. 1961) (venue not proper in district where none of claiming parties reside). Since the debtor made no claim to the money, the Court had initially thought venue to be improper because none of the claimants "resides" in the District of Kansas in the ordinary sense of that word.

However, the Court subsequently discovered "reside" no longer has its ordinary meaning with respect to corporations. In 1988, Congress amended 28 U.S.C.A. §1391(c) to provide that for purposes of venue, a defendant that is a corporation "shall be deemed to reside in any judicial district in which it is subject to personal jurisdiction at the time the action is commenced." Section 2361 provides for nationwide service of process for interpleader actions under §1335. Since nationwide service is available, §1391(c) now means that interpleader actions can be brought anywhere in the country so long as one of the claiming parties is a corporation. See 7 Wright, Miller & Kane, Fed.Prac. & Pro. Civil 2d, §1712, 1994 Pocket Part at 53. Because none of the claimants NUFIC originally named are corporations and none reside in Kansas, venue in this district was initially improper, but when NUFIC added BFI as a defendant, venue became proper.

This analysis indicates NUFIC could properly have filed a statutory interpleader action in the District Court for the District of Kansas.(2) However, as noted above, this Court's jurisdiction is limited to those matters referred by the District Court under §157(a). For the reasons discussed above concerning NUFIC's attempt to proceed under FRCP 22(1), a statutory interpleader action could not properly have been filed with this Court because the action is not one "arising under title 11 or arising in or related to a case under title 11."

C. Equitable Jurisdiction

Even if the Court could find some equitable authority to intercede here, perhaps under 11 U.S.C.A. §105, the Court does not believe it would be equitable to treat the remaining claimants differently than those others in the same class who have already been paid $770,000 under the debtor's plan to cover their claims in full. If a remedy exists for NUFIC's problem, it simply does not come within this Court's jurisdiction.

D. Conclusion

For these reasons, the Court concludes it must dismiss NUFIC's action for lack of subject-matter jurisdiction.

The foregoing constitutes Findings of Fact and Conclusions of Law under Rule 7052 of the Federal Rules of Bankruptcy Procedure and Rule 52(a) of the Federal Rules of Civil Procedure. A judgment based on this ruling will be entered on a separate document as required by FRBP 9021 and FRCP 58.

Dated at Topeka, Kansas, this ____ day of August, 1994.













_________________________________

JAMES A. PUSATERI

CHIEF BANKRUPTCY JUDGE

1. 1Although NUFIC cited only the civil rule in its complaint, Federal Rule of Bankruptcy Procedure 7022 makes FRCP 22(1) applicable in bankruptcy.

2. 2Because NUFIC did not file its complaint pursuant to §1335, the court need not consider whether it would be "in the interest of justice" to transfer the case to a district court that would have subject-matter jurisdiction. See 28 U.S.C.A. §1631.

 

Search by Case Name
Search by Case Number
Search by Keyword