Bankruptcy Ct. Has No Jurisdiction Over Fair Credit Reporting Act Violations Since No "Close Nexus" to Debtor's B'cy Case; Judge Trish Brown Affirmed

By Andrew Toth-Fejel, Bankruptcy Litigation Support for Attorneys, Andy@BLSforAttorneys.com


Kasim v. Equifax (In re Kasim), Adversary Proceeding No. 07-03144
U.S. District Court, District of Oregon, Appellate Nos. CV 08-627-HA and CV 08-628-HA
October 29, 2008


Summary

Debtor filed a Chapter 7 case in early 2004 and received a discharge. In 2007 he filed this adversary proceeding against two credit reporting agencies and a creditor for violating the federal Fair Credit Reporting Act ("FCRA") by continuing to report a debt that had been apparently discharged in the bankruptcy case. Judge Trish Brown dismissed for lack of subject matter jurisdiction over the CRA claims. U.S. District Court Judge Ancer Haggerty affirmed.

Bankruptcy Court and District Court Jurisdictions
Debtor argued that the jurisdictional provision, 28 U.S.C. § 1331, gave the bankruptcy court jurisdiction over the FCRA claims. This section states in full: "The district courts shall have original jurisdiction of all civil actions arising under the Constitution, laws, or treaties of the United States." The debtor tried to show that the broad grant of § 1331 granted this jurisdiction "because the Bankruptcy Court's jurisdiction is coextensive with the District Court's jurisdiction." The District Court Judge disagreed, citing the more limited jurisdiction specifically conferred upon bankruptcy courts under 28 U.S.C. § 157.

Non-Core Proceedings
28 U.S.C. § 157(a) gives bankruptcy courts jurisdiction over "any or all proceedings . . . arising in or related to a case under title 11. Those proceedings "related to" a bankruptcy case are labeled "non-core proceedings," which are those in which the proceeding may not be against the debtor or the debtor's property, but the outcome could nevertheless "alter the debtor's rights, liabilities, options, or freedom of action (either positively or negatively) and which in any way impacts upon the handling and administration of the bankrupt estate." [Citations excluded.]

"Close Nexus" Test
The District Court decision turned on the interpretation of the "close nexus" test as laid out in In re Pegasus Gold Corp., 394 F.3d 1189 (9th Cir. 2005). The Ninth Circuit there determined that the bankruptcy court did have subject matter jurisdiction over a non-core matter, stating that

the test is whether: the outcome of the proceeding could conceivably have any effect on the estate being administered in bankruptcy. Thus, the proceeding need not necessarily be against the debtor or against the debtor's property. An action is related to bankruptcy if the outcome could alter the debtor's rights, liabilities, options, or freedom of action (either positively or negatively) and which in any way impacts upon the handling and administration of the bankrupt estate.
. . . .
The court ultimately concluded that matters affecting 'the interpretation, implementation, consummation, execution, or administration of the confirmed plan [in the context of a Chapter 11 case] will typically have the requisite close nexus.' [Quoting directly from Pegasus Gold, more extensively than was quoted in Judge Haggerty's opinion.]

Application of "Close Nexus" Test
Debtor contended that there was a "close nexus" between his Chapter 7 discharge and his allegations about the defendants' misreporting of his discharged debts on his credit reports.

But Judge Haggerty disagreed, determining that the "applicable 'close nexus' analysis examines the progress of the bankruptcy proceeding itself and not the parties involved in the litigation." "There is . . . no impact upon the estate itself." So he concluded: "That test is not met under these circumstances."

by Andrew Toth-Fejel
Bankruptcy Litigation Support for Attorneys
Andy@BLSforAttorneys.com

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