Thompson v. B&B Capital, LLC

Background

Debbie Alice Thompson appealed a bankruptcy court order dismissing an adversary proceeding. The proceeding was filed while Thompson’s eighth bankruptcy case was pending. The bankruptcy court later dismissed the underlying bankruptcy case and imposed a two-year bar on refiling after finding that the purpose of that case, as well as earlier cases, was to delay foreclosure on Thompson’s property.

After the underlying bankruptcy case was dismissed, the bankruptcy court considered whether it should continue exercising jurisdiction over the adversary proceeding. It applied four factors identified in In re Carraher: economy, convenience, fairness, and comity, meaning respect for the authority and interests of state courts. The bankruptcy court concluded that these factors favored allowing the state courts to address Thompson’s two state-law claims. It also declined to allow a purported amended complaint because it was filed late and would not change the analysis.

Arguments and standard of review

Thompson argued that the case should not have been dismissed because she had discovered allegedly fraudulent assignments and fabricated documents. The district court explained that those arguments did not show that the bankruptcy court’s analysis was clearly wrong. PNC Bank, N.A. filed an answering brief supporting affirmance.

The district court reviewed the bankruptcy court’s decision for abuse of discretion. It reviewed the legal standard used by the bankruptcy court independently and reviewed the bankruptcy court’s factual findings for clear error.

Analysis

The district court held that the bankruptcy court used the correct legal standard. Dismissal of the underlying bankruptcy case did not automatically eliminate the bankruptcy court’s jurisdiction over the related adversary proceeding. Instead, the bankruptcy court properly considered whether retaining jurisdiction served economy, convenience, fairness, and comity.

The district court found no clear error in the bankruptcy court’s findings. The bankruptcy court had done little work on the matter, even though the parties had engaged in some motion practice. It found that proceeding in state court would be neither inconvenient nor unfair to Thompson or the defendants who had moved to dismiss. It also concluded that comity favored having a state court decide the state-law claims rather than having a federal court make unnecessary decisions about state law.

The district court further noted that the bankruptcy court had found that comity would still favor state-court proceedings even if Thompson were allowed to add proposed federal claims under 15 U.S.C. § 1641 and 18 U.S.C. § 152. The district court agreed with the bankruptcy court that no case had found an implied private right of action for a debtor to bring a claim under 18 U.S.C. § 152 in an adversary proceeding.

Disposition

Judge Beth Labson Freeman concluded that the bankruptcy court did not abuse its discretion by declining to retain jurisdiction after dismissing the underlying bankruptcy case. The district court ordered that the bankruptcy court’s dismissal of the adversary proceeding was affirmed.