Sheehan v. Warner et al
Filing
30
Memorandum Opinion and Order Denying Motion to Dismiss [Dkt. No. 13], Denying Motion for Sanctions [Dkt. No. 25], and Denying as Moot Motion to Dismiss Motion for Sanctions [Dkt. No. 26]: The Court denies the defendants' 13 Motion to Dismiss for Lack of Jurisdiction, denies the defendants' 25 Motion for Sanctions and denies as moot the plaintiff's 26 Motion to Dismiss. Signed by District Judge Irene M. Keeley on 4/23/12. (mh)
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF WEST VIRGINIA
MARTIN P. SHEEHAN, Trustee of
Bankruptcy Estate of Benjamin
F. Warner, Sr.,
Plaintiff,
v.
//
CIVIL ACTION NO. 1:11CV193
(Judge Keeley)
KARL K. WARNER, ELIZABETH ANN
WARNER, KRISTIAN E. WARNER, Sr.,
ANDREW M. WARNER, MONROE P. WARNER,
and GEORGE B. WARNER, Sr.,
Defendants.
MEMORANDUM OPINION AND ORDER DENYING MOTION TO DISMISS [DKT. NO.
13], DENYING MOTION FOR SANCTIONS [DKT. NO. 25], AND DENYING
AS MOOT MOTION TO DISMISS MOTION FOR SANCTIONS [DKT. NO. 26]
Before the Court are the motions to dismiss for lack of
jurisdiction (dkt. no. 13) and to impose sanctions (dkt. no. 25)
filed by the defendants, Karl K. Warner, Elizabeth Ann Warner,
Kristian E. Warner, Sr., Andrew M. Warner, Monroe P. Warner, and
George B. Warner, Sr. (collectively “the defendants”), and the
motion to dismiss the motion for sanctions (dkt. no. 26) filed by
the plaintiff, Martin P. Sheehan, trustee of the Bankruptcy Estate
of Benjamin F. Warner, Sr. (“Sheehan” or “the trustee”). For the
reasons discussed below, the Court DENIES the defendants’ motion to
dismiss and motion for sanctions and DENIES AS MOOT the plaintiff’s
motion to dismiss the motion for sanctions.
SHEEHAN V. WARNER, ET AL.
1:11CV193
MEMORANDUM OPINION AND ORDER
I.
This case has its genesis in an adversary proceeding commenced
in bankruptcy court. On April 22, 2010, Benjamin F. Warner (“the
debtor”) filed a Chapter 7 bankruptcy petition in the United States
Bankruptcy Court for the Northern District of West Virginia.
Sheehan was subsequently appointed as the bankruptcy estate’s
trustee and, on July 30, 2010, he filed an adversary proceeding
against Karl K. Warner in bankruptcy court. That proceeding, which
largely concerned the debtor’s interest in a West Virginia limited
liability company known as McCoy Farms, LLC (“McCoy Farms”),
concluded with a determination that the debtor “held a one-sixth
membership interest in McCoy Farms,” which is “property of the
Debtor’s bankruptcy estate.” Sheehan v. Warner, No. 1:10AP100,
(Dkt. No. 57 at 4) (Nov. 29, 2011). The adversary proceeding closed
on December 19, 2011.
The trustee filed the instant case on December 2, 2011,
invoking this Court’s jurisdiction over bankruptcy-related matters
pursuant to 28 U.S.C. § 1334. The complaint seeks a declaration of
the rights of the bankruptcy estate under the relevant Operating
Agreement for McCoy Farms, the dissolution of that entity, and the
liquidation and distribution of its assets. The defendants, all of
whom hold an interest in McCoy Farms, moved to dismiss this case
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1:11CV193
MEMORANDUM OPINION AND ORDER
and to sanction the trustee. Sheehan responded by moving to dismiss
the defendants’ motion for sanctions. These motions are now ripe
for the Court’s review.
II.
The threshold question is whether the Court has federal
subject matter jurisdiction in this case. Accordingly, it turns
first to the defendants’ motion to dismiss.
A.
Dismissal is appropriate under Fed. R. Civ. P. 12(b)(1) where
the Court lacks jurisdiction over the subject matter of a lawsuit.
When
a
defendant
challenges
the
existence
of
subject
matter
jurisdiction, the Court is “free to weigh the evidence and satisfy
itself as to the existence of its power to hear the case.” Williams
v. United States, 50 F.3d 299, 304 (4th Cir. 1995) (internal
quotation marks and citations omitted). The Court may consider
evidence
outside
of
the
pleadings,
whether
by
affidavit,
deposition, or live testimony, without converting the motion into
one for summary judgment. Id. The burden is on the plaintiff to
prove that subject matter jurisdiction exists. Evans v. B.F.
Perkins Co., 166 F.3d 642, 647 (4th Cir. 1999); see also United
States ex rel. Vuyyuru v. Jadhav, 555 F.3d 337, 347 (4th Cir. 2009)
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SHEEHAN V. WARNER, ET AL.
1:11CV193
MEMORANDUM OPINION AND ORDER
(plaintiff must prove jurisdictional facts “by a preponderance of
the evidence”).
B.
Federal
district
courts
have
“original
and
exclusive
jurisdiction of all cases under title 11,” and “original but not
exclusive jurisdiction of all civil proceedings arising under title
11, or arising in or related to cases under title 11.” 28 U.S.C.
§ 1334(a), (b). Federal jurisdiction over proceedings brought
pursuant to 28 U.S.C. § 1334 can thus be divided into three
categories: “[1] those that ‘aris[e] under title 11’; [2] those
that ‘aris[e] in’ a Title 11 case; and [3] those that are ‘related
to a case under title 11.’” Stern v. Marshall, --- U.S. ----, 131
S.Ct. 2594, 2603 (2011) (quoting 28 U.S.C. § 157(a)); see also In
re Jones, 397 B.R. 775, 780 (S. D. W. Va. 2008). The trustee argues
that “this litigation is within the ‘related to’ jurisdiction of 28
U.S.C. § 1334.” (Dkt. No. 16 at 3).
Federal jurisdiction in bankruptcy matters is “comprehensive,”
so that courts “‘might deal efficiently and expeditiously with all
matters connected to the bankruptcy estate.’” Celotex Corp. v.
Edwards, 514 U.S. 300, 308 (1995) (quoting Pacor, Inc. v. Higgins,
743 F.2d 984 (3d Cir. 1984)). Accordingly, “[t]he ‘related to’
language of § 1334(b) must be read to give district courts . . .
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SHEEHAN V. WARNER, ET AL.
1:11CV193
MEMORANDUM OPINION AND ORDER
jurisdiction
over
more
than
simple
proceedings
involving
the
property of the debtor of the estate.” Id. A civil proceeding is
“related to” a case under Title 11 when
the outcome of that proceeding could conceivably have any
effect on the estate being administered in bankruptcy.
Therefore, an action is related to bankruptcy if the
outcome could alter the debtor’s rights, liabilities,
options or freedom of action (either positively or
negatively) and [it] in any way impacts upon the handling
and administration of the bankruptcy estate.
Valley Historic Ltd. P’ship v. Bank of New York, 486 F.3d 831, 835
(4th Cir. 2007) (internal quotation marks and citations omitted);
see also A.H. Robins Co., Inc. v. Piccinin, 788 F.2d 994, 1002,
n.11 (4th Cir. 1986) (citing Pacor 743 F.2d at 994).
Here, the trustee seeks a declaration of the rights of the
debtor’s bankruptcy estate under the operating agreement of McCoy
Farms, as well as the liquidation and distribution of that entity’s
assets. This suit impacts “the rights, liabilities, options or
freedom of action” of the trustee (and consequently, the debtor) to
the assets of McCoy Farms. Valley Historic Ltd. P’ship, 486 F.3d at
835. Moreover, the outcome of this case may have a substantial
impact on the assets available for distribution to creditors of the
bankruptcy estate. See In re Jones, 397 B.R. at 782 (finding
“related to” jurisdiction where a civil action could “conceivably
impact[] . . . the bankruptcy estate if [it] reduced the assets
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1:11CV193
MEMORANDUM OPINION AND ORDER
available for distribution to creditors of the estate”); cf. In re
NWFX, Inc., 881 F.2d 530, 532 (8th Cir. 1989) (finding “related to”
jurisdiction where the action would “impact the assets of the
bankruptcy estate and the funds available for distribution”).
Accordingly, because this claim “relates to” a Title 11 case, the
Court concludes that it has subject matter jurisdiction pursuant to
28 U.S.C. § 1334 and DENIES the defendants’ motion to dismiss.
III.
The defendants also filed a motion for Fed. R. Civ. P. 11
sanctions against Sheehan, arguing that sanctions are appropriate
because the Court does not have subject matter jurisdiction over
this case and the plaintiff’s legal claims have no basis in law.
(Dkt. No. 25 at 3). The trustee responded by moving to dismiss the
motion, noting that the defendants had not complied with the
procedural prerequisites for seeking sanctions. (Dkt. No. 26 at 12). The defendants, without further elaboration, characterized this
argument as “indefinable.” (Dkt. No. 28 at 2).
Fed. R. Civ. P. 11 states in pertinent part:
A motion for sanctions must be made separately from any
other motion and must describe the specific conduct that
allegedly violates Rule 11(b). The motion must be served
under Rule 5, but it must not be filed or be presented to
the court if the challenged paper, claim, defense,
contention, or denial is withdrawn or appropriately
corrected within 21 days after service or within another
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1:11CV193
MEMORANDUM OPINION AND ORDER
time the court sets. If warranted, the court may award to
the prevailing party the reasonable expenses, including
attorney’s fees, incurred for the motion.
The requirements of this rule are straightforward: “The party
seeking sanctions must serve the Rule 11 motion on the opposing
party at least twenty-one days before filing the motion with the
district court, and sanctions may be sought only if the challenged
pleading is not withdrawn or corrected within twenty-one days after
service of the motion.” Brickwood Contractors, Inc. v. Datanet
Engineering, Inc., 369 F.3d 385, 389 (4th Cir. 2004). These
obligations are mandatory, such that “failure to comply with the
procedural requirements precludes the imposition of the requested
sanctions.” Id. (citations omitted). Furthermore, it is beyond
peradventure that the defendants did not comply with this Rule.
As the defendants’ motion for sanctions is substantively
frivolous as well as procedurally defective, the Court DENIES their
motion and consequently DENIES AS MOOT the plaintiff’s motion to
dismiss the motion for sanctions.*
*
Notably, a motion to dismiss is an improper vehicle for opposing
the defendants’ motion; a Fed. R. Civ. P. 12(b) motion to dismiss
applies only to a claim for relief in a “pleading,” and the motion
for sanctions is, manifestly, not a pleading.
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SHEEHAN V. WARNER, ET AL.
1:11CV193
MEMORANDUM OPINION AND ORDER
IV.
In conclusion, for the reasons discussed, the Court DENIES the
defendants’ motion to dismiss for lack of jurisdiction (dkt. no.
13); DENIES the defendants’ motion for sanctions (dkt. no. 25); and
DENIES AS MOOT
the plaintiff’s motion to dismiss motion for
sanctions (dkt. no. 26).
It is so ORDERED.
The Court directs the Clerk to transmit copies of this Order
to counsel of record.
DATED: April 23, 2012.
/s/ Irene M. Keeley
IRENE M. KEELEY
UNITED STATES DISTRICT JUDGE
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