Amicus Curiae Brief — Marshall v. Marshall

IN THE

Supreme Court of the United States

sooo

VICKIE LYNN MARSHALL,

Petitioner,

—

E. PIERCE MARSHALL,

Respondent.

ON WRIT OF CERTIORARI TO THE UNITED STATES

COURT OF APPEALS FOR THE NINTH CIRCUIT

BRIEF IN SUPPORT OF PETITIONER FOR AMICI CURIAE

PROFESSORS RICHARD AARON, JAGDEEP S. BHANDARI,

SUSAN BLOCK-LIEB, RALPH BRUBAKER,

ERWIN CHEMERINSKY, ROBERT D'AGOSTINO,

S. ELIZABETH GIBSON, ROBERT M. LAWLESS,

CHARLES MOONEY, C. SCOTT PRYOR,

NANCY RAPOPORT, ROBERT K. RASMUSSEN,

KEITH SHARFMAN, ETTIE WARD AND ROBERT M. ZINMAN

RICHARD LIEB

Research Professor,

Bankruptcy LL.M. Program office,

ST. JOHN’S UNIVERSITY

SCHOOL OF LAW

8000 Utopia Parkway

Jamaica, New York 11439

(718) 990-6624 or (718) 990-1923

Counsel of Record for

November 18, 2005 Amici Curiae Professors

TABLE OF CONTENTS

PAGE

TABLE OF AUTHORITIES......... pkbinapavinatin iv

INTEREST OF AMICI CURIAE.................. ]

SUMMARY OF ARGUMENT .................... 2

REE bndahins vcs Wanctdencabiavsainccuceswens 6

I. A Plain Text Reading of

28 U.S.C. § 1334 Demonstrates

That the Probate Exception is

Inapplicable in the Bankruptcy

RNG cord cdadccdcassdiatbncictsounscccde 6

II. Under.the Theory of Markham y. Allen,

the Probate Exception is Inapplicable

Because 28 U.S.C. § 1334 “Specially

Confers” Jurisdiction on the Courts

OF NE savndcovccdencddcctcsedseese 9

A. The Probate Exception Has

No Place in the Context of

Bankruptcy Jurisdiction ............ oe

B. Congress Did Not Intend to

Abrogate the Theory of

Markham v. Allen When It

Enacted 28 U.S.C. § 1334 .......... 11

ITT.

IV.

VI.

The Bankruptcy-Related Provisions

for Abstention from the Exercise of

Specially Conferred Bankruptcy

Jurisdiction Are Controlling ............

The Paramount Jurisdiction of the

Courts of Bankruptcy, By Virtue of

Their Exclusive /n Rem Jurisdiction

Under § 1334(e), Reinforces the

Basic Notion That Abstention is the

Exception Rather Than the Rule........

The History of the Probate Exception

Explains Why It Does Not Apply to

NU vc savidetcdsdncddccnnsncennssccss

Application of the Probate Exception

to Oust the Court of Bankruptcy of

Jurisdiction Would Deprive the

Estate of Substantial Value In <

Contravention of the Goal of

Bankruptcy Law To Maximize the

Value of the Debtor’s Estate for the

Gr GN, occ ccudidececcocucces

A. Bankruptcy Provisions Should

Be Interpreted in Light of Their

Congressional Purpose..............

B. Bankruptcy Code Provisions

Were Designed to Maximize

the Estate For the Benefit of

EERE LEE NES OLS DIED

PAGE

13

17

21

22

23

23

ili

PAGE

VII. A Party Who Invokes Bankruptcy

Jurisdiction is Precluded From

Contesting the Jurisdiction of

a Court of Bankruptcy Over

Counterclaims Involving Generally

the Same Subject Matter That is

Before a Probate Court................. 25

CPOE sinters svndevcossoeveedeneeds meenseus 27

iv

TABLE OF AUTHORITIES

Cases:

Acme Harvester Co. v. Beekman Lumber Co.,

222 UB. SOO (IDLE). cc vccvvesccsccdasncsccces

Ankenbranadt v. Richards, 504 U.S. 689

(EDGE) oc oveccevesesessnccssesscvoseesnsbecseess

Arecibo Community Health Care, Inc. v.

Commonwealth of Puerto Rico,

270 F.3d 17 (1st Cir. 2001)...............06.

Bailey v. Baker Ice Machine Co.,

239 U.S. 268 (1915) ..........ccceeee eresenys

Bank of America National Trust & Savings

Association v. 203 North LaSalle Street

Partnership, 526 U.S. 434 (1999) ..........

Caminetti v. United States,

242 U.S. FTO CIGTT) . ccccccccscecsvcsedcevses

Celotex Corp. v. Edwards, 514 U.S. 300

CIDDS).. ccccvercccccsreccecsectsbecseenbepaenes

Cohens v. Virginia,

19 U.S. (6 Wheat.) 264 (1821)..............

Colorado River Water Conservation District

v. United States, 424 U.S. 800 (1976) ......

Commodity Futures Trading Commission

v. Schor, 478 U.S. 833 (1986)............45-

Commodity Futures Trading Commission

v. Weintraub, 471 U.S. 343 (1985)..........

PAGE

18

21

26

17

24

PAGE

Confederated Tribes of Umatilla Indian

Reservation v. Bonneville Power

Administration, 342 F.3d 924

oe os eomaneen 3

Gardner v. New Jersey, 329 U.S. 565 (1947) .... 17, 18

Hanover Bank v. Moyes, 186 U.S. 181 (1902)... 17

Hartford Underwriters Insurance Co. v.

Union Planters Bank, N.A.,

ks coc ki ce csdewosesecnces 7

In re Crown Vantage, Inc., 421 F.3d 963

Ne a in cis dis da ceeekecuseons tes ~ 19

In re Dow Corning Corp., 86 F.3d 482

a aw eenoceo ees 11

In re Eastport Associates, 935 F.2d 1071

i i nd ecb abnagembenedes 14

In re Gruntz, 202 F.3d 1074 (9th Cir. 2000) ..... 23

In re Modern Boats, Inc., 775 F.2d 619

(Sth Cir. 1985).,.........cceeececcecceeseeseess 20

In re Tucson Estates, Inc., 912 F.2d 1162

i i ovceectsedasbenesedesouhetcccores 13,15

In re White, 851 F.2d 170 (6th Cir. 1988)........ 20

Kalb v. Feuerstein, 308 U.S. 433 (1940)......... 19

Katchen v. Landy, 382 U.S. 323 (1966) .......... 18

Landreth Timber Co. v. Landreth,

i CD icc icadsdapovcedscdcecece 7

Langenkamp v. Culp, 498 U.S. 42 (1990) ........ 25

vi

PAGE

Mangus v. Miller, 317 U.S. 178 (1942)........... 16

Markham v. Allen, 326 U.S. 490 (1946).......... passim

Marshall v. Marshall,

392 F.3d 1118 (9th Cir. 2004) ............ 2, 3, 4, 16

Matter of United States Brass Corp.,

110 F.3d 1261 (7th Cir. 1997)................ 20

Meredith v. Winter Haven, 320 U.S. 228

(ER tet ae RP ee Eee oe 16

Moses H. Cone Memorial Hospital v.

Mercury Construction Corp.,

Gs BD idtcnkctidiest Medscnceddssaces 16

New Haven Inclusion Cases, 399 U.S. 392

SD iutbdvetcnbentuensebdedtienseddnedaeiaes 10, 19

NLRB vy. Bildisco & Bildisco, 465 U.S. 513

Ei inctnienitnddédaneeadpusmibidcsaubbdabaceais 24

Northern Pipeline Construction Co. v.

Marathon Pipe Line Co., 458 U.S. 50

Se nidincdncdedediastinuadedaccdetvedscccouss 11

Pacor, Inc. v. Higgins, 743 F.2d 984

SP ty SEED sntendcdcddadccsensssceAidveddes 1]

Princess Lida of Thurn and Taxis v.

Thompson, 305 U.S. 456 (1939) ............. 20

SEC v. C. M. Joiner Leasing Corp.,

Pe ae Be GED bkticbcdeccccccsecesccacse 23

Straton v. New, 283 U.S. 318 (1931) ............. 18

Sturges v. Crowninshield, 17 U.S. 122 (1819)... 22

Tennessee Student Assistance Corp. v. Hood,

BS ee GED onc cntccdsscoseessscuccous

Thompson v. Magnolia Petroleum Co.,

| Fe le PE ehhh ddnsnccdncdssccccsscce

Toibb v. Radloff, 501 U.S. 157 (1991)............

TRW, Inc. v. Andrews, 534 U.S. 19 (2001) .......

United States Fidelity & Guaranty Co. v.

BPG, ZAP UB. BOO CODES) cc cccsvcccccccsecss

United States v. Ron Pair Enterprises, Inc.,

PAGE

ee ES St SPO ndcuskdpcbnnascancceseanes 7,8

United States v. Whiting Pools, Inc.,

Se es SE GEE kn sdcdgnestuccasscendesass 24

Constitution:

United States Constitution, Art. I, Sec. 8, cl. 4.. 22

Statutes:

Be Wes SF eicetncasccpocsccenbdcasensnenéncasedss 9,12

BS DG, Ba ove covsvecicvaccosatecsccceses 12

11 U.S.C. § 362(b)(2)(A), (B) & (C) ............. 12

BS DBA. BF e OS CBD cc cvccccsccsccesess 12

BD Tee Be cco picnivcandecdnkgnncccscsoceees 7, 8, 23-24

Be es Winds cbiascccccdotsedadcuieanecsccscabe 24

Be ease Se Sabon sdanenecccncessccnssevesscebeans 24

Pe Ss PP dadedacecispsoseccbesndsiubatidedés 24

Viii

PAGE

Be Ws We turn des cncccvnbéccndanbhadvoicuets 24

SP i: TS She eit ee See ae ey passim

et ars BED eecusveunssusnscsnencsnssbens 2, 4, 6, 8

Be Weis BF RTE i cn cacnvncdcccennnncosenstende passim

Be tes } RPP OU Eo cncccccccndsnccconces 3, 13, 14, 15

Pe ie Oh BRINE pacisccccenvescsacsvertéce 3, 14, 15

ae es 1 RIED dainccnccnccdsessanncentaedens 3, 15, 20

ee es te EL édacéuddcnddecedscadumasbanael passim

Ps UF UES: cddapecnceccnondsoceccisdctésuenebs 1!

I OE GE BE cs ccccnnccnscciccécnssveceusenss 21

Banksupecy Act OF 1600 ......cccsccccccccescccccce 8, 22

Bankruptcy Act Of 1938 ............cccceseeeeeeees 11

Bankruptcy Abuse Prevention and Consumer

Protection Act Of 2005.............cceeeeeeees 6

Rules:

es Ge: SGI: Th POD on xccccstccccccedscacsivace 25

PI Tae Ge Be BP cccnccnevecessesesecoccceedsceqess 25

Congressional History:

ke SPR DED, GOAT COSTED ccccencosccccenesases passim

PAGE

Other Authority:

Kenneth N. Klee, The Bankruptcy Abuse

Prevention & Consumer Protection Act

of 2005—Business Bankruptcy

Amendments, SK092 ALI-ABA (2005)...... 7

CHARLES WARREN, Bankruptcy in

United States History

(Harvard Univ. Press 1935) .................. 22

INTEREST OF AMICI CURIAE'

The Amici Curiae are law professors who have devoted

their careers to the study and teaching of bankruptcy law

and bankruptcy jurisdiction.” They are deeply interested

in this case because of the important effect its outcome

could have on the scope of bankruptcy jurisdiction. The

Amici file this pro bono brief to offer what assistance

they can to the Court as it considers and decides whether

the broad and unqualified jurisdiction specially con-

ferred by Congress on the courts of bankruptcy is cut

down by the judicially-created probate exception so as to

exclude from their jurisdiction any matter that might

affect a decedent’s legatees or heirs.

| This brief has been prepared pro bono. Pursuant to Rule 37

of the Rules of this Court, the Amici file this brief with the written

consent of both parties, which are on file with the Clerk. No counsel

for a party authored this brief in whole or in part. No person or entity

including Amici or their counse] made a monetary contribution for the

preparation or submission of this brief.

2 The Amici are Richard Aaron, Professor of Law, S.J. Quinney

College of Law, University of Utah; Jagdeep S. Bhandari, Professor

of Law, Florida Coastal School of Law; Susan Block-Lieb, Professor

of Law, Fordham Law School; Ralph Brubaker, Professor of Law and

Mildred Van Voorhis Jones Faculty Scholar, University of Illinois

College of Law; Erwin Chemerinsky, Alston & Bird Professor of Law

and Political Science, Duke University; Robert D’ Agostino, Pro-

fessor of Law, John Marshall Law School; S. Elizabeth Gibson, Bur-

ton Craige Professor of Law, University of North Carolina at Chapel

Hill; Robert M. Lawless, Gordon & Silver, Ltd. Professor of Law,

William S. Boyd School of Law, University of Nevada, Las Vegas;

Charles W. Mooney, Jr., Charles A. Heimbold, Jr. Professor of Law,

University of Pennsylvania Law School; C. Scott Pryor, Professor of

Law, Regent University School of Law; Nancy Rapoport, Dean and

Professor of Law, University of Houston Law Center; Robert K. Ras-

mussen, Professor of Law, Vanderbilt Law School; Keith Sharfman,

Professor of Law, Rutgers University School of Law; Ettie Ward, Pro-

fessor of Law, St. John’s University School of Law; and Robert M.

Zinman, Professor of Law, St. John’s University School of Law.

2

In supporting Petitioner and seeking reversal of the

decision of the Circuit Court, the Amici urge the Court to

hold that the probate exception does not limit the

bankruptcy jurisdiction broadly conferred by 28 U.S.C.

§ 1334, and that the bankruptcy-related abstention pro-

visions in 28 U.S.C. § 1334(c), which include the role of

state courts and state law among its relevant abstention

considerations, govern the circumstances in which

_ bankruptcy jurisdiction shall not be exercised. This brief

focuses on the issue by emphasizing the special nature of

the bankruptcy jurisdiction and abstention statutes,

whereas the Circuit Court viewed this bankruptcy case

from the vantage point of a decedent’s heirs and legatees

and state probate courts.

SUMMARY OF ARGUMENT

This is a bankruptcy case. The issue posed is whether

the judicially-crafted probate exception nullifies a por-

tion of the unqualified bankruptcy jurisdiction conferred

by Congress on the courts of bankruptcy under 28 U.S.C.

§ 1334(b) and (e). This bankruptcy case should not be

decided by focusing on a decedent’s estate. As the Cir-

cuit Court itself recognized, “this case does not involve

the administration of an estate, the probate of a will, or

any other purely probate matter... .” 392 F.3d at

1133. Nor would the judgment granted by the District

Court (the “court of bankruptcy”) in the exercise of its

bankruptcy jurisdiction and voided by the Circuit Court,

have been enforceable against the estate of the Peti-

tioner’s deceased husband, but only against the defen-

dant, who is her stepson and the Respondent herein.

The court of bankruptcy below, exercising its bank-

ruptcy jurisdiction, granted an approximate $88 million

judgment to the Petitioner-Debtor (the “Debtor”) on her

3

claim against Respondent for his tortious interference

with her expectancy of an inter vivos gift from her hus-

band, only to be vacated on the basis of the Circuit

Court’s holding that the probate exception removed the

Debtor’s tort claim from the broad and unqualified statu-

tory bankruptcy jurisdiction conferred by Congress.

Although the Circuit Court stated that it was only

“incidentally . . . required to determine whether the

probate exception applies in a bankruptcy case,” 392

F.3d at 1121, the central issue in this case involves

whether the probate exception cancels a portion of the

bankruptcy jurisdiction conferred by Congress on the

courts of bankruptcy, not the role of state probate

courts or state probate law. Moreover, although this

was a bankruptcy case, the Circuit Court did not even

review the District Court’s order dated July 20, 2001

denying Respondent’s motion for abstention predicated

on 28 U.S.C. § 1334(c)(1) and (2),° although it could

have reviewed the denial of his Subsection (c)(2)

motion on his appeal from the final judgment.‘ Instead,

the Circuit Court addressed, as the only question,

whether the probate exception cut out a portion of the

unqualified bankruptcy jurisdiction conferred by 28

U.S.C. § 1334. As stated by the Circuit Court, “f{oJur

3 The District Court's order denying abstention pursuant to 28

U.S.C. § 1334(c) is in the Supplemental Excerpts of the Record of the

Ninth Circuit, at 8593.

. By virtue of 28 U.S.C. § 1334(d), the District Court's order

denying § 1334(c)(1) abstention was not subject to review by the Cir-

cuit Court, whereas the limitation on its appellate jurisdiction by that

provision did not apply to the denial of § 1334(c)(2) abstention. In

any event, because Respondent did not contend in the Ninth Circuit

briefing that the District Court's ruling on abstention was erroneous,

the issue was waived. TRW, Inc. v. Andrews, 534 U.S. 19, 34 (2001);

Confederated Tribes of Umatilla Indian Reservation v. Bonneville

Power Administration, 342 F.3d 924, 933 (9th Cir. 2003).

<?

4

jurisdiction on the merits depends upon whether the

probate exception to federal court jurisdiction applies,”

392 F.3d at 1121, and it held that bankruptcy jurisdic-

tion conferred by 28 U.S.C. § 1334 succumbed to the

probate exception.

By holding that the probate exception placed the

Debtor’s tort claim outside the jurisdiction of the court

of bankruptcy, the Circuit Court brought a concept into

28 U.S.C. § 1334 that is nowhere in that statute, and read

§ 1334 as if it automatically excluded a portion of the

jurisdiction it conferred. This invaded the province of

Congress by judicially amending the bankruptcy juris-

dictional statutes to narrow their scope. Without even

mentioning the bankruptcy abstention provisions in 28

U.S.C. § 1334(c), the Circuit Court addressed, as the

only question, whether the probate exception cut out a

portion of the unqualified bankruptcy jurisdiction con-

ferred by § 1334(b) and (e).

Amici proffer several reasons explaining why the pro-

bate exception does not apply to this and other cases

within the jurisdiction conferred by 28 U.S.C. § 1334 on

the courts of bankruptcy.

First, the plain text of § 1334(b) and (e) broadly grants

jurisdiction of the Debtor’s tortious interference claim

because it is “related to” her bankruptcy case, and also

consists of “property of the estate,” which includes a

debtor’s causes of action. None of the language of

§ 1334 or of any other statute provides a basis for read-

ing out of the statute any of the jurisdiction so conferred.

Thus, with its decision, the Circuit Court essentially

repealed part of the bankruptcy statute when it applied

the probate exception to bankruptcy.

Second, the principle of Markham v. Allen, 326 U.S.

490, 495 (1946), is controlling. In that case, the probate

5

exception was held not to impair the district court’s

jurisdiction specially granted by a specific federal

statute even thought the decedent's estate was under-

going administration in a probate court. Under the

Court’s analysis, the probate exception, developed under

the diversity jurisdiction statute conferring jurisdiction

generally on the district courts, could not be read to limit

the district court’s specially conferred jurisdiction pur-

suant to the Trading With the Enemy Act. Likewise, 28

U.S.C. § 1334 is a special jurisdictional statute; it grants

broad bankruptcy jurisdiction as a means to accomplish

the purposes of the bankruptcy law.

Third, although a federal court has an unflagging duty

to exercise its jurisdiction, and not to abstain in the

absence of exceptional circumstances that may exist in

a particular case, a court of bankruptcy, in deciding

whether to abstain from hearing a proceeding within its

jurisdiction, is not limited to examining bankruptcy con-

siderations. Section 1334(c)’s abstention provisions con-

~~template that the court give consideration to numerous

factors, including the interest of the debtor and creditors,

as well as the administration of a decedent's estate for

the benefit of its legatees and heirs. Accordingly, the

probate exception, concerned with one factor only, has

no place in the bankruptcy context in which the courts of

bankruptcy are guided by many considerations in decid-

ing whether to abstain.

Fourth, the goals of bankruptcy, to centralize bank-

ruptcy litigation and to maximize the debtor estate for

-.the benefit of the creditors, guide the interpretation of

§ 1334. The cancellation by the Circuit Court of a por-

tion of the bankruptcy jurisdiction conferred by Con-

gress by means of the probate exception interferes with

Congress’ purpose in creating broad bankruptcy juris-

6

diction and its intention that all property of the debtor be

brought into the estate.

Fifth, a party who invokes bankruptcy jurisdiction

cannot thereafter seek to void it. Respondent filed both

a proof of claim and an adversary proceeding against the

Debtor in this bankruptcy case. By so proceeding,

Respondent invoked bankruptcy jurisdiction as a means

to contest her position and to challenge her right to

receive a discharge in bankruptcy. In response, the

Debtor filed a counterclaim against Respondent for tor-

tious interference with her expectancy of an inter vivos

gift. Having invoked the jurisdiction of a court of

bankruptcy by an action in which the Debtor counter-

claimed, Respondent cannot thereafter assert that the

court of bankruptcy could no longer exercise its statu-

tory jurisdiction.

ARGUMENT

I. A PLAIN TEXT READING OF 28 U.S.C. § 1334

DEMONSTRATES THAT THE PROBATE EXCEP-

TION IS INAPPLICABLE IN THE BANKRUPTCY

CONTEXT.

28 U.S.C. § 1334(b) grants to the courts of bankruptcy

non-exclusive jurisdiction of “all civil proceedings aris-

ing under title 11, or arising in or related to cases under

title 11,” and 28 U.S.C. § 1334(e) confers exclusive

jurisdiction on such courts of all “property of the

estate.”’> Upon the commencement of a bankruptcy case,

> On April 20, 2005, the date of enactment of the Bankruptcy

Abuse Prevention and Consumer Protection Act of 2005 (119 Stat. 98),

28 U.S.C. § 1334 was amended by that Act by adding subsection

(e)(2) and a reference to (¢)(2) in subsection (b). Subsection (e)(1)

maintains the substance of former (¢), which continues to apply to

this pre-April 20, 2005 case because it was commenced before such

date. The effective date provision is set forth in Pub. L. No. 109-8,

7

11 U.S.C. § 541 provides for the creation of an estate,

broadly extending to all “legal or equitable interests of

the debtor,” including causes of action of the debtor. See

H.R. Rep. No. 95-595, at 367 (1977) (“[SJection [541]

defines property of the estate, and specifies what prop-

erty becomes property of the estate. . . . It includes all

kinds of property, including tangible or intangible prop-

erty [and] causes of action.”) (emphasis added). Pro-

ceedings on a debtor’s cause of action are obviously

“related to” the estate, and thus fall within this juris-

dictional grant, see Celotex Corp. v. Edwards, 514 U.S.

300, 308 n.5 (1995), and as “property of the estate,”

such proceedings are within the exclusive jurisdiction

conferred on the courts of bankruptcy by § 1334(e).

The question then is whether the pervasive scope of

these bankruptcy jurisdictional statutes will be broadly

read as written, or instead narrowed by implying an

exception.

Determining the meaning of a statute requires a court

first to address the language of the statute for its plain

meaning. United States v. Ron Pair Enterprises, Inc.,

489 U.S. 235, 241 (1989) (citing Landreth Timber Co. v.

Landreth, 471 U.S. 681, 685 (1985)). This Court has

specifically recognized on several occasions that when

“the statute’s language is plain, the sole function of the

courts-at least where the disposition required by the text

is not absurd-is to enforce it according to its terms.”

Hartford Underwriters Insurance Co. v. Union Planters

§ 324(a)(2), (b), 119 Stat. 98, 216 (2005). The purpose of the amend-

ment is to prevent a court of bankruptcy from abstaining from hear-

ing claims such as malpractice claims against bankruptcy

professionals, so that they may be tried before the bankruptcy judges

who authorized their appointment, instead of before a state court jury.

See Kenneth N. Klee, The Bankruptcy Abuse Prevention & Consumer

Protection Act of 2005-Business Bankruptcy Amendments, SK092

ALI-ABA (2005).

8

Bank, N.A., 530 U.S. 1, 6 (2000) (citing United States v.

Ron Pair Enterprises, Inc., 489 U.S. at 241, quoting

Caminetti v. United States, 242 U.S. 470, 485 (1917)).

It takes no more than a plain reading of § 1334(b) and

(e) to reach the conclusion which comports with the

reading of § 1334 urged by Amici: There is no room in

the plain text of § 1334 to restrict or to limit the juris-

diction of the courts of bankruptcy by engrafting a pro-

bate exception onto the statute. Congress explicitly

provided in § 1334 that courts of bankruptcy are to have

broad and comprehensive jurisdiction: First, under

§ 1334(e), courts of bankruptcy are to have “exclusive”

jurisdiction “of all of the property, wherever located, of

the debtor as of the commencement of such case, and of

property of the estate. . . .” 28 U.S.C. § 1334(e). The

Debtor's tort claim is “property of the estate” within the

meaning of both 28 U.S.C. § 1334 and 11 U.S.C. § 541.

Second, congressional intent is obvious from the broad

and comprehensive jurisdiction conferred on courts of

bankruptcy by the plain language of § 1334(b): “. . . the

[courts of bankruptcy] shall have original but not exclu-

sive jurisdiction of all civil proceedings arising under

_ title 11, or arising in or related to cases under title 11.”

28 U.S.C. § 1334(b) (emphasis added).

There is no indication that Congress intended to limit

or restrict this broad grant of jurisdiction by a judicial

doctrine such as the probate exception. Indeed, in enact-

ing America’s first bankruptcy law, the Bankruptcy Act

of 1800 (2 Stat. 19-36), Congress gave no hint that it

intended to limit the specially conferred bankruptcy

jurisdiction by the probate exception. Nor did Congress

give any such hint in any of its subsequent bankruptcy

acts, enacted in 1841 (5 Stat. 440), )867 (14 Stat. 517),

1898 (30 Stat. 544, 545), 1938 (52 Stat. 840), 1978 (92

Stat. 2549), or the statute applicable to this case, enacted

in 1984 (98 Stat. 333).

9

The probate exception should not be applied as a lim-

itation on bankruptcy jurisdiction because that would

undercut the administration of bankruptcy cases and

application of the bankruptcy law by the courts of

bankruptcy. For example, the probate exception, if appli-

cable to bankruptcy, could bar a bankruptcy trustee’s

proceeding in a court of bankruptcy to recover a fraud-

ulent conveyance or voidable preference received by a

transferee of property who thereafter dies, or could

impair the enforcement of the automatic stay under 11

U.S.C. § 362 by a court of bankruptcy against an execu-

tor or heir of an estate in administration.

Respondent asks the Court to read the judicially-cre-

ated probate exception into § 1334 as a limitation,

although no restriction exists in the language of the

statute. Amici urge this Court, therefore, to enforce the

terms of § 1334 as written by Congress, and to hold that

the probate exception did not bar the courts of

bankruptcy from exercising their § 1334 jurisdiction of

the Debtor’s tort claim.

II. UNDER THE THEORY OF MARKHAM V. ALLEN,

THE PROBATE EXCEPTION IS INAPPLICABLE

BECAUSE 28 U.S.C. § 1334 “SPECIALLY CON-

FERS” JURISDICTION ON THE COURTS OF

BANKRUPTCY.

A. The Probate Exception Has No Place in the

Context of Bankruptcy Jurisdiction.

The probate exception has not been addressed by this

Court since the seminal case of Markham v. Allen, 326

U.S. 490 (1946), an action against the executor of an

estate in administration in a state probate court and the

decedent’s heirs. In Markham yv. Allen, the district court,

pursuant to its specially conferred jurisdiction under the

10

Trading With the Enemy Act, granted a judgment declar-

ing that the Custodian under that Act, rather than the

decedent’s heirs, was to receive the net proceeds of the

decedent’s estate. /d. at 495. Reversing the Ninth Cir-

cuit, this Court affirmed the judgment, reasoning that

because the Trading With the Enemy Act specially con-

ferred jurisdiction on the district court for suits

grounded on the provisions of that Act “independently of

the statutes governing generally jurisdiction of the fed-

eral courts,” id. at 495, the probate exception was not

applicable to limit such specially granted jurisdiction.

Similarly, under the theory of Markham y. Allen, the

probate exception is inapplicable to an action within the

specially conferred jurisdiction of the courts of bank-

ruptcy. Section 1334 is clearly a special grant of juris-

diction by Congress, intending to establish the

paramount nature of bankruptcy jurisdiction. See New

Haven Inclusion Cases, 399 U.S. 392, 426 (1970) (estab-

lishing the “primary jurisdiction in the reorganization

court(s}]”); United States Fidelity & Guaranty Co. v.

Bray, 225 U.S. 205, 217 (1912) (“[I]t is a necessary con-

clusion . . . that the jurisdiction of the [courts of]

bankruptcy is intended to be exc" sive of all other courts

. . « .”). In this case, as in Markham y. Allen, the Ninth

Circuit erred by engrafting a limitation on the exercise

of jurisdiction instead of adhering to the special bank-

ruptcy jurisdictional provisions enacted by Congress.

Moreover, the judgment entered in the Debtor’s favor

had no more impact on “probate jurisdiction [or] prop-

erty in the possession or custody of a state court,” 326

U.S. at 495, than did the judgment sustained in Markham

v. Allen. The judgment should be reinstated.

1]

B. Congress Did Not Intend to Abrogate the

Theory of Markham vy. Alien When It

Enacted 28 U.S.C. § 1334.

Congress granted pervasive bankruptcy jurisdiction to

the courts of bankruptcy in order “that they might deal

efficiently and expeditiously with all matters connected

with the bankruptcy estate” in a centralized forum. Celo-

tex Corp. v. Edwards, 514 U.S. at 308, citing Pacor, Inc.

v. Higgins, 743 F.2d 984, 994 (3d Cir. 1984). Congress

envisioned a “more uniform, cohesive body of substan-

tive and procedural law,” so as to “greatly diminish the

bases for litigation of jurisdictional issues. . . .” H.R.

REP. No. 95-595, at 46 (1977). Congress thus conferred

on the courts of bankruptcy “broad and complete juris-

diction over all matters and proceedings that arise in

connection with bankruptcy cases.” /d. at 48; see, e.g.,

In re Dow Corning Corp., 86 F.3d 482, 489 (6th Cir.

1996). This was also critical to accomplishing a central

purpose of bankruptcy, namely to maximize the debtor

estate for the benefit of the creditors.

Congress recognized the need for a bankruptcy court

to have its jurisdiction “substantially expanded” from

that under the Bankruptcy Act of 1938 (52 Stat. 840).

H.R. REP. No. 95-595, at 13 (1977). This enhanced

< jurisdiction included the creation of a separate non-Arti-

cle III court of bankruptcy with pervasive jurisdiction.

See former 28 U.S.C. § 1471 (predecessor to 28 U.S.C.

§ 1334). After § 1471 was declared unconstitutional in

Northern Pipeline Construction Co. v. Marathon Pipe

Line Co., 458 U.S. 50 (1982), the jurisdictional provi-

sions of the courts of bankruptcy were rewritten in 28

U.S.C. § 1334 so as to vest bankruptcy jurisdiction in the

Article III district courts. Significantly, consistent with

the historically broad grant of jurisdiction to the courts

12

of bankruptcy, § 1334 grants broad and comprehensive

jurisdiction to the courts of bankruptcy.

It is clear from a plain reading of § 1334, its con-

gressional history, and this Court’s jurisprudence, that

Congress’ basic purpose in enacting § 1334 was to con-

fer broad jurisdiction on the courts of bankruptcy and

not to abrogate the theory of Markham v. Allen by apply-

ing the probate exception as a limitation on the special

bankruptcy jurisdictional legislation enacted in 1978 and

again in 1984.

Had Congress intended to limit or restrict the broad

grant of jurisdiction in § 1334 by a probate exception, it

would have specifically sovered the probate area of spe-

cial interest under state law, as it did with numerous sub-

jects of state-law concern in a number of provisions in

the bankruptcy law. Indeed, Congress has legislated in

special areas of state interest within the Bankruptcy

Code, for example, specifically in matters relating to the

domestic relations. See 11 U.S.C. § 362(b)(2)(A), (B)

and (C), and § 523(a)(5) and (15). Moreover, 11 U.S.C.

§ 362(b)(2) provides an exception to the automatic stay

for actions to establish paternity, to establish domestic

support obligations, and regarding other matters of state

interest in domestic relations. Thus, several provisions

of the Bankruptcy Code recognize and allow state

actions involving certain areas of special state interest to

proceed in a non-bankruptcy court notwithstanding a

pending bankruptcy, where otherwise such actions would

violate the automatic stay provisions of 11 U.S.C. § 362.

Congress knew how to write an exception into bank-

ruptcy legislation when it intended to do so. Congress

could thus have written a probate exception into § 1334

if it intended to do so. Because it did not do so, such an

exception should not be implied.

13

Amici urge the Court to apply the theory of Markham

v. Allen and to hold thai the Ninth Circuit erred when it

ruled that the probate exception stripped the court of

bankruptcy of jurisdiction to hear the Debtor’s suit.

Ill. THE BANKRUPTCY-RELATED PROVISIONS FOR

ABSTENTION FROM THE EXERCISE OF SPE-

CIALLY CONFERRED BANKRUPTCY JURISDIC-

TION ARE CONTROLLING.

Pursuant to 28 U.S.C. § 1334(c)(1), a court of bank-

ruptcy may, “in the interest of justice, or in the interest

of comity with State courts or respect for State law,”

abstain from hearing a proceeding “arising under title 11

or arising in or related to” a debtor’s bankruptcy case.

Even though a debtor’s cause of action asserted in a

court of bankruptcy may have common facts with pro-

ceedings in a probate court, abstention by the bankruptcy

court should not be automatic. Rather than have the

exercise of its jurisdiction immediately blocked by the

probate exception, the question of whether a court of

bankruptcy should exercise its jurisdiction should first

be heard and determined by that court pursuant to §

1334(c)’s provisions and its abstention standards devel-

- oped thereunder by the courts. Providing for abstention

under the principles and factors developed under the

bankruptcy legislation is vastly different from constru-

ing bankruptcy jurisdiction to be automatically limited

by an implied exception.

In deciding whether to abstain under § 1334(c)(1)

from exercising its specially conferred jurisdiction, the

courts, notably the Court of Appeals for the Ninth Cir-

cuit in /n re Tucson Estates, Inc., 912 F.2d 1162 (9th Cir.

1990), have developed many factors to be considered,

including

14

(1) the effect or lack thereof on the efficient admin-

istration of the estate if a Court recommends absten-

tion, (2) the extent to which state law issues

predominate over bankruptcy issues, (3) the diffi-

culty or unsettled nature of the applicable law, (4)

the presence of a related proceeding commenced in

state court or other nonbankruptcy court, (5) the

jurisdictional basis, if any, other than 28 U.S.C.

§ 1334, (6) the degree of relatedness or remoteness

of the proceeding to the main bankruptcy case, (7)

the substance rather than form of an asserted “core”

proceeding, (8) the feasibility of severing state law

claims from core bankruptcy matters to allow judg-

ments to be entered in state court with enforcement

left to the bankruptcy court, (9) the burden of [the

bankruptcy court’s] docket, (10) the likelihood that

the commencement of the proceeding in bankruptcy

court involves forum shopping by one of the parties,

(11) the existence of a right to a jury trial, and (12)

the presence in the proceeding of nondebtor parties.

Id. at 1167 (ruling abstention proper after consideration

of 12 factors); see also In re Eastport Associates, 935

F.2d 1071, 1079 (9th Cir. 1991) (uph ‘ing decision not

to abstain because “factors regarding . administration

of the bankruptcy estate outweighed the interest in defer-

ral to state courts”).

The bankruptcy abstention provisions and the factors

developed thereunder leave ample room for considera-

tion of state law issues and state court concerns. In

deciding whether to abstain under § 133<;c)(1), however,

courts of bankruptcy are likely to decline to probate

wills or to administer a decedent’s cstate.

In contrast to permissive abstention under § 1334(c)(1),

under limited circumstances mandatory abstention pur-

suant to § 1334(c)(2) is required as to a state law cause

15

of action, but only if, as provided in that subsection, the

party seeking abstention has made a motion for absten-

tion. Like subsection (c)(1), subsection (c)(2) does not

operate automatically. Subsection (c)(2) provides. for

abstention only if its many preconditions are present,

including that, in addition to the requirement of filing a

* motion for abstention, the cause of action did not arise

under title 11 or in a case under title 11, and that among

other things, there be an absence of federal jurisdiction

other than under § 1334, a pending action in state court

having jurisdiction of the cause of action in suit, as well

as the availability of a timely adjudication in the state

court which does not interfere with the orderly admin-

istration of the debtor estate.

In this case, the Respondent moved for abstention

under both subsections (c){1) and (c)(2) in the Bank-

ruptcy Court, and again in the District Court, and both

courts of bankruptcy denied his abstention motions.

Although Respondent’s subsection (c)(1) motion was not

reviewable in the Circuit Court because of 28 U.S.C.

§ 1334(d), he could have sought review by that court of

his subsection (c)(2) motion. Moreover, instead of deal-

ing with the denial of Respondent's abstention motion

made pursuant to § 1334(c)(2) and addressing whether

abstention was improperly denied under the factors the

Circuit Court itself carefully delineated in its own deci-

sion in Tucson Estates, 912 F.2d at 1167, the Circuit

Court reversed the judgment issued below by holding

that the probate exception applied to bankruptcy and

automatically voided the judgment. The Circuit Court

did not consider § 1334(c) to be part of the case, and its

only decision was to hold that the court of bankruptcy

lacked jurisdiction because of the probate exception. As

the Circuit Court saw it: “Our jurisdiction on the merits

depends upon whether the probate exception to federal

16

court jurisdiction applies to the claims [asserted by the

Debtor] in a bankruptcy case.” 392 F.3d at 1121.

Moreover, the fact that § 1334(e) confers exclusive

jurisdiction of “property of the estate,” which includes

the debtor’s cause of action against Respondent, does not

preclude abstention by a court of bankruptcy pursuant to

§ 1334(c). This is because § 1334(c) provides that noth-

ing in § 1334 prevents abstention by a court of bank-

ruptcy. As discussed elsewhere, however, the grant of

exclusive jurisdiction by § 1334(e) reinforces the con-

clusion that the probate exception does not apply in

bankruptcy. See Section IV at pages 17-20 infra.

Automatic abstention has never been the approach of

the courts in bankruptcy cases. This Court has long rec-

ognized that a court of bankruptcy should abstain from

exercising its jurisdiction eniy in the most exceptional of

circumstances. See Thompson v. Magnolia Petroleum

Co., 309 U.S. 478, 483 (1940) (abstaining due to pres-

ence of unique question of ical property law), cited in

H.R. Rep. No. 95-595, at 51 (1977), and Mangus v.

Miller, 317 U.S. 178, 186 (1942) (stating same); see also

Moses H. Cone Memorial Hospital v. Mercury Con-

struction Corp., 460 U.S. 1, 25-26 (1983) (“[OJur task in

cases such as this is not to find some substantial reason

for the exercise of federal jurisdiction by the district

court; rather, the task is to ascertain whether there exist

‘exceptional’ circumstances, the ‘clearest of justifica-

tions,’ that can suffice under Colorado River to justify

the surrender of that jurisdiction.”); cf. Meredith v. Win-

ter Haven, 320 U.S. 228, 234-35 (1943) (“When such

exceptional circumstances are not present, denial of th[e]

opportunity [to have rights adjudicated] by the federal

courts merely because the answers - the questions of

state law are difficult or uncertain or have not yet been

17

given by the highest court of the state, would thwart the

purpose of the jurisdictional act.”). |

While the Court has not addressed the issue of absten-

tion under § 1334(c), it is well established that absten-

tion is a step that should generally be taken only with

great reluctance. As stated in Colorado River Water

Conservation District v. United States, 424 U.S. 800

(1976), “[a]bsiention from the exercise of federal juris-

diction is the exception, not the rule.” /d. at 813. This is

because of “the virtuaiiy unflagging obligation of the

federal courts to exercise the jurisdiction given them.”

Id. at 817. The notion that a court must take jurisdiction

if it is granted to it has been prevalent since the Court’s

decision in Cohens v. Virginia, 19 U.S. (6 Wheat.) 264

(1821). There, the Court aptly stated: “We have no more

right to decline the exercise of jurisdiction which is

given, than to usurp that which is not given. The one or

the other would be treason to the constitution.” /d. at

404. A rule such as the probate exception that removes

a portion of the jurisdiction specially conferred by

Congress on the courts of bankruptcy is inconsistent

with this fundamental approach.

IV. THE PARAMOUNT JURISDICTION OF THE COURTS

OF BANKRUPTCY, BY VIRTUE OF THEIR EXCLU-

SIVE IN REM JURISDICTION UNDER § 1334(e),

REINFORCES THE BASIC NOTION THAT ABSTEN-

TION IS THE EXCEPTION RATHER THAN THE

RULE.

Section 1334(e) confers “exclusive” jurisdiction of

“property of the estate” on the courts of bankruptcy. The

Court has repeatedly recognized that bankruptcy is an in

rem proceeding. See e.g., Hanover Bank v. Moyes, 186

U.S. 181, 191-92 (1902); Bailey v. Baker Ice Machine

Co., 239 U.S. 268, 275-76 (1915); Gardner v. New Jer-

18

sey, 329 U.S. 565, 574 (1947); Katchen v. Landy, 382

U.S. 323, 329 (1966). The Court has recognized that the

res includes the debtor’s assets or the bankruptcy

“estate,” Gardner, 329 U.S. at 574, as well as the

debtor’s status, Tennessee Student Assistance Corp. v.

Hood, 541 U.S. 440, 448 (2004) (“A proceeding regard-

ing the discharge of a debt by a bankruptcy court is sim-

ilarly an in rem proceeding.”).

“This jurisdiction [of courts of bankruptcy] is exclu-

sive within the field defined by the law, and is so far in

rem that the estate is regarded as in custodia legis from

the filing of the petition.” See Straton v. New, 283 U.S.

318, 321 (1931) (citing Acme Harvester Co. v. Beekman

Lumber Co., 222 U.S. 300 (1911)). This concept is car-

ried into the current bankruptcy jurisdictional provisions

by 28 U.S.C. § 1334(e)’s grant of exclusive jurisdiction

of property of the estate.

In this case, the Debtor’s counterclaim for tortious

interference was a res subject to the in rem jurisdiction

of the court of bankruptcy within its § 1334(e) exclusive

jurisdiction. As such, the court of bankruptcy was per-

mitted to adjudicate this claim and any defenses thereto

asserted by Respondent. See Tennessee Student Assis-

tance Corp. v. Hood, 541 U.S. at 448 (“A bankruptcy

court’s in rem jurisdiction permits it to ‘determin(e] all

claims that anyone, whether named in the action or not,

has to the property or thing in question.’ ”’). It follows,

therefore, that the state probate court could not adjudi-

cate this cause of action unless the court of bankruptcy

abstained.

Further, Respondent initiated an adversary proceeding

in the court of bankruptcy challenging Debtor's right to

a discharge of his claim against her arising out of their

family dispute. The matter of the Debtor's discharge and

Respondent's bankruptcy proceedings were within the

19

§ 1334(e) in rem jurisdiction of the court of bankruptcy.

That court’s § 1334(e) exclusive jurisdiction was thereby

triggered by Respondent, and absent abstention, juris-

diction was properly exercised by the court of

bankruptcy.

Moreover, the courts of bankruptcy, by virtue of their

in rem jurisdiction, have primary jurisdiction over all of

the debtor’s assets. This jurisdiction is paramount to any

jurisdiction that may otherwise be conferred over the

same subject matter on any other court, even including

non-bankruptcy courts that have concurrent jurisdiction

with the court of bankruptcy. Such paramount jurisdic-

tion of the courts of bankruptcy has a long history. In the

New Haven Inclusion Cases, 399 U.S. 392 (1970), the

Court held that the reorganization court, rather than a

special three-judge district court, had primary jurisdic-

tion over the issue of the adequacy of the compensation

to be paid for the debtor’s assets. In that case, two

groups of creditors sought relief in different courts. The

two courts reached different decisions on “identical

issues” as to the proper compensation. /d. at 428. The

Court, on review of the orders of both courts, addressed

the conflict of jurisdiction, and ruled that Congress

intended the court of bankruptcy to have “primary juris-

diction” in light of the purposes of the bankruptcy law.

Id. at 426-27. It held that jurisdiction rested exclusively

in the court of bankruptcy. /d. at 426, 428-29.

Moreover, the Ninth Circuit itself, in Jn re Crown Van-

tage, Inc., 421 F.3d 963, 971 (9th Cir. 2005), recently

acknowledged that the courts of bankruptcy have

paramount jurisdiction, stating: “The requirement of uni-

form application of bankruptcy law dictates that all legal

proceedings that affect the administration of the

bankruptcy estate be brought either in bankruptcy court

or with leave of the bankruptcy court.” See also Kalb v.

20

Feuerstein, 308 U.S. 433, 439 (1940) (federal bank-

ruptcy jurisdiction is superior to that of a state court

having concurrent jurisdiction); Matter of United States

Brass Corp., 110 F.3d 1261, 1268 (7th Cir. 1997) (“Sec-

tion 1334(d) [reenacted as subsection (e)] gives the

bankruptcy court control of all the property. Creditors

who want to enforce their liens have to do so in that

court regardless of the location of the creditor or the

property.”); Jn re White, 851 F.2d 170, 172-73 (6th Cir.

1988) (“The jurisdiction granted in 28 U.S.C. § 1334(d)

[now subsection (e)] indicates a conscious effort by

Congress to grant the bankruptcy court special juris-

diction and to preclude the type of jurisdictional disputes

evidenced in [Princess Lida of Thurn and Taxis v.

Thompson, 305 U.S. 456, 466 (1939)].”); In re Modern

Boats, Inc., 775 F.2d 619, 620 (Sth Cir. 1985) (holding

that the “admiralty court’s previous acquisition of in rem

jurisdiction. . . did not defeat the bankruptcy court's

jurisdiction” because the “petition for reorganization

withdrew jurisdiction from the admiralty court and

lodged it exclusively in the district court” where the title

11 proceeding was pending) (internal citations omitted).

Following this line of authority, it is clear that the

courts of bankruptcy, by virtue of their primary juris-

diction and in rem jurisdiction under § 1334(e), had

paramount jurisdiction over the Debtor's tort cause of

action, which could not be defeated except by virtue of

an abstention order pursuant to § 1334(c). Amici urge the

Court to rule that the probate exception does not repeal

any portion of the jurisdiction conferred on courts of

bankruptcy under 28 U.S.C. § 1334.

21

V. THE HISTORY OF THE PROBATE EXCEPTION

EXPLAINS WuHy IT DOES NOT APPLY TO

BANKRUPTCY.

Like all district court jurisdiction, bankruptcy juris-

diction is purely statutory. The origin of the probate

exception provides an understanding of why it does not

prevent a court of bankruptcy from exercising its statu-

tory jurisdiction so as to grant a judgment on a bank-

ruptcy debtor’s tort cause of action that is enforceable

only against the defendant who committed the tort, and

not against the assets of a decedent’s estate. As

explained in Markham v. Allen, 326 U.S. at 494-95, early

decisions established that the federal courts would not

exercise their jurisdiction to probate or set aside probate

of a will, or to administer a decedent's estate, although

they could grant a “judgment [that] does not undertake

to interfere with the state court’s possession” of assets of

the decedent's estate. /d. at 494.

The probate exception was derived from the inter-

pretation by the courts of the scope of the first diversity

jurisdiction statute, which was enacted as part of the

Judiciary Act of 1789. /d. at 494. The theory for except-

ing probate matters from the diversity jurisdiction so

granted in 1789 was that the “equity jurisdiction con-

ferred by the Judiciary Act of 1789, . . . which is that of

the English Court of Chancery in 1789, did not extend to

probate matters.” /d. at 494. As more recently explained

by the Court in Ankenbrandt v. Richards, 504 U.S. 689,

698-99 (1992), in analyzing the origin of the domestic

relations exception as a limitation on the exercise of

diversity jurisdiction, the grant of diversity jurisdiction

by the Judiciary Act of 1789 was likewise not construed

to confer jurisdiction of divorce actions because in 1789

the equity jurisdiction of the federal courts did not

extend to divorce actions, just as federal equity juris-

diction did not then extend to probate matters.

22

These exceptions thus were related to the inherently

limited jurisdiction of the federal courts in 1789, and

had nothing to do with bankruptcy jurisdiction.

Bankruptcy relief was not available under the equity

jurisdiction of the federal courts in 1789 and was first

provided for in American law by the Bankruptcy Act of

1800 enacted pursuant to Art. I., § 8, cl. 4 of the Con-

stitution. See CHARLES WARREN, BANKRUPTCY IN

UNITED STATES HIsToRY 1, 19 (Harvard Univ. Press

1935). Ever since the enactment of the first English

bankruptcy statute in 1542, bankruptcy has always been

a creature of statute. See Sturges v. Crowninshield, 17

U.S. 122, 142 (1819). Bankruptcy statutes never set

forth a probate exception. Because bankruptcy juris-

diction did not stem from the equity jurisdiction of the

federal courts in 1789 or from the statutes conferring

diversity jurisdiction, and because bankruptcy statutes

did not provide a probate exception, the probate excep-

tion was never applicable to bankruptcy and should not

be read into bankruptcy jurisdiction, particularly as a bar

to the granting of a bankruptcy judgment not directed

against probate and not enforceable against assets of a

decedent’s estate.

VI. APPLICATION OF THE PROBATE EXCEPTION TO

OUST THE COURT OF BANKRUPTCY OF JURIS-

DICTION WOULD DEPRIVE THE ESTATE OF SUB-

STANTIAL VALUE IN CONTRAVENTION OF THE

GOAL OF BANKRUPTCY LAW TO MAXIMIZE THE

VALUE OF THE DEBTOR’S ESTATE FOR THE BEN-

EFIT OF CREDITORS.

Because 28 U.S.C § 1334 establishes the jurisdiction

of the courts of bankruptcy to hear a debtor’s suits,

Amici contend that it must be read and interpreted in

light of the fundamental goal of bankruptcy to maximize

the debtor estate for the benefit of the creditors.

23

A. Bankruptcy Provisions Should Be Interpreted

in Light of Their Congressional Purpose.

A statute should be interpreted in light of the con-

gressional purpose for its enactment: “[C]ourts will con-

strue the details of an act in conformity with its

dominating general purpose [and] will read text in the

light of context and wi!l interpret the text so far as the

meaning of the words fairly permits so as to carry out in

particular cases the generally expressed legislative pol-

icy.” SEC v. C. M. Joiner Leasing Corp., 320 U.S. 344,

350-51 (1943).

Interpretation of bankruptcy jurisdictional statutes is

no different. The Court recognizes “the congressional

purpose of deriving as much value as possible from the

debtor’s estate.” Toibb v. Radloff, 501 U.S. 157, 164-65

(1991) (citing Commodity Futures Trading Commission

v. Weintraub, 471 U.S. 343, 351-54 (1985)). Moreover,

the Ninth Circuit itself acknowledged in /n re Gruntz,

202 F.3d 1074, 1080 (9th Cir. 2000), that § 1334

“expands the historic role of the federal district courts in

bankruptcy . . . so that they may deal efficiently and

expeditiously with all matters connected with the

bankruptcy estate,” but overlooked that basic concept in

its decision below. Holding, as the Circuit Court did,

that bankruptcy jurisdiction is limited by the probate

exception would run counter to the purposes of

bankruptcy.

B. Bankruptcy Code Provisions Were Designed

to Maximize the Estate For the Benefit of

Creditors

The Bankruptcy Code was designed to maximize the

debtor's estate for the benefit of creditors: First, upon

the filing of a petition in bankruptcy, an all-encom-

passing bankruptcy estate is created. See 11 U.S.C.

24

§ 541. Second, the broad provisions of § 541 bring prop-

erty and interests of the debtor into the bankruptcy

estate. /d. Indeed, Congress intended to bring all of

debtor's property interests including “causes of action”

into the debtor's estate, H.R. REP. No. 95-595, at 175

and 367 (1977), and made clear its intention to “bring

anything of value that the debtors may have into the

estate.” /d. at 176. Likewise, as stated by the Court in

Weintraub: “The trustee. . . has the duty to maximize

the value of the estate.” 471 U.S. at 352; see also Bank

of America National Trust & Savings Association v. 203

North LaSalle Street Partnership, 526 U.S. 434, 444

(1999); United States v. Whiting Pools, Inc., 462 U.S.

198, 203, 204 n.8, 205 (1983).

The provisions of chapter 11 were structured on the

basis of the notion that a prime purpose of reorganiza-

tion is to maximize value that would be lost in liquida-

tion. See NLRB v. Bildisco & Bildisco, 465 U.S. 513, 528

(1984) (“The fundamental purpose of reorganization is

to prevent . . . misuse of economic resources.”). In

addition to the jurisdictional provisions designed to max-

imize the debtor estate, several other provisions exist to

infuse value into the debtor estate: 11 U.S.C. § 542 man-

dates that all third parties, other than “custodians,” turn

over property in their possession to the bankruptcy

trustee. The debtor estate is also enhanced by avoidance

actions under 11 U.S.C. § 547 (“preferences”) and 11

U.S.C. § 548 (“fraudulent transfers and obligations”),

and the recovery of estate property under 11 U.S.C.

§ 550.

Bankruptcy jurisdiction should not be construed to be

limited by the probate exception. 28 U.S.C. § 1334

should be broadly construed in furtherance of the

bankruptcy goal of maximizing the debtor estate.

25

VII. A PARTY WHO INVOKES BANKRUPTCY JURIS-

DICTION IS PRECLUDED FROM CONTESTING

THE JURISDICTION OF A COURT OF BANK-

RUPTCY OVER COUNTERCLAIMS INVOLVING

GENERALLY THE SAME SUBJECT MATTER

THAT IS BEFORE A PROBATE COURT.

Respondent filed a proof of claim, the amount of

which he denominated as “unliquidated,” and also com-

menced an adversary proceeding against the Debtor in

the bankruptcy case. By invoking the jurisdiction of the

court of bankruptcy to challenge the Debtor's right to

receive her discharge in bankruptcy of his claims against

her, Respondent submitted to the jurisdiction of that

court. See Langenkamp v. Culp, 498 U.S. 42, 44-45

(1990) (holding that filing a proof of claim against the

estate operates to subject the party to the bankruptcy

court’s power). In response to Respondent’s bankruptcy

complaint, the Debtor filed her counterclaim for tortious

interference with her expectancy of an inter vivos gift

from her late husband, which he promised to make dur-

ing his lifetime. Respondent must have contemplated

that the Debtor would respond to his pleadings by assert-

ing her claim for tortious interference as a counterclaim,

as mandated by Rule 7013 of the Federal Rules of

Bankruptcy Procedure.°®

Having invoked the jurisdiction of a court of bank-

ruptcy by commencing an action in which the Debtor

counterclaimed, Respondent has necessarily submitted to

the court’s jurisdiction over the counterclaim. In anal-

ogous circumstances, the Court held in Commodity

Futures Trading Commission v. Schor, 478 U.S. 833, 849

® Rule 7013 of the Federal Rules of Bankruptcy Procedure pro-

vides in relevant part: “Rule 13 F. R. Civ. P. applies in adversary pro-

ceedings ... ." Fep. R. BANKR. P. 7013. In turn, Rule 13

recognizes compulsory and permissive counterclaims.

26

(1986), that a party who invoked jurisdiction of a federal

agency to adjudicate his claim could not be heard to

object to the agency’s exerci.. of jurisdiction to adju-

dicate the adverse party's counterclaim.

Moreover, in Arecibo Community Health Care, Inc. v.

Commonwealth of Puerto Rico, 270 F.3d 17, 28 (1st Cir.

2001), the First Circuit Court of Appeals addressed

another analogous situation. In that case, the Common-

wealth of Puerto Rico, protected from federal suit by its

sovereign immunity, filed a proof of claim in the

debtor's bankruptcy case. The debtor responded with a

counterclaim for an amount vastly more than the Com-

monwealth’s claim. The court held that by invoking the

bankruptcy jurisdiction, the Commonwealth could not

contest the jurisdiction of the court to adjudicate the

debtor’s counterclaim. As stated by the court: “Where a

state avails itself of the federal courts to protect a claim,

we think it reasonable to consider that action to waive

the state’s immunity with respect to that claim in toto

and, therefore, to construe that waiver to encompass

compulsory counterclaims. . . .” /d. at 28 (italics in

original).

Similarly, this Court should rule that because Respon-

dent invoked the jurisdiction of the court of bankruptcy

by the litigation he commenced in that court, he cannot

now assert that such court was without jurisdiction to

adjudicate the Debtor’s counterclaim for tortious inter-

ference.

27

CONCLUSION

For the foregoing reasons, the judgment of the Court

of Appeals for the Ninth Circuit should be reversed.

Respectfully submitted,

RICHARD LIEB

Research Professor,

Bankruptcy LL.M. Program office,

ST. JOHN’S UNIVERSITY

SCHOOL OF LAW

8000 Utopia Parkway

Jamaica, New York 11439

(718) 990-6624 or (713) 990-1923

Counsel of Record for

Amici Curiae Professors

Of Counsel:

Laurence J. Kaiser

Daniel J. Morse

Melanie J. Schmid