In Re Castlerock Properties, Debtor. Piombo Corporation, a California Corporation v. Castlerock Properties, a California Limited Partnership

This is an appeal from an order of the district court vacating a bankruptcy court judgment and vacating a stay of California ■ state court proceedings. The order stated that the bankruptcy court did not have jurisdiction to determine appellant Castler-ock Properties’ counterclaims. We affirm.

I. BACKGROUND

Castlerock filed a Chapter 11 proceeding in bankruptcy court, thereby automatically staying a state court contract action involving Castlerock and Piombo. Piombo filed for relief from the automatic stay. Cast-lerock filed an answer incorporating state law contract counterclaims against Piombo. The bankruptcy judge elected to try the counterclaims but did not enter an order denying the relief from stay.

Although Piombo conceded subject matter jurisdiction, it moved to dismiss or sever the counterclaims questioning the propriety of deciding the counterclaims in a relief from stay proceeding. When the motion was denied, Piombo filed an answer to the counterclaims, and later filed a Proof of Secured Claim in the bankruptcy.

Piombo continued to object to trying the counterclaims in a relief from stay proceeding, but moved in the alternative to be allowed to bring its own…