Opinion
CIVIL ACTION No. 01-0573 SECTION: E/1
May 21, 2001
ORDER AND REASONS
Plaintiff Sally Jones has filed a motion to remand this action to the Civil District Court for the Parish of Orleans, State of Louisiana, from which it was removed, on the basis that this court lacks subject matter jurisdiction. Plaintiff alternatively moves that under 28 U.S.C. § 1334(c)(2) this Court must abstain from considering the matter, or should abstain under 28 U.S.C. 1334(c)(1) in the interest of comity or respect for state law and in the interests of justice. Defendants JCC Holding Company, Jazz Casino Company, Harrah's Entertainment, Inc., Harrah's New Orleans Management Company, and Michal Marcyn oppose the plaintiff's motion to remand and/or abstain.
Facts and Procedural History
On January 4, 2001, JCC Holding Company ("JCC Holding") filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court, Eastern District of Louisiana, No. 01-10086. On the same day, Jazz Casino Company, L.L.C. ("Jazz Casino"), also filed a voluntary petition for relief under Chapter 11 in the same court, No. 01-10087, which was consolidated on the same day with the bankruptcy action of JCC Holding Company, 00-10086, and the bankruptcy proceedings of JCC Canal Development, LLC, No. 01-10088, JCC Fulton Development, LLC, No. 91-10089, and JCC Development Company LLC, No. 01-10090.
On January 29, 2001, plaintiff Sally Jones filed a petition for damages in Civil District Court for the Parish of Orleans, State of Louisiana, naming as defendants JCC Holding Co., and Jazz Casino, the two debtors who filed voluntary petitions for relief under Chapter 11, as well as two corporations, Harrah's Entertainment, Inc., Harrah's New Orleans Management Company, and two individuals, Graden Warner and Michal Marcyn. In her petition, plaintiff alleges that she was fired from her employment at Harrah's Casino New Orleans by Graden Warner and Michal Marcyn on April 6, 2000. She alleges that she was fired in retaliation for reporting theft and mismanagement of money by certain supervisors and employees to upper management and to the Louisiana State Police, and that 30 minutes after one of the supervisors was arrested by the Louisiana State Police for theft of money, she was fired. She asserts claims under Louisiana Revised Statute 23:967, commonly referred to as the "Whistleblower Statute" and Louisiana Civil Code article 2315, for libel, slander, and intentional infliction of emotional distress. She seeks damages for loss of income and earning capacity, damage to her reputation, and emotional distress. Plaintiff did not seek a jury trial.
Michal Marcyn is referred to as "Michael Morrison" in the petition, but he identifies himself as "Michal Marcyn" in his answer.
On March 5, 2001, JCC Holding Company and Jazz Casino filed a notice of removal pursuant to 28 U.S.C. § 1441, 1446 and 1452, and Rule 9027 of the Federal Rules of Bankruptcy Procedure, removing this action to this court on the grounds that there is subject matter jurisdiction of it as it arises in or is related to a case under Title 11 of the United States Code. Plaintiff seeks remand of this action on the grounds that it does not arise under nor is it related to a case under Title 11 of the United States Code, nor is there federal question or diversity jurisdiction.
Subject Matter Jurisdiction
The relevant jurisdictional statute is 28 U.S.C. § 1334, which provides in pertinent part:
(b) Notwithstanding any Act of Congress that confers exclusive jurisdiction on a court or courts other than the district courts, 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.
(c)(1) Nothing 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.
(c)(2) 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 arising 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 debtors contend that this action is related to a case under title 11. An action is "related to" a case arising under title 11 when "the outcome of that proceeding could conceivably have any effect on the estate being administered in bankruptcy." In re Wood, 825 F.2d 90, 92 (5th Cir. 1987), citing Pacor. Inc. v. Higgins, 743 F.2d 984, 994 (3d Cir. 1984). Thus, "`[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 bankruptcy estate.'" In re Walker v. Cadle Co., 51 F.3d 562, 569 (5th Cir. 1995).
As observed by the Fifth Circuit in In Re Wood, 825 F.2d at 93, "[f]or the purpose of determining whether a particular matter falls within bankruptcy jurisdiction, it is not necessary to distinguish between proceedings `arising under', `arising in a case under', or `related to a case under', title 11. These references operate conjunctively to define the scope of jurisdiction. Therefore, it is necessary only to determine whether a matter is at least `related to' the bankruptcy." Id. Applying the test for "related to" a bankruptcy proceeding, which as set forth above is whether the outcome of the proceeding could "conceivably" have any effect on the estate being administered in bankruptcy, the Court finds that there is subject matter jurisdiction of this action under 28 U.S.C. S 1334. Plaintiff is asserting claims directly against two of the debtors, and thus whether or not the claims succeed will directly impact the estate being administered in bankruptcy.
Plaintiff next argues that the court has no subject matter jurisdiction over the claims against the non-debtor defendants, Harrah's Entertainment, Inc., Harrah's New Orleans Management Company, Michal Marcyn, and Garden Warner. Defendants contend that the court has jurisdiction over the claims asserted against the non-debtor defendants because Jazz Casino, one of the debtor defendants, has paid the costs of defense of this action for all named defendants. According to the affidavit of Kevin Colomb, which was submitted by the defendants, the payment of these costs is pursuant to an indemnification agreement. Even if the defense costs were not being paid pursuant to a specific indemnification agreement, if the plaintiff's actual employer was Jazz Casino, a debtor, and the plaintiff prevails on her state law tort claims against the non-debtor defendants, the non-debtor defendants would have a possible cause of action for indemnification against Jazz Casino. Thus, the continued prosecution of the litigation and any judgment against the non-debtor defendants could conceivably have an effect on the administration of the debtor's estate. See, Apex Investment Associates, Inc. v. TJX Companies, Inc., 121 B.R. 522, 525 (N.D. Ill. 1990) (Suit seeking to enforce a claim against a guarantor of the debtor is "related to" the debtor's Chapter 11 bankruptcy proceeding because if the suit is successful, the guarantor will likely seek indemnification from debtor, "a result which unquestionably impacts upon the administration of the [debtor's] estate."). For these reasons, there is subject matter jurisdiction over the claims against the non-debtor defendants under 28 U.S.C. § 1334, as they are "related to" a bankruptcy proceeding.
Worth noting is the fact that it is likely that plaintiff's claim under La. R.S. 23:967, the "whistleblower" statute, against the non-debtor defendants will not survive a motion to dismiss. The cause of action under La. R.S. 23:967 is by an employee against her "employer" for reprisal. La. R.S. 23:302 supplies the following definition of an "employer" for claims arising under that Chapter:
"Employer" means a person, association, legal or commercial entity, the state, or any state agency, board, commission, or political subdivision of the state receiving services from an employee and, in return, giving compensation of any kind to an employee. The provisions of this Chapter shall apply only to an employer who employs twenty or more employees within the state for each working day in each of twenty or more calendar weeks in the current or preceding calendar years.
The court in Dronet v. Lafarge Corporation, 2000 WL 1720547 (Clement, J.) (E.D. La. 2000) held that the definition of an employer under La. R.S. 23:302 was applicable to a claim under the "whistleblower" statute, La. R.S. 23:967, and thus the plaintiff's claim under that statute against his individual supervisor must be dismissed. This Court finds no reason that this holding would not equally apply to Jones' claims under La. R.S. 23:967 against her two individual supervisors and the two non-debtor defendants who were not her employer.
Plaintiff has also alleged tort claims under Louisiana Civil Code article 2315 against these non-debtor defendants which may or may not be viable depending upon whether plaintiff has sufficient proof to establish the elements of those tort claims, but inasmuch as the resolution of those claims could conceivably impact the administration of the debtors' estates in bankruptcy, there is subject matter jurisdiction over those claims against the non-debtor defendants under 28 U.S.C. § 1334.
Mandatory Abstention
Plaintiff next seeks mandatory abstention under 28 U.S.C. § 1334(c)(2). In order for mandatory abstention to apply, the following criteria must be present:
[U]nder ( 28 U.S.C. § 1334(c)(2)], courts must abstain from hearing a state law claim if the following requirements are met: (1) The claim has no independent basis for federal jurisdiction, other than § 1334(b); (2) the claim is a non-core proceeding, i.e., it is related to a case under title 11 but does not arise under or in a case under title 11; (3) an action has been commenced in state court; and (4) the action could be adjudicated timely in state court. See Gober v. Terra + Corp. (In re Gober), 100 F.3d 1195, 1206 (5th Cir. 1996); 28 U.S.C. § 1334(c)(2), 157(b)(1).In the Matter of the Rupp Bowman Co., 109 F.3d 237, 239 (5th Cir. 1997). While this action satisfies the first element, and likely meets the second element, it fails on the third because it was not commenced in state court prior to the filing of the Chapter 11 petitions. The plaintiff's petition was filed on January 29, 2001, after the January 4, 2001 filing of the debtors' petitions for bankruptcy relief. Mandatory abstention is not warranted in this action.
Discretionary Abstention
The district court has many factors to consider when determining whether to exercise its discretion to abstain. The authority for such discretionary abstention is found in 28 U.S.C. § 1334(c)(1), as follows:
Nothing 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.
The following non-exclusive set of factors to be considered by the courts in determining whether to abstain under 28 U.S.C. § 1334(c)(1) were listed in In re Nationwide Roofing Sheet Metal, Inc., 130 B.R. 768, 779-80 (Bankr. S.D. Ohio 1991):
1) the effect or lack of effect on the efficient administration of the estate if a court abstains;
2) the extent to which state law issues predominate over bankruptcy issues;
3) the difficulty or unsettled nature of the applicable state law;
4) the presence of a related proceeding commenced in state court or other nonbankruptcy court;
5) the jurisdictional basis, if any, other than 28 U.S.C. § 1334;
6) the degree of relatedness or remoteness of the proceeding to the main bankruptcy case;
7) the substance rather than form of an asserted "core" proceeding;
8) the feasibility of severing state law claims from core bankruptcy matters to allow judgments to be entered in state court with enforcement left to the bankruptcy court;
9) the burden of this court's docket;
10) the likelihood that the commencement of the proceeding in bankruptcy court involves forum shopping by one of the parties;
11) the existence of a right to a jury trial;
12) the presence in the proceeding of nondebtor parties; and,
13) any unusual or other significant factors.
(Citations omitted).
Under § 362 of the Bankruptcy Code, the filing of a petition for relief in bankruptcy operates as an automatic stay against the commencement or continuation of a judicial, administrative, or other action or proceeding against the debtor that was or could have been commenced before the filing of the petition for relief in bankruptcy. 11 U.S.C. § 362(a)(1). This action against the two debtors, JCC Holding and Jazz Casino, is automatically stayed and the bankruptcy court will have to determine whether the claim was timely and whether it should be allowed. The jurisdiction of the bankruptcy court in an adversary proceeding is broad, is unaffected by confirmation, and continues until all property of the debtor's estate is fully administered. In re TGX Corporation, 168 B.R. 122, 129 (W.D. La. 1994). Permissive abstention is not appropriate as to the plaintiff's claims against the debtors.
The plaintiff's claims against the non-debtor defendants posit a different question. All of the claims asserted by plaintiff against the non-debtor defendants arise under state law. The cause of action arising under the "whistleblower" statute, La. R.S. 23:967, will likely be dismissed, as previously discussed, because such claims may be lodged only against "employers", which defendants suggest, without contradiction by plaintiff, is Jazz Casino, a debtor. All other claims against the non-debtors are tort claims under Louisiana Civil Code article 2315.
Defendants urge the court to refer these tort claims against the non-debtors to the bankruptcy court for adjudication under 28 U.S.C. § 157. This section provides that all core proceedings, including allowance or disallowance of claims against the debtor's estate, may be referred to bankruptcy judges for hearing and determination. 28 U.S.C. § 157(b)(2)(B). It also requires that all personal injury tort and wrongful death claims be tried in the district court in which the bankruptcy case is pending, or in the district court in the district in "which the claim arose, as determined by the district court in which the bankruptcy case is pending. 28 U.S.C. § 157(b)(5). Local Rule 83.4.1 similarly requires that all personal injury tort and wrongful death claims be tried in the district court.
The grounds urged for denial of discretionary abstention is prejudice to the debtors, waste of judicial resources, and issue preclusion. There would be no direct prejudice to the debtors in allowing the plaintiff to prosecute her claims against the nondebtors in state court because the claims against the debtors will remain under the bankruptcy jurisdiction of the court and will be referred to the bankruptcy court as core proceedings. The tort claims against the non-debtor defendants cannot be referred to the bankruptcy court under 28 U.S.C. § 157(b)(5) and Local Rules 83.4.1, and must be tried in the district court. There is no greater risk of wasting judicial resources and issue preclusion in allowing the tort claims against the non-debtors to be tried in state court than in trying these claims in this federal district court, since the claims against the debtors will be determined by the bankruptcy court.
Considering the other factors noted above, there will be little effect on the efficient administration of the estate if the court abstains. State law issues predominate over bankruptcy issues, there is no independent basis for federal jurisdiction other than 28 U.S.C. § 1334, and there is no impediment to severing the claims against the non-debtor defendants from those asserted against the debtor defendants. While this court is certainly capable of resolving the plaintiff's claims against the non-debtor defendants in a timely and efficient manner, deference should be paid to plaintiff's choice of forum.
Defendants suggest that this court has supplemental jurisdiction over the plaintiff's state law claims against the non-debtor defendants under 28 U.S.C. § 1441, subsection (c) of that provision provides that [w]henever a separate and independent claim or cause of action within the jurisdiction conferred by section 133.1 of this title is joined with one or more otherwise non-removable claims or causes of action, the entire case may be removed and the district court court may determine all issues therein, or, in its discretion, may remand all matters in which State law predominates." ( Italics added). The separate and independent claims asserted by the plaintiff against the non-debtor defendants do not arise under section 1331, which is federal question jurisdiction of all claims arising under the constitution, laws or treaties of the united States. The only basis for jurisdiction over the plaintiff's state law claims against the non-debtor defendants is that the claims are "related to" the debtors' bankruptcy case because they could conceivably have an impact on them. District courts are free to abstain from such cases and equitably remand same to state court. See, Hospital Service District No. 3 of the Parish of Lafourche, State of Louisiana v. Fidelity Deposit Company of Maryland and Blanchard Mechanical Contractors, Inc., 1999 WL 294795 (Vance, J.) (E.D. La. 1999) (District court found that there was bankruptcy jurisdiction over plaintiff's claims, found that mandatory abstention was not warranted, but concluded that discretionary abstention factors weighed in favor of abstention and equitable remand).
Upon review of the factors to be considered in determining whether abstention and equitable remand should be ordered, the Court finds that it should abstain under 28 U.S.C. § 1334(c)(1) from adjudicating plaintiff's claims against the non-debtor defendants, and should equitably remand those claims to state court under 28 U.S.C. § 1452(b).
Conclusion
Accordingly, for the above and foregoing reasons,
IT IS ORDERED that this action and be and is hereby STAYED as to defendants JCC Holding Company and Jazz Casino Company, and that plaintiff's claims as to these defendants are hereby REFERRED to the United States Bankruptcy Court for the Eastern District of Louisiana under 28 U.S.C. § 157(a) and (b)(1)(B);
IT IS FURTHER ORDERED that the motion of plaintiff Sally Jones to remand her claims against Harrah's Entertainment, Inc., Harrah's New Orleans Management Company, Graden Warner, and Michael Marcyn for lack of subject matter jurisdiction be DENIED; IT IS FURTHER ORDERED that the motion of Sally Jones for abstention be DENIED IN PART insofar as it seeks mandatory abstention;
IT IS FURTHER ORDERED that the claims of plaintiff Sally Jones against Harrah's Entertainment, Inc., Harrah's New Orleans Management Company, Graden Warner, and Michal Marcyn be SEVERED from her claims against JCC Holding Co. and Jazz Casino Company, LLC, and that plaintiff's motion for discretionary abstention be and is hereby GRANTED and that plaintiff's claims against Harrah's Entertainment, Inc., Harrah's New Orleans Management Company, Graden Warner, and Michal Marcyn be equitably REMANDED to the Civil District Court for the Parish of Orleans, State of Louisiana.