Bankruptcy Court May Exercise “Related to” Jurisdiction Over Quiet Title Action

The Eleventh Circuit recently affirmed a Bankruptcy Court and held that dismissal of an underlying bankruptcy case did not divest the Bankruptcy Court of jurisdiction in related quiet title action. In re Lindsey, 2021 WL 1140661 (11th Cir. 2021). In 2015, the plaintiff filed a voluntary petition for Chapter 13 bankruptcy relief. In his schedule of assets, the plaintiff listed a fee simple interest in a commercial multi-tenant building and an adjacent vacant lot. To avoid losing the properties in a foreclosure proceeding commenced by a mortgage-holder, the plaintiff decided to sell the properties to Duckworth Development (“Duckworth”). The Commercial Contract, title commitment and cover letter identified the plaintiff and Kracor South, Inc. (“Kracor”), a corporation in which the plaintiff was president and majority shareholder, as the seller. Pursuant to the title commitment and cover letter, the plaintiff and Kracor were required to execute a warranty deed as a condition to the issuance of a title insurance policy. At the closing, however, the plaintiff executed the warranty deed as president of Kracor, but not in his individual capacity, as well as a title affidavit swearing that Kracor owned the parcels and that there were “no parties in possession of the [p]roperty other than Kracor.” Six months later, upon learning that a title insurance agency prepared a report stating that the owners of the parcels were Duckworth and the plaintiff, the plaintiff claimed that he was “50% owner” and demanded half of the rental income generated by the parcels. After the plaintiff refused to execute a corrective warranty deed, Duckworth commenced an adversary proceeding against the plaintiff and Kracor in Bankruptcy Court seeking reformation of the warranty deed and to quiet title. Although the bankruptcy case was voluntarily dismissed, the Bankruptcy Court retained jurisdiction over the adversary proceeding, finding “that the parties had intended for Duckworth Development to purchase the parcels in fee simple, and the warranty deed didn’t reflect this agreement.” The Bankruptcy Court also found that omission of the plaintiff in his individual capacity from the warranty deed was a mistake, and thus, reformation of the warranty deed was an appropriate remedy. As to the quiet title claim, the Bankruptcy Court concluded that Duckworth established it held valid title to the parcels and the plaintiff’s claimed half interest was invalid. 

On appeal, the Eleventh Circuit affirmed. First, it held that the Bankruptcy Court had subject matter jurisdiction over the adversary proceeding under 28 U.S.C. § 1334(b) because Duckworth’s adversary complaint was “related to” the plaintiff’s bankruptcy case. The Court also found that dismissal of the underlying bankruptcy case did not automatically divest the Bankruptcy Court of jurisdiction. Next, the Court held that the Bankruptcy Court had a sufficient evidentiary basis to reform the warranty deed to “‘accurately express the true intention or agreement of the parties.’” The Court found that the parties intended for Duckworth to buy the plaintiff’s entire interest in the parcels. Specifically, among other things, the cover letter and title commitment indicated that both Kracor and the plaintiff were collectively the seller and required both to execute the warranty deed. Moreover, when the plaintiff moved the Bankruptcy Court for leave to sell the properties, he represented that his intent was to sell “his” property pursuant to the terms “between [him]” and Duckworth. The Court also found that the parties made a mutual mistake because the warranty deed omitted the plaintiff in his individual capacity, contrary to the parties’ intent for the plaintiff to sell his entire interest in the properties to Duckworth. Accordingly, the Eleventh Circuit affirmed the Bankruptcy Court's judgment in favor of Duckworth. 

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com, Michael Crowley at mcrowley@riker.com, Desiree McDonald at dmcdonald@riker.com, or Andrew Raimondi at araimondi@riker.com.