City of Southfield v. Shefa LLC ( 2022 )

If this opinion indicates that it is “FOR PUBLICATION,” it is subject to
revision until final publication in the Michigan Appeals Reports.
STATE OF MICHIGAN
COURT OF APPEALS
CITY OF SOUTHFIELD, FOR PUBLICATION
February 10, 2022
Plaintiff-Appellant, 9:05 a.m.
v No. 350885
Oakland Circuit Court
SHEFA, LLC, LC No. 2019-175286-CZ
Defendant-Appellee,
and
ELBAZ/BUILDING, LLC, doing business as
ELBAZ BUILDING and doing business as ELBAZ
BUILDING, LLC,
Defendant.
Before: RIORDAN, P.J., and MARKEY and SWARTZLE, JJ.
SWARTZLE, J.
“Who decides?” is a question asked recently by prominent jurists,1 though it is a question
as timeless as it is timely. The question arises whenever there is a dispute involving the separation
of powers between branches of the same sovereign, and it similarly arises whenever there is a
dispute involving the jurisdiction of different sovereigns. In this appeal, the question arises in a
dispute involving a hotel whose owner entered and exited federal bankruptcy proceedings, and
now the city where the hotel is located seeks relief from that owner for alleged violations of state
law.
1
See, e.g., Nat’l Federation of Indep Business v US Dep’t of Labor, 595 US __; __ S Ct __; __ L
Ed 2d __ (2022) (GORSUCH, J, concurring); id. (BREYER, SOTOMAYOR, and KAGAN, JJ, jointly
dissenting); Sutton, Who Decides?: States as Laboratories of Constitutional Experimentation
(Oxford University Press, 2022).
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In this lawsuit for declaratory relief, appointment of receiver, and judicial foreclosure,
plaintiff City of Southfield appeals as of right the circuit court’s order granting summary
disposition in favor of defendant Shefa, LLC. The circuit court concluded that a federal district
court had exclusive jurisdiction over the city’s claims because the claims related to defendant’s
now-closed bankruptcy case. In so holding, however, the circuit court misstated and misapplied
federal law. We conclude that the circuit court has subject-matter jurisdiction over, at least, several
of the city’s claims and, therefore, the circuit erred by dismissing the entire case under MCR
2.116(C)(4). Moreover, the circuit court erred by dismissing the city’s claims under MCR
2.116(C)(10) when discovery was still in its infancy. Accordingly, we reverse.
I. BACKGROUND
A. PROCEEDINGS IN BANKRUPTCY COURT
This appeal concerns real property owned by defendant and located at 16400 J. L. Hudson
Drive, in Southfield, Michigan. The property is a 14-story, 427-room hotel built in 1974 on nine
acres. See In re Shefa, LLC, 524 BR 717, 721 (Bankr ED Mich, 2015), aff’d 535 BR 165 (ED
Mich, 2015). In 2014, defendant filed for Chapter 11 bankruptcy protection under the federal
bankruptcy code, 11 USC 101 et seq., in the United States Bankruptcy Court for the Eastern
District of Michigan. During pre-confirmation proceedings, the bankruptcy judge described the
case as a “single asset real estate Chapter 11 bankruptcy case involving a vacant hotel,” in which
the Oakland County Treasurer was the largest creditor. Id. at 720. When the petition was filed,
taxes on the property had not been paid since 2005, while water and sewerage charges had not
been paid since 2009, resulting in defendant’s indebtedness to the Oakland County Treasurer in
the approximate amount of $3,787,000. Id. at 723.
During pre-confirmation proceedings in 2015, the bankruptcy judge described the
condition of the property as follows:
The Hotel is in poor condition. It has deteriorated greatly over the last
several years, especially since it closed. The Appraisal indicates that there is
extensive damage to the Hotel’s plumbing and electrical systems caused by
building scrappers and scavengers, and that there has been extensive theft of copper
wire and pipes from the Hotel. The Appraisal also notes that there are significant
water leaks in the roof, and there are many broken skylights and window walls on
the first floor to contribute to those leaks. Even before the Hotel was shut down in
2010, there were already several items of deferred maintenance, all of which have
only gotten worse since that time. Overall, the Hotel has a solid building structure,
but it is in very poor shape internally and needs extensive repair. [Id. at 723-724.]
As reiterated by the federal district court (sitting as an appellate court to review the decisions of
the bankruptcy judge), the hotel’s value had decreased significantly “due to its deteriorating
condition and location in a declining area.” In re Shefa, 535 BR at 170.
In early 2016, the bankruptcy judge confirmed a consensual Chapter 11 plan. See In re
Shefa, LLC, unpublished order of the United States Bankruptcy Court for the Eastern District of
Michigan, issued February 19, 2016 (Case No. 14-42812). The order contained several provisions
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relevant to the current dispute: (1) defendant must execute a deed to the property in favor of the
city, to be held in escrow by a title company, and the city had the right (but not the obligation) to
release the deed from escrow under certain circumstances; (2) defendant must execute a limited
power of attorney in favor of the city’s mayor and clerk, authorizing them to execute a deed to the
property in favor of the city under certain circumstances; (3) defendant must execute and deliver
a first priority mortgage in favor of the city; (4) the deed documents would be released from escrow
and returned to defendant, and the city’s mortgage would be discharged, upon confirmation that at
least $2,100,000 had been used on physical improvements to the property; and (5) defendant must
obtain approval for its improvements within 180 days of the effective date of the plan. Id. at 4-6.
The plan included the following retention-of-jurisdiction provisions:
This Court shall retain jurisdiction in this matter until the Plan has been fully
consummated including, but not limited to, the following reasons and purposes:
* * *
B. The determination of all questions and disputes regarding title to the
assets of the estate or Debtor, . . .
* * *
E. The enforcement and interpretation of the terms and conditions of this
Plan and the entry of orders in support of confirmation of this Plan.
F. The entry of any order, including injunctions, necessary to enforce the
title, rights, and powers of Debtor, the Reorganized Debtor or any party-in-
interest, . . . . [See In re Shefa, LLC, 579 BR 438, 441 (Bankr ED Mich, 2017), aff’d
by In re Shefa, LLC, unpublished opinion of the United States District Court for the
Eastern District of Michigan, issued February 25, 2019 (Case No. 18-10073).]
The order stated that the court “shall retain jurisdiction for the enforcement of the foregoing terms
[stated in the order], the confirmed Plan and this Order” and stated that, to “the extent inconsistent,
the provisions of this Order shall control over” the plan. In re Shefa, LLC, unpub order at 6.
Defendant executed a mortgage in favor of the city in March 2016. Defendant covenanted
in that mortgage that it would “pay when due, prior to the imposition of penalties and interest, all
taxes, assessments, and governmental charges levied” upon the property. The mortgage included
a paragraph addressing waste and appointment of a receiver:
17. Waste. Grantor’s failure, refusal, or neglect to pay any taxes or assessments
levied against the Property will constitute waste under Michigan Compiled Laws
600.2927, and the Mortgagee shall have a right to appointment of a receiver of the
Property and of the rents and income from the Property, with such powers as the
Court making such appointment confers. Grantor hereby irrevocably consents to
such appointment in such event, and agrees that Mortgagee’s costs and expenses,
including reasonable attorney fees, incurred in such proceeding shall be added to
the Liabilities secured by this Mortgage. Payment by the Mortgagee for and on
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behalf of Grantor of any delinquent taxes, assessments, or insurance premiums
payable by Grantor under the terms of this Mortgage will not cure the default herein
described nor in any manner impair the Mortgagee’s right to appointment of a
receiver as set forth herein.
The mortgage also contained a paragraph regarding remedies for default. This paragraph granted
the city the right to foreclose the mortgage and sell the property at public auction or judicially
foreclose the mortgage under MCL 600.3101 et seq., “upon the occurrence of an event of default
under any of the Liabilities, as defined in the Confirmation Order, or any default in the performance
of any of the covenants, conditions and agreements contained in this Mortgage.” Finally, the
mortgage provided that, if any lien was recorded against the property, the city had the authority
“at its option and without notice, [to] declare the entire Liabilities to be immediately due and
payable and may institute all proceedings, including foreclosure of this Mortgage,” as the city
deemed necessary to protect its interest in the property.
The bankruptcy judge closed the case in February 2017, but several months later, the judge
briefly reopened the case to rule on a motion of default filed by the city. See In re Shefa, LLC,
579 BR at 440. The city alleged that defendant had defaulted under the confirmed plan and order
in several ways: defendant had failed to make sufficient progress on renovating the subject
property; the city had issued letters of default to defendant on five occasions for defendant’s
various failures to meet its obligations under the confirmed plan and order; and the site plan
obtained by defendant had expired without being renewed or extended. Id.
The bankruptcy judge held that the court had subject-matter jurisdiction to decide the city’s
motion under 28 USC 1334(b). Id. The bankruptcy judge further held that the city’s motion
qualified as a “core proceeding” for two reasons: it was a proceeding “affecting the liquidation of
the assets of the estate or the adjustment of the debtor-creditor . . . relationship” under 28 USC
157(b)(2)(O), and it was a proceeding “arising in” a case under title 11, within the meaning of 28
USC 1334(b). Id. at 440-441. The bankruptcy judge concluded that the city’s motion presented a
dispute over which the court had retained jurisdiction under the confirmed plan and order. Id.
In addressing the city’s arguments, the bankruptcy judge held open the possibility that the
city had potential recourse against defendant, outside the remedies provided in the confirmed plan
and order:
It is clear that [defendant] is not guilty of “doing nothing,” even though the City is
not satisfied with [defendant’s] progress. Nor has the City demonstrated that it
would be without any recourse outside the confirmed Plan, under applicable
nonbankruptcy law, to address such an extreme situation of [defendant] doing
nothing to renovate the Property after obtaining site plan approval. To the contrary,
during the hearing, for example, the City’s counsel alluded to the possible actions
of (1) foreclosing on the City’s mortgage on the Property; and (2) declaring the
building on the Property a nuisance and demolishing it. [Id. at 446 (emphasis
added).]
The bankruptcy judge denied the city’s motion because the city had failed to demonstrate that an
event of default had occurred, as described under the confirmed plan and order; the bankruptcy
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judge further concluded that, even if an event of default had occurred, the city was not entitled to
the relief that it sought. Id. at 445.
The city appealed the bankruptcy judge’s order to the federal district court. In re Shefa,
LLC, unpublished opinion of the United States District Court for the Eastern District of Michigan,
issued February 25, 2019 (Case No. 18-10073). The district court affirmed, concluding that the
bankruptcy judge did not abuse any discretion by finding that the city had failed to identify an
event of default. Id. at 16.
B. PROCEEDINGS IN STATE CIRCUIT COURT
While the federal proceedings were taking place, Elbaz/Building, LLC filed a construction
lien for unpaid labor and materials against the property, in the amount of $215,766. Later in March
2019, a fire started by an intruder damaged the property. The local fire department estimated that
the fire damage was relatively modest (i.e., approximately $3,200).
In July 2019, the city sued defendant in Oakland County Circuit Court. (The city also sued
Elbaz/Building, LLC, but the company was later dismissed and is not a party to this appeal.) In
Count I, the city sought a declaration that the property was a “dangerous building” as defined in
MCL 125.539(b), (g), (i), and (j), and a “nuisance” as defined in MCL 125.402(18). In Count II,
the city sought the appointment of a receiver because defendant had failed to pay timely various
taxes, which qualified as waste and entitled the city to the appointment of a receiver under the
terms of the parties’ mortgage. The city further alleged that defendant had violated the mortgage
and confirmed plan and order by failing to comply with various ordinances and environmental
laws and allowing a lien to be recorded against the property. Finally, in Count III, the city sought
judicial foreclosure of the mortgage, alleging that defendant had defaulted on its obligations under
both the mortgage and the confirmed plan and order. Shortly after filing its complaint, the city
moved for an appointment of a receiver, relying on statute, court rule, and the parties’ mortgage
agreement. The circuit court held a hearing on the city’s motion and denied the motion that same
day without explanation.
In lieu of answering the city’s complaint, defendant moved for summary disposition under
MCR 2.116(C)(4) (subject-matter jurisdiction), (7) (prior judgment), (8) (state a claim), and (10)
(genuine issue of material fact) in August 2019. As part of the motion, defendant sought sanctions
under MCR 2.109 (frivolous claims). The city opposed the motion, to which defendant replied in
support of its motion. The circuit court held a hearing on the motion in September 2019, and the
parties argued consistent with their respective briefs. With respect to the alleged code violations,
the city offered to provide documentary evidence in support, but the circuit court declined,
explaining: “Listen, I’m not—right now, I’m not addressing what the state of the building is or
isn’t. It—in the sense that I—I just want to know what jurisdiction I have ‘cause it seems like the
bankruptcy court either has addressed these issues or maybe still is. But you’re telling me that’s
not the case.” At the conclusion of the hearing, the circuit court took the matter under advisement.
The circuit court subsequently issued a written opinion and order granting defendant’s
motion for summary disposition under MCR 2.116(C)(4) and (10). The circuit court first
explained its understanding of federal bankruptcy jurisdiction:
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This case is somewhat unusual because Plaintiff, at least in part, is
petitioning a state trial court to enforce an order of the United States Bankruptcy
Court arising out of Defendant Shefa LLC’s chapter 11 bankruptcy. Under 28 USC
§ 1334 the US District Courts have exclusive and original jurisdiction over all cases
under or related to title 11 involving “all of the property, wherever located, of the
debtor as of the commencement of such case, and of the property of the estate. . . .”
The US District Courts also have original but not exclusive jurisdiction over “all
claims or causes of action that involve construction of section 327 of title 11, United
States Code, or rules relating to disclosure requirements under section 327.” Id.Furthermore, 28 USC § 157(b)(1) allows bankruptcy judges to hear and
determine all cases under title 11 and all core proceedings arising under title 11,
which includes in § 157(b)(2)(N), “orders approving the sale of property other than
property resulting from claims brought by the estate against persons who have not
filed claims against the estate.” Proceedings which affect the “liquidation of the
assets of the estate or the adjustment of debtor-creditor . . . relationship” are
deemed core proceedings and are within the exclusive jurisdiction of the
Bankruptcy Court. 28 USC § 157(b)(2)(O).
When the potential resolution of issues requires the interpretation of Plans
and Orders issued by the Bankruptcy Court or concerns the disposition of a debtor’s
property that was subject to bankruptcy proceedings, the Bankruptcy Court likely
retains jurisdiction. Matter of Delaware & Hudson Ry Co, 122 BR 887, 891 895;
21 Bank Ct Dec 437 (Bankr CA 3, 1991). Even where a claim is asserted on the
basis of State law, that claim may still be subject to the jurisdiction of the
Bankruptcy Court. 28 USC § 157(b)(3). Matter of Delaware, 122 BR at 895.
This is true even when the bankruptcy case has been closed. “[W]here there
is a close nexus to the bankruptcy plan or proceeding, as when a matter affects the
interpretation, implementation, consummation, execution, or administration of a
confirmed plan . . . retention of post-confirmation bankruptcy court jurisdiction is
normally appropriate.” In Re Resorts Intern Inc, 372 F3d 154, 168-169; 43 Bank
Ct Dec 46 (Bankr CA 3, 2004), In Re Thickstun Bros Equipment Co Inc, 344 BR
515, 521; 46 Bankr Ct Dec 158 (Bankr CA 6, 2006). “[T]he ‘close nexus’ test is
applicable to ‘related to’ jurisdiction over any claim or cause of action filed post-
confirmation, regardless of when the conduct giving rise to the claim or cause of
action occurred.” In Re Seven Fields Development Corp, 505 F3d 237, 264-265;
48 Bankr Ct Dec 276 (Bankr CA 3, 2007). The Bankruptcy Court’s jurisdiction
over these issues can extend decades after a Plan was confirmed. Travelers Indem
Co v Bailey, 557 US 137, 151; 129 S Ct 2195; 174 L Ed 2d (2009). It is these
jurisdictional considerations that this Court finds dispositive in this case. [Opinion
5-6 (footnote omitted).]
In its analysis of bankruptcy jurisdiction, the circuit court focused on whether the city’s requested
relief “could be granted without preventing the consummation, implementation, or execution of
the bankruptcy plan.” Id. at 7-8. The circuit court concluded that each of the city’s requested
relief, if granted, would thwart the implementation of the bankruptcy plan. Id. at 8, 9, & 11. On
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this basis, the circuit court concluded that it did not have subject-matter jurisdiction and granted
summary disposition to defendant under MCR 2.116(C)(4). Id. at 12.
Despite finding that it did not have subject-matter jurisdiction, the circuit court also reached
the merits of the city’s claims for declaratory relief and appointment of a receiver. The circuit
court concluded that summary disposition should be granted on these two claims for lack of a
genuine issue of material fact under MCR 2.116(C)(10). Id. at 8-10, 12. On defendant’s request
for sanctions, the circuit court denied any relief, finding that it “cannot say that Plaintiff’s argument
was devoid of legal merit and frivolous.” Id. at 11.
C. NEW FEDERAL COURT PROCEEDING
In April 2020, defendant sued the city and others in the United States District Court for the
Eastern District of Michigan. Defendant made several claims in that federal case that mirrored
those made by the city here, including breach of contract, inverse condemnation, conspiracy, and
constitutional violations. In its complaint, defendant invoked the district court’s general
jurisdiction under 28 USC 1331 and supplemental jurisdiction under 28 USC 1367(a); it did not
invoke jurisdiction under the bankruptcy code. In September 2021, the district court dismissed all
of defendant’s claims under Federal Rule of Civil Procedure 12(b)(6), with the exception of
defendant’s state-law claim for inverse condemnation. The district court recognized that the city’s
appeal was before this Court, and with respect to matters of federal-court abstention, the district
court noted that “the issue may be revisited at the request of the parties” once this appeal was
resolved. Shefa, LLC v City of Southfield, unpublished order of the United States District Court
for the Eastern District of Michigan, issued September 28, 2021 (Case No. 2:20-cv-11038).
II. ANALYSIS
On appeal, the city argues that the circuit court erred in holding that the court lacked
subject-matter jurisdiction to adjudicate the claims in this case. The city also argues that the circuit
court erred in reaching and granting summary disposition under MCR 2.116(C)(10) on several of
its claims. The city is correct on both fronts.
Before proceeding further, a brief note on nomenclature is helpful. Article III federal
district courts have jurisdiction over bankruptcy cases. 28 USC 1334(a). Congress has authorized
district courts to refer bankruptcy cases and related matters to Article I bankruptcy judges, 28 USC
157, and the United States District Court for the Eastern District of Michigan has done this via
local rule, ED Mich LR 83.50. When we discuss the jurisdiction of federal district courts with
respect to bankruptcy cases and related matters, we sometimes refer to the “bankruptcy court” or
“bankruptcy judge” in this opinion. These and similar references should be understood to mean
the bankruptcy judge working by reference under the jurisdiction of the federal district court.
A. STANDARD OF REVIEW
The circuit court granted defendant’s motion for summary disposition under MCR
2.116(C)(4) and (C)(10). Jurisdictional questions under MCR 2.116(C)(4) are questions of law
that are reviewed de novo. Frederick v Federal-Mogul Corp, 273 Mich App 334, 336; 733 NW2d
57 (2006). “MCR 2.116(C)(4) permits a trial court to dismiss a complaint when the court lacks
jurisdiction of the subject matter.” Meisner Law Group, PC v Weston Downs Condo Ass’n, 321
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Mich App 702, 714; 909 NW2d 890 (2017) (cleaned up). This Court likewise reviews de novo a
trial court’s decision on a motion for summary disposition under MCR 2.116(C)(10). McLean v
Dearborn, 302 Mich App 68, 72; 836 NW2d 916 (2013).
B. SUBJECT-MATTER JURISDICTION
We begin with the circuit court’s subject-matter jurisdiction. “Subject-matter jurisdiction
is the right of the court to exercise judicial power over a class of cases, not the particular case
before it.” In re Warshefski, 331 Mich App 83, 88; 951 NW2d 90 (2020) (cleaned up). “A trial
court is duty-bound to recognize the limits of its subject-matter jurisdiction, and it must dismiss
an action when subject-matter jurisdiction is not present.” Meisner, 321 Mich App at 714. A
challenge to a court’s subject-matter jurisdiction is determined by allegations in the pleadings.
Trost v Buckstop Lure Co, Inc, 249 Mich App 580, 587-588; 644 NW2d 54 (2002).
Circuit courts of this state have subject-matter jurisdiction over a broad swath of cases. As
set forth in Article VI § 13 of our 1963 Constitution, circuit courts “have original jurisdiction in
all matters not prohibited by law.” Following this constitutional grant, the Legislature set forth
the circuit court’s jurisdiction as follows: “Circuit courts have original jurisdiction to hear and
determine all civil claims and remedies, except where exclusive jurisdiction is given in the
constitution or by statute to some other court or where the circuit courts are denied jurisdiction by
the constitution or statutes of this state.” MCL 600.605. “It is presumed that circuit courts have
subject-matter jurisdiction unless jurisdiction is expressly prohibited or given to another court by
constitution or statute.” In re Warshefski, 331 Mich App at 88 (cleaned up).
With respect to the claims raised by the city, there is no serious question whether, absent
the bankruptcy proceedings, the circuit court has subject-matter jurisdiction over the claims—it
does. Generally speaking, claims of breach of a mortgage agreement, nuisance, and dangerous
building can be brought in circuit court, as can requests for a receivership or foreclosure. See
MCL 554.1016; MCL 600.2926; MCL 600.2927; MCL 600.2940; MCL 125.542; MCL 600.3101;
MCL 600.601; MCL 600.605; Bd of Co Rd Comm’rs for Co of Eaton v Schultz, 205 Mich App
371, 375; 521 NW2d 847 (1994). The parties have not identified, and we are not aware of, any
state statute that would divest the circuit court of subject-matter jurisdiction over the city’s claims.
Nor have the parties identified any federal statute outside of the bankruptcy context that is relevant
to the circuit court’s subject-matter jurisdiction, and similarly, we are not aware of any such federal
statute. Having narrowed the inquiry, we turn now to the federal bankruptcy code.
C. JURISDICTION OF FEDERAL DISTRICT COURTS OVER BANKRUPTCY MATTERS
In contrast to our state’s circuit courts, federal district courts have jurisdiction over what
can be characterized as a narrower swath of cases, understood in terms of subject matter if not
geographical reach. Our federal system of government is one of limited sovereignty, Nat’l
Federation of Indep Business v Sebelius, 567 US 519, 533; 132 S Ct 2566; 183 L Ed 2d 450 (2012),
and that limited sovereignty is reflected in the narrower subject-matter jurisdiction of its courts,
Kokkonen v Guardian Life Ins Co of Am, 511 US 375, 377; 114 S Ct 1673; 128 L Ed 2d 391(1994). Doctrines of abstention, including that described as “Our Federalism,” inform how federal
and state courts interact when presented with competing arguments about which court should take
jurisdiction over a particular cause of action. Younger v Harris, 401 US 37, 43-45; 91 S Ct 746;
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27 L Ed 2d 669 (1971); see also 17B Wright & Miller, Federal Practice & Procedure: Younger v
Harris (2021), § 4251.
The question here involves federal bankruptcy law, and as described by commentators,
“[b]ankruptcy is a highly specialized subspecies of federal jurisdiction.” 13D Wright & Miller,
Federal Practice & Procedure: Bankruptcy (2021), § 3570. Until 1978, the jurisdiction of federal
district courts over bankruptcy cases and matters was exclusive and complete. Id.
In 1984, Congress overhauled the bankruptcy code, including jurisdiction. Bankruptcy
Amendments and Federal Judgeship Act of 1984, Pub L No 98-353, 98 Stat 333 (1984). With
respect to the jurisdiction of district courts, section 1334 of the code provides in relevant part:
(a) Except as provided in subsection (b) of this section, the district courts
shall have original and exclusive jurisdiction of all cases under title 11.
(b) Except as provided in subsection (e)(2), and notwithstanding any Act
of Congress that confers exclusive jurisdiction on a court or courts other than the
district courts, the district courts shall have original but not exclusive jurisdiction
of all civil proceedings arising under title 11, or arising in or related to cases under
title 11.
* * *
(e) The district court in which a case under title 11 is commenced or is
pending shall have exclusive jurisdiction—
(1) of all the property, wherever located, of the debtor as of the
commencement of such case, and of property of the estate; and
(2) over all claims or causes of action that involve construction of
section 327 of title 11, United States Code, or rules relating to disclosure
requirements under section 327. [28 USC 1334.]
Based on this section, courts have identified four distinct categories of bankruptcy matters
over which district courts have subject-matter jurisdiction under section 1334(a) and (b). These
are: (1) “cases under title 11”; (2) “proceedings arising under title 11”; (3) proceedings “arising
in” a case under title 11; and (4) proceedings “related to” a case under title 11. In re Wolverine
Radio Co, 930 F2d 1132, 1141 (CA 6, 1991). “The first category refers merely to the bankruptcy
petition itself, filed pursuant to 11 USC §§ 301, 302, or 303,” id., or, as explained by the U.S.
Court of Appeals for the Sixth Circuit in Robinson v Michigan Consol Gas Co Inc, 918 F2d 579,
583 (CA 6, 1990), the phrase “ ‘cases under title 11’ as used in section 1334(a) is a term of art
signifying an action commenced in a federal district court or bankruptcy court with the filing of a
petition pursuant to 11 USC §§ 301, 302 or 303.” With respect to the other three categories, the
Sixth Circuit streamlined the jurisdictional analysis in In re Wolverine:
For the purpose of determining whether a particular matter falls within
bankruptcy jurisdiction, it is not necessary to distinguish between the second, third,
and fourth categories (proceedings “arising under,” “arising in,” and “related to” a
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case under title 11). These references operate conjunctively to define the scope of
jurisdiction. Therefore, for purposes of determining section 1334(b) jurisdiction, it
is necessary only to determine whether a matter is at least “related to” the
bankruptcy. [In re Wolverine, 930 F2d at 1141 (citations omitted).]
In its opinion and order in this case, the circuit court set forth the following with respect to
bankruptcy jurisdiction: “Under 28 USC § 1334 the US District Courts have exclusive and original
jurisdiction over all cases under or related to title 11 involving ‘all of the property, wherever
located, of the debtor as of the commencement of such case, and of the property of the estate. . . .’ ”
Opinion at 5 (emphasis added). As can be seen from the above excerpt of the bankruptcy code,
the circuit court misstated federal law. Pursuant to section 1334, district courts have exclusive
jurisdiction over “all cases under title 11,” i.e., cases brought by petition under 11 USC 301, 302
or 303. Moreover, the district court where the bankruptcy case is commenced or pending has
exclusive in rem jurisdiction over the res of the debtor and estate. 28 USC 1334(e)(1). Finally,
that district court also has exclusive jurisdiction over any claim involving the construction of 11
USC 327. 28 USC 1334(e)(2). But, for those matters that merely arise under, arise in, or are
otherwise related to a bankruptcy case, the district court has original jurisdiction, but such
jurisdiction is not exclusive. 28 USC 1334(b); Delphi Auto Sys, LLC v Segway Inc, 519 F Supp
2d 662, 665 (ED Mich, 2007). Rather, the federal and state courts have concurrent jurisdiction,
and the matters can be heard by either one. 13D Wright & Miller, Federal Practice & Procedure:
Bankruptcy (2021), § 3570. The circuit court erred in stating otherwise.
This error undermined the circuit court’s jurisdictional analysis. The circuit court did not
focus, for example, on whether the city’s claims are part of defendant’s bankruptcy case or
involved construction of 11 USC 327, either one of which would have placed exclusive jurisdiction
over the claims in the district court and divested the circuit court of jurisdiction. Instead, the circuit
court focused its attention on whether the claims are “related to” defendant’s bankruptcy case.
It might well be the case that the district court has original jurisdiction over the city’s claims
under the “related to” component of 28 USC 1334(b), but this would not mean that such
jurisdiction is also exclusive. Even if the state-law claims are related to defendant’s bankruptcy
case, this would not divest the circuit court of subject-matter jurisdiction over those claims unless
and until the district court decided in its discretion to take jurisdiction over those claims. In
instances where its jurisdiction is concurrent, not exclusive, the district court can abstain from
taking jurisdiction over matters involving title 11 “in the interest of justice, or in the interest of
comity with State courts or respect for State law.” 28 USC 1334(c)(1); see also 28 USC 1334(c)(2)
(outlining where abstention is required).
Similarly, as with its focus on “related to” proceedings, the circuit court’s analysis of
“core” versus “noncore” proceedings strayed from the relevant jurisdictional analysis. Whether a
matter is “core” or not has relevance to whether a bankruptcy judge has the authority to adjudicate
one of the types of proceedings listed in 28 USC 157(b) or, instead, must make proposed findings
of fact and conclusions of law to the district court. Wellness Int’l Network, Ltd v Sharif, 575 US
665, 670-671; 135 S Ct 1932; 191 L Ed 2d 911 (2015); Exec Benefits Ins Agency v Arkison, 573
US 25, 33-34; 134 S Ct 2165; 189 L Ed 2d 83 (2014). Section 157 does not, however, enlarge the
jurisdiction of federal courts; the provision merely allocates the jurisdiction created by 28 USC
1334. Matter of Holly’s, Inc, 172 BR 545, 556 (Bankr WD Mich, 1994). Thus, for our purposes,
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the focus must remain on whether 28 USC 1334 itself grants exclusive jurisdiction to the district
court.
The city’s claims are not causes of action created by title 11 or pursued as part of
defendant’s bankruptcy case. Rather, the city has asserted claims in a state civil lawsuit involving
the terms and conditions of a mortgage, which fall under state contract law. Simply because the
parties entered into the mortgage in accordance with the bankruptcy court’s confirmed plan and
order does not mean that any and all causes of action for breach of that contract must be pursued
as part of defendant’s now-closed bankruptcy case. Likewise, the city maintains that defendant
has created a public nuisance and dangerous building, both of which are governed by state statute,
not the bankruptcy code.
Defendant emphasizes that the city previously alleged a default of the confirmed plan and
order before the bankruptcy judge, the judge exercised jurisdiction, and the district court affirmed
that bankruptcy judge’s decision. Although accurate, defendant’s argument is incomplete—the
bankruptcy judge did, indeed, take jurisdiction over the city’s motion to reopen the bankruptcy
case, but the judge did so under the original-but-not-exclusive provision of 28 USC 1334(b), not
the original-and-exclusive provision of 28 USC 1334(a). Moreover, this case does not involve the
same allegations or causes of action pursued before the bankruptcy judge. In fact, the bankruptcy
judge expressly recognized that the city might have state-law claims outside of the confirmed plan
and order.
Thus, this is not a case “under title 11” for purposes of 28 USC 1334(a). See In re
Wolverine, 930 F2d at 1141; see also In re Partners Ltd Partnership v Brown, 199 BR 917, 919
(Bankr ED Mich, 1996) (holding that cases “under title 11” involve a cause of action “created by
title 11”). Nor do any of the city’s claims involve the construction of 11 USC § 327, so the grant
of exclusive jurisdiction under 28 USC § 1334(e)(2) is not relevant here.
The district court’s exclusive in rem jurisdiction under 28 USC § 1134(e)(1) raises a more
interesting question. Under Michigan law, claims of breach of contract and nuisance are
considered as claims in personam. Specialties Distrib Co v Whitehead, 313 Mich 696, 699-700;
21 NW2d 926 (1946) (contract); Twp of Fraser v Haney, 327 Mich App 1, 12-13; 932 NW2d 239
(2018), vacated 504 Mich 968 (2019) (nuisance); Twp of Fraser v Haney (On Remand), 331 Mich
App 96, 101; 951 NW2d 97 (2020) (“The matter is again reversed and remanded to the trial court
for further proceedings consistent with this opinion and our original opinion.”).2 A party to the
mortgage can breach that contract, but it makes little sense to speak of real property breaching a
mortgage. Similarly, a party can develop or use real property in such a way as to create a public
nuisance or dangerous building, meaning that the cause of action is really one in personam against
the party who wrongfully developed or used the property, rather than against the real property
itself. Thus, for these claims of the city, 28 USC 1334(e)(1) does not vest exclusive jurisdiction
in the district court.
2
Although not relevant here, certain claims of nuisance could be characterized as in rem or quasi
in rem. See, e.g., State ex rel Bailes v Guardian Realty Co, 286 So 168, 170 (Ala, 1939).
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But, under Michigan law, causes of action involving foreclosure and appointment of a
receiver over real property are considered in rem, not in personam. Lansing Drop Forge Co v
American State Bank, 273 Mich 124, 128; 262 NW2d 756 (1935) (receiver); City of Detroit v
19675 Hasse, 258 Mich App 438, 448-452; 671 NW2d 150 (2003) (foreclosure). Had a party
pursued similar claims during the pendency of defendant’s bankruptcy case, it appears that the
district court would have had exclusive jurisdiction over the claims under 28 USC 1334(e)(1). It
is unclear, however, how long (if at all) the district court retains exclusive jurisdiction over the res
of the bankruptcy case and estate once the plan is confirmed and the case is closed.
On the one hand, “[s]ection 1334 does not expressly limit the bankruptcy court’s
jurisdiction following plan confirmation. Nevertheless, all courts that have addressed the question
have ruled that once confirmation occurs, the bankruptcy court’s jurisdiction shrinks.” In re
General Media, Inc, 335 BR 66, 73 (SD NY, 2005) (citation omitted).
Once the bankruptcy court confirms a plan of reorganization, the debtor may go
about its business without further supervision or approval. The firm also is without
the protection of the bankruptcy court. It may not come running to the bankruptcy
judge every time something unpleasant happens. [Id., quoting Pettibone Corp v
Easley, 935 F2d 120, 122 (CA 7, 1991); see also Eastland, 199 BR at 921.]
In fact, “[a] bankruptcy estate usually ceases to exist after a reorganization plan is confirmed.” In
re Celebrity Home Entertainment, Inc, 210 F3d 995, 998 (CA 9, 2000); see also 11 USC 1142
(effect of confirmation). And when the estate ceases to exist, exclusive jurisdiction does not appear
to follow the property. See 9 Am Jur 2d, Bankruptcy, § 730, p 879 (“Jurisdiction does not follow
the property; it lapses when property clears the estate.”).
On the other hand, there are instances when a bankruptcy estate survives post-confirmation.
11 USC 1142; see also Hillis Motors, Inc. v Hawaii Auto Dealers’ Ass’n, 997 F2d 581, 589-590
(CA 9, 1993). The bankruptcy judge in defendant’s case retained jurisdiction over certain post-
confirmation matters, and the judge had re-opened the case long enough to resolve the city’s post-
confirmation motion. But, as explained by the U.S. Court of Appeals for the First Circuit, “a
bankruptcy court may not ‘retain’ jurisdiction it never had—i.e., over matters that do not fall within
§ 1334’s statutory grant.” Gupta v Quincy Med Ctr, 858 F3d 657, 663-664 (CA 1, 2017).
We are mindful that a court has an ongoing obligation “to question sua sponte its own
jurisdiction over a person, the subject matter of an action, or the limits of the relief it may afford.”
Yee v Shiawassee Co Bd of Comm’rs, 251 Mich App 379, 399; 651 NW2d 756 (2002). With that
said, we are also mindful that neither the parties nor the circuit court raised or addressed the district
court’s exclusive jurisdiction over real property under 28 USC 1334(e)(1). Finally, we are mindful
that, as a state court, we are not often called upon to interpret and apply bankruptcy law, a
specialized and complex subset of federal law. Although a plain reading of the statutory language
as well as the weight of judicial authority appear to favor the lapse of any exclusive jurisdiction
over the property under 28 USC 1334(e)(1), we need not definitely resolve the matter today. As
explained above, the circuit court is not divested by 28 USC 1334(a) or (e)(2) of subject-matter
jurisdiction over at least some of the city’s claims, and we will leave to future development whether
the circuit court is restricted by 28 USC 1334(e)(1) from granting relief in the form of forfeiture
or receivership.
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To sum, we hold that the circuit court erred in concluding that, by application of 28 USC
1334, the circuit court did not have subject-matter jurisdiction over any of the city’s claims. The
federal district court does not have, by application of 28 USC 1334(a), exclusive jurisdiction over
the city’s claims, and it was reversible error for the circuit court to conclude otherwise. Moreover,
the district court does not have exclusive jurisdiction under 28 USC 1334(e)(2) over any of the
city’s claims. We leave open the question on the effect, if any, of 28 USC 1334(e)(1) with respect
to any of the city’s claims or relief sought. Accordingly, we reverse the circuit court’s grant of
summary disposition to defendant under MCR 2.116(C)(4).
D. SUMMARY DISPOSITION ON OTHER GROUNDS
Despite the fact that the circuit court concluded that it lacked subject-matter jurisdiction
over any of the city’s claims, it proceeded to reach the merits of the claims for declaratory relief
and appointment of a receiver, dismissing them for lack of a genuine issue of material fact under
MCR 2.116(C)(10). In this respect, the circuit court also erred.
The circuit court’s ruling occurred at the very outset of the lawsuit, even though discovery
had hardly commenced. “Generally, a motion for summary disposition under MCR 2.116(C)(10)
is premature when discovery on a disputed issue has not been completed.” Colista v Thomas, 241
Mich App 529, 537-538; 616 NW2d 249 (2000). To bolster its position opposing defendant’s
motion for summary disposition, the city offered to provide the circuit court with evidence to
supports its allegations, but the circuit court declined: “Listen, I’m not—right now, I’m not
addressing what the state of the building is or isn’t. It—in the sense that I—I just want to know
what jurisdiction I have ‘cause it seems like the bankruptcy court either has addressed these issues
or maybe still is. But you’re telling me that’s not the case— . . . .” But then the circuit court went
beyond the jurisdictional question and addressed the merits of the city’s claims in its subsequent
opinion and order.
The current record is not sufficient for us to conclude that “there is no reasonable chance
that further discovery will result in factual support for” one or more of the city’s causes of action.
Id. We reverse the circuit court’s grant of summary disposition to defendant under MCR
2.116(C)(10) as premature on this record. If, once discovery has closed, there is a basis for a party
to seek summary disposition under MCR 2.116(C)(10), then the party can move for such relief in
accordance with the appropriate court rules.
Defendant also argues on appeal that the city’s claims fail on the grounds of res judicata
and collateral estoppel. For this alternate reason, defendant asks that we affirm the circuit court’s
grant of summary disposition under MCR 2.116(C)(7). The circuit court did not, however, address
whether one or more of the city’s claims were precluded by the doctrines of res judicata and
collateral estoppel, and we will not do so for the first time on appeal. Jawad A Shah, MD, PC v
State Farm Mut Auto Ins Co, 324 Mich App 182, 210; 920 NW2d 148 (2018).
Finally, as we previously noted, there is ongoing litigation between these parties in federal
district court. The federal lawsuit was filed after the present lawsuit, and, as a consequence, the
parties could not explore with the circuit court how that federal lawsuit impacts the present one, if
at all. Nor was the matter of the courts’ concurrent jurisdictions developed by the parties on appeal;
in fact, neither party alerted this Court to the district court’s recent order entered on September 28,
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2021. In that order, the district court declined the city’s request to abstain based, in part, on the
circuit court’s erroneous dismissal of the city’s lawsuit on grounds of subject-matter jurisdiction
and lack of a genuine issue of material fact. The district court explained that the question of
abstention could be revisited if the circuit court’s dismissal was reversed. Given our ruling today,
we expect that the matter of which trial court is the best forum for resolving the parties’ various
claims will be explored further by the parties and trial courts.
III. CONCLUSION
Our ruling on appeal is a narrow one. The circuit court erred when it concluded that the
federal district court had exclusive jurisdiction under 28 USC 1334 over all of the city’s claims.
The circuit court likewise erred when it dismissed several of the city’s claims under MCR
2.116(C)(10). For the reasons stated in this opinion, we reverse the circuit court’s ruling granting
defendant’s motion for summary disposition in its entirety, and we remand to the circuit court for
further proceedings consistent with this opinion. We decline to address the parties’ additional
arguments, which can be addressed by the circuit court in the first instance.
Reversed and remanded for further proceedings consistent with this opinion. We do not
retain jurisdiction.
/s/ Brock A. Swartzle
/s/ Michael J. Riordan
/s/ Jane E. Markey
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