KSB

Judge Karlin

07-07029 Williamson v. Odell et al (Doc. # 87) - Document Text

Case: 07-07029 Doc #: 87 Filed: 02/04/2009

SO ORDERED.
SIGNED this 04 day of February, 2009.


Page 1 of 11

________________________________________
JANICE MILLER KARLIN
UNITED STATES BANKRUPTCY JUDGE
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF KANSAS


In re: )
MARVIN CHARLES ODELL, ) Case No. 05-40900
) Chapter 7
Debtor. )
____________________________________)

)
In re: )
JACQUELINE SUE ODELL, ) Case No. 07-41501

) Chapter 7
Debtor. )
____________________________________)

)
DARCY D. WILLIAMSON, TRUSTEE )
FOR THE BANKRUPTCY ESTATE )
OF MARVIN CHARLES ODELL AND )
JACQUELINE SUE ODELL, )
)
Plaintiff, )
)


v. ) Adversary No. 07-7029
)
MARVIN CHARLES ODELL and )
JACQUELINE SUE ODELL )

)
Defendants. )
)



Case: 07-07029 Doc #: 87 Filed: 02/04/2009 Page 2 of 11


MARVIN CHARLES ODELL, )


)
Cross -Claim Plaintiff, )
)


v. )
)
JACQUELINE SUE ODELL, )
)
Cross-Claim Defendant. )
____________________________________)
MEMORANDUM OPINION AND ORDER DENYING MOTION TO SET

ASIDE THE ASSIGNMENT OF RIGHTS IN A DIVORCE OR IN THE

ALTERNATIVE TO ESTABLISH VENUE IN THE DISTRICT COURT

OF CRAWFORD COUNTY, KANSAS

This matter is before the Court on the Motion of Cross-Claim Defendant, Jacqueline Sue
Odell, to Set Aside the Assignment of Rights in a Divorce or in the Alternative to Establish Venue
in the District Court of Crawford County, Kansas.1 Both parties have submitted briefs, and the
Court is ready to rule. This proceeding is related to a pending bankruptcy proceeding, and the Court
has jurisdiction over this matter pursuant to 28 U.S.C. § 157(c).

I. FINDINGS OF FACT
On April 1, 2005, Marvin Charles Odell and Jacqueline Sue Odell jointly filed a Chapter 7
bankruptcy petition, and Darcy D. Williamson was thereafter appointed Trustee. At the time of the
filing, Debtors were married. On November 2, 2005, Debtors received their discharge.

On March 31, 2007, the Trustee filed this adversary proceeding, which sought turnover of
in excess of $90,000 in non-exempt property held by Debtors on the date of filing, pursuant to 11

1Doc. 83.

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U.S.C. §§ 521 and 542.2 The Trustee also sought revocation of Debtors’ discharge, pursuant to 11
U.S.C. § 727, based upon two allegations: 1) that Debtors’ schedules were knowingly inaccurate and
failed to disclose all property, debts and information relative to their financial affairs, and 2) that
Debtors failed to cooperate with the Trustee and surrender to the Trustee all property of the estate
and any recorded information including books, documents, records and papers related to the estate.
On June 12, 2007, the Trustee filed a motion for default judgment because neither Debtor
had filed a responsive pleading. Both Debtors then independently requested an extension of time
to file their answers, which requests were granted. Although Marvin Odell filed his answer on
September 24, 2007, Jacqueline Odell never filed a responsive pleading, and default judgment was
entered against her on October 18, 2007. She did not appeal the entry of default, and that order is
now final. Her discharge was revoked by final order entered October 29, 2007.3

Over three years after their joint bankruptcy was commenced, on March 25, 2008, Marvin
Odell filed a petition for divorce in Crawford County, Kansas.4 The next day, the Crawford County
District Court entered Temporary Orders which, in part, granted Jacqueline Odell possession of the
parties’ home in Pittsburgh, Kansas and prohibited them from assigning or transferring their interests
in personal property.

2The bankruptcy case in which this adversary proceeding is filed was commenced prior to October 17, 2005,
the effective date of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. Unless otherwise noted,
all future statutory references are thus to the Bankruptcy Code, 11 U.S.C. § 101, et seq. as it was in force prior to that
date.

3Doc. 32, main case. Following that entry of default, the joint case was deconsolidated, which is why these joint
debtors now have two different bankruptcy numbers.

4There is no indication that the parties sought relief from stay to pursue that divorce action. Accordingly, any
orders entered in that divorce case may well be void. See In re Wright, 371 B.R. 472, 478 (Bankr. D. Kan. 2007)
(holding that divorce decree that memorialized settlement agreement of Debtors was void and of no effect, at least with
respect to the purported division of estate property, because no party had obtained relief from the automatic stay imposed
by § 362).

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Following extensive discovery, Marvin Odell entered into a settlement agreement with the
Trustee in this adversary proceeding, which was approved by this Court only after notice and
opportunity for a hearing. The Court approved the agreement on October 14, 2008,5 after no
objections were raised. Jacqueline Odell was specifically notified of the motion to approve the
settlement agreement,6 which agreement disclosed that Marvin Odell intended to file a cross-claim
against her for various causes of action that accrued pre-petition, including breach of fiduciary duty
for her handling of their financial matters, specifically including her purchase of their home. The
settlement agreement also noted that Marvin Odell intended to assign his interest in those causes of
action to the Trustee.

On August 25, 2008, Marvin Odell filed a cross-claim against Jacqueline Odell.7 The cross-
claim sought damages for two counts of breach of fiduciary duty and one count of misuse of funds.
It also sought an order requiring specific performance and the imposition of a constructive trust, and
contained one count seeking to partition and sell the real property located in Pittsburg, Kansas.

Jacqueline Odell has moved to set aside the assignment of the cross-claim being asserted by
Marvin Odell, or in the alternative, to have those claims transferred to the state divorce court. For
the reasons set forth below, the Court denies both requests.

II. ANALYSIS
A. Assignment of Claims
5Doc. 39 in Case No. 05-40900.
6Docs. 37-38 in Case No. 05-40900
7Doc. 56, Adversary.

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Jacqueline Odell first requests this Court set aside Marvin Odell’s assignment to the Trustee.
She claims that Marvin Odell did not have an interest in the real property located in Pittsburg,
Kansas at the time they filed bankruptcy, and therefore that property is not part of his bankruptcy
estate. She also claims that it is against public policy to assign the rights to property to be awarded
through a divorce proceeding.

The Court finds that Mrs. Odell misinterprets the nature of the assignment made in this case.
In her brief in support of the motion, she states that Marvin Odell “has now assigned his rights under
the divorce to the Trustee and the Trustee is seeking to try the issue of the divorce and division of
property and payment of alimony in the bankruptcy court.” That statement is a complete
mischaracterization of what has transpired in this case, and what the cross-claim seeks to do.

Marvin Odell did not transfer to the Trustee his right to property to be awarded by the state
court judge through the divorce. The equitable division of property through the divorce is a separate
and distinct legal issue from the one contained in the cross-claim. The rights Marvin Odell
purported to transfer to the Trustee do not arise out of the filing of the petition for divorce or the
state court’s power to ultimately divide the property between the two former spouses (when the
automatic stay is no longer a bar). Instead, they are separate and distinct claims that arise out of an
alleged breach of fiduciary duty and misuse of funds by Jacqueline.

The Trustee is seeking to prosecute any claim Marvin might have for breach of fiduciary
duty and misuse of funds, as well as to impose a constructive trust and require specific enforcement
of the alleged agreement between the parties concerning the titling of real property, and an order
partitioning the property. None of those claims arise out of the divorce proceeding, but instead are
separate legal issues raised by Marvin. The Trustee in no way seeks to try, in this Court, the issue

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of whether the parties are entitled to a divorce, the ultimate division of property under the divorce,
or the payment of support.

In addition, the fact that Marvin Odell had or has no recorded interest in the property in
Pittsburg, Kansas is irrelevant. Marvin Odell did not purport to transfer his rights to that property
to the Trustee. Instead, he transferred his rights to any claims he might have against Jacqueline
Odell that arose from her handling of the Debtors’ finances and the purchase of the real property in
Pittsburg. All of the alleged conduct contained in the cross-claim predated the filing of the
bankruptcy petition. As such, those claims are already property of the bankruptcy estate.8 The
assignment made by Marvin Odell to the Trustee, therefore, was likely unnecessary, because his
estate already owned those claims upon the date of filing.

Finally, Jacqueline Odell was specifically notified of the terms of the settlement agreement
that contained the proposal to assign these claims to the Trustee. She was specifically told that if
she had any objection to the settlement agreement, she must file an objection by September 17,
2007.9 She elected not to object, and she is now estopped from litigating any objection to the
assignment.

B. Change of venue to state court
Jacqueline Odell next requests that these claims be heard in state court because that court has
jurisdiction over the divorce. First, because relief from stay was not granted to file that divorce, the
state court does not have jurisdiction at this time. Secondly, the Court again finds that Jacqueline
Odell misconstrues what is at issue here. The claims set forth in the cross-claim do not arise out of

8See Sender v. Simon, 84 F.3d 1299, 1305 (10th Cir. 1996) (holding that a bankruptcy estate includes “causes
of action belonging to the debtor at the commencement of the bankruptcy case”).
9Doc. 38.
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the divorce proceeding. These claims do not seek, as relief, for this Court to make an equitable
division of property or to decide the issues of alimony or support. The only connection these claims
have to the divorce proceeding is that their resolution may potentially impact the property rights that
are also at issue in the divorce proceeding. Simply put, these claims are separate and distinct legal
actions from the divorce proceeding, and the state court has not assumed jurisdiction over those
claims.

The Court further finds that it has jurisdiction to hear these claims. This Court has
jurisdiction to hear and enter final orders in all core proceedings.10 If a proceeding involves a right
created by bankruptcy law, or is one that would only arise in a bankruptcy case, it is a core
proceeding.11 “Core proceedings are proceedings which have no existence outside of bankruptcy.”12
“Actions which do not depend on the bankruptcy laws for their existence and which could proceed
in another court are not core proceedings.”13 If a proceeding does not invoke substantive rights
created by bankruptcy law and is one that could exist outside of bankruptcy, it is a non-core
proceeding, even though it may be related to bankruptcy because of its potential effect on the
estate.14

Section 157(b)(2) of Title 28 provides a non-exclusive list of proceedings that are considered
core proceedings. The original claims brought by the Trustee against both Debtors for turnover of

1028 U.S.C. § 157(b) and 28 U.S.C. § 1334.
11In re Wood, 825 F.2d 90, 97(5th Cir. 1987).
12In re Gardner, 913 F.2d 1515, 1518 (10th Cir. 1990) (citing In re Alexander, 49 B.R. 733, 736 (Bankr. D.N.D.


1985)).

13Id. at 1518 (citing In re Wood, 825 F.2d 90, 96 (5th Cir.1987)).

14In re Wood, 825 F.2d at 93.

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estate property were clearly core proceedings over which this Court had jurisdiction.15 The cross-
claims, however, do not arise solely out of the bankruptcy code and could clearly exist outside of
the bankruptcy context. Therefore, the cross-claim is not a core proceeding.

The Court’s finding that this case is not a core proceeding, however, does not deprive this
Court of jurisdiction to hear the case. Bankruptcy courts have jurisdiction to hear non-core
proceedings, provided they are related to the bankruptcy proceeding.16 The test for determining
whether a matter is related to a bankruptcy proceeding is whether the outcome of the proceeding
could conceivably have any effect on the estate.17

Numerous courts have analyzed whether certain types of actions are “related to” a
bankruptcy proceeding. Courts have found pre-petition claims such as civil rights claims,18
employment discrimination claims,19 fraud claims,20 and actions to invalidate mortgages21 to be
related to an underlying bankruptcy case on the basis that they could effect the bankruptcy case in
some way. Like those courts, this Court finds that Marvin Odell’s claims could conceivably have

1528 U.S.C. § 157(b)(2)(E) and (J).

1628 U.S.C. § 157(c)(1).

17Hunnicutt Co., Inc. v. TJX Companies, Inc. (In re Ames Dep’t Stores, Inc.), 190 B.R. 157, 161 (S.D.N.Y.
1995).

18Vinci v. Town of Carmel (In re Vinci), 108 B.R. 439 (Bankr. S.D.N.Y. 1989) (holding that the debtor’s civil
rights claim is related to the debtor’s bankruptcy proceeding because the outcome could have some effect on the
bankruptcy proceeding).

19Richardson v. United Parcel Serv., 195 B.R. 737, 740 (E.D. Mo. 1996) (referring case to the bankruptcy court
because the outcome of the case could have some effect on the debtor’s bankruptcy proceeding).

20Yukon Energy Corp. v. Brandon Investments, Inc. (In re Yukon Energy Corp.), 138 F.3d 1254 (8th Cir. 1998)
(holding that bankruptcy court properly exercised non-core jurisdiction over debtor’s fraud claim against a corporation
and former board member).

21Williams v. Heller Fin. Serv., Inc., 82 B.R. 823 (E.D. La. 1988) (holding that action seeking to invalidate
mortgages, return of interest paid by debtor in possession, and for damages for wrongfully encumbering those properties
was related to Chapter 11 bankruptcy case).

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an effect on his Chapter 7 bankruptcy proceeding. The outcome of this case could have a significant
impact on the amount of money that can be distributed to his creditors..22 Because the Court finds
Marvin Odell’s claims could conceivably have some effect on his bankruptcy estate, the claims fall
within this Court’s jurisdiction pursuant to 28 U.S.C. § 157(c)(1).

Although Jacqueline Odell’s brief actually asks for venue to be limited to state court, it
appears, based upon the arguments raised in her brief, she is actually claiming that this Court should
abstain from hearing this case and instead allow the case to be heard in state court. For mandatory
abstention under 28 U.S.C. § 1334(c)(2) to apply, however, the proceeding must (1) be based upon
a state law claim or cause of action; (2) lack a federal jurisdictional basis absent bankruptcy; (3) be
commenced in a state forum of appropriate jurisdiction; (4) be capable of timely adjudication; and

(5) be a non-core proceeding.23 Every requirement of mandatory abstention provision must be met
before the Court may abstain from hearing the proceeding pursuant to § 1334.24 Mandatory
abstention should be narrowly construed and abstention exercised narrowly and cautiously.25 In
addition to the above requirements, a motion for mandatory abstention must be timely filed.26
In this case, the Court finds that mandatory abstention is not appropriate. The claims
asserted by the Trustee through Marvin Odell have not been previously commenced in a state forum.

22See Artra Group, Inc. v. Salomon Brothers Holding Group, Inc. (In re Emerald Acquisition Corp.), 170 B.R.
632, 640 (Bankr. N.D. Ill. 1994) (holding that a proceeding relates to bankruptcy if it affects the amount of property
available for distribution or allocation of property among creditors).

23See Lindsey v. O’Brien, Tanaski, Tanzer & Young Health Care Providers of Conn. (In re Dow Corning Corp.),

86 F.3d 482, 497 (6th Cir. 1996).

24Nationwide Roofing & Sheet Metal, Inc. v. Cincinnati Ins. Co. (In re Nationwide Roofing & Sheet Metal, Inc.),

130 B.R. 768, 778 (Bankr. S.D. Ohio 1991).

25In re Hillsborough Holdings Corp., 123 B.R. 1004, 1010 (Bankr. M.D. Fla. 1990).

2628 U.S.C. § 1334(c)(2).

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As noted above, Mr. Odell’s claims do not arise out of the divorce proceedings and are not simply
a part of the equitable division of property, as claimed by Jacqueline Odell. Instead, they are very
separate and distinct claims that likely could have been brought in state court, but have not been.

Although mandatory abstention is not required under 28 U.S.C. § 1334(c)(2), the Court has
the discretion to abstain from this matter under 28 U.S.C. § 1334(c)(1). However, the Court elects
not to exercise that option here. Again, the claims brought by Marvin Odell do not arise out of the
divorce proceeding. They are separate and distinct legal causes of action. Although those claims
may eventually impact the outcome of the divorce proceeding, they are equally likely to impact the
outcome of Debtors’ bankruptcy proceedings.

These claims have been pending before this Court since August 2008, and this Court’s
docket will allow it to quickly and efficiently hear the claims. Furthermore, because discovery is
well under way in this Court, as a result of the Scheduling Order entered October 16, 2008,27 and
because this Court is equally capable of determining the validity of the claims as the state court, the
Court declines to abstain from hearing this case pursuant to 28 U.S.C. § 1334(c)(1).

III. CONCLUSION
For the above mentioned reasons, the Court denies Jacqueline Sue Odell’s Motion to Set
Aside the Assignment of Rights in a Divorce or in the Alternative to Establish Venue in the District
Court of Crawford County, Kansas.28 The Court finds that the “assignment” was likely unnecessary,
but even if necessary, did not involve Mr. Odell’s rights to property arising out of the filing of the
petition for divorce or the state court’s power to divide the property between the two former spouses

27Doc. 68, Adversary.
28Doc. 83.


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(if relief from stay is granted to allow it to do so). Instead, they are separate and distinct claims that
arise out of an alleged breach of fiduciary duty and misuse of funds.

As to the appropriate forum for deciding the cross-claim, the Court finds that it has
jurisdiction to hear this case and that abstention is not appropriate. This case is clearly related to the
bankruptcy proceedings, thus giving the Court jurisdiction under 28 U.S.C. § 157(c)(1). In addition,
the Court finds that the issues contained in the cross-claims brought by Marvin Odell are not the
type of issues that typically arise in a divorce proceeding and do not involve an equitable division
of property. Therefore, abstention is not appropriate.

IT IS, THEREFORE, BY THE COURT ORDERED that Jacqueline Sue Odell’s Motion
to Set Aside the Assignment of Rights in a Divorce or in the Alternative to Establish Venue in the
District Court of Crawford County, Kansas29 is denied. The Court has scheduled a final Pretrial
Conference for March 12, 2009 at 9:00 a.m., with a discovery cutoff of March 1, 2009, to which
deadlines the Court assumes the parties will adhere. Finally, in the Court’s Scheduling Order
entered over three months ago, the Court encouraged mediation because the parties indicated it
might be helpful. Although the Court encourages mediation, any mediation should have already
been commenced in this case if that route was to be explored. The Court might be willing to extend
deadlines at this late stage, but only if both parties desire to engage in mediation, agree on a
mediator, and if a mediation session is actually scheduled prior to any request for extension of
deadlines.

###

29Doc. 83.

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