Fluharty, Trustee et al v. Gratz et al

IN THE UNITED STATES BANKRUPTCY COURT
FOR THE NORTHERN DISTRICT OF WEST VIRGINIA
IN RE:
GOLDEN INVESTMENT
ACQUISITIONS, LLC.,
Debtor.
___________________________________
THOMAS H. FLUHARTY, Trustee for the
Bankruptcy Estate of Golden Investment
Acqusitions, LLC.,
Plaintiff,
v.
CRAIG GOLDEN, CHARLES E. GRATZ,
TRUDY GRATZ, FAYETTE
INVESTMENT ACQUISITION, LLC.,
LAKESIDE MARINA, LLC., RICHARD
W. POWELL, SPENCER W. GRAHAM,
MICHAELS AUTOMOTIVE SERVICES,
INC.,
Defendants
v.
MICHAEL PAVLOCK,
Defendant/ Third-party Plaintiff
v.
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
Case No. 07-bk-00746
Chapter 7
Adv. Proc. No. 09-00036
Dated: Monday, March 31, 2014 1:30:21 PM
No. 1:09-ap-00036 Doc 442 Filed 03/31/14 Entered 03/31/14 15:52:59 Page 1 of 6

SHAWNA L. POWELL and
EARNEST C. JENKINS,
Third-party Defendants,
________________________________
)
)
)
)
)
MEMORANDUM OPINION
Pending before this court is a Motion to Dismiss filed by Earnest C. Jenkins (Mr.
Jenkins”). 	Mr. Jenkins does not set forth any legal basis for his contentions. Mr. Jenkins seeks1
to dismiss Michael Pavlock’s (“Mr. Pavlock”) claims against him based upon his lack of
involvement in and knowledge of the facts underlying Mr. Pavlock’s claims. Mr. Pavlock claims
that Mr. Jenkins was well aware of, and participated in, a scheme at the direction of Richard
Powell, Jr., to commit fraud and other state-law wrongs against him and to defraud the Chapter 7
estate of Golden Investment Acquisitions, Inc. (“Estate”) . For the reasons stated herein, the court
will grant Mr. Jenkins’s Motion.
I. BACKGROUND
On March 31, 2009, Thomas Fluharty (the “Trustee”), the Chapter 7 Trustee appointed to
administer the Estate, commenced this adversary proceeding seeking the turnover of certain property
under 11 U.S.C. § 542. In his complaint, the Trustee demands that Defendants Charles and Trudy
Gratz and Fayette Investments Acquisitions, LLC (“Fayette”), turn over two vehicles that are
property of the Estate but are allegedly in the Gratzs’ possession. The Trustee also demands that
Richard Powell, Jr. and Lakeside Marina, LLC (“Lakeside”), turn over funds in the amount of
$1,028,000.00, which represent the amount due to the Trustee for the sale of real and personal
property to Fayette. Lastly, the Trustee demands the turnover of $175,000.00, representing the value
At all times in this adversary proceeding, Mr. Jenkins has appeared pro se. While pro se1
pleadings are viewed liberally, Haines v. Kerner, 404 U.S. 519, 520 (1972), a court is not
required to develop the evidence on behalf of a pro se party at trial, to make substantive legal
claims on behalf of a pro se party, or to otherwise actively aid a pro se party in trying a case.). It
is a court's obligation to ensure that the claims of a pro se litigant are given a "fair and
meaningful consideration." Palmer v. Decatur, 814 F.2d 426, 428-29 (7th Cir.1987) (internal
quotation omitted). The court is aware that the parties are pro se litigants, and the court has given
this motion to dismiss fair and meaningful consideration.
2
No. 1:09-ap-00036 Doc 442 Filed 03/31/14 Entered 03/31/14 15:52:59 Page 2 of 6

of a contract from Defendants Mr. Pavlock, Michaels Automotive Services, Inc., and Spencer W.
Graham, II (“Spencer Graham”), on the basis that they improperly diverted funds from the Debtor.
On May 27, 2009, Attorney Jennifer McGinley, on behalf of Fayette, Lakeside, Richard Powell, Jr.,
Spencer Graham, Mr. Pavlock and Michaels Automotive Services, Inc. filed an Answer to the
Trustee’s Complaint and asserted crossclaims against Craig Golden, the Gratzs and their attorney,
James Marchewka, and a counterclaim against the Trustee. Attorney McGinley withdrew from the
case on June 28, 2011. 	On September 26, 2012, Mr. Pavlock, acting pro se, filed an amended
pleading alleging, among other things, third-party claims against Mr. Jenkins. Notably, in Counts
XII and XV, Mr. Pavlock alleges various types of fraud against Mr. Jenkins, which stem from a May
20, 2009 agreement between several individuals, including Mr. Pavlock, but do not relate to the
Debtor. The allegations do not establish any connection to or have any impact on the Estate. In
Count XI, Mr. Pavlock alleges that in 2009 and 2010, Mr. Jenkins was the recipient of fraudulently
conveyed property, which injured Mr. Pavlock and others. 	Counts XIII, XV, and XVI allege
personal injury to Mr. Pavlock and his business interests, and emanate from tort law, and likewise,
fail to show any impact upon or relation to the Estate. In all of the above counts, Mr. Pavlock seeks
relief for injuries to his pecuniary and business interests which are personal to him.
II. DISCUSSION
Here, Mr. Jenkins seeks dismissal of Mr. Pavlock’s claims against him because he lacked
knowledge of and involvement in the facts underlying Mr. Pavlock’s claims. Notably, Mr. Jenkins,
acting pro se, does not set forth any legal basis that establishes his right to relief. Nonetheless, the
court will dismiss counts XI, XII, XIII, XIV, XV, XVI against Mr. Jenkins on the based upon a lack
of subject-matter jurisdiction. The court additionally considered adjudicating the Motion to Dismiss
pursuant to Fed. R. Civ. P. (“Rule”) 14, however the court has determined that it is not dispositive.2
Rule 14 which articulates third-party practice, specifies that “[a] defending party may, as2
a third-party plaintiff, serve a summons and complaint on a nonparty who is or may be liable to it
for all or part of the claim against it.” See Fed. R. Civ. P. 14(a)(1). The Trustee’s complaint
combines three separate turnover actions against various defendants. The Trustee, in his claim
against Mr. Pavlock, seeks the narrow and limited relief of the turnover of assets in the amount
of $175,000.00 pursuant to 11 U.S.C. § 542. The Trustee alleges that Defendants Mr. Pavlock
and Spencer Graham diverted funds from the Debtor to Fayette, without proper authorization
from the Debtor. Although not serving as a dispositive ground given the lack of subject-matter
3
No. 1:09-ap-00036 Doc 442 Filed 03/31/14 Entered 03/31/14 15:52:59 Page 3 of 6

Although the parties have failed to raise the issue of subject-matter jurisdiction, the court
must ensure that federal jurisdiction is proper. “If there is a question as to whether such jurisdiction
exists, [the court] must ‘raise lack of subject-matter jurisdiction upon its own motion.’” Hasley v.
Farmer, 2012 WL 2153167 at *2 (N.D.W.Va. June 13, 2012)(internal citations omitted).
Importantly, subject-matter jurisdiction cannot be forfeited or waived, and can be raised at any time
prior to final judgment. In re Kirkland, 600 F. 3d 310, 315 (4th Cir. 2010)(citing Arbaugh v. Y &
H Corp., 546 U.S. 500, 514 (2006)). Mr. Pavlock, acting in his individual capacity, asserts his state-
law claims in his third-party complaint against Mr. Jenkins. This claims do not arise in or under the
Bankruptcy Code, and are not related to a case under title 11. The court, therefore, lacks subject-
matter jurisdiction to hear Mr. Pavlock’s claims.
District courts have original and exclusive jurisdiction of all cases under title 11 and original,
but non-exclusive jurisdiction of all civil proceedings arising under, arising in, or related to a case
under title 11. See 28 U.S.C. § 1334. For nearly three decades, a standing order of reference issued
by the district court for this district, last amended on April 2, 2013, has referred such proceedings
to this court pursuant to 28 U.S.C. § 157(a). Importantly, the “jurisdiction of the bankruptcy courts,
like that of other federal courts, is grounded in, and limited by, statute.” Celotex Corp. v. Edwards,
514 U.S. 300, 307 (1995).
Claims “arise under” title 11 if they “clearly invoke substantive rights created by bankruptcy
law.” Glinka v. Federal Plastics Mfg., Ltd. (In re Housecraft Indus. USA, Inc.), 310 F.3d 64, 70 (2d
Cir. 2002). The court’s determination of whether a matter arises in or under title 11 is not limited
to whether the cause of action is based on state law but include the consideration of many factors.
28 U.S.C. § 157(b)(3); In re Arnold Print Works, Inc., 815 F.2d 165, 169 (1st Cir. 1987). Claims
that “arise in” bankruptcy are “claims that by their nature, not their particular factual circumstance,
jurisdiction, the court observes that Mr. Pavlock fails to meet the requirements under Rule 14
because he does not allege that Mr. Jenkins is liable to him for all or part of the $175,000.00.
The third-party defendant’s liability “must be derivative and must flow to the third-party
plaintiff; mere liability by the third-party defendant to the plaintiff (as opposed to the third-party
plaintiff) will not suffice.” Farm Credit Servs. Of Mid America PCA v. Swain (In re Swain), Case
No. 09-62957, 2010 WL 2812727 (Bankr. N.D.Ohio July 15, 2010)(citing Ukasick v. Street (In
re Street), 283 B.R. 775, 780 (Bankr. D. Ariz. 2002).
4
No. 1:09-ap-00036 Doc 442 Filed 03/31/14 Entered 03/31/14 15:52:59 Page 4 of 6

could only arise in the context of a bankruptcy case.” Stoe v. Flaherty, 436 F.3d 209, 218 (3d Cir.
2006). Such claims include “things such as administrative matters, orders to turn over property of
the estate and determinations of the validity, extent or priority of liens.” 1 Collier on Bankruptcy
¶ 3.01[4][c][iv] (Alan N. Resnick & Henry J. Sommer eds., 16th ed.).
Claims are “related to” a bankruptcy case when “the outcome . . . could conceivably have
any effect on the estate . . . [and] could alter the debtor's rights, liabilities, options, or freedom of
action (either positively or negatively) . . .” Pacor, Inc. v. Higgins, 743 F.2d 984, 994 (3d Cir. 1984);
See also New Horizon of N.Y. LLC v. Jacobs, 231 F.3d 143, 151(4th Cir. 2000)(“This court has
adopted the Pacor ‘related to’ test . . .”). “[T]he Pacor test does not require certain or likely
alteration of the debtor's rights, liabilities, options or freedom of action, nor does it require certain
or likely impact upon the handling and administration of the bankruptcy estate.” Owens–Illinois,
Inc. v. Rapid Am. Corp. (In re Celotex Corp.), 124 F.3d 619, 626 (4th Cir. 1997); See also Celotex
Corp. v. Edwards, 514 U.S. 300, 308 n.6 (1995)(“[Whatever [‘related to’] test is used, these cases
make clear that bankruptcy courts have no jurisdiction over proceedings that have no effect on the
estate of the debtor.”). “Moreover, the cause of action is not ‘related to’ the debtor’s bankruptcy case
because win, lose or draw, there would be no effect on the bankruptcy estate.” Johnston v. Valley
Credit Servs. (In re Johnston), Case No. 05-6288, 2008 Bankr. LEXIS 1174 at *17-19 (Bankr.
N.D.W.Va. Apr. 12, 2007). “The ‘related to’ category is not so broad as to encompass litigation of
claims arising under state law or non-bankruptcy federal law that will not have an effect on the
bankruptcy estate, simply because one of the litigants filed a petition in bankruptcy.” Henneghan
v. Columbia Gas (In re Henneghan), Case. No. 05-122, 2005 Bankr. LEXIS 1770 at *11 (Bankr.
E.D.Va. June 22, 2005)(internal citations omitted).
Here, Mr. Pavlock’s third-party complaint against Mr. Jenkins does not “arise in” title 11
because his claims are not based on rights grounded in bankruptcy law. Nor can the court exercise
subject-matter jurisdiction over the claims under “related to” jurisdiction because they do not have
an impact on the Estate. In his complaint, Mr. Pavlock alleges that Attorney McGinley, on behalf
of Wayne Miller, transferred funds to Richard. Powell, Jr, for the purchase of a parcel located at 475
North Gallatin Avenue, Uniontown, Pennsylvania that was “for the mutual benefit of [Mr. Pavlock]
and Mr. Miller.” 	Mr. Pavlock indicates that Mr. Powell, Jr. allegedly sold the property to Mr.
5
No. 1:09-ap-00036 Doc 442 Filed 03/31/14 Entered 03/31/14 15:52:59 Page 5 of 6

Jenkins “for minimal consideration . . . for the purpose of hindering Mr.[Wayne] Miller and [Mr.
Pavlock] of rightful ownership.” Mr. Pavlock does not allege facts that indicate the Estate is injured
or impacted by the sale of property by Richard. Powell, Jr. to Mr. Jenkins. Rather, Mr. Pavlock’s
claims against Mr. Jenkins allege damage to his individual pecuniary and business interests. It is
apparent from Mr. Pavlock’s prayer for relief that his claims will not provide any recovery or benefit
to the Estate. Similarly, a recovery on Mr. Pavlock’s claims would be paid directly by Mr. Jenkins
without any impact on the Estate because neither Mr. Pavlock nor Mr. Jenkins is a creditor of the
Estate. Mr. Pavlock’s causes of action are thus not “related to” the Debtor’s bankruptcy case within
the meaning of title 11 because his claims will have no effect on the Estate.3
IV. CONCLUSION
Consistent with this Memorandum Opinion, the court will enter a separate order pursuant to
Fed. R. Bankr. P. 7058 granting Earnest C. Jenkins’s Motion to Dismiss.
To be clear, the court is dismissing Mr. Pavlock's claims based only on its lack of3
subject-matter jurisdiction; it makes no finding regarding the merits of his claims and whether,
and in what non-bankruptcy forum, they may be brought.
6
No. 1:09-ap-00036 Doc 442 Filed 03/31/14 Entered 03/31/14 15:52:59 Page 6 of 6