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noting that remand was appropriate in part because "this is a case where the parties are entitled to a jury trial"
Summary of this case from Levin v. Johnson & JohnsonOpinion
Case No. EDCV 02-1387-VAP (SGLx)
March 21, 2003
Plaintiff's Motion to Remand and Defendants' Motion to Transfer Venue came before the Court for hearing on March 17, 2003 After reviewing and considering all papers filed in support of, and in opposition to, the Motion, as well as the arguments advanced by counsel at the hearing, the Court GRANTS the Motion to Remand and DENIES the Motion to Transfer Venue
I. BACKGROUND
A. Plaintiff's Allegations
Defendant Century TCI California ("Franchisee") entered into a franchise agreement with the City of Moreno Valley ("Plaintiff") to provide cable television services to citizens of Moreno Valley on December 18, 2001 (Motion to Remand ("Mot.") at 4) Pursuant to Section 5 20 030(J) of the Municipal Code, the franchise cannot be transferred or assigned without prior consent of the City Council. (Mot. at 4-5) The Municipal Code is made part of the franchise agreement by reference. (Id. at 4.)
On December 19, 2001, Defendants and other entities entered into a merger agreement that provided for Century-TCI to transfer the franchise to ATT Comcast Corporation (Mot. at 5.) On June 12, 2002, Franchisee filed an application with Defendant for consent to transfer control of the franchise. (Id) While the application was pending, Century-TCI and many of its affiliates filed a bankruptcy petition in the Southern Distract of New York (Id) After a hearing, the request was denied on September 24, 2002. (Id) On November 18, 2002, Defendants nonetheless completed and closed the transfer despite Plaintiff's denial of the application (Mot. at 6)
B. Procedural History
Plaintiff filed a Complaint in Riverside County Superior Court on November 22, 2002. Defendants removed the action to this Court on December 23, 2002. Plaintiff filed a Motion to Remand on January 21, 2003. Defendant Century-TCI ("Century-TCI") filed Opposition ("Opp'n") on February 19, 2003. The remaining Defendants filed a Notice of Joinder on the same day Plaintiff filed a Reply ("Reply") on March 6, 2003
Century-TCI filed a Motion to Transfer Venue ("TCI's Mot.") on January 21, 2002 The remaining Defendants joined Century-TCI's Motion to Transfer Venue. Plaintiff filed Opposition ("Pl.'s Opp'n") on February 18, 2003 Century-TCI filed a Reply ("TCI's Reply") on March 6, 2003.
II. LEGAL STANDARD
A. Remand
Removal jurisdiction is governed by statute See 28 U S.C § 1441, et seq. The Ninth Circuit applies a strong presumption against removal jurisdiction, ensuring "the defendant always has the burden of establishing that removal is proper" Gaus v Miles, Inc, 980 F.2d 564, 566 (9th Cir 1992) (citing Nishimoto v. Federman-Bachrach Assocs., 903 F.2d 709, 712 n 3 (9th Cir 1990)). See also In re Ford Motor Co./Citibank (South Dakota), N.A., 264 F.3d 952, 957 (9th Cir 2001) ("The party asserting federal jurisdiction bears the burden of proving the case is properly in federal court "); McNutt v. General Motors Acceptance Corp, 298 U.S 178, 189 (1936). Removal is inappropriate when the district court would not have original jurisdiction over the case See 28 U.S.C. § 1441(a). A case shall be remanded when the court lacks subject matter jurisdiction See 28 U.S C § 1447(c).
B. Venue Transfer
"A district court may transfer a case or proceeding under title 11 to a district court for another district, in the interest of justice or for the convenience of the parties" 28 U S.C § 1412.
III. DISCUSSION
Plaintiff argues that this case should be remanded because (1) the discretionary remand factors under 28 U.S C. § 1452(b) dictate remand; and (2) 28 U.S C. § 1452(a) explicitly provides that civil actions by governmental units to enforce police or regulatory powers are not subject to removal (Mot. at 3-4.) Defendants contend that the state court action does not constitute a governmental unit's action to enforce its police or regulatory power and that equitable grounds do not "militate in favor of remand." (Opp'n at 1)
A. Discretionary Remand
Plaintiff argues that the Court should remand this action to state court on equitable grounds. (Mot. at 8) According to 28 U S.C § 1452(b).
The court to which such claim or cause of action is removed may remand such claim or cause of action on any equitable ground. An order entered under this subsection remanding a claim or cause of action, or a decision to not remand, is not reviewable by appeal or otherwise by the court of appeals
The "`equitable ground' standard is `an unusually broad grant of authority' which `subsumes and reaches beyond all of the reasons for remand under nonbankruptcy removal statutes'" Christie v Chong, 2002 WL 598428, *4 (N.D Cal., April 10, 2002) (quoting McCarthy v Prince, 230 B.R. 414, 419 (9th Cir. 1999))
Courts consider various factors in deciding whether to exercise their discretion to remand Some grounds used to order remand include: (1) forum non conveniens, (2) the extent to which state law issues predominate over bankruptcy issues; (3) expertise of the court in which the matter was pending originally; (4) effect of the action on the administration of the bankruptcy court, (5) the relatedness or remoteness of the action to the bankruptcy case, (6) existence of a right to jury trial and (7) prejudice to the party involuntarily removed from state court See Christie, 2002 WL at *4; 1 COLLIER ON BANKRUPTCY § 3.07[5] (15th ed. 2002).
Although the state action may have an effect on the bankruptcy estate, considerations of equity support remand to the state court First, the action is not a core proceeding Section 18 U.S.C § 157(b) defines core proceedings as ones "arising under title 11, or arising in a case under title 11." Core proceedings are those that (1) involve a cause of action created or determined by a statutory provision of title 11; or (2) are not based on any right expressly created by title 11, but nevertheless, would have no existence outside of the bankruptcy. Eastport Associates v. City of Los Angeles, 935 F.2d 1071, 1076 (9th Cir 1991) (citing In re Wood, 825 F.2d 90, 96-97 (5th Cir 1987)) "If the proceeding does not invoke a substantive right created by the federal bankruptcy law and is one that could exist outside of bankruptcy it is not a core proceeding, it may be related to the bankruptcy because of its potential effect, but . . . it is an `otherwise related' or non-core proceeding"Id The state action in this case is merely "related to" the bankruptcy case, but is not a core proceeding See In re Castlerock Properties, 781 F.2d 159, 162 (9th Cir 1986) (state law contract claims that do not specifically fall within categories of core proceedings are related proceedings under § 157(c)).
Since the action is not a core proceeding, the bankruptcy judge will be required to submit proposed findings of fact and conclusions of law to a district court for de novo review Castlerock, 781 F.2d at 161 In other words, the case ultimately would have to be determined outside of the bankruptcy court, and thus judicial economy favors remand
Furthermore, this is a case where the parties are entitled to a jury trial. In addition, the case is based entirely on state law Resolution of the case involves review of local government entities and local ordinances The plaintiff in the state court action is a local entity who will be greatly prejudiced if this case is transferred to New York. The only reason this case would be in federal or bankruptcy court is because one of the parties filed for bankruptcy. The facts and the circumstances of the dispute are entirely local. Applying the factors discussed above, along with those advanced by the parties, the Court concludes that equitable remand is appropriate
B. Police or Regulatory Powers
Defendants argue that the underlying action in this proceeding does not constitute an exception pursuant to § 1452(a) According to 28 U.S.C. § 1452(a)
A party may remove any claim or cause of action in a civil action other than . . . a civil action by a governmental unit to enforce such governmental unit's police or regulatory power, to the district court for the district where such civil action is pending, if such district court has jurisdiction of such claim or cause of action under section 1334 of this title
"A police or regulatory action arises when a governmental body enforces a statute, law or regulation which is effective whether or not a bankruptcy exists and which is not preempted by bankruptcy law." Pacific Gas Electric Company v. PGE, 281 B.R. 1, 10 (2002). Section 1452(a) "`expressly provides' that state police power actions related to a bankruptcy case are not removable." Id. at 11.
Plaintiff is a "governmental unit." The dispute here is whether its action is based on an effort to enforce its regulatory or police power Defendants concede that the Ninth Circuit has held that "a municipality exercising its discretion concerning a cable franchise acts legislatively and that, under California law, legislative acts are within the county's `regulatory or police power' and are entitled to judicial deference" (Opp'n at 16.) See, Charter Communications, Inc. v County of Santa Cruz, 304 F.3d 927, 932-33 (9th Cir. 2002) (if renewals are legislative, transfer of ownership should be viewed as legislative action); ATT Corporation v City of Portland, 216 F.3d 871, 875 (9th Cir 2000) ("last regulatory hurdle that AT T and TCI faced was the approval of local franchising authorities where required by local franchising agreement")
This, however, does not resolve whether the underlying action at issue here was an exercise of such regulatory power. The Ninth Circuit has not construed the phrase "police or regulatory power" in the context of Section 1452(a), but it has considered its meaning in a similar exception to the automatic stay pursuant to 11 U S C. § 362(b)(4)
In the most recent case, however, the Bankruptcy Court expressly rejected the use of caselaw related to § 352(b)(4) to interpret § 1452 People v. Pac. Gas Elec Co, 281 B R. 1, 11 (N.D Cal 2002) (nothing suggests that automatic stay considerations should inform the court's decision under Section 1452). Even the court in Lazar, which Defendants propose this Court should follow, noted with caution the perils of relying on different provisions using the same language from different subsections. Lazar, 200 B.R. at 368 (citing Dewsnup v. Timm, 502 U.S. 410, 417-20). It recognized that the interpretation of § 352 "does not necessarily apply to § 1452" and that the "contexts are quite different, and may call for different interpretations of the two statutory provisions" Id. at 369.
According to Pac Gas Elec Co., "Section 1452(a) `otherwise expressly provide[s]' that state police power actions related to a bankruptcy case are not removable. 281 B.R. at 11. The Court finds this reasoning more persuasive and finds that "Section 362(b)(4) is inapplicable to the issues before" us now. Id.
According to Plaintiff, the relief sought "focuses on matters such as restricting staffing and debt levels" (Reply at 8.) It also seeks to have all of the revenues from Debtor Century-TCI's operation of the cable system deposited into a trust fund at the direction of the Superior Court. (Complaint, ¶ 4.) Further, it seeks to enjoin Century-TCI from making a variety of operational changes which would dramatically affect control of its day-to-day operations. Plaintiff has no pecuniary interest in the outcome of the case. Accordingly, it is an action to enforce "police or regulatory powers" and was improperly removed pursuant to Section 1452(a).
If the Court incorporated interpretations of § 362(b)(4), as suggested by Defendants and outlined in Lazar, removal would be improper. The Lazar Court held that although police and regulatory powers of government are generally construed broadly, where they conflict with bankruptcy powers a more narrow construction is appropriate In re Lazar, 200 B.R. 358 (C D Cal 1996), rev'd on other grounds, 237 F.2d 967 (9th Cir 2001). This is necessary to "permit the effectuation of the bankruptcy policy of determining all issues relating to the bankruptcy case, insofar as the Constitution permits, in a single forum" Id. at 370 As a result, these courts have looked to the caselaw interpreting § 362(b)(4) in analyzing Section 1452(a) See In re Lazar, 200 B.R. at 367-70
According to this standard, the Ninth Circuit holds that the "terms `police or regulatory power' as used in [subsection (b)(4)] refer to the enforcement of state laws affecting health, morals, and safety but not regulatory laws that directly conflict with the control of the res or property by the bankruptcy court." Lazar, 200 B R. at 369 (quoting Hillis Motors, Inc v Hawaii Auto Dealers' Ass'n, 997 F.2d 581, 591 (9th Cir 1993))
The First and Sixth Circuits hold that the exception applies where the "government is seeking through its action to protect public health, safety, and welfare, and not seeking to protect a pecuniary interest," whereas the Eighth Circuit applies the exception whenever the state will not obtain a pecuniary advantage. Lazar, 200 B.R. at 368-69 (citations omitted).
Plaintiff argues that its action "is specifically designed to protect the public's interest in the stability, cost, range, and quality of cable services provided in Moreno Valley, not the City's pecuniary interest" (Reply at 1) Plaintiff further contends that the relief sought will not result in any pecuniary advantage to the City. (Reply at 8) Moreover, any judgment of damages would not be collected without bankruptcy court approval. (Reply at 2, n. 1.) As a result, Plaintiff's state court action qualifies as a governmental unit's exercise of police or regulatory power
C. Transfer
Defendants request that this case be transferred to the Southern District of New York "in the interest of judicial economy and to promote the centralized administration of the Debtor's estate." (TCI's Mot at 1) Defendants bring this motion pursuant to 28 U S.C. § 1412 which provides that "[a] district court may transfer a case or proceeding under title 11 to a district court for another district, in the interest of justice or for the convenience of the parties" In light of the Court's decision to remand the case to state court, the Motion to Transfer is MOOT
IV. CONCLUSION
For the aforementioned reasons, Plaintiff's Motion to Remand is GRANTED and Defendants' Motion to Transfer Venue is MOOT