On July 2, 2018, Chief Bankruptcy Judge Sontchi issued an opinion in connection with the chapter 7 liquidation of Pennysaver USA Publishing, LLC regarding the issue whether the bankruptcy court has subject matter jurisdiction over the Chapter 7 Trustee's action to recover disputed accounts receivable as part of the liquidation of the case.  The opinion is captioned as Beskrone, Chapter 7 Trustee v. Int’l Educ. Corp. (Adv. Pro. No. 17-50523 CSS), a copy of which is found here.  

PennySaver USA, LLC and its affiliates (collectively, the “Debtor”) filed voluntary Chapter 7 bankruptcy petitions on May 29, 2015.  Don A. Beskrone was appointed to serve as the chapter 7 trustee (“Trustee”) and on May 27, 2017, the Trustee filed an adversary action (the “Complaint”) against International Education Corporation (the “Defendant”).  In the Complaint, the Trustee alleged that the Defendant entered into a prepetition advertising services agreement with the Debtor for an agreed amount and that although the Debtor performed the services for and billed the Defendant, the Defendant failed to pay the Debtor $96,858.65 (“Accounts Receivable”). 

On October 17, 2017, the Defendant filed a motion to dismiss the Complaint under Rule 12(b)(1) for lack of subject matter jurisdiction (the “Motion”).  The Trustee responded to the Motion and argued that the Court had jurisdiction over the Complaint.

 A facial challenge brought under Rule 12(b)(1) tests the sufficiency of the complaint for want of subject matter jurisdiction and the Court accepts as true the factual allegations set forth in the complaint, then “examines the pleadings to determine if they present a case within the court’s jurisdiction.”  An action to collect accounts receivable where the underlying transaction occurred prepetition is only “related to a case under title 11” and, by definition, non-core under section 1334 of title 28.[1]  Congress created non-core “related to” jurisdiction to grant “comprehensive jurisdiction to the bankruptcy courts so that they might deal efficiently and expeditiously with all matters connected with the bankruptcy estate.”[2]  Under the Pacor test the Court examines whether the outcome of the proceeding could conceivably have any effect on the estate being administered in bankruptcy.[3]

Here, the Court concluded that the Complaint satisfies the Pacor test because its attempt to recover  unpaid accounts receivable involves rights independent of and antecedent to the petition and may increase the funds available to the body of creditors.  A chapter 7 trustee’s administration of an estate involves litigating causes of action designed to recover funds for the estate.  A bankruptcy court’s jurisdiction depends on the particular proceeding’s effect on the estate.  Here, any recovery by the Trustee will directly benefit the estate and the Complaint is sufficiently connected to the estate to create the “related to” jurisdiction over its disposition.

[1] DVI Fin. Serv., Inc. v. Nat’l Med. Imaging, LLC (In re DVI, Inc.), 305 B.R. 414, 416 (Bankr. D. Del. 2004). 

[2] Celotex Corp. v. Edwards, 514 U.S. 300, 308 (1995). 

[3] Pacor v. Higgins, 743 F.2d 984, 994 (3d Cir. 1985) overruled on other grounds by, Things Remembered Inc. v. Petrarca, 516 U.S. 124 (1995).