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Ninth Circuit Federal Court Announces Important Jurisdictional Decision Rules for DLGpc Client


Jerry McGuire, Parker, Arizona, leased Colorado River Indian Tribal land through the Bureau of Land Management of the U.S. Department of the Interior. McGuire, who took a 10-year lease, invested heavily in his property to level it and prepare it to be sown to alfalfa so McGuire could produce hay. He expected 10 or 11 cuttings a year.

“Mr. McGuire’s land is bordered by the Colorado River on the west and a large diversion canal on the east. To get from the public road abutting his land on the east, across the ditch to farm, a bridge is required.”

When McGuire leased the land, an older bridge, but perfectly serviceable, was intact.

Then, a tift with a government official led to a decision by the official and BLM to remove the bridge. McGuire was dumbstruck!

“Without the bridge, I can’t farm”, McGuire complained to CRIT and BLM officials. “I need to do anything possible to get across to my land so I can farm it. It won’t be good enough just to irrigate it without a chance to take the crop off!” Domina protested. But the protest fell on deaf ears, and for an extended period, there was no bridge to allow McGuire to access his property with farming implements.

Eventually, and not too long, McGuire was forced to declare a reorganization type bankruptcy. As a farmer, Mr. McGuire hoped to use the Bankrupcty Court’s power to regain his lease. His work strategy succeeded in part, but failed in part.

The Bankrupcty Court’s role was beneficial. A section in the Bankruptcy Act empowers the court to hear all claims concerning the debtor, particularly “core proceedings” relevant to the essence of the business and its prospects for reorganization.

McGuire’s bankruptcy led to the initiation of a lawsuit, known as a related proceeding, against the United States and the Bureau of Land Management. “Our lawsuit contended Mr. McGuire was forced out of farming and into bankruptcy because the government took away his bridge, denying him access to his land. Without access, the land was substantially worthless,” Domina noted.

In Bankrupcty Court, a dispute about subject matter jurisdiction developed. McGuire claimed the US Bankruptcy Act, 11 USC gives the Bankrupcty Court exclusive jurisdiction over matters affecting a bankruptcy estate and, at worst, concurrent jurisdiction affecting matters related to the estate.

The United States argued that McGuire’s case was an inverse condemnation suit, and condemnation cases against the United States must be brought in the US Court of Federal Claims. It cited that Court’s exclusive jurisdiction, set forth in the Tucker Act, 28 USC § 1491.

“We have two conflicting statutory provisions, each concurring exclusive jurisdiction over a case like Mr. McGuire’s on a different court in the federal judicial system,” Domina said.

The Arizona Bankruptcy Court ruled it had jurisdiction. The United States District Court in Arizona agreed, initially. It then sent the case back to the bankruptcy court for trial, on a referral, for the ultimate decision to be made by the District Court.

Mr. McGuire’s case was presented to the bankruptcy Judge, who ruled in his favor and fixed his damages at $1.3 million.

But the bankruptcy Judge’s recommendations were not accepted by the US District Judge who, revisiting the jurisdiction issue, concluded the case should have been handled in the US Court of Federal Claims. McGuire appealed to the Ninth Circuit.

A spirited oral argument framed the issues in February 2008. Arguing before a panel of circuit judges in San Francisco, Domina noted for Mr. McGuire that “the case presents a clash of two statutes, but also a clash of two government policies. One policy relates to the machinery of government, i.e., how will the work of government be done. The other policy relates to the rights of citizens, including the constitutionally-protected right to a fresh start in bankruptcy. We contend that when the two clash, the citizens’ rights should win out.”

The government argued its interest, in assuring that all claims against it for condemnation are heard in a single court, outweighed any other policy consideration, and led to the conclusion the case should be brought in the Federal Claims Court.

The Ninth Circuit Court of Appeals’ Christmas Eve decision gave each side something to feel good about. The unanimous Circuit Court panel held that (a) the Federal Claims Court is the forum where the case should be tried. It resolved issues about the conflicting statutes in favor of the narrower Tucker Act and its requirement that condemnation proceedings against the federal government occur in that specialized tribunal.

But the Ninth Circuit also held that (b) the bankruptcy court, and the bankruptcy trustee or debtor in possession have a special role in the process because they can initiate the proceedings to get relief for the bankrupt debtor in the form of damages for condemnation. The appeals tribunal reversed and remanded the District of Arizona’s decision dismissing the case. It ordered the Arizona District Court to transfer the case to the Court of Federal Claims so Mr. McGuire can have his day in court.

“We think the Ninth Circuit’s decision was an intelligent, judicious one resolving a delicate and complicated question in a way satisfying the needs of all parties.” Dave Domina, who handled the case for McGuire, continued, “Under the ruling, a bankrupt party will have a remedy. If his counsel makes the mistake, after this precedent setting decision, of filing a case in bankruptcy court, then the bankruptcy Judge will transfer the case to the Court of Federal Claims. There, the case will be tried on its merits. The federal government will be protected in its interests to have all such cases tried in one tribunal, and the bankrupt debtor will get a trial before a capable, skilled court upon referral from the court handling the debtor’s bankruptcy.”

Mr. McGuire saw the case as capping a nearly decade long battle with the United States. McGuire’s bankruptcy commenced in 2001. His bridge was lost to him in January 2000, forcing him out of business.

“Jerry McGuire is inspired by the outcome to press on to a conclusion. He is fatigued by the time involved, but recognizes his case presents rare legal issues, and he is patient”, Domina said. “So are we.”

Domina Law Group pc llo is a firm of trial lawyers. We specialize in complex litigation on a national basis. Our lawyers are ethical, aggressive, and committed to providing spirit and vitality to the judicial system and our client’s legal rights.

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