Opinion
Civil Action No. 03-3533 Section: I/3.
June 17, 2004
ORDER AND REASONS
Before the Court is the motion of Donna Swisshelm Verges ("Donna") to remand this action, filed as a reconventional demand in state court, which was removed by Wade T. Verges ("Wade").
Rec. Doc. No. 6.
Facts and Procedural History
Donna and Wade are former spouses who have been embroiled in litigation since 1994 in the 22nd Judicial District Court for the Parish of St. Tammany relating to the validity of a prenuptial agreement and community property and child support issues. Donna alleges that in the course of the litigation, Wade fraudulently misrepresented his gross income and his assets. She alleges that he intentionally titled certain properties, in which he owned a 50% interest, in the name of his business partner in order to minimize his child support and community property obligations.On January 29, 1999, Donna filed a reconventional demand in the state court litigation against Wade, Dr. Paul Lea ("Lea"), Wade's business partner, Brenda Kraft Verges ("Brenda"), Wade's wife, 2801 Lakeshore, LLC ("2801 Lakeshore"), a limited liability company, and Grace Tama Development Company ("Grace Tama"), a corporation. Donna alleges that defendants Wade, Lea, Brenda, 2801 Lakeshore, and Grace Tama conspired to conceal assets and to mislead the court with respect to Donna's claim for community property assets and child support. In the removed action, Donna seeks a determination that a purported prenuptial agreement is invalid, a partition of the community property owned by Wade and Donna, a judgment against Wade for fraudulent and negligent mismanagement of the community property estate, and a judgment against Wade, Lea, Brenda, 2801 Lakeshore, and Grace Tama for conspiring to fraudulently conceal assets and for causing her and her minor children to be evicted from Wade's and Donna's former marital domicile. Donna alleges, and Wades has not disputed, that there were discovery proceedings and motion practice in the state court action and that trial was scheduled to commence on December 17, 2003.
In the original lawsuit, Donna was the defendant in the divorce action filed by Wade. Id.
Reconventional Demand, Rec. Doc. No. 1.
Id.
Id.
Rec. Doc. No. 6, Memorandum in support of motion to remand, p. 2.
On December 17, 2003, Wade removed Donna's reconventional demand to federal court. Wade alleged that on December 16, 2003, he filed a petition for Chapter 11 bankruptcy relief in the United States Bankruptcy Court for the Eastern District of Louisiana. Stating that Donna's claim is "related to" his bankruptcy petition, Wade based removal jurisdiction on 28 U.S.C. § 1334(b). Donna has filed the instant motion to remand
Rec. Doc. No. 1.
Id.
Id.
Rec. Doc. No. 6.
Analysis
28 U.S.C. § 1334 (b) provides in pertinent part that "the district courts shall have original but not exclusive jurisdiction of all civil proceedings arising under title 11, or arising in or related to cases under title 11." A case is "related to" a bankruptcy proceeding if "the outcome of that proceeding could conceivably have any effect on the estate being administered in bankruptcy." Wood v. Wood (In re Wood), 825 F.2d 90, 93 (5th Cir. 1987), quoting Pacor, Inc. v. Higgins, 743 F.2d 984, 994 (3d Cir. 1984) (emphasis added in Wood) (other citations omitted); see also Walker v. The Cadle Co. (In Re Walker), 51 F.3d 562, 569 (5th Cir. 1995); Arnold v. Garlock, Inc., 278 F.3d 426, 434 (5th Cir. 2001). "[A]n action is related to bankruptcy if the outcome could alter the debtor's rights, liabilities, options, or freedom of action (either positively or negatively) and which in any way impacts upon the handling and administration of the bankrupt estate."FDIC v. Majestic Energy Corp. (In Re Majestic Energy Corp.), 835 F.2d 87, 90 (5th Cir. 1988), quoting Pacor, 743 F.2d at 994; see also, Walker, 51 F.3d at 569.Because the outcome of Donna's lawsuit against Wade could alter his rights and liabilities and conceivably impact the handling and administration of Wade's bankrupt estate, the instant action against Wade is "related to" a bankruptcy proceeding. This Court has subject matter jurisdiction of the removed action against Wade pursuant to 28 U.S.C. § 1334(b).
With respect to the non-debtor defendants, Lea, Brenda, 2801 Lakeshore, and Grace Tama, the existence of "related to" jurisdiction is more difficult to discern. It is unnecessary at this juncture to determine whether "related to" exists as to the non-debtor defendants. The Court will assume that there is "related to" jurisdiction over claims against the non-debtor defendants solely for the purpose of deciding whether mandatory abstention is applicable.
In the absence of "related to" jurisdiction, this action as to the non-debtor defendants would be remanded for lack of subject matter jurisdiction.
The doctrine of mandatory abstention is contained in 28 U.S.C. § 1334(c)(2). 28 U.S.C. § 1334(c)(2) provides:
Upon timely motion of a party in a proceeding based upon a State law claim or State Law cause of action, related to a case under title 11 but not arising under title 11 or arising in a case under title 11, with respect to which an action could not have been commenced in a court of the United States absent jurisdiction under this section, the district court shall abstain from hearing such proceeding if an action is commenced, and can be timely adjudicated, in a State forum of appropriate jurisdiction.
The following criteria must be satisfied to be entitled to mandatory abstention pursuant to 28 U.S.C. § 1334(c)(2):
(1) plaintiffs must `timely' have brought their motions for abstention; (2) the action must be based on a state law claim; (3) the action must be `related to' a bankruptcy proceeding, as opposed to `arising under' the Bankruptcy Code; (4) the sole federal jurisdictional basis for the action must be § 1334; (5) there must an action `commenced in state court; and (6) the action must be capable of being `timely adjudicated' in the state court.Technology Outsource Solutions, LLC v. ENI Technology, Inc., 2003 WL 252141 at * 4 (W.D.N.Y. 2003), citing Channel Bell Associates v. W.R. Grace Co., 1992 WL 232085 at *5 (S.D.N.Y. 1992); see also O'Rourke v. Cairns, 129 B.R. 87, 90 (E.D. La. 1991).
"Section 1334(c)(2) does not provide any guidance on what constitutes a `timely' motion for mandatory abstention. Courts have generally adopted a flexible, case-specific approach in determining whether a motion for mandatory abstention is `timely.'" Channel Bell, 1992 WL 232085 at *5. Neither the Federal Rules of Bankruptcy Procedure nor the local bankruptcy rules provide a specific time period within which an application for mandatory abstention pursuant to § 1334(c)(2) must be made. The statute and applicable rules provide no direction with respect to such time period and some courts have held that "a party acts in a timely fashion when he or she moves as soon as possible after he or she should have learned the grounds for such a motion." Personette v. Kennedy (In Re Midgard Corporation), 204 B.R. 764, 776 (10th Cir. BAP 1997), quoting Novak v. Lorenz (In re Novak), 116 B.R. 626, 628 (N.D. Ill. 1990). Brenda's motion to remand, requesting mandatory abstention pursuant to § 1334(c)(2), was filed within 30 days of removal. The Court finds that her request for mandatory abstention is timely.
See cases cited by Channel Bell, 1992 Wl 232085 at *5; In re Marshland Development, Inc., 129 B.R. 626, 632 n. 15 (Bankr. N.D. Cal. 1991) ("A motion for abstention should be made early in the case, so as to prevent the waste of judicial resources."); In re Ascher, 128 B.R. 639, 644 n. 5 (Bankr. N.D. Ill. 1991) ("a party acts in a timely fashion `when he or she moves as soon as possible after he or she should have learned the grounds for such a motion.'" (quoting In re Novak, 116 B.R. 626, 628 (N.D. Ill. 1990)); In re Chiodo, 88 B.R. 780, app. at 785 (W.D. Tex. 1988) ("the timeliness of the motion must be determined under the individual facts of each case").
Rule 5011(b) of the Federal Rules of Bankruptcy Procedure provides that "[a] motion for abstention pursuant to 28 U.S.C. § 1334(c) shall be governed by Rule 9014 and shall be served on the parties to the proceeding." F.R.Bankr.P. 9014 provides in pertinent part that "[i]n a contested matter in a case under the Code not otherwise governed by these rules, relief shall be requested by motion, and reasonable notice and opportunity for hearing shall be afforded the party against whom relief is sought. No response is required under this rule unless the court orders an answer to a motion."
The notice of removal was filed on December 17, 2003. Rec. Doc. No. 1. The motion to remand was filed on January 8, 2004. Rec. Doc. No. 6. Pursuant to 28 U.S.C. § 1447(c), motions to remand based upon any defect other than lack of subject matter jurisdiction are timely if they are filed within 30 days after the filing of a notice of removal under § 1446(a).
It is undisputed that all of the claims in the reconventional demand are based in state law. It is likewise undisputed that the only basis for subject matter jurisdiction of this action is "related to" bankruptcy jurisdiction pursuant to § 1334(b). Absent "related to" jurisdiction, there is no other basis for this Court's exercise of subject matter jurisdiction of this action. This action was filed in state court and removed which satisfies the requirement that there be an action "commenced" in state court. Finally, in light of the fact that the action was set for trial on the date that it was removed, the Court finds that the state court can effect a timely resolution of this action. Having met all of the requirements of § 1334(c)(2), the Court finds that mandatory abstention is warranted.
Relying on KJS Development Company of Louisiana v. Lambert, 223 B.R. 677 (E.D. La. 1998), Wade argues that mandatory abstention is inapplicable in a removed action. The district court in KJS found that "[a]s a doctrine, abstention under § 1334(c), be it mandatory or discretionary, has no application in the context of a removed action." 223 B.R. at 679, quoting In re Branded Prods., Inc., 154 B.R. 936, 939 (Bankr. W.D. Tex. 1993). The Fifth Circuit rejected this argument in Southmark Corp. v. Coopers Lybrand (In Re Southmark Corp.), 163 F.3d 925, 929 (5th Cir. 1999), holding:
[W]e note, only to reject out of hand, Coopers' assertion that statutory abstention does not apply to cases removed to federal court on the basis of bankruptcy jurisdiction. 28 U.S.C. § 1452. There is no textual support in the statute for this position, only a handful of bankruptcy court opinions support it, and the vast majority of the courts hold otherwise. We endorse the majority rule.
28 U.S.C. § 1452 provides in pertinent part:
(a) A party may remove any claim or cause of action in a civil action . . . 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.
(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. Any order entered under this subsection is not reviewable on appeal or otherwise by the court of appeals under section 158(d), 1291, or 1292 of this title or by the Supreme Court of the United States under section 1254 of this title.
See cases cited in Southmark following majority rule.In re United States Brass Corp., 173 B.R. 1000, 1004 (Bankr. E.D. Tex. 1994) ("[I]t is the majority opinion that abstention does apply to [removed] cases . . ."); Robinson v. Michigan Consol. Gas Co., Inc., 918 F.2d 579, 584 n. 3 (6th Cir. 1990); Williams v. Shell Oil Co., 169 B.R. 684, 690 (S.D. Cal. 1994).
The next inquiry is whether an action may be remanded when mandatory abstention is required pursuant to § 1334(c)(2). In In Re Midgard Corp., the Tenth Circuit Bankruptcy Appellate Panel held that "[i]f abstention is required under section 1334(c)(2), a court may remand the proceeding to state court under 28 U.S.C. § 1452(b), which allows a court to remand a `claim or cause of action on any equitable ground.'" 204 B.R. at 775, citing Murray v. On-Line Business Systems, Inc. (In Re Revco D.S., Inc.), 99 B.R. 768, 776 (N.D. Ohio 1989). Other courts have agreed that remand is appropriate in a removed action when abstention pursuant to § 1334(c)(2) is mandated. The Court finds, therefore, that because mandatory abstention is required, this action must be remanded to state court.
See, e.g., WRT Creditors Liquidation Trust v. C.I.B.C. Oppenheimer Corp., 75 F. Supp.2d 596, 613 (S.D. Tex. 1999) ("[M]andatory abstention, if met, requires a district court to remand the case to state court, regardless of whether it would be more efficient to transfer the case to another forum. A district court does not have discretion to retain jurisdiction if the requirements of 28 U.S.C. § 1334(c)(2) are met."); J.T. Thorpe Co. v. American Motorists, 2003 WL 23323005 at * 5 (S.D. Tex. 2003) ("As the term `abstain is not defined in § 1334, the Court finds that dismissal [when mandatory abstention is applicable] would be absurd and remand would be consistent with the legislative purpose of § 1334 where the only state court action has been removed and is the action pending before the federal district court."); Wheeling-Pittsburgh Corp. v. American Ins. Co., 267 B.R. 535, 541 (N.D.W.Va. 2001) ("This Court finds, as other courts have, that when abstention is required [pursuant to 28 U.S.C. § 1334 (c)(2)], as it is in this case, a court may remand the case to state court.").
Conclusion
Accordingly, for the above and foregoing reasons,
IT IS ORDERED that the motion of Donna S. Verges to remand this action is hereby GRANTED. This action is hereby REMANDED to the 22nd Judicial District Court for the State of Louisiana.