Opinion
Case No. 01-32341-T Chapter 7 Adversary Proc. No. 02-3053-T
August 16, 2002.
MEMORANDUM OPINION
Hearing was held July 24, 2002, on Wells Fargo Bank's objection to removal and motions to remand and abstain in this adversary proceeding. For reasons stated below, the court will both abstain and remand the case to the Circuit Court of the City of Richmond.
Facts.
Debtor filed this chapter 13 case on April 16, 2001. His schedules list defendant Rapid Funding, LLC, as a creditor holding a deed of trust against realty owned by debtor and his spouse located at 2605 Fourth Avenue, Richmond, Virginia.
Plaintiff Wells Fargo Bank initiated this adversary proceeding by a bill of complaint filed in the Circuit Court of the City of Richmond, Virginia, on April 22, 2002. By its complaint, Wells Fargo seeks to require defendant Rapid Funding to release deeds of trust Rapid Funding holds against real property, including the 2605 Fourth Avenue realty owned by debtor and his spouse. The debtor is not a named party in the complaint.
In response to Wells Fargo's complaint, Rapid Funding filed a cross-bill and counterclaim, asserting its own cause of action against Wells Fargo and naming other parties as defendants. Additionally, on May 16, 2002, Rapid Funding filed a notice of removal of the lawsuit to this court. Debtor is not a named party in Rapid Funding's crossbill and counterclaim.
Debtor has filed several chapter 13 plans in the case, but there has been no confirmation of any plan. Most recently, the court denied confirmation of the fourth amended plan on August 8, 2002. Debtor's plans have consistently provided for his surrender of 2605 Fourth Avenue to Rapid Funding and treatment of any claim of Rapid Funding as unsecured.
On June 12, 2002, Wells Fargo filed a motion to remand the case to Richmond Circuit Court, and on June 28, it filed a motion asking this court to abstain from hearing the removed cause of action.
Conclusions of Law.
The Supreme Court in N. Pipeline Constr. Co. v. Marathon Pipe Line Co., 458 U.S. 50, 84 (1982), suggested that "non-Article III bankruptcy judges could not enter dispositive orders in matters primarily involving non-bankruptcy issues." DeKalb Med. Bldg. P'ship v. Sturm (In re Sturm), 66 B.R. 325, 328 (Bankr.N.D.Ill. 1986) (interpreting N. Pipeline).
In response to the N. Pipeline case, Congress amended the statutory bankruptcy jurisdictional provisions for district and bankruptcy courts. The present jurisdictional scheme is found in 28 U.S.C. § 157 and 1334.
MANDATORY ABSTENTION
28 U.S.C. § 1334(c)(2) requires the district (and bankruptcy) court to abstain from a proceeding where the following factors are present:
1) A party to the proceeding must file a timely motion to abstain; 2) The proceeding is based on a state law claim; 3) The proceeding is a "non-core, but related to" proceeding; 4) There is no basis for federal court jurisdiction other than section 1334; 5) A action is commenced in state court; and 6) The state court action can be timely adjudicated.
Seven Springs, Inc. v. Abramson (In re Seven Springs, Inc.), 148 B.R. 815, 817 (Bankr.E.D.Va. 1992).
First and foremost, the court finds this adversary proceeding is "non-core," an issue explored in many case decisions. The instant cause involves only tangentially the adjustment of rights as between debtor and Rapid Funding in the context of debtor's bankruptcy. It is rather a suit between two creditors over state law issues, and it neither arises under Title 11, U.S. Code, nor arises in a case under Title 11. 28 U.S.C. § 157(b). See Wood v. Wood (In re Wood), 825 F.2d 90, 96-97 (5th Cir. 1987); McLean Square Assocs., G.P. v. J.W. Fortune, Inc., (In re Mclean Square Assocs., G.P.), 200 B.R. 128, 133 (E.D.Va. 1996), aff'd 107 F.3d 866 (4th Cir. 1997). Thus the case falls essentially in that class of cases "`concerned only with state law issues that [do] not arise in the core bankruptcy function of adjusting debtor-creditor rights.'" Edgcomb Metals Co. v. Eastmet Corp., 89 B.R. 546, 548 (D.Md. 1988) (alteration in original) (quoting 130 Cong. Rec. H-1848 (daily ed. March 21, 1984)).
The court also finds that the cause of action is "related to" debtor's bankruptcy case. For a proceeding to be "related to" a case under title 11, "there must be a reasonable nexus or logical connection between the civil proceeding for which jurisdiction is sought and the parent bankruptcy proceeding;" "related to" proceedings may include "`those civil proceedings that, in the absence of a petition in bankruptcy, could have been brought in a district court or state court.'" Prod. Credit Ass'n v. Yagow (In re Yagow), 53 B.R. 737, 740 (Bankr.D.N.D. 1985) (quoting National Acceptance Co. of Am. v. Price (In re Colorado Energy Supply, Inc.), 728 F.2d 1283, 1286 (10th Cir. 1984)); see also Dekalb Med. Bldg. P'ship v. Sturm (In re Sturm), 66 B.R. 325, 328 (Bankr.N.D.Ill. 1986).
"Related proceedings" include "suits between third parties which in one way or another affect the administration of the title 11 case." Levy v. Butler, Payne, Griffin (In re Landbank Equity Corp.), 77 B.R. 44, 48 (E.D.Va. 1987). A bankruptcy court's "related to" jurisdiction is broad and covers "any matter that `conceivably' could have an impact on the estate or the administration of it." Marshall v. Marshall (In re Marshall), 264 B.R. 609, 626 (C.D.Cal. 2001) (citing Wood v. Wood (In re Wood), 825 F.2d 90, 93 (5th Cir. 1987)); Bergstrom v. Dalkon Shield Claimants Trust (In re A.H. Robins Co.), 86 F.3d 364, 372 (4th Cir. 1996), cert. denied, 519 U.S. 993 (1996); see also Mass. Cas. Ins. Co. v. Green (In re Green), 241 B.R. 550, 560 (Bankr.N.D.Ill. 1999), aff'd, 269 B.R. 782 (N.D.Ill. 2001).
I find Wells Fargo's cause of action (and Rapid Funding's cross-bill and counterclaim) "related to" debtor's bankruptcy case because the outcome of the action may determine whether Rapid Funding has a secured claim against an asset of debtor's bankruptcy estate. The case's impact on debtor's bankruptcy appears to be nominal because he does not intend to pay Rapid Funding as a secured creditor but rather will surrender the asset to Rapid Funding. To the extent Rapid Funding has an unsecured claim, this will be paid out of debtor's plan, if confirmed.
However, having found that the instant lawsuit is "non-core, related to," the court is unable to determine that other necessary elements for mandatory abstention are present, namely requirements number 4, 5 and 6 set out above in Seven Springs. Id. 148 B.R. 815, 817 (Bankr.E.D.Va. 1992). As to these requirements, 4) there may be federal court jurisdiction aside from § 1334 (diversity jurisdiction); 5) there is authority in this district suggesting that the lawsuit must have been commenced prior to the filing of the bankruptcy case, see Levy v. Butler, Payne, Griffin, 77 B.R. at 50; and 6) while it is probable that the Richmond City Circuit Court action can be timely adjudicated, there is nothing in the record to support this conclusion.
Because the elements for mandatory abstention are not satisfied, the court will not abstain pursuant to § 1334(c)(2).
DISCRETIONARY ABSTENTION
28 U.S.C. § 1334(c)(1) authorizes a bankruptcy court, in the interests of justice or comity with state courts to permissively abstain from hearing a particular proceeding arising under title 11.
28 U.S.C. § 1334(c)(1) states that "[n]othing in this section prevents a district court in the interest of justice, or in the interest of comity with State courts or respect for State law, from abstaining from hearing a particular proceeding arising under title 11 or arising in or related to a case under title 11." 28 U.S.C. § 1334(c)(1).
Courts have considered several factors when determining whether to exercise permissive abstention:
(1) the court's duty to resolve matters properly before it; (2) the predominance of state law issues and non-debtor parties; (3) the economical use of judicial resources; (4) the effect of remand on the administration of the bankruptcy estate; (5) the relatedness or remoteness of the action to the bankruptcy case; (6) whether the case involves questions of state law better addressed by the state court; (7) comity considerations; (8) any prejudice to the involuntarily removed parties; (9) forum non conveniens; (10) the possibility of inconsistent results; (11) any expertise of the court where the action originated; and (12) the existence of a right to a jury trial.
Blanton v. IMN Fin. Corp., 260 B.R. 257, 265 (M.D.N.C. 2001).
As stated above, the resolution of this cause in state court will have nominal impact on the administration of debtor's estate. The cause involves strictly state law issues, and the debtor is not even a named party. Finally, although not determinative, there is the tenuous status of debtor's bankruptcy case. The case has been pending for well over one year with no plan confirmation in sight, due primarily to the heated opposition of Rapid Funding. In my experience such a case history does not bode well for success, and it is possible that the bankruptcy case may not be around at the conclusion of the pending actions.
Accordingly, the court will abstain from hearing this adversary proceeding pursuant to 28 U.S.C. § 1334(c)(1) and remand it to the Circuit Court of the City of Richmond pursuant to Federal Rule of Bankruptcy Procedure 9027(d) and 28 U.S.C. § 1452(b).
For a discussion of whether abstention under 28 U.S.C. § 1334(c) and remand under 28 U.S.C. § 1452(b) are compatible, see 1 Collier On Bankruptcy ¶ 3.05[3](15th Ed. Rev., ed. Lawrence P. King). Without addressing that issue the court will both abstain and remand the case to the state court.
A separate order will be entered.