Fleetwood Homes of Georgia v. Morrison

Citations: 263 B.R. 646; 2000 WL 33356834Docket: CIV. A. CV500-67. Bankruptcy No. 97-50713

Court: District Court, S.D. Georgia; November 17, 2000; Federal District Court

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On May 1, 2000, the United States Bankruptcy Court for the Southern District of Georgia issued a summary judgment in favor of Terry Morrison, ruling that Fleetwood Homes of Georgia could not impose a fee for administering a salary deduction order related to Morrison's Chapter 13 bankruptcy plan. Fleetwood appealed this decision, citing several errors, including a claim of lack of subject matter jurisdiction.

Morrison filed for Chapter 13 bankruptcy on June 30, 1997, with his plan confirmed later that year. The bankruptcy court had previously ordered Fleetwood to deduct a portion of Morrison's salary for remittance to the chapter 13 trustee, who distributes these funds to creditors. Although Fleetwood complied with the order, it began charging Morrison a fee of $3.00 to $5.00 per paycheck for administering the deductions, which was deducted from Morrison's earnings but not from the amount sent to the trustee. The deduction order neither authorized nor prohibited this fee, and Fleetwood did not seek court approval before implementing it.

Morrison filed a complaint on September 1, 1999, alleging violation of the automatic stay and seeking turnover of the deducted fees. The bankruptcy court initially held a hearing on February 23, 2000, where Judge Walker indicated that an injunction would be granted if filed. Morrison subsequently filed for a permanent injunction, which was ultimately denied, but the court granted summary judgment in favor of Morrison on May 1, 2000, mandating that Fleetwood refund the deducted fees.

In its appeal, Fleetwood contended that the bankruptcy court lacked subject matter jurisdiction, that the fee was not part of the estate and thus not protected by the automatic stay, and that interpreting the deduction order to prohibit the fee violated its due process rights. Fleetwood also questioned the court's authority to issue the injunction. Morrison did not file a response to the appeal. Ultimately, the district court vacated the bankruptcy court's order and dismissed the case for lack of subject matter jurisdiction.

A bankruptcy court's findings of fact are subject to the clearly erroneous standard of review, while conclusions of law are reviewed de novo. The primary issue on appeal is whether the fee in question constitutes property of the bankruptcy estate, which involves interpreting the Bankruptcy Code—a legal matter reviewed de novo. 

The court determines that the bankruptcy court lacks jurisdiction over the case, as it operates under limited jurisdiction parameters established by precedent. Bankruptcy courts can only hear matters that arise under or are related to Title 11 of the U.S. Code. Core proceedings, which allow for final rulings, include cases directly invoking substantive rights under Title 11 or those that could only exist in a bankruptcy context. Non-core proceedings related to Title 11 allow the bankruptcy court to issue proposed findings rather than final rulings.

The bankruptcy court characterized the current dispute as a core matter, citing jurisdiction under sections 157(b)(2)(A) for estate administration and 157(b)(2)(E) for orders to turn over property of the estate. However, the court disagrees with this characterization, asserting that neither of the jurisdictional grounds presented—Appellee's claim that post-petition earnings are property of the estate or the bankruptcy court's assertion of authority to enforce its orders—sufficiently establishes core jurisdiction. Consequently, the court concludes that the bankruptcy court's jurisdiction is not valid, and the case must be dismissed.

The bankruptcy court determined that the fee deducted by Appellant is not part of the bankruptcy estate, as it derives from the portion of Appellee's salary paid directly to the debtor rather than the chapter 13 trustee. Appellee argued that this income should still be considered property of the estate based on 11 U.S.C. § 541(a)(6) and interpretations from case law, including In re Ballard. However, the Eleventh Circuit's Telfair v. First Union Mortgage Corp. clarified that Appellee's interpretation was incorrect and that these fees are not estate property. The Telfair court emphasized that provisions of the Bankruptcy Code must be read in conjunction with § 1306(b), which states the debtor retains possession of estate property unless directed otherwise by a confirmed plan. Three approaches have emerged regarding the status of estate property post-confirmation, with the Eleventh Circuit adopting a compromise view that only property necessary for executing the plan remains estate property. Consequently, since the deducted fee comes from the debtor's portion and not from plan payments, it is not estate property, negating jurisdiction in bankruptcy court over this matter.

Regarding jurisdiction related to the deduction order, the bankruptcy court acknowledged that the fee is not estate property but asserted that the fundamental issue pertains to Appellant's compliance with court orders. The court identified this situation as a core proceeding, asserting that noncompliance would grant the court jurisdiction to enforce its orders. Nevertheless, since Appellant complied with the deduction order, the court found no jurisdiction over the dispute, emphasizing Appellant's obligation to adhere to court orders to avoid contempt.

No allegations of noncompliance were made against Appellant, who has adhered to all directives from the bankruptcy court. Appellant has withheld funds from Appellee's salary and made timely payments to the trustee, without violating any explicit prohibitions in the court's order. The order did not impose costs of compliance on Appellant or require Appellant to seek court relief before charging fees to the debtor. Furthermore, there is no evidence that Appellant's compliance depends on the court's decision regarding fee collection. The bankruptcy court suggested that Appellant should have anticipated bearing the costs of compliance but provided no explicit directive to that effect. Cited cases underscore that parties must ensure their own compliance costs, but those cases involved parties defying court orders, unlike Appellant's situation of full compliance. As such, Appellant's actions do not fall under the bankruptcy court's core jurisdiction. The funds in question are not estate property, and Appellee's claim does not arise from federal bankruptcy law but rather from general principles regarding unauthorized money transfers. Consequently, the dispute does not meet the criteria for core jurisdiction. Appellee also failed to demonstrate non-core jurisdiction, which requires a matter to be related to a bankruptcy case if it does not arise directly under one. Since the funds are not part of the estate, the dispute cannot be maintained in bankruptcy court unless it is likely to affect the debtor's estate, which it does not.

The outcome of the case influences the estate when it affects the debtor’s rights, liabilities, options, or freedom of action, and impacts the administration of the bankrupt estate. It is insufficient for the matter to merely affect the debtor; it must directly impact the estate. Neither the Appellee nor the bankruptcy court has provided justification for non-core jurisdiction or evidence for 'related to' jurisdiction regarding the case at hand. Consequently, there is no basis for the bankruptcy court's jurisdiction, necessitating dismissal for lack of subject matter jurisdiction.

Even if jurisdiction were established, the case would still be dismissed. The Appellee's complaint claims a fee violates the automatic stay, which only applies if the fee is considered property of the estate. Since the fee does not qualify as property of the estate, the Appellee is not entitled to relief. Additionally, the Appellee has not amended the complaint or presented alternative claims, further justifying dismissal.

The Appellant raises two additional claims: that the deduction order interpretation denies due process by taking property without a hearing, and that the bankruptcy court improperly granted an injunction without applying a required four-factor test. However, these arguments are rendered moot due to the case's dismissal.

In conclusion, the court finds no grounds for jurisdiction, leading to the vacating of the bankruptcy court's order and dismissal of the case for lack of subject matter jurisdiction.