[1] The bankruptcy court held that it had jurisdiction over Sea Hawk’s adversary proceeding against the State under 28 U.S.C. § 1334(b) (2000). That section grants district courts (and bankruptcy courts by reference) “original but not exclusive jurisdiction of all civil proceedings . . . related to cases under title 11.” § 1334(b) (emphasis added). In In re Fietz, this Court adopted the Third Circuit’s articulation of the test for determining whether a civil proceeding is related to bankruptcy, stating that an action is related to bankruptcy if “the outcome of the proceeding could conceivably have any effect on the estate being administered in bankruptcy.” 852 F.2d 455, 457 (9th Cir. 1988) (quoting Pacor, Inc. v. Higgins, 743 F.2d 984, 994 (3d Cir. 1984)). In Fietz, the Court held that there was no “related to” jurisdiction over a claim, though part of the bankruptcy estate, if it was filed after the Chapter 13 plan had been confirmed and all of the property of the estate had vested in the debtor. Id. at 458-59.

[2] Here, when Sea Hawk filed its adversary proceeding, VFDA’s Chapter 11 case had been dismissed and a final decree entered. When the bankruptcy court later reopened the      8 ABR 214 bankruptcy case, it did so “for the limited purpose of making a determination of whether the Settlement Agreement . . . releases Sea Hawk’s state court claims against the State of Alaska.” That determination could not conceivably “alter the debtor’s rights, liabilities, options, or freedom of action . . . [or] in any way impact[ ] upon the handling and administration of the bankrupt estate.” Fietz, 852 F.2d at 457 (quoting Pacor, 743 F.2d at 994); see In re Hanks, 182 B.R. 930, 935 (Bankr. N.D. Ga. 1995) (“the enforcement of the settlement agreement cannot have a conceivable effect on the bankruptcy case as no case is in existence at that time”).

The State argues that to preserve the bankruptcy court’s ability to interpret its prior rulings, a different standard applies to postconfirmation proceedings. The Third Circuit, after reviewing the post-confirmation cases, concluded that “the essential inquiry appears to be whether there is a close nexus to the bankruptcy plan or proceeding sufficient to uphold bankruptcy court jurisdiction.” In re Resorts Int’l. Inc., 372 F.3d 154, 166-67 (3d Cir. 2004). The court concluded that matters affecting the interpretation, implementation, consummation, execution, or administration of the confirmed plan will typically have the requisite close nexus. We adopted the close nexus test in In re Pegasus Gold Corp., 394 F.3d 1189, 1194 (9th Cir. 2005). There, we found the requisite close nexus to exist where the post-confirmation claims asserted that the defendant breached the Reorganization Plan and where the outcome of those claims could affect the implementation and execution of the Plan.

This is not a proceeding falling within the rationale of the close nexus test. Here, there was no confirmed plan and there is no claim that the dispute between two creditors, Sea Hawk and the State, would have any effect on the now-closed bankruptcy estate. The bankruptcy court has no role in the resolution of the creditors’ dispute, and it is involved only fortuitously because the dispute implicates the terms of a settlement agreement approved by the court as a precondition of      8 ABR 215 bankruptcy case, it did so “for the limited purpose of making a determination of whether the Settlement Agreement . . . releases Sea Hawk’s state court claims against the State of Alaska.” That determination could not conceivably “alter the debtor’s rights, liabilities, options, or freedom of action . . . [or] in any way impact[ ] upon the handling and administration of the bankrupt estate.” Fietz, 852 F.2d at 457 (quoting Pacor, 743 F.2d at 994); see In re Hanks, 182 B.R. 930, 935 (Bankr. N.D. Ga. 1995) (“the enforcement of the settlement agreement cannot have a conceivable effect on the bankruptcy case as no case is in existence at that time”).the dismissal of VFDA’s bankruptcy. But that agreement has been fully implemented with respect to VFDA.¹ The bankruptcy court did not consider dismissal of VFDA’s bankruptcy to automatically divest it of jurisdiction over a related case. It reasoned that after dismissal, the court has discretion to retain jurisdiction over a related proceeding, citing In re Carraher, 971 F.2d 327, 328 (9th Cir. 1992). Carraher’s fraud case had originally been filed in state court but was then removed to bankruptcy court as a related case because of the pendency of a bankruptcy case. When the underlying bankruptcy case was dismissed, the bankruptcy court decided to retain jurisdiction of the fraud case. This court held that “bankruptcy courts are not automatically divested of jurisdiction over related cases when the underlying bankruptcy case is dismissed.” Id. Whether to retain jurisdiction of such cases is within the bankruptcy court’s discretion, guided by considerations of economy, convenience, fairness and comity. Id.

Carraher does not support the bankruptcy court’s decision. It stands for the proposition that a bankruptcy court may retain jurisdiction over a related proceeding pending at the time of the dismissal of the bankruptcy case. It does not support the assertion of bankruptcy jurisdiction over a proceeding initiated subsequent to the dismissal of the bankruptcy case. Thus, had the state court fraudulent conveyance action been removed to the bankruptcy court while the bankruptcy case was open, that court, in its discretion, could have retained jurisdiction after the dismissal of the bankruptcy case. But the fact that it might have been removed does not provide a basis for bankruptcy jurisdiction over a later filed proceeding.

     8 ABR 216 

II. RETAINED JURISDICTION OVER THE SETTLEMENT AGREEMENT

The district court affirmed the bankruptcy court’s order on a different theory, holding that when that court approved the settlement agreement between VFDA and Sea Hawk, it was thereby adopting the terms of the settlement agreement as part of its order. This, it held, was sufficient for it to have implicitly retained jurisdiction over that agreement.

[3] Bankruptcy courts are courts of limited jurisdiction. Having concluded that there was no “related to” jurisdiction over this proceeding, we next consider whether the bankruptcy court had ancillary jurisdiction. Ancillary jurisdiction may rest on one of two bases: (1) to permit disposition by a single court of factually interdependent claims, and (2) to enable a court to vindicate its authority and effectuate its decrees. Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S. 375, 379-80 (1994). Only the second basis is relevant in this case. Thus, the question here is whether the bankruptcy court’s jurisdiction over this proceeding is necessary in order to vindicate its authority or effectuate its decree. Where a settlement agreement led to the dismissal of a case, a court has jurisdiction to vindicate its authority or effectuate its decree if the court’s dismissal order explicitly retained jurisdiction or incorporated the terms of the settlement agreement. Id. at 381. Otherwise, enforcement of the settlement agreement is for state courts. Id. at 382.

[4] Here, the bankruptcy court entered an order approving the settlement agreement and a second order dismissing the case, reciting the prior approval and stating that “[t]he conditions of the settlement hav[e] been fulfilled.” The orders neither “retain[ed] jurisdiction” over the settlement agreement nor incorporated “the parties’ obligation to comply with [its] terms.” Id. at 381.

The State seeks to distinguish Kokkonen on two grounds. First, it argues that Kokkonen does not apply because the settlement      8 ABR 217  agreement here required and received the bankruptcy court’s approval. But Kokkonen specifically states that “[t]he judge’s mere awareness and approval of the terms of the settlement agreement do not suffice to make them part of his order.” Id. It noted that even in a dismissal under Federal Rule of Civil Procedure 41(a)(2), which requires a court order, enforcement of the settlement agreement is for state courts in the absence of a specific retention of jurisdiction or a condition requiring the parties’ compliance with the terms of the settlement agreement. Id. at 381-82; see also O’Connor v. Colvin, 70 F.3d 530, 532 (9th Cir. 1995) (stating that “even a district court’s expressed intention to retain jurisdiction is insufficient to confer jurisdiction if that intention is not expressed in the order of dismissal”); Hagestad v. Tragesser, 49 F.3d 1430, 1433 (9th Cir. 1995) (holding that even though the district court had announced that it would oversee the drafting of settlement papers and the construction and execution of the settlement, it had not retained jurisdiction).

Next, the State argues that Kokkonen involved enforcement of a settlement agreement, while this proceeding is brought to interpret an agreement. It relies on dicta in two Ninth Circuit cases stating that a bankruptcy court “retains subject matter jurisdiction to interpret orders entered prior to dismissal of the underlying bankruptcy case.” In re Taylor, 884 F.2d 478, 481 (9th Cir. 1989) (citing In re Franklin, 802 F.2d 324, 32627 (9th Cir. 1986)). We need not decide the efficacy of these statements in light of the subsequent decision in Kokkonen. Suffice it to say that neither Franklin nor Taylor supports bankruptcy court jurisdiction over this proceeding. In Franklin, the court found that the bankruptcy court had “arising under” jurisdiction under 28 U.S.C.§ 1334(b) of a declaratory judgment action to determine the validity of a prior stay order issued by another bankruptcy judge. 802 F.2d at 326. In Taylor, the court held that the bankruptcy court lacked jurisdiction to grant relief from a stay order entered in a prior bankruptcy case that had been dismissed. 884 F.3d at 481. We find these cases not remotely apposite to the matter before us.

     8 ABR 217  So far as the application of the Kokkonen principle is concerned, we find no relevant difference between a proceeding to enforce a settlement agreement and one to interpret it.

[5] We have considered the other arguments advanced by the State and find them without merit. We conclude that because this proceeding between Sea Hawk and the State is not one to “vindicate the [court’s] authority” or to “effectuate its decree,” Kokkonen, 511 U.S. at 380, the bankruptcy court lacked jurisdiction.

CONCLUSION

For the reasons stated, the order of the district court is REVERSED.

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N O T E S:

 1.  The bankruptcy court itself noted, in an order ending the accrual of the Trustee’s fees, that this dispute does “not appear to affect the bankruptcy estate or the debtor.”