A decision on Jan. 2 by District Judge Gregory M. Sleet of Delaware explains why plaintiffs should use caution in stretching the jurisdiction of the bankruptcy court when the statute of limitations is about to expire: because the bankruptcy court lacks statutory power to transfer the suit to a court that might have jurisdiction.
Following confirmation of a chapter 11 plan, the trustee for a liquidating trust sued officers and directors for breach of fiduciary duty. Bankruptcy Judge Kevin J. Carey decided that the bankruptcy court lacked jurisdiction because the non-core claims did not have a “close nexis” to the chapter 11 case.
Rather than dismiss outright, the plaintiff asked Judge Carey to transfer the suit to a district court in Pennsylvania that might have jurisdiction. Judge Carey declined the invitation to transfer, finding that the bankruptcy court lacked power under 28 U.S.C. § 1631. However, he also allowed the plaintiff to file a motion to withdraw the reference because the district court would have power to transfer.
Section 1631 provides that “a court as defined in [28 U.S.C. § 610]” that finds “a want of jurisdiction” shall, “if it is in the interest of justice,” transfer the case to another court in which it could have been filed. On transfer, the transferee court proceeds as if it had been filed on the date when it was actually filed in the transferor court, thus avoiding a time bar if the statute of limitations would have expired before the plaintiff could refile the suit in another court.
Section 610 defines “courts” as the district and circuit courts, plus the district courts in Guam, the Canal Zone, and the Virgin Islands, along with the Court of Federal Claims and the Court of International Trade.
Agreeing with Judge Carey and finding no power in the bankruptcy court to transfer under Section 1631, Judge Sleet said that Congress “selectively enumerated” the court possessing power to transfer. It did not avail the plaintiff to argue that the bankruptcy court is a “unit” of the district court, because one Article I court, the Court of Federal Claims, was listed in Section 610.
Unless the Third Circuit reverses, the plaintiff trustee’s suit may be time barred, because Judge Sleet had previously denied the motion to withdraw the reference. Since bankruptcy jurisdiction was lacking, he said the suit had never been properly referred to the bankruptcy court, leaving the district court unable to withdraw a reference “that never existed.”