An order of the bankruptcy court approving the sale of estate property cannot give the bankruptcy court exclusive jurisdiction over disputes arising from the sale, for reasons explained by District Judge Joseph S. VanBokkelen of Hammond, Ind.

Procedurally, the facts were complex. Assume that the chapter 11 debtor sold assets to a buyer pursuant to a sale order entered by the bankruptcy court in Delaware.

According to Judge VanBokkelen’s September 6 order, the sale order provided that the bankruptcy court “shall retain exclusive jurisdiction to enforce and implement the terms and provisions of the Purchase Agreement, . . . including . . . retaining jurisdiction to . . . (c) resolve any disputes arising under or related to the Purchase Agreement . . . .”

Take it as a given that the debtor sued the buyer in federal district court in Indiana based on diversity of jurisdiction, asserting claims for breach of contract under the purchase agreement. The buyer filed a motion in the Indiana district court to dismiss for lack of jurisdiction and failure to state a claim.

On the jurisdiction motion, the buyer argued that the Indiana court had no jurisdiction because the sale order reserved exclusive jurisdiction in the bankruptcy court.

“Despite the apparent conferral of exclusive jurisdiction” in the sale approval order, Judge VanBokkelen cited Owen Equip. & Erection Co. v. Kroger, 437 U.S. 365, 374 (1978), for the proposition that “it is the Constitution and Congress, not the courts, that determine the scope of jurisdiction of the federal courts.”

Judge VanBokkelen cited 28 U.S.C. § 1334(b), which provides that “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.” [Emphasis added.] He paraphrased the subsection as meaning that “even state courts could have jurisdiction to hear these claims because the federal district courts’ jurisdiction is not exclusive.”

Section 1334 specifies when there is exclusive jurisdiction. Subsection (a) grants “original and exclusive jurisdiction of all cases under title 11.” Subsection (e)(1) confers exclusive jurisdiction over “all the property, wherever located, of the debtor as of the commencement of such case, and of property of the estate.”

Given that the grants of exclusive jurisdiction did not cover claims in the complaint, Judge VanBokkelen said it was “not within a bankruptcy court’s power to grant itself exclusive jurisdiction over all disputes related to the purchase agreement or the interpretation of its sale order.” He denied the motion to dismiss for lack of jurisdiction, finding that he had “jurisdiction to hear this matter, as the bankruptcy court lacks authority to deem itself the only court with jurisdiction over the interpretation of the Sale Order and Purchase Agreement.”

Although Judge VanBokkelen found he had jurisdiction, he ultimately dismissed the complaint for failure to state a claim, after a lengthy analysis of choice of law.

Observations

Entry of the sale order presumably fell within the bankruptcy court’s exclusive jurisdiction for having arisen as part of the “case” under Section 1334(a). Does enforcement of the sale order also fall under Section 1334(a)’s exclusive jurisdiction, or is enforcement nonexclusive under Section 1334 as having arisen under, in or related to a case under title 11?