Wood v. Wood
17 Collier Bankr. Cas. 2d 743, 825 F.2d 90, 1987 U.S. App. LEXIS 11403 (1987)
Premium Feature
Subscribe to Lexplug to listen to the Case Podcast.
Rule of Law:
A civil proceeding is related to a bankruptcy case, conferring federal jurisdiction, if its outcome could conceivably have any effect on the estate. However, such a proceeding is considered "non-core" if it is based on state-created rights and could exist independently of the bankruptcy case.
Facts:
- In 1981, Dr. James Wood and Dr. Arthur Wood, III, formed the Wayne Clinic, P.A., each owning 1000 shares of stock under an agreement that they were to be equal partners.
- In March 1984, Dr. James Wood and his wife, Carol Wood, filed a Chapter 11 bankruptcy petition.
- In November 1984, after the bankruptcy filing, Dr. James Wood, Carol Wood, and Woodrow Barham, acting as directors of the clinic, allegedly issued additional stock to Dr. James Wood.
- In the Spring of 1985, Dr. James Wood allegedly received a disproportionate distribution from the clinic as a result of the wrongful stock issuance, violating the equal partnership agreement.
Procedural Posture:
- Dr. Arthur Wood filed a complaint against Dr. James Wood, Carol Wood, and Woodrow Barham in the United States Bankruptcy Court for the Southern District of Mississippi.
- The defendants filed a motion to dismiss for lack of subject-matter jurisdiction.
- The bankruptcy judge (court of first instance) denied the motion, holding the matter was a core proceeding.
- The defendants appealed the bankruptcy judge's decision to the United States District Court.
- The district court reversed, holding that the matter was neither a 'core' nor a 'related to' proceeding, and dismissed the complaint for lack of jurisdiction.
- Dr. Arthur Wood, the plaintiff, appealed the district court's dismissal to the United States Court of Appeals for the Fifth Circuit.
Premium Content
Subscribe to Lexplug to view the complete brief
You're viewing a preview with Rule of Law, Facts, and Procedural Posture
Issue:
Does a state law claim by a debtor's business partner against the debtor and a non-debtor director for wrongful stock issuance fall within federal bankruptcy jurisdiction, and if so, is it a 'core' proceeding under 28 U.S.C. § 157?
Opinions:
Majority - Wisdom, Circuit Judge
Yes, the claim falls within federal bankruptcy jurisdiction, but No, it is not a core proceeding. A proceeding is 'related to' a bankruptcy case if its outcome could conceivably have any effect on the estate being administered. Here, the lawsuit over stock ownership and monetary distributions could affect the assets of Dr. James Wood's bankruptcy estate, thus establishing jurisdiction. However, a proceeding is 'core' only if it invokes a substantive right created by federal bankruptcy law (Title 11) or if it is a proceeding that by its nature could only arise in the context of a bankruptcy case. This dispute is based on state-created contract and corporate law rights and could have been brought in state court absent the bankruptcy. Therefore, it is a 'non-core' proceeding over which the bankruptcy judge has limited authority to submit proposed findings of fact and conclusions of law to the district court.
Analysis:
This case establishes two foundational tests for modern bankruptcy jurisdiction following the Supreme Court's decision in Marathon. By adopting the broad 'conceivable effect' test for 'related to' jurisdiction, the court allows federal courts to efficiently administer all matters that could impact a bankruptcy estate. Simultaneously, its creation of a narrow, two-part test for 'core' proceedings respects the constitutional limits on the power of Article I bankruptcy judges, ensuring they do not finally adjudicate traditional state-law claims. This decision provides a durable framework for allocating power between bankruptcy courts and district courts, influencing jurisdictional analyses in bankruptcy for decades.
Unlock the full brief for Wood v. Wood