Robert F. Troisio, of Immc Corp. v. Erickson (In Re Immc Corp.)

PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
_____________
No. 18-1177
_____________
In re: IMMC CORPORATION, f/k/a Immunicon
Corporation, et al.,
Debtors
ROBERT F. TROISIO, as Liquidating Trustee of
IMMC Corporation, f/k/a Immunicon Corporation,
Appellant
v.
EDWARD L. ERICKSON; BYRON HEWETT; LEON
TERSTAPPEN; JAMES L. WILCOX; ELIZABETH E.
TALLETT; J. WILLIAM FREYTAG; ZOLA P.
HOROVITZ; JAMES G. MURPHY; BRIAN GEIGER;
JONATHAN COOL; ALLEN J. LAUER
On Appeal from the United States District Court
for the District of Delaware
(District Court No.: 1-15-cv-01043)
District Judge: Honorable Gregory M. Sleet
Argued July 12, 2018
Before: SHWARTZ, ROTH, and RENDELL, Circuit Judges
(Opinion Filed: November 28, 2018)
Mara Beth Sommers [ARGUED]
Bales, Sommers & Klein, P.A.
2 South Biscayne Boulevard
One Biscayne Tower Suite 1881
Miami, Florida 33131
Counsel for Appellant Robert F. Troisio
Michael Eidel
Clair E. Wischusen [ARGUED]
Fox Rothschild LLP
2700 Kelly Road, Suite 300
Warrington, PA 18976
Counsel for Appellees
2
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OPINION
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RENDELL, Circuit Judge:
This appeal requires us to decide whether the
Bankruptcy Court for the District of Delaware had the
authority to transfer an adversary proceeding to the District
Court for the Eastern District of Pennsylvania under 28
U.S.C. § 1631. While the issue as presented would have us
determine whether the Bankruptcy Court is a “court” under
28 U.S.C. § 610, we adopt a different rationale in upholding
the orders of the Bankruptcy Court and the District Court.
Because the Bankruptcy Court lacked power to adjudicate the
adversary proceeding brought by the trustee, its transfer of the
adversary proceeding would have been ultra vires. Thus, the
Bankruptcy Court correctly denied the motion to transfer the
adversary proceeding.
I.
In 2008, IMMC Corporation filed a petition for relief
under Chapter 11 of the Bankruptcy Code in the Bankruptcy
Court for the District of Delaware. Appellant was appointed
as the liquidating trustee under the plan of liquidation
approved by the Court. In 2010, the trustee filed an adversary
proceeding in the Bankruptcy Court, alleging that Appellees,
IMMC’s former officers and directors, had breached their
fiduciary duties by pursuing a risky and costly litigation
strategy in an unrelated suit against a competitor,
overcompensating themselves in the process.
3
In December 2011, the Bankruptcy Court held that it
lacked jurisdiction to hear the claims asserted in the adversary
proceeding. See Troisio v. Erickson (In re IMMC Corp.), Ch.
11 Case No. 08-11178 (KJC), Adv. No. 10-53063-KJC, 2011
WL 6832900 (Bankr. D. Del. Dec. 29, 2011). The Court
rejected the notion that the adversary proceeding was a “core”
proceeding. Id. at *2-4. It also rejected the trustee’s argument
that the adversary proceeding was a non-core proceeding
“related to” a Chapter 11 case because the claims in the
adversary proceeding lacked a “close nexus” to the Chapter
11 plan. Id. at *2, *4; see Resorts Int’l, Inc. Litig. Tr. v. Price
Waterhouse (In re Resorts Int’l, Inc.), 372 F.3d 154, 168-69
(3d Cir. 2004) (after plan confirmation, a bankruptcy court’s
“related to” jurisdiction is limited to matters in which “there
is a close nexus to the bankruptcy plan or a proceeding, as
when a matter affects the interpretation, implementation,
consummation, execution, or administration of a confirmed
plan or incorporated litigation trust agreement”). The trustee
did not appeal that ruling.
After briefing and a separate hearing, the Bankruptcy
Court considered the trustee’s request that the Bankruptcy
Court transfer the adversary proceeding to the United States
District Court for the Eastern District of Pennsylvania under
28 U.S.C. § 1631, which provides:
Whenever a civil action is filed in
a court as defined in section 610
of this title or an appeal, including
a petition for review of
administrative action, is noticed
for or filed with such a court and
that court finds that there is a
4
want of jurisdiction, the court
shall, if it is in the interest of
justice, transfer such action or
appeal to any other such court in
which the action or appeal could
have been brought at the time it
was filed or noticed, and the
action or appeal shall proceed as
if it had been filed in or noticed
for the court to which it is
transferred on the date upon
which it was actually filed in or
noticed for the court from which it
is transferred.
According to 28 U.S.C. § 610:
As used in this chapter the word
“courts” includes the courts of
appeals and district courts of the
United States, the United States
District Court for the District of
the Canal Zone, the District Court
of Guam, the District Court of the
Virgin Islands, the United States
Court of Federal Claims, and the
Court of International Trade.
The trustee urged that the legislative history of both
statutes evidenced Congressional intent to authorize
bankruptcy courts to transfer proceedings under § 1631.
Section 1631’s legislative history states that the statute was
“broadly drafted to permit transfer between any two federal
courts.” S. Rep. No. 97-275, at 11 (1981) (emphasis added).
5
And § 610 was amended in 1978 to explicitly include
bankruptcy courts. See 28 U.S.C.A. § 610 “Historical and
Statutory Notes,” referencing Pub. L. 95-598, 92 Stat. 2665.
Congress rescinded the 1978 Amendment when it enacted
sweeping changes to the Bankruptcy Code in 1984, thus
deleting the reference to bankruptcy courts. But, it
simultaneously amended the Code to provide that bankruptcy
judges “shall constitute a unit of the district court to be known
as the bankruptcy court for that district.” Pub. L. No. 98-353,
98 Stat. 333 (codified as amended at 28 U.S.C. § 151). The
trustee contended that Congress removed bankruptcy courts
from § 610 because, after the 1984 changes designating
bankruptcy courts as “units” of the district courts, it would
have been redundant to include both bankruptcy and district
courts in the language of § 610.
The Bankruptcy Court denied the trustee’s motion to
transfer. Troisio v. Erickson (In re IMMC Liquidating Estate),
Bankr. No. 08-11178 (KJC), 2012 WL 523632 (Bankr. D.
Del. Feb. 14, 2012). Its reasoning was simple: 28 U.S.C. §
1631 refers to “court[s] as defined in section 610,” and the
definition of courts in 28 U.S.C. § 610 does not include
bankruptcy courts. In re IMMC Liquidating Estate, 2012 WL
523632, at *2. Therefore, the Bankruptcy Court reasoned, it
lacked authority to transfer the adversary proceeding under §
1631. Id. It concluded that the plain text of § 1631, which
referred only to “courts as defined in section 610,” controlled.
28 U.S.C. § 1631. Moreover, its view of the legislative
history was quite different from that of the trustee. Namely, it
opined that Congress’s decision to remove bankruptcy courts
from § 610 was an intentional withdrawal of bankruptcy
courts’ transfer power. In re IMMC Liquidating Estate, 2012
6
WL 523632, at *2. The Bankruptcy Court also dismissed as
dicta language in a footnote of a prior Third Circuit opinion,
which suggested that bankruptcy courts could transfer actions
under § 1631. Id.; see Geruschat v. Ernst Young LLP (In re
Seven Fields Dev. Corp.), 505 F.3d 237, 247 n.8 (3d Cir.
2007) (“[W]e take note of 28 U.S.C. § 1631 which provides
that when a civil action is filed with a district court (of which
the bankruptcy court is a unit) with a want of jurisdiction the
court shall in the interest of justice transfer the case to a court
in which it could have been filed originally.”).
Although the Bankruptcy Court denied the trustee’s
motion to transfer, it allowed him to file a motion to withdraw
the reference in the District Court, which clearly fell within §
610’s definition of courts, so that it could consider a motion
to transfer the adversary proceeding under § 1631. In re
IMMC Liquidating Estate, 2012 WL 523632, at *4. However,
the District Court denied the motion. Troisio v. Erickson (In
re IMMC Corp.), Civ. No. 12-406-GMS (D. Del. Feb. 9,
2015), ECO N. 11. The District Court reasoned that, because
the Bankruptcy Court lacked jurisdiction over the adversary
proceeding, the action was never properly referred to the
Bankruptcy Court, and the District Court could not withdraw
the reference of a proceeding that was never referred. See Id.
at 2-3 (“[T]he district court may withdraw in whole or in part,
any case or proceeding referred under this section[.]”
(emphasis added by District Court) (citing 28 U.S.C. §
157(d))).1
The trustee then renewed its motion in the Bankruptcy
Court to transfer the adversary proceeding to the Eastern
1
This order has not been appealed.
7
District of Pennsylvania under § 1631. Troisio v. Erickson (In
re IMMC Corp.), Bankr. No. 08-11178 (KJC), 2015 WL
6684638 (Bankr. D. Del. Oct. 30, 2015). The Bankruptcy
Court denied the renewed motion, which it treated as a
motion for reconsideration, because the trustee failed to
identify an intervening change in the law and the Court
remained “convinced that the express language and legislative
history of § 610 supports the proposition that Congress did
not intend to include bankruptcy courts in the definition of
‘courts.’” Id., at *2; see N. River Ins. Co. v. CIGNA
Reinsurance Co., 52 F.3d 1194, 1218 (3d Cir. 1995) (a
motion to reconsider must rely on one of three things: “(1) an
intervening change in controlling law; (2) the availability of
new evidence . . . ; [or] (3) the need to correct a clear error [of
law] or prevent manifest injustice” (citation omitted)
(alterations in original)).
The trustee filed a notice of appeal of the Bankruptcy
Court’s 2012 order denying the original motion to transfer
and its 2015 order denying the renewed motion to transfer.2
The District Court affirmed both orders, relying on the same
2
The trustee also filed a motion seeking certification of the
appeal directly to the Third Circuit pursuant to 28 U.S.C. §
158(d)(2)(A). The District Court certified the issue for direct
appeal, but the trustee failed to perfect the appeal to the Third
Circuit by filing a petition for permission with the circuit
clerk as required by Federal Rule of Bankruptcy Procedure
8006(g). The trustee then filed a motion to reopen and
proceed with the appeal before the District Court. The District
Court granted the motion to reopen, and the appeal proceeded
before the District Court.
8
reasoning: bankruptcy courts are not “courts” according to the
plain language of § 610. Like the Bankruptcy Court, the
District Court concluded that neither legislative history nor
binding Third Circuit precedent supported the trustee’s
position. See Troisio v. Erickson (In re IMMC Corp.), Civ.
No. 15-1043 (GMS), 2018 WL 259941 (D. Del. Jan. 2, 2018).
This appeal followed.
II.3
The trustee’s primary argument on appeal is that
because we reasoned in In re Schaefer Salt Recovery, 542
F.3d 90 (3d Cir. 2008), that bankruptcy courts are “units” of
district courts, they therefore fall under § 610’s definition of
“courts.” Thus, he argues, the Bankruptcy Court had authority
to transfer the adversary proceeding under § 1631. While the
Bankruptcy Court may be a “unit” of the district court, § 610
lists district courts, not units of that court, and does not list
bankruptcy courts.4 But, because in Schaefer Salt, we ignored
the absence of bankruptcy courts from the definition of § 451
so as to equate district courts and “units,” we begin with a
discussion of that case.
3
The District Court had jurisdiction pursuant to 28 U.S.C. §
158(a)(1). We have jurisdiction pursuant to 28 U.S.C. §
158(d). Because this appeal concerns a pure question of law,
we review the District Court’s order de novo. See Pierce v.
Underwood, 487 U.S. 552, 584 (1988) (“[I]ssues of law are
reviewed de novo . . . .”).
4
For this reason, Judge Roth believes that § 1631 by its plain
terms does not grant transfer authority to bankruptcy courts
because § 610, which defines the word “court” for purposes
of § 1631, does not explicitly list bankruptcy courts.
9
Schaefer Salt filed several bankruptcy petitions in an
attempt to use bankruptcy proceedings to avoid tax lien
foreclosure actions brought against it in state court. Schaefer
Salt, 542 F.3d at 94. The bankruptcy court dismissed the
bankruptcy petitions as having been filed in bad faith and
awarded attorney fees and costs against Schaefer Salt’s
counsel under 28 U.S.C. § 1927, citing “vexatious litigation .
. . designed [to] . . . unreasonably multiply litigation that has
resulted not only in the consumption of Bankruptcy Court
resources but a back and forth in the State Court.” Id. at 95.5
On appeal, we considered whether the bankruptcy
court had the power to impose sanctions under § 1927. Id. at
102. We first noted that courts were split on this issue. Id. The
historical and statutory notes to § 1927 referred to the
definition of “court of the United States” in 28 U.S.C. § 451.
Id. at 103. According to § 451,
The term “court of the United
States” includes the Supreme
Court of the United States, courts
of appeals, district courts
constituted by chapter 5 of [Title
28], including the Court of
International Trade and any court
created by Act of Congress the
5
Under 28 U.S.C. § 1927, “Any attorney . . . who so
multiplies the proceedings in any case unreasonably and
vexatiously may be required by the court to satisfy personally
the excess costs, expenses, and attorneys’ fees reasonably
incurred because of such conduct.”
10
judges of which are entitled to
hold office during good behavior.
Because § 451’s definition of “court of the United States” did
not include bankruptcy courts, some courts had held that
bankruptcy courts lacked authority to issue sanctions under §
1927. Id. The express language of § 451 notwithstanding,
other courts had concluded that a bankruptcy court “is within
the definition of § 451 because of its status as a unit of the
district court, with the district court clearly being a ‘court of
the United States.’” Id. (citing, e.g., Volpert v. Ellis (In re
Volpert), 177 B.R. 81, 88–89 (Bankr. N.D. Ill. 1995), aff'd,
186 B.R. 240 (N.D. Ill. 1995), aff'd on other grounds, 110
F.3d 494 (7th Cir. 1997)). See 28 U.S.C. § 151 (“In each
judicial district, the bankruptcy judges in active services shall
constitute a unit of the district court to be known as the
bankruptcy court for that district.”). We then answered the
question ourselves:
We find that although a
bankruptcy court is not a “court of
the United States” within the
meaning of § 451, it is a unit of
the district court, which is a
“court of the United States,” and
thus the bankruptcy court comes
within the scope of § 451. Under
28 U.S.C. § 157 and the Standing
Order of the United States District
Court for the District of New
Jersey, which delegate authority
to the bankruptcy courts in the
District of New Jersey to hear
11
Title 11 cases as well as “any and
all proceedings” necessary to hear
and decide those cases, the
Bankruptcy Court had the
authority to impose sanctions . . .
under § 1927.
Id. at 105.
Thus, the trustee urges, our precedent has concluded
that “bankruptcy courts, as units of the district court, come
within the definition of ‘courts’ in 28 U.S.C. § 451 and
therefore have the authority to impose sanctions under [§
1927].” Br. for Appellant at 9. Because § 451 closely mirrors
§ 610, he argues that the Bankruptcy Court also comes within
§ 610’s definition of “courts” and therefore the Court had
authority to transfer the adversary proceeding under § 1631.
However, he overlooks a key distinction between the issue in
Schaefer Salt and the issue before us. In Schaefer Salt there
was no question that the bankruptcy court had jurisdiction
over Schaefer Salt’s bankruptcy petitions under 28 U.S.C. §
157 and the matter before the Court was clearly encompassed
within the standing order of reference entered by the District
Court. See Schaefer Salt, 542 F.3d at 105. This included the
authority to hear proceedings necessary to adjudicate the
bankruptcy petitions, including proceedings to impose
sanctions under 28 U.S.C. § 1927. Id. Thus, Schaefer Salt’s
statement that a bankruptcy court is a “unit” of the district
court does not address the court’s authority to act under 28
U.S.C. § 157, or, for that matter, the Constitution.
Here, the Bankruptcy Court’s jurisdiction and
authority to act are implicated, as the Bankruptcy Court ruled
12
that it lacked jurisdiction over the adversary proceeding and
the District Court concluded that the matter had never been
referred to the Bankruptcy Court. “Congress has vested
‘limited authority’ in bankruptcy courts.” Resorts Int’l, 372
F.3d at 161 (quoting Bd. of Governors v. MCorp Fin., Inc.,
502 U.S. 32, 40 (1991)). They may exercise only the
authority conferred to them by statute. Resorts Int’l, F.3d at
161 (“[T]he source of the bankruptcy court’s subject matter
jurisdiction is neither the Bankruptcy Code nor the express
terms of the Plan. The source of the bankruptcy court’s
jurisdiction is 28 U.S.C. §§ 1334 and 157.” (quoting United
States Brass Corp. v. Travelers Ins. Group, Inc. (In re United
States Brass Corp.), 301 F.3d 296, 303 (5th Cir. 2002))).
Because the delegation of judicial authority to non-Article III
tribunals has Constitutional implications, we must “jealously
guard[]” the parameters of that authority. Northern Pipeline
Co. v. Marathon Pipe Line Co., 458 U.S. 50, 60 (1982).
Under 28 U.S.C. § 1334(a), federal district court
judges have “original and exclusive jurisdiction of all cases
under title 11.” District court judges may refer some of these
matters to bankruptcy judges. See 28 U.S.C. § 157(a) (“Each
district court may provide that any or all cases under title 11
and any or all proceedings arising under title 11 or arising in
or related to a case under title 11 shall be referred to the
bankruptcy judges for the district.”). Section 157 “divid[es]
all matters that may be referred to the bankruptcy court into
two categories: ‘core’ and ‘non-core’ proceedings.” Exec.
Benefits Ins. Agency v. Arkinson, 134 S. Ct. 2165, 2171
(2014) (citing 28 U.S.C. § 157). Core proceedings are matters
which “invoke a substantive right provided by title 11” or
“that by [their] nature could arise only in the context of a
bankruptcy case.” Halper v. Halper, 164 F.3d 830, 836 (3d
13
Cir. 1999) (citation and internal quotiation marks omitted).
Non-core proceedings are “not . . . core” but are “otherwise
related to a case under title 11.” 28 U.S.C. § 157(c)(1). Since
the adversary proceeding was neither core nor related to the
Chapter 11 case, the Bankruptcy Court lacked jurisdiction to
hear it.
Thus, the trustee’s reliance on Schaefer Salt is
misplaced. The Bankruptcy Court here lacked authority over
the claims in the adversary proceeding. Exercising
jurisdiction over the adversary proceeding so as to transfer it
under §1631 would have been ultra vires, regardless of
whether bankruptcy courts fall under § 610’s definition of
courts. Cognizant of bankruptcy courts’ limited authority and
our obligation to guard the limits of that authority, we cannot
approve of the bankruptcy court’s exercise of jurisdiction to
transfer the adversary proceeding under these circumstances.
As he did before the Bankruptcy and District Courts,
the trustee argues that § 1631 was “broadly drafted to permit
transfer between any two federal courts.” S. Rep. No. 97-275,
at 11. However, given the nature of bankruptcy court
jurisdiction, a bankruptcy court that lacks jurisdiction over a
proceeding cannot transfer that proceeding under § 1631.
And, even assuming that Congress intended bankruptcy
courts to fall under § 610’s definition of courts by virtue of
their status as units of the district courts, the trustee cannot
overcome the Bankruptcy Court’s lack of jurisdiction over the
claims in the adversary proceeding in this case. Nor are we
bound by the language in Seven Fields suggesting that a
bankruptcy court that lacked jurisdiction over a proceeding
could transfer it under § 1631. “[W]e are not bound by our
Court’s prior dicta,” Galli v. N.J. Meadowlands Comm’n, 490
14
F.3d 265, 274 (3d Cir. 2007), and the suggestion of an
alternative basis for our ruling in a footnote in that opinion
was clearly dicta.
While the purpose of § 1631 is to remedy a lack of
jurisdiction, we read § 1631 as intending to permit transfer to
remedy a lack of statutory jurisdiction only. Statutory
jurisdiction, such as federal question jurisdiction under 28
U.S.C. § 1331 and diversity jurisdiction under 28 U.S.C. §
1332, is distinct from constitutional jurisdiction, a tribunal’s
authority under the Constitution to hear a matter. See Mayor
v. Cooper, 73 U.S. 247, 252 (1868) (in order to hear a matter,
a court must have jurisdiction under both the Constitution and
a statute). On the heels of the Supreme Court’s ruling in
Northern Pipeline, Congress enacted laws to establish a
constitutional scheme whereby the power over bankruptcy
matters was lodged in the district courts, with their having the
ability to refer matters to bankruptcy judges. See Northern
Pipeline 458 U.S. 50 (1982) (declaring unconstitutional
Congress’s broad grant of authority to bankruptcy courts).
Whether or not they established bankruptcy “courts” may be
unclear, but what is clear is that the Bankruptcy Court’s
power to deal with all matters pertaining to bankruptcy, as a
constitutional matter, emanates from the District Court. Here,
the District Court specifically ruled that, in light of the
Bankruptcy Court’s ruling that the matter was neither a core
proceeding nor one “related to” the Chapter 11 petition, it
made no reference regarding this proceeding. Since it was
never referred by the District Court, the Bankruptcy Court
had no constitutional authority over the matter in light of
Northern Pipeline. Transfer under § 1631 simply cannot cure
this lack of constitutional jurisdiction.
15
Finally, we note that several of the Federal Rules of
Bankruptcy Procedure authorize bankruptcy courts to transfer
various bankruptcy matters. For example, Federal Rule of
Bankruptcy Procedure 7087, which expressly incorporates 28
U.S.C. § 1412, allows a bankruptcy court to transfer a “case
or proceeding under title 11 to a district court for another
district, in the interest of justice or for the convenience of the
parties.” Our holding today does not call into question the
validity of transfer under Rule 7087 because bankruptcy
courts have statutory authority over “cases under title 11 and
any or all proceedings arising under title 11.” 28 U.S.C. §
157(a). Nor does it cast doubt upon the transfer of a
bankruptcy petition to cure a defect in venue under Federal
Rule of Bankruptcy Procedure 1014, as bankruptcy courts
have statutory authority over bankruptcy petitions under 28
U.S.C. § 157. Our holding today simply reaffirms the well-
established rule that bankruptcy courts may exercise only the
authority delegated to them by statute and referred to them by
the standing order of the district court. Because the adversary
proceeding in this case fell outside the Bankruptcy Court’s
jurisdiction, the Bankruptcy Court properly declined to
transfer the proceeding under 28 U.S.C. § 1631.
III.
For the foregoing reasons we affirm the order of the
District Court.
16