Opinion
(Removed from Case No. SA-01-19244-JB, Adversary No. 02-3322 RCM, Civil Action No. 3:02-CV-0222-H)
September 9, 2002
BANKRUPTCY COURT REPORT AND RECOMMENDATION TO DISTRICT COURT IN RESPONSE TO REFERENCE FROM DISTRICT COURT
Procedural Status
On August 13, 2002, the District Court referred this matter to the Bankruptcy Court for a report and recommendation with respect to the motion of TJX Companies, Inc. ("Defendant") for reference to the Bankruptcy Court of the Northern District of Texas, and the motion of P.O'B. Apollo Tacoma, L.P. ("Plaintiff" or "Landlord") for mandatory abstention under 28 U.S.C. § 1334(c)(2) and for remand.
The numerous names involved in the historical recitation of the facts give the underlying transaction an appearance of complexity. However, boiled down to its presently existing litigants, the dispute is between a landlord (Plaintiff) suing a guarantor (Defendant) of its lease for $250,161.80, plus interest and attorney fees where the tenant, House2Home, Inc. (the "Debtor" or "H2H"), has indemnified in writing the obligations of the Defendant.
Background Facts
The background facts are substantially undisputed. In April 1987, Nomen Development, Inc. and Premier Products, Inc. entered into a lease (the "Lease") with HomeClub, Inc. for certain real property located in Tacoma, Washington. (Def.'s Br. on Mot. for Referral to Bankr. Ct. and for Ext. of Time to Resp. to Compl. ("Def.'s Mot. for Referral") at 1.) HomeClub, Inc. is the predecessor in interest to H2H. ( Id.) Plaintiff is the successor in interest to Nomen Development, Inc. and Premier Products, Inc. (Def.'s Br. on Mot. for Referral at 1.)
Defendant's predecessor in interest executed a guaranty (the "Guaranty") in connection with the Lease. (Def.'s Br. on Mot. for Referral at 2, Ex. C to Pl.'s State Ct. Compl.) On or about May 1, 1989, Defendant entered into a Distribution Agreement (the "Agreement") with a predecessor-in-interest to H2H. (Def's Br. on Mot. for Referral at 2.) As the Agreement stands now, H2H agrees to indemnify Defendant in connection with any liability arising under the Lease. ( Id.; see also Ex. 1 to Def.'s Br. on Mot. for Referral at 24-26.)
Until November 2001, H2H operated under the Lease as a home improvement superstore. (Pl.'s Mot. for Abstention at 1.) Debtor filed a Chapter 11 bankruptcy on or about November 7, 2001 in the United States Bankruptcy Court for the Central District of California, Santa Ana Division. (Def.'s Br. on Mot. for Referral at 2.) On November 7, 2001, H2H moved to reject the Lease pursuant to 11 U.S.C. § 365. (Pl.'s Mot. for Abstention at Ex. B.) The rejection of the Lease was approved on November 9, 2001. ( Id.)
On January 2, 2002, Plaintiff filed an action against Defendant in the 68th Judicial District Court of Dallas County, Texas. (Notice of Removal, Ex. C.) In the Complaint, Plaintiff alleges that Defendant, as guarantor of the Lease, is responsible for the payment of rent and the performance and observance of all obligations under the Lease. (Def.'s Br. on Mot. for Referral at 2; Notice of Removal, Ex. C.)
On February 4, 2002, Defendant removed the State Court Action to this Court claiming 1) that there was diversity between the parties in accordance with 28 U.S.C. § 1332; and 2) that the Bankruptcy Court for the Northern District of Texas had jurisdiction over the matter. On February 11, 2002, Defendant filed its Motion for Referral to the Bankruptcy Court ("Def.'s Mot.") arguing, inter alia, that the Bankruptcy Court for the Northern District of Texas, pursuant to 28 U.S.C. § 1334, possessed jurisdiction, and, accordingly, this matter should be transferred to that court. Plaintiff filed a "Response to Defendant's Motion For Referral to Bankruptcy Court and For Extension of Time to Respond to Complaint, including a motion for mandatory abstention under 28 U.S.C. § 1334(c)(2) and for remand.
There is No Diversity Jurisdiction
Defendant alternatively asserts diversity jurisdiction under 28 U.S.C. § 1332(a) because the alleged amount in controversy exceeds $75,000, exclusive of interest and costs, and allegedly is between citizens of different states.
Plaintiff does not dispute that the amount in controversy has been met.
When removing a case from state to federal court, the burden of establishing federal jurisdiction is on the party seeking removal. Frank v. Bear Stearns Co., 128 F.3d 919, 921-22 (5th Cir. 1997); see also Willy v. Coastal Corp., 855 F.2d 1160, 1164 (5th Cir. 1988), aff'd, 503 U.S. 131 (1992). Furthermore, the party seeking removal on the basis that the parties are diverse has the burden of establishing federal diversity jurisdiction. Terrell Indep. Sch. Dist. v. Benesight, Inc., No. 3:01-CV-1834-G, 2001 WL 1636418, *4-5 (N.D. Tex. Dec. 18, 2001 )(Fish, J.).
For purposes of diversity, in contrast to a corporation, an unincorporated entity is considered a citizen of every state m which its partners are citizens. Garden v. Arkoma Assocs., 494 U.S. 185, 195-96 (1990); Whalen v. Carter, 954 F.2d 1087, 1095 (5th Cir. 1992). This rule applies to both limited partnerships and limited liability companies. Premier Project Mgmt., Inc. v. Invensys Bld. Sys., Inc., No. 3:01-CV-1396-R, 2001 WL 1352653, *1 (N.D. Tex. Oct. 31, 2001)(Buchmeyer, J.) Plaintiff is a Texas limited partnership with Apollo Real Estate Investment Fund III, L.P. ("ARIEIF III"), a Delaware limited partnership, as one of its limited partners. (Pl's Reply Brief in Supp. of Mot. for Mandatory Abstention at 4; Aff. of Philip Montgomery, Ex. A to Pl.'s Reply Brief in Supp. of Mot. for Mandatory Abstention; Aff. of Ronald J. Solotruk, Ex. B. to Pl.'s Reply Brief in Supp. of Mot. for Mandatory Abstention.) The general partner of AREIF III is Apollo Real Estate Advisors III, L.P. ("AREA III"), also a Delaware limited partnership. (Aff. of Ronald J. Solotruk, Ex. B. to Pl.'s Reply Brief in Supp. of Mot. for Mandatory Abstention.) The general partner of AREA III is Apollo Real Estate Capital Advisors III, Inc., a Delaware corporation. ( Id.)
Defendant is a Delaware corporation. (Notice of Removal at 3.)
In Premier Project Management, Judge Buchmeyer examined the citizenship of the partners of the plaintiff, a limited partnership. Premier Project Management, 2001 WL 1352653 at *1. The sole general partner of the limited partnership was a limited liability company, and thus, the court determined the citizenship of the limited liability company through its members. Id. One of the members was a Delaware corporation. Id. Because the limited liability company was thus considered a citizen of Delaware, the general partner of the plaintiff was a citizen of Delaware, and therefore, the plaintiff was considered a citizen of Delaware. Id. at *2.
As shown by Garden v. Arkoma Assocs., 494 U.S. 185 and Premier Project Management, Inc. v. Invensys Building Systems, Inc., 2001 WL 1352653, Plaintiff and Defendant do not have the diversity required by 28 U.S.C. § 1332(a).
The District Court Can Determine the Applicability of the Automatic Stay But Not Lift It
If 11 U.S.C. § 362(a) applies to this action, then if the District Court abstains and remands, the State Court could not proceed with the action.
Although the District Court has jurisdiction to determine the applicability of the stay, only the "`home' bankruptcy court could lift otherwise applicable stay." Dunkirk Ltd. P'ship v. TJX Cos., Inc., 139 B.R. 643 (N.D. Ohio 1992); Constitution Bank v. Tubbs, 68 F.3d 685, 691 (3rd Cir. 1995) ("Relief from the stay can be granted only by the bankruptcy court having jurisdiction over a debtor's case.")
In the case of Robert v. Bell Helicopter Textron, Inc., No. 3:01-CV-1576-L, 2002 WL 1268030 (N.D. Tex. May 31, 2001) (Lindsay, J.), the court stated:
Upon the filing of a bankruptcy proceeding, all other proceedings are automatically stayed pursuant to 11 U.S.C. § 362. The purpose of the automatic stay is "to protect creditors in a manner consistent with the bankruptcy goal of equal treatment," and to prevent a "chaotic and uncontrolled scramble for the debtor's assets in a variety of uncoordinated proceedings in different courts." Hunt v. Bankers Trust Co., 799 F.2d 1060, 1069 (5th Cir. 1986) (quoting In re Holtkamp, 669 F.2d 505 (7th Cir. 1982)). Notwithstanding the issuance of an automatic stay, courts retain jurisdiction "to determine the applicability of the stay to litigation pending before them, and to enter orders not inconsistent with the terms of the stay." Picco v. Global Marine Drilling Co., 900 F.2d 846, 850 (5th Cir. 1990); Arnold v. Garlock, Inc., 288 F.3d 234, 236 (5th Cir. 2002) ("Garlock II") (citing cases).
Robert, 2002 WL 1268030 at *2.
Mandatory Abstention Under 28 U.S.C. § 1334(c)(2)
Plaintiff contends that 28 U.S.C. § 1334(c)(2) prevents the District Court and Bankruptcy Court from hearing this action even if it is a related proceeding under 28 U.S.C. § 1334(b), which provides in part: "[T]he 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."
It appears that this is a related proceeding because the outcome of this proceeding could conceivably have an effect on the estate being administered in bankruptcy. Randall Blake, Inc. v. Evans (In re Canion), 196 F.3d 579, 585 (5th Cir. 1999).
In the case of Arnold v. Garlock, Inc., 278 F.3d 426 (5th Cir. 2001), reh'g en banc denied, 288 F.3d 234 (5th Cir. 2002), the court stated:
Most of the federal circuits, including the Fifth Circuit, derive their "related to" jurisprudence from Pacor, Inc. v. Higgins, 743 F.2d 984 (3rd Cir. 1984). See Celotex, 514 U.S. at 308 n. 6, 115 S.Ct. 1493. In Pacor, the Third Circuit determined that a third-party controversy not directly involving a debtor in bankruptcy was not related to the bankruptcy, but was, at best, a precursor to a claim against the debtor. See Pacor, 743 F.2d at 995. The Third Circuit so ruled on the basis that any judgment between the two third parties could not have any preclusive effect by either res judicata or collateral estoppel against the debtor, who would be free to relitigate any claim brought against it. Id. Thus, "related to" jurisdiction would not come into play until a litigant brought a direct claim under bankruptcy jurisdiction based on the result of the prior judgment.
Within the Fifth Circuit, the test for whether a proceeding properly invokes federal bankruptcy jurisdiction is the same as the Third Circuit's Pacor test, namely, whether "the outcome of that proceeding could conceivably have any effect on the estate being administered in bankruptcy." In re Canion, 196 F.3d 579, 585 (5th Cir. 1999). Certainty, or even likelihood of such an effect is not a requirement. Id. at 587 n. 30 (citing Copelin v. Spirco, Inc., 182 F.3d 174 (3rd Cir. 1999)).
In In re Canion, a judgment creditor of the debtor, Canion, brought a direct action against several family members, employees, friends and associates of the debtor, asserting claims of fraud and tortious interference with the judgment creditor's recovery of the judgment. In re Canion, 196 F.3d at 582. Our determination was that this circumstance fell within the "related to" bankruptcy jurisdiction at the time the case was referred to the bankruptcy court (which is the time at which jurisdiction is tested) because the outcome of the proceedings against the defendants conceivably could have increased the debtor's estate. Id. at 587. Appellees argue that Garlock presents no such direct claim and that its claim for contribution, not based on a contractual relationship, is too tenuous to connect the underlying asbestos PITWD claims to the debtor.
Arnold, 278 F.3d 426, 434-35.
The court in Arnold goes on to state:
Section 362 is rarely, however, at valid basis on which to stay actions against non-debtors. See Wedgeworth v. Fibreboard Corp., 706 F.2d 541, 544 (5th Cir. 1983) ([w]e join [the cited courts] in concluding that the protections of§ 362 neither apply to co-defendants nor preclude severance").
By exception, a bankruptcy court may invoke § 362 to stay proceedings against nonbankrupt co-defendants where such identity between the debtor and the third-party defendant exists that the debtor may be said to be the real party defendant and that a judgment against the third-party defendant will in effect be a judgment or finding against the debtor. A.H. Robins Co., 788 F.2d 994, 999 (4th Cir. 1986). In that case, however, the non-debtor co-defendants were indemnified associates, employees or insureds of the debtor sole manufacturer of the Dalkon Shield intrauterine device. Here, Garlock is one of scores of different asbestos makers, users, importers, etc., with no interest to establish such an identity with debtor Federal-Mogul/Gasket Holdings. There is no claim of a formal tie or contractual indemnification to create such an identity of interests.
Arnold, 278 F.3d 426, 436 (emphasis added).
If the removed action against Defendant was based solely on its guaranty of the Debtor's debt, it appears that the Debtor's automatic stay would not extend to Defendant in this action. Homsy v. Floyd (In re Vitek, Inc.), 51 F.3d 530, 538 n. 39 (5th Cir. 1995); GATX Aircraft Corp. v. M/V Courtney Leigh, 768 F.2d 711 (1985); McCartney v. Integra Nat'l Bank N., 106 F.3d 506, 509-10 (3rd Cir. 1997).
This is true notwithstanding the fact that in the case of A.H. Robins, 788 F.2d at 999, cert. denied, 479 U.S. 876 (1986), cited by the Fifth Circuit in the Arnold v. Garlock court ( 278 F.3d at 435) quoted above, the A.H. Robins court was discussing both indemnities and guarantees.
Defendant argues that under Arnold v. Garlock, Inc., 278 F.3d 426, the contractual indemnity by a debtor, such as exists in this case, does create such an identity of interest that the automatic stay applies. Dunkirk Ltd. P'ship v. TJX Cos., Inc., 139 B.R. at 646.
For a court expressing skepticism that Arnold v. Garlock necessarily stands for the automatic applicability of the stay in an indemnity situation, see Davis v. Life Investors Ins. Co. of Am., 3:01-CV-799LN, 2002 WL 1784171 at *5 (S.D. Miss. May 30, 2002). Such view was dicta since the stay had already been lifted.
The recommendation by the undersigned in this matter is permissive abstention and equitable remand. If the District Court adopts that part of the recommendation, it is unnecessary to determine the applicability of the stay. However, the applicability of the stay will be discussed.
Applicability of the Stay to This Proceeding
Under Arnold v. Garlock, Inc., 278 F.3d 426, it appears that if H2H filed an application for an 11 U.S.C. § 105 injunction in the home Bankruptcy Court, then, depending on the record made, Arnold v. Garlock could be some authority to extend the stay to this litigation because of the indemnity. In the Arnold v. Garlock quote above, the Fifth Circuit cites Wedgeworth v. Fibreboard Corp., 706 F.2d at 544, for the generally recognized legal proposition that § 362 is rarely a valid basis to stay actions against co-debtors. Arnold v. Garlock also mentions that there is an exception to this general rule where there is an identity of interest, specifically mentioning that in the case before it there was no contractual indemnity. The Arnold v. Garlock court concludes that the Bankruptcy Court "may invoke" § 362 to stay proceedings against co-defendants, citing to A.H. Robins, 788 F.2d at 999. The A.H. Robins case involved the appeal of a preliminary injunction granted by the District Court; however, the A.H Robins court did specifically find that an indemnity was such a special circumstance as to invoke the § 362(a)(1) stay, notwithstanding the fact that § 362(a)(1) specifically mentions only the debtor:
The question is does "may invoke" involve a specific ruling by the court in an adversary or otherwise, or is it just an automatic "invocation" of the stay by virtue of a debtor filing for bankruptcy.
AK Robins, 788 F.2d at 999.
(a) Except as provided in subsection (b) of this section, a petition filed under section 301, 302, or 303 of this title, or an application filed under section 5(a)(3) of the Securities Investor Protection Act of 1970, operates as a stay, applicable to all entitles, of—
(1) the commencement or continuation, including the issuance or employment of process, of a judicial, administrative, or other action or proceeding against the debtor that was or could have been commenced before the commencement of the case under this title, or to recover a claim against the debtor that arose before the commencement of the case under this title.
§ 362(a)(1) (emphasis added).
In its unpublished opinion in H.B. Spokane, LLC v. TJX Companies, Inc., Adversary No. 02-00116-PCW (Bankr. E.D. Wash., August 14, 2002), and involving H2H, the court held that § 362(a)(1) only protects the debtor and not the defendant TJX, and that for extension of the stay to TJX, H2H would have to file an adversary proceeding in the appropriate forum, seeking an injunction under 11 U.S.C. § 105.
Presumably, the appropriate forum would be the home Bankruptcy Court.
Defendant responds to such opinion by letter brief of August 30, 2002, contending such opinion was incorrect because, inter alia, it makes the automatic stay not automatic, but would improperly require the filing of an adversary. Defendant cites to various cases as support for the proposition that no such adversary injunction suit is necessary. Such authorities will be discussed hereafter.
In the case of McCartney v. Integra Nat'l Bank North, 106 F.3d at 511, the court discussed the "unusual circumstances" doctrine and held that the Pennsylvania Deficiency Judgment Act required the lender to make debtor a party in a deficiency action, however, the automatic stay prevented it from doing so. The court further stated:
It is undisputed that Integra has never filed a petition in state court to fix the fair market value of Lamar's property sold at the sheriffs sale. Under normal circumstances, failing to file a petition would discharge whatever remaining debt Lamar's owed to Integra. Moreover, Integra's failure to meet the statutory requirements of the DJA would also normally discharge McCartney's guarantee of Lamar's debt because, as a matter of law, there is no underlying debt owing to Integra.
This case, however, does not present a normal situation where the DJA can be applied by its literal terms. As the bankruptcy court rightly noted, when McCartney filed for bankruptcy, the automatic stay provision of 11 U.S.C. § 362(a) was triggered and effectively precluded Integra from state court actions of any type against McCartney. Consequently, McCartney cannot use Integra's failure to comply with the DJA to avoid the proof of claim Integra filed against him.
Id. at 509.
Defendant also cites to Turman v. Ameritruck Refrigerated Transp., Inc., No. 99-2325 JWL, 2001 WL 135843 at *3 n. 4 (D.Kan. Feb. 6, 2001). The opinion, at *2, besides referring to the filing of the bankruptcy petition on November 9, 1998, refers to "a subsequent stay order entered by the United States Bankruptcy Court for the Northern District of Texas on March 9, 1999." Id. Therefore, it appears that the Bankruptcy Court, by separate stay order (presumably in an adversary), extended the stay since "[u]nder section 362 of the Bankruptcy Code, the filing of a bankruptcy petition gives rise to an automatic stay." Id.
Defendant also cites to S.I. Acquisition, Inc. v. Eastway Delivery Serv., Inc. (In re S.I Acquisition, Inc.), 817 F.2d 1142, 1146 n. 3 (5th Cir. 1987).
The S.I. Acquisition court ultimately went off on § 362(a)(3) on the basis that an alter ego action was owned by the debtor and other creditors pursuing same would be a violation of § 362(a)(3), and allow one creditor to collect assets that should belong to all creditors. S.I. Acquisition, 817 F.2d at 1153.
(a) Except as provided in subsection (b) of this section, a petition filed under section 301, 302, or 303 of this title, or an application filed under section 5(a)(3) of the Securities Investor Protection Act of 1970, operates as a stay, applicable to all entitles, of —
(3) any act to obtain possession of property of the estate or of property from the estate or to exercise control over property of the estate.
In its discussion of alter ego, the court stated:
Based upon equitable concerns, an alter ego remedy applies when there is such an identity or unity between a corporation and an individual or another entity such that all separateness between the parties has ceased and a failure to disregard the corporate form would be unfair or unjust.
Id. at 1152 (footnote and citations omitted).
In Dunkirk Ltd. P'ship v. TJX Cos., Inc., 139 B.R. at 646, the court, citing A.H. Robins Co., 788 F.2d 994, found the § 362(a)(1) stay available because of the indemnification, and without the necessity of an adversary proceeding being filed.
It is recognized that there is some contrary authority on the issue — see, e.g., Dunkirk Ltd. P'ship v. TJX Cos., Inc., 139 B.R. at 646, cited immediately above. It appears that the better construction of the case law is that the automatic stay does not apply to an indemnification claim of the nature involved herein, without a successful adversary proceeding being filed in the home Bankruptcy Court, under 11 U.S.C. § 105, extending the automatic stay. 11 U.S.C. § 362(a)(1); Wedgeworth v. Fibreboard Corp., 706 F.2d 541. Arnold v. Garlock, Inc. states that "a bankruptcy court may invoke § 362 to stay proceedings against nonbankrupt co-defendants where" such close identity exists. Arnold v. Garlock, Inc., 278 F.3d 426 at 436. It may be quibbling with the Fifth Circuit's use of words, but invoking § 362 appears to contemplate something more than passive reliance on a stay that is automatic. Most of the cases discussing extension of the stay are cases where a § 105 adversary is involved. See also the Fifth Circuit's caveats with respect to bankruptcy injunctions generally in Homsy v. Floyd (In re Vitek, Inc.), 51 F.3d at 538 n. 39; see also Davis v. Life Investors Ins. Co. of Am., 2002 WL 1784171 at *5, in footnote 2 hereinabove.
Whether Plaintiff Has Proven the Mandatory Abstention Requirements
28 U.S.C. § 1334(c)(2) provides that:
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 . . . 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.
28 U.S.C. § 1334(c)(2) (emphasis added). The District Courts are required to abstain from the action if:
1) a party to the proceeding has filed a timely motion to abstain; 2) the proceeding is based on a state law claim; 3) the proceeding is a "related to" proceeding; 4) there is no basis for federal court jurisdiction other than section 1334; 5) an action has been commenced in state court; and the state court action can be timely adjudicated.
There is no requirement that the State Court action be commenced prior to the bankruptcy being filed. KSJ Dev. Co. of La. v. Lambert, 223 B.R. 677, 680 n. 6 (E.D. La. 1998).
Anderson v. Hoechst Celanese Corp. (In re U.S. Brass Corp.), 173 B.R. 1000, 1004 (Bankr. E.D. Tex. 1994) (footnote omitted); see also Gabel v. Engra, Inc. (In re Engra, Inc.), 86 B.R. 890, 894 (S.D. Tex. 1988).
As to requirement no. 1, Plaintiff has filed this Motion within the time proscribed for both a response to Defendant's removal of the State Court Action and a response to Defendant's Motion. See 28 U.S.C. § 1447(c) and Local Rule 7.1(e), respectively. The present action is based on breach of contract claims under Texas state law. ( See Pl.'s Pet.) Aside from "related to" jurisdiction over the present matter, there is no other basis of jurisdiction other than 28 U.S.C. § 1334. Plaintiff has also satisfied requirement nos. 2-5.
As to requirement no. 4, see the diversity discussion above.
Requirement 6 — Whether the State Court Action Can Be Timely Adjudicated
Additionally, while the dispute does not appear complex, no evidence was presented by the Plaintiff as to the condition of the State Court docket. The undersigned is unfamiliar with the condition of the District Court's docket. Because of the jury request by Plaintiff, discussed infra, it appears that, to the extent fact issues are involved, it will be tried in the District Court. Under 28 U.S.C. § 1334(c)(2), Plaintiff has the burden of proof to show that the matter can be timely adjudicated in State Court. In re Personette v. Kennedy (In re Midgard Corp., 204 B.R. 764, 778 (10th Cir. BAP 1997). Thus, it appears that, so far, Plaintiff has not satisfied this sixth requirement of mandatory abstention unless the District Court, taking notice of its own docket, finds that the Sixth requirement has been satisfied. If so, then mandatory abstention would appear to be appropriate.
As previously indicated, the recommendation by the undersigned is permissive abstention and equitable remand. Therefore, the District Court's determination of the applicability of the stay is not necessary. However, to the extent the District Court finds it appropriate to make a decision on the applicability of the stay, the undersigned has given the opinion that the stay is not applicable.
Defendant's Motion for Referral to Bankruptcy Court and For Extension of Time to Respond to Complaint
In the foregoing motion, Defendant requests the District Court to refer this case to the Northern District of Texas Bankruptcy Court, and, as best as can be determined, to extend Defendant's time to answer the complaint until the stay is lifted (Prayer in Def.'s Br.) because Defendant is of the belief that the stay is applicable.
As previously indicated, the underlying State Court suit for $250,161.80, plus attorney fees and interest, was filed January 2, 2002. The Defendant has not answered. The California Debtor's bankruptcy was filed November 7, 2001. This case does not involve complex litigation. Once Defendant is required to answer, this dispute may be resolved on a summary judgment basis.
Since the Debtor has been in bankruptcy ten months, it appears that its affairs should have begun to take some shape in terms of ultimate resolution. Neither side presented evidence concerning the status of such bankruptcy. The Plaintiff has timely requested a jury trial. The Bankruptcy Court could not conduct a jury trial unless (1) designated to do so by the District Court; and (2) the parties expressly consent to same. 28 U.S.C. § 157(e).
Under the proposed scenario in Defendant's Referral Motion, the matter would be transferred to the Bankruptcy Court to sit in limbo until any alleged stay is lifted by the home Bankruptcy Court, if it is. It appears that the District Court should permissively abstain and equitably remand.
In the prayer of its motion for mandatory abstention and reply brief in support of same, Plaintiff prays that "should the Court find that the Bankruptcy Court for either the Northern District of Texas or the Central District of California has jurisdiction over this matter pursuant to 28 U.S.C. § 1334, then the Court abstain from hearing the instant action and grant all further relief to which POB is entitled."
Permissive Abstention and Equitable Remand
In In re U.S. Brass Corp. the court stated:
Notwithstanding the Court's findings in the previous section, the Court believes it should exercise its rights of permissive abstention and equitable remand.
The Court has discretionary power under § 1334(c)(1) to abstain 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); Williams, 1994 WL 374549, *8.
Section 1452(b) further provides that the court to which a 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).
A considerable overlap exists between the factors appropriate to abstention and those appropriate to remand. Engra, 86 B.R. at 895. The various factors which may be considered by courts are enumerated at length in Browning v. Navarro, 743 F.2d 1069, 1076 n. 21 (5th Cir. 1984); and In re Republic Reader's Service, Inc., 81 B.R. 422, 429 (Bkrtcy. S.D. Tex. 1987). This Court will only address the factors believed to be relevant to the Removed Actions.
In re U.S. Brass Corp., 173 B.R. at 1005. In the case of Davis v. Life Investors Ins. Co. of Am., 2002 WL 1784171 at *6 n. 7, the court likewise discussed the factors typically considered by courts when presented with questions of discretionary abstention and/or equitable remand. The merits of some of such factors have been discussed during the course of the foregoing discussions. The Davis v. Life Investors Ins. Co. of Am. court concluded:
From the court's conclusion that this is not a core proceeding, it follows that mandatory abstention applies, since it has already concluded that the other criteria for mandatory abstention are present. The court would note further, though, that even if it were not required to abstain, it would choose to abstain and remand in view of the fact that the case involves solely state law issues, the fact that there would be no jurisdiction over the case were it not for the bankruptcy, and in view of the plaintif's right to a jury trial and because, in the court's view, maintaining jurisdiction will not contribute in any way to the efficient administration of the bankruptcy estate.
Id., 2002 WL 1784171 at *6 n. 7 (emphasis added). See also Channel Bell Assocs. v. W.R. Grace Co., No. 91-CV-5485 (PKL), 1992 WL 232085 at *8 (S.D.N.Y. Aug. 31, 1992).
See also 1-Iron Commercial Premium v. The Taylor Agency, Inc. (In re Taylor Agency, Inc.), 281 B.R. 94 (Bankr. S.D. Ala. 2001).
It appears that such first three factors are also present in this case. With respect to the last factor mentioned by such court, there was no proof that this case is impacting efficient administration of the ten-month-old bankruptcy case of H2H.
Aside from the contractual indemnification issue previously discussed, the parties before the Court are non-debtor parties.
Recommended Ruling
For the reasons hereinabove outlined, the Bankruptcy Court recommends that the District Court make the following rulings:
1. That the motion of TJX Companies, Inc. for further referral to the Bankruptcy Court be denied.
2. That the District Court exercise its rights of permissive abstention and equitably remand the removed case to State Court.