The Third Circuit pronounced an expansive view of “related to” jurisdiction by allowing chapter 13 debtors to mount a lawsuit in bankruptcy court against a contractor for breach of a contract that occurred after confirmation of the couple’s chapter 13 plan.

After a couple confirmed their chapter 13 plan, a fire made their home uninhabitable. They hired a contractor to repair the damage. Following the fire, the debtors fell behind on their plan payments.

After disputes arose between the contractor and the debtors, the contractor walked off the job. Based on “related to” jurisdiction, the debtors sued the contractor in bankruptcy court for breach of contract, among other claims. After trial, Bankruptcy Judge Gregory L. Taddonio issued a 137-page report and recommendation in favor of the debtors.

The district court accepted the bankruptcy court’s R&R and entered judgment against the contractor. The contract appealed to the circuit, contending that the bankruptcy court had no subject matter jurisdiction.

In a nonprecedential opinion on October 1, the Third Circuit affirmed.

Under Section 157(a), district courts may refer matters to bankruptcy courts that are “arising under title 11 or arising in or related to a case under title 11 . . . .” The debtors’ complaint was not “core,” but a bankruptcy court, under Section 157(c)(1), “may hear a proceeding that is not a core proceeding but that is otherwise related to a case under title 11.”

In defining the breadth of “related to” jurisdiction, the panel was bound by Third Circuit precedent in Binder v. Price Waterhouse & Co. (In re Resorts Int’l, Inc.), 372 F.3d 154 (3d Cir. 2004). There, the Third Circuit held that a noncore matter relates to a bankruptcy case “if the outcome could alter the debtor’s rights, liabilities, options, or freedom of action . . . [or] in any way impact[] . . . the handling and administration of the bankrupt estate.” Id. at 164.

Where there has been confirmation of a plan, the Third Circuit went on to say that the existence of “related to” jurisdiction turns on “whether there is a close nexus to the bankruptcy plan or proceeding[s] sufficient to uphold bankruptcy court jurisdiction over the matter.” Id. at 166–67.

The Third Circuit said that a close nexus exists when the proceeding “affect[s] an integral aspect of the bankruptcy process.” Id. at 167.

Applying the law to the facts, the panel said there was a “close nexus” to the chapter 13 plan, “an integral aspect of the bankruptcy process,” because the debtors had fallen behind on plan payments. There was “related to” jurisdiction given that the debtors “could put any proceeds from the adversary proceeding towards finishing repairs on their home . . . and paying accrued arrearages on their chapter 13 plan.”

“Because payment on a confirmed chapter 13 plan qualifies as an ‘integral aspect’ of the bankruptcy process,” the panel held that “the Bankruptcy Court had related-to jurisdiction to hear the [debtors’] adversary proceeding.”

Overruling other aspects of the contractor’s appeal, the panel affirmed the district court’s entry of judgment against the contractor.

The panel consisted of Circuit Judges Cheryl Ann Krause, Stephanos Bibas and Thomas L. Ambro.