Commercial Litigation and Arbitration

Circuit Split as to Whether Bankruptcy Court or District Court Has Jurisdiction over Claims Arising out of Violation of the Automatic Stay

Roberts v. Am. Bank & Trust Co., 835 F. Supp. 2d 183 (E.D. La. 2011):

The American Bank Defendants have moved to dismiss Plaintiff's claims of violation of the automatic stay, arguing that this Court lacks jurisdiction to hear the claim and that Plaintiff fails to state a claim upon which relief can be granted.

The United States Bankruptcy Code provides a comprehensive federal system for the management of debtor's affairs and creditors' rights. See 11 U.S.C. § 101, et seq. Within the arrangement, the code provides for an automatic stay for state proceedings against the debtor. See 11 U.S.C. § 362. In the instant case, Plaintiff seeks damages under state law in a district court for alleged violations of the automatic stay provision of the Bankruptcy Code.

Several courts have already examined this question, and currently there is a circuit split on the issue. The Second Circuit has affirmed dismissal of such cases brought in district courts, determining that the "[F]ederal Bankruptcy Code preempts any state law claims for a violation of the automatic stay, and precludes jurisdiction in the district courts. Any relief for a violation of [an automatic] stay must be sought in the Bankruptcy Court." Eastern Equipment and Services Corp. v. Factory Point Nat'l Bank, Bennington, 236 F.3d 117, 121 (2d Cir. 2010). Meanwhile, however, the Eleventh Circuit has held that district courts do have jurisdiction over such claims by virtue of the grant of original jurisdiction over Title 11 cases found in 28 U.S.C. § 1331 and 1334. See Justice Cometh, Ltd. v. Lambert, 426 F.3d 1342, 1343 (11th Cir. 2005).

Section 1334(b) of Title 28 explicitly states that district courts have "original but not exclusive" jurisdiction of all civil proceedings arising under the Bankruptcy Code, notwithstanding any Act of Congress. 28 U.S.C. § 1334(b). The Eleventh Circuit interpreted this grant of jurisdiction in conjunction with the Bankruptcy Code to mean that the district courts may refer cases arising under title 11 to bankruptcy courts for their districts, but that they do not lack subject matter jurisdiction to adjudicate those claims themselves. See Justice Cometh, 426 F.3d at 1343. Tellingly, this grant of jurisdiction was not discussed in the Second Circuit decision that district courts may not adjudicate claims of violations of an automatic stay. Accordingly, this Court finds the Justice Cometh decision more persuasive and holds that it does not lack subject matter jurisdiction over the claim of violation of the automatic stay.

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