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In re Mills

filed: January 12, 1995.

IN RE: HARRIS PINE MILLS, DEBTOR. GEORGE MAITLAND; NEIL ROBBLEE; CARY GARMAN, PLAINTIFFS-APPELLANTS,
v.
JOHN MITCHELL; JOHN MITCHELL, INC., AN OREGON CORPORATION; RODGERS HIGGINS, AND HARRIS PINE MILLS, INC., AN OREGON CORPORATION, DEFENDANTS-APPELLEES. IN RE: HARRIS PINE MILLS, DEBTOR. GEORGE MAITLAND; NEIL ROBBLEE; CARY GARMAN, PLAINTIFFS-APPELLANTS- CROSS-APPELLEES, V. JOHN MITCHELL; JOHN MITCHELL, INC., AN OREGON CORPORATION; RODGERS HIGGINS, AND HARRIS PINE MILLS, INC., AN OREGON CORPORATION, DEFENDANTS-APPELLEES- CROSS-APPELLANTS.



D.C. No. CV-92-01350-JO. D.C. No. CV-92-01350-JO Appeals from the United States District Court for the District of Oregon. Robert E. Jones, District Judge, Presiding.

Before: Arthur L. Alarcon, William A. Norris, and Edward Leavy, Circuit Judges. Opinion by Judge Leavy.

Author: Leavy

LEAVY, Circuit Judge:

These consolidated appeals arose out of a trustee's sale of the assets of a company in bankruptcy. When the company proved to be less profitable than the purchasers had anticipated, they sued the trustee in state court. The trustee removed the action to federal district court, which in turn referred the case to the bankruptcy court. The bankruptcy court entered summary judgment in favor of the trustee on the purchasers' claims and in favor of the purchasers on the trustee's counter-claims. The district court affirmed the bankruptcy court's rulings, and both sides have appealed. We have jurisdiction under 28 U.S.C. § 158 (d), and we affirm in part, reverse in part, and remand.

FACTS AND PRIOR PROCEEDINGS

Harris Pine Mills ("HPM"), an Oregon corporation, was a wood products conglomerate with annual gross sales during the early 1980s in excess of $50 million. HPM consisted of four divisions: (1) Logging - HPM owned timberlands in the Pacific Northwest, conducted extensive logging operations, and owned and operated a sawmill; (2) Retail - HPM owned and operated Harris Building Supply, a hardware store; (3) Furniture - HPM owned and operated several pine furniture manufacturing plants, from which it shipped unassembled indoor furniture components to assembly plants located throughout the country; and (4) Redwood - HPM manufactured and assembled redwood patio furniture.

On December 5, 1986, HPM filed a Chapter 7 petition in bankruptcy. The bankruptcy court appointed John Mitchell ("Mitchell") to act as trustee. One of Mitchell's first actions as trustee was to ask the court to convert the case from a Chapter 7 liquidation to a Chapter 11 reorganization. After granting the motion on December 10, 1986, the bankruptcy court appointed an Oregon corporation, John Mitchell, Inc. ("JMI"), to act as HPM's Chapter 11 trustee. Mitchell, who was JMI's president and principal shareholder, and Rodgers Higgins ("Higgins"), a JMI employee, assumed HPM's chief management responsibilities; the rest of HPM's "management team" consisted of both current and retired HPM employees.

At the time JMI took over as trustee, HPM had inventory worth some $25 million, much of it consisting of unassembled furniture. JMI sought to reduce this inventory by assembling the furniture components for sale. JMI also began selling off the company's other assets: It sold HPM's sawmill, log inventory, and related timber contracts to Louisiana Pacific Corporation for approximately $3.8 million; it auctioned off some of HPM's timberlands and additional timber contracts for another $3 million; and it sold HPM's Redwood Division to Little Lake Industries, Inc. for nearly $9.5 million. Meanwhile, JMI continued to operate HPM's Furniture Division while looking for a buyer.

In the spring of 1988, Ligna Technologies, Inc. ("Ligna") expressed an interest in acquiring the Furniture Division for $8 million. Ligna assigned a certified public accountant, George Maitland ("Maitland"), to handle the investigation of the proposed sale. When it became apparent that Ligna would not acquire the Division, Maitland decided to buy it himself after leaving Ligna's employ. Meanwhile, Kroehler Cabinet Company, Inc. ("Kroehler") offered JMI $7.5 million for the Furniture Division in August 1988. The following month JMI announced its intention to sell the Division to Kroehler.

On September 22, 1988, Maitland and Neil Robblee ("Robblee"), an attorney, submitted a $7.5 million "upset bid" on behalf of Harris of Pendleton, Inc. ("HoPI"), a company Maitland and Robblee proposed to form for the purpose of acquiring the Furniture Division by way of a leveraged buyout. Because it now had two bids, JMI agreed to hold an auction for the Division. HoPI emerged as the successful buyer at $7.85 million, and acquired the Furniture Division on December 31, 1988.*fn1 Congress Financial Services ("Congress") financed HoPI's down payment and provided HoPI with a working capital line of credit. After a year in business, however, HoPI filed a petition in bankruptcy.

In August 1990, Maitland, Robblee, and their partner, Cary Garman*fn2 ("Garman") (collectively, "Plaintiffs") filed an action in Oregon state court against JMI, Mitchell, and Higgins (collectively, "Defendants"), alleging fraud, negligence, and negligent misrepresentation surrounding HoPI's purchase of the Furniture Division. Upon removing the case to federal district court, Defendants sought to have the action referred to the bankruptcy court. Plaintiffs objected and moved to remand the case to state court. In November 1990, the district court ruled that it had jurisdiction over the action, denied the remand motion, and referred the case to the bankruptcy court as a core proceeding under 28 U.S.C. § 157(b).

Following Plaintiffs' filing of a Second Amended Complaint, in which they added a claim under Oregon's version of the RICO statute, and the assertion of various counterclaims by Defendants, both parties moved for summary judgment. The bankruptcy court ruled in favor of Defendants on Plaintiffs' motion and dismissed Plaintiffs' Second Amended Complaint, entered summary judgment in favor of Plaintiffs on Defendants' counterclaims, and awarded costs to Defendants. Both parties appealed to the district court, which affirmed the bankruptcy court's ruling in its entirety. Plaintiffs have timely appealed, and Defendants have timely cross-appealed, to this court.

DIRECT APPEAL (93-35358)

Federal Jurisdiction

Plaintiffs first argue that the district court erred by refusing to remand their action to state court, based on the district court's Conclusion that federal jurisdiction existed over the case as a core proceeding in bankruptcy. We review de novo the court's acceptance of jurisdiction, while examining its factual determinations for clear error. See Whitcombe v. Stevedoring Servs. of Am., 2 F.3d 312, 313 (9th Cir. 1993) (as amended).

Federal district courts have exclusive jurisdiction over all cases under Title 11 of the United States Code, and concurrent jurisdiction over all civil proceedings arising under Title 11, or arising in or related to cases under Title 11. 28 U.S.C. § 1334(a), (b).*fn3 Those matters falling under the heading of concurrent jurisdiction (i.e., civil actions involving claims that arise under or in or are related to Title 11 proceedings) may be filed originally in state court, then subsequently removed by one of the parties to federal district court. 28 U.S.C. § 1452(a).*fn4 If the district court's local rules so provide, the removed action will then be referred ...


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