Opinion
Civil No. 05-139 (PAM/RLE).
March 23, 2005
MEMORANDUM AND ORDER
This matter is before the Court on Defendant/Counterclaimant/Third-Party Plaintiff A.P.I., Inc.'s ("API") Motion to Abstain and Remand, or in the alternative, to Remand. For the following reasons, the Motion is granted.
BACKGROUND
A. The Parties and the Litigation
This is a multi-party action in which Plaintiff St. Paul Fire and Marine Insurance Company ("St. Paul Fire") seeks declaratory relief as to the nature and extent of insurance coverage available to API for asbestos-related bodily injury claims. As a Third-Party Plaintiff, API cross-claimed against Third-Party Defendants Home Insurance Company ("Home Insurance"), Fireman's Fund Insurance Co. ("Fireman's Fund"), Great American Insurance Co. ("Great American"), One Beacon American Insurance Co. ("One Beacon"), Continental Casualty Company and Transportation Insurance Company (collectively "CNA"), and U.S. Fire Insurance Company ("U.S. Fire").
Since June 2002, this action has proceeded in Ramsey County District Court before Judge Tinley, with discovery disputes referred to retired Judge Cohen. In December 2004, the district court modified the scheduling order and set the following deadlines: (1) factual discovery deadline, March 20, 2005; (2) non-dispositive motion deadline, May 16, 2005; (3) dispositive motion deadline, June 15, 2005; and (4) trial ready date, November 21, 2005.
On January 6, 2005, API filed for Chapter 11 bankruptcy. Chief Judge Kishel lifted the automatic stay on proceedings on January 13, 2005. Third-Party Defendant CNA removed this case on January 21, 2005, pursuant to 28 U.S.C. § 1452(a). On January 31, 2005, the bankruptcy court ordered a 30-day standstill until February 28, 2005, which prevented the filing of motions, continued discovery, and scheduled hearings. (See Feb. 7, 2005, Bankruptcy Order at 4.) API filed this Motion to Abstain and Remand, and only Third-Party Defendants CNA, One Beacon, and Great American have formally responded to this Motion.
B. Facts
API is a contractor and distributor of building insulation products throughout the Midwest. Until the early 1970s, API used asbestos materials in its operations. As a result of these operations, API has been sued in approximately 2,000 cases in several states asbestos-related injuries. Beginning in 1986, Fireman's Fund, St. Paul Fire, and Great American provided defense and indemnity payments for these claims. In 2002, these insurers told API that such payments would soon stop because the applicable limits of liability of the primary policies had been exhausted.
In or around June 2002, St. Paul Fire filed this declaratory action against API. API counterclaimed and filed numerous cross-claims against its other primary insurers. API's counterclaims and cross-claims are based on state law, and seek declaratory relief as to the insurers' obligations to API under the insurance policies, as well as claims for breach of contract, intentional or negligent misrepresentation, bad faith, breach of fiduciary duty, and consumer fraud. The insurers' counterclaims are likewise based on state law and also seek declaratory relief. The central issue involved in the underlying insurance coverage action is whether API is entitled to coverage from the various insurers for asbestos injury liability.
API filed for Chapter 11 protection in January 2005. In conjunction with its bankruptcy petition, API submitted a prepackaged plan for reorganization, seeking the establishment of an insurance-funded trust and channeling injunction under 11 U.S.C. § 524(g). Third-Party Defendants CNA and Great American object to this proposed plan, arguing that API has negotiated with asbestos injury claimants to craft a settlement of pending and future claims without providing notice to or obtaining consent of the insurers. API contends that this plan does not depend on the establishment of insurance coverage for its success. API filed this Motion, and contends that the Court must abstain and remand under 28 U.S.C. § 1334.
Third-Party Defendant CNA sought protection of its contractual rights by filing an adversary complaint in the bankruptcy court on February 1, 2005, seeking declaration of the parties' rights under the insurance policies and the proposed plan in bankruptcy. CNA also filed a motion in the bankruptcy court to transfer the adversary proceeding to this Court, which was heard before Judge Kishel on March 23, 2005. Great American also filed a motion in bankruptcy court under Local Bankruptcy Rule 5011-3(a) to transfer the insurance related issues from bankruptcy court to this Court, which will be heard before Judge Kishel on March 30, 2005.
DISCUSSION
A. Standard of Review 28 U.S.C. § 1452 permits removal of a state court case to federal district court if the federal district court has jurisdiction under 28 U.S.C. § 1334. Id. § 1452 (a). Under 28 U.S.C. § 1334, federal courts have exclusive and original jurisdiction over bankruptcy cases "under" Chapter 11. However, federal courts have original but concurrent jurisdiction over cases "arising under title 11, or arising in or related to cases under title 11." Id. § 1334(b). Cases "arising under title 11, or arising in title 11" are "core proceedings." See 28 U.S.C. § 1334(c)(2); In re Fulda Indep. Coop., 130 B.R. 967, 972 (Bankr. D. Minn. 1991) (Kishel, J.). "Related proceedings" are determined by the "conceivable effect" test: "An action is related to bankruptcy if the outcome could alter the debtor's rights, liabilities, options, or freedom of action . . . and which in any way impacts upon the handling and administration of the bankruptcy estate." See Specialty Mills, Inc. v. Citizens State Bank, 51 F.3d 770, 774 (8th Cir. 1995). The parties agree that the underlying insurance coverage dispute is a "related proceeding," and therefore the Court has original but concurrent jurisdiction with the state court under § 1334. Thus, this Court may decline to exercise jurisdiction either through mandatory or discretionary abstention. 28 U.S.C. § 1334 (c)(1)-(2). Although § 1334 does not provide a mechanism for cases to move between the state and federal systems, i.e., removal, this section governs whether abstention is appropriate. Additionally, § 1452, which permits removal of cases to federal court based on "related to" bankruptcy jurisdiction under § 1334, also permits a court to remand the case "on any equitable ground."
API contends that abstention under § 1334 is warranted, and that alternatively, the Court should remand under § 1452. B. 28 U.S.C. § 1334(c)(2): Mandatory Abstention
API disputes the propriety of removal. The party seeking removal always bears the burden of establishing that removal was proper. In particular, API argues that there is no unanimity among Third-Party Defendants. The Court acknowledges that there was no formal unanimity among these Third-Party Defendants. However, at oral argument, all Third-Party Defendants represented their consent to the Court regarding the removal. Arguably, unanimity exists.
The Court further notes the conflicting authority as it pertains to § 1452 and unanimity. Indeed, the majority of jurisdictions have determined that the language of § 1452 compels the conclusion that unanimity is not required. See Sommers v. Abshire, 196 B.R. 407, 407 (E.D. Tex. 1995); see also Calif. Pub. Employees' Ret. Sys. v. WorldCom, Inc., 368 F.3d 86, 103 (2d Cir. 2004); Creasy v. Coleman Furniture Corp., 763 F.2d 656, 660 (4th Cir. 1985); In re Nat'l Century Fin. Enter. Inc. Inv. Litig., 323 F. Supp. 2d 861, 873 (S.D. Ohio 2004) (citing cases). Because the Court finds that mandatory abstention is appropriate in this case, the Court declines to conclusively determine whether unanimity is required to perfect removal under § 1452.
The Court must first determine if mandatory abstention applies. Mandatory abstention applies to "related" proceedings, in which the only basis for federal jurisdiction rests on § 1334. It further requires that the case can be "timely adjudicated" in state court. 28 U.S.C. § 1334(c)(2); see also In re Fulda, 130 B.R. at 973. The parties concede that the underlying insurance coverage dispute is "related" to the pending bankruptcy petition. However, they dispute whether there is another basis for federal jurisdiction, and whether the case can be "timely adjudicated" in state court.
As a threshold matter, neither party addresses the relationship between § 1452 and § 1334. Section 1452 permits a party to remand on any equitable ground, whereas § 1334 iterates when mandatory and discretionary abstention are required of the district court. The issue is whether a case removed from state court is subject only to remand through § 1452, or whether a case removed from state court is subject to both § 1452 and an abstention analysis under § 1334. Although the Eighth Circuit has not ruled on this issue, decisions from the District of Minnesota Bankruptcy Courts indicate that the Court should proceed both with abstention analysis under § 1334 and with equitable remand analysis under § 1452. See In re Michener, 217 B.R. 263, 266-67 (Bankr. D. Minn. 1998) (O'Brien, J.); In re Fulda, 130 B.R. at 978.
1. Jurisdiction
Third-Party Defendants assert that the Court has diversity jurisdiction over the coverage dispute. Third-Party Defendants acknowledge that complete diversity does not exist between all of the parties: both Defendant/Counterclaimant/Third-Party Plaintiff API and Plaintiff St. Paul Fire are Minnesota corporations. Nevertheless, Third-Party Defendants propose that the Court sever St. Paul Fire's cause of action against API and remand that claim to state court. According to Third-Party Defendants, because § 1452(a) discusses removal of "claims or causes of action," the Court must analyze diversity jurisdiction as it pertains to each claim. Third-Party Defendants cite no authority for this proposition. Moreover, they removed the entire state action, not just the third-party claims. Accordingly, complete diversity must exist. Complete diversity does not exist. See In re Inv. Tax Svcs. Inc., No. 4-88-1437, 1989 WL 76885 (Bankr. D. Minn. June 28, 1989) (Dreher, J.) (mandatory abstention did not apply, as diversity jurisdiction did not exist at time action commenced). Thus, Third-Party Defendants' argument on this point fails.
The Court notes that only CNA and Great American filed opposition papers to API's Motion. However, since the remaining insurers represented their consent to remand at oral argument, the Court will refer to all Third-Party Defendants.
2. Timely Adjudication
Third-Party Defendants also contend that because API has instituted an expedited bankruptcy schedule, the underlying coverage dispute will not be resolved in a timely manner relative to this schedule. API has proposed a reorganization plan under 11 U.S.C. § 524(g). This section permits API to establish a trust toward which it may channel future asbestos-related liability.See id. In this case, the trust will be funded by $40 million in direct payments from API, and is not dependent on the outcome of the underlying insurance coverage action. Indeed, if Third-Party Defendants prevail, then API's contribution to the § 524(g) trust will constitute the settlement funds. However, if Third-Party Defendants do not prevail and API is entitled to coverage under the policies, then the § 524(g) trust will increase accordingly. In sum, the existence of the § 524(g) trust does not depend on who prevails in the coverage action. Thus, the urgency of the underlying coverage action, as it relates to the bankruptcy proceeding, is not as intense as Third-Party Defendants suggest. Furthermore, the state court proceeding has been pending for two years and is scheduled for trial in November 2005. Therefore, because the state court action will be adjudicated in the near future and in relation to the demands of the bankruptcy petition, Third-Party Defendants' argument on this point also fails.
Although the Court finds that mandatory abstention is required, the Court further notes that the facts of this case favor discretionary abstention. See 28 U.S.C. § 1334(c)(1); In re Williams, 265 B.R. 885, 894 (B.A.P. 8th Cir. 2001) (discussing discretionary abstention factors). Therefore, in the alternative, the Court exercises discretionary abstention and remands this case to state court.
3. Conclusion
There is no dispute that the remaining elements of mandatory abstention are satisfied. Under § 1334(c)(2), this Court must abstain from adjudicating the underlying insurance coverage action. Thus, API's Motion is granted.
CONCLUSION
Pursuant to 28 U.S.C. § 1334(c)(2), this Court is required to abstain from adjudicating this case. Accordingly, based on all the files, records and proceedings herein, IT IS HEREBY ORDERED that Defendant/Counterclaimant/Third-Party Defendant A.P.I., Inc.'s Motion to Abstain and Remand or, in the Alternative to Remand (Clerk Doc. No. 6) is GRANTED, and this case is remanded to Ramsey County District Court.
LET JUDGMENT BE ENTERED ACCORDINGLY.