Pam Capital Funding LP v. National Gypsum Co. (In Re Kevco Inc.) ( 2004 )

United States Court of Appeals
Fifth Circuit
F I L E D
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT September 10, 2004
_____________________ Charles R. Fulbruge III
Clerk
No. 03-11113
_____________________
In the Matter of: KEVCO INC.
Debtor
_________________
PAM CAPITAL FUNDING LP; ML CBO IV (CAYMAN) LTD;
HIGHLAND LEGACY LIMITED; PAMCO CAYMAN LIMITED;
PROSPECT STREET HIGH INCOME PORTFOLIO INC.,
Appellants,
versus
NATIONAL GYPSUM CO.; BBC DISTRIBUTION LLC;
DAN R. HARDIN; DALE LEDBETTER;
DENNIS FAULKNER, Plan Administration Agent for Kevco Inc.;
BANKS CORPORATION,
Appellees.
_________________________________________________________________
Appeal from the United States District Court
for the Northern District of Texas
District Court Cause No. 02-CV-745
_________________________________________________________________
Before DAVIS, EMILIO M. GARZA and PRADO, Circuit Judges.1
PER CURIAM.
In this appeal, the plaintiffs-appellants challenge the
bankruptcy court’s denial of their motion to remand. The
bankruptcy court denied the motion because it determined the
1
Pursuant to 5TH CIRCUIT RULE 47.5, the court has determined
that this opinion should not be published and is not precedent
except under the limited circumstances set forth in 5TH CIRCUIT
RULE 47.5.4.
1
plaintiffs-appellants’ claims against the defendants-appellees
are property of the debtor’s estate. The plaintiffs-appellants
appealed to the district court and later moved to amend their
complaint. The district court, sitting as an appellate court,
denied the motion to amend and affirmed the bankruptcy court’s
order denying the motion to remand.
This court reviews the decision of the district court
sitting as an appellate court by applying the same standards of
review the district court applied to the bankruptcy court.2 Like
the district court, this court reviews the bankruptcy court’s
conclusions of law de novo.3 This court reviews the denial of a
motion to amend for an abuse of discretion.4
The plaintiffs-appellants argue that the bankruptcy court
erred by determining that their claims belong to the debtor’s
estate. Whether a claim is property of the estate depends upon
(1) the nature of the injury, and (2) whether under state law the
debtor could have raised the claim as of the commencement of the
case.5 If the plaintiff complains about an injury which derives
from harm to the debtor, and the debtor could have raised a claim
2
See In re Jack/Wade Drilling, Inc., 258 F.3d 385, 387 (5th
Cir. 2001).
3
See In re Gamble, 143 F.3d 223, 225 (5th Cir. 1998).
4
See Herrmann Holdings Ltd. v. Lucent Technologies Inc., 302
F.3d 552, 558 (5th Cir. 2002).
5
See Matter of Educators Group Health Trust, 25 F.3d 1281,
1284 (5th Cir. 1994).
2
for its direct injury, then the cause of action belongs to the
estate.6 Here, the bankruptcy court did not err because the
debtor could have brought the same claims as of the commencement
of the bankruptcy proceeding,7 and because the plaintiffs-
appellants complain about an injury that is derivative of the
debtor’s direct injury.
The plaintiffs-appellants also contend that the bankruptcy
court failed to follow the well-pleaded complaint rule in
determining whether federal jurisdiction exists. Under the
well-pleaded complaint rule, federal jurisdiction exists only
when a federal question is presented on the face of the
plaintiff's properly pleaded complaint.8 In their complaint, the
plaintiffs-appellants alleged claims that belong to the debtor’s
estate. Because the bankruptcy court has jurisdiction over the
property of the estate,9 federal jurisdiction existed based on
the face of the complaint. Thus, the bankruptcy court did not
err.
6
See id.
7
See Holloway v. Skinner, 898 S.W.2d 793 (Tex. 1995)
(corporate officer can be held liable for interfering with a
contract between officer’s corporation and a creditor).
8
See Terrebonne Homecare, Inc. v. SMA Health Plan, Inc., 271
F.3d 186, 188 (5th Cir. 2001); Frank v. Bear Stearns & Co., 128
F.3d 919, 922 (5th Cir. 1997).
9
See 28 U.S.C § 1334(e) (the district court in which a
bankruptcy case is pending shall have exclusive jurisdiction over
property in the debtor’s estate); 28 U.S.C. § 157(a) (district
court may refer bankruptcy matters to bankruptcy court).
3
The plaintiffs-appellants also complain that the bankruptcy
court failed to remand their case after the defendants-appellees
filed their notice of removal in the wrong division. The
plaintiffs-appellants suggest the defect is a jurisdictional bar
to the bankruptcy court’s actions and maintain the bankruptcy
court erred by requiring them to demonstrate harm. Removal to
the wrong division is procedural, not jurisdictional.10 Under
the harmless error rule, the court must disregard any error or
defect which does not affect the substantial rights of the
parties.11 Here, the plaintiffs-appellants’ case would have been
assigned to the same bankruptcy judge even if the defendants-
appellees had filed the notice of removal in the proper
division.12 The bankruptcy court did not err by requiring the
plaintiffs-appellants to show they were harmed by the notice
being filed in the wrong division.
Finally, the plaintiffs-appellants complain that the
district court abused its discretion by denying their motion to
10
See Kreimerman v. Casa Veerkamp, S.A. de C.V., 22 F.3d
634, 645 (5th Cir. 1994).
11
See FED. R. CIV. P. 61 (harmless error rule); FED. R. BANKR.
P. 9005 (harmless error rule applies to bankruptcy proceedings).
12
See Procedure for Removal, N.D. Tex., Apr. 12, 2001 (if
removal is based on a bankruptcy case pending in the district,
the clerk will assign an adversary proceeding number and assign
the case to the judge handling the related bankruptcy case).
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amend their complaint to add new claims.13 The district court
does not abuse its discretion by denying a motion to amend where
the plaintiff unduly delays in seeking an amendment and offers no
explanation for the delay.14 The plaintiffs-appellants’
additional claims are based on representations allegedly made to
them in October 2000. The falsity of those representations
should have been apparent when the debtor filed for bankruptcy in
February 2001, yet the plaintiffs-appellants did not explain why
they waited until February 2003, over two years later, to seek to
add the claims to their lawsuit. Under these circumstances, the
district court did not abuse its discretion.
For the reasons discussed in this opinion, this court
AFFIRMS the district court’s judgment affirming the bankruptcy
court’s order.
AFFIRMED.
13
The defendants-appellees did not cross-appeal with regard
to whether the district court properly withdrew the referral to
the bankruptcy court before exercising original jurisdiction over
the plaintiffs-appellants’ motion to amend their complaint, and
this court does not address that issue.
14
See S&W Enter., L.L.C. v. SouthTrust Bank of Ala., 315
F.3d 533, 536 (5th Cir. 2003) (district court did not abuse its
discretion by denying motion to amend complaint filed after
deadline for amending pleadings and long after judicial decision
that precipitated proposed amendment, and plaintiff offered no
explanation for delay); Herrmann Holdings Ltd., 302 F.3d at 567
(district court did not abuse its discretion in denying motion to
amend where plaintiff had ample opportunity to amend his
pleadings).
5