Bankruptcy Court May Exercise “Related To” Jurisdiction Over Quiet Title Action – Insolvency/Bankruptcy/Re-structuring

United States: Bankruptcy Court May Exercise “Connected To” Jurisdiction Over Silent Title Action

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The Eleventh Circuit recently confirmed the existence of a bankruptcy court and ruled that the dismissal of an underlying bankruptcy case does not strip the bankruptcy court of its jurisdiction in a discreet title action related. In the case of Lindsey, 2021 WL 1140661 (11th Cir. 2021). In 2015, the plaintiff filed a voluntary Chapter 13 receivership application. In its asset schedule, the plaintiff recorded a fee simple interest in a multi-tenant commercial building and adjacent vacant land. To avoid losing the properties in foreclosure proceedings initiated by a mortgagee, the plaintiff decided to sell the properties to Duckworth Development (“Duckworth”). The commercial contract, title undertaking and covering letter identified the applicant and Kracor South, Inc. (“Kracor”), a company of which the applicant was president and majority shareholder, as the seller. Under the Title Undertaking and Cover Letter, the applicant and Kracor were required to sign a guarantee deed as a condition of issuing a title insurance policy. At closing, however, the Plaintiff signed the Deed of Guarantee as President of Kracor, but not as an individual, along with an Affidavit of Title swearing that Kracor owned the plots and that there was no “No party in possession of [p]property other than Kracor. Six months later, after learning that a title insurance agency had prepared a report stating that the owners of the plots were Duckworth and the plaintiff, the plaintiff claimed he was “50% owner” and demanded the half of the rental income generated by the plots. After the plaintiff refused to perform a corrective warranty deed, Duckworth brought adversarial proceedings against the plaintiff and Kracor in bankruptcy court to seek reform of the warranty deed and the silent title. Although the bankruptcy case was voluntarily dismissed, the bankruptcy court retained jurisdiction over the adversarial proceedings, concluding “that the parties intended Duckworth Development to purchase the plots in fee simple, and the deed of guarantee. did not reflect this agreement ”. The bankruptcy court also found that the omission of the individual plaintiff from the deed of guarantee was an error, and therefore reform of the deed of guarantee was an appropriate remedy. As to the quiet title claim, the bankruptcy court found that Duckworth established that he held valid title to the plots and that half of the interest claimed by the plaintiff was invalid.

On appeal, the Eleventh Circuit confirmed. First, he held that the bankruptcy court had substantive jurisdiction over the adversarial proceedings under 28 USC § 1334 (b) because Duckworth’s opponent’s complaint was “connected with” the plaintiff’s bankruptcy case. . The Court also concluded that the dismissal of the underlying bankruptcy case did not automatically dispossess the Bankruptcy Court of its jurisdiction. Next, the court ruled that the bankruptcy court had a sufficient evidentiary basis to reform the guarantee deed to “accurately express the true intention or agreement of the parties.” in the packages. Specifically, among other things, the cover letter and the Undertaking of Title stated that Kracor and the Plaintiff collectively were the seller and that they both had to sign the Deed of Guarantee. Further, when the plaintiff applied to the bankruptcy court for leave to sell the properties, he stated that his intention was to sell “his” property in accordance with the terms “between
[him]And Duckworth. The Court also found that the parties had mutually erred because the deed of guarantee omitted the individual plaintiff, contrary to the parties’ intention that the plaintiff would sell his entire interest in the properties to Duckworth. . As a result, the Eleventh Circuit upheld the bankruptcy court ruling in Duckworth’s favor.

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