James Gregory Barnes and Iraline G. Barnes

UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF COLUMBIA
In re
JAMES GREGORY BARNES, et
al.,
Debtors.
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Case No. 04-01124
(Chapter 7)
For Publication in West’s
Bankruptcy Reporter
MEMORANDUM DECISION RE MOTION FOR RULE 2004 EXAMINATION
ColomboBank FSB (the “Bank”) has filed a motion (Docket
Entry (“DE”) No. 128) to examine the debtor, James Gregory
Barnes, pursuant to Fed. R. Bankr. P. 2004. 	The court will deny
the motion for the following reasons.
I
In the Bank’s adversary proceeding against Barnes, Adv. Pro.
No. 06-10028, the court previously entered an order approving the
parties’ settlement and dismissing the adversary proceeding.
Approval of the settlement was required under LBR 7041-1(a)
because the proceeding was one under 11 U.S.C. § 727 to deny or
revoke a discharge (relief, that if granted, would benefit all
creditors), and the adversary proceeding was being dismissed
instead pursuant to an agreement that benefitted only the Bank.
The decision below is signed as a decision of
the court.
Signed: July 01, 2007.
_____________________________
S. Martin Teel, Jr.
United States Bankruptcy Judge
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The trustee and creditors did not object to the settlement
agreement and dismissal of the adversary proceeding, and,
accordingly, the court approved the same, but the order did not
impose the obligations as a judgment of the court. 	The parties’
settlement agreement provided:
[A]ll sums being held by the employer of the Debtor and
the Debtor’s spouse on account of a garnishment by the
Plaintiff [shall] be released to the Plaintiff, and []
the Debtor [shall] pay $13,000 in six equal monthly
installments as a partial payment of the legal fees of
the Plaintiff in this matter.
The Bank now seeks a Rule 2004 examination of Barnes because he
has defaulted on his obligations under the settlement agreement.
The trustee administering the debtors’ bankruptcy estate has
filed a proposed final report, which is awaiting consideration by
the court after another creditor completes a Rule 2004
examination into whether Barnes is receiving any death benefits
that are property of the estate.
II
As explored below, the proposed examination would gather
information having no relation to, or even slight impact on, any
matters over which this court would have jurisdiction.
Accordingly, Rule 2004 may not be employed by the Bank.
A.
The examination that the Bank desires to take does not
relate to the administration of the bankruptcy estate or to
rights, obligations, or liabilities of the debtor under the
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Bankruptcy Code. 	It does not entail inquiry into an
administrative claim against the bankruptcy estate. 	Instead, it
is an attempt to gather information pertinent to the breach of
the parties’ settlement agreement and to obtain information
regarding assets that might be a source for Barnes’ meeting his
obligations under that agreement. 	(The Bank does not contend
that it seeks an examination of the debtor for the purpose of
uncovering assets that the trustee may administer.)
Rule 2004(b) provides that a Rule 2004 examination
may relate only to the acts, conduct, or property or to
the liabilities and financial condition of the debtor,
or to any matter which may affect the administration of
the debtor’s estate, or to the debtor’s right to a
discharge.
Although the literal language of Rule 2004 would seem to permit
the Bank’s inquiry, Rule 2004 must be circumscribed by the
jurisdictional limits imposed upon a court in a bankruptcy case.
B.
Under 28 U.S.C. § 1334(a), the court has jurisdiction over
the bankruptcy case itself which was commenced by the debtor’s
filing of a petition under 11 U.S.C. § 301, but the Bank’s breach
of contract claims would not constitute a bankruptcy case and,
instead, would be a proceeding within the case. 	Under 28 U.S.C.
§ 1334(b), the court has jurisdiction “of all civil proceedings
arising under title 11, or arising in or related to cases under
title 11.” 	Rule 2004 examinations may be pursued with respect
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to such potential proceedings (for example, collection of
property of the estate by the trustee, objections to exemptions,
dischargeability issues, and fixing prepetition and
administrative claims against the estate).
1. 	“Arising Under” Jurisdiction
The desired examination here does not pertain to a potential
cause of action “arising under title 11.” 	For example, this is
not an inquiry into whether a nondischargeability proceeding
could be brought under 11 U.S.C. § 523. 	Once the adversary
proceeding was dismissed, the claim for revocation of discharge
asserted in that proceeding, a claim arising under the Bankruptcy
Code, no longer conferred a basis for jurisdiction. 	The
potential claim at issue, for breach of contract, arises instead
under state law.
2. 	“Related To” Jurisdiction
Nor is there “related to” jurisdiction under § 1334(b). 	The
inquiries will not lead to any proceeding having an impact on the
administration of the bankruptcy estate: the recoveries would not
be by the estate, and the claims are not against the estate, and
thus the inquiries are not related to the bankruptcy case.
See Pacor, Inc. v. Higgins, 743 F.2d 984, 994 (3d Cir. 1984);
Torkelsen v. Maggio (In re Guild and Gallery Plus, Inc.), 72 F.3d
1171 (3d Cir. 1996) (bankruptcy court lacked jurisdiction over
damage claims asserted against bankruptcy trustee in his
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individual capacity for failing to turn over to bailor property
he held as bailee).
3. 	“Arising In” Jurisdiction
Nor is there “arising in” jurisdiction under § 1334(b). 	Two
points must be emphasized in this regard.
First, that the debtor’s breaches occurred while the
bankruptcy case was still pending is irrelevant. 	The debtor’s
alleged breaches of the parties’ contract just as easily could
have arisen long after the bankruptcy case was closed. 	It is
only a fortuity that the bankruptcy trustee had not yet completed
the administration of the estate and requested the entry of an
order closing the case when the breaches occurred. 	The
coincidence of the breach of contract occurring when the
bankruptcy case was open is insufficient to characterize the
breach of contract claim as “arising in” the bankruptcy case.
Second, that the parties’ settlement agreement arose in the
bankruptcy case is similarly irrelevant. 	The approval of the
contract was a proceeding arising in the bankruptcy case under
LBR 7041-1(a) to approve a settlement of the adversary proceeding
that arose under 11 U.S.C. § 707. 	Once the parties obtained
approval, the result was a postpetition contract between the
parties resolving the Bank’s right to collect its claims from the
debtor. 	That proceeding was completely concluded and the
parties’ performance under the settlement agreement has nothing
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to do with wrapping up the administration of the case. 	The
performance of the agreement is not taking place in the
bankruptcy case. 	Accordingly, the Bank’s claims for breach of
the contract arose not in the bankruptcy case but by reason of
conduct outside of the bankruptcy case, the debtor’s failure to
comply with an agreement whose required performance had nothing
to do with the administration of the case.
This demonstrates that the Bank’s claims for breach of the
contract exist outside of the bankruptcy case, and thus do not
“arise in” the bankruptcy case. 	They are not of a nature that
could arise only in the bankruptcy case. 	As stated in Wood v.
Wood (In re Wood), 825 F.2d 90, 97 (5th Cir. 1987):
The meaning of “arising in” proceedings . . . seems to
be a reference to those “administrative” matters that
arise only in bankruptcy cases. 	In other words,
“arising in” proceedings are those that are not based
on any right expressly created by title 11, but
nevertheless, would have no existence outside of the
bankruptcy.
See also Eastport Assocs. v. City of Los Angeles (In re Eastport
Assocs.), 935 F.2d 1071, 1076 (9th Cir. 1991) (claim did not
“arise in a case under title 11 because it is not a cause of
action . . . that only arises in title 11 cases”). 	The claim
must have something to do with concluding the administration of
the case if it is to be one “arising in” the case, and the
debtor’s performance of the contract here had nothing to do with
concluding the administration of the case. 	See Torkelsen v.
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1 	In Torkelsen v. Maggio (In re Guild and Gallery Plus,
Inc.), 72 F.3d at 1178, the trustee was bailee of non-estate
property by reason of being a trustee stepping into shoes of
debtor who on the petition date was the bailee with respect to
the property. 	A claim against bankruptcy trustee in his
individual capacity for breach of his duties as a bailee was held
not to be a claim “arising in” the case. 	The claim was not an
administrative matter relating to wrapping up the case.
7
Maggio (In re Guild and Gallery Plus, Inc.), 72 F.3d at 1178. 1
This case is distinguishable from those in which “arising
in” jurisdiction was found to exist with respect to breach of a
postpetition contract that the trustee (or a debtor in possession
exercising a trustee’s powers) entered into during the bankruptcy
case. 	See, e.g., American Freight Sys., Inc. v. Blymer
Engineers, Inc. (In re American Freight Sys., Inc.), 236 B.R. 47,
(Bankr. D. Kan. 1999); Arnold Print Works, Inc. v. Apkin (In re
Arnold Print Works, Inc.), 815 F.2d 165, 168 (1st Cir. 1987)
(holding that debtor-in-possession’s postpetition contract
dispute was a core proceeding, thus implicitly holding that for
purposes of 28 U.S.C. § 157(b)(1), the proceeding was one
“arising in” the case, and that, accordingly, for purposes of §
1334(b) as well, the proceeding was one “arising in” the case).
Because the debtor did not serve as a debtor in possession, the
contract was not one that was made to facilitate the liquidation
or reorganization of the estate. 	Unlike an administrative
expense, which must be recovered under 11 U.S.C. § 503(a) via a
request for payment from estate assets, the Bank’s claims for
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breach of the settlement agreement are not against estate assets.
It is a claim against the debtor which will 	survive any closing
of the bankruptcy case, and will be enforceable outside of the
bankruptcy court.
* 	* 	* 	* 	* 	* 	* 	* 	* 	* 	*
In light of the foregoing, there would be no
jurisdiction over the Bank’s breach of contract claims under §
1334(b). 	The remaining possible source of jurisdiction is
ancillary jurisdiction, the issue next addressed.
C.
The court had jurisdiction under § 1334(b) to enter the
order approving the settlement agreement, and the Bank might
argue that the court has ancillary jurisdiction to enforce that
order as recognized by the authorization in 11 U.S.C. § 105(a)
that the court may take action “necessary or appropriate to
enforce or implement court orders . . . .”
Even if the court has ancillary jurisdiction to enforce its
orders, ancillary jurisdiction does not exist to enforce the
settlement agreement. 	The order approving the settlement
agreement did not impose obligations. 	Instead, it simply
approved the settlement agreement without reducing the parties’
obligations under the settlement agreement to a judgment. 	An
order’s approval of a settlement agreement does not make the
terms of the settlement agreement part of the order. 	Kokkonen v.
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2 	Because the court is denying the Bank’s motion on an
alternative ground as well, this decision does not preclude the
Bank from pursuing its breach of contract claims, and enforcement
of those claims, in this court if it can demonstrate that the
court’s analysis is erroneous regarding lack of jurisdiction over
those claims. 	Neither party has addressed the Kokkonen issue.
The debtor even viewed the Bank’s motion as an effort to collect
a judgment (as though the order of dismissal had reduced the
settlement agreement to a judgment). 	See n.3, infra.
9
Guardian Life Ins. Co. of America, 511 U.S. 375, 381 (1994); In
re Phar-Mor, Inc. Securities Litigation, 172 F.3d 270, 274-75 (3d
Cir. 1999). 	Under Kokkonen, 511 U.S. at 381-82, a court has no
ancillary jurisdiction to enforce a settlement agreement when the
order of dismissal did not reduce the settlement agreement to a
judgment or expressly retain jurisdiction over the enforcement of
the settlement agreement. 	Under Kokkonen, 511 U.S. at 382, the
Bank nevertheless may rely on any independent basis for federal
jurisdiction, but as already demonstrated, the jurisdictional
statute applicable to bankruptcy courts, 28 U.S.C. § 1334(b),
would not apply to the Bank’s breach of contract claims.
D.
Accordingly, the court would have neither jurisdiction under
§ 1334(b) nor ancillary jurisdiction to address the breach of
contract claims, and a Rule 2004 examination seeking information
pertaining to enforcement of the contract is thus inappropriate. 2
III
Even if the Bank could obtain a judgment from this court
enforcing the settlement agreement, the rights the Bank seeks to
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3 	The debtor argues:
This is an issue of an attempt to collect certain funds
on a judgment. The Motion has no basis under
Bankruptcy Rule 2004 as it does not involve property of
the bankruptcy estate, claims against the bankruptcy
estate or any other matter that would fall within the
jurisdiction of the Court pursuant to Rule 2004.
(Opp’n ¶ 13.)
10
enforce arise out of an adversary proceeding, and specific
adversary proceeding rules govern the discovery of assets to
enforce a judgment. 3 	Once an adversary proceeding is pending,
discovery related thereto must be conducted pursuant to the
Federal Rules of Civil Procedure, and Rule 2004, a pre-litigation
tool, is displaced. 	See In re Enron Corp., 281 B.R. 836, 840-41
(Bankr. S.D.N.Y. 2002); In re The Bennett Funding Group, Inc.,
203 B.R. 24, 28 (Bankr. N.D.N.Y. 1996); In re Szadkowski, 198
B.R. 140, 142 (Bankr. D. Md. 1996); In re Valley Forge Plaza
Assocs., 109 B.R. 669, 675 (Bankr. E.D. Pa. 1990). 	Specifically,
Rule 69 of the Federal Rules of Civil Procedure (made applicable
by Fed. R. Bankr. P. 7069), contemplates that discovery in an
adversary proceeding to enforce a judgment shall be conducted
under that rule, not Rule 2004.
Moreover, the Bank does not yet have a judgment, and
prejudgment discovery into assets from which a prospective
judgment may be collected is generally not allowed in civil
actions (an adversary proceeding being the analog of a civil
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4 	The motion alleges facts suggesting the debtor engaged in
serious misconduct in not complying with the settlement
agreement. 	In light of § 105(a), permitting the court to enforce
its orders, it is understandable that the Bank could reasonably,
albeit mistakenly, view Rule 2004 as a basis for inquiry into
enforcement of the debtor’s obligations resulting from the
court’s order approving the parties’ settlement agreement.
Attorney’s fees are inappropriate, and, in any event, have not
been sought in accordance with the procedures of Fed. R. Bankr.
P. 9011.
11	O:\Judge Temp Docs\Barnes Decision re Motion for Rule 2004 Exam.wpd
action in the district court). 	The proposition seems so obvious
that it is not surprising that my limited research found no case
law addressing the issue. 	I have found only one exception to the
general rule that prejudgment discovery into assets available to
collect a judgment is unavailable, namely, 28 U.S.C. § 3015(a), a
provision allowing discovery by the Government in proceedings
related to prejudgment remedies. 	See United States v. Teeven,
Civ. A. No. 92-418 LON, 1992 WL 683682 (D. Del. Oct. 27, 1992).
IV
An order follows denying the Bank’s motion and the
debtor’s request for attorney’s fees in opposing the motion. 4
[Signed and dated above.]
Copies to: Debtor; Debtor’s attorney; Stephen Nichols, Esq.;
Office of United States Trustee.
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