New Horizon of Ny LLC v. Robert Jacobs

Filed: November 3, 2000
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
Nos. 99-1990(L)
(CA-97-126-5-BR)
New Horizon of NY LLC,
Plaintiff - Appellee,
versus
Robert Jacobs, et al.,
Defendants - Appellants.
O R D E R
The court amends its opinion filed November 2, 2000, as
follows:
On page 21, second full paragraph, line 2 -- the text is cor-
rected to read “the case is remanded to the district court ....”
For the Court - By Direction
/s/ Patricia S. Connor
Clerk

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PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
NEW HORIZON OF NY LLC,
Plaintiff-Appellee,
v.
ROBERT JACOBS; ELLIOT JACOBS;
ALLAN MIRWIS; E. J. SERVICING,
INCORPORATED; E. J. REALTY
MANAGEMENT CORPORATION; E. J.
PROPERTY CONSULTANTS; DAVID
QUELLER; DAVID QUELLER, No. 99-1990
INCORPORATED; IRA BORN,
Defendants-Appellants,
and
ALAN JACOBS1; STANLEY LANE, M.D.;
PETER DAPUZZO; CONSTANCE ROSEN,
Executrix of the Estate of Howard
Rosen, M.D.2; RUTH SCHARF,
Defendants.
_________________________________________________________________
1 Alan Jacobs was dismissed following trial and is not a party to this
appeal.
2 Dr. Rosen died during the pendency of the appeal and his personal
representative has been substituted as a party.

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NEW HORIZON OF NY LLC,
Plaintiff-Appellee,
v.
STANLEY LANE, M.D.; PETER
DAPUZZO; CONSTANCE ROSEN,
Executrix of the Estate of Howard
Rosen, M.D.; RUTH SCHARF,
Defendants-Appellants,
and
No. 99-1996
ROBERT JACOBS; ELLIOT JACOBS;
ALLAN MIRWIS; E. J. SERVICING,
INCORPORATED; E. J. REALTY
MANAGEMENT CORPORATION; E. J.
PROPERTY CONSULTANTS; DAVID
QUELLER; DAVID QUELLER,
INCORPORATED; IRA BORN; ALAN
JACOBS,
Defendants.
Appeals from the United States District Court
for the Eastern District of North Carolina, at Raleigh.
W. Earl Britt, Senior District Judge.
(CA-97-126-5-BR)
Argued: June 6, 2000
Decided: November 2, 2000
Before WIDENER, MICHAEL, and MOTZ, Circuit Judges.
_________________________________________________________________
Vacated and remanded with instructions by published opinion. Judge
Widener wrote the opinion, in which Judge Michael and Judge Motz
joined.
_________________________________________________________________
2

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COUNSEL
ARGUED: Nathan Lewin, MILLER, CASSIDY, LARROCA &
LEWIN, L.L.P., Washington, D.C.; James G. Exum, Jr., SMITH,
HELMS, MULLISS & MOORE, L.L.P., Raleigh, North Carolina, for
Appellants. Charles Robert Holton, MOORE & VAN ALLEN,
P.L.L.C., Durham, North Carolina, for Appellee. ON BRIEF: Paul F.
Enzinna, Mark A. Miller, MILLER, CASSIDY, LARROCA &
LEWIN, L.L.P., Washington, D.C.; Matthew W. Sawchak, Paul K.
Sun, Jr., Julia F. Youngman, Allison K. Overbay, SMITH, HELMS,
MULLISS & MOORE, L.L.P., Raleigh, North Carolina; Robert O.
Jenkins, Phillip R. Miller, III, BLANCHARD, JENKINS & MILLER,
P.A., Raleigh, North Carolina, for Appellants. Laura B. Luger,
Pamela A. Wachter, MOORE & VAN ALLEN, P.L.L.C., Durham,
North Carolina, for Appellee.
_________________________________________________________________
OPINION
WIDENER, Circuit Judge:
New Horizon of New York, L.L.C. (New Horizon) filed a six count
complaint against fourteen defendants1 in the United States District
Court for the Eastern District of North Carolina. In its complaint,
New Horizon alleged under state law that the defendants engaged in
tortious interference of contractual relations, unfair and deceptive
trade practices, breach of contract, malicious prosecution, and abuse
of process; and, under federal law, civil contempt of court. On
November 25, 1998, a jury found in favor of New Horizon on its state
law claims and awarded New Horizon damages in excess of six mil-
lion dollars. The district court conducted a bench trial on the civil
contempt of court claim and on New Horizon's requests for trebled
_________________________________________________________________
1 The defendants participating in the appeal are divided into two
groups. Defendants Robert Jacobs, Elliott Jacobs, Allan Mirwis, E.J. Ser-
vicing, Inc., E.J. Realty Management Corp., E.J. Property Consultants,
David Queller, David Queller, Inc., and Ira Born will be referred to as
the Jacobs Group defendants. Defendants Drs. Stanley Lane and Howard
Rosen, Peter Dapuzzo and Ruth Scharf will be referred to as the Indepen-
dent Limited Partners defendants.
3

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damages for the unfair and deceptive trade practice count, sanctions
against the defendants, and attorneys' fees. On July 19, 1999, the dis-
trict court denied New Horizon's request for relief on its civil con-
tempt claim and denied the various motions for sanctions. The district
court also denied the Jacobs Group defendants' and the Independent
Limited Partners defendants' motions for judgment as a matter of law
and for a new trial. The district court entered final judgment on July
26, 1999. The defendants appeal from that order. We vacate the judg-
ment of the district court and remand the case to the district court to
dismiss the action without prejudice for want of jurisdiction.
I.
The facts of this case involve two somewhat complex bankruptcy
cases commenced in the Eastern District of North Carolina: In re
Tudor Associates, Ltd. II, No. 77-BK-06-04, and In re AJ & AJ Ser-
vicing, Inc., No. 94-00135-8-JRL.2 The Tudor bankruptcy began in
1977, and the AJ bankruptcy began in 1994. We recite only those
facts pertinent to the instant controversy and relevant to this disposi-
tion.
The defendants in this case are the Jacobs Group and the Indepen-
dent Limited Partners. The Jacobs Group consists of: Robert Jacobs
and Elliot Jacobs, two of the owners of AJ & AJ Servicing Corpora-
tion (AJ); Allan Mirwis, who had been a general partner in New
British Woods Associates (New British) and New Yorktown Asso-
ciates (New Yorktown) and later became a limited partner of those
partnerships; E.J. Servicing, Inc., E.J. Realty Management, Inc. and
E.J. Property Consultants (collectively, the E.J. companies), con-
trolled by Robert Jacobs and Elliott Jacobs; Ira Born, a limited partner
in New British and New Yorktown; David Queller; and David
Queller, Inc. The Independent Limited Partners are Dr. Lane, a cancer
surgeon; Dr. Rosen, an orthopedist; Peter DaPuzzo, a managing direc-
tor of a brokerage firm; and Ruth Scharf, a retired businesswoman;
all of whom were limited partners in the two limited partnerships,
New British and New Yorktown. New British and New Yorktown
also consisted of 15 other limited partners associated with Sam Son-
_________________________________________________________________
2 The two bankruptcy cases will be referred to as the Tudor bankruptcy
and the AJ bankruptcy throughout this opinion.
4

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nenschine (the Sonnenschine Group). New British and New York-
town owned income producing properties in Durham, North Carolina
encumbered by what are called wraparound promissory notes and
deeds of trust (wrap notes).3 The Independent Limited Partners
invested in New British and New Yorktown to receive tax benefits.4
The underlying problem in this case involves the wrap notes and an
option to purchase those wrap notes.
Tudor filed its petition for Chapter 12 bankruptcy in 1977. In the
course of the Tudor bankruptcy, AJ, the servicer of the wrap notes,
acquired one half of the cash net flow from the wrap notes.5 At the
time it acquired the wrap notes, AJ had not filed its petition in bank-
ruptcy. By 1988, Tudor owned the other half of the interest in the
wrap notes after various transactions. In 1993, Tudor and the owners6
of the income producing properties won separate judgments in excess
of ten million dollars against AJ, Robert Jacobs, and Elliott Jacobs
based on AJ's fraud and mismanagement in the servicing of the wrap
notes. Following the entry of those judgments against it, AJ filed for
Chapter 11 bankruptcy protection. Both the Tudor bankruptcy and the
AJ bankruptcy were pending before the same bankruptcy judge in the
Eastern District of North Carolina.
In September 1996, after three years of negotiations, all of the
interested parties in the AJ bankruptcy entered into a global settle-
ment (the Confirmation Plan). The compromise addressed the inter-
ests of AJ, Robert Jacobs, Elliott Jacobs, the E.J. companies, the
_________________________________________________________________
3 The mortgages were called "wrap note" mortgages because they
required payments to be made to a lender who, in turn, paid the holder
of the first mortgage. The "last lender wraps around the original debt,"
according to one of the bankruptcy Trustees.
4 According to the Independent Limited Partners, if the wrap notes
were paid off or foreclosed upon, or if they matured as scheduled, the
Independent Limited Partners would suffer recapture of the original tax
advantage, which is not otherwise explained.
5 Prior to the confirmation of AJ's plan in bankruptcy, the Jacobs
Group defendants controlled AJ.
6 The Limited Partners defendants were limited partners in New British
Woods and New Yorktown, along with other limited partners who are
not defendants in this present case.
5

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Sonnenschine Group, Tudor, Allan Mirwis, Tenzer Greenblatt, LLP
(Tenzer), New British, and New Yorktown. Tenzer had a claim
against AJ for one and a half million dollars arising out of the law-
suits against AJ for fraud and mismanagement. According to one of
the terms in the AJ Confirmation Plan, Tenzer agreed to take
$700,000 in settlement (the Settlement Amount) of its claim against
AJ. The Settlement Amount was to be paid to Tenzer out of funds
provided from the proceeds of refinancing the properties or sale of the
wrap notes. Under the Confirmation Plan, AJ would assign its one-
half interest in the wrap notes to Tudor in exchange for Tudor's and
its general and limited partners' release of all suits, causes of action,
debts, sums of money, or demands against AJ and the Jacobs Group.7
The Confirmation Plan required Tudor to "make a good-faith effort"
to effectuate the refinancing of the wrap notes by the end of 1996.
The part of the Confirmation Plan that eventually led to the instant
controversy was the provision which stated:
Tudor shall grant to the Sonnenschine Group an option to
purchase the wrap notes in accordance with the terms and
conditions as set forth in the Settlement Terms Letters
attached hereto as Exhibit C and Exhibit D, and all such
terms and conditions are incorporated herein.8
Exhibit C stated that the option could be granted to the designee of
Sonnenschine; that upon exercise, the option shall transfer all right
and title in the properties on or before December 15, 1996; that the
Sonnenschine Group would deposit $250,000 with the Tudor Trustee
in escrow within ten days after Judge Leonard signed the confirma-
tion; that the closing date could be initially extended to January 1997
by the Tudor Trustee, and if not so extended the option would expire
on December 15, 1997; and that the option may be extended to March
31, 1997 upon release of the $250,000 deposit and upon payment of
_________________________________________________________________
7 Tudor had obtained a judgment against AJ and the Jacobs Group for
more than $9.7 million. By assigning its interest in the wrap notes, AJ
satisfied Tudor's claim against it and the Jacobs Group.
8 Apparently, this term of the Confirmation Plan was added because
Tenzer threatened to proceed against New British and New Yorktown
with an involuntary bankruptcy proceeding in New York because AJ
owed Tenzer money for legal fees.
6

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one million dollars by Sonnenschine or its designee. New Horizon
was named as the designee for the Sonnenschine Group.
The Confirmation Plan was "unanimously accepted by all voting
creditors and equity security holders of [AJ], including all general
unsecured creditors, the Partnerships, by and through their general
partner, together with the assent and acquiescence of the Sonnens-
chine Group, Tudor Associates . . ., and the equity security holders."
No other parties came forth at that hearing to reject the Confirmation
Plan; however, Gerald Cohen, the attorney for certain of the Indepen-
dent Limited Partners, did not attend the confirmation hearing. These
limited partners were deemed to have accepted the Confirmation Plan
via the general partner's acceptance of it. The bankruptcy court con-
firmed the Confirmation Plan on September 26, 1996.
On October 7, 1996, Cohen filed a notice of appeal of the Septem-
ber 26, 1996 AJ Confirmation Plan, alleging that the approved pay-
ment of funds to Tenzer could have been available for distribution to
the Independent Limited Partners. He voluntarily withdrew that
appeal on October 18, 1996. By the end of October 1996, the judg-
ments against AJ and the Jacobs Group were vacated in accordance
with the Confirmation Plan.
Also on October 7, 1996, New Horizon sent a letter to the Tudor
Trustee informing him that the required $250,000 deposit was being
held in an escrow account opened by New Horizon's attorney and
could be transferred to the Tudor Trustee when the option agreement
was made final. Whether the Tudor Trustee had previously consented
to leaving the deposit money in New Horizon's attorney's account is
not shown. New Horizon proceeded to negotiate for financing in
order to exercise the option according to the Confirmation Plan's
terms. The Tudor Trustee and New Horizon continued to work out the
specific terms of the option agreement and reached an agreement,
after which the Tudor Trustee sought approval from the bankruptcy
court in the Tudor bankruptcy.9 On November 19, 1996, Cohen wrote
_________________________________________________________________
9 The option agreement stated that if the option was exercised in accor-
dance with the agreement's terms, the purchase price shall be the sum of:
1) the net $12,250,000 paid to Tudor, 2) payment of all sums necessary
at closing to satisfy all existing liens senior to the mortgages, and 3) pay-
ment of $1,000,000 to the partnerships designated for payment to their
law firms (Tenzer) as set forth in the AJ Confirmation Plan.
7

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a letter to the bankruptcy court objecting to the option agreement
terms. The bankruptcy court did not consider this letter during the
November 26, 1996 hearing on the approval of the option agreement
because Cohen had sent the letter C.O.D., the bankruptcy court clerk
refused to pay the charge, and Cohen did not attend the approval hear-
ing. After the hearing, the bankruptcy court approved the option
agreement in its entirety and found that it conformed with the Confir-
mation Plan.10 On December 6, 1996, Cohen, on behalf of the Inde-
pendent Limited Partners, filed another notice of appeal in the
bankruptcy court contesting the November 26, 1996 order approving
the option agreement between the Tudor Trustee and New Horizon.
In a letter to the Independent Limited Partners, Cohen wrote that Son-
nenschine had a troublesome record and that any money Sonnens-
chine paid to extend the option would be money that could have been
distributed to the Independent Limited Partners.
The terms of the option agreement imposed time constraints on
New Horizon to exercise the option and close the purchase. On
December 11, 1996, New Horizon paid the deposit, which had been
with its attorney (perhaps in escrow), converting the option into a
contract of sale. New Horizon could not, however, obtain financing
for the purchase price of the wrap notes by the stipulated closing date.
The Tudor Trustee extended the closing date at New Horizon's
request to January 15, 1997, but informed New Horizon that to extend
the date further, New Horizon would have to pay an additional one
million dollar deposit by December 20, 1996. New Horizon did not
make the additional deposit. On January 16, 1997, the district court
dismissed the appeal filed by Cohen because the Independent Limited
Partners did not designate items to be included on appeal or provide
a statement of the issues to be presented within 10 days of filing its
notice of appeal. The Independent Limited Partners had moved for an
enlargement of time to designate the issues of appeal; however, the
Tudor Trustee countered that motion by claiming that great prejudice
_________________________________________________________________
10 The general partner of New British Woods and New Yorktown
agreed to the option agreement. Cohen represented seven limited partners
of New British Woods and New Yorktown.
8

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would ensue to the Tudor estate by holding up the sale of the wrap
notes.11
On January 14, 1997, New Horizon made a motion for enlargement
of time to exercise the option and for other relief (motion for enlarge-
ment) instead of paying the additional one million dollar deposit to
Tudor to extend the option until March 1997 as provided in the option
agreement and the Confirmation Plan. In its motion for enlargement,
New Horizon objected to the December 6, 1996 appeal filed by
Cohen. New Horizon contended that: 1) Cohen's clients, the Indepen-
dent Limited Partners, as well as the Jacobs Group, had no standing
to file the December 6, 1996 appeal; 2) Cohen filed the appeal in bad
faith, for purposes of harassment or delay, and with intentional and
willful disregard of the September 26, 1996 AJ Confirmation Plan; 3)
the appeal tortiously interfered with the contractual rights of New
Horizon and denied the full consummation of the AJ Confirmation
Plan; and 4) even if the appeal was dismissed, a threat of on-going
litigation harmed New Horizon and the AJ Confirmation Plan. Along
with the motion for enlargement, New Horizon moved for an order
to show cause as to why certain parties, including these defendants,
should not be held in contempt of court and for injunctive relief
(motion to show cause). In its motion to show cause, New Horizon
alleged that the Independent Limited Partners and the Jacobs Group
had violated the Confirmation Plan in civil contempt of the bank-
ruptcy court's orders.
On February 3, 1997, the bankruptcy court held a hearing on New
Horizon's motions. At the hearing, Judge Leonard stated that the
option had expired and that the Tudor Trustee was free to deal with
whomever he chose to find another buyer for the wrap notes. On Feb-
ruary 6, 1997, the bankruptcy court entered its orders denying New
_________________________________________________________________
11 A December 30, 1996 filing indicated that the Independent Limited
Partners objected to the option agreement because they alleged that it
was materially different from the terms in the Confirmation Plan and that
Sonnenschine had forfeited the rights to the option by not complying
with the option terms. This was a similar position to that taken earlier by
Mirwis at the hearing on approval of the option agreement. We express
no opinion on the effectiveness of these matters as a defense to the claim
of contempt of court for taking a bad faith appeal.
9

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Horizon its requested relief. New Horizon did not appeal these bank-
ruptcy court orders to the district court.
Instead of appealing the bankruptcy court's orders, on February 25,
1997, New Horizon filed the complaint in the case at hand in the dis-
trict court commencing this civil action. In its complaint, New Hori-
zon sought compensatory and punitive damages and requested a jury
trial.12 New Horizon based its lawsuit on the contention that the
defendants were bound by the Confirmation Plan and received bene-
fits from it; however, the defendants "engaged in a conspiracy to
thwart consummation" of the option agreement by filing appeals and
objections in the Tudor bankruptcy and by making contacts with the
lender from whom New Horizon sought financing for the wrap notes
sale and the general partner of New British and New Yorktown, all
in an attempt to make the option fail.
On June 20, 1997, the district court entered an order in this case
finding that the "substance of this matter is related to cases having
arisen under Title 11" and referred it to the bankruptcy court. The
bankruptcy court heard and determined an abundance of motions
between June 1997 and October 1998.13 After the bankruptcy court
denied both parties' motions for summary judgment on October 22,
1998, the district court set a trial date. On November 3, 1998, the trial
began in the district court.14 The parties presented evidence to the jury
_________________________________________________________________
12 On February 20, 1998, New Horizon amended its complaint and
added two more state law claims--tortious abuse of process and mali-
cious prosecution.
13 On August 5, 1997, Judge Leonard determined that his previous
order of February 6, 1997 was not an adjudication of the contempt issue
as against the defendants in this action. In fact the order of February 6,
1997 was brief and to the point. It described the matter as a "Motion to
show cause [why a contempt action should not follow] and for injunctive
relief." The action taken by the bankruptcy court was "this motion is
denied." See footnote 20, infra.
14 On October 23, 1998, the Jacobs Group defendants filed a motion to
dismiss the entire action for lack of subject matter jurisdiction. Later,
New Horizon filed a response in opposition to this motion and made a
motion for sanctions against the Jacobs Group defendants for filing their
motion.
10

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on all of New Horizon's claims except the civil contempt of court
claim. The district judge determined that he would decide the con-
tempt matter and hear the testimony relating to it during the jury's
deliberations. The jury returned its verdict in favor of New Horizon
on November 25, 1998. The district court entered its order regarding
the contempt matter and other post trial motions on July 19, 1999.15
The Jacobs Group defendants and the Independent Limited Partners
defendants appeal the final judgment entered on July 19, 1999 and
amended on July 26, 1999. New Horizon did not appeal the denial of
its civil contempt of court claim.
II.
While there are various issues raised on appeal, we must first con-
sider the defendants' contention that the district court lacked subject
matter jurisdiction over this case. Lack of subject matter jurisdiction
may be raised at any time by the parties or the court. See Insurance
Corp. of Ireland v. Compagnie des Bauxites, 456 U.S. 694, 701-02
(1982); United States v. White, 139 F.3d 998, 999-1000 (4th Cir.
1998). The district court determined that this case was related to cases
arising under title 11. We review its determination of subject matter
jurisdiction de novo. See Folio v. City of Clarksburg, 134 F.3d 1211,
1214 (4th Cir. 1998).
To repeat, on February 6, 1997, before the case before us was filed,
the bankruptcy court entered two orders in response to New Horizon's
_________________________________________________________________
15 The district court denied New Horizon's claim for civil contempt;
motions for sanctions against the Jacobs Group defendants for filing a
motion to dismiss for lack of subject matter jurisdiction; motions to
strike and for sanctions against the Jacobs Group defendants relating to
the defendants' late filing of two motions in limine; renewed motion for
summary judgment; amended trial memorandum and proposed jury
instructions; motions for sanctions regarding the failure of certain defen-
dants to respond to interrogatories and requests for production of net
worth; and motion for fees and costs relating to the supplemental proffer.
The court also denied defendants' motion for judgment as a matter of
law. The court granted New Horizon's motion for sanctions against the
Jacobs Group for failure to respond to certain discovery requests and
allowed attorneys' fees related to those sanctions.
11

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motion for enlargement of time and its motion to show cause. After
a hearing and argument from New Horizon, the Tudor Trustee and the
Independent Limited Partners, the bankruptcy court denied both of
New Horizon's motions and entered its orders. New Horizon did not
appeal these two adverse rulings to the district court, rather, it waited
until after the time for filing an appeal had expired and then chose to
file this entirely separate civil action against the Jacobs Group and the
Independent Limited Partners based on the same factual scenario, but
requesting money damages rather than injunctive relief.
In its complaint in the present case filed on February 25, 1997,
New Horizon alleged jurisdiction under 28 U.S.C. § 1334 because it
believed that this case was related to proceedings under title 11 of the
United States Code. Section 1334(b) provides:
Notwithstanding any Act of Congress that confers exclusive
jurisdiction on a court or courts other than the district courts,
the district courts shall have original but not exclusive juris-
diction of all civil proceedings arising under title 11, or aris-
ing in or related to cases under title 11.
28 U.S.C. § 1334(b). When Congress enacted § 1334, it "was con-
cerned with the inefficiencies of piecemeal adjudication of matters
affecting the administration of bankruptcies and intended to give fed-
eral courts the power to adjudicate all matters having an effect on the
bankruptcy." In re Wood, 825 F.2d 90, 92 (5th Cir. 1987) (citing S.
Rep. No. 989, 95th Cong., 2d Sess., 153-54 (1978), reprinted in 1978
U.S.C.C.A.N. 5787, 5939-40) (emphasis added).
New Horizon sought to invoke federal jurisdiction over claims it
alleged were related to the AJ bankruptcy or the Tudor bankruptcy,
either or both. Related to jurisdiction, however, has a special meaning
in the law,16 and we must turn to the test approved by the Supreme
Court in Celotex Corp. v. Edwards, 514 U.S. 300, 307-08 (1995), in
determining whether the district court had subject matter jurisdiction
_________________________________________________________________
16 Related to jurisdiction does not mean that the case is related in the
ordinary sense of the word "related." Webster's defines "related" as "con-
nected or associated." Webster's II New Riverside University Dictionary
992 (1988).
12

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in this case.17 As the Court stated in Celotex, the "`related to' lan-
guage of § 1334(b) must be read to give district courts (and bank-
ruptcy courts under § 157(a)) jurisdiction over more than simply
proceedings involving the property of the debtor or the estate;" how-
ever, "`related to' jurisdiction cannot be limitless." Celotex, 514 U.S.
at 308 (citing Pacor, Inc. v. Higgins, 743 F.2d 984, 994 (3d Cir.
1984)) (internal quotations omitted), and Board of Governors, FRS v.
MCorp Financial Inc., 502 U.S. 32, 40 (1991) (Congress has vested
limited authority in bankruptcy courts). See also In re Dow Corning
Corp., 86 F.3d 482, 489 (6th Cir. 1996); In re Wood, 825 F.2d at 93
(stating that "the definition of [related to jurisdiction] of the Court of
Appeals for the Third Circuit [Pacor] appears to have the most sup-
port"). A civil case filed in a district court is related to a case in bank-
ruptcy if the outcome in the civil case "could conceivably have any
effect on the estate being administered in bankruptcy . . . if the out-
come could alter the debtor's rights, liabilities, options, or freedom of
action (positively or negatively) and which in any way impacts upon
the handling and administration of the bankrupt estate." Celotex, 514
U.S. at 308, n.6 (quoting Pacor, 743 F.2d at 994) (internal quotations
omitted) (italics in Pacor).
This court has adopted the Pacor related to test and has held that
a district court, "and derivatively the Bankruptcy court" has jurisdic-
tion over an action related to a bankruptcy case "if the outcome [of
the proceeding] could alter the debtor's rights, liabilities, options, or
freedom of action (either positively or negatively) and [the proceed-
ing] in any way impacts upon the handling and administration of the
bankrupt estate." Spartan Mills v. Bank of Am. Ill., 112 F.3d 1251,
1255-56 (4th Cir.), cert. denied, 522 U.S. 969 (1997) (quoting Pacor,
743 F.2d at 994 (internal quotation marks omitted)). The Supreme
Court gave the following as an example of a civil case related to a
bankruptcy case: "suits between third parties which have an effect on
the bankruptcy estate." Celotex, 514 U.S. at 307 n.5 (citing 1 Collier
on Bankruptcy ¶ 3.01[1][c][iv] at 3-28 (15th ed. 1994)). Notably, as
is the case here, a related to case need not necessarily be against the
debtor or his property. Nevertheless, the "mere fact that there may be
common issues of fact between a civil proceeding and a controversy
_________________________________________________________________
17 Other federal question jurisdiction or diversity of citizenship is not
claimed in this case.
13

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involving a bankruptcy estate does not bring the matter within the
scope of [1334(b)]." Pacor, 743 F.2d at 994.18 In this circuit, a civil
case is related to bankruptcy if "the outcome of[the civil] proceeding
could conceivably have any effect on the estate being administered in
bankruptcy." In re Celotex Corp., 124 F.3d 619, 625 (4th Cir. 1997)
(citing Pacor, 743 F.2d at 994),19 see also A. H. Robins Co. v.
Piccinin, 788 F.2d 994, 1002 n.11 (4th Cir. 1986).
A.
New Horizon argues that the case at hand is related to other cases
under title 11, and the district court referred the case to the bank-
ruptcy court on those grounds. It argues that its civil contempt claim
saves the day jurisdiction-wise: "[New] Horizon's contention below
that the Defendants acted in contempt of the Confirmation Order."
Thus, New Horizon rests all of its claims asserted here on the jurisdic-
tional basis of the civil contempt of court claim. New Horizon asserts
that "[t]he very integrity of the orders of a federal court is at issue
here" because the contempt claim involves the alleged behavior of the
defendants in contempt of the bankruptcy court's order confirming
the AJ plan. According to New Horizon, if the district court had ruled
in its favor on the contempt issue, "one of the conceivable remedies
the court might have granted was to undo part or all of the [AJ] Con-
firmation Plan."
The argument goes that the contempt claim and the relief that could
have been accorded to New Horizon on that claim would have had an
effect on the estate being administered in bankruptcy. This potential
effect on the bankruptcy estate, it continues, would then give the dis-
trict court related to jurisdiction.
It is true that the integrity of the orders of a federal court are at
_________________________________________________________________
18 The Pacor test has been adopted by the First, Fourth, Fifth, Sixth,
Eighth, Ninth, Tenth, and Eleventh Circuits and the Supreme Court cited
it with approval in Celotex. See Dow Corning, 86 F.3d at 489 (listing the
circuits). See also Celotex, 514 U.S. at 308 n.6.
19 Celotex in the Fourth Circuit is a different case than the Supreme
Court's Celotex referred to throughout this opinion.
14

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issue here, but the record requires a result opposite to that advocated
by New Horizon.
The problem with the reasoning of New Horizon is that it ignores
the fact that the order of the bankruptcy court of February 6, 1997 was
a final order because it was not appealed from on or before 10 days
thereafter pursuant to 28 U.S.C. § 158(a) and § 158(c) and Rule 8002
of the Bankruptcy Rules. See also Bankruptcy Rule 9020 and In re
Walters, 868 F.2d 665 (4th Cir. 1989). Thus, the claim in the com-
plaint in this case that jurisdiction is established under 28 U.S.C.
§ 1334(b) as a related to case under Title 11 because of its claim that
the defendants were guilty of civil contempt of the Bankruptcy Court
depends for its success on a collateral attack on a final order of the
bankruptcy court, which two opinions of the United States Supreme
Court, Celotex Corp. v. Edwards, 514 U.S. 300 (1995), and Oriel v.
Russell, 278 U.S. 358 (1929), have decided is not permissible. We are
of opinion that the jurisdictional base for this case should not be per-
mitted to stand on a collateral attack which has been forbidden by two
decisions of the Supreme Court.
The hearing on February 3, 1997 was the result of a motion filed
in the Bankruptcy Court and dated January 14, 1997, seeking to hold
the defendants in the present case:
in civil or criminal contempt of prior orders of . .. [the
bankruptcy court].
The "prior orders" of the bankruptcy court refer to the order of confir-
mation of the AJ plan with its associated terms, and the January 14th
motion also asked for injunctive relief. On February 3, 1997, the court
heard the motion for contempt and on February 6, 1997 entered the
following order:
This confirmed Chapter 11 case is before the court on a
motion to show cause [why the defendants should not be
cited for contempt] and for injunctive relief filed by New
Horizon of NY, L.L.C. A hearing was held on February 3,
1997 in Raleigh, NC. For the reasons stated in open court,
this motion is denied.
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So Ordered.
Although all of the parties were present in that proceeding so that
the bankruptcy court could have given complete relief, such relief was
denied and New Horizon did not appeal the denial of relief. Rather,
it let the time for appealing expire and on February 25, 1997, some
19 days later, it filed its complaint in the case at hand. In that com-
plaint was Count 3 "Civil Contempt of Court," the pertinent part of
which is quoted in full as follows:
The actions of each and every defendant, as described here-
inabove, constitutes contempt of the United States Bank-
ruptcy Court through the knowing, willful, and
contumacious violation of the order of the Honorable J. Rich
Leonard dated September 26, 1996 confirming AJ and AJ's
plan of reorganization and the terms of the settlement.
Thus, it is patent that the civil contempt count, on which New Hori-
zon bases its claim in this case of related to jurisdiction under § 1334,
is nothing more nor less than a collateral attack on the order of the
bankruptcy court of February 6, 1997. "Courts must speak by orders
and judgments, not by opinions, whether written or oral, or by chance
observations or expressed intentions made by courts during, before or
after trial, or during argument." Murdaugh Volkswagen v. First
National Bank of SC, 741 F.2d 41, 44 (4th Cir. 1984).20
_________________________________________________________________
20 On August 5, 1997, some six months later and more than five months
after the filing of the case at hand, Judge Leonard referred to his Febru-
ary 6, 1997 order: "In this situation, the court has the luxury of hindsight.
The primary issue at the [February] hearing was whether the court should
grant the injunctive relief requested. The court denied this request, find-
ing that the alleged misconduct was simply irrelevant to [New Horizon's]
entitlement to the relief then sought. Having denied the injunctive relief,
the court never considered the allegations underlying the contempt
motion and did not adjudicate it. It follows that the court's February 6,
1997 order is not res judicata as to the present action."
The luxury of hindsight, however, is not a luxury afforded to a United
States District Court, and thus not to a bankruptcy court. Lewis v.
Tobacco Workers Int'l Union, 577 F.2d 1135, 1139 (4th Cir. 1978)
(holding that an order appealed from may not be changed during a pend-
ing appeal). Thus the final order here was not subject to change.
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In Celotex Corp., 514 U.S. 300, the bankruptcy court for the Mid-
dle District of Florida issued an injunction prohibiting judgment cred-
itors from executing on a supersedeas bond without the bankruptcy
court's permission. Edwards was a judgment creditor and, despite the
order of the bankruptcy court enjoining the collection of the superse-
deas bond, a Texas district court permitted Edwards to proceed on the
bond, although the bankruptcy court's injunction had not been modi-
fied. The holding of the district court was that the earlier injunction
of the bankruptcy court was erroneous although it had not been modi-
fied or reversed. That decision was affirmed by the Fifth Circuit, but
the Supreme Court reversed, holding that "it is for the court of first
instance to determine the question of the validity of the law, and until
its decision is reversed for error by orderly review, either by itself or
by a higher court, its orders based on its decision are to be respected."
514 U.S. 300, 313. The Court further stated that the judgment creditor
[i]f dissatisfied with the Bankruptcy Court's ultimate deci-
sion, . . . [could] appeal "to the district court for the judicial
district in which the bankruptcy judge is serving," see 28
U.S.C. § 158(a), and then to the Court of Appeals for the
Eleventh Circuit, see § 158(d). Respondents chose not to
pursue this course of action, but instead chose to collater-
ally attack the Bankruptcy Court's Section 105 Injunction in
the federal courts in Texas. This they cannot be permitted to
do without seriously undercutting the orderly process of the
law. (Italics added).
514 U.S. 300, 313. The Celotex Court relied on and followed its deci-
sion in Oriel v. Russell, 278 U.S. 358 (1929). That case, like the one
at hand, concerned contempt citations. Contempt orders for violations
of turnover orders had been entered by the district court and affirmed
by the court of appeals following decision by the referee in bank-
ruptcy to turn over the books and property in question from which no
appeals were taken. On a motion to commit the bankrupts to jail, one
attempted to introduce evidence on the issue of whether or not at the
time of the turnover order he had the books in question in his posses-
sion or under his control, and the other attempted to show omitted
evidence in the turnover proceeding. Both the referee and the district
court refused to re-try those issues on the ground that the turnover
orders should not be collaterally attacked. The Court affirmed the
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court of appeals and stated that the orders of contempt are entered by
a bankruptcy court with ". . . the understanding that it is rendering a
judgment which is only to be set aside on appeal or some other form
of review, or upon a properly supported petition for rehearing in the
same court." 278 U.S. 358, 364.
Our circuit followed the holdings in Celotex and Oriel in Spartan
Mills v. Bank of America Illinois, 112 F.3d 1251 (4th Cir. 1997). In
that case, a Florida bankruptcy court had ordered the sale of property
in the possession of the bankrupt notwithstanding the fact that there
were conflicting liens claimed against the property and the order of
sale of the property provided that the liens would be preserved against
the fund. A later order of the bankruptcy court approved the sale of
the property and established finally the order of liens against the fund.
This order was not appealed from although Spartan Mills was a party
to that proceeding. Later, Spartan Mills filed an action in the district
court seeking a declaratory judgment that its lien was superior to the
liens established by the bankruptcy court. The district court declined
to grant relief because it held that "Spartan's action constitutes an
improper collateral attack on the sale order issued by the United
States Bankruptcy Court." 112 F.3d at 1254. We affirmed, relying on
Celotex and Oriel. We reasoned that "a challenge for error may be
directed to the ordering court or a higher court, as rules provide, but
it may not be made collaterally unless it is based on the original
court's lack of jurisdiction." 112 F.3d at 1255. In accord is Lindsey
v. Ipock, 732 F.2d 619, 622 (8th Cir. 1984), holding that a lien claim-
ant might not collaterally attack a bankruptcy court's order of sale in
"collateral proceedings."
Celotex and Oriel have not been overruled, watered down, or ques-
tioned, by the Supreme Court, and our circuit precedent is entirely in
accord with those cases. Thus, we conclude that the related to juris-
diction claimed by New Horizon is not to be supported by a collateral
attack on an order of the bankruptcy court, which attack is quite con-
trary to Supreme Court and our own circuit precedent.
B.
We now examine whether New Horizon's other claims made in
their complaint under state law are related to a bankruptcy case so as
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to provide subject matter jurisdiction under § 1334(b). During oral
argument, counsel for New Horizon conceded that "this case is based
on an [allegedly] frivolous or bad faith appeal from an order of the
bankruptcy court as a matter of state law."
In consideration of this question, we are reminded that the standard
for related to jurisdiction under § 1334 is from Pacor, 743 F.2d 984,
as set out in Celotex, 514 U.S. 300, 308 n.6, as follows:
The usual articulation of the test for determining whether a
civil proceeding is related to bankruptcy [under§ 1334] is
whether the outcome of that proceeding could conceivably
have any effect on the estate being administered in bank-
ruptcy. . . . Thus, the proceeding need not necessarily be
against the debtor or against the debtor's property. An action
is related to bankruptcy if the outcome could alter the debt-
or's rights, liabilities, options, or freedom of action (either
positively or negatively) and which in any way impacts
upon the handling and administration of the bankrupt estate.
(Emphasis in original).
The defendants argue that the state law claims brought by New
Horizon, tortious interference with a contract, breach of contract,
malicious prosecution, abuse of process, and unfair and deceptive
trade practices, do not alter AJ's or Tudor's rights or liabilities or
impact the handling or administration of the AJ bankruptcy or the
Tudor bankruptcy.
The following facts are uncontradicted: New Horizon is not a
debtor or a creditor in either the AJ or Tudor bankruptcy, rather it is
an entity created for the purpose of acquiring, post-confirmation, an
interest in an asset; neither the AJ nor the Tudor bankrupt estate is a
party to this action; the defendants are not debtors in either bank-
ruptcy nor are they bankruptcy creditors; and New Horizon is not
seeking to have the court enforce or implement any order touching
upon a bankrupt estate.
In its complaint, New Horizon requested that the district court
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award compensatory and punitive damages against these defendants
as relief for its claims rather than relief regarding the Confirmation
Plan, the expired option, or the wrap notes. The bankruptcy court
made its final order on February 6, 1997 regarding the Tudor Trust-
ee's right and ability to sell the wrap notes to whomsoever the Trustee
chose. New Horizon's option to buy the wrap notes was deemed to be
expired and was not revived, and New Horizon also failed to appeal
that judgment. Instead, New Horizon now prays for damages, all of
which are against these defendants and are completely unrelated to
the sale of the wrap notes or the administration of the bankruptcy
estates. Any damages paid by the Jacobs Group defendants or the
Independent Limited Partners defendants would come out-of-pocket
from those defendants, none of whom were debtors or creditors in
either bankruptcy and would have no effect on either bankrupt estate.
Any recovery would not inure a benefit to the AJ bankrupt estate or
the Tudor bankrupt estate, and an order or judgment in this case
would not modify or affect either estate. In fact, the wrap notes were
sold to another purchaser in September 1997, pursuant to the bank-
ruptcy court's unappealed order, for a higher purchase price,21 and the
AJ estate was settled months before, and unaffected by the trial in this
case. Based on the facts we have mentioned, we find that the resolu-
tion of the claims in the case at hand could have no conceivable effect
on the AJ and Tudor bankruptcy estates, and therefore, this case is not
related to the AJ bankruptcy case nor the Tudor bankruptcy case
within the meaning of 28 U.S.C. § 1334.
C.
New Horizon's other arguments in support of related to jurisdiction
fail as well. New Horizon asserts that the bankruptcy court retained
jurisdiction over the Confirmed Plan with AJ bankruptcy, and there-
fore, it should have jurisdiction in this case. The plan cannot confer
jurisdiction upon a bankruptcy court or a federal district court, see 8
Collier on Bankruptcy ¶ 1142.04[1], rather 28 U.S.C. § 1334 governs
jurisdiction. And, in all events, nothing about this case, nor the result
thereof, has or may have any conceivable effect on either the AJ or
_________________________________________________________________
21 If anything, the Tudor estate benefitted from the subsequent sale to
another purchaser. But that was not affected by the result in the case at
hand.
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Tudor bankrupt estates, nor does it alter the debtors rights, liabilities,
options, or freedom of action (either positively or negatively) or in
any way impacts upon the handling and administration of either bank-
rupt estate. Celotex, 514 U.S. 300, 308, n.6.
III.
Because resolution of this action for or against these defendants
could not affect the bankrupt estates or the debtors in any way pursu-
ant to the Pacor rules as adopted by the Court in Celotex and by this
court in Robins and Spartan Mills and our own Celotex, we hold that
the district court did not have related to jurisdiction under 28 U.S.C.
§ 1334 in this case. We especially note that we express no opinion on
the merits of the state law claims asserted in this case.
Accordingly, the judgment of the district court appealed from is
vacated and the case is remanded to the district court for dismissal
without prejudice for lack of subject matter jurisdiction.
VACATED AND REMANDED WITH INSTRUCTIONS
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