Opinion
Civil Action No: 04-1545, Section: "R" (4).
September 21, 2004
ORDER AND REASONS
SCH Management Solutions, Inc. d/b/a CHRISTUS Medical Group, CHRISTUS Health, Lee Shafer, Robert L. Goldstein, John Gillean, David Brooks and Jeff Puckett appeal the order of the United States Bankruptcy Court remanding this proceeding to the Nineteenth Judicial District Court in Baton Rouge, Louisiana. For the following reasons, the Court AFFIRMS the Bankruptcy Court's ruling.
I. BACKGROUND
In February 1999, the Brown-McHardy Clinic, a fifty-year old medical group in the New Orleans area, merged with several other medical practice groups to form Summit Health, L.L.C. Summit has two classes of members: Class A, which consists of physicians, including appellees, and Class B, which consists of appellant SCH Management Solutions, Inc. d/b/a CHRISTUS Medical Group. The physicians made capital contributions to Summit in exchange for their Class A memberships.
In early 2001, Summit faced serious financial difficulties and it obtained a $1.3 million loan from CHRISTUS. The loan was secured by Summit's assets, including its accounts receivable. In April 2002, Summit filed for relief under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the Eastern District of Louisiana. Summit continued to operate as a debtor-in-possession under the Bankruptcy Code. The CHRISTUS loan remained unpaid when Summit filed for bankruptcy relief.
At the inception of the bankruptcy, the Bankruptcy Court permitted Summit to use the cash collateral that secured the CHRISTUS loan for operating purposes. CHRISTUS then moved the Bankruptcy Court to permit Summit to pay CHRISTUS that portion of the cash collateral securing CHRISTUS's loan that exceeded the amount necessary for Summit to continue operating. The Court granted the motion over appellees' objection.
In May 2002, appellees sued appellants CHRISTUS and the individual directors and officers of Summit in the 19th Judicial Court for the Parish of East Baton Rouge. Summit was not made a defendant in the action. In Counts I and II of their petition, appellees allege violations of the Louisiana Blue Sky Law, LA.REV.STAT. ANN. § 51:701, et seq., for the sale of unregistered securities, and for misrepresentation in the sale of securities. Appellees also sue appellants for breach of fiduciary duty. Appellees base appellants' liability, in part, on control person liability, alleging that at all pertinent times appellants "had possession, directly and indirectly, of the power 'to direct or cause the direction of the management and policies of Summit.'" ( See Pl.s' State Ct. Petition, R. D at 1, ¶¶ 40-47).
In July 2002, CHRISTUS removed the action to the Middle District of Louisiana, asserting subject matter jurisdiction under 28 U.S.C. § 1334(b). CHRISTUS argued that appellees' suit was related to the Summit bankruptcy action already pending in the Eastern District. In August 2002, CHRISTUS also filed in the bankruptcy court proofs of claim against Summit on behalf of appellees asserting Summit's liability on the causes of action that appellees included in Counts I and II of their state court petition. CHRISTUS also filed its own claim for contribution against Summit in connection with the claims appellees asserted in state court. Appellees filed a motion to remand Also in July, CHRISTUS filed a motion to transfer venue to the Eastern District of Louisiana. In April 2003, the Middle District denied appellees' motion to remand and granted CHRISTUS's motion to transfer venue.
In October 2003, this Court referred the matter to the Bankruptcy Court. Also in October 2003, the Bankruptcy Court confirmed Summit's plan of reorganization. In the confirmation plan, the Bankruptcy Court expressly disallowed appellees' claims against Summit and CHRISTUS's indemnity claims against Summit. ( See R. A at 378, ¶¶ 7, 8). The plan did not contain a provision that discharged CHRISTUS's liability to appellees in the securities action, nor did it deal in any way with appellees' claims against CHRISTUS. Appellees did not object to Summit's plan, nor did they appear at the confirmation hearing. Instead, in November, appellees filed a motion to withdraw the reference with this Court. They argued, among other things, that with the confirmation of the plan, jurisdiction in the bankruptcy court no longer exists, and they asked this Court to remand the state law claims.
The Court denied appellees' motion to withdraw the reference, finding that the bankruptcy court was in a better position to determine whether post-confirmation jurisdiction existed over appellees' state law claims against CHRISTUS. The Court suggested that appellees file a motion to dismiss for lack of subject matter jurisdiction with the Bankruptcy Court.
Appellees instead filed a motion to remand The Bankruptcy entered an order granting the motion to remand on May 7, 2004 but provided no written reasons for the order. At the hearing on the motion, the Court appeared to rely on federal-state comity concerns and the ability of state courts to adjudicate appellees' state law claims. CHRISTUS appealed the remand order to this Court. CHRISTUS argues that the Bankruptcy Court erred in granting the motion to remand because bankruptcy subject matter jurisdiction still exists, and that the Bankruptcy Court lacks the power to remand to a state court located in a different judicial district.
II. Standard of Review
Although the Bankruptcy Court did not specify which statute it relied on to remand the proceeding, during oral argument the Court referred to comity and the predominance of state law issues, which indicates that it relied on the equitable remand provision contained in 28 U.S.C. § 1452(b). This Court reviews the Bankruptcy Court's decision to remand under section 1452(b) for abuse of discretion. McCarthy v. Prince, 230 B.R. 414, 416 (B.A.P. 9th Cir. 1999) ("Decisions to remand under 28 U.S.C. § 1452(b) are committed to the sound discretion of the bankruptcy judge and are reviewed for abuse of discretion."); see also In re Merry-Go-Round Enters., Inc., 222 B.R. 254, 256 (Bankr. D. Md. 1998) (stating that "a bankruptcy judge's decision to remand, like other discretionary decisions, is reviewable only for abuse of discretion"); cf. Gober v. Terra+ Corp., 100 F.3d 1195, 1207 (5th Cir. 1996) (applying abuse of discretion standard to review a bankruptcy court's analogous decision to abstain from hearing a state law claim).
III. Discussion
A. Remand
A court "to which a claim or cause of action is removed" may remand "on any equitable ground" under 28 U.S.C. § 1452(b). The concerns about comity and the predominance of state law issues that Judge Brown expressed during oral argument suggest that he relied on section 1452(b) to remand this proceeding. When deciding to remand, courts often rely on section 1452(b) in conjunction with the permissive abstention principle of section 1334(c)(1), which Judge Brown also mentioned at the hearing. O'Rourke v. Cairns, 129 B.R. 87, 90 (E.D. La. 1991); In re Chiodo, 88 B.R. 780, 785 (W.D. Tex. 1988) (finding that "abstention and remand of bankruptcy related cases go hand-in-hand"). That section allows a court to abstain from hearing a proceeding related to a case under Title 11 "in the interest of justice, or in the interest of comity with State courts or respect for State law." 28 U.S.C. § 1334(c)(1). Together, sections 1452(b) and 1334(c)(1) "strongly evince a congressional policy that, absent countervailing circumstance, the trial of state law created issues and rights should be allowed to proceed in state court, at least where there is no basis for federal jurisdiction independent of § 1334 and the litigation can be timely completed in state court." J.T. Thorpe Co., No.CIV.A. H-02-4598, 2004 WL 23323005, at *6 (S.D. Tex. June 9, 2003). Thus, the Court will consider whether Judge Brown abused his discretion when he remanded the case based on equitable factors.
The factors that the Court considers in order to decide whether equitable remand is appropriate include: (1) forum non conveniens; (2) a preference for a bifurcated action to be tried in the same court; (3) whether the state court is better able to respond to questions involving state law; (4) expertise of the court; (5) duplicative and uneconomic effort of judicial resources; (6) prejudice to the involuntarily removed parties; (7) comity; and (8) a lessened possibility of an inconsistent result. Browning v. Navarro, 743 F.2d 1069, 1076 n. 21 (5th Cir. 1984); see also J.T. Thorpe Co., 2004 WL 23323005, at *6 (adding factors, such as the likelihood that the commencement of the proceeding in bankruptcy court involves forum shopping by one of the parties, the existence of a right to a jury trial, the burden on the bankruptcy court's docket, and the presence in the proceeding of nondebtor parties). The considerations that inform a decision whether to abstain under 1334(c)(1) and (2) include: (1) the existence of two closely related proceedings based upon state law or a state law cause of action; (2) the absence of any basis for jurisdiction other than section 1334; (3) the likelihood of timely adjudication in state court; (4) the predominance of state law issues; and (5) the degree of relatedness of the proceeding to the bankruptcy case. In re Coho Energy, Inc., 309 B.R. 217, 221-22 (Bankr. N.D. Tex. 2004); see also In re Fairchild Aircraft Corp., No. 90-5131C, 1990 WL 119650 at *3 (Bankr. W.D. Tex. June 18, 1990).
In Browning, the Fifth Circuit was interpreting 28 U.S.C. § 1478(b), which was reenacted and slightly amended as section 1452(b).
The Court recognizes that no timely motion for mandatory abstention under section 1331(c)(2) was made in this case. Nevertheless, the Bankruptcy Court and this Court may consider circumstances that usually dictate mandatory abstention, as well as those that weigh in favor of discretionary abstention, in deciding whether to remand on equitable grounds under section 1452(b). See J.T. Thorpe Co., 2004 WL 23323005, at *6.
In this case, the Court has no difficulty finding that remand was appropriate under section 1452(b). The Fifth Circuit has held that a bankruptcy judge did not abuse his discretion when he stated at a hearing that he would abstain from ruling on claims that hinged solely on questions of state law and invoked no substantive right created by federal bankruptcy law, when there was no basis for jurisdiction other than section 1334. Gober, 100 F.3d at 1207. Similarly, in this case, issues of Louisiana corporate and securities law "do not merely predominate, they overwhelm." In re Coho Energy, Inc., 309 B.R. at 222. Appellees' state law claims, had there been no bankruptcy, could have proceeded only in state court. There is no basis for federal jurisdiction other than section 1334. In addition, the state court is more familiar than this Court is with the state law issues presented, and, therefore, is in a better position to assure that the legal issues are resolved consistently with other state court decisions. See O'Rourke, 129 B.R. at 91. Moreover, there is no indication that the state court cannot resolve these claims on a timely basis.
The Court also notes that Summit's bankruptcy proceeding is over for all practical purposes since its plan of reorganization has been confirmed. The related claims against Summit have been rejected. This matter therefore does not affect the bankruptcy estate and there is no federal bankruptcy interest in burdening the bankruptcy court's docket with these state law claims. Appellees request for a jury trial in their state court petition also weighs in favor of remand, as bankruptcy courts in this district are not authorized to conduct jury trials. Travelers Indem. Co. v. Babcock and Wilcox Co., No. Civ.A.01-3387, 2002 WL 100625, at *4 (E.D. La. Jan. 23, 2002). The jury demand here is therefore an equitable consideration in favor of remand Finally, the action involves nondebtor parties. Thus, the Court finds that remand under section 1452(b) was not an abuse of discretion.
Moreover, even though section 1452(b) does not explicitly allow remand by a bankruptcy court, the Court finds that the bankruptcy court has the power to remand under section 1452(b). Section 151 of Title 28 explicitly states that "[e]ach bankruptcy judge, as a judicial officer of the district court, may exercise the authority conferred under this chapter with respect to any action, suit, or proceeding." 28 U.S.C. § 151. Bankruptcy judges are judicial officers of the district court, and bankruptcy courts are units of the district court, with the same powers to remand under section 1452(b) that district courts have. See Coward v. AC and S, Inc., 91 Fed. Appx. 919, 922 (5th Cir. 2004) (stating that 1452(b) grants a district court or a bankruptcy court the discretion to remand on equitable grounds); Brizzolara v. Fisher Pen Co., 158 B.R. 761, 767 (Bankr. N.D. Ill. 1993). Thus, the Court finds that the Bankruptcy Court has the power to equitably remand this proceeding under section 1452(b).
B. Remand Across District Lines
The parties also dispute the proper procedure to be followed to remand a case that has been removed from state court to federal district court, and then transferred to a different federal district court. CHRISTUS contends that the bankruptcy judge may not remand a case that has been transferred to it after removal, but instead must transfer it first to the original district court, which may then remand to state court.
Two statutes govern remands of cases removed to federal court based on section 1334 bankruptcy jurisdiction. A court "shall" remand under the general remand provision, 28 U.S.C. § 1447(c), if removal was improvident or the court lacks subject matter jurisdiction. See Thermtron Prods. v. Hermansdorfer, 423 U.S. 336, 351-52 (1976), overruled on other grounds by 517 U.S. 706 (1996). A court "to which a claim or cause of action is removed" may also remand "on any equitable ground" under 28 U.S.C. § 1452(b). The Supreme Court has held that these statutes coexist in the bankruptcy context, and a court that remands a case that has been removed based on jurisdiction under section 1334 must "give effect to both." Things Remembered v. Petrarca, 516 U.S. 124, 129 (1995).
Section 1447(c) and section 1452(b) are worded differently in authorizing courts to order remands. On one hand, section 1447(c) does not specify which court may remand a case for improvident removal or for lack of subject matter jurisdiction. The courts that have remanded on the basis of section 1447(c) have relied, implicitly or explicitly, on the general principle that a transferee court stands in the shoes of the transferor court, and thus the transferee court has the power to remand a case to state court in the district from which the case was transferred. See Abels v. State Farm Fire Cas. Co., 770 F.2d 26, 34 (3d Cir. 1985) (finding lack of diversity jurisdiction and remanding case to district court in Pennsylvania with instructions that it remand proceeding to state court in California, without requiring an initial retransfer to the federal district court in California); In re Federal-Mogul Global, Inc., 282 B.R. 301, 316-17 (Bankr. D. Del. 2002) (finding that "it is not clear what interest would be served by excepting the power of remand from the others conferred by the transfer," and remanding proceedings across district lines to state courts from which they were removed), aff'd, 300 F.3d 368, cert. denied, 537 U.S. 1148. The language of section 1452(b), on the other hand, provides that " [t]he court to which such claim or cause of action is removed may remand such claim or cause of action on any equitable ground." 28 U.S.C. § 1452(b) (emphasis added). CHRISTUS argues that this language bars the Bankruptcy Court from remanding this case to state court because it is not the "court to which such claim or cause of action is removed." Instead, CHRISTUS maintains that the Bankruptcy Court must transfer the matter to the Middle District of Louisiana, which would then remand to the state court. CHRISTUS argues that this cumbersome procedure preserves litigants' appeal opportunities because transfer orders are subject to review by the courts of appeals and the Supreme Court, although remands for lack of subject matter jurisdiction under section 1447(c) or on equitable grounds under section 1452(b) are not. 28 U.S.C. § 1447(d); 28 U.S.C. § 1452(b).
The Court finds that the Bankruptcy Court has the power to remand this case across district lines directly to the state court from which it was removed. CHRISTUS relies mainly on one unpublished opinion to support its position, in which the Ninth Circuit held that only the federal court to which the state action was removed has the authority to remand it to state court. In re U.S. Refining and Mktg. Co., No. 97-56804, 2000 WL 14398, at *1 (9th Cir. Jan. 7, 2000). The Court finds, however, that the weight of authority favors construing section 1452(b) to permit cross-district remand
CHRISTUS also cites a district court case that was overruled by the Third Circuit, Breed Technologies, Inc. v. Allied Signal, Inc., 128 F. Supp. 2d 743 (D. Del. 2001), overruled by 298 F.3d 263.
First, this result is consistent with the general principle accepted by several circuits that a transferee court has the same remand powers as the transferor court. Allied Signal Recovery Trust v. Allied Signal Inc., 298 F.3d 263, 271 (3d Cir. 2002) (stating that "a transferee court is deemed to inherit all the authority of a transferor court"); Chrysler Credit Corp. v. Country Chrysler, Inc., 928 F.2d 1509, 1516 (10th Cir. 1991) ("The transferee court's powers are coextensive with those of the transferor court; it may issue any order or render any judgment that could have been made in the transferor court had the transfer never taken place."); Danner v. Himmelfarb, 858 F.2d 515, 521 (9th Cir. 1988) (same); Woodcock v. United States Dep't of Educ., 301 B.R. 530, 533 (B.A.P. 8th Cir. 2003) (same); In re Upjohn Co. Antibiotic Cleocin Prods. Liab. Litig., 81 F.R.D. 482, 487 (E.D. Mich. 1979) (same), aff'd, 664 F.2d 114 (6th Cir. 1981).
Second, the Third Circuit has directly stated that a transferee court has authority under section 1452(b) to remand a case to the state court from which it was removed in the bankruptcy context. See Allied Signal Recovery Trust, 298 F.3d at 271; see also In re Federal-Mogul Global, Inc., 282 B.R. at 317 (stating that section 1452(b) does not prevent the Court from remanding to state court in another district). The Court agrees with the well-reasoned opinion of the Third Circuit that cross-district remands are efficient, conserve judicial resources, and further Congress's goal of ensuring prompt disposition of cases removed to federal court based on bankruptcy jurisdiction. See Allied Signal Recovery Trust, 298 F.3d at 269 ("Congress 'meant to enlarge, not to rein in, federal trial court removal/remand authority for claims related to bankruptcy cases.'") (citing Things Remembered, 516 U.S. at 132 (Ginsburg, J., concurring)).
Further, the Court rejects CHRISTUS's arguments that a retransfer should occur to protect its appeal rights. First, remand orders from bankruptcy judges are subject to review by the District Court under 28 U.S.C. § 158(a), so CHRISTUS is already entitled to a level of review. Second, the Court agrees with the Third Circuit that the legislative history of section 1452(b) demonstrates that "Congress was interested in 'speeding up' the effects" of a remand decision by "precluding appellate review of such orders." In re Federal-Mogul Global, Inc., 300 F.3d 368, 389 (3d Cir. 2002) (quoting 136 CONG. REC. 36,290 (1990) (statement of Sen. Grassley)). Ensuring multiple levels of appellate review of remand orders is contrary to that rationale. Thus, the Court finds that a remand by a transferee court to a state court in the district from which the case was removed is proper under section 1452(b).
For the foregoing reasons, the Court finds that the Judge Brown did not abuse his discretion when he remanded this matter to the Nineteenth Judicial District Court, Baton Rouge, Louisiana. That order is affirmed.
III. Conclusion
For the foregoing reasons, the Court AFFIRMS the order granting Appellees' Motion to Remand