Opposition Brief — Delta Airlines, Inc. v. National Union Fire Insurance, 115 S. Ct. 2555 (1995) (No. 94-1683)

I Supreme Court

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MAY 417 499% |

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No. 94-1683 OFFICE OF THE CiEpy

IS a

In The

Supreme Court of the United States

October Term, 1994

*

DELTA AIRLINES, INC.,

Petitioner,

versus

NATIONAL UNION FIRE INSURANCE COMPANY

OF PITTSBURGH, PENNSYLVANIA,

Respondent.

+

On Petition For Writ Of Certiorari

To The United States Court Of Appeals

For The Fifth Circuit

S

RESPONDENT'S BRIEF IN OPPOSITION TO

PETITION FOR WRIT OF CERTIORARI

+

STEPHEN THOMAS PERKINS

(Louisiana State Bar No. 21014)

Counsel of Record

DONALD ALFRED HOFFMAN

DoNALD BURNHAM ENSENAT

HoOrFrMAN, SUTTERFIELD, ENSENAT

& BANKSTON

A Professional Law Corporation

650 Poydras Street, Suite 2100

New Orleans, Louisiana 70130-6121

Telephone (504) 523-1385

May 17, 1995 Attorneys for Respondent

COCKLE LAW BRIEF PRINTING CO., (800) 225-6964

OR CALL COLLECT (402) 342-2831

QUESTIONS PRESENTED FOR REVIEW

1. Did a bankruptcy court have subject matter jurisdic-

tion of an adversary proceeding against a non-party to

any prior proceedings in bankruptcy court, when the

adversary proceeding was filed five years after the

underlying bankruptcy was dismissed?

2. After dismissal of the debtor’s bankruptcy case, did a

bankruptcy court have authority to enter a permanent

injunction in favor of a non-debtor against further pro-

ceedings in state court by a non-party to any prior pro-

ceedings in the bankruptcy court?

il

PARTIES TO THE PROCEEDINGS

The parties to the proceeding in the court whose

judgment is sought to be reviewed, and their parent

companies and non-wholly-owned subsidiaries, were:

Petitioner, Delta Airlines, Inc.;

Respondent, National Union Fire Insurance

Company of Pittsburgh, Pennsylvania

(“National Union”);

American International Group (AIG), parent

company of National Union;

Howard K. Schwamb, Jr. and Mary

Schwamb (“the debtors”), former debtors in

bankruptcy court and plaintiffs in a personal

injury action in Louisiana state court;

Paul Dué, Rick Caballero, and the law firm

of Dué, Smith & Caballero, former counsel for

the debtors in Louisiana state court; and

Eric A. Holden, Patricia A. Garcia, and the

law firm of Holden & Garcia, former counsel for

the debtors in bankruptcy court.

ill

TABLE OF CONTENTS

Page

QUESTIONS PRESENTED FOR REVIEW ........... i

FAmsioe 66) ift6 PROLERUINGS ............-545. ii

PP GE Nae 8 sy: Sra . ¥

OFFICIAL AND UNOFFICIAL REPORTS OF OPIN-

el i a eu dn e008 o 4484 Wak eee’

es ca nsianeowasshadocddedeeeens

CONSTITUTIONAL AND STATUTORY PROVI-

EE CR a ee

PUWUMMMMEETE SE BEERS GPU soos e ene cee saceeness

BASIS FOR FEDERAL JURISDICTION .............

ARGUMENTS FOR DENYING THE PETITION.....

I OE SONI oe cock en cs Vas escnkensocdys

(i) The Fifth Circuit and the district court

properly found no subject matter jurisdic-

tion under 26 U.S.C. § 1334.............

(ii) The bankruptcy court lacked ancillary or

supplemental jurisdiction................

(iii) The bankruptcy court lacked authority to

issue the disputed injunction pursuant to

Ree reer errs

(iv) The bankruptcy court lacked authority to

issue the disputed injunction pursuant to

ee Oe ME tae c een Bees de ancenvex

(v) Delta suffered no violation of due

DP Scteiedn itd echysadheees 1a skenies

EE ree aE ee ee

12

17

20

iV

TABLE OF AUTHORITIES

Page

CASES

A.H. Robbins Co. v. Piccinin, 788 F.2d 949 (4th Cir.

1986), cert. denied, 479 U.S. 876, 107 S.Ct. 251, 93

Re ar os 76 ooh eau i eked esa eo ans 19

Aetna Casualty & Surety Co. v. Hanover Ins. Co., 569

So.2d 1078 (La.App.3d Cir. 1990), aff'd, 574

ke ee ee a epee babes 22

Armel Laminates, Inc. v. Lomas & Nettleton Co. (In

re Income Property Builders, Inc.), 699 F.2d 963

Ce A OS Coke dou vaden eeeda neva mess eekes en 10

Baker v. Gotz, 415 F.Supp. 1243 (D.Del. 1976)........ 24

Beneficial Trust Deeds v. Franklin (In re Franklin),

ie Ficee See Tiree Ge Fes oe ko ocd ei ce ane es 10

Benson & Ford, Inc. v. Wanda Petroleum Co., 833

ROS Rasa See Gat Wao each seas iceiess 22

Chick Kam Choo v. Exxon Corp., 486 U.S. i+ , 108

S.Ct. 1664, 100 L.Bd.2d 127 (1968) ........0405. 20, 24

Committee of Representatives of Dalkon Shield Claim-

ants v. A.H. Robins, Inc., 479 U.S. 876, 107 S.Ct.

es ee Cae TEE SOEs oan cb denne dane sedvaas ss 19

Complaint of Cosmopolitan Shipping Co., S.A., 453

PD. Oe CRAG Bs FFU 6 65 kes eketaccecscees ss 23

Dugas v. American Surety Co. of New York, 300 U.S.

414, 37 SAA SES, Bi Le. Foe CIR) oo cc cececcs: 14

FDIC v. Colonial Realty Co., 966 F.2d 57 (2d Cir.

TABLE OF AUTHORITIES — Continued

In re Eliscu, 85 B.R. 480 (Bankr. N.D.IIl. 1988)...

In re Fisher, 151 B.R. 895 (Bankr. N.D.IIl. 1993) ..

In re Fleet Service Corp., Inc., 144 B.R. 909 (Bankr.

ha TO eee ate, face

In re Franklin, 802 F.2d 324 (9th Cir. 1986).......

In re Griffith, 6 B.R. 753 (Bankr. D.N.M. 1980)...

.26, 27

=

In re Haug, 19 B.R. 223 (Bankr.D.Ore. 1982) ...7, 11, 16

In re Joint Eastern & Southern District Asbestos Liti-

gation, 769 F.Supp. 85 (E. & S.D.N.Y. 1991)....

In re Lake Tahoe Land Co., Inc., 12 B.R. 479 (Bankr.

Na re era aa nee

In re Lawson, 156 B.R. 43 (Bankr. 9th Cir. 1993)..

In re Marine Iron & Shipbuilding Co., 104 B.R. 976

CER BIE 6 eco nis wae auncun ns cehions heck.

In re Morris, 950 F.2d 1531 (9th Cir. 1992).......

In re Moseley, 161 B.R. 382 (Bankr.E.D.Tex. 1993).

=. 2

In re Octagon Roofing, 157 B.R. 852 (N.D.Ill. 1993) ....

In re Otero Mills, Inc., 21 B.R. 777, 778 (Bankr.

D.N.M. 1982), aff'd 25 B.R. 1018 (D.N.M. 1982) ..

In re Pocklington, 21 B.R. 199 (Bankr. S.D.Ca. 1982)

In re Porges, 157 B.R. 212 (Bankr. E.D.N.Y. 1993).

In re Roma Group, Inc., 137 B.R. 148 (Bankr.

ee PE reds shows ba ba be a pea ned eso a

In re Smith, 866 F.2d 576 (3d Cir. 1989)..........

vi

TABLE OF AUTHORITIES - Continued

Page

In re Spaulding & Co., 131 B.R. 84 (N.D-IIl. 1990) ..... 7

In re Stardust Inn, Inc., 70 B.R. 888 (Bankr. E.D.Pa.

RE EEE Pr) eer Sey ere ee 8

In re Taylor, 884 F.2d 478 (9th Cir. 1989).......... 10, 11

In re Unioil, 948 F.2d 678 (10th Cir. 1991) ........... 13

In re Universal Farming Industries, 873 F.2d 1334

SE DUETS o0ddacca schon bh coanseanstieascer res 8

In re W.J. Services, Inc., 139 B.R. 824 (Bankr.

DEE. oc a nrads decbote vate nee eaeuetaka ts 16

In the Matter of Venegas Munoz, 73 B.R. 283 (Bankr.

8 A |: RE err re ree err ere yy ee 19

James Talcott, Inc. v. Allahabad Bank, Ltd., 444 F.2d

451 (5th Cir.), cert. denied, 404 U.S. 940, 92 S.Ct.

pM Be eS gS er ee 21

Julian v. Central Trust Co., 193 U.S. 93, 24 S.Ct. 399,

fe Ek | re eer re) era 14

Kokkonen v. Guardian Life Ins. Co. of America, 62

U.S.L.W. 4313, 114 S.Ct. 1673, 128 L.Ed.2d 391

SEs bak y (ad pndwethens udhentSanekscoveeeies es 13, 23

Local Loan Co. v. Hunt, 292 U.S. 234, 54 S.Ct. 695,

Ser AAU, See CPUUIENS 6055 cacdaudatscaessdeeisess: 12

M. Prusman, Ltd. v. Ariel Maritime Group, Inc., 781

Fee. ZOD CETIRE.D.. TOMES occ cw cccevenosssascecs 13

Matter of Barnes, 969 F.2d 526 (7th Cir. 1992)........ 13

Matter of Majestic Energy Corp., 835 F.2d 87 (5th

OR Ry yee rrr err re rer 8

Vil

TABLE OF AUTHORITIES - Continued

Matter of Wood, 825 F.2d 90 (5th Cir. 1987)...........

Mullane v. Central Hanover Bank & Trust Co., 339

U.S. 306, 70 S.Ct. 652, 94 L.Ed. 865 (1950) ..... 26, 27

Olin Corp. v. Insurance Co. of North America, 807

FSupp. 1143 (S.D.N.Y. 1992) ...............005. 24, 25

Pacor, Inc. v. Higgins, 743 F.2d 984 (3d Cir. 1984) ..7,

Pepper v. Litton, 308 U.S. 295, 60 S.Ct. 238, 84 L.Ed.

PP CP cate Guek ave Asta s Gea oe eel ekee oats 13

Quintero v. Klaveness Ship Lines, 914 F.2d 717 (5th

Cir. 1990), cert. denied, 499 U.S. 925, 111 S.Ct.

on Ae) RG 2 | i nn 22

Royal Ins. Co. of America v. Quinn-L Capital Corp.,

PO Wm Se UY Gy BOA D is ne vad ccas census aes 13

Santopadre v. Pelican Homestead & Savings Associa-

teen, S37 F.aG 268 (Sth Civ. 1991)... .....0.00eccce. 21

Shiver v. Wilson's Department Store, 559 So.2d 864

En ei vkkes 22

Southmark Properties v. Charles House Corp., 742

Pee OE OU es cca deancaveencs 13

Sperry Rand Corp. v. Rothlein, 288 F.2d 245 (2d Cir.

AE Sere er OY Pe Pre eee eer tte Tene eeeneeete 23

St. Paul Fire & Marine Ins. Co. v. Whitmire, 578

So.2d 1180 (La.App.5th Cir. 1991), writ denied,

Wn UN FOF CUB, TUDE) oc icc ecw nsvccctancscaccs 22

State of Michigan v. City of Allen Park, 739 FSupp.

1102 (E.D.Mich. 1990), aff'd, 954 F.2d 1201 (6th

es UME cea keh ule lure Ss a as op eke aed cod kcesne di 14

Un-Common Carrier Corp. v. Oglesby, 98 B.R. 751

A NUE 5 uo ad oN dk ae wae cabo e + Sebak tele; 9

Viil

TABLE OF AUTHORITIES — Continued

Page

United States v. Sutton, 786 F.2d 1305 (5th Cir.

| ey Pe rr Ty erry ey a rt ay eerg ee ere . 19

USA Motel Corp. v. Danning, 521 F.2d 117 (9th Cir.

a IS a Gall a A NS ini Re 2 Se 10

UnNitepD States CONSTITUTION, STATUTES AND OTHER PROVISIONS

U.S. Const., Fifth Amendment ................ 74> dtc a

el Rang | BR ee er ere eer 2, 6, 17, 18, 19

, is 7 oye . epr rer Terre rrr aA 1,6, 3

eis Se | Pee rr eer rrr ye 5, & 33. tae ae

ee Ris Te EEE bib evcwecas (444000 5a54 405 Co ere 1

rik ee rrr rrr reer ree eee passim

SP Gas NE 6-5 66 04 d4 59:00 555405050 ee passim

BS coh (eS ee er rt eer ner ‘ie. oe

ee Res Oe and han nega ceee ed caeuk nb as cakes 16

yo a ne ee ee een ey eer err 24

eR A Ue ER a esc xine cxews sda tekenus Leb dieie cat 1]

y 2 oe rer Sper emer 2, 6, 20, 24

Order of Reference of Bankruptcy Cases and Pro-

ceedings of the United States District Court,

RRM to ge ee ee ee, El 3

Rule 1.05 of the Uniform Local Rules, United

Stetes District Court, B.D). La... ..ccccccccccccccs 3, 28

TREATISES

1 Collier on Bankruptcy § 3.01[10] ................. 11

2 Collier on Bankruptcy § 105.02(2] at p. 105-10

pe gE RTS eer rr cree ree 17, 19

OFFICIAL AND UNOFFICIAL

REPORTS OF OPINIONS

Petitioner, Delta Airlines, Inc., included in its appen-

dix the unofficial reports of opinions delivered in this

case by other courts or administrative agencies.

JURISDICTION

Petitioner, Delta Airlines, Inc., invokes the jurisdic-

tion of this Court pursuant to Title 28 U.S.C. § 1254(1) to

review by writ of certiorari the February 10, 1995 and

March 9, 1995 per curiam decisions of the U.S. Fifth

Circuit Court of Appeals.

CONSTITUTIONAL AND STATUTORY PROVISIONS

The constitutional provisions, treaties, statutes, ordi-

nances, and regulations involved in the case are set out

verbatim below.

Title 28 U.S.C. § 151 provides that:

In each judictal district, the bankruptcy judges in

regular active service shall constitute a unit of the

district court to be known as the bankruptcy court

for that district. Each bankruptcy judge, as a judicial

officer of the district court, may exercise the author-

ity conferred under this chapter with respect to any

action, suit, or proceeding and may preside alone and

hold a regular or special session of the court, except

as otherwise provided by law or by rule or order of

the district court.

Title 28 U.S.C. § 157(a) provides that:

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.

Re RE NB SEER TT ae ee te Se A

2

Title 28 U.S.C. § 1334(a) and (b) provides that:

(a) Except as provided in subsection (b) of this

section, the district court shall have original and

exclusive jurisdiction of all cases under title 11.

(b) Notwithstanding any Act of Congress that con-

fers exclusive jurisdiction on a court or courts ether

than the district court, the district courts shall have

original but not exclusive jurisdiction of all civil

proceedings arising under title 11, or arising in or

related to cases under title 11.

Title 28 U.S.C. § 1367(a) provides that:

Except as provided in subsections (b) and (c) or as

expressly provided otherwise by Federal statute, in

any civil action of which the district courts have

original jurisdiction, the district courts shall have

supplemental jurisdiction over all other claims that

are so related to claims in the action within such

original jurisdiction that they form part of the same

case or controversy under Article III of the United

States Constitution. Such supplemental jurisdiction

shall include claims that involve the joinder or inter-

vention of additional parties.

Title 28 U.S.C. § 2283 provides that:

A court of the United States may not grant an

injunction to stay proceedings in a State court

except as expressly authorized by Act of Congress, or

where necessary in aid of its jurisdiction, or to pro-

tect or effectuate its judgment.

Title 11 U.S.C. § 105(a) provides that:

The court may issue any order, process, or judgment

that is necessary or appropriate to carry out the

provisions of this title. No provision of this title

providing for the raising of an issue by a party in

interest shall be construed to preclude the court

from, sua sponte, taking any action or making any

determination necessary or appropriate to enforce or

implement court orders or rules, or to prevent an

abuse of process.

3

Rule 1.05 of the Uniform Local Rules of the United

States District Court for the Eastern District of Louisiana

(“ULLR”) provides that:

Whenever a civil matter, commenced in or removed

to the court, involves subject matter that either com-

prises all or a material part of the subject matter or

operative facts of another action, whether civil or

criminal, then pending before this or another court

or an administrative agency, or previously dismissed

or decided by this court, counsel shall append on a

separate sheet of paper, to the front of the complaint,

a list and description of all such actions then known

to counsel and a brief summary of the relationship. If

information concerning any such action or proceed-

ing is obtained subsequent to the filing of the origi-

nal pleading in the latter case, it shall be the duty of

counsel obtaining such information to notify the

court and opposing counsel in writing of the infor-

mation so received in the same manner.

The Order of Reference of Bankruptcy Cases and

Proceedings of the United States District Court for the

Eastern District of Louisiana (“Order of Reference”) pro-

vides that:

It is ORDERED that the Order of Reference of

Bankruptcy Cases and Proceedings entered on

August 2, 1984 is hereby withdrawn, vacated and set

aside and the following order ts entered in its place.

Pursuant to 28 U.S.C. Section 157, it is hereby

ORDERED that any or all cases under Title 11 or

any or all proceedings arising under Title 11 or

arising in or related to a case under Title 11 filed in

or transferred or removed to this district be and they

hereby are referred to the Bankruptcy Judges of this

district for consideration and resolution consistent

with law.

It is further ORDERED that the Bankruptcy Judges

fer the Eastern District of Louisiana be, and they

A

hereby are, directed to exercise the authority and

responsibilities conferred upon them as Bankruptcy

Judges by 28 U.S.C. Section 151 et seq. and this

court's order of reference, as to all cases and proceed-

ings covered by this order.

In accordance with 28 U.S.C. Section 157(b)(5), it is

further ORDERED that all personal injury tort and

wrongful death claims shall be tried in, or as deter-

mined by, this court and shall not be referred by this

order.

So ORDERED this 30th day of March, 1990.

STATEMENT OF THE CASE

Respondent, National Union Fire Insurance Com-

pany of Pittsburgh, Pennsylvania (“National Union”),

submits this statement of the case to address perceived

misstatements of fact in the statement of the case submit-

ted by petitioner, Delta Airlines, Inc. (“Delta”).

On January 14, 1984, Howard K. Schwamb, Jr. and

Mary Schwamb (together, “the Schwambs” or “the

debtors”) filed a personal injury suit against Delta in

Louisiana state court (App. 5). On October 21, 1985,

National Union intervened in that suit to recover

workers’ compensation payments to the Schwambs, but

the state court severed National Union’s claims from trial

of the principal claims (App. 5). The Schwambs ulti-

mately won a judgment of over $1 million against Delta

in state court (App. 5), but in March 1988 their counsel

returned the checks tendered by Delta to satisfy the judg-

ment, suggesting to Delta that “in light of the worker's

compensation issue, you instead immediately have all of

this money” deposited in the state court registry (App.

5-6).

ee

5

On April 4, 1988, acting through new counsel, the

Schwambs moved in bankruptcy court to compel Delta to

deposit the funds instead in the registry of the bank-

ruptcy court (App. 6), where the Schwambs had filed a

petition under Chapter 7 of the Bankruptcy Code (App.

23). The bankruptcy court granted the Schwambs’ motion

on April 5, 1988 and Delta deposited the funds in the

registry of the bankruptcy court (App. 6, 24). The

Schwambs’ creditors were paid and the Schwambs’ bank-

ruptcy was dismissed (App. 6). Delta did not notify the

bankruptcy court of National Union's intervention in

state court and did not notify National Union of the

motion to compel satisfaction of the state court judgment

in the bankruptcy court (App. 7).

On February 2, 1989, the Schwambs filed a satisfac-

tion of judgment in Louisiana state court (App. 6). On

October 16, 1989, National Union filed an amended peti-

tion of intervention in state court claiming that Delta had

also become liable to National Union for the workers’

compensation payments to the Schwambs (App. 6).

Delta’s motion for summary judgment in state court was

denied (App. 6). On August 28, 1990, Delta filed a third-

party complaint in a still-pending adversary action in

bankruptcy court (App. 6-7), but the complaint was dis-

missed as improper on January 15, 1993 (App. 7, 23-27).

Delta then commenced a new adversary proceeding

seeking to prevent National Union from seeking relief

against Delta in state court, and National Union sought

damages for Delta’s failure to notify the bankruptcy court

or National Union of the full scope of proceedings involv-

ing the funds used to satisfy the state court judgment

(App. 7). On October 29, 1993, the bankruptcy court

granted Delta’s motion for summary judgment and

6

denied National Union’s cross-motion for summary judg-

ment, issuing a permanent injunction barring all parties

from pursuing any claims against Delta related to Delta’s

April 1988 deposit of funds into the registry of the bank-

ruptcy court (App. 7).

National Union appealed the bankruptcy court’s

issuance of the injunction to the district court, which

reversed for lack of subject matter jurisdiction under 28

U.S.C. § 1334 and lack of authority under 11 U.S.C. § 105

(App. 3-12). Delta appealed to the U.S. Fifth Circuit Court

of Appeals, which affirmed the district court’s ruling

based on lack of subject matter jurisdiction (App. 1-2) and

denied Delta’s petition for rehearing en banc (App. 3-4).

Delta then filed a petition for writ of certiorari in this

Court.

BASIS FOR FEDERAL JURISDICTION

Jurisdiction pursuant to 28 U.S.C. § 1334 was lacking

in the court of first instance, the United States Bank-

ruptcy Court for the Eastern District of Louisiana.

ARGUMENTS FOR DENYING THE PETITION

Summary of Argument

Delta’s petition for writ of certiorari should be

denied first because the bankruptcy court lacked subject

matter jurisdiction under 28 U.S.C. §§ 151, 157, 1334, and

1367 and the Order of Reference by the U.S. District

Court for the Eastern District of Louisiana. The petition

should also be denied because the bankruptcy court

lacked authority to issue the disputed injunction under 11

U.S.C. § 105 and 28 U.S.C. § 2283. Finally, Delta’s petition

should also be denied because Delta was not deprived of

eT OT a EE

7

property without due process of law in violation of the

Fifth Amendment to the U.S. Constitution.

(i) The Fifth Circuit and the district court properly

found no subject matter jurisdiction under 28

U.S.C. § 1334.

The Fifth Circuit has held that the test for determin-

ing bankruptcy jurisdiction under 28 U.S.C. § 1334 is

“whether the outcome of [the] proceeding could conceiva-

bly have any effect on the estate being administered in

bankruptcy.” Matter of Wood, 825 F.2d 90, 93 (5th Cir.

1987), quoting Pacor, Inc. v. Higgins, 743 F.2d 984, 994 (3d

Cir. 1984) (emphasis supplied in Wood); see also In re

Spaulding & Co., 131 B.R. 84, 88 (N.D.II]. 1990). As pointed

out by the district court, the bankruptcy court could not

have jurisdiction of Delta’s request for injunctive relief in

the instant case, because the debtors’ bankruptcy was

dismissed, and there is no estate in bankruptcy (App. 6,

8-10).

National Union was never a party to any aspect of

the bankruptcy proceedings, and “jurisdiction over non-

bankruptcy controversies with third parties who are oth-

erwise strangers to the civil proceeding and to the parent

bankruptcy does not exist.” In re Haug, 19 B.R. 223,

224-225 (Bankr. D.Ore. 1982), quoted in Pacor, supra, 743

F.2d at 994 (3d Cir. 1984).

The situation in this case is exactly the situation

proscribed in In re Haug, supra. National Union, left out of

the bankruptcy proceedings, should not fall prey years

later to a new adversary proceeding filed in a dismissed

bankruptcy. Subject matter jurisdiction simply does not

exist in that context, because the requisite effect on the

bankruptcy proceedings is impossible if the bankruptcy

8

was dismissed, and because jurisdiction cannot arise from

some conceivable effect that the bankruptcy proceedings

might have had on National Union's claims against Delta

or the debtors. Matter of Majestic Energy Corp., 835 F.2d 87,

90-91 (5th Cir. 1988); In re Alpha Steel Co., Inc., 142 B.R.

465, 469-470 (M.D.Ala. 1992); cf. In re Marine Iron & Ship-

building Co., 104 B.R. 976, 986 (D.Minn. 1989) (neither

cross-relationship of claims nor statutory source of fed-

eral jurisdiction over debtor's claim supported assertion

of pendent-party jurisdiction).

In its petition to this Court, Delta raises new argu-

ments about a bankruptcy court’s jurisdiction of an

adversary proceeding notwithstanding dismissal of the

underlying bankruptcy case. However, not one case cited

by Delta involves the exercise of jurisdiction under § 1334

in a new adversary proceeding filed after dismissal of the

principal bankruptcy case and involving a defendant who

was not party to any prior bankruptcy proceedings.

For example, Delta cites a number of decisions

involving the bankruptcy courts’ ancillary jurisdiction

over still-pending adversary proceedings! or still-pend-

ing matters removed from state court as bankruptcy-

1 In re Morris, 950 F.2d 1531 (9th Cir. 1992) (adversary

proceeding left unresolved after Chapter 11 case was

dismissed); In re Universal Farming Industries, 873 F.2d 1334 (9th

Cir. 1989) (controversy between two creditors not moot after

dismissal of underlying bankruptcy case); In re Smith, 866 F.2d

576 (3d Cir. 1989) (adversary proceeding left unresolved after

Chapter 13 case was converted into Chapter 7 liquidation); In re

Roma Group, Inc., 137 B.R. 148 (Bankr. S.D.N.Y. 1992)

(jurisdiction retained over part of adversary proceeding after

involuntary dismissai of two Chapter 11 cases); In re Stardust

Inn, Inc., 70 B.R. 888 (Bankr. E.D.Pa. 1987) (adversary

proceeding left unresolved after voluntary dismissal of Chapter

11 cases); In re Pocklington, 21 B.R. 199 (Bankr. S.D.Ca. 1982)

g

related, even after voluntary or involuntary dismissal of

the underlying bankruptcy cases. Delta also cites other

decisions involving a bankruptcy court’s authority to

enter judgments after dismissal of a bankruptcy on mat-

ters tried or decided pre-dismissal,* the similar authority

to enforce a settlement agreement which had ended an

adversary proceeding,* or the authority to hear a declara-

tory judgment action to interpret its own prior lift stay

order.°

(adversary proceeding filed before voluntary dismissal of

Chapter 13 case); In re Lake Tahoe Land Co., Inc., 12 B.R. 479

(Bankr. D.Nev. 1981) (adversary proceeding filed before

involuntary dismissal of Chapter 11 case).

2 In re Carraher, 971 F.2d 327 (9th Cir. 1992) (still-pending

fraud claims removed from state court as related to a then-

pending bankruptcy case which was later dismissed).

* in re Porges, 157 B.R. 212 (Bankr. E.D.N.Y. 1993) (judgment

properly entered even after debtor’s voluntary dismissal of

Chapter 13 case, when bankruptcy court had already decided on

the debtor's objection to a creditor's claims after full day trial);

In re Lawson, 156 B.R. 43 (Bankr. 9th Cir. 1993) (judgment entered

after dismissal of Chapter 11 case on final fee awards decided

before dismissal of Chapter 11 case).

4 In re Fleet Service Corp., Inc., 144 B.R. 909 (Bankr. M.D.Fla.

1992) (ancillary jurisdiction existed to rule on debtor’s motion

to enforce settlement in adversary proceeding, even after dis-

missal of underlying Chapter 11 case).

> In re Franklin, 802 F.2d 324 (9th Cir. 1986). Delta also cites

two other decisions with no relation to this case, In re Moseley,

161 B.R. 382 (Bankr. E.D.Tex. 1993) (adversary proceedings still

in early stages were dismissed along with bankruptcy because

no prejudice would result to parties in adversary proceeding);

Un-Common Carrier Corp. v. Oglesby, 98 B.R. 751 (S.D.Miss. 1989)

(same, plus no other jurisdictional grounds to retain patent

licensing dispute initially brought as adversary proceeding in

bankruptcy court and then transferred to district court).

10

None of those cases bear any similarity to this case,

in which Delta brought a new adversary proceeding

against National Union in 1993, five years after dismissal

of the underlying bankruptcy case.® This case more

resembles the situation at issue in another decision cited

by Delta, in which the Ninth Circuit first acknowledged a

bankruptcy court’s continuing jurisdiction “to interpret

orders entered prior to dismissal of the underlying bank-

ruptcy case”’ and “to dispose of ancillary matters such as

an application for an award of attorney’s fees for services

rendered in connection with the underlying action,”® but

then emphasized that “[t]he bankruptcy court does not

have jurisdiction . . . to grant new relief independent of

its prior ruling once the underlying action has been dis-

missed.”?

Delta tries to tie its adversary proceeding, filed in

1993, to an apparently still-pending adversary proceeding

filed in 1988, claiming that the bankruptcy court’s con-

tinuing jurisdiction and authority over the 1988 proceed-

ing “cloaked Adversary Proceeding 93-1027-THK, the

6 Delta first named National Union as a third-party defen-

dant in Adversary Proceeding No. 88-0099, which was com-

menced before dismissa! of the underlying bankruptcy. The

bankruptcy court dismissed the third-party complaint as

improper, because Delta did not allege that National Union was

liable for any part of the debtors’ claim against Delta in the

adversary proceeding. (See App. 21-29.)

7 In re Taylor, 884 F.2d 478, 481 (9th Cir. 1989) (emphasis in

Taylor), citing Beneficial Trust Deeds v. Franklin (In re Franklin),

802 F.2d 324, 326-327 (9th Cir. 1986).

8 Id., citing USA Motel Corp. v. Danning, 521 F.2d 117 (9th

Cir. 1975).

9 Id., citing Armel Laminates, Inc. v. Lomas & Nettleton Co. (In

re Income Property Builders, Inc.), 699 F.2d 963, 964 (9th Cir. 1982).

1]

Complaint for Declaratory Judgment filed by Delta at the

invitation of the bankruptcy court to replace Delta’s third

porty complaint in Adversary Proceeding 88-0099K.”

(Delta’s Petition at p. 13.) That assertion runs directly

afoul of the above-quoted rules that “[t]he bankruptcy

court does not have jurisdiction .. . to grant new relief

independent of its prior ruling once the underlying action

has been dismissed”!9 and that “jurisdiction over non-

bankruptcy controversies with third parties who are oth-

erwise strangers to the civil proceeding and to the parent

bankruptcy does not exist.”!!

Finally, Delta argues that the bankruptcy court has

authority to render declaratory relief under 28 U.S.C.

§ 2201. Bankruptcy courts may indeed possess the author-

ity to grant declaratory relief, but only if they have sub-

‘ect matter jurisdiction:

If proceedings involve declaratory relief, they

are subject to the general jurisdictional and

referral provisions of 28 U.S.C. § 1334 and 28

U.S.C. § 157, respectively. Section 2201 is not a

grant of jurisdiction to the federal courts, but

only makes available an additional remedy in

cases over which those courts already have

jurisdiction.

1 Collier on Bankruptcy § 3.01{10] at pp. 3-126 to 3-127

(15th ed. 1993).

In sum, both the Fifth Circuit and the district court

acted properly when they applied 28 U.S.C. § 1334 to the

facts of this case and ruled that the bankruptcy court

10 In re Taylor, 884 F.2d 478, 481 (9th Cir. 1989).

11 In re Haug, 19 B.R. 223, 224-225 (Bankr. D.Ore. 1982),

quoted in Pacor, supra, 743 F.2d at 994 (3d Cir. 1984).

12

lacked jurisdiction to hale National Union into bank-

ruptcy court five years after dismissal of the underlying

bankruptcy.

(ii) The bankruptcy court lacked ancillary or supple-

mental jurisdiction.

As two additional, intertwined arguments, Delta

asserts that the bankruptcy court had “ancillary” jurisdic-

tion of its request for injunctive relief or, alternatively,

supplemental jurisdiction pursuant to 28 U.S.C. § 1367.

These arguments are also flawed, because Delta did not

seek to adjudicate a “supplemental and ancillary bill in

equity” (see Petition at p. 21) and because bankruptcy

courts do not have jurisdiction under § 1367.

First, in its “ancillary jurisdiction” argument, Delta

relies upon a series of decisions distinguishable on their

face from this case. For example, in Local Loan Co. v. Hunt,

292 U.S. 234, 54 S.Ct. 695, 78 L.Ed. 1230 (1934), this Court

held that an assignment of future wages was covered by

the debtor’s discharge in bankruptcy, when the debtor

“includ[ed] in his schedule of liabilities” the loan that

was to have been repaid with the wages. Id., 292 U.S. at

238, 54 S.Ct. at 696. Unlike in Hunt, no discharge is

involved in this case. Also unlike in Hunt, Deita could

have avoided the dilemma it later sought to avoid, as

indicated by the bankruptcy court’s comment that “[t]he

Court feels that an injustice has been done and that if

notice had been sent to all interested parties, we would

not be here today.”!?

12 See August 17, 1993 Minute Entry, U.S. Bankruptcy Court

for Eastern District of Louisiana at p. 2 (App. 20).

13

In the instant case, neither the debtors nor Delta ever

informed the bankruptcy court of National Union’s claim

to the money paid by Delta and distributed by the bank-

ruptcy court, and neither Delta nor the debtors informed

National Union of the proceedings in bankruptcy court

(App. 7). That lack of notice to either National Union or

the bankruptcy court also distinguishes this case from the

other decisions cited by Delta for general propositions

such as a court’s ability to enforce its own prior orders,'

or the equitable power of the bankruptcy courts.!4

'S E.g., Royal Ins. Co. of America v. Quinn-L Capital Corp., 960

F.2d 1286, 1297-1298 (5th Cir. 1992) (injunction of investors’

state court suit against insurer was properly based on prior

declaratory judgment of no insurance coverage to corporation,

when investors brought claims as assignees of sole stockholder

in corporation); Southmark Properties v. Charles House Corp., 742

F.2d 862, 870 (Sth Cir. 1984) (judgment ordering and confirming

sale of property precluded claims of fraud related to sale of

property, when claims were made by party to sale and party

who was active in reorganization proceeding or was at least a

privy of party to reorganization); In re Unioil, 948 F.2d 678, 682

(10th Cir. 1991) (enjoining vice president of debtor corporation

from further post-petition transfers and payments); Matter of

Barnes, 969 F.2d 526, 528 (7th Cir. 1992) (enjoining state court

suit to collect unlisted debt, because creditor had notice of

bankruptcy proceeding); but see Kokkonen v. Guardian Life Ins. Co.

of Am., 62 U.S.L.W. 4313, 114 S.Ct. 1673, 128 L.Ed.2d 391 (1994)

(ancillary jurisdiction did not allow court to enforce prior settle-

ment agreement because (a) same facts were not involved and

(b) dismissal order did not require performance of settlement

agreement or purport to retain jurisdiction over settlement).

'4 E.g., Pepper v. Litton, 308 U.S. 295, 60 S.Ct. 238, 84 L.Ed.

281 (1939) (equitable subordination of claim); FDIC v. Colonial

Realty Co., 966 F.2d 57, 60-61 (2d Cir. 1992) (equitable basis for

substantive consolidation of estates of partnership and general

partners); in re Octagon Roofing, 157 B.R. 852, 856-857 (N.D.III.

1993) (equitable subordination of claim); M. Prusman, Ltd. v.

14

Other cases cited by Delta are also completely inap-

plicable to the facts of this case. For instance, Dugas v.

American Surety Co. of New York, 300 U.S. 414, 57 S.Ct. 515,

81 L.Ed. 720 (1937) involved a suit against the surety on

an appeal bond, by a party who did not recover his entire

judgment because of another judgment rendered in a

federal interpleader action. No interpleader was involved

here. National Union also was not a party to any bank-

ruptcy proceeding — certainly not one in which the court

explicitly retained jurisdiction to ensure enforcement of

its orders, as in State of Michigan v. City of Allen Park, 739

F.Supp. 1102, 1106 (E.D.Mich. 1990), aff'd, 954 F.2d 1201

(6th Cir. 1992).}5

Second, Delta’s argument of supplemental jurisdic-

tion under 28 U.S.C. § 1367 is undercut by the decisions

cited by Delta. In one decision, the court plainly held that

§ 1367 cannot serve as the basis for bankruptcy court

jurisdiction because § 1367 confers jurisdiction only to

district courts. The court noted that although 28 U.S.C.

§ 151 makes the bankruptcy courts units of the district

courts, § 151 also limits the bankruptcy judge’s authority

Ariel Maritime Group, Inc., 781 F.Supp. 248, 252 (S.D.N.Y. 1991)

(enforcement of prior judgments by collateral estoppel and

piercing of corporate veil).

'S Delta also was not ignorant of conflicting claims to the

money it paid into the registry of the bankruptcy court. None-

theless, Delta did not inform the court of National Union’s

competing claim to that money, and thus cannot claim the type

of protection accorded to an innocent purchaser in another case

cited by Delta. Julian v. Central Trust Co., 193 U.S. 93, 24 S.Ct.

399, 48 L.Ed. 629 (1904) (allowing injunction of state court pro-

ceeding against property, when judgment in state court was

rendered against prior owner, in suit in which purchaser of

property through judicial sale in federal court was not a party).

15

to “Title 28, chapter 6, specifically § 157.” In re Fisher, 15]

B.R. 895, 899 (Bankr. N.D.IIL. 1993).

Section 157(a) provides that a 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.” The U.S. District Court for the

Eastern District of Louisiana entered an order pursuant to

§ 157(a), providing that “any or all cases under Title 11 or

any or all proceedings arising under Title 11 or arising in

or related to a case under Title 11 filed in or transferred

or removed to this district” be referred to the bankruptcy

Judges of the district.!© The same phraseology was used

in the order of reference that applied in In re Fisher, supra.

The court in In re Fisher noted that the only “other

law” referred to in § 151 that might be applicable was

§ 1367, which applied only to district courts. In re Fisher,

151 B.R. 895, 899 (Bankr. N.D.III. 1993). The order of

reference in that case, as in this case, had not provided

for the referral of jurisdiction under § 1367, and even if it

had, “[a]ny additional referral of jurisdiction beyond that

aliowed by 28 U.S.C. § 157(a) would be subject to signifi-

cant constitutional concerns.” Id., 151 B.R. at 899 n.4

(Bankr. N.D.II. 1993).

The other cases cited by Delta involve the exercise of

removal jurisdiction over claims between parties already

joined in a bankruptcy-related case,!7 or the exercise of

'© See March 30, 1990 Order of Reference of Bankruptcy

Cases and Proceedings of the United States District Court for

the Eastern District of Louisiana.

'7 In one decision, a state court legal malpractice case was

removed to a bankruptcy court which had earlier approved an

16

pendent-party jurisdiction over third-party defendants.'*

As discussed above, Delta’s effort to block National

Union’s claim in state court was not sufficiently related to

the bankruptcy case to fall within § 1334's broad jurisdic-

tional grant as to cases “arising in or related to cases

under title 11” because “jurisdiction over nonbankruptcy

controversies with third parties who are otherwise

strangers to the civil proceeding and to the parent bank-

ruptcy does not exist.” In re Haug, 19 B.R. 223, 224-225

(Bankr. D.Ore. 1982).

Because Delta’s claims were not even “related to” a

case under Title 11, it makes no sense for Delta to claim

that its attempt to block National Union’s claims were “so

related” to claims in the prior adversary proceeding as to

form part of the “same case or controversy” under § 1367.

award of fees to the malpractice defendant. The bankruptcy

court held that it had supplemental jurisdiction of the malprac-

tice case because the quality, reasonableness and necessity of

the attorney’s work were essential facts of both matters so as to

make the malpractice case part of same case or controversy with

the attorneys’ fee litigation in the still-ongoing bankruptcy case.

In re W.J. Services, Inc., 139 B.R. 824 (Bankr. S.D.Tex. 1992). That

analysis seems unnecessary in light of the more straightforward

basis for removal jurisdiction under 28 U.S.C. §§ 1334 and 1452.

See, e.g., In re Griffith, 6 B.R. 753 (Bankr. D.N.M. 1980) (entire

case and not just claim by debtors could be removed pursuant to

former bankruptcy-related removal statute, 28 U.S.C. § 1478).

18 In re Joint Eastern & Southern District Asbestos Litigation,

769 F.Supp. 85, 86-87 (E. & S.D.N.Y. 1991) (Weinstein, J.) (pen-

dent-party jurisdiction exercised pursuant to 28 U.S.C. § 1367

over third-party defendants). In contrast, the bankruptcy court

in this case dismissed Delta’s third-party complaint against

National Union in the pre-existing adversary proceeding,

because Delta could state no claim under Bankruptcy Rule 7014,

the bankruptcy counterpart to Federal Rule of Civil Procedure

14. (See App. 23-29).

ee ee

17

It also makes no sense for Delta to try to invoke the

supplemental jurisdiction of the bankruptcy court over

the last two years, to the point of petitioning this Court

for certiorari, all to block a half-day trial on a $100,000

workers’ compensation claim in Louisiana state court.

Delta’s position, lacking in practical sense, lacks legal

justification just as plainly: if Delta’s claims were not

sufficiently “related to” a bankruptcy case to permit juris-

diction under 28 U.S.C. § 1334(a) or (b), then Delta’s

claims certainly were not so interwoven with the bank-

ruptcy to permit jurisdiction under 28 U.S.C. § 1367.

Delta’s petition should therefore be denied as to any

claims of supplemental jurisdiction.

(iii) The bankruptcy court lacked authority to issue

the disputed injunction pursuant to 11 U.S.C.

§ 105.

Delta claims that the bankruptcy court had authority

to issue the disputed injunction pursuant to 11] U.S.C.

§ 105. Section 105(a) authorizes the bankruptcy courts to

“issue any order, process, or judgment that is necessary

Or appropriate to carry out the Provisions of this title.” It

does not authorize boundless intervention by the bank-

ruptcy courts:

[I]t should be universally recognized that the

power granted to the bankruptcy courts under

section 105 is not limitless and should not be

employed as a panacea for all ills confronted in

the bankruptcy case. Section 105 does not allow

the bankruptcy court to Override explicit man-

dates of other sections of the Bankruptcy Code

or mandates of other state and federal statutes.

2 Collier on Bankruptcy Y 105.01[3] at p. 105-4 (15th ed.

1993).

18

The courts have generally found that only limited

authority exists to enjoin third parties under § 105, such

that “the court must find that failure to enjoin would

affect the bankruptcy estate and would adversely or det-

rimentally influence and pressure the debtor through that

third party.” In re Otero Mills, Inc., 21 B.R. 777, 778 (Bankr

D.N.M. 1982), aff'd, 25 B.R. 1018 (D.N.M. 1982).

Delta’s potential liability to National Union simply

could not threaten the bankruptcy estate of the former

debtors as required under Otero. For one thing, Delta

sought a permanent injunction long after the bankruptcy

estate ceased to exist and the debtors’ bankruptcy case

was dismissed. Even if a bankruptcy estate were at issue,

National Union could not “detrimentally influence” or

“pressure” the debtors through Delta. The debtors

already owed National Union reimbursement for

workers’ compensation payments, and National Union

seeks to hold Delta liable for acting in a way that de-

feated or at least impaired National Union’s ability to

collect from the debtors. Delta simply is not a party

whose fortunes would have directly affected the debtor.

Like the court in Otero, the Fifth Circuit has limited

the availability of injunctive relief under § 105, by requir-

ing the relief to be tailored to the Bankruptcy Code’s

demands:

[T]he powers granted by [§ 105] may be exer-

cised only in a manner consistent with the pro-

visions of the Bankruptcy Code. [The] statute

does not authorize the bankruptcy courts to cre-

ate substantive rights that are otherwise

unavailable under applicable law, or constitute a

roving commission to do equity.

ai maaan

19

United States v. Sutton, 786 F.2d 1305, 1308 (5th Cir.

1986).!9

In this case, the bankruptcy court improperly relied

on § 105 for exactly the purposes proscribed by the Fifth

Circuit — for authority “to create substantive rights” and

for a “roving commission to do equity.”

Delta also lacked standing to seek an injunction

under § 105. “Standing to bring the adversary proceeding

to enjoin the actions of a third party rests with the debtor,

debtor in possession, or the trustee, and not with the

third party.” 2 Collier on Bankruptcy 4 105.02[2] at p.

105-10 (15th ed. 1993), citing In the Matter of Venegas

Munoz, 73 B.R. 283, 285 (Bankr. D.P.R. 1987).

Delta ignores these obstacles to the propriety of the

instant injunction, arguing only that § 105 “authorizes

bankruptcy courts to issue injunctions and take other

necessary steps in aid of their jurisdiction.” (Delta’s Peti-

tion at p. 24, quoting U.S. v. Sutton, supra.) Delta’s only

other argument, that it is “threatened with civil double

jeopardy,” is absurd, because Delta is furiously trying to

avoid returning to the same state court that issued the

“final judgment” upon which Delta relies, and which

Delta improperly satisfied in bankruptcy court — without

informing National Union of its actions and without

'9 See also A.H. Robbins Co. v. Piccinin, 788 F.2d 994, 999-1002

(4th Cir. 1986), cert. denied, 479 U.S. 876, 107 S.Ct. 251, 93 L.Ed.2d

177 (1986), cert. denied sub nom. Committee of Representatives of

Dalkon Shield Claimants v. A.H. Robins, Inc., 479 U.S. 876, 107

S.Ct. 251, 98 L.Ed.2d 177 (1986) (§ 105(a) stays asked by debtors

to restrain extra-bankruptcy actions require unity of interest

between debtor and threatened third party, indemnification

obligation owing from debtor to threatened third party, or

debtor’s inevitable, burdensome involvement in ancillary litiga-

tion).

20

informing the bankruptcy court of National Union's

claims. Moreover, National Union contests Delta’s con-

duct after the final judgment was entered in state court,

because Delta effectively settled its obligations with the

debtors out of court and without notice to National

Union. Potential liability deriving from such post-judg-

ment conduct is not “double jeopardy” in any sense.

In sum, Delta would extend the ambit of § 105 well

beyond its bankruptcy-related purposes, and its petition

to this Court should thus be denied.

(iv) The bankruptcy court lacked authority to issue the

disputed injunction pursuant to 28 U.S.C. § 2283.

Delta also wrongly argues that the bankruptcy court

had authority to issue the disputed injunction pursuant

to 28 U.S.C. § 2283. The Anti-Injunction Act, 28 U.S.C.

§ 2283 bars the type of injunction granted by the bank-

ruptcy court in the instant case, unless it falls within one

of three limited exceptions:

A court of the United States may not grant an

injunction to stay proceedings in a State court

except as expressly authorized by Act of Con-

gress, or where necessary in aid of its jurisdic-

tion, or to protect or effectuate its judgment. 28

U.S.C. § 2283.

Delta’s arguments fall within the third exception, the

“relitigation exception.” The Fifth Circuit has explained

the scope of this exception:

The relitigation exception was “designed to per-

mit a federal court to prevent state litigation of

an issue that previously was presented to and

decided by the federal court. It is founded in the

well-recognized concepts of res judicata and col-

lateral estoppel.” Chick Kam Choo v. Exxon Corp.,

EEO

21

486 U.S. 140, 147, 108 S.Ct. 1684, 1689-90, 100

L.Ed.2d 127 (1988). The exception applies, how-

ever, only if the parties to the original action

actually disputed the issue and the trier of fact

actually resolved it. See James Talcott, Inc. v.

Allahabad Bank, Ltd., 444 F.2d 451, 459-60 (5th

Cir.), cert. denied, 404 U.S. 940, 92 S.Ct. 280, 30

L.Ed.2d 253 (1971).

Santopadre v. Pelican Homestead & Savings Association, 937

F.2d 268, 273 (5th Cir. 1991). In Santopadre, the builders

who litigated the specific issue of their alleged 12.5%

interest in a property were barred from bringing a new

action in Louisiana state court reurging the same claim,

because they had raised that claim and it had been

decided in the prior federal litigation. Id. at 273-274.

In the instant case, Delta asserts the “relitigation”

exception with respect to the issue of the forum in which

Delta was obligated to satisfy the judgment that it owed

the debtors, an issue that existed solely between Delta

and the debtors and was litigated solely between Delta

and the debtors. Neither Delta nor the debtors gave the

bankruptcy court notice of National Union’s related claim

for reimbursement of workers’ compensation benefits,

and neither Delta nor the Schwambs gave National Union

notice of the bankruptcy proceedings. The situation is

thus entirely different from the “relitigation” situation at

issue in Santopadre and other cases where a party to prior

litigation tries to reurge an issue or claim that has already

been fully adjudicated.

Delta nonetheless seeks to rely upon the bankruptcy

court’s April 5, 1988 order, which at most adjudicated the

proper forum in which Delta was obligated to satisfy the

judgment it owed the debtors. The relitigation exception,

22

founded in principles of res judicata and collateral estop-

pel, cannot bind National Union, a non-party to that

decision, on a different claim and different issues. At

most, the relitigation exception can be invoked to expand

the scope of a valid injunction to “include those in privity

with parties to the federal court action,”*° or to embrace a

non-party whose interest is so closely aligned with an

actual party’s interests that the party functions as the

non-party’s “virtual representative.”?! Neither situation

exists in the instant case, in which Delta and the debtors

effected the equivalent of an illicit, out-of-court settle-

ment without notice to National Union, the payor of

workers’ compensation benefits.”

Both Delta and the debtors left National Union and

the bankruptcy court to wander in such a vacuum that

the bankruptcy court itself was led to complain that

“t]he Court feels that an injustice has been done and that

if notice had been sent to all interested parties, we would

not be here today.” (App. 20.) Delta offers no cognizable

argument to justify its role in creating such a situation,

nor any argument to justify the bankruptcy court's

injunction as protecting or effectuating its orders and

20 Quintero v. Klaveness Ship Lines, 914 F.2d 717, 721 (5th Cir.

1990), cert. denied, 499 U.S. 925, 111 S.Ct. 1322, 113 L.Ed.2d 255

(1991).

21 Benson & Ford, Inc. v. Wanda Petroleum Co., 833 F.2d 1172,

1174-1175 (5th Cir. 1987).

22 St. Paul Fire & Marine Ins. Co. v. Whitmire, 578 So.2d 1180,

1183 (La.App.5th Cir. 1991), writ denied, 581 So.2d 707 (La. 1991);

Aetna Casualty & Surety Co. v. Hanover Ins. Co., 569 So.2d 1078,

1081 (La.App.3d Cir. 1990), aff'd, 574 So.2d 363 (La. 1991); Shiver

v. Wilson’s Department Store, 559 So.2d 864 (La.App.4th Cir.

1990).

23

decrees. Instead, the decisions cited by Delta undermine

Delta’s contentions.

For example, in Kokkonen v. Guardian Life Ins. Co. of

America, 62 U.S. 4313, 114 S.Ct. 1673, 128 L.Ed.2d 391

(1994), this Court refused to allow an exercise of ancillary

jurisdiction to enforce a settlement agreement when the

dismissal order entered by the court neither obligated the

Parties to perform the agreement nor provided for the

court to retain jurisdiction to enforce the agreement. Kok-

konen, __ U.S. at __, 114 S.Ct. at 1677 (1994). In the

instant case, the order relied upon by Delta likewise did

not even purport to touch upon National Union’s claim to

the money deposited by Delta into the registry of the

bankruptcy court, because Delta failed to inform either

the bankruptcy court or National Union of the full scope

of proceedings at the time.

In another decision, the federal court enjoined the

New York County Public Administrator from restraining

a decedent’s family members from qualifying as personal

representatives in a method already prescribed by the

federal court for the purpose of pursuing claims in fed-

eral court on behalf of the decedent. Complaint of Cosmo-

politan Shipping Co., S.A., 453 F.Supp. 268 (S.D.N.Y. 1978).

Delta was not the victim but the perpetrator of efforts to

undermine preexisting litigation, with its failure to advise

either National Union or the bankruptcy court of the full

scope of proceedings in 1988.

In still another decision, the court enjoined the plain-

tiff in a federal trade secrets case from using material

obtained through discovery in that case to pursue a suit

that the same plaintiff later filed in state court. Sperry

Rand Corp. v. Rothlein, 288 F.2d 245 (2d Cir. 1961). Unlike

in Rothlein, National Union intervened in state court in

24

1985, and amended its claims to include Delta in 1989

(App. 5-6). Delta first unsuccessfully sought summary

judgment against National Union in Louisiana state

court, and only later began its lengthy efforts to block

National Union in bankruptcy court (App. 25).

The same distinction applies to the decision in Olin

Corp. v. Insurance Co. of North America, 807 F.Supp. 1143

(S.D.N.Y. 1992), in which the court granted an injunction

pursuant to 22 U.S.C. § 2283 to bar Olin from relitigating

issues already decided by the federal district court. The

court in Olin noted this Court’s holding that “an essential

prerequisite for applying the relitigation exception is that

the claims or issues which the federal injunction insulates

from litigation in state proceedings actually have been

decided by the federal court.” Olin, 807 F.Supp. at 1153,

quoting Chick Kam Choo v. Exxon Corp., 486 U.S. 140, 148,

108 S.Ct. 1684, 1696, 100 L.Ed.2d 127 (1988).*5

In Olin, unlike the instant case, the federal court had

decided a choice of law issue prior to Olin’s effort to

obtain a different ruling in state court, and the federal

court thus enjoined relitigation of the issue pursuant to 28

U.S.C. §§ 1651 and 2283.24 In this case, Delta seeks to bar

23 See also Baker v. Gotz, 415 F.Supp. 1243 (D.Del. 1976). In

that case, a federal court invalidated a sequestration of funds

and ordered return of those funds. In a subsequent state court

action, plaintiffs obtained another sequestration order and con-

tinued to sequester the funds. The federal court ordered return

of all funds and enjoined any further sequestration pursuant to

state or federal court orders.

24 Delta cites the All Writs Act, 28 U.S.C. § 1651, only once,

and then without any explanation, in its petition to this Court.

(Petition at p. 24.) National Union can only infer that Delta

refers to the All Writs Act as the jurisdictional basis for the

25

“relitigation” of an issue never joined, Delta’s liability to

National Union, against National Union a party left out

of the bankruptcy proceedings until the debtors had paid

all of their other creditors and departed with the remain-

ing funds.

In sum, Delta seeks to bar “relitigation” of National

Union’s claim against Delta, an issue never joined against

a party never joined in bankruptcy court. Delta seeks

such relief despite the fact that Delta knew of National

Union’s claim when Delta deposited over $1 million in

the registry of the bankruptcy court, without informing

either the bankruptcy court or National Union of the full

scope of proceedings involving Delta and the debtors.

The Anti-Injunction Act bars Delta from seeking such

inappropriate relief, and Delta’s petition to this Court

should therefore be denied.

(v) Delta suffered no violation of due process.

The Fifth Amendment to the United States Constitu-

tion provides that:

No person shall be held to answer for a capital,

or otherwise infamous crime, unless on a pre-

sentment or indictment of a Grand Jury, except

in cases arising in the land or naval forces, or in

the Militia, when in actual service in time of War

requested injunction, as in Olin, supra. Because an injunction is

barred by the Anti-Injunction Act, National Union does not

fully brief whether a bankruptcy court could issue an injunction

pursuant to the All Writs Act. However, 28 U.S.C. §§ 1334 and

157 and the Order of Reference of the U.S. District Court for the

Eastern District of Louisiana (discussed above) do not appear to

have referred any authority to the bankruptcy court under the

All Writs Act. See In re Fisher, 151 B.R. 895, 899 (Bankr. N.D.III.

1993) (similar analysis of 28 U.S.C. § 1367).

26

or public danger; nor shall any person be subject

to the same offence to be twice put in jeopardy

of life or limb; nor shall be compelled in any

criminal case to be a witness against himself,

nor be deprived of life, liberty, or property,

without due process of law; nor shall private

property be taken for public use, without just

cor pensation.

Delta wrongly claims that it will be deprived of prop-

erty without due process of law unless this Court restores

the permanent injunction granted by the bankruptcy

court and overturned by the district court and the Fifth

Circuit. In making such a claim, Delta first ignores the

fact that it had its day in court and lost in the district

court and the US. Fifth Circuit Court of Appeals. Second,

Delta ignores the fact that it is only trying to enjoin a trial

in state court in which due process will presumably be

accorded to Delta.

Third, Delta ignores the due process considerations

in the only case it cites in support of a specific argument.

Delta makes the following query in its Petition to this

Court:

If “Fifth Amendment due process considerations

take precedence over the discharge provisions

of the Bankruptcy Code” where lack of notice is

involved, In re Eliscu, 85 B.R. 480, 482 (Bankr.

N.D.Ill. 1988), citing Mullane v. Central Hanover

Tr. Co., 339 U.S. 306 (1949) [sic], should not the

same considerations be paramount when a party

is threatened in state court with deprivation of

property as a direct consequence of its compli-

ance with a federal court order?

Petition at p. 16. In In re Eliscu, the court noted that due

process trumps the discharge provisions of the Bank-

ruptcy Code “where the debtor has knowledge of claims

a

27

and fails to inform claimants of the pendency of the

proceedings.” In re Eliscu, 85 B.R. 480, 482 (Bankr. N.D II].

1988). The court went on to quote this Court’s statement

in Mullane that:

An elementary and fundamental requirement of

due process in any proceeding which is to be

accorded finality is notice reasonably calculated

under all the circumstances, to apprise inter-

ested parties of the pendency of the action and

afford them an Opportunity to present their

objections.

Id., quoting Mullane v. Central Hanover Bank & Trust Co.,

339 U.S. 306, 70 S.Ct. 652, 94 L.Ed. 865 (1950).

Delta had full notice of the 1988 adversary proceed-

ing. It was National Union who was deprived of notice

and due process in the bankruptcy court. The debtors

filed a motion to compel deposit of funds on April 4, 1988

(App. 24) and the bankruptcy court granted it the next

day (id.). Delta then paid over one million dollars into the

registry of the bankruptcy court without telling the bank-

ruptcy court about National Union’s claim, and now com-

plains noisily about “civil double jeopardy” and

purported violations of due process. It was Delta who

created that situation when it did not Say a word to the

bankruptcy court nor to National Union. Delta could

have avoided all of its purported problems, and the situa-

tion later described by the bankruptcy court as “an injus-

tice” (App. 20).

Delta should have avoided the whole situation,

because Delta had an obligation to the court to inform the

court about National Union’s claim. Local Rule 1.05 of the

United States District Court for the Eastern District of

Louisiana provides as follows:

28

Whenever a civil matter, commenced in or

removed to the court, involves subject matter

that either comprises all or a material part of the

subject matter or operative facts of another

action, whether civil or criminal, then pending

before this or another court or an administrative

agency, or previously dismissed or decided by

this court, counsel shall append on a separate

sheet of paper, to the front of the complaint, a

list and description of all such actions then

known to counsel and a brief summary of the

relationship. If information concerning any such

action or proceeding is obtained subsequent to

the filing of the original pleading in the latter

case, tt shall be the duty of counsel obtaining such

information to notify the court and opposing coun-

sel in writing of the information so received in

the same manner.

(Emphasis added.)

The bankruptcy court found that Delta did not vio-

late Rule 1.05 because it was not Delta who commenced

the 1988 adversary proceeding (App. 15). However, the

emphasized portion of Rule 1.05 applies by its terms to

counsel for parties other than a plaintiff, and creates a

continuing duty. Rule 1.05 is simply a procedural vehicle

to implement the widely recognized duty of candor to the

tribunal. Rule 3.3 of the American Bar Association’s

Model Rules of Professional Conduct provides, in perti-

nent part, that “[a] lawyer shall not knowingly: (1) make

a false statement of material fact or law to a tribunal; [or]

(2) fail to disclose a material fact to a tribunal when

disclosure is necessary to avoid assisting a criminal or

fraudulent act by the client... . ” Comment [2] to that

29

Rule explains that “[t]here are circumstances where fail-

ure to make a disclosure is the equivalent of an affirma-

tive misrepresentation.”

As explained by Delta in its Petition, National Union

was entitled to reimbursement for workers’ compensation

payments “off the top” of the amount that Delta was

obligated to pay to the debtors. (Petition at pp. 5-6 n.4.)

Delta therefore stood to lose absolutely nothing by infor-

ming the bankruptcy court of National Union’s claim,

and Delta’s counsel had no reason to avoid such dis-

closure as it would not interfere with counsel’s zealous

representation of his client.

In this context, it is implausible for Delta to claim a

violation of due process. First, National Union, not Delta,

was deprived of notice. Second, any injury suffered by

Delta could have been avoided by Delta informing the

bankruptcy court or National Union of the full scope of

proceedings involving the debtors’ claim to the funds

deposited by Delta. Third, Delta seeks to perpetuate an

injustice to National Union which was, at least in part,

causea by Delta’s own failure to disclose National

Union’s claim to the bankruptcy court seven years ago.

For these reasons, Delta’s petition should be denied.

CONCLUSION

For the reasons stated above, petitioner, Delta Air-

lines, Inc. has not shown any error in the decisions of the

U.S. Fifth Circuit Court of Appeals and the United States

District Court for the Eastern District of Louisiana, which

properly reversed a decision of the United States Bank-

ruptcy Court for the Eastern District of Louisiana. Nei-

ther has Delta shown any other basis for this Court to

grant Delta’s petition for writ of certiorari.

30

Respondent, National Union Fire Insurance Com-

pany of Pittsburgh, Pennsylvania, therefore requests that

this Court deny Delta’s petition for writ of certiorari.

Respectfully submitted,

STEPHEN THOMAS PERKINS

(Louisiana State Bar No. 21014)

DoNALD ALFRED HOFFMAN

DONALD BURNHAM ENSENAT

HOFFMAN, SUTTERFIELD, ENSENAT

& BANKSTON

A Professional Law Corporation

650 Poydras Street, Suite 2100

New Orleans, Louisiana 70130-6121

Telephone (504) 523-1385

Attorneys for Respondent