Opposition Brief — New Horizon of New York LLC v. Jacobs

ty Supreme Coart, U.S.

(2) FILED

No. 00-1359

el El

IN THE

Supreme Court of the Ynided Sistee*

NEW HORIZON OF NEW YORK, LLC,

Petitioner,

Vv.

ROBERT JACOBS; ELLIOT JACOBS; ALLAN MIRWIS;

E.J. SERVICING, INC.; E.J. REALTY MANAGEMENT CORP.;,

E.J. PROPERTY CONSULTANTS; DAVID QUELLER;

DAVID QUELLER, INC.; IRA BORN; STANLEY LANE, M.D.;

PETER DAPUZZO; CONSTANCE ROSEN, Executrix of

the Estate of HOWARD ROSEN, M.D.; and RUTH SCHARF,

Respondents.

On Petition for a Writ of Certiorari to the

United States Court of Appeals for the Fourth Circuit

BRIEF FOR THE RESPONDENTS IN OPPOSITION

JAMES G. EXuM, JR. _ NATHAN LEWIN

SMITH HELMS MULLISS Counsel of Record

& MOORE, L.L.P. ADRIENNE C. LAVALLEE

First Union Tower MINTZ LEVIN COHN FERRIS

Suite 1400 GLOVSKY & POPEO, P.C.

300 North Greene Street 701 Pennsylvania Avenue, N.W.

Greensboro, NC 27420 Suite 900

(336) 378-5200 Washington, DC 20004

(202) 434-7300

i

TABLE OF CONTENTS

Page

INTRODUCTION, 0 iscicesheccasckoasccsiaatiies Mb sseeaes 2

STA TEMG vcdscciseids ic teusincats ied eves debib siccant 3

REASONS FOR DENYING THE WRIT...................20: 4

I. The Primary Issue Now Urged by the Petitioner

Was Not Presented to or Decided by the Lower

I Sia iss ri on dc eit a cs once 4

II. The Result Reached by the Fourth Circuit Is Correct

and Does Not Conflict With Any Decision of This

Coust or of aury Oiier CiGUt, 6 iis is ccccccanancccccnsaceces 7

A. The First Question Presented....................00.5+ 7

B. The Second Question Presented..................... 8

III. This Case Presents No Recurring Issue of |

i

TABLE OF AUTHORITIES

FEDERAL CASES

In re Annapolis Mall Motel Ltd. Partnership,

140 B.R. 105 (N.D. Md. 1991) ......ccccceeseeeeeeeneee 10

Bill Johnson's Restaurants, Inc. v. National

Labor Relations Board, 461 U.S. 731

(EDDD) ...1<aianionsnssiipeictiagicitiliusibiaapaaiiam mannan 4

California Motor Transport Co. v. Trucking

Unlimited, 404 U.S. 508 (1972) .......sesssseeeesenenees 4

In re Celotex Corp., 124 F.3d 619

(Bln (lie. TOG) isiicsscinitikcatiniadttepiatiiciiedilinnmgaiiaan 2

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

(E9S)....0..s00iscnnceaccsnnee cael eee 2,4,9

Davis v. United States 417 U.S. 333 (1974) ............ 8

Delta Air Lines, Inc. v. August, 450 U.S. 346

(TSB 1 ) .......»ssnniannsemaisioiionlialssinaiagaihieianmemibedmeatianins 7

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

(Gr Cie, BRI iv sssicsinniasntoncndotesevnedivccrenesd 10

Eastern Railroad Presidents Conference v.

Noerr Motor Freight Co., 365 U.S. 127

(19GB 8) oxissracinecsmnessipinieannsanmenehinilenteieainietelieaiieans 4

Holly Farms Corp. v. National Labor

Relations Board, 517 U.S. 392 (1996)...........+++ p

In re Import & Mini Car Parts, Lid. 200 B.R. 857

(Banks. N.D. Ind. T996).........2cc0c2sccacclnassine 10

In re JMP-Newcor International, Inc., 225 B.R. 457

(Banks. N.D. 011. 1996). ..2058. i. SLSR. 10

In re Leeds Building Products, Inc., 160 B.R. 689

Game. DID Ge DOGG) ib san issiaisscticcsdcissccecee 10

In re Lemco Gypsum, Inc., 910 F.2d 784

CREE Bae il cela ccsccsonaeanen 9

Matsushita Electric Industrial Co. v. Epstein, 516

Sa NS RS epee 3

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

a, RRR fr i 9

Sisson v. Ruby, 497 U.S. 358 (1990)..0.....c.eccceccceceeee 7

Specialty Mills, Inc. v. Citizens State Bank, 51 F.3d

ce SRE ee ree ee 10

United Mine Workers of. America v. Pennington, 381

ak Bia amen entieh e e a 4

United States v. Ortiz, 422 U.S. 891 (1975).............. a

Wisniewski v. United States, 353 U.S. 901

SEEN EAT Se ae on oe 8

Matter of Wood, 825 F.2d 90 (Stk Cir. 1987).........10

Matter of Xonics, Inc., 813 F.2d 127

a) See 9

iv

Youakim v. Miller, 425 U.S. 231 (1976) .............:0006 7

Matter of Zale Corp., 62 F.3d 746

Se Gs NUNS hs teehee aiced Gaon ehanescksbdsnesiens 10

STATE CASES

New Horizon of NY LLC v. Elliot Jacobs, et

al., General Court of Justice, Superior

Court Division, Durham County, N.C.,

Din. 66-CUR GES oi 5

FEDERAL STATUTES

SRG IR ea 3

USE CUO i a 2,5,8,9

Be OB TIE seicsinccnnsesccnnniaiitinianipilibibaicdannaaieiitiel 3

No. 00-1359

IN THE

SUPREME COURT OF THE UNITED STATES

NEW HORIZON OF NEW YORK, LLC

Petitioner,

v.

ROBERT JACOBS; ELLIOT JACOBS;

ALLAN MIRWIS; E.J. SERVICING, INC.;

E.J. REALTY MANAGEMENT CORP.;

E.J. PROPERTY CONSULTANTS; DAVID QUELLER;

DAVID QUELLER, INC.; IRA BORN;

STANLEY LANE, M.D.;PETER DAPUZZO;

CONSTANCE ROSEN, Executrix of the Estate

of HOWARD ROSEN, M.D.; and RUTH SCHARF

Respondents.

On Petition for a Writ of Certiorari to the

United States Court of Appeals for the Fourth Circuit

BRIEF FOR THE RESPONDENTS IN OPPOSITION

INTRODUCTION

The Fourth Circuit observed that petitioner initiated and

pursued this lawsuit in a United States District Court on the

legal theory that “this case was related to cases arising under

Title 11.” Pet. App. at 13. With respect to jurisdiction,

petitioner’s complaint alleged only that the district court had

jurisdiction over claims based on North Carolina state law

under 28 U.S.C. § 1334(b), which confers federal

jurisdiction over all “civil proceedings arising under Title 11,

or arising or related to cases under Title 11.”' Whether the

petitioner’s state-law claims were or were not “related” to a

case under Title 11 was the primary jurisdictional issue in

the district court and in the court of appeals.

The respondents moved on October 23, 1998, ten days

before trial, to dismiss the action for lack of federal subject-

matter jurisdiction, and the petitioner, in response, relied

primarily on the language of Section 1334(b). Petitioner

contended that its claims arose out of and were related to a

proceeding under Title, 11.

Following the entry of a final judgment, the respondents

appealed and the Fourth Circuit, applying its own binding

precedent in Jn re Celotex Corp., 124 F. 3d 619, 625 (4th

Cir. 1997), and this Court’s language in Celotex Corp. v.

Edwards, 514 U.S. 300, 307-308 (1995), held that there was

no federal subject-matter jurisdiction under 28 U.S.C. §

1334(b) on the unique facts of this case. See Pet. App. at 14-

24. The court of appeals rejected petitioner’s contention that

the possibility that the respondents were in civil contempt of

a bankruptcy court order gave rise to “related to” jurisdiction

under Section 1334(b). Pet. App. at 17-22. The Fourth

Circuit held that such a civil contempt claim would

constitute an impermissible collateral attack on an

unappealed order of the bankruptcy court. Hence it could

‘Paragraph 16 of the complaint stated: “This Court has jurisdiction

over this matter pursuant to 28 U.S.C. § 1334, as this matter is related to

proceedings under Title 11 of the United States Code.”

not be the basis for civil claims based on state law in federal

court under Section 1334(b). Pet. App. at 19-22. The court

of appeals also rejected the other grounds asserted by the

petitioner for federal jurisdiction under Section '1334(b). Pet.

App. at 22-24.

The primary argument now made in the Petition for a

Writ of Certiorari - i¢., that federal subject-matter

jurisdiction existed because this action was, in substance, an

action under 18 U.S.C. § 401 “to determine the appropriate

remedy for violation of the Confirmed Order” (Pet. 15), and

North Carolina law is “supplemental” to that contempt action

under 28 U.S.C. § 1367 (Pet. 16) ~ was not urged in the

lower courts. It is a recent formulation of a legal issue

designed to generate some interest in this Court. In fact, as

we demonstrate below, there is no more merit to this asserted

ground for federal jurisdiction than there is to the Section

1334(b) grounds that the petitioner invoked unsuccessfully in

the district court and in the court of appeals. But even if this

newly crafted issue did present grounds for certiorari, the

failure to assert it below forecloses its consideration by this

Court at this juncture. Holly Farms Corp. v. National Labor

Relations Board, 517 U.S. 392, 400 n.7 (1996); Matsushita

Elec. Industrial Co. v. Epstein, 516 U.S. 367, 379 (1996).

STATEMENT

Petitioner (“New Horizon”) is a limited liability

corporation owned by two families and created in 1996 for

the purpose of exercising an option under a bankruptcy court

reorganization plan. The option was to purchase certain

notes relating to apartment properties in Durham, North

Carolina, owned by a limited partnership. New Horizon

brought the present action in federal court after it exercised

the option but did not close on the sale. It sought millions of

dollars in damages against certain limited partners who had

allegedly interfered with its ability to exercise the option by

appealing to a district court from the bankruptcy court’s

approval of the reorganization plan that included the option.

The limited partners who were sued by New Horizon --

who are respondents in this Court -- claimed, inter alia, that

their appeal to the district court was objectively valid and

was, therefore, constitutionally shielded against damage

liability by the Noerr-Pennington doctrine. See Eastern

Railroad Presidents Conference v. Noerr Motor Freight Co.,

365 U.S. 127 (1961); United Mine Workers of America v.

Pennington, 381 U.S. 657 (1965); California Motor

Transport Co. v. Trucking Unlimited, 404 U.S. 508 (1972);

Bill Johnson’s Restaurants, Inc. v. National Labor Relations

Board, 461 U.S. 731, 743 (1983).

The district court denied pretrial motions for summary

judgment and to dismiss the complaint for lack of federal

subject-matter jurisdiction. The case proceeded to trial

before a jury on various North Carolina breach-of-contract

and tort claims growing out of New Horizon’s alleged

inability to exercise the option. The jury returned a verdict

awarding compensatory damages of $6,491,835. The award

was trebled under the North Carolina unfair and deceptive

trade practice law for a total in excess of $22 million.

On appeal, the Fourth Circuit held that there was no

federal subject-matter jurisdiction over New Horizon’s

claims because even if New Horizon’s claim is related “in

the ordinary sense of the word” (Pet. App. at 15, n.16) to the

bankruptcy proceedings in the Eastern District of North

Carolina, the claims did not “conceivably have any effect on

the estate being administered in bankruptcy,” as is required

under this Court’s decision in Celotex Corp. v. Edwards, 514

U.S. 300, 308 n.6 (1995), to create federal subject-matter

jurisdiction. Pet. App. at 15. The damage judgment was

therefore vacated by the court of appeals because the court

below concluded that the “outcome” of New Horizon’s

complaint could not “alter the debtor’s rights, liabilities,

options or freedom of action (positively or negatively)” and

the petitioner’s claims did not “impact upon the handling and

administration of the bankrupt estate.” Id. After the Fourth

Circuit’s decision, New Horizon initiated a substantially

identical action in the North Carolina state courts. New

Horizon of NY LLC v. Elliot Jacobs, et al., General Court of

Justice, Superior Court Division, Durham County, N.C., No.

00-CVS-05182.

REASONS FOR DENYING THE WRIT

I.

THE PRIMARY ISSUE NOW URGED

BY THE PETITIONER WAS NOT

PRESENTED TO OR DECIDED BY

THE LOWER FEDERAL COURTS

The first question presented in the petition is based on

the “district court’s federal question jurisdiction over a claim

for contempt of court.” The petition asserts that the North

Carolina contract and tort claims made by New Horizon in

the United States District Court for the Eastern District of

North Carolina were within the subject-matter jurisdiction of

the federal court because they were “supplemental” or

“pendent” to the “claim for contempt of court.” Pet. at 15-

17. This is a substantial reconfiguration and revision of the

jurisdictional ground asserted by New Horizon in the lower

courts

The New Horizon complaint invoked federal subject-

matter jurisdiction solely under 28 U.S.C. § 1334(b), on the

alleged ground that New Horizon’s claims were “related” to

proceedings under Title 11. See note 1, supra; Pet. App. at

14. To be sure, New Horizon also alleged in paragraphs 53-

55 of its complaint that the actions of the defendants

constituted “contempt of the United States Bankruptcy Court

through the knowing, willful and contumacious violation” of

the order entered by the bankruptcy court confirming the

reorganization plan. That same order had, according to the

complaint, been tortiously appealed to the district court. The

civil contempt was not alleged, however, to be the basis for

federal subject-matter jurisdiction. It was only alleged as

grounds for additional penalties or sanctions against the

respondents.

The district judge ruled on the civil contempt claim

after the jury returned its verdict on the state-law claims, and

he rejected the civil contempt claim. Pet. App. at 28-34.

New Horizon did not appeal from that ruling.

The first ground asserted by the respondents in their

appeal to the Fourth Circuit was that the federal court lacked

subject-matter jurisdiction. _ New Horizon gave the

jurisdictional issue short shrift in its brief in the court of

appeals. It asserted in its brief that “federal subject-matter

jurisdiction over this case cannot reasonably be disputed.”

Brief for Appellee, 4th Cir. Nos. 99-1990, 99-1996, p. 70.

The argument made in New Horizon’s brief related only to

Section 1334(b). New Horizon argued that the case

“presents numerous questions of bankruptcy and federal

law.” Id. at p. 71. New Horizon did not argue -- and the

Fourth Circuit did not decide -- the “supplemental” or

“pendent” jurisdiction issue that is now being asserted for the

first time in New Horizon’s petition for a writ of certiorari.

The opinion of the court of appeals also demonstrates

that “supplemental” or “pendent” jurisdiction over state

claims was never argued to the court of appeals. The Fourth

Circuit describes the relevance of New Horizon’s civil

contempt claim to its jurisdictional argument as follows (Pet.

App. at 19; emphasis added):

Thus, it is patent that the civil contempt

count, on which New Horizon bases its

claim in this case of related to jurisdiction

under § 1334, is nothing more than a

collateral attack on the order of the

bankruptcy court of February 6, 1997.

The court of appeals did not discern in New Horizon’s

arguments any contention that there was “supplemental” or

“pendent” jurisdiction over North Carolina state-law claims

growing out of the allegations of civil contempt. The only

relevance of the civil contempt allegations was as a basis for

“related to jurisdiction under § 1334.” Pet. App. at 19.

Under long-standing principles articulated by this

Court governing the grant of certiorari, legal issues that have

not been argued or decided by the lower federal courts are

not properly before this Court. Sisson v. Ruby, 497 U.S. 358,

359 n.1 (1990); Delta Air Lines, Inc. v. August, 450 U.S.

346, 362 (1981); Youakim v. Miller, 425 U.S. 231, 234

(1976); United States v. Ortiz, 422 U.S. 891, 898 (1975).

II.

THE RESULT REACHED BY THE FOURTH

CIRCUIT IS CORRECT AND DOES NOT

CONFLICT WITH ANY DECISION

OF THIS COURT OR OF ANY OTHER CIRCUIT

A. The First Question Presented

As indicated above, the first question presented in the

Petition for Certiorari was never raised or decided below. In

any event, the position urged by New Horizon is erroneous.

New Horizon acknowledges that “[t]he district court

ultimately ruled against Horizon on the contempt of court

claim.” Pet. at 15. But it argues that the mere inclusion of

this claim in its complaint justified a full jury trial in a

federal court on various state claims on the basis of

“supplemental” or “pendent” jurisdiction.

New Horizon does not take issue, however, with the

conclusion of the district court (Pet. App. at 28-34) that

rejected New Horizon’s civil contempt claim. The district

court concluded that there was no violation by the

respondents of any “specific and definite order.” Pet. App.

at 32. New Horizon did not appeal that decision. And the

court of appeals also noted that the order of the bankruptcy

court dated February 6, 1997 -- which had initially denied

New Horizon’s motion to hold the respondents in contempt

(Pet. App. at 11, 18) -- had also not been appealed. New

Horizon’s federal-court lawsuit was, therefore, “a collateral

attack on a final order of the bankruptcy court.” Pet. App. at

17. Hence the Fourth Circuit correctly concluded “that the

jurisdictional base for the case should not be permitted to

stand on a collateral attack which has been forbidden by two

decisions of the Supreme Court.” Pet. App. at 18.

The petition does not contend -- nor could it -- that

given the rejection of New Horizon’s civil contempt claim,

there was any “judicial economy” or preservation of judicial

resources in trying the state-law claims in a federal court.

This is particularly true since the damage claims were to be

tried to a jury and the civil contempt claim was to be tried to

a judge. The petition argues only that the Fourth Circuit’s

decision in this case is inconsistent with other decisions of

the Fourth Circuit. See Pet. at 16-17. An intra-circuit split

of this kind is not a ground for the exercise of this Court’s

certiorari jurisdiction. “It is primarily the task of a Court of

Appeals to reconcile its internal difficulties.” Wisniewski v.

United States, 353 U.S. 901, 902 (1957); see also Davis v.

United States, 417 U.S. 333, 340 (1974).

B. The Second Question Presented

The court below held that New Horizon’s claims were

not “related to a bankruptcy case” within the meaning of 28

U.S.C. § 1334(b) because the term “related” in this

jurisdictional provision is limited to situations in which the

“outcome of that proceeding could conceivably have any

effect on the estate being administered in bankruptcy.” Pet.

App. at 15, 22, quoting Pacor, Inc. v. Higgins, 743 F.2d 984,

994 (3d Cir. 1984), approved by this Court in Celotex Corp.

v. Edwards, 514 U.S. 300, 308 n.6 (1995). Since New

Horizon was not a debtor or creditor in the bankruptcy

proceedings and was not seeking enforcement of any order

that would enlarge or diminish the bankrupts’ estates, its

lawsuit did not qualify under the “related to” provision of 28

U.S. C. § 1334(b). As the Fourth Circuit observed, the New

Horizon claims were “completely unrelated to th» sale of the

wrap notes or the administration of the bankruptcy estates.”

Pet. App. at 23. The damages that were awarded by the jury

were to be paid by individuals who were not debtors or

creditors in the bankruptcies and the putative recovery would

not benefit either bankrupt estate. By the time New Horizon

filed its case, the notes were no longer even possessed by

either bankrupt estate. Nor could the verdict in New

Horizon’s case have affected the notes or their ownership in

view of the nature of New Horizon’s claims. In these

circumstances, New Horizon’s claims were not within the

subject-matter jurisdiction of the federal court under Section

1334(b).

The petition does not state or suggest that the Fourth

Circuit’s decision on this issue conflicts with a decision of

this Court or of any other Circuit. Indeed, the result reached

by the court below is patently mandated by this Court’s

Celotex decision and by the Third Circuit’s holding in Pacor,

which has been universally followed.

Moreover, the Fourth Circuit’s decision follows a long

line of precedent. Courts considering this jurisdictional issue

have consistently held that the "related to" language of

Section 1334(b) is not satisfied if a judgment could not affect

the bankrupt's estate. In Matter of Xonics, Inc., 813 F.2d

127, 131 (7th Cir. 1987), for example, Circuit Judge

Easterbrook wrote for a unanimous panel that the “related

to” jurisdiction of Section 1334(b) may be invoked only

when the dispute “affects the amount of property available

for distribution or the allocation of property among

creditors.” The Court of Appeals for the Eleventh Circuit

observed in Jn re Lemco Gypsum, Inc., 910 F.2d 784, 789

(11th Cir. 1990), that “[o]verlap between the bankrupt’s

affairs and another dispute is insufficient unless its resolution

also affects the bankrupt’s estate or the allocation of assets

among creditors.” See also Specialty Mills, Inc. v. Citizens

10

State Bank, 51 F.3d 770 (8th Cir. 1995) (no federal

jurisdiction even though the state-law claims “arose from

[the defendant’s] conduct in the Dakota Oat bankruptcy”); Jn

re Dow Corning Corp., 86 F.3d 482, 492 (6th Cir. 1996);

- Matter of Zale Corp., 62 F.3d 746, 752 (Sth Cir. 1995);

Matter of Wood, 825 F.2d 90, 93 (Sth Cir. 1987); In re JMP-

Newcor International, Inc:, 225 B.R. 457 (Bankr. N.D. Il.

1998); Jn re Import & Mini Car Parts, Ltd., 200 B.R. 857

(Bankr. N.D. Ind. 1996); Jn re Leeds Building Products, Inc.,

160 B.R. 689 (Bankr. N.D. Ga. 1993); Jn re Annapolis Mall

Motel Ltd. Partnership, 140 B.R. 105, 107 (N.D. Md. 1991).

The petition asserts erroneously that the federal court

had subject-matter jurisdiction when the case was

commenced, and it argues that subsequent events did not

divest the federal court of such jurisdiction. Pet. at 19. But

from its inception, the action brought by New Horizon for

damages could not affect the allocation of property among

creditors or the size of the bankrupt estates. The events

recited in the Fourth Circuit’s opinion that occurred after

inception of New Horizon’s action were not invoked as a

ground to withdraw federal subject-matter jurisdiction that

had previously attached. They were described only to

demonstrate that the events that actually transpired proved

what was obvious from the face of New Horizon’s complaint

-- 1¢., that the clams made in the complaint would not

enlarge or diminish the bankrupt estates.

1]

THIS CASE PRESENTS NO

RECURRING ISSUE OF IMPORTANCE

Finally, the petition does not describe how the

jurisdictional issue presented by the unique circumstances of

this case could affect other situations. To our knowledge,

this is the first recorded case of an action brought in any

court seeking to hold parties liable for appealing a

bankruptcy court decision to a district court. Such an appeal

is ordinarily a constitutional and statutory right that cannot

give rise to civil liability. See p. 4, supra. Petitioner does

not contend that there are likely to be many such cases.

Indeed, the issue that the Fourth Circuit did not reach and

that is presently pending in the North Carolina state court --

i.e., whether civil liability may constitutionally attach to the

pursuit of an objectively valid appeal -- should, in most if not

all cases, prevent a recurrence of the claim that was made

here by New Horizon. And, in any event, petitioner has now

filed its claim in the North Carolina state courts.

12

CONCLUSION

For the foregoing reasons, the petition for a writ of certiorari

should be denied.

Respectfully submitted,

NATHAN LEWIN

(Counsel of Record)

ADRIENNE C. LAVALLEE

MINTZ LEVIN COHN FERRIS

GLOVSKY & POPEO, P.C.

701 Pennsylvania Avenue, NW

Suite 900

Washington, DC 20004

(202) 434-7300

JAMES G. EXUM, JR.

SMITH HELMS MULLISS &

MOORE, L.L.P.

First Union Tower - Suite 1400

300 North Greene Street

Greensboro, NC 27420

(336) 378-5200

Attorneys for Respondents

April 2001