Case Against Supplemental Bankruptcy Jurisdiction: A Constitutional, Statutory, and Policy Analysis
Case Against Supplemental Bankruptc y Jurisdiction: A Constitutional, Statutor y, and Polic y Analysis
Susan Block-Lieb 0 1
0 Susan Block-Lieb, Case Against Supplemental Bankruptcy Jurisdiction: A Constitutional , Statutory, and Policy Analysis, 62 Fordham L. Rev. 721 (1994). Available at:
1 Fordham University School of Law
In this Article ProfessorBlock-Lieb criticallyexamines the power of a federal
district or bankruptcy court to adjudicate jurisdictionally insufficient claims
which arise out of a common nucleus of operativefact with a proceeding which
"'arisesunder" the Bankruptcy Code, or "'arisesin" or "relatesto" a bankruptcy
case. After considering Article III of the United States Constitution, relevant
statutory provisions-includingthe newly enacted supplementaljurisdictional
provision (28 U.S.C.§ 1367)-andthe conflictingpolicy objectives of these
statutoryprovisions,the Article concludes that a districtcourt's
adjudicationofsupplemental claims related to a "related to" proceeding may be unconstitutional.
unauthorizedby statute,and inconsistentwith theprimarypurposeofbankruptcy
jurisdiction-theefficient administrationof a bankruptcy estate. As to a district
court's exercise ofjurisdictionover supplementalclaims related to an "arising
under" or "arising in" proceeding, it proposes that a balancing approach be
adopted It also contends that additionalconstitutionalconcernsare raisedwhen
a non-Article III bankruptcy court exercises any form of supplemental
bankruptcy jurisdiction, and advocates limiting the power of bankruptcy courts
TABLE OF CONTENTS
1. Bankruptcy Amendments and Federal Judgeship Act
of 1984 ............................................
2. Bankruptcy Reform
Act of 1978 ....................
B. Supplemental Jurisdiction ..............................
3. Pendent-Party or Ancillary Jurisdiction for Claims
by Plaintiffs ........................................
II. The Exercise of Supplemental Bankruptcy Jurisdiction
Under the Bankruptcy Code ...............................
• Associate Professor, Seton Hall University School of Law; B.A. and J.D.,
University of Michigan. Many thanks to John Gibbons, Gene Gressman, Ed Hartnett, Dick
Lieb, Denis McLaughlin, and Charlie Sullivan for their helpful comments on prior drafts.
Thanks are also due to Mollie O'Brien, who provided tireless research assistance.
A. A Review of the Case Law Supporting Supplemental
Bankruptcy Jurisdiction................................ 744
1. Courts of Appeals ................................. 744
2. District Courts .................................... 746
3. Bankruptcy Courts ................................. 746
a. Ancillary Jurisdiction ........................... 747
b. Pendent-PartyJurisdiction ...................... 752
B. A Review of the Case Law Rejecting Supplemental
Bankruptcy Jurisdiction ................................ 754
III. The Case Against Supplemental Bankruptcy Jurisdiction ....757
A. The ConstitutionalQuestions ........................... 758
1. Constitutional Questions Surrounding the Exercise of
Supplemental Bankruptcy Jurisdiction by a District
Court ............................................. 758
a. Supplemental Jurisdiction,Rather Than Pendent
b. Bankruptcy Jurisdiction,Rather Than Federal
Question Jurisdiction............................ 761
(i) Substantiality .............................. 763
(a) Bankruptcy Jurisdictionas "Arising
Under" Jurisdiction ................... 769
(b) Bankruptcy Jurisdictionas
(ii) Relatedness ............................... 784
2. Constitutional Questions Surrounding the Exercise of
Supplemental Bankruptcy Jurisdiction by
NonArticle III Bankruptcy Courts ...................... 791
a. Non-Article III Bankruptcy Courts ............... 791
(i) Bankruptcy Act of 1898 ................... 791
(ii) Bankruptcy Reform Act of 1978 ........... 792
(iii) 1984 Amendments ......................... 795
b. Supplemental Jurisdictionas an Essential
Attribute of JudicialAuthority ................... 797
B. Did Congress Expressly Intend To Confer Supplemental
Bankruptcy Jurisdiction?............................... 799
1. "Except... as Expressly Provided Otherwise by
Federal Statute" . .................................. 800
2. "In Any Civil Action of Which the District Courts
Have Original Jurisdiction, the District Courts Shall
Have Supplemental Jurisdiction" ................... 804
3. "Related to Claims in the Action Within Such
Original Jurisdiction" ............................. 804
a. Section 1367(a)'s Use of the Phrase "Original
Jurisdiction"May Refer to Statutory Grants of
"OriginalJurisdiction"..... .................... 805
b. Section 1367(a)'s Use of the Phrase "Original
Jurisdiction"May Refer to the Categoriesof Cases
and ControversiesEnumerated in Article III of
the United States Constitution ...................
c. Section 1367(a)'s Use of the Phrase "Original
Jurisdiction"May Refer to "Non-Supplemental
Jurisdiction"of District Courts ..................
4. "The District Courts Shall Have Supplemental
Supplemental Bankruptcy Jurisdiction ......................
A. A PrincipalPurpose of Bankruptcy Jurisdictionis to
Facilitatethe Resolution of an Estate ................... 811
B. Policy JustificationsGenerally Favoringan Exercise of
Supplemental JurisdictionAre Subject to Countervailing
Policy Concerns in the Context of a Bankruptcy Case ....826
C. CongressShould Amend § 1367(c)s Factorsto Reflect
OMPLEX bankruptcy cases' breed complex
litigation-proceedings2 involving multiple claims3 among multiple parties. As to each
claim and party, subject matter jurisdiction must exist for a court to have
the power to adjudicate the proceeding. Although the scope of
bankruptcy jurisdiction4 is broad, it is not without limits. A creature of
statute,5 bankruptcy jurisdiction is defined to include6 civil proceedings
contexts. Moreover, the term "claim" appears to have two meanings in bankruptcy,
depending upon whether the reference is intended as substantive or procedural.
Outside of bankruptcy, the term "claim" refers to a "claim for relief" and includes "an
original claim, counterclaim, cross-claim, or third-party claim." Fed. R. Civ. P. 8(a).
Together, the Federal Rules of Civil Procedure refer to factually related claims permitted
to be, and actually, joined together as a "civil action." See Fed. R. Civ. P. 2 ("There shall
be one form of action to be known as 'civil action.' "); Fed. R. Civ. P. 3 ("A civil action is
commenced by filing a complaint with the court.").
By contrast, the Bankruptcy Code defines "claim" to mean "right to payment, whether
or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent,
matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured." 11
U.S.C. § 101(5) (Supp. IV 1992). The term "claim" appears to have a second meaning
when used in a procedural context in bankruptcy, however. The Federal Rules of
Bankruptcy Procedure refer generally to "adversary proceedings" and "contested matters" as
the litigation units which occur in the context of a title 11 case. See Fed. R. Bankr. P.
7001 (defining adversary proceeding); Fed. R. Bankr. P. 9014 (defining contested
matters). Although the bankruptcy procedural rules do not explicitly state whether
"adversary proceedings" or "contested matters" are intended to parallel the terms "civil action"
or "claim" used in a non-bankruptcy context, they impliedly correlate bankruptcy
"proceedings"-whether "adversary proceedings" or "contested matters"--with
non-bankruptcy "civil actions." First, they do not incorporate Fed. R. Civ. P. 2 to bankruptcy
procedure. See Fed. R. Bankr. P. 7002 (containing no reference to Fed. R. Civ. P. 2,
although other rules in Part VII incorporate civil procedural rules having same number
as last digit of bankruptcy procedural rule). Second, they do incorporate Fed. R. Civ. P.
8 to bankruptcy procedure, including the distinction drawn between an "[original]
complaint, counterclaim, cross-claim, or third-party complaint." Fed. R. Bankr. P. 7008
(incorporating Rule 8 with additions not relevant here).
To avoid confusion, this Article uses "claim" in its procedural context to refer to units
of litigation existing within a "civil action" (in a non-bankruptcy context) or
"proceeding" (in a bankruptcy context). When referring to "a right of payment," this Article
either uses the phrase "proof of claim," see infra note 19 (defining "proof of claim"), or
characterizes the "claim" as being either unsecured or secured.
4. See 28 U.S.C. § 1334 (1988 & Supp. IV 1992). Throughout this Article,
"bankruptcy jurisdiction" is referred to as the jurisdiction over bankruptcy cases and the
litigation they involve which Congress has granted by statute to the federal courts. See 28
U.S.C. § 1334 (1988 & Supp. IV 1992) (conferring bankruptcy jurisdiction in district
courts). Intertwined with, but distinct from, any discussion of the scope of bankruptcy
jurisdiction, is the issue of which federal court is empowered to exercise this
jurisdiction-most recently, whether bankruptcy jurisdiction is to be exercised by Article III
district courts or non-Article III bankruptcy courts. See 28 U.S.C. § 157 (1988); see also
infra part III.A.2 (describing allocation of jurisdiction between non-Article III
bankruptcy courts and Article III district courts under § 157).
5. Like all federal jurisdiction, bankruptcy jurisdiction is limited by its statutory
grant, found in 28 U.S.C. § 1334. See, e.g., FDIC v. Majestic Energy Corp. (In re
Majestic Energy Corp.), 835 F.2d 87, 89 (5th Cir. 1988) ("Bankruptcy courts are courts of
limited jurisdiction, with their scope defined by statute.").
6. In addition to the grant of bankruptcy jurisdiction over proceedings "arising
under title 11," and "arising in and related to cases under title 11," found in 28 U.S.C.
§ 1334(b), § 1334(a) also grants "exclusive jurisdiction of all cases under title 11," and
§ 1334(d) grants "exclusive jurisdiction of all the property, wherever located, of the
debtor as of the commencement of such case, and of property of the estate." 28 U.S.C.
§ 1334(a), (b), (d) (1988 & Supp. IV 1992).
which either "arise under" title 11,' or "arise in ' or are "related to" a
title 11 case.9
What of proceedings which neither "arise under title 11" nor "arise
in" or "relate to" a title 11 case, but which arise out of the same nucleus
of facts as a proceeding over which bankruptcy jurisdiction clearly
exists? Do either district courts or bankruptcy courts have the power to
adjudicate a jurisdictionally insufficient proceeding which is factually
related to an "arising under," "arising in," or "related to" proceeding?' If
so, under what circumstances should this power be exercised?
As an example," consider first an avoidance action brought by the
trustee in bankruptcy' 2 against several defendants alleged to have
received fraudulent13 and preferential transfers.' 4 The trustee's suit "arises
7. For a proceeding to "arise under" title 11, the proceeding must derive from a
provision of the Bankruptcy Code, which comprises title II of the United States Code.
See infra notes 66-74 and accompanying text.
8. A proceeding "arises in" a title I1 case if it could not have been brought had the
liquidation or reorganization case not been commenced. See infra notes 75-84 and
9. A proceeding is sufficiently "related to" a title 11 case for purposes of satisfying
the bankruptcy jurisdictional requirements if it "affects the amount of property available
for distribution or the allocation of property among creditors." Elscint, Inc. v. First Wis.
Fin. Corp. (In re Xonics, Inc.), 813 F.2d 127, 131 (7th Cir. 1987). See infra notes 85-98
and accompanying text.
10. The power to adjudicate jurisdictionally insufficient state law claims or
proceedings factually related to jurisdictionally sufficient claims or proceedings refers to the
doctrine ofsupplemental jurisdiction. Supplemental jurisdiction is the term currently used to
describe the doctrines of ancillary and pendent jurisdiction. See infra notes 102-38 and
accompanying text (discussing historical development of ancillary, pendent-claim, and
pendent-party jurisdiction, and codification of these doctrines by supplemental
jurisdictional provision-28 U.S.C. § 1367).
11. For a case involving similar allegations, see Wieboldt Stores, Inc. v. Schottenstein,
111 B.R. 162 (N.D. Ill. 1990); see alsoinfra notes 149-51 and accompanying text
(discussing Wieboldt in detail); Spaulding & Co. v. Buchanan (In re Spaulding & Co.), 131 B.R.
84 (N.D. Ill. 1990) (with similar facts, district court held that third-party action did not
"relate to" chapter 11 case, but did not address possibility of exercise of supplemental
12. A bankruptcy trustee is appointed in each chapter 7, 12, and 13 case. See Il
U.S.C. §§ 701, 702, 703, 1202(a), 1302(a) (1988). A trustee may be appointed in a
chapter 11 case, but only "for cause, including fraud, dishonesty, incompetence, or gross
mismanagement of the affairs of the debtor by current management," or "if such
appointment is in the interests of creditors, any equity security holders, and other
interests of the estate." 11 U.S.C. § 1104(a)(
) (1988). The duties of a trustee include an
"investigat[ion of] the financial affairs of the debtor." 11 U.S.C. § 704(4) (1988). See also
11 U.S.C § 1106(a)(3) (1988) (incorporating similar duties of investigation "except to the
extent that the court orders otherwise"); § 1202(b)(
) (1988) (incorporating similar duties
of investigation but only if, after requested by a party in interest, the court so orders "for
cause"); § 1302(b)(
) (1988) (generally incorporating duty of investigation).
13. See 11 U.S.C. § 548 (a) (1988) (permitting trustee to avoid transfer made, or
obligation incurred, by debtor within year before date of filing of petition if (
) transfer was
made, or obligation incurred, "with actual intent to hinder, delay, or defraud any entity
to which the debtor was or became... indebted" or (
)(A) debtor "received less than a
reasonably equivalent value in exchange for such transfer or obligation" and (B) was
insolvent, insufficiently capitalized or intended to incur debts beyond its ability to repay
either at the time of the transfer or as a result of the transfer).
under" 11 U.S.C. §§ 548 and 547, and thus bankruptcy jurisdiction
clearly exists.15 Assume further that the defendants bring a third-party
complaint in which they seek contribution from their former lawyers and
accountants. They claim that if their transaction with the debtor is
avoidable as a preference or fraudulent transfer, then these professionals
committed malpractice and are liable to the defendants to the extent of
the defendant's liability to the trustee. Because the third-party action is
predicated solely on state law, it does not "arise under title 11. ' ' 16 Nor is
it likely that the defendants' malpractice action "arose in" the debtor's
bankruptcy case. 17 Finally, resolution of the third-party suit may not be
"related to" the bankruptcy case as it may have no conceivable effect on
distributions to creditors in, or the administration of, the debtor's
bankruptcy estate. Thus, if there is jurisdiction over the third-party action it
must exist only because it shares "a common nucleus of operative fact"'I8
with the trustee's avoidance action sufficient to create supplemental
Consider a different scenario in which a creditor files a proof of claim 9
against the debtor's bankruptcy estate.2 ° In the claim, the creditor seeks
a distribution from the estate based on an alleged loan agreement with
the debtor. The debtor timely objects to the claim and defends 2' against
contractual liability on the grounds that the loan agreement violated
14. See 11 U.S.C. § 547(b) (1988) (permitting trustee to avoid transfers of "an interest
of the debtor in property" made "to or for the benefit of a creditor" and "on account of
an antecedent debt;" debtor must have been insolvent at time of transfer, and transfer
must have occurred within 90 days before filing of bankruptcy petition, unless transferee
is an insider, in which case, a one year reach back period applies; transfer must enable
creditor to receive more than it would have if the "case were a case under chapter 7 of
this title," transfer had not been made and "creditor [had] received payment of such debt
to the extent provided by the provisions of this title").
15. The question of which court-the district or bankruptcy court-will hear and
determine the proceeding is a distinct one, governed by 28 U.S.C. § 157 (1988). See supra
note 4; infra notes 416-24 and accompanying text. Under this statute, the trustee's
avoidance action clearly constitutes a "core proceeding," 28 U.S.C. § 157(b)(
)(H), which the non-Article III bankruptcy judge can "hear and determine." 28
U.S.C. § 157(b)(
16. See infra notes 66-74 and accompanying text.
17. See infra notes 75-84 and accompanying text.
18. See United Mine Workers v. Gibbs, 383 U.S. 715 (1966); see also infra notes
11618 and accompanying text (discussing Gibbs's common nucleus of fact standard).
19. See 11 U.S.C. § 501(a) (1988) (enabling creditor or indenture trustee to file proof
of claim); see also Fed. R. Bankr. P.3001 (a) (defining proof of claim as "written statement
setting forth a creditor's claim"); Official Forms No. 19 (general proof of claim); Official
Forms No. 20 (proof of claim for wages, salary, or commissions); Official Forms No. 21
(proofof multiple claims for wages, salary, or commissions); see generally, 11 U.S.C.
§ 101(5) (Supp. IV 1992) (defining "claim" as "right to payment," irrespective of form or
20. See 11 U.S.C. § 541(a) (1988) (providing that commencement of a case creates an
estate comprised of all "legal or equitable interests of debtor in property as of" such
21. See Fed. R. Bankr. P. 3007 (setting forth procedure for objections to a claim and
providing that "[i]f an objection to a claim is joined with a demand for relief of the kind
specified in Rule 7001, it becomes an adversary proceeding").
state usury law.2 2 Although the merits of the creditor's claim will be
determined solely with respect to state contract and usury laws, the
litigation between the debtor and creditor on the proof of claim is a
proceeding that "arises in the title 11 case," and thus bankruptcy
jurisdiction exists to resolve the dispute in federal court. 23 Assume
further that the creditor brings a third-party complaint against its attorneys,
alleging that if the debtor's usury objections to its claim are upheld then
its attorneys are liable to it in an equal amount in malpractice. The
malpractice action neither "arises under title 11, '24 nor "arises in"' or
"relates to" the title 11 case.26 Thus, federal jurisdiction exists, if it exists at
all, because the malpractice action arises out of "a common nucleus of
operative fact"27 with the proof of claim litigation.
Consider a final example involving litigation between two
creditorsBank A and Bank B-who both claim a first priority security in the same
collateral.28 Because the collateral is not valuable enough to repay both
creditors and leave something for the holders of unsecured creditors or
the debtor, the trustee in bankruptcy has abandoned it.29 As a result of
the abandonment, the property is no longer property of the estate. 30
Despite this seeming lack of connection between the estate and the
creditors' litigation, bankruptcy jurisdiction exists over this proceeding if one
of the creditors is undersecured on the theory that it is "related to" the
22. See I I U.S.C. § 502(b)(
) (1988) (providing that a claim shall be disallowed to the
extent that the claim is unenforceable under "applicable law for a reason other than
because such claim is contingent or unmatured").
23. Even if the debtor's usury contentions are structured as a counterclaim to the
proof of claim, the debtor's counterclaim will likely be viewed as "arising in" the title 11
case. See 28 U.S.C. § 157(b)(
)(C) (1988) (defining "core proceedings" as including
"counterclaims by the estate against persons filing claims against the estate"); see also
infra notes 75-84 and accompanying text (discussing "arising in" jurisdiction in greater
24. The malpractice action does not "arise under" title I1 because it derives from
state law, rather than federal bankruptcy law. See infra notes 66-74 and accompanying
25. The malpractice action does not "arise in" the bankruptcy case because the lender
might have brought a malpractice action outside the context of the debtor's bankruptcy
case. See infra notes 75-84 and accompanying text.
26. The malpractice action does not "relate to" the debtor's bankruptcy case because
it will have no conceivable effect on distributions to creditors or the administration of the
bankruptcy estate. See infra notes 85-98 and accompanying text. Whether the creditor's
attorneys committed malpractice or not, the estate's liability to the creditor will turn
solely on the validity of the lending agreement in light of state usury laws.
27. United Mine Workers v. Gibbs, 383 U.S. 715, 725 (1966); see alsoinfra notes
11618 and accompanying text (discussing Gibbs's common nucleus of fact standard).
28. This hypothetical is loosely based on the facts of Elscint, Inc. v. First Wis. Fin.
Corp. (In re Xonics, Inc.), 813 F.2d 127 (7th Cir. 1987). In Xonics, however, neither
lender brought a third-party malpractice action.
29. See 11 U.S.C. § 554 (1988) (permitting trustee to "abandon any property of the
estate that is burdensome to the estate or that is of inconsequential value and benefit to
30. See, eg., Killebrew v. Brewer (In re Killebrew), 888 F.2d 1516, 1520 (5th Cir.
1989) (defining abandonment as "irrevocable removal of property from the estate").
bankruptcy case.3 Where either Bank A or Bank B is undersecured, the
result of the litigation between them will "affect[ ] the amount of
property available for distribution or the allocation of property among
creditors"3 2 because a determination that the undersecured creditor holds a
first priority security interest in the collateral will reduce the unsecured
portion of its claim against the estate and, as a result, increase
distributions to other creditors of the debtor.3 3 Assume further that Bank A
brings a third-party complaint against its attorneys, alleging that if it is
found not to hold a first priority security interest in the collateral then its
attorneys have committed malpractice in documenting and recording the
financing transaction. This malpractice action neither "arises under title
11,'' 4 nor "arises in"" or "relates to"36 the debtor's bankruptcy case.
Federal jurisdiction exists over the malpractice action, if it exists at all,
because the creditors' priority dispute and the malpractice action arise
out of "a common nucleus of operative fact."'37
There exists ample precedent for the assertion of jurisdiction
supplemental to other grants of federal jurisdiction in general non-bankruptcy
civil litigation.38 Further, with its enactment of the Judicial
Improvements Act of 1990, Congress expressly provided in 28 U.S.C. § 1367(a)
for a broad grant of 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. ' 39 But did Congress intend that § 1367(a)
31. The term "undersecured" is used to refer to a claim secured by collateral
insufficient in value to repay the claim in full. See 11 U.S.C. § 506(a) (1988) (defining "claim of
a creditor secured by a lien on property in which the estate has an interest" as secured "to
the extent of the value of such creditor's interest in the estate's interest in such property"
and unsecured "to the extent that the value of such creditor's interest ... is less than the
amount of such allowed claim").
32. Elscint, Inc. v. First Wis. Fin. Corp. (In re Xonics), Inc., 813 F.2d 127, 131 (7th
33. See id.
34. See infra notes 66-74 and accompanying text.
35. See infra notes 75-84 and accompanying text.
36. See infra notes 85-98 and accompanying text.
37. See United Mine Workers v. Gibbs, 383 U.S. 715, 725 (1966); see also infra notes
116-18 and accompanying text (discussing Gibbs's common nucleus of fact standard).
38. See infra notes 102-38 and accompanying text.
39. 28 U.S.C. § 1367(a) (Supp. IV. 1992). Section 1367 provides in its entirety as
would apply in the bankruptcy context and support an assertion of
jurisdiction supplemental to a proceeding "arising under" title 11, or "arising
in" or "related to" a title 11 case?
Courts of appeal," district courts, 4 ' and bankruptcy courts4 2 have
nearly uniformly4 3 concluded that there exists jurisdiction supplemental
to bankruptcy jurisdiction. This uniformity of decision exists whether
the decision involved former Bankruptcy Acts" or the current
Bankruptcy Code,45 and whether or not the decision pre-dated enactment of
28 U.S.C. § 1367, the supplemental jurisdiction provision enacted with
the Judicial Improvements Act of 1990.41
This Article contends that neither 28 U.S.C. § 1367 nor Article III of
the United States Constitution authorize the exercise of jurisdiction
supplemental to the grant of bankruptcy jurisdiction granted by 28 U.S.C.
§ 1334(b).4' It also argues that because courts have exceeded these
limitations, Congress should enact express limitations to the exercise of
supplemental bankruptcy jurisdiction.
Part I of this Article begins with general discussions of the historical
development of both bankruptcy jurisdiction and supplemental
jurisdiction. Part II analyzes the decisions in which courts have found
supplemental bankruptcy jurisdiction under the current Bankruptcy Code.48
Part III criticizes this case law, presenting constitutional and statutory
arguments against the exercise of supplemental bankruptcy jurisdiction
by federal district courts. This section concludes, first, that where
jurisdictionally deficient proceedings have "a common nucleus of operative
fact" 49 with state law proceedings50 between non-diverse citizens 5 that
merely "arise in"or "relate to" a title 11 case,5 2 an exercise of
supplemental jurisdiction may exceed the limits of Article III of the United
States Constitution.5 3 Moreover, irrespective of the nature of the
primary claim,54 where a non-Article III bankruptcy judge exercises
supplemental bankruptcy jurisdiction, additional constitutional concerns
exist." Second, § 1367(a) is ambiguous as to its application to
bankruptcy proceedings. Ambiguities in the bankruptcy56 and supplemental'
jurisdictional provisions should be resolved, if at all possible, to avoid
reaching these constitutional questions. 8
Even assuming that supplemental bankruptcy jurisdiction is both
constitutionally and statutorily authorized, part IV argues on policy grounds
that Congress should amend either 28 U.S.C. § 1334 (the bankruptcy
jurisdictional provision), or 28 U.S.C. § 1367 (the supplemental
bankruptcy case.5 9
tional provision), or both, to preclude the exercise of supplemental
bankruptcy jurisdiction except when necessary to expedite resolution of a
The scope of bankruptcy jurisdiction was expanded with the
enactment of the current bankruptcy jurisdictional provisions first enacted in
and reenacted in 1984.61
This section discusses the breadth of
these bankruptcy jurisdictional provisions.
Bankruptcy Amendments and Federal Judgeship Act of 1984
Currently, 28 U.S.C. § 1334 provides three distinct grants of
First, "district courts... have original and
exclu59. See infra part IV.
60. See 28 U.S.C. § 1471(b) (repealed). For quotation of former § 1471 in its entirety,
see infra note 100.
61. See 28 U.S.C. § 1334(b) (1988 & Supp. IV 1992). In its entirety, 28 U.S.C. § 1334
provides as follows:
(a) Except as provided in subsection (b) of this section, the district courts shall
have original and exclusive jurisdiction of all cases under title 11.
(b) Notwithstanding any Act of Congress that confers exclusive jurisdiction on
a court or courts other than the district courts, 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.
) Nothing in this section prevents a district court in the interest of justice,
or in the interest of comity with State courts or respect for State law, from
abstaining from hearing a particular proceeding arising under title II or arising
in or related to a case under title 11.
) Upon timely motion of a party in a proceeding based upon a State law
claim or State law cause of action, related to a case under title 11 but not arising
under title 11 or arising in a case under title 11, wvith respect to which an action
could not have been commenced in a court of the United States absent
jurisdiction under this section, the district court shall abstain from hearing such
proceeding if an action is commenced, and can be timely adjudicated, in a State
forum of appropriate jurisdiction. Any decision to abstain or not to abstain
made under this subsection is not reviewable by appeal or otherwise by the
court of appeals under section 158(d), 1291, or 1292 of this title or by the
Supreme Court of the United States under section 1254 of this title. This
subsection shall not be construed to limit the applicability of the stay provided for
by section 362 of title 11, United States Code, as such section applies to an
action affecting the property of the estate in bankruptcy.
(d) The district court in which a case under title 11 is commenced or is pending
shall have exclusive jurisdiction of all of the property, wherever located, of the
debtor as of the commencement of such case, and of property of the estate.
28 U.S.C. § 1334 (1988 & Supp. IV 1992).
62. Which court exercises bankruptcy jurisdiction is a question distinct from the
scope of bankruptcy jurisdiction, and is governed by a separate statute. Compare 28
U.S.C. § 1334 (1988 & Supp. IV 1992) (granting bankruptcy jurisdiction to district
courts) with 28 U.S.C. § 157 (1988) (authorizing referral of bankruptcy jurisdiction from
district courts to bankruptcy courts); see also infra notes 416-24 and accompanying text.
sive jurisdiction of all cases under title 11. " 63 It also provides that
district courts have "exclusive jurisdiction" over all of the debtor's
property, "wherever located.., and.., of the estate."'6 Finally, it provides
that "district courts ... have original but not exclusive jurisdiction of all
civil proceedings arising under title 11, or arising in or related to cases
under title 11.,,65
"Arising under" jurisdiction 66 is the narrowest form of bankruptcy
jurisdiction. 67 Legislative history defines "arising under" bankruptcy
jurisdiction as extending to
any matter under which a claim is made under a provision of title 11.
For example, a claim of exemptions under 11 U.S.C. 522 would be
cognizable by the bankruptcy court, as would a claim of discrimination
in violation of 11 U.S.C. 525. Any action by the trustee under an
avoiding power would be a proceeding arising under title 11, because
the trustee would be claiming based on a right given by one of the
sections in ... title 11.68
Courts have interpreted "arising under" jurisdiction as extending to
matters based solely on rights created under title 11.69 Examples of "arising
under" jurisdiction include proceedings to avoid transfers pursuant to
the federal preference or fraudulent transfer provisions,70 to enforce or
request relief from the automatic stay,71 to object to the grant of a
charge to the debtor or to the dischargeability of a particular debt,"2 to
resolve the scope of property of the estate," or to request authority to
reject or assume an executory contract or unexpired lease.' 4
Courts have defined "arising in" bankruptcy jurisdiction by applying a
"but for" test.75 According to this test, proceedings are said to "arise in"
a title 11 case "if it is a proceeding that, by its nature, could arise only in
the context of a bankruptcy case[,]'" even though it is not based on any
right expressly created under title 11. 7 Some examples of "arising in"
proceedings include administrative matters,'8 determinations as to the
validity and amount of claims asserted against the estate,' 9
"counterManville Corp.), 801 F.2d 60, 63-64 (2d Cir. 1986) (proceeding brought by
debtor-inpossession to enjoin Equity Committee and its members from pursuing state court action
to compel m'eeting of debtor's shareholders was "core" proceeding because meeting
might interfere with debtor's reorganization).
72. See 11 U.S.C. §§ 523 (1988 & Supp. IV 1992), 727 (1988) (objections to
dischargeability of certain debts and objections to discharge respectively).
73. See I1 U.S.C. § 541 (1988 & Supp. IV 1992); see also, e.g., Plaza at Latham
Assocs. v. Citicorp N.A., 150 B.R. 507, 513-14 (N.D.N.Y. 1993) (characterizing order as
resolving claims to proceeds of debtor's insurance policy which constituted property of
estate and concluding that order approving settlement providing that debtor's insurer be
released from liability to any entity relating to claims arising out of fire at debtor's
premises was "core proceeding").
74. See 11 U.S.C. § 365 (1988 & Supp. IV 1992).
75. A leading treatise defines "arising in" jurisdiction as "the residual category of
civil proceedings, including those which do not arise under title 11, and those which are
not related to title 11 cases." I Collier on Bankruptcy § 3.01[l][c][v], at 3-32 (Lawrence
P. King ed., 15th ed. 1993).
76. Wood v. Wood (In re Wood), 825 F.2d 90, 97 (5th Cir. 1987). Accord Silverman
v. General Ry. Signal Co. (In re Leco Enters., Inc.), 144 B.R. 244, 248-49 (S.D.N.Y.
1992); Acolyte Elect. Corp. v. City of New York, 69 B.R. 155, 173 (Bankr. E.D.N.Y.
1986) ("To be a core proceeding, an action must have as its foundation the creation,
recognition, or adjudication of rights which would not exist independent of a bankrupt;:y
environment .... ").
77. See In re Wood, 825 F.2d at 97 (noting that litigation surrounding creditor's proof
of claim filed in bankruptcy case as example of "arising in" jurisdiction, although claim
based on state law).
78. See 28 U.S.C. § 157(b)(
)(A), (0) (1988) (including, among definition of "core
proceedings," those "matters concerning the administration of the estate" and "other
proceedings affecting the liquidation of the assets of the estate or the adjustment of the
debtor-creditor or the equity security holder relationship"). Courts have held a wide
variety of proceedings to be "core" proceedings within the scope of § 157(b)(
(0). See generallyBankruptcy Litigation Manual 83-84 (Michael L. Cook ed., 1992-93)
(describing the following as "core" proceedings within scope of catch-all provisions:
proceedings to establish administrative priority; motions for substantive consolidation;
motions for change of venue, remand, or abstention; proceedings for violation of § 362
automatic stay; motions to disqualify counsel for debtor;, estimations of personal injury
claims in order to confirm chapter 11 plan; counterclaims for bad faith filing of creditor's
petition; fixing attorneys' fees under § 506(b); and appointment of additional creditors'
committees); 10 Norton Bankruptcy Law and Practice 2d § 5.16, at 108 (1993)
(describing disputes concerning employment of attorneys and award of professional
compensation out of estate as "core" within meaning of subsection (A), as well as questions
concerning eligibility and qualification of bankruptcy trustee and compensation of
79. See 28 U.S.C. § 157(b)(
)(B) (1988) (defining "core proceedings" as including
claims by the estate against persons filing claims against the estate,""s
"orders to turn over property of the estate,""1 "determinations of the
validity, extent, or priority of liens," 2 proceedings to enforce prior
orders of the bankruptcy court,8 3 and proceedings involving the
post-peti"allowance or disallowance of claims against the estate"); see also Canal Corp. v.
Finnman (In re Johnson), 960 F.2d 396, 401 (4th Cir. 1992)(adversary proceeding
seeking distribution of funds held by debtor in constructive trust held "core" as either
involving turnover of property of estate, validity and priority of liens, or sale, use or lease of
property); In re Parque Forestal, Inc., 949 F.2d 504, 510 (1st Cir. 1991)(estoppel claim
brought by residents in debtor's housing development held "core" because district court
affirmed bankruptcy court's decision based on 11 U.S.C. § 506(c), thus, action "arose
under" title 11 or "arose in" title 11 case); Southeastern Sprinkler Co. v. Meyertech
Corp. (In re Meyertech Corp.), 831 F.2d 410, 418 (3d Cir. 1987)(creditor's breach of
warranty action against debtor was "core" proceeding because it fell within Code
definition of "claim").
Not all actions against the debtor are "core proceedings." At least one court has held
that, in order to constitute a "core" determination on a claim, the proceeding must
involve the question of allowance or disallowance of the claim and not merely the existence
of the right to payment under state law. See Christensen v. Tucson Estates, Inc. (In re
Tucson Estates, Inc.), 912 F.2d 1162, 1168 (9th Cir. 1990).
Expressly excepted from this definition of "core," however, are proceedings for "the
liquidation or estimation of contingent or unliquidated personal injury tort or wrongful
death claims against the estate for purposes of distribution in a case under title 11." 28
U.S.C. § 157(b)(
)(B) (1988). This exception has been narrowly construed. See, e.g., In
re UNR Industries, Inc., 45 B.R. 322, 326 (N.D. Ill. 1984) (subsection (B) "does not
exclude from the definition of core proceedings estimation of personal injury and
wrongful death claims for all purposes, but only 'for purposes of distribution.' Estimation of
such claims for other purposes, such as 'confirming a plan'... apparently remains a core
proceeding for the bankruptcy judge.").
80. See 28 U.S.C. § 157(b)(
)(C) (1988) (including within definition of "core
proceedings" those "counterclaims by the estate against persons filing claims against the estate");
see also infra note 526 (discussing division among courts in interpreting breadth of this
81. See 28 U.S.C. § 157(b)(
)(E) (1988) (defining "core proceedings" as including
"orders to turn over property of the estate"). Courts differ as to whether actions by a
trustee or debtor-in-possession to enforce disputed obligations are "core" proceedings or
not, such as an action to collect on an account owed to the debtor, although these actions
are framed as proceedings to turn over property of the estate. Compare Craig v. McCarty
Ranch Trust (In re Cassidy Land & Cattle Co.), 836 F.2d 1130, 1132-33 (8th Cir. 1988)
(proceeding to foreclose on note secured by mortgage, constituting sole asset of estate,
was "core" proceeding because proceeding amounted to action to turn over matured debt
that was property of estate), cert. denied, 436 U.S. 1033 (1988) with F&L Plumbing &
Heating Co. v. New York University (In re F&L Plumbing & Heating Co.), 114 B.R.
370, 376-77 (E.D.N.Y. 1990) (proceeding merely "related to" the debtor's bankruptcy
case) and Howison v. Country Hills Assocs. (In re W.G.M.C., Inc.), 96 B.R. 5, 6 (Bankr.
D. Me. 1989) (same); see also I Collieron Bankruptcy § 3.01[b][iv], at 3-51 (Lawrence
P. King ed., 15th ed. 1993) ("[A]ctions to collect pre-petition accounts receivable are
straightforward Marathon-type contract actions, and are thus not core proceedings.");
but see Galucci v. Grant (In re Galucci), 931 F.2d 738, 744 (11th Cir. 1991) (trustee's
action for turnover of property which had never belonged to debtor but which third party
had quitelaimed to trustee to compromise trustee's concededly baseless claim against him
was non-core, unrelated matter over which no bankruptcy jurisdiction existed).
82. See 28 U.S.C. § 157(b)(
)(K) (11 th Cir. 1988) (defining "core proceedings" as
including "determinations of the validity, extent, or priority of liens").
83. See, e.g., In re Memorial Estates, Inc., 950 F.2d 1364, 1369-70 (7th Cir. 1991)
(order sanctioning attorney and client under bankruptcy equivalent of Rule 11 is "core
tion operation of the estate. 4
"Related to" jurisdiction is the broadest of the three types granted by
28 U.S.C. § 1334(b), 5 yet appellate courts disagree as to the breadth of
the test for determining whether a proceeding is "related to" the
bankruptcy case. The First, 6 Second,8 7 Third,8 8 Seventh, 9 and Tenth9 0
Cirproceeding," even though sanctions relate to actions in hearing on proceeding as to which
bankruptcy court enjoyed only "related to" jurisdiction and even though bankruptcy case
had already been dismissed), cert. denied, 112 S. Ct 2969 (1992); Mountain Am. Credit
Union v. Skinner (In re Skinner), 917 F.2d 444, 448 (10th Cir. 1990) (civil contempt
proceedings arising out of core matters are themselves core matters); Budget Serv. Co. v.
Better Homes of Virginia, Inc., 804 F.2d 289, 292 (4th Cir. 1986) (sanction of punitive
damages for violation of automatic stay under § 362(h) is core proceeding); TCL
Investors v. Brookside Sav. & Loan Ass'n (In re TCL Investors), 775 F.2d 1516, 1517 (11th
Cir. 1985) (proceeding by purchaser of property of estate to compel debtor to comply
with sale agreement that had been approved and authorized by bankruptcy court held
"core"); but see Gower v. Farmers Home Administration (In re Davis), 899 F.2d 1136,
1138-40 (1990) (trustee's request for attorney's fees under the EAJA not a "core"
proceeding); I.R.S. v. Brickell Inv. Corp. (In re Brickell Inv. Corp.), 922 F.2d 696, 701 (1Ith
Cir. 1991) (debtor's motion to assess costs and attorney's fees against IRS pursuant to 26
U.S.C. § 7430 is not "core," even if action arises out of core proceeding to determine
debtor's tax liability); Plastiras v. Idell (In re Sequoia Auto Brokers, Ltd.), 827 F.2d
1281, 1289 (9th Cir. 1987) (civil contempt action not core even if it arises out of core
84. The Eleventh, Second, and First Circuits expansively define "core" jurisdiction to
exist whenever the state law claim arises out of a contract entered into after the petition
has been filed. See, e.g., Olympia & York Fla. Equity Corp. v. Bank of N.Y. (In re
Holywell Corp.), 913 F.2d 873, 881 (11th Cir. 1990) ("[T]his is a 'core proceeding' under
28 U.S.C. § 157(b), as it is a 'matter concerning the administration of the estate.' ")
(citing 28 U.S.C. § 157(b)(
)(A) (1988)); In re Ben Cooper, 896 F.2d 1394, 1400 (2d Cir.),
vacated and remanded, 111 S. Ct. 425 (1990) (holding that bankruptcy court has core
jurisdiction over state law contract claims when contract was entered into post-petition,
as adjudication of such claims is essential part of administering estate), reinstated, 924
F.2d 36 (2d Cir. 1991), cert denied, 111 S. Ct. 2041 (1992); Arnold Print Works, Inc. v.
Apkin (In re Arnold Print Works, Inc.), 815 F.2d 165, 166 (Ist Cir. 1987) (action by
debtor-in-possession to collect account receivable arising out of a post-petition contract is
"'core proceeding"); but see Wood v. Wood (In re Wood) 825 F.2d 90, 97 (5th Cir. 1987)
(cause of action under state law is not core although it arose out of post-petition dispute).
85. See, e.g., Michigan Employment Sec. Comm'n v. Wolverine Radio Co. (In re
Wolverine Radio Co.), 930 F.2d 1132, 1141 (6th Cir. 1991) ("related to" jurisdiction is
broadest grant of bankruptcy jurisdiction); In re Wood, 825 F.2d at 93 (same); F.D.I.C. v.
Majestic Energy Corp. (In re Majestic Oil Corp.), 835 F.2d 87, 90 (5th Cir. 1988) (same).
86. See In re G.S.F. Corp., 938 F.2d 1467, 1475 (1st Cir. 1991) (adopting narrow
standard of "related to" bankruptcy jurisdiction); Austin v. Unarco Indus., Inc., 705
F.2d 1, 4-5 (1st Cir. 1983) (implying that it would narrowly construe "related to"
jurisdiction over non-debtor third parties), cert dismissed, 463 U.S. 1247 (1983).
87. See Turner v. Ermiger (In re Turner), 724 F.2d 338, 341 (2d Cir. 1983) (requiring
"significant connection" to debtor's bankruptcy).
88. See Pacor, Inc. v. Higgins, 743 F.2d 984, 994 (3d Cir. 1984) (initially defining
"related to" jurisdiction as existing over bankruptcy proceeding if "the outcome of that
proceeding could conceivably have any effect on the estate being administered in
bankruptcy" and later qualifying this standard by stating that "related to" jurisdiction exists
"if the outcome [of the proceeding] could alter the debtor's rights, liabilities, options, or
freedom of action (either positively or negatively) and which in any way impacts upon the
handling and administration of the bankrupt estate") (emphasis deleted).
89. See Elscint, Inc. v. First Wis. Fin. Corp. (In re Xonics, Inc.), 813 F.2d 127, 131
(7th Cir. 1987) (holding that "related to" jurisdiction encompasses only disputes that
cuits limit "related to" jurisdiction to those proceedings having a direct
legal effect upon administration of the bankruptcy estate. 9 1
Alternatively, the Fifth,9 2 Sixth,9 3 Ninth,94 and Eleventh 95 Circuits have adopted
affect the payments to the bankrupt's other creditors or the administration of the
bankrupt's estate; it exists only when the outcome of the proceeding "affects the amount of
property available for distribution or the allocation of property among creditors"); see
also Home Ins. Co. v. Cooper & Cooper, Ltd., 889 F.2d 746, 749 (7th Cir. 1989)
("Overlap between the bankrupt's affairs and another dispute is insufficient unless its resolution
also affects the bankrupt's estate or the allocation of its assets among creditors. Although
the [proceeding at issue on appeal] has a nexus with the bankruptcy-in the sense that it
would be convenient, and promote consistency, to resolve all questions concerning the
[insurance] policy at one go-it does not necessarily have a financial effect on the estate
(or the apportionment among its creditors).").
90. See Gardner v. United States (In re Gardner), 913 F.2d 1515, 1518 (10th Cir.
1990) (holding that "bankruptcy court lacks related jurisdiction to resolve controversies
between third party creditors which do not involve the debtor or his property unless the
court cannot complete administrative duties without resolving the controversy") (citation
91. Some courts have expanded upon the statement that bankruptcy jurisdiction
exists where the proceeding would affect the administration of the estate, to conclude that
"related to" jurisdiction exists where the proceeding would "affect the estate." See, e.g.,
Otero Mills, Inc. v. Security Bank & Trust (In re Otero Mills, Inc.), 21 B.R. 777, 778
(Bankr. D. N.M.) (test for "related to" jurisdiction is whether "failure to enjoin would
affect the bankruptcy estate"), afl'd, 25 B.R. 1018 (D. N.M. 1982); In re Sondra, Inc., 44
B.R. 205, 207 (Bankr. E.D. Pa. 1984) (same); Crown Cent. Petroleum Corp. v. Wechter
(In re General Oil Distribs., Inc.), 21 B.R. 888, 892 n.13 (Bankr. E.D.N.Y. 1982) (same).
The latter standard is clearly much broader than the former, and possibly exceeds the
statutory mandates of 28 U.S.C. § 1334(b). See, e.g., Holland Indus., Inc. v. United
States (In re Holland Indus., Inc.), 103 B.R. 461, 466 (Bankr. S.D.N.Y. 1989) ("The
desires of every Chapter 11 debtor are affected by a myriad of external indirect effects
created by the circumstances in which it operates. Whether they arise from the ebbs and
flows of commerce, the effects of governmental action or the acts of third parties with
respect to property of non-debtors, their impact on a debtor's attempt to reorganize does
not afford the bankruptcy courts with jurisdiction to determine the dispute merely
because of that impact."); see also Howard C. Buschman III & Sean P. Madden, The Power
and Proprietyof Bankruptcy CourtIntervention in Actions Between Nondebtors, 47 Bus.
Law. 913, 944 (1992) ("Otero Mills and its progeny, for example, would conclude that
jurisdiction exists over actions that merely could 'pressure' the debtor. Any number of
actions, however, may have the effect of pressuring or distracting the individuals that
manage the debtor. Consequently, courts should require debtors to make a strong
showing that the effect upon the estate from such actions is potentially devastating.").
92. See e.g., Wood v. Wood (In re Wood), 825 F.2d 90, 93 (5th Cir. 1987)
(determining that "related to" jurisdiction turns on "'whether the outcome of that proceeding
could conceivably have any effect on the estate being administered in bankruptcy' ")
93. Compare In re Salem Mortgage Co., 783 F.2d 626, 634-35 (6th Cir. 1986)
(criticizing Pacor test as too strict in that it may be read to limit "related to" jurisdiction to
circumstances in which debtor would be bound by res judicata or collateral estoppel) with
Robinson v. Michigan Consol. Gas Co., 918 F.2d 579, 583-84 (6th Cir. 1990) (embracing
Pacor,without rejecting standard articulated in Salem Mortgage,because it read Pacoras
adopting a more liberal test than the Salem Mortgage court thought Pacorhad done); see
also Michigan Employment Sec. Comm'n v. Wolverine Radio Co. (In re Wolverine
Radio Co.), 930 F.2d 1132, 1143 (6th Cir. 1991) (distinguishing Pacoron grounds that
Wolverine was contractually obligated to indemnify non-debtor third party, whereas in Pacor
Manville would not have been automatically liable).
94. See American Hardwoods, Inc. v. Deutsche Credit Corp. (In re American
Harda broader standard of "related to" jurisdiction9 6 -a standard that
requires only "that the activity have some conceivable impact on the
bankruptcy reorganization or estate"9 7 and does not require that this impact
be either direct or legal.98
"Related to ...a.rising under," and "arising in" jurisdiction are three
distinct bases for bankruptcy jurisdiction.
overlap and are not mutually exclusive. 99
These jurisdictional bases
If any one test is satisfied,
bankruptcy jurisdiction exists.
The jurisdictional provisions enacted in 1984 are substantially
identical with those of the Bankruptcy Reform Act of 1978, differing only as to
the scope of bankruptcy jurisdiction that the non-Article III bankruptcy
courts can exercise." With the enactment of the jurisdictional
provisions of the Bankruptcy Reform Act, Congress hoped to create a single
forum for the resolution of all matters and proceedings related to a
bankruptcy case, and to avoid the endless jurisdictional disputes that had
characterized litigation under the former Bankruptcy Act.10
100. See infra notes 397-415 and accompanying text. Former 28 U.S.C. § 1471, which
governed bankruptcy jurisdiction until the Supreme Court held in Northern Pipeline
Constr. Co., v. Marathon Pipe Line Co., 458 U.S. 50, 87 (1982), that its broad delegation
of jurisdiction to non-Article III bankruptcy courts violated Article III of the
Constitution, defined bankruptcy jurisdiction as follows:
(a) Except as provided in subsection (b) of this section, the district courts shall
have original and exclusive jurisdiction of all cases under title 11.
(b) Notwithstanding any Act of Congress that confers exclusive jurisdiction on
a court or courts other than the district courts, 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.
(c) The bankruptcy court for the district in which a case under title 11 is
commenced shall exercise all of the jurisdiction conferred by this section on the
(d) Subsection (b) or (c) of this section does not prevent a district court or a
bankruptcy court, in the interest of justice, from abstaining from hearing a
particular proceeding arising under title 11 or arising in or related to a case under
title 11. Such abstention, or a decision not to abstain, is not reviewable by
appeal or otherwise.
(e) The bankruptcy court in which a case under title 11 is commenced shall
have exclusive jurisdiction of all of the property, wherever located, of the
debtor, as of the commencement of such case.
28 U.S.C. § 1471 (repealed).
101. For a discussion of this legislative history, see infra notes 496-503 and
accompanying text. Prior to enactment of the Bankruptcy Reform Act in 1978, parties often
squandered scarce estate assets litigating jurisdictional issues because the Bankruptcy Act
of 1898 divided bankruptcy jurisdiction among state and federal courts.
Section 2a of the former Act broadly granted district courts "with such jurisdiction at
law and in equity as will enable them to exercise original jurisdiction in proceedings
under this Act." 1898 Act, § 2a. The Act appeared to limit this broad grant of federal
bankruptcy jurisdiction by listing specific proceedings over which this jurisdiction
existed. See id. Some of these enumerated proceedings were narrow, while others were
broad. The broadest permitted district courts to "[clause the estates of bankrupts to be
collected, reduced to money, and distributed, and determine controversies in relation
thereto, except as herein otherwise provided." Id. § 2a(7). The proviso in this section
referred to § 23 of the 1898 Act, which severely qualified this broad grant of bankruptcy
jurisdiction to district courts. It limited the plenary jurisdiction that they could exercise
by providing in the clause governing the district courts that generally, absent the consent
of the defendant, "suits by the receiver and the trustee shall be brought or prosecuted
only in the courts where the bankrupt might have brought or prosecuted them if
proceedings under this Act had not been instituted." Id. § 23. This section was amended to
permit plenary suits under §§ 67e, 60b, and 70e to be brought in district courts without
regard to the defendant's consent or other ground for federal jurisdiction. See Williams
v. Austrian, 331 U.S. 642, 649 (1947). This provision, even as amended, severely limited
the plenary bankruptcy jurisdiction that district courts could exercise, and, except in the
context of a Chapter X reorganization, directed most of these suits to the state courts.
Supplemental jurisdiction is the phrase currently used to describe the
doctrines of ancillary and pendent jurisdiction."0 2 These doctrines are
relied upon by federal courts, for reasons of federalism, judicial economy
and fairness, to adjudicate jurisdictionally insufficient state law claims
related to claims over which federal jurisdiction exists.
Ancillary jurisdiction finds its origins in the notion that, once property
comes within the jurisdiction of a court of equity, the court has
jurisdiction to resolve all claims related to the property. "Under the doctrine of
ancillary jurisdiction, defendants, intervenors as of right and, under
certain limited circumstances, plaintiffs [are] allowed to assert related claims
in an ongoing lawsuit, even though no independent basis for federal
subject matter jurisdiction existed as to these claims."'0 3 Early Supreme
Court decisions limited the exercise of ancillary jurisdiction to instances
in which the federal court was in possession of property.0'4 Ancillary
jurisdiction has since been expanded to apply to compulsory
counterclaims,105 cross-claims, claims against additional parties joined to a
com102. See 28 U.S.C. § 1367 (Supp. IV. 1992) (entitled "supplemental jurisdiction"); see
also Richard D. Freer, A Principled Statutory Approach to Supplemental Jurisdiction,
1987 Duke L.J. 34, 34 [hereinafter Freer, PrincipledStatutory Approach]; Richard D.
Freer, Compounding Confusion and HamperingDiversity: Life After Finley and the
Supplemental JurisdictionStatute, 40 Emory L.J. 445, 447 (1991) [hereinafter Freer, Life
After Finley]; Richard A. Matasar, A Pendent and Ancillary JurisdictionPrimer The
Scope and Limits of SupplementalJurisdiction, 17 U.C. Davis L. Rev. 103, 104 (1983)
[hereinafter Matasar, JurisdictionPrimer];Richard A. Matasar, Rediscovering "One
ConstitutionalCase'" ProceduralRules and the Rejection of the Gibbs Test for Supplemental
Jurisdiction,71 Cal. L. Rev. 1399, 1401 (1983) [hereinafter Matasar, One Constitutional
Case]; Denis F. McLaughlin, The FederalSupplementalJurisdictionStatute-A
ConstitutionalandStatutoryAnalysis, 24 Ariz. St. L.J. 849, 852 (1992); Thomas M. Mengler, The
Demise of Pendentand Ancillary Jurisdiction, 1990 B.Y.U. L. Rev. 247, 247 n.3; David
D. Siegel, Changes in FederalJurisdictionand Practice Under the New (Dec. 1. 1990)
JudicialImprovements Act, 133 F.R.D. 61, 61 (1991); Arthur D. Wolf, Codification of
SupplementalJurisdiction:Anatomy ofa LegislativeProposal,14 W. New Eng. L. Rev. 1,
103. McLaughlin, supra note 102, at 874.
104. See Fulton Nat'l Bank v. Hozier, 267 U.S. 276, 280 (1925) ("The general rule is
that when a federal court has properly acquired jurisdiction over a cause it may entertain,
by intervention, dependent or ancillary controversies; but no controversy can be regarded
as dependent or ancillary unless it has direct relation to property or assets actually or
constructively drawn into the court's possession or control by the principal suit.")
(citation omitted); Freeman v. Howe, 65 U.S. 450, 460 (1860) ("[A] bill filed on the equity
side of the court to restrain or regulate judgments or suits at law in the same court, and
thereby prevent injustice, or an inequitable advantage under mesne or final process, is not
an original suit, but ancillary and dependent, supplementary merely to the original suit,
out of which it had arisen, and is maintained without reference to the citizenship or
residence of the parties.").
105. See Moore v. New York Cotton Exch., 270 U.S. 593, 609-10 (1926) (relying on
Equity Rule 30, a predecessor to Fed. R. Civ. P. 13(a), which now governs compulsory
tutional questions surrounding such an exercise of jurisdiction, these
ambiguities should be resolved to avoid a finding of unconstitutionality.
Section 1367 should be construed to preclude the exercise of jurisdiction
supplemental to "arising in" and "related to" proceedings by a district
court. It also should be construed as inapplicable to bankruptcy courts,
conferring no supplemental jurisdiction on these non-Article III courts.
POLICY CONSIDERATIONS FAVORING A LIMITATION OF
SUPPLEMENTAL BANKRUPTCY JURISDICTION
This part argues that, even if authorized by the Constitution and by
statute, supplemental bankruptcy jurisdiction should be limited by
Congress to include only supplemental claims related to an "arising under"
or "arising in" proceeding, and possibly to include supplemental claims
related to a "related to" proceeding that involves property of the estate.
It concludes that the policies and purposes of supplemental jurisdiction
are best reconciled with the purposes of the bankruptcy jurisdictional
provision when district courts are precluded from exercising
supplemental bankruptcy jurisdiction over claims related to "related to"
proceedings, and statutorily permitted to decline other assertions of
supplemental bankruptcy jurisdiction when the exercise would
contravene important bankruptcy policies.
Bankruptcy jurisdiction exists to facilitate the efficient resolution of a
debtor's estate, including litigation that "affects the amount of property
available for distribution or the allocation of property among
creditors,"4 92 but does not exist to facilitate the resolution of litigation
unrelated to the estate.49 3 An assertion of jurisdiction supplemental to a
"related to" proceeding may be consistent with the efficient resolution of
complex litigation, a single claim of which "might have a conceivable
effect" on the estate, and yet actually hinder resolution of the bankruptcy
case.49 4 Moreover, the policies generally favoring an exercise of
supplemental jurisdiction in ordinary civil litigation are not wholly applicable
in the context of bankruptcy.4 9
A PrincipalPurpose of Bankruptcy JurisdictionIs to Facilitatethe
Resolution of an Estate
Congress should prohibit the exercise of supplemental bankruptcy
jurisdiction when the exercise would be inconsistent with the fundamental
purpose of a broad grant of bankruptcy jurisdiction: the efficient
resolution of claims against and distributions from a bankruptcy estate. The
492. Elscint, Inc. v. First Wis. Fin. Corp. (In re Xonics, Inc.), 813 F.2d 127, 131 (7th
Cir. 1987) (defining scope of "related to" jurisdiction).
493. See infra part IV.A.
494. See id.
495. See infra part IV.B.
exercise of supplemental bankruptcy jurisdiction could hinder closure of
a given bankruptcy case depending upon the factual circumstances.
When Congress determined to expand bankruptcy jurisdiction with
the enactment of the Bankruptcy Reform Act of 1978, it indicated that it
was motivated by a desire to facilitate the resolution of an estate:
A comprehensive grant of jurisdiction to the bankruptcy courts over
all controversies arising out of any bankruptcy or rehabilitation case
would greatly diminish the basis for litigation of jurisdictional issues
which consumes so much time, money, and energy of the bankruptcy
system and of those involved in the administration of debtors'
It understood that its broad grant of jurisdiction was not without limits,
in that questions regarding the scope of any statutory grant of federal
jurisdiction are inescapable.4 97 When discussing the parameters of those
limitations, Congress repeatedly referred to them as relating to the
resolution of a bankruptcy case. 4 9 8
Congress justified this expansive grant of jurisdiction by reference to
the jurisdictional provisions of the Bankruptcy Acts of 1841499 and
496. H.R. Rep. No. 595, 95th Cong., 1st Sess. 46 (1977); see also id. at 48-49 ("H.R.
8200 grants the bankruptcy courts broad and complete jurisdiction over all matters and
proceedings that arise in connection with bankruptcy cases .... The forum shopping and
jurisdictional litigation that have plagued the bankruptcy system, the unfairness to
defendants from 'jurisdiction by ambush,' and the dissipation of assets and the expense
associated with bifurcated jurisdiction will be eliminated by the jurisdiction proposed by
497. See id. at 46 n.29 ("Litigation of jurisdictional issues would not be eliminated
since the existence of jurisdiction is always questionable in a federal tribunal. As part of
the federal government the bankruptcy courts would be courts of limited jurisdiction, and
it would always be open to a party haled into such a court to object that there was not
sufficient connection between the litigation and any legitimate federal concern to warrant
the assumption of jurisdiction.").
498. See id. at 46 ("A comprehensive grant of jurisdiction to the bankruptcy courts
over all controversies arisingout of any bankruptcy or rehabilitationcase would greatly
diminish the basis for litigation of jurisdictional issues which consumes so much time,
money, and energy of the bankruptcy system and of those involved in the administration
of debtors' affairs. It would foster the development of a more uniform, cohesive body of
substantive and procedural law which would be applicableto the administrationofestates
under the Bankruptcy Act."); at 47-48 ("There appears to be no reason why congress
cannot in the exercise of its power under the Bankruptcy Clause of the Constitution
confer jurisdiction over all litigation havinga significantconnection with bankruptcy."); at
48 ("Congress may be said to have given comprehensive jurisdiction to the bankruptcy
courts under the Act with respect to all litigation arisingfrom the administrationof the
estate ofany eligible or amenable debtor.....");at 48 ("H.R. 8200 grants the bankruptcy
courts broad and complete jurisdiction over all matters and proceedings that arise in
connection with bankruptcy cases.") (emphasis added).
499. The 1841 Act broadly conferred upon district courts "jurisdiction in all matters
and proceedings in bankruptcy arising under this act.., the said jurisdiction to be
exercised summarily, in the nature of summary proceedings in equity." Bankruptcy Act of
1841, ch. 9, sec. 6., 5 Stat. 440, 445 (repealed). It further provided that this jurisdiction
extended "to all cases and controversies in bankruptcy" involving the estate. Id. Section
6 of the 1841 Act provided that
the jurisdiction hereby conferred on the district court shall extend to all cases
18 6 7 ,"c° which were "almost as extensive" '° and upheld by the Supreme
and controversies in bankruptcy arising between the bankrupt and any creditor
or creditors who shall claim any debt or demand under the bankruptcy; to all
cases and controversies between such creditor or creditors and the assignee of
the estate, whether in office or removed; to all cases and controversies between
such assignee and the bankrupt, and to all acts, matters, and things to be done
under and in virtue of the bankruptcy, until the final distribution and settlement
of the estate of the bankrupt, and the close of the proceedings in bankruptcy.
kd; see alsoExparte Christy, 44 U.S. (3 How.) 292, 311-12 (1845) (Story, J.) (construing
jurisdictional provisions of 1841 Bankruptcy Act to hold that federal district court, when
sitting in bankruptcy, had jurisdiction to determine validity and extent of liens and
mortgages against debtor's property, whether or not lienor or mortgagee had filed proof of
claim against estate).
500. The jurisdictional provisions of the 1867 Act closely resembled those in the 1841
Act. It provided that the district courts are "courts of bankruptcy, and they shall have
original jurisdiction in their respective districts in all matters and proceedings in
bankruptcy," and that this grant extended to enumerated "cases and controversies" involving
the bankruptcy estate. Bankruptcy Act of 1867, ch. 176, sec. 1, 14 Stat. 517, 517
(repealed). The 1867 Act specifically provided:
the jurisdiction hereby conferred shall extend to all cases and controversies
arising between the bankrupt and any creditor or creditors who shall claim any
debt or demand under the bankruptcy; to the collection of all the assets of the
bankrupt; to the ascertainment and liquidation of the liens and other specific
claims thereon; to the adjustment of the various priorities and conflicting
interests of all parties; and to the marshalling and disposition of the different funds
and assets, so as to secure the rights of all parties and due distribution of the
assets among all the creditors; and to all acts, matters, and things to be done
under and in virtue of the bankruptcy, until the final distribution and settlement
of the estate of the bankrupt, and the close of the proceedings in bankruptcy.
Id; see also Phelps v. Sellick, 19 F. Cas. 463, 464 (C.C.E.D. Mich. 1873) (No. 11,079)
(court had little difficulty in concluding "[t]hat all the creditors of the bankrupt, secured
as well as unsecured, become and are at once, by virtue of the bankruptcy, parties to the
proceedings, and they and their debts are thereby brought under and subject to the sole
and exclusive jurisdiction and control of the bankruptcy court; and that such jurisdiction
and control exist and may be enforced as well before as after proof of debt").
501. H.R. Rep. 595, 95th Cong., 1st Sess. 47 (1977). According to House Reports:
The constitutionality of a grant of a jurisdiction in such comprehensive terms
should not be subject to any serious doubt. The jurisdictional grants to the
court of bankruptcy by the Acts of 1841 and 1867 were almost as extensive, and
the Supreme Court gave the provisions of those Acts a generous construction
and approval of their constitutionality. There appears to be no reason why
Congress cannot in the exercise of its power under the Bankruptcy Clause of the
Constitution confer jurisdiction over all litigationhaving a significantconnection
with bankruptcy. Indeed, it could not be contended otherwise without
challenging the jurisdictional provisions of the present Bankruptcy Act [of 1898].
Section 2a(7) of the  Act confers jurisdiction on the courts of bankruptcy
over the determination of controversies "in relation to" the estates of bankrupts
"except as herein otherwise provided." By clear implication § 23b [of the 1898
Act] recognizes that courts of bankruptcy have jurisdiction of any action
brought there by a receiver or trustee "by consent of the defendant." Since
consent of the parties cannot create jurisdiction of the subject matter in a court
which has not been vested with it by a valid legislative act, Congress may be
said to have given comprehensive jurisdiction to the bankruptcy courts under
the Act with respect to all litigation arising from the administration of the
estate of any eligible or amenable debtor, while in certain situations limiting the
exercise of thisjurisdiction to accommodate the convenience of adversaries of a
receiver or trustee.
Court as constitutional. 50 2 Further, in upholding the broad grants of
jurisdiction under the Bankruptcy Acts of 1841 and 1867, the Supreme
Court noted that the "manifest object" of these jurisdictional provisions
was to provide speedy proceedings, and the ascertainment and
adjustment of all claims and rights in favor50o3f or against the bankrupt's
estate, in the most expeditious manner.
Nonetheless, policy arguments favoring an expansive grant of
bankruptcy jurisdiction apply only to those proceedings "arising under title
11, or arising in or related to cases under title 11 ."' The exercise of
jurisdiction over these proceedings facilitates the goal of expeditious
administration of bankruptcy cases. 50 5 Yet, these strong policy arguments
may not be present for an assertion of jurisdiction over a supplemental
claim which relates only to the "arising under," ''arising in"or "related
to" proceeding, and not to the title 11 case itself. An assertion of such
supplemental bankruptcy jurisdiction may hinder rather than facilitate
resolution of the title 11 case because, by definition, the supplemental
proceeding has no conceivable effect on distributions from the estate or
the administration of the estate.50 6 Resolution of the supplemental claim
may delay closure of the case50 7 if it distracts the court, trustee,
Id. at 47-48 (emphasis added) (citations omitted).
502. See Exparte Christy, 44 U.S. (3 How.) 292, 311-12 (1845) (1841 Act); Lathrop v.
Drake, 91 U.S. 516, 518 (1875) (1867 Act); see also supra notes 272-73 (discussing cases
in which the Supreme Court, in dicta, opined that broad grants of bankruptcy jurisdiction
under 1898 Bankruptcy Act and 1978 Bankruptcy Reform Act were constitutional).
503. Ex parte Christy, 44 U.S. (3 How.) 292, 314-15 (1845). In reaching this
conclusion the Court noted that a broad grant of federal jurisdiction was "indispensable" to the
realization of this goal. See id. at 311-12 ("For this purpose it was indispensable that an
entire system adequate to that end should be provided by Congress, capable of being
worked out through the instrumentality of its own courts, independently of all aid and
assistance from any other tribunals over which it could exercise no effectual control .....
[I]t is manifest that the purposes so essential to the just operation of the bankrupt system,
could scarcely be accomplished except by clothing the courts of the United States sitting
in bankruptcy with the most ample powers and jurisdiction to accomplish them; and it
would be a matter of extreme surprise if, when Congress had thus required the end, they
should at the same time have withheld the means by which alone it could be successfully
reached."); see also Lathrop, 91 U.S. at 518 ("But a uniform system of bankruptcy,
national in its character, ought to be capable of execution in the national tribunals, without
dependence upon those of the States in which it is possible that embarrassments might
arise."); Bailey v. Glover, 88 U.S. (21 Wall.) 342, 346 (1874) ("It is obviously one of the
purposes of the Bankrupt law [of 1867], that there should be a speedy disposition of the
504. 28 U.S.C. § 1334(b) (1988 & Supp. IV 1992).
505. See supra notes 496-503 and accompanying text (discussing policy of bankruptcy
506. See supra notes 85-98 and accompanying text (discussing various definitions of
"related to" jurisdiction).
507. Resolution of a supplemental claim, standing alone, is not likely to delay
distributions to creditors, for if it were to have this effect it would constitute a "related to"
proceeding. See supra notes 85-98 and accompanying text (defining "related to"
jurisdiction). Nonetheless, the supplemental claim would be joined to an "arising under,"
"arising in" or "related to" proceeding which, by definition, will need to be resolved before
distributions to creditors can be completed. Moreover, even though distributions to
in-possession, creditors' committee or other interested parties from
completing necessary tasks in a timely fashion.
This is not to say that judicial economies never flow from an exercise
of supplemental bankruptcy jurisdiction. They do. Because the
supplemental proceeding involves a common factual nexus with the primary
proceeding, litigation in a single forum would be more efficient than
requiring the parties to litigate the primary claim in federal court and the
supplemental claim in state court. The efficiencies, however, relate to the
resolution of the proceedings between the litigants rather than to the
resolution of the bankruptcy case as a whole. The economies to the litigants
may be offset by diseconomies to the bankruptcy case as a whole.
Whether an exercise of supplemental bankruptcy jurisdiction presents an
impediment to the completion of a bankruptcy case differs depending
upon the factual circumstances.
This argument against exercise of supplemental bankruptcy
jurisdiction, which follows from the purposes of bankruptcy jurisdiction, is
strongest as applied to an assertion of jurisdiction of a claim
supplemental to a "related to" proceeding between non-debtor third parties. Recall
the hypothetical involving the priority dispute between secured creditors
of the debtor and the related third-party malpractice action brought by
one of the lenders against its attorneys. 508 Because the priority dispute
might conceivably affect distributions to creditors from the estate, it is
sufficiently "related to" the title 11 case to justify an assertion of
bankruptcy jurisdiction, even though the property in dispute is no longer
property of the estate. Thus, an exercise of jurisdiction over the priority
dispute is consistent with the bankruptcy policy favoring an expeditious
resolution of the debtor's bankruptcy case.5 °" In contrast, an exercise of
supplemental bankruptcy jurisdiction over the malpractice action sharing
a "common nucleus of operative fact" with the "related to" proceeding is
inconsistent with this bankruptcy policy because it can only slow down
resolution of the debtor's estate.
By contrast, when an assertion of jurisdiction supplemental to an
"arising under" or "arising in" proceeding is considered in light of the
bankruptcy policy favoring speedy resolution of the case, the result
difitors are not directly held up pending resolution of the supplemental claim, they may be
held up indirectly. The time which district and bankruptcy judges have is limited, and
time spent resolving a supplemental claim likely means that some other proceeding will
508. See supra notes 28-37 and accompanying text (detailing this hypothetical).
509. Because of the expansive definition of "related to" jurisdiction, the bankruptcy
policies are, in some proceedings, only weakly furthered by the assertion ofjurisdiction.
See Elscint, Inc. v. First Wis. Fin. Corp. (In re Xonics, Inc.), 813 F.2d 127, 131 (7th Cir.
1987) ("There is jurisdiction under § 157(c)(
) only when the dispute is 'related to' the
bankruptcy-meaning that it affects the amount of property available for distribution or
the allocation of property among creditors .... The bankruptcy jurisdiction is designed
to provide a single forum for dealing with all claims to the bankrupt's assets. It extends
no farther than its purpose.").
fers depending on the circumstances. For example, courts ° otherwise
uncertain as to the propriety of an exercise of supplemental bankruptcy
jurisdiction have indicated in dicta that they would exercise jurisdiction
over a request for a declaratory judgment establishing the validity and
amount of a debt which is supplemental to an objection to the debtor's
discharge 1 or the dischargeability of the debt at issue. 12
A proceeding objecting to discharge or the dischargeability of an
obligation clearly "arises under" title 11, as the bases for these claims51 3
derive from 11 U.S.C. §§ 727 or 523. A claim seeking a declaration as to
the validity and amount of the debt at issue in this "arising under"
proceeding will undoubtedly involve "a common nucleus of operative fact"
between the supplemental and primary claims. Moreover, resolution of
this sort of supplemental claim may be viewed as consistent with
expeditious resolution of the bankruptcy case, even though arguably outside the
scope of "related to" jurisdiction. In a case in which there will be
distributions to creditors,51 4 the declaratory action can be viewed as assisting
in the resolution of the case because the Bankruptcy Code generally has
not been interpreted to prevent non-dischargeable claims from receiving
distributions from the estate. 51 5 Thus, the declaratory action can be
510. See Official Creditors' Comm. of Prods. Liab. & Personal Injury Claimants v.
International Ins. Co. (In re Pettibone Corp.), 135 B.R. 847, 852 (Bankr. N.D. I11.1992)
(stating in dicta that "except to enter a dollar judgment in actions to bar
dischargeability," it doubted it had general ancillary jurisdiction); see also Aerni v.
Columbus Fed. Sav. (In re Aerni), 86 B.R. 203, 206 (Bankr. D. Neb. 1988) (exercising
supplemental jurisdiction over claim "related to" objection to debtor's discharge).
511. See I1 U.S.C. § 727 (1988) (describing grounds on which chapter 7 debtor may be
denied bankruptcy discharge).
512. See 11 U.S.C. § 523 (1988 & Supp. IV 1992) (describing specific debts from which
individual debtor may not receive bankruptcy discharge).
513. The term "claim" is used here in the procedural sense to refer to a unit of
litigation within an adversary proceeding. See supra note 3 (discussion definition of "claim" in
514. In cases in which there is unencumbered, nonexempt property of the estate, there
will be property available for distributions to creditors. See I1 U.S.C. §§ 725, 726 (1988)
(establishing priority of distributions to creditors in chapter 7 liquidation).
515. In the chapter 13 context, courts are divided on whether non-dischargeable claims
are entitled to distributions pursuant to the repayment plan. Some courts have held that
chapter 13 plans proposing to pay non-dischargeable child support payments on a
deferred basis are not proposed in good faith as required by 11 U.S.C. § 1325(a)(
See e.g., Pacana v. Pacana (In re Pacuna), 125 B.R. 19, 25 (Bankr. 9th Cir. 1991) (absent
written consent of recipient, bad faith to propose chapter 13 plan proposing deferred
payment of back child support payments); In re Harris, 132 B.R. 166, 170 (Bankr. S.D.
Iowa 1989) (same); In re Santa Maria, 128 B.R. 32, 37 (Bankr. N.D.N.Y. 1991) (same).
In a distinct line of cases, other courts have not only permitted the holders of
non-dischargeable claims to receive distributions pursuant to a chapter 13 plan, but have
permitted the debtor to separately classify non-dischargeable claims from his or her other
claims, notwithstanding the direction in 11 U.S.C. § 1322(b)(
) (1988) that a chapter 13
plan "may not discriminate unfairly against any class" of unsecured claims. See, e.g.,
Mickelson v. Leser (In re Leser), 939 F.2d 669, 672 (8th Cir. 1991) (separate classification
and disparate treatment justified because child support claims non-dischargeable in
chapter 13 anyway); In re Saulter, 133 B.R. 148, 150 (Bankr. W.D. Mo. 1991) (separate
classification justified because, after 1990 amendment to Code, student loan liability will
viewed as tantamount to a proof of claim. 16
Even in a "no-asset" case5 17 the declaratory action might be viewed as
consistent with efficient resolution of the case, because the Code provides
for the possibility that the trustee discovers assets after the case is
closed." 8 In this event, the debtor's bankruptcy case would be
reopened519 and creditors notified of the need to file proofs of claim against
the estate. 20 Even the creditor whose claim was held to be
non-dischargeable would be entitled to file a proof of claim and receive
distributions from the reopened estate. Judgment on the declaratory action
could be viewed as streamlining this process, although only
typically survive discharge). Yet other decisions have held that the separate classification
of non-dischargeable claims, other than non-dischargeable child support claims, is
unauthorized by the Code. See, eg., In re Schieber, 129 B.R. 604, 607 (Bankr. D. Minn. 1991)
(separate classification of student loans not justified, notwithstanding 1990 amendment
rendering most student loans non-dischargeable; court distinguished case in same district
permitting separate classification of child support payments since basis for separate
classification in that case was policy importance of ensuring support of children not
non-dischargeability of support payments); In re Lawson, 93 B.R. 979, 982 (Bankr. N.D. Ill.
1988) (same, critical of four-factor test).
516. Litigation surrounding a proof of claim "arises in" a title 11 case for purposes of
§ 1334(b). See supra notes 75-84 and accompanying text (discussing "arising in"
jurisdiction in greater detail). With this characterization, jurisdiction over the declaratory action
may not be merely supplemental jurisdiction.
517. See Fed. R. Bankr. P. 2002(e) (defining a "no-asset" case as a "chapter 7
liquidation case [in which].. . it appears from the schedules that there are no assets from which
a dividend can be paid"). In "no-asset" cases, Rule 2002(e) permits the trustee to notify
creditors of this fact and that it is unnecessary to file claims until further notice. See Fed.
R. Bankr. P. 2002(e). As a result, the relationship between the creditors' declaratory
action and resolution of the bankruptcy estate is much more attenuated.
518. See 11 U.S.C. § 727(d)(
), (e) (1988) (permitting trustee to request revocation of
discharge, within later of close of case or one year after discharge, if "debtor acquired
property that is property of the estate, or became entitled to acquire property that would
be property of the estate, and knowingly and fraudulently failed to report the acquisition
of or entitlement to such property, or to deliver or surrender such property to the
519. See 11 U.S.C. § 350(b) (1988) ("A case may be reopened in the court in which
such case was closed to administer assets, to accord relief to the debtor, or for other
cause."); see also Fed. R. Bankr. P. 5010 (setting forth procedure for reopening case).
520. See Fed. R. Bankr. P. 2002(e) ("In a chapter 7 liquidation case, if it appears from
the schedules that there are no assets from which a dividend can be paid, the notice of the
meeting of creditors may include a statement to that effect; that is unnecessary to file
claims; and that if sufficient assets become available for the payment of a dividend,
further notice will be given for the filing of claims."); Fed. R. Bankr. P. 3002 (c)(5)
(extending time for filing proofs of claim against chapter 7 estate "[i]f notice of insufficient
assets to pay a dividend was given to creditors pursuant to Rule 2002(e), and
subsequently the trustee notifies the court that payment of a dividend appears possible").
521. To some extent, characterization of the declaratory action as a proof of claim
contingent upon a later reopening of the debtor's bankruptcy case may support the
conclusion that jurisdiction over the declaratory action is "related to," not supplemental,
jurisdiction in that the claim could have a "conceivable effect" on administration of the
estate. See supra notes 85-98 and accompanying text (discussing "related to" jurisdiction
in greater detail). Courts, however, have not uniformly defined "related to" jurisdiction
Nothing, however, requires a creditor holding a non-dischargeable
claim to file a proof of claim against the estate and seek distributions
from the estate.522 Indeed, tactical considerations may lead the creditor
to waive this right. 523 Under these circumstances, the exercise of
supplemental bankruptcy jurisdiction over the declaratory action may hinder
rather than assist the resolution of the bankruptcy case.52 4 The only
economy that judgment in the declaratory action would provide is to the
creditor collecting on the obligation in a non-bankruptcy context.
If the trustee, debtor-in-possession, or other representative of the estate
is a party to the action, the exercise of supplemental bankruptcy
jurisdiction might be justified as fostering an efficient resolution of the
administration of the bankruptcy estate. Consider a series of hypotheticals.
First, imagine that in response to an action brought by the trustee to
avoid a transaction as preferential or fraudulent the defendant raises
counterclaims alleging breach of contract. These counterclaims are
likely to be viewed as "related to" the title 11 case, even if, for tactical
reasons, 52 5 the defendant has not filed a proof of claim against the
522. See 11 U.S.C. § 501 (1988) (providing that creditors "may" file proof of claim).
523. The filing of a proof of claim may be viewed as consent to the exercise of
jurisdiction by a non-Article III bankruptcy judge for purposes of 28 U.S.C. § 157(c)(
(permitting bankruptcy judge to "hear and determine" even "related to" proceedings if
litigants consent to such exercise). Although courts disagree as to whether this consent
can be implied, see supra note 423, it is clear that the filing of a proof of claim constitutes
consent to the exercise of bankruptcy court jurisdiction over related counterclaims. See
28 U.S.C. § 157(b)(
)(C) (1988) (defining "core proceedings" as including
"counterclaims by the estate against persons filing claims against the estate"); but see Piombo
Corp. v. Castlerock Properties (In re Castlerock Properties), 781 F.2d 159, 162-63 (9th
Cir. 1986) (court of appeals declined to find that creditor consented to exercise of
bankruptcy jurisdiction over counterclaims asserted by debtor to creditor's request for relief
from automatic stay, notwithstanding creditor's subsequent filing of proof of claim);
Northwestern Mut. Life Ins. Co. v. Axton (In re Axton), 641 F.2d 1262, 1268 (9th Cir.
1981) (decided under Bankruptcy Act of 1898) (court of appeals declined to find that
lessor had consented to exercise of bankruptcy court jurisdiction although lessor had
asserted entitlement to administrative expense for debtor's use and occupancy of
premises). Determination by the bankruptcy court of a proof of claim filed against the estate
may preclude subsequent claims under the doctrine of res judicata. See Bank of Lafayette
v. Baudoin (In re Baudoin), 981 F.2d 736, 737 (5th Cir. 1993) (court of appeals dismissed
lender liability action as barred by doctrine of res judicata; bankruptcy court previously
had allowed proof of claim filed by defendant). Moreover, the filing of a proof of claim
forecloses the exercise of important procedural rights by the claimant. See Langenkamp
v. Culp, 498 U.S. 42, 44-45 (1990) (per curiam) (filing of proof of claim against estate
precludes exercise of right to trial by jury by such claimant).
524. The debtor, rather than the bankruptcy trustee, is the proper defendant to both
the objection to discharge and the related declaratory action. Therefore, one cannot
argue that supplemental jurisdiction over the declaratory action assists in resolution of the
bankruptcy case because it frees the trustee from the responsibility to litigate the
declaratory action in a nonbankruptcy forum.
525. See supra note 524 (discussing these tactical considerations); see also 11 U.S.C.
§ 502(d) (1988) (disallowing claim of transferee in avoidable transfer unless transferee has
disgorged benefit received from such transfer). Because in this hypothetical the
defendant has not filed a proof of claim, it is not entitled to receive a dividend from the estate.
See Fed. R. Bankr. P. 3002(a) (1988) (generally requiring holder of claim to file proof of
claim to receive dividend in bankruptcy case) and Fed. R. Bankr. P. 3003(c)(
estate. 52 6
If, on the other hand, the state law counterclaims are raised in an
avoidance action brought by the debtor, rather than the trustee, 527 they
may not be viewed as "related to" the title 11 case. 528 The case for
exercise of supplemental bankruptcy jurisdiction is concomitantly weak. The
debtor's estate can be administered without resolution of the
supplemental counterclaim, thus, it seems likely that an exercise of supplemental
jurisdiction over the counterclaim will stall that resolution.52 9
holder of disputed claim to file proof of claim to receive dividend from chapter I Iestate).
The counterclaim could affect the administration of the debtor's estate in another way; if
the counterclaim is successful but the defense against the debtor's primary action is not,
the defendant's liability to the estate will be reduced by the recovery in the counterclaim.
In addition, failure to file a proof of claim will preclude the defendant from recovering
any amount from the estate, even if recovery on the counterclaim exceeds recovery on the
526. See supra notes 85-98 (discussing "related to" jurisdiction); see also 28 U.S.C.
)(C) (1988) (defining "core proceedings" to include "counterclaims by the
estate against persons filing claims against the estate"). Courts differ as to the breadth of
this provision. Some hold that a counterclaim based on a state law cause of action is not
"core," even though a proof of claim was filed by the party against whom the claim was
asserted, unless the state law claim itself constitutionally can be heard by the bankruptcy
court. See, eg., Nanodata Computer Corp. v. Kollmorgen Corp. (In re Nanodata
Computer Corp.), 52 B.R. 334, 338-43 (Bankr. W.D.N.Y. 1985) (holding that state law issues
are not "core" matters, and merit only "related to" jurisdiction as governed by § 157(c));
see also Piombo Corp. v. Castlerock Properties (In re Castlerock Properties), 781 F.2d
159, 162-63 (9th Cir. 1986) (debtor fied state law counterclaims to motion for relief from
automatic stay to continue pending state court action; after bankruptcy court denied
motion to dismiss counterclaims, state court plaintiff filed proof of claim; court of appeals
held that bankruptcy court did not have jurisdiction over counterclaim when proof of
claim was filed after court had asserted jurisdiction over counterclaims). Other courts
read subsection (C) literally to find "core" status for counterclaims based on state law
whenever the counterclaims are against a party who filed a proof of claim. Some,
however, would limit this definition to counterclaims arising out of the same transaction as
that which gave rise to the proof of claim. See, eg., Macon Prestressed Concrete Co. v.
Duke, 46 B.R. 727, 731 (Bankr. M.D. Ga. 1985) (finding jurisdiction for debtor's
counterclaim because it was "intimately connected" with debtor's petition for reorganization).
527. See IIU.S.C. § 522(0 (1988) (permitting debtor to avoid certain judicial liens, or
non-possessory, non-purchase-money security interests, which impair an exemption to
which debtor otherwise would have been entitled); § 522(h) (permitting debtor to bring
avoidance actions if property to be recovered in such action otherwise could have been
claimed as exempt by debtor under 11 U.S.C. § 522(g)(
) and trustee does not attempt to
avoid such transfer).
528. Cf.Turner v. Ermiger (In re Turner), 724 F.2d 338, 341 (2d Cir. 1983) (cause of
action, which was allocated to debtor as exempt property, was not "related to"
bankruptcy case because suit was no longer property of estate, proceeds from recovery on suit
would not enhance estate, and there was no other significant connection to bankruptcy
529. One might argue that the exercise of supplemental bankruptcy jurisdiction would
assist the trustee in a speedy resolution of the estate because it provides the debtor the
convenience of a single forum for resolution of both the avoidance action and the
counterclaims. But this argument seems unconvincing because, if supplemental bankruptcy
jurisdiction were not exercised, the defendant would be forced to choose between filing a
proof of claim on grounds of breach of contract, requesting relief from the automatic stay
in order to pursue the breach of contract action (to judgment) in a nonbankruptcy forum,
or abandoning the claim. Only if there were a substantial likelihood that the defendant's
The notion that an exercise of supplemental bankruptcy jurisdiction
may assist in, rather than hamper, the administration of an estate,
however, is heightened when the counterclaims occur in an action involving
the bankruptcy trustee. Assume in this instance that a suit is brought
against the trustee, alleging that the trustee should be held personally
liable for some malfeasance which occurred during her representation of
the estate.530 For example, the plaintiffs, attorneys to the trustee during
the pendency of the bankruptcy case, may allege that the trustee should
be held personally liable for their attorneys' fees, which previously were
disallowed by the bankruptcy court on the grounds that the plaintiffs
were not "disinterested, 5 3 1 because the trustee fraudulently
misrepresented to them the factual circumstances leading to their conclusion that
they were sufficiently "disinterested." In response, the trustee defends
against the attorneys' claim, arguing that even if she had misrepresented
the facts to the attorneys, she should not be held liable because the
plaintiffs had themselves committed malpractice. Here, the plaintiffs' suit
against the trustee should be viewed as "arising in" the title 11 case since,
but for the bankruptcy filing, the trustee would not have been appointed,
the plaintiffs would not have been employed by the trustee and the entire
situation would not have occurred. The trustee's counterclaim to the
"arising in" proceeding may not "relate to" the title 11 case in that
resolution of the counterclaim will have no conceivable effect on distributions
to creditors or the administration of the estate. 532 The only effect of
success in her counterclaim would be to reduce the trustee's personal
liability to the plaintiffs. Still, an exercise of supplemental bankruptcy
jurisdiction might assist the trustee in a speedy resolution of the estate
because it may provide her the convenience of a single forum for
resolution of both the personal liability action and the counterclaim. If
supplerequest for relief from the automatic stay would be granted would this judicial economy
argument hold any water, however, and courts are most reluctant, absent special comity
concerns not likely to exist in a garden-variety contract action, to grant such a request
and permit the litigation of unsecured claims in a nonbankruptcy forum. There would
seem to be no judicial economy if the debtor's objections to the contract action are
litigated in the context of the avoidance suit rather than as an objection to a proof of claim.
530. See, e.g., Lopez-Stubbe v. Rodriguez-Estrada (In re San Juan Hotel Corp.), 847
F.2d 931, 937 (1st Cir. 1988) (upholding assessment of personal liability against former
trustee of chapter 7 estate).
531. See 11 U.S.C. § 327(a) (1988) (permitting trustee, with court's approval, to
employ attorneys "that do not hold or represent an interest adverse to the estate, and that
are disinterested persons"); § 328(a) (permitting trustee to employ professional persons
"on any reasonable terms and conditions of employment"); § 328(c) (permitting court to
deny allowance of compensation for services rendered by such professional persons if
"such professional person is not a disinterested person, or represents or holds an interest
adverse to the interest of the estate with respect to the matter on which such professional
person is employed"); see also 11 U.S.C. § 101(13) (defining "disinterested person").
532. One could argue that the trustee's counterclaims "arise in"the title 11 case if the
alleged malpractice occurred post-petition because, but for the commencement of the
bankruptcy case, the post-petition malpractice may not have occurred. See supra notes
75-84 (discussing scope of "arising in" jurisdiction as inclusive of most claims arising out
of post-petition transactions).
mental bankruptcy jurisdiction were not exercised, the trustee would face
the choice of abandoning her claim or bringing it against the debtor's
former attorneys in a nonbankruptcy forum. Forcing the trustee to sue
the attorneys outside the bankruptcy court would distract her from
administering the estate and possibly delay its resolution. Moreover, the
court may decline to close the bankruptcy case until the supplemental
claim is resolved because cessation of the case may alter the capacity of
the trustee to assert the counterclaim.5 33
Finally, an assertion of supplemental jurisdiction against non-parties is
difficult, but not impossible, to reconcile with the bankruptcy policy
favoring expeditious resolution of an estate5. 34 Recall the hypothetical
involving the preference and fraudulent transfer actions brought by the
trustee against various defendants, but in this instance, assume that the
defendants also bring a third-party complaint against their attorneys and
accountants for malpractice.5 35 Because the trustee is not a party to the
third-party action, it is more difficult to justify the exercise of
supplemental jurisdiction out of a concern for the convenience to the trustee,
because it does not seem as though it would be inconvenient for the trustee
if the avoidance action (to which the trustee is a party) were resolved in a
bankruptcy forum and the malpractice action (to which the trustee is not
533. See 11 U.S.C. § 558 (1988) (permitting "estate" to raise defenses available to
debtor as against any entity other than the estate).
534. Assertions ofsupplemental jurisdiction "involv[ing] the joinder or intervention of
additional parties," 28 U.S.C. § 1367(a) (Supp. IV 1992), were, prior to enactment of the
supplemental jurisdictional provision, referred to as exercises of ancillary jurisdiction
when the supplemental claim against a third party was brought by the defendant, see
supra notes 103-09 and accompanying text (discussing ancillary jurisdiction), or as
exercises of pendent-party jurisdiction when the supplemental claim against a third party was
brought by the plaintiff, see supra notes 119-36 and accompanying text (discussing
pendent-party jurisdiction). The distinction between supplemental jurisdiction "involv[ing]
the joinder or intervention of additional parties" generally, and supplemental jurisdiction
"involv[ing] the joinder or intervention of additional parties" which is asserted by
plaintiffs, continues under the supplemental jurisdiction provision. See 28 U.S.C. § 1367(b)
(Supp. IV 1992) (prohibiting the latter where "original jurisdiction founded solely on
section 1332 of [title 28]").
535. See supra notes 12-18 and accompanying text (setting forth hypothetical in
detail). Because the third-party action is brought by the defendants, it would be viewed as
an assertion of ancillary jurisdiction, see supra notes 103-09 and accompanying text,
rather than an assertion of pendent-party jurisdiction, see supranotes 119-36 and
accompanying text. The distinction may have been rendered irrelevant by 28 U.S.C. § 1367
(Supp. IV 1992). That statute generally permits an exercise of supplemental jurisdiction
even as to "claims that involve the joinder or intervention of additional parties." See 28
U.S.C. § 1367(a) (Supp. IV 1992). The only exception that § 1367 provides to an
assertion of pendent-party jurisdiction is where the sole basis for jurisdiction over the primary
claim is 28 U.S.C. § 1332 (diversity and alienage jurisdiction). See 28 U.S.C. § 1367(b)
(Supp. IV 1992). Where jurisdiction of the primary claim is instead founded on 28
U.S.C. § 1334(b) (1988 & Supp. IV 1992), the bankruptcy jurisdictional provision, an
exercise of pendent-party jurisdiction would seem to be authorized. But see infra note
570 (arguing, on policy grounds, that Congress should reconsider grant of supplemental
bankruptcy jurisdiction involving joinder or intervention of additional parties by
a party) were resolved in a nonbankruptcy forum.5 36
Where there is a
536. There undoubtedly exists substantial overlap between proceedings "related to"
the title 11 case, and supplemental claims sufficiently related to an "arising under" or
"arising in" proceeding. For example, reconsider the hypothetical involving the
avoidance action and third-party malpractice suit. See supra notes 12-18 and accompanying
text (setting forth this hypothetical). One could argue that the third-party action is a
proceeding "related to" the title 11 case-one which might conceivably affect
distributions from the estate or administration of the estate-in that the third-party plaintiff's
success in this suit renders the trustee's action against him more collectable. Courts are
divided as to whether such an extensive interpretation of the grant of "related to"
jurisdiction is supportable, however. Compare Hawkins v. Eads (In re Eads), 135 BR. 387,
393 (Bankr. E.D. Cal. 1991) (concluding that it had "related to" jurisdiction over
thirdparty claims because "possibility of recovery on the third-party complaint enhances the
collectability of any judgment against the [non-debtor] defendants") with Scott v.
Equitable Fed. Savs. & Loan Ass'n (In re German), 97 B.R. 373, 375 (Bankr. S.D. Ohio 1989)
(concluding that "related to" jurisdiction did not extend to third-party claims). In part
this disagreement may be explained by the more general disagreement as to whether any
"conceivable" relationship between the proceeding and the estate satisfies the standard of
"related to" jurisdiction, or whether a direct, legal relationship is required. See supra
notes 85-98 and accompanying text (discussing disagreement about standard of "related
Courts generally have held that suits between third party non-debtors do not involve
"related to" jurisdiction unless resolution of the action would (
) result in automatic
liability against the debtor; (
) bar the debtor from relitigating any issue determined by
the suit under principles of res judicata or collateral estoppel; or (3) otherwise affect the
debtor's rights, liabilities, options or freedom of action in any way that impacts upon the
handling and administration of the bankruptcy estate. Compare Quattrone Accountants,
Inc. v. IRS, 895 F.2d 921, 926-27 (3d Cir. 1990) (holding bankruptcy court has no
"related to" jurisdiction over suit to determine non-debtor's liability as "responsible person"
for failure to pay trust fund taxes) and Home Ins. Co. v. Cooper & Cooper, Ltd., 889
F.2d 746, 749-51 (7th Cir. 1989) (court of appeals remanded for determination as to
whether action brought by debtor/law firm's insurer seeking declaration that "claims
made" malpractice policy was invalid because of misrepresentations on application form,
both as to misrepresenting sole shareholder of debtor and innocent associates of firm, was
"related to" debtor's bankruptcy case) and Fietz v. Great Western Savings (In re Fietz),
852 F.2d 455, 458 (9th Cir. 1988) (cross-claim by debtor's former wife against mortgagee
dismissed for lack of subject matter jurisdiction; "related to" jurisdiction did not exist
over cross-claim because, even if cross-claim was community property and thus property
of debtor's estate, resolution of cross-claim would have no conceivable effect on estate
when debtor's plan had been confirmed and could not be modified by creditors, absent
proof of fraud) andNational City Bank v. Coopers & Lybrand, 802 F.2d 990, 993-94 (8th
Cir. 1986) (holding no bankruptcy jurisdiction over post-confirmation suit by class of
note holders who had received less than full payment under debtors' reorganization plan
against debtors' pre-petition accountants asserting that negligence, breach of contract and
fraud by accountants caused devaluation of their claims and reduced dividends under
plan) and Pacor, Inc. v. Higgins, 743 F.2d 984, 995 (3d Cir. 1984) (finding no bankruptcy
jurisdiction over personal injury tort claim brought by Higgins (consumer), against
Pacor, Inc. (supplier), although Pacor had filed third-party complaint against Manville
(manufacturer), and third-party claim was stayed by Manville's chapter 11 filing;
Higgins' claim was described as "a mere precursor to the potential third party claim for
indemnification" by Pacor against Manville because Manville would not be barred by res
judicata or collateral estoppel from relitigating any issue decided in suit between Higgins
and Pacor, nor did Higgins' action create automatic liability against Manville) with
Michigan Employment Sec. Comm'n v. Wolverine Radio Co. (In re Wolverine Radio Co.),
930 F.2d 1132, 1143 (6th Cir. 1991) (distinguishing Pacoras involving merely
commonlaw rather than contractual claim for indemnification, the court of appeals found "related
to" jurisdiction over determination of tax liability of debtor's assignee because
contracsubstantial overlap between the factual basis for the avoidance action and
that of the third-party malpractice action,537 however, the resolution of
both the primary and supplemental claims in the same bankruptcy forum
may make discovery and other procedural developments in the related
cases easier for the trustee.5 a8 In addition, the exercise of supplemental
bankruptcy jurisdiction over the malpractice action may work to the
advantage of the trustee in negotiating a settlement of the avoidance action.
These judicial economies may outweigh any possible delay in
administration of the estate.
Where the trustee or other representative of the estate is a third-party
defendant, these convenience arguments are substantially weakened.
Consider, in this instance, a suit brought by an individual against a drug
manufacturer. 539 The plaintiff alleges that the defendant is liable to her
under state tort law. Federal jurisdiction is based on the diversity of
tual indemnification provision might render debtor liable to assignee in event assignee
held liable to debtor's former employees) and Robinson v. Michigan Consolidated Gas
Co., 918 F.2d 579, 584 (6th Cir. 1990) (finding "related to" jurisdiction existed over
tenants' suit against utility and bankruptcy trustee for wrongful termination of service
since tenants sued trustee in his official capacity and thus sought recovery from debtor's
estate) and Dogpatch Properties, Inc. v. Dogpatch U.S.A., Inc. (In re Dogpatch U.S.A.,
Inc.), 810 F.2d 782, 786 (8th Cir. 1987) (finding "related to" jurisdiction over
counterclaim and third party claim in action brought by purchaser of property against debtor,
mortgagee and Arkansas Real Estate Commission, because outcome of counterclaim
brought by mortgagee against purchaser to foreclose and third party claim brought by
mortgagee against alleged guarantors to collect on guarantee would affect estate in that
purchaser's inability to pay mortgages would render debtor responsible to repay
mortgaged amount) and DuVoisin v. Foster (In re Southern Indus. Banking Corp.), 809 F.2d
329, 331 (6th Cir. 1987) (holding action between assignee of note given to debtor and
maker of note was "related to" debtor's bankruptcy case because suit arose as result of
debtor's bankruptcy, single substantive claim concerning maker's setoff rights against
assignee was based on bankruptcy law, and debt to be set off was debt owed to maker, not
by assignee, but debtor) and Su-Ra Enterprises, Inc. v. Barnett Bank, N.A., 142 B.R. 502,
505 (S.D. Fla. 1992) (finding "related to" jurisdiction to exist over equitable action under
Florida law brought by non-debtorAessee against purchaser of leasehold from estate
because defendant raised Bankruptcy Code as affirmative defense and both plaintiff and
defendant had claimed that they would bring action against estate if unsuccessful in this
537. The extent to which the primary and supplemental claims are related will affect
whether the exercise of jurisdiction over the supplemental claim is consistent or
inconsistent with an expeditious resolution of the bankruptcy case. Courts and commentators are
not in complete agreement as to what this standard ought to be. See supra notes 246-62
and accompanying text (discussing application of Gibbs's "relatedness" test to
supplemental bankruptcy jurisdiction).
538. See Dechert Price & Rhoads v. Direct Satellite Communications, Inc. (In re
Direct Satellite Communications, Inc.), 91 B.R. 5, 7 (Bankr. E.D. Pa. 1988) ("The
thirdparty defendants would be compelled to appear as witnesses and claims against them...
would be an aspect of Decher's [sic] defense irrespective of whether they are joined as
parties to this proceeding. Carpenter would be here as a party in any event, as he has not
moved for dismissal. It appears grossly unfair to Dechert and to Carpenter to make them
engage in litigation in a different forum which would be identical to that here if they do
not wish to do so.").
539. The facts of this hypothetical resemble Pacor, Inc. v. Higgins, 743 F.2d 984, 986,
994 (3d Cir. 1984).
citizenship of the parties." 4 The defendant brings a third-party
contribution and indemnification action against another drug manufacturer.
The third-party defendant files a bankruptcy petition, and as a result, the
third-party action is stayed.5 4 1 Because the automatic stay only relates to
proceedings against the debtor, however, the primary claim is not
stayed. 4 2 The third-party plaintiff then seeks to remove5 4 1 the entire
action to the district court for the district in which the third-party
defendant's bankruptcy case is pending, claiming that the third-party action
constitutes a "related to" proceeding and that the diversity action
between the plaintiff and defendant derives from "a common nucleus of
In this instance, resolution of the debtor's estate may well be hampered
by an exercise of supplemental bankruptcy jurisdiction over the removed
action. 5 " If the court were to decline to exercise supplemental
jurisdiction, litigation of the primary claim would continue in bankruptcy court
while litigation of the third-party action in the nonbankruptcy forum
would be stayed. The third-party plaintiff could file a proof of claim
against the debtor's estate based on the same allegations of
reimbursement or contribution made in the third-party action, but unless the
primary claim is resolved in the nonbankruptcy forum before the conclusion
of the debtor's bankruptcy case that contingent proof of claim is likely to
be disallowed. 45
When supplemental jurisdiction is asserted by the plaintiff against an
additional party, 546 convenience arguments may be plausible, so long as a
540. See 28 U.S.C. § 1332 (1988 & Supp. IV 1992).
541. See I1U.S.C. § 362(a)(
542. See, e.g., Wedgeworth v. Fibreboard Corp., 706 F.2d 541, 544 (5th Cir. 1983)
(automatic stay inapplicable to action against co-defendant of debtor); Pitts v. Unarco
Indus., Inc., 698 F.2d 313, 314 (7th Cir. 1983) (same).
543. See 28 U.S.C. § 1452(a) (1988 & Supp. IV 1992) ("A party may remove any claim
or cause of action in a civil action... to the district court for the district where such civil
action is pending, if such district court has jurisdiction of such claim or cause of action
under section 1334 of this title.").
544. Procedurally this hypothetical is confusing because, in the nonbankruptcy forum,
the suit between the plaintiff and the defendant is the primary claim and the third-party
action is the supplemental claim. In the bankruptcy forum, however, the third-party
action is the primary claim, in that it is "related to" the debtor's bankruptcy case, and the
suit between the plaintiff and the defendant becomes the supplemental claim, in that it
derives from "a common nucleus of operative fact" with the "related to" proceeding.
545. See 11 U.S.C. § 502(e)(
)(B) ("the court shall disallow any claim for
reimbursement or contribution of an entity that is liable with the debtor on or has secured the claim
of a creditor, to the extent that .. .such claim for reimbursement or contribution is
contingent as of the time of allowance or disallowance of such claim for reimbursement
or contribution"); § 502(e)(
) ("A claim for reimbursement or contribution of such an
entity that becomes fixed after the commencement of the case shall be determined, and
shall be allowed ... or disallowed . . . the same as if such claim had become fixed before
the date of the filing of the petition.").
546. Here, the reference is to what used to be referred to as "pendent-party
jurisdiction." See supra notes 119-36 and accompanying text (generally discussing pendent-party
jurisdiction); see also supra notes 534-35 (discussing continuing relevance of
pendentparty jurisdiction to supplemental bankruptcy jurisdiction).
trustee, debtor-in-possession, or other representative of the estate is a
party to the primary proceeding. For example, consider a proof of claim
asserting breach of a pre-petition contract to sell property of the estate.
Assume also that the trustee defends against the claim on the grounds
that the buyer's former chief executive officer misrepresented material
facts to the debtor, thus entitling the debtor to rescind the contract.- 7
The plaintiff-buyer then amends its complaint to join the former CEO as
a defendant. As noted above, the proof of claim "arises in" the title I
case."4 The action between the buyer and the debtor's principal may not
"relate to" the title 11 case, however, in that any recovery in this suit
would not be from property of the estate. If the estate and former CEO
are found to be severally liable, then the CEO's liability to the buyer may
not affect the estate's liability to the buyer. Nonetheless, the two actions
clearly arise out of a "common nucleus of operative fact." Moreover, the
trustee has every interest in the two claims being determined in a single
forum. Trials in separate forums may lead to inconsistent results, and
there may be additional practical benefits to a single forum."'
Notice, however, that arguments favoring an exercise of supplemental
bankruptcy jurisdiction because it would provide legal and practical
benefits to the estate are equally applicable to a "related to" proceeding
brought by or against a trustee or other representative of the estate.
Consider a "related to" proceeding brought by a trustee or
debtor-in-possession against an entity that has not filed a proof of claim against the estate,
alleging, for example, breach of contract and other state law claims. 550
The proceeding "relates to" the title 11 case in that any proceeds from its
recovery constitute property of the estate. 55 1 Assume further that the
defendant asserts a third-party action for indemnification or contribution
of some sort. As in the previous hypotheticals, the third-party action
probably does not "relate to" the title I I case because the proceeds from
recovery on the third-party complaint belong to the defendant and not
the estate. Still, as in the other hypotheticals, the exercise of
supplemental bankruptcy jurisdiction may assist the trustee in administering the
estate because of the practical and other considerations raised above.
The policy arguments seem indistinguishable. Still, constitutional
concerns may cause courts to question the wisdom of such an exercise, and
547. See Restatement (Second) of Contracts § 164 (1981).
548. See supra notes 75-84 and accompanying text.
549. See supra notes 530-45 and accompanying text (discussing these practical
550. Cf. Northern Pipeline Constr. Co. v. Marathon Pipe Line Co., 458 U.S. 50, 56, 84
(1982) (involving suit by Northern Pipeline Co., chapter II debtor-in-possession, against
Marathon Pipe Line Co., alleging breach of contract, warranty, misrepresentation,
coercion and duress; Marathon had not filed a proof of claim against the estate; recovery in
suit would have constituted property of estate under 11 U.S.C. § 541). For a more
detailed discussion of Marathon, see supra notes 398-415 and accompanying text.
551. See 11 U.S.C. § 541(a)(
stimulate Congress to enact clear statutory limitations. 5 2
In sum, the policies favoring a broad grant of bankruptcy jurisdiction
also support a limited grant of supplemental jurisdiction because, in
many circumstances, such an exercise delays the administration of the
bankruptcy estate. Whether an exercise of supplemental bankruptcy
jurisdiction is consistent with, or contradicts, Congress' goal to facilitate an
expeditious resolution of an estate differs depending on the
circumstances, and thus generally should be left to a case by case consideration.
Bankruptcy policies are not the only policies at work, however. Policies
generally supporting an exercise of supplemental jurisdiction also require
B. Policy Justifications GenerallyFavoringan Exercise of
SupplementalJurisdictionare Subject to CountervailingPolicy
Concerns in the Context of a Bankruptcy Case
Doctrines of supplemental jurisdiction traditionally have been justified
by considerations of federalism,5 53 fairness, and judicial economy.15 4
Absent an ability to assert supplemental jurisdiction, a plaintiff having a
jurisdictionally sufficient claim and a related jurisdictionally insufficient
claim would face undesirable choices.
First, a plaintiff could split the claims, bringing the primary claim in
federal court and the supplemental claim in state court. By splitting the
claims, the plaintiff would cause inconvenience and waste the time of
both the litigants and the federal and nonfederal judicial systems, as well
as create the possibility that res judicata and collateral estoppel issues
would arise in the later-concluded action. Second, the plaintiff could
proceed only on the federal claim in federal court, and abandon the
supplemental claim-an unfair result in the event the supplemental claim is
substantial. Finally, the plaintiff could join the primary and
supplemental claims in a state-court action, if permitted under the state's
procedural rules, but this would undercut Congress' fundamental purpose in
creating a federal court system-the provision of a federal forum for the
resolution of the "cases or controversies" enumerated within Article III
of the Constitution. 55 5
552. See supra part III.A.2 and accompanying text (discussing these constitutional
concerns in detail).
553. Considerations of federalism both support and temper exercises of supplemental
jurisdiction. Support is found in the notion that an exercise of supplemental jurisdiction
may, as a practical matter, be necessary to effectuate a congressional grant of federal
jurisdiction. See supra notes 378-85 and accompanying text. Limitation follows from the
fact that, by definition, the supplemental claim derives from the state law claim, and that
all exercises of supplemental jurisdiction encroach on the general jurisdiction of state
courts. See United Mine Workers v. Gibbs, 383 U.S. 715, 726 (1966).
554. See McLaughlin supra note 102, at 863 ("Based on notions of fairness and judicial
economy, the doctrines of pendent and ancillary jurisdiction served an important
function by allowing the court and litigants to effectively resolve all aspects of an entire
controversy in a single proceeding.").
555. See U.S. Const. art. III.
Similar interests are protected when defendants seek to exercise
supplemental jurisdiction. Absent the doctrine of supplemental jurisdiction,
a defendant to a federal claim would be required to either abandon or
seek redress in a separate state-court action for counterclaims,
crossclaims and third-party claims having no independent basis for federal
jurisdiction. Abandonment of the defendant's supplemental claims is
unfair because a separate action involving the supplemental claims raises
the specter of inconsistent verdicts.
The doctrine of supplemental jurisdiction is consistent with, and
necessary to an effectuation of, one of the primary purposes of the Federal
Rules of Civil Procedure: the elimination of technical, procedural
barriers to the joinder of related claims. 56
The important policy purposes favoring an assertion of supplemental
jurisdiction in an ordinary civil action find substantial
counter-arguments, however, when the exercise of supplemental jurisdiction occurs in
the context of a bankruptcy case. First, and probably most important,
the judicial economies of an assertion of supplemental bankruptcy
jurisdiction are often doubtful. On one hand, the litigants to the
supplemental proceeding may claim that federal adjudication of the jurisdictionally
deficient claim promotes fairness and efficiencies to the parties to the
litigation who are not thereby required to split the action or abandon the
nonfederal claim. In the context of bankruptcy, however, the judicial
economies the parties to the litigation may derive from an exercise of
supplemental jurisdiction must be balanced against the inefficiencies the
exercise may exact upon resolution of the bankruptcy case. By
definition, the supplemental proceeding will have no conceivable effect on
distributions from the estate or administration of the estate and could delay
final resolution of the estate. 57
Second, distinct from Congress' goal to provide a federal forum for the
resolution of federal claims-with its enactment of the jurisdictional
provisions of the 1984 Amendments to the Bankruptcy Code-Congress
equivocated as to the need to provide a federal forum for the resolution
556. See McLaughlin, supra note 102, at 864. As McLaughlin noted:
In addition to these considerations of judicial economy and fairness, the
doctrines of pendent and ancillary jurisdiction also complimented the liberal
joinder policies of the Federal Rules of Civil Procedure and facilitated the avowed
purpose of the Rules-to eliminate procedural barriers to the joinder of claims
so that all claims related to a legal controversy could be adjudicated in a single
557. The supplemental claim will delay resolution of the estate because the relationship
between the original proceeding and the supplemental proceeding is required only to have
a common nexus of fact, not a perfect interrelationship of fact. The factual nexus will, by
definition, be imperfect enough to preclude a finding that the supplemental proceeding is
"related to" the title 11 case whereas the original proceeding is so related. This schism
would widen if a logical relationship standard were preferred over a "common nucleus of
operative fact" test.
of all claims relating to a title 11 case.5s8 Legislative history is replete
with support for the proposition that in 1984 Congress was concerned
not only with the constitutionality of an exercise of the essential judicial
powers by non-Article III bankruptcy courts, but also with comity with
state courts.5 59 It added a provision in 1984 that directs district courts to
abstain from hearing a "related to" proceeding which was pending in a
state court at the time of the filing of the bankruptcy petition, which
could not have been heard in a federal court but for the filing, and which
can be timely adjudicated in the state court.56 Congress also retained a
provision permitting district courts to abstain from hearing a proceeding
"arising under" title 11, or "arising in"or "related to" a title 11 case, "in
the interest of justice, or in the interest of comity with State courts or
respect for State law." 6 ' Explicit concern for comity in the exercise of
federal bankruptcy jurisdiction stands in contrast to the discretion
allowed to courts in the exercise of other grants of federal jurisdiction. 62
To be sure, a concern for comity is not unique to federal bankruptcy
jurisdiction. What is distinct about Congress' concern for comity in the
context of an assertion of federal bankruptcy jurisdiction is that it has
been made explicit in the grant of jurisdiction, rather than left to judicial
Moreover, many of the arguments focusing on the unfairness of a
failure to exercise supplemental jurisdiction may be inapplicable in a
bankruptcy context. The broad grant of bankruptcy jurisdiction in 28 U.S.C.
§ 1334(b) is original and not exclusive." Thus, nothing precludes
litigants from enjoying the economies which follow from joint litigation of
the primary and supplemental proceedings in a nonbankruptcy forum.165
Additionally, although the doctrine of collateral estoppel clearly applies
558. See infra notes 559-63 and accompanying text.
559. See, e.g., 130 Cong. Rec. 58891 (June 29, 1984) (statement of Sen. Hatch) ("I
have only one regret as I reflect upon this conference product.... [With] the deletion of
the Senate-passed mandatory abstention provision .... purely State law claims which do
not arise under the Bankruptcy Code are allowed to be tried in State courts. This
presents an important constitutional concern.").
560. See 28 U.S.C. § 1334(c)(
) (1988 & Supp. IV 1992). For a quotation of this
provision, see supra note 61.
561. 28 U.S.C. § 1334(c)(
) (1988 & Supp. IV 1992). For a more complete quotation
of this provision, see supra note 61.
562. But see 28 U.S.C. § 1367(c)(
) (Supp. IV 1992) (permitting district court to
decline to exercise supplemental jurisdiction if "claim raises a novel or complex issue of
563. The differences between abstention doctrines that have developed outside a
bankruptcy context, and the abstention doctrines applied in bankruptcy, is a fascinating topic
which far exceeds the scope of this article.
564. See 28 U.S.C. 1334(b) (1988 & Supp. IV 1992).
565. But see Finley v. United States, 490 U.S. 545, 557-58 (1989) (Blackmun, J.,
dissenting) (noting that the Aldinger court suggested that "the appropriateness of
pendentparty jurisdiction might turn on the 'alignmen[t] of parties and claims,' and that one
significant factor is whether 'the grant of jurisdiction to [the] federal court is exclusive,"
but that the Finley court rejected the factor as irrelevant).
in a bankruptcy context 566 principles of res judicata may not attach in
"related to" proceedings.5 67 Thus, concerns about the fundamental
unfairness of requiring litigants to separately litigate the supplemental claim
and the "related to" proceeding may not exist.
Congress Should Amend § 1367(c)s Factorsto Reflect Concerns
Unique to Bankruptcy
Section 1367(c) provides that, in limited circumstances, district courts
may decline to exercise supplemental jurisdiction, despite the grant of
such jurisdiction by § 1367(a). 68 It permits courts to decline to exercise
supplemental jurisdiction if:
) the claim raises a novel or complex issue of State law,
) the claim substantially predominates over the claim or claims over
which the district court has original jurisdiction,
(3) the district court has dismissed all claims over which it has
original jurisdiction, or
(4) in exceptional circum5s6ta9nces, there are other compelling reasons
for declining jurisdiction.
The discretionary factors listed in § 1367(c) appear to be exclusive and
do not reflect factors unique to bankruptcy. If § 1367(a) is interpreted to
§ 1367(c) should
amended so that it clearly covers the bankruptcy context.5 7 0
trine of supplemental jurisdiction as a doctrine of judicial discretion.
566. See, e.g., Grogan v. Garner, Ill S. Ct. 654, 658 (1991) (principles of collateral
estoppel apply to bankruptcy non-dischargeability proceedings).
567. Courts are divided as to whether the doctrine of res judicata bars litigation of
previously unasserted claims merely "related to" the title 11 case. Compare Barnett v.
Stem, 909 F.2d 973, 980-82 (7th Cir. 1990) (holding that previously unasserted claims
could be barred by res judicata only if these claims would have been core proceedings in
the bankruptcy court) and Howell Hydrocarbons, Inc. v. Adams, 897 F.2d 183, 189-90
(5th Cir. 1990) (same) and I.A. Durbin, Inc. v. Jefferson Nat'l Bank, 793 F.2d 1541, 1548
n.8 (11th Cir. 1986) (same) with Sanders Confectionery Prods., Inc. v. Heller Fin., Inc.,
973 F.2d 474, 482-83 (6th Cir. 1992) (claim preclusion may in certain circumstances
attach to non-core proceedings), cerL denied, 113 S. Ct. 1046 (1993) and Sure-Snap Corp.
v. State Street Bank & Trust Co., 948 F.2d 869 (2d Cir. 1991) (same). But see In re
Kroner, 953 F.2d 317 (7th Cir. 1992) (claim preclusion applicable to subsequent non-core
proceedings as to which parties had consented to exercise of bankruptcy court
568. See supra note 39 (quoting 28 U.S.C. § 1367 in its entirety).
569. 28 U.S.C. § 1367(c) (Supp. IV 1992).
570. In addition, Congress should give thought to whether it intended § 1367(b)'s
limitation on pendent-party jurisdiction in diversity cases to apply in the bankruptcy context.
The same arguments that support a limitation of pendent-party jurisdiction in diversity
cases also support a limitation of jurisdiction over pendent-party claims related to a
"related to" proceeding, since "related to" proceedings derive from state not federal law.
571. Finley v. United States, 490 U.S. 545 (1989).
Supplemental jurisdiction has become a creature of statute.5 7 2 One could
argue that if Congress did not intend to codify all of supplemental
jurisdiction, it would not have specified in § 1367(c) the discretionary factors
to be considered in declining to exercise supplemental jurisdiction. It
would have left these equitable considerations to judicial discretion.
After viewing the source of supplemental jurisdiction as statutory, it is
not difficult to conclude that the factors enumerated in § 1367(c) are
exclusive. Moreover, this view is supported by the grammatical
construction of § 1367(c) itself, in that it does not use the term "including" when
describing the circumstances under which supplemental jurisdiction can
The List Is Peculiarly Applicable to the Nonbankruptcy Context
Most of the factors set forth in § 1367(c) can be restated to establish
more general factors to be balanced against the policy objectives of an
exercise of supplemental jurisdiction. As a result of the absence of
bankruptcy terms used in § 1367(c), however, the factors set forth in this
section are of little assistance to a district court seeking to determine
whether to exercise an assertion of supplemental bankruptcy
For example, § 1367(c)(
) permits a district court to decline to
exer572. See Mengler, supra note 102, at 248 (describing Finley as having "undermined the
viability of pendent claim and ancillary jurisdiction"). Mengler then identifies three
options available to Congress prior to its enactment of § 1367:
First, Congress could abolish any vestiges of pendent and ancillary jurisdiction
remaining after Finley. Second, Congress instead could take the position that
the doctrines of pendent claim, pendent party, and ancillary jurisdiction are a
beneficial feature of the federal procedural system. Believing that Finley really
only eliminates pendent party jurisdiction, Congress could overrule the most
obvious implication of Finley by codifying pendent party jurisdiction. Third,
Congress could take the same favorable position on supplemental jurisdiction.
Believing, however, that Finley seriously undermines all of supplemental
jurisdiction, Congress could overrule Finley by codifying pendent claim, pendent
party, and ancillary jurisdiction.
Id. at 267. Although courts were divided as to the implications of Finley on
pendentclaim and ancillary jurisdiction, see supra note 435, Congress followed Mengler's third
option, either because it agreed with Mengler or more likely, simply out of an abundance
of caution. Thus, a court could still conclude that § 1367 does not completely regulate
supplemental jurisdiction-that courts continue to hold inherent equitable authority to
decline to exercise supplemental jurisdiction-but this conclusion is made much more
difficult by Finley and Congress' enactment of § 1367 in reaction to Finley.
573. Compare 28 U.S.C. § 1367(a) (Supp. IV 1992) ("supplemental jurisdiction shall
include claims that involve the joinder or intervention of additional parties") (emphasis
added) with § 1367(c) (Supp. IV 1992) ("The district courts may decline to exercise
supplemental jurisdiction over a claim under subsection (a) if .... "). Cf 11 U.S.C. § 102(
(1988) (as applied to title 11, the terms "'includes' and 'including' are not limiting").
574. Section 1367(c)(
) ("the claim raises a novel or complex issue of State law"), by
contrast, is generally phrased. With this discretionary factor, there remains an issue as to
its interrelationship to 28 U.S.C. § 1334(c)(
) and (c)(
) (1988 & Supp. IV 1992). See
supra note 61 (quoting 28 U.S.C. § 1334 in its entirety). It seems anomalous that district
courts are required to abstain from certain "related to" proceedings, but are left
discrecise supplemental jurisdiction where "the claim substantially
predominates over the claim or claims over which the district court has original
jurisdiction."57 More generally stated, this factor permits the court to
balance the judicial economy of an exercise of supplemental jurisdiction
as compared to a refusal to exercise the assertion of such jurisdiction. If
) were restated to comport with a balance of similar interests
involved in a bankruptcy context, it would permit the court to weigh the
effect of an exercise of supplemental jurisdiction on the efficient
administration of the bankruptcy estate, as well as its effect on an efficient
resolution of the litigation between the parties.
) is similarly directed to a nonbankruptcy balancing
of equities. It permits a district court to decline to exercise supplemental
jurisdiction when "the district court has dismissed all claims over which
it has original jurisdiction, 5 76 but appears not to permit the district
court to consider the affect of a dismissal, close, or conversion of a title
11 case.57 7 A simple restatement of § 1367(c)(
) would clarify this
Section 1367(c)(4) purports to provide to district courts generalized
authority to decline to exercise supplemental jurisdiction. It, however,
exacts a heightened standard for consideration of factors other than
those identified in § 1367(c)(
) through (3), only permitting
consideration of other factors "in exceptional circumstances," and then limiting
the factors that may be considered to those which constitute "compelling
reasons for declining jurisdiction. 5 7 1 If § 1367(a) is applicable in the
bankruptcy context, Congress should amend § 1367(c)(
) through (3) to
reflect this decision, rather than leave district courts with § 1367(c)(4) as
the exclusive basis for declining to exercise supplemental bankruptcy
Courts of appeals, district courts, and bankruptcy courts have too
readily accepted assertions of supplemental bankruptcy jurisdiction as
proper without recognizing that both the constitutional and statutory
authority for such assertions are uncertain. By raising these statutory and
constitutional questions, this Article seeks to create judicial dialogue. In
addition, it concludes that the exercise of supplemental bankruptcy
jurisdiction should be curtailed, if not by courts for reasons of constitutional
or statutory infirmity, then by Congress for policy reasons. Most
exertion to exercise supplemental jurisdiction over claims sufficiently related to such a
"related to" proceeding.
575. 28 U.S.C. § 1367(c)(
) (Supp. IV 1992).
576. 28 U.S.C. § 1367(c)(
) (Supp. IV 1992).
577. Cf. 11 U.S.C. § 362(c)(
) (1988) (providing that automatic stay continues until
earliest of closing or dismissal of title I1 case, or grant or denial of discharge to certain
578. See 28 U.S.C. § 1367(c)(4) (Supp. IV 1992).
cises of supplemental bankruptcy jurisdiction conflict with Congress'
primary objectives for enactment of the current bankruptcy jurisdictional
Congress should resolve this conflict by prohibiting district courts
from exercising jurisdiction supplemental to proceedings merely "related
to" a bankruptcy case, and by clarifying the circumstances under which
district courts should decline to exercise jurisdiction over claims related
to proceedings "arising under" the Bankruptcy Code or "arising in" a
bankruptcy case. In addition, Congress should prohibit bankruptcy
courts from exercising any supplemental jurisdiction at all.
1. Ancillary Jurisdiction ..............................
2. Pendent-Claim Jurisdiction ......................... 4. The Judicial Improvements Act of 1990 ............ Jurisdiction" ......... ............................. IV. Policy Considerations Favoring a Limitation of Concerns Unique to Bankruptcy ........................
1. An Exclusive List ..................................
2. The List is Peculiarly Applicable to the Nonbankruptcy Context ............................ Conclusion ..................................................... 807 808 809 811
2. "Disputes often arise during the pendency of a ...case that require judicial resolution . Section 1334 ( b) refers to these disputes as 'proceedings .' There may, therefore, be numerous proceedings within a case." King, supra note 1 , at 676- 77 & n.8 (citing Fed. R. Bankr . P. 1002 for the distinction between "case" and "proceeding").
3. The term "claim" has different meanings in the bankruptcy and non-bankruptcy
48. For cases in which courts have exercised supplemental bankruptcy jurisdiction under the former Bankruptcy Acts , see infra notes 346-47.
49. United Mine Workers v. Gibbs , 383 U.S. 715 , 725 ( 1966 ) ; see alsoinfra notes 116- 18 and accompanying text (discussing Gibbs's common nucleus of fact standard).
50. By "state law proceedings," this Article means proceedings which are predicated on state law and which do not "arise under" any federal law sufficient to satisfy the requirements of 28 U .S.C. § 1331 ( 1988 & Supp . IV 1992 ).
51. The citizenship of the parties determines whether the requirements of diversity jurisdiction have been fulfilled . See 28 U.S.C. § 1332 ( 1988 & Supp . IV 1992 ) (diversity jurisdiction provision).
52. See 28 U.S.C. § 1334 (b) ( 1988 & Supp . IV 1992 ).
53. U.S. Const. art. III. See infra part III.A (constitutional analysis of supplemental bankruptcy jurisdiction).
54. The phrase "primary claim" is used throughout this Article to refer to the nonsupplemental claim in a civil action . In United Mine Workers v. Gibbs , 383 U.S. 715 ( 1966 ), the Court referred to the primary claim as the "federal claim," probably because 28 U .S.C. § 1331 (statutory grant of federal question jurisdiction) provided the jurisdiction for the primary claim .
55. See Northern Pipeline Constr. Co. v. Marathon Pipe Line Co., 458 U.S. 50 , 87 ( 1982 ) (holding bankruptcy jurisdictional provision enacted with Bankruptcy Reform Act of 1978 unconstitutional because it delegated "essential attributes of the judicial power" to bankruptcy judges who did not enjoy life-tenure as required by Article III, § 1); see also infra notes 398-415 and accompanying text (extensive discussion of Marathon) .
56. 28 U.S.C. § 1334 (b) ( 1988 & Supp . IV 1992 ).
57. 28 U.S.C. § 1367(a) (Supp . IV. 1992 ).
58. See infra note 239 (discussing this rule of statutory construction).
63. 28 U.S.C. § 1334 (a) ( 1988 & Supp . IV 1992 ). For a definition of a "title 11 case," see supra note 1 .
64. 28 U.S.C. § 1334 (d) ( 1988 & Supp . IV 1992 ).
65. 28 U.S.C. § 1334 (b) ( 1988 & Supp . IV 1992 ). For a definition of "proceedings," see supra note 2 .
66. The concept of "arising under" bankruptcy jurisdiction is derived from "arising under" Constitutional, statutory, and treaty jurisdiction . Compare 28 U.S.C. § 1334 (b) ( 1988 & Supp . IV 1992) with 28 U .S.C. § 1331 ( 1988 & Supp . IV. 1992 ) (28 U.S.C. 1334(b) refers to jurisdiction under title 11, and 28 U.S.C. 1331 refers to jurisdiction under the Constitution, laws, and treaties of the United States). Indeed, legislative history indicates Congress' understanding that "arising under" bankruptcy jurisdiction would be easy to identify because "[t]he phrase 'arising under' has a well defined and broad meaning in the jurisdictional context." H.R. Rep . No. 595 , 95th Cong., 1st Sess . 445 ( 1977 ).
67. See Wood v . Wood (In re Wood) , 825 F.2d 90 , 96 , 97 ( 5th Cir . 1987 ) (narrowly defining "arising under" jurisdiction, and comparing it to other broader grants of bankruptcy jurisdiction).
68. H.R. Rep . No. 595 , 95th Cong., 1st Sess . 445 ( 1977 ).
69. See In re Wood, 825 F.2d at 96 -97 (stating that, for example, a suit to avoid a preferential transfer "arises under" title 11 because the suit is based solely on 11 U .S.C. § 547 ).
70. See 11 U.S.C. §§ 547 , 548 ( 1988 ) ; see also supra notes 13, 14 (defining preference and fraudulent transfers).
71. See 11 U.S.C. § 362 ( 1988 & Supp . IV 1992 ). Courts have found that motions , under 11 U.S.C. § § 105 or 362, for injunctive relief are "core" proceedings within the meaning of subsections (A) and (0) . See, e.g., National Union Fire Ins . Co. v. Titan Energy, Inc. (In re Titan Energy, Inc.), 837 F.2d 325 , 328 - 29 ( 8th Cir . 1988 ) (proceeding by debtor's insurer to enjoin, pursuant to §§ 105 and 362, state court action is "core" proceeding because product liability insurance policy between insurer and debtor is property of estate); Manville Corp . v. Equity Security Holders Comm., A.F. (In re Johns2 . Act of 1978 woods, Inc .), 885 F.2d 621 , 623 ( 9th Cir . 1989 ) (adopting Pacor's "any conceivable effect" language without Pacor'ssubsequent reference to alteration of debtor's options or to impact upon administration of bankruptcy estate) ; In re Fietz, 852 F.2d 455 , 457 ( 9th Cir . 1988 ) (same).
95. See Miller v . Kemira, Inc. (In re Lemco Gypsum, Inc.), 910 F.2d 784 , 788 & n. 19 ( 11th Cir . 1990 ) (adopting Pacor court's "conceivable effect" standard as definitive of "related to" jurisdiction without reference to qualifying language that appears in next sentence of Pacor) .
96. See also 1 Collieron Bankruptcy § 3 . 01 [c][iv] (Lawrence P. King ed., 15th ed. 1993 ) (noting that some courts interpret the "related to" standard as "whether the outcome of the proceeding could conceivably have any effect on the bankruptcy estate" ).
97. Cardinal Indus ., Inc. v. Buckeye Fed. Say. & Loan Ass'n (In re Cardinal Indus ., Inc.) , 109 B.R. 743 , 746 ( Bankr. S.D. Ohio 1989 ) (citation omitted).
99. See H.R. Rep . No. 595 , 95th Cong. Ist Sess . 445 ( 1977 ) ("[B]ecause title 11, the bankruptcy code, only applies once a bankruptcy case is commenced, any proceeding arising under title 11 will be in some way 'related to' a case under title II."). 1. 1 .