Opinion
03 Civ. 7248 (JGK)
February 3, 2004
OPINION and ORDER
This case arises out of a reorganization plan drafted in connection with the chapter 11 bankruptcy of Combustion Engineering, Inc. ("CE"). CE is the former parent corporation of the defendants, ABB Lummus ("Lummus") and Basic, Inc. ("Basic") (collectively, "the defendants"). CE and the defendants are now all owned by the same parent corporation, ABB Limited ("ABB"). Facing significant exposure to liability for asbestos-related injuries, CE filed, and the Bankruptcy Court for the District of Delaware approved, a reorganization plan establishing a trust to pay asbestos claims against CE. The plan also provided that the trust would handle the asbestos-related liability of Lummus and Basic. The Delaware Bankruptcy Court issued an injunction channeling the liability of CE and the defendants into the trust and enjoined third-party claimants from bringing asbestos claims against CE, Lummus, and Basic.
The Plaintiff's, Certain Underwriters at Lloyds, London and Certain London Market Insurance Companies, sued the defendants Lummus and Basic, Inc. in the New York State Supreme Court, New York County. The complaint sought a declaratory judgment relieving the Plaintiff's from their obligation to indemnify the defendants for asbestos-related bodily injury claims asserted by third-party claimants. The Plaintiff's claim that the defendants breached the terms and conditions of certain insurance policies by assigning those policies to a trust established pursuant to CE's bankruptcy reorganization plan.
Pursuant to 28 U.S.C. § 1334(b) and 1452(a), the defendants removed the claims against them to the Southern District of New York as "related to" CE's chapter 11 bankruptcy. The defendants further moved pursuant to 28 U.S.C. § 1404 (a) for a transfer of venue to the United States District Court, District of Delaware so that the case could then be referred to the Delaware Bankruptcy Court. The Plaintiff's have opposed the motion, arguing that this case is not related to the CE bankruptcy case because it has no conceivable effect on the debtor. The Plaintiff's also move to remand the case to state court. In the alternative, they contend that the Court should exercise its discretion to abstain pursuant to § 1334(c)(1) or order equitable remand pursuant to 28 U.S.C. § 1452(b).
I.
The following facts are undisputed unless otherwise noted. On February 17, 2003, CE filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the District of Delaware. (See Findings of Fact and Conclusions of Law, In re Combustion Eng'g, Inc., Ch. 11 Case No. 03-10495, at 4 (Bankr. D. Del. June 23, 2003) ("Findings"), attached at Defs.' Mem. in Supp. of Mot. to Transfer Action ("Defs.' Mem."), Ex. A.) At the time, CE was a wholly owned subsidiary of Asea Brown Boveri, Inc. ("US ABB"), and ABB was the ultimate corporate parent of US ABB and CE. (Id.) ABB is also the ultimate corporate parent of defendants Lummus and Basic. (Compl. ¶ 27.) Lummus and Basic are both former subsidiaries of CE. (Findings at 40.)
CE's bankruptcy resulted from its inability to pay substantial obligations for asbestos-related person injury claims. (See id. at 5.) As of 2002, CE was dependent on funding from its parent ABB to cover payments owed on outstanding claims, but ABB was facing financial problems and needed to refinance to avoid bankruptcy. (Id. at 5-6.) To resolve its financial problems, ABB began a divestment and restructuring plan. (Id. at 7.) Part of that plan included the sale of Lummus, but Lummus could not be sold unless its asbestos liability was defined and resolved. (Id.) Indeed, there was evidence that so long as asbestos liabilities remained in the ABB groups, ABB's ability to provide financing would run out. (Id. at 8.)
In filing its petition for bankruptcy, CE filed a "prepackaged" Plan of Reorganization ("Reorganization Plan" or "Plan"). (See id. at 1; Compl. ¶ 40.) The Plan was designed to handle the asbestos liability of CE and other ABB subsidiaries so that ABB could obtain financing, which was critical to CE's liquidity. (See generally Findings at 6-17.) The Plan established a bankruptcy trust, known as the Asbestos PI Trust (the "Trust"), to handle all pending and future asbestos personal injury claims against CE and other non-debtors, including Lummus and Basic, both of whom had some asbestos liability and some shared insurance with CE. (See id. at 40; Compl. ¶¶ 40-41). With respect to Lummus and Basic, the Plan called for "the release and assignment to the Asbestos PI Trust of all their rights to proceeds under insurance covering asbestos personal injury claims, including certain policies shared with CE." (Findings at 29-30, 40.)
There were objections to the Plan, including those raised by the Plaintiff's and other insurance companies that objected particularly to the inclusion of Lummus and Basic and the channeling of all their asbestos liability into the Trust. Judge Fitzgerald of the Delaware Bankruptcy Court held hearings in April and May 2003 and, on June 23, 2003, made findings of fact and conclusions of law approving the plan. (See id. at 4.) The Plan had originally called for a channeling injunction to be imposed pursuant to 11 U.S.C. § 524(g) to direct all claims to the Trust and to enjoin claimants from bringing asbestos claims against CE, Basic, and Lummus. (Id. at 10.) Judge Fitzgerald held that § 524(g) could not be applied to claims against Lummus and Basic to the extent that they were not derivative of claims against CE. (See id. at 53.) The court found, however, that a channeling injunction could be issued with respect to claims against Lummus and Basic pursuant to 11 U.S.C. § 105(a). (Id.)
On July 31, 2003, Judge Wolin of the United States District Court for the District of Delaware confirmed the Plan approved by Judge Fitzgerald. (See Tr. of Confirmation Hearing and Bench Opinion, In re Combustion Eng'g, Inc., Ch. 11 Case No. 03-10495 (D. Del. July 31, 2003) ("Bench Op."), attached at Def.'s Mem., Ex. B.) The court rejected the insurers' objections to the Plan. (Bench Op. at 1.) It found, among other things:
[E]xtending the channeling injunction to Lummus and Basic is an integral part of the plan. The evidence is compelling that omitting a channeling injunction for Lummus and Basic would have a string of unfortunate consequences. . . . ABB Limited would not be able to restructure its debt and could not make contributions to the plan.
(Id. at 161.) The district court also addressed the argument, raised by certain objectors to the plan, that the court lacked jurisdiction over non-debtors. The district court noted that "the analysis of the Section 105 channeling injunction, and the jurisdictional question of whether claims against the non-debtors are related to the bankruptcy, substantially overlap," and it found that there was jurisdiction to issue the injunction. (Id. at 162-63.) The court ultimately approved the channeling injunction as "clearly sensible, fair, and in the best interests of everyone involved." (Id. at 163.)
On August 8, 2003, Judge Wolin issued a Revised Proposed Confirmation Order. (Revised Proposed Confirmation Order, In re Combustion Eng'g, Inc., Ch. 11 Case No. 03-10495 (D. Del. Aug. 8, 2003) ("Confirmation Order"), attached at Defs.' Mem., Ex D.) Among other things, the Confirmation Order addressed the institution and maintenance of proceedings, including the power of the Asbestos PI Trust "to initiate, prosecute, defend and resolve all legal actions and other proceedings related to any asset, liability, or responsibility of the Asbestos PI Trust." (Confirmation Order ¶ 16.) In an attempt to address objections raised by insurers with respect to the use of insurance proceeds for the claims against Lummus and Basic, the Confirmation Order declared:
[N]othing in this Order, the Plan, or any of the Plan Documents . . . shall in any way operate to, or have the effect of, impairing the insurers' legal, equitable or contractual rights, if any, in respect of any claims. . . . The rights of insurers shall be determined under the Subject Insurance Policies. as applicable, and under applicable law.
(Id. ¶ 17.) The parties in this case represented that the Confirmation Order is currently being appealed to the Court of Appeals for the Third Circuit, but the Court has not been asked to stay the decision on the pending motions to await the result of the appeal.
Following the Confirmation Order, on August 29, 2003, the Plaintiff's filed a civil action against the defendants in the New York State Supreme Court, New York County. Certain Underwriters at Lloyd's, London v. ABB Lummus Global, Inc., No. 115322/03 (N.Y.Sup.Ct. filed Aug. 29, 2003) ("Complaint"). The Complaint seeks declaratory relief and argues that the Plaintiff's should not be required to indemnify Lummus and Basic because the Asbestos PI Trust procedure materially deviates from the claims handling procedures specified in the insurance policies. (See generally Compl. ¶¶ 1, 51-54, 69-76.) On September 16, 2003, the defendants filed a Notice of Removal pursuant to 28 U.S.C. § 1452 (a) and Federal Rule of Bankruptcy Procedure 9027, with jurisdiction being asserted under 28 U.S.C. § 1334(b). The defendants' intent in removing the claims against them to this Court is to facilitate transfer of the claims to the United States District Court for the District of Delaware, so that the District of Delaware can in turn refer the case to the Bankruptcy Court presiding over all issues related to CE's Reorganization Plan. (See Notice of Removal ¶¶ 11-12.)
Section 1452(a) authorizes the removal of individual claims and causes of action, as opposed to the entire case, and there is a dispute as to whether Basic and Lummus removed the entire case. The Notice of Removal by Basic and Lummus refers to "the claims which have been asserted against them." (See Notice of Removal at 1; see also id. ¶ 7.) All of the claims against Basic and Lummus are, for the reasons explained below, properly removed.
In addition to Lummus and Basic, the Plaintiff's in the state court action named Liberty Mutual Insurance Company ("Liberty Mutual") and ACE USA (as successor-in-interest to Insurance Company of North America) ("ACE") as defendants, and they named North River Insurance Company ("North River") as a nominal defendant. After Lummus and Basic filed their notice of removal and motion to transfer the claims against them, Liberty Mutual filed a supplemental notice of removal and a no objection to transfer of the claims against it. Liberty Mutual later filed a submission opposing the plaintiff's motion for remand and supporting the motion to transfer. The remaining two defendants in the state court action, ACE and North River, have not appeared in this matter in this Court and have not participated in the current motions before this Court. The parties have advised that ACE and North River joined with the Plaintiff's in the state court action in moving to stay that action pending resolution of the current motions before this Court. (Dec. 8, 2003 Tr. at 20.)
At the argument of the motions Basic and Lummus claimed that they removed the entire state court action. (Tr. at 18-21.) The Plaintiff's argue that Basic and Lummus only removed the claims against them. (Id. at 53-55.) The notice of removal only removed the claims against Lummus and Basic, and this Opinion and Order is directed toward those claims. It also applies to the claims against Liberty Mutual, which removed the claims against it and has supported the defendants' motion to transfer. The status of the claims against the two non-removing defendants does not materially affect any issue of law raised in the motions. Given the language of the notices of removal, there is no basis to conclude that the claims against the remaining two defendants were covered by the original and supplemental notices of removal.
In addition to the main dispute over CE's bankruptcy proceeding itself and the case before this Court, two other related disputes have arisen. On May 2, 2003, TIG Insurance Co. ("TIG") and North River Insurance Co. ("North River") filed an adversary proceeding against CE and Basic in the Delaware Bankruptcy Court. (See Defs.' Mem., Ex. E ("TIG/North River Compl.").) The TIG/North River action was brought pursuant to the court's bankruptcy jurisdiction under 28 U.S.C. § 1334(b) and also asserted diversity jurisdiction under 28 U.S.C. § 1332. (See id. ¶¶ 6-8.) Like the case before this Court, the TIG/North River action involves a request for declaratory relief releasing the insurers from the duty to indemnify CE and Basic; but unlike this case, the TIG/North River action is premised on a part of the Plan that involved a pre-petition 1991 Settlement Agreement. (See generally TIG/North River Compl.)
On October 24, 2003, CE, Basic, and Lummus filed an adversarial proceeding in the Delaware Bankruptcy Court against over two dozen insurers, including the Plaintiff's in this case. (See Combustion Eng'g, Inc. v. Allianz Ins. Co. (In re Combusion Eng'g, Inc.), Ch. 11 Case No. 03-10495, Adv. Proc. No. 03-57275 (Bankr. D. Del. filed October 24, 2003) ("CE Compl."), attached at Mem. in Opp. to Pl.'s Mot. to Remand and Reply Mem. in Supp. of Mot. to Transfer Action, Ex. 1.) That action seeks declaratory judgment and damages for breach of contract for the insurers' allegedly wrongful failure and/or refusal to indemnify CE, Basic, and Lummus for asbestos bodily injury claims.
II.
The defendants argue that this Court has jurisdiction over this case under 28 U.S.C. § 1334(b), which provides 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." Specifically, the defendants argue that this case is "related to" CE's Delaware Bankruptcy Court case. As the parties removing the action from state court, the defendants have the burden of proving federal jurisdiction, and doubts with respect to jurisdiction should be resolved in favor of remand. See In re Worldcom, Inc. Sees. Litig., 293 B.R. 308, 316 (S.D.N.Y. 2003). However, as the Supreme Court has explained with respect to § 1334(b): "Congress intended to grant comprehensive jurisdiction to the bankruptcy courts so that they might deal efficiently and expeditiously with all matters connected with the bankruptcy estate."Celotex Corp. v. Edwards, 514 U.S. 300, 308 (1995) (quoting Pacor, Inc. v. Higgins, 743 F.2d 984, 994 (3d Cir. 1984)). Courts generally recognize that "related to" jurisdiction extends more broadly where, as in this case, it concerns a bankruptcy reorganization under chapter 11, as opposed to a liquidation under chapter 7. See id. at 310.
The most widely accepted test for determining related to jurisdiction was announced by the Court of Appeals for the Third Circuit in Pacor, Inc. v. Higgins, 743 F.2d 984 (3d Cir. 1984): "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 the administration of he bankrupt estate." Pacor, 743 F.2d at 994. The Pacor test asks whether the outcome of the proceeding could " conceivably have any effect" on the estate being administered in bankruptcy. Id.; see Celotex Corp., 514 U.S. at 308 n. 6 (recognizingPacor test as being adopted in most circuits); Hunnicutt Co. v. TJX Cos. (In re Ames Dep't Stores, Inc.), 190 B.R. 157, 160 (S.D.N.Y. 1995).
While the Court of Appeals for the Second Circuit once formulated the test for "related to" jurisdiction as determining whether the action before the court has a "significant connection" to the bankruptcy case,Turner v. Ermiger (In re Turner), 724 F.2d 338, 341 (2d Cir. 1983) (internal quotation omitted), the Court of Appeals has made it clear that this test does not differ from the Pacor formulation: "The test for determining whether litigation has a significant connection with a pending bankruptcy proceeding is whether its outcome might have any `conceivable effect' on the bankrupt estate." Publicker Indus. Inc. v. United States (In re Cuyahoga Equip. Corp.), 980 F.2d 110, 114 (2d Cir. 1992); Ames Dep't Stores, 190 B.R. at 160 (stating that since Cuyahoga it is clear that there is no essential difference between the tests).
The case before this Court is unusual in that it arises directly out of the bankruptcy proceeding in Delaware. The Plaintiff's allege that Lummus and Basic breached the provisions of their insurance policies by assigning their rights to those policies to the Trust established under the Reorganization Plan. But for the bankruptcy proceeding, this case would not have arisen. In the majority of "related to" cases, the litigation arises separate from the bankruptcy proceedings. In those cases, where the origin of the case is independent from the bankruptcy proceeding, courts must determine when and whether the outcome of the case will effect the debtor's estate. This case, however, fits within the plain language of § 1334(b), in that it is clearly "related to" the Delaware bankruptcy proceeding under a common sense understanding of the terms.
Moreover, whether there has in fact been a breach of the insurance policies may depend on the interpretation and administration of the Reorganization Plan. The bankruptcy court explicitly addressed complaints by the insurers that their rights were impaired and emphasized that "the Plan has been modified to make clear that nothing impairs their rights." (Findings at 27.) The district court echoed the point by stating the "nothing in . . . the Plan . . . shall in any way operate to, or have the effect of, impairing the insurers' legal, equitable or contractual rights, if any, in respect to any claims. . . . The rights of insurers shall be determined under the Subject Insurance Policies or Subject Insurance Settlement Agreements, as applicable, and under applicable law." (Confirmation Order ¶ 17.) It may be unclear how, in practice, the Trust will be administered and how such administration will be reconciled with the specific provisions of the insurance policies and the rights of the insurers. What is clear, however, is that Judge Fitzgerald of the Delaware Bankruptcy Court is in the best position to make those determinations.
This case plainly has a "significant connection" to the bankruptcy proceeding, and it would be most efficient and practical to enable the Delaware Bankruptcy Court to assume jurisdiction over the case. See Turner, 724 F.2d at 341 (observing that "related to" jurisdiction was intended to be a "comprehensive grant of jurisdiction . . . over all controversies arising out of any bankruptcy or rehabilitation case" (quoting H.R. Rep. No. 95-595, at 46 (1977) in reference to 28 U.S.C. § 1471(b), the predecessor to § 1334(b)) (emphasis added)); see also Celotex, 514 U.S. at 308 (stating that purpose of giving bankruptcy courts broad jurisdiction was to enable them to deal efficiently will all matters connected to bankruptcy estate). Judge Fitzgerald is the most familiar with the extensive background to the litigation. She is in the best position to determine the degree of connection between the Plaintiff's' state law claims and CE's Plan and how each may impact the other. Finally, there are already two other related actions pending before the Bankruptcy Court with related claims brought at least in part under § 1334(b) jurisdiction. Under the plain language of the statute, the Turner "significant connection" formulation, and the general purposes behind comprehensive bankruptcy jurisdiction, the Plaintiff's' claims relate to the CE's bankruptcy proceeding and there is jurisdiction pursuant to § 1334(b).
The Plaintiff's nonetheless maintain that "related to" jurisdiction is limited to cases where the outcome may have an effect on the debtor's estate. They argue that because their insurance policies with Lummus and Basic cannot be used to pay for claims against CE, there will be no effect on the debtor's estate if the Plaintiff's are relieved of their duty to indemnify Lummus and Basic. Even if the test is limited to looking at the effect on the debtor, there is still "related to" jurisdiction.
The overall context of the CE bankruptcy shows that the Plaintiff's' refusal to indemnify Lummus and Basic can have a "conceivable effect" on the debtor's estate. CE's Reorganization Plan was part of a "prepackaged" plan drafted by ABB, the parent company to CE, Lummus, and Basic, and one of ABB's goals in constructing the deal was to free Basic and Lummus of all asbestos-related liability so that they could be sold. (See Findings at 6-11.) From the beginning, it was critical to include Lummus and Basic in the channeling injunction (Findings at 10), and the Delaware District Court explicitly found that extending the channeling injunction to Lummus and Basic "is an integral part of the plan." (Bench Op. at 161.) Not including them, the court found, "would have a string of unfortunate consequences" because ABB would be unable to restructure its debt and would be unable to make necessary contributions to the Plan. (Id.) Judge Wolin concluded that without Basic and Lummus "the plan would fail." (Id. at 162.)
The Plaintiff's respond that even though the bankruptcy court found that Basic and Lummus were essential to the Plan, it did not find that Basic and Lummus's insurance was an essential part of the Plan. Even on its face, the Plaintiff's' argument does not negate the possibility of "any conceivable effect" on the debtor. It was necessary to include Lummus and Basic in the Plan because unless they were free of asbestos liability, ABB could not sell them and restructure its debt. If Lummus and Basic lost their insurance, as the Plaintiff's seek in this case, it is certainly conceivable that they could not be sold and that ABB would lack the funding to participate in the Plan. In any event, the Delaware Bankruptcy Court is clearly in the best position to make such determinations, which is precisely why "related to" jurisdiction should be found. (Cf. Bench Op. at 162 (noting connection between analysis under Section 105(a), which required Lummus and Basic to be essential to plan, and analysis for "related to" jurisdiction).)
For the reasons explained above, the claims removed to this Court are "related to" the bankruptcy proceeding in Delaware.
III.
The Plaintiff's argue that even if the claims in this proceeding are "related to" the Delaware bankruptcy proceeding, this Court is required to abstain from asserting jurisdiction pursuant to 28 U.S.C. § 1334(c)(2) and should remand the claims to the state court pursuant to 28 U.S.C. § 1452 (b). A party seeking mandatory abstention pursuant to 28 U.S.C. § 1334(c) (2) must show that: (1) the abstention motion was timely brought; (2) the proceeding in federal court is based upon a state law claim; (3) the proceeding is related to a bankruptcy proceeding, as opposed to arising under title 11 or arising in a title 11 case; (4) section 1334 is the sole basis for federal jurisdiction over the proceeding; (5) "an action is commenced" in state court; and (6) the action can be "timely adjudicated" in state court. See 28 U.S.C. § 1334(c)(2); Renaissance Cosmetics, Inc. v. Dev. Specialists Inc., 277 B.R. 5, 12 (S.D.N.Y. 2002). While the Plaintiff's contend that they meet all the requirements, the defendants argue that the abstention provisions of § 1334(c) are inapplicable in this case because the only pending state claims against the defendants have been removed to this Court. Section 1334(c), the defendants argue, requires abstention only where there is a pending state court action involving the same claims brought in federal court.
Section 1334(c)(2) reads:
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.28 U.S.C. § 1334(c)(2).
Section 1452(a) provides that 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 article." 28 U.S.C. § 1452(a).
Section 1452(b) provides that the "court to which such 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).
As described above, see supra note 1, there is a dispute over whether the entire state court action has been removed. However, it is clear that all of the claims against Basic and Lummus have been removed. There is no claim against them pending in state court, and the Plaintiff's concede that even if the claims against the remaining defendants proceeded in state court, that could not affect the rights of Lummus and Basic. (See Tr. at 54-55.) Whether the claims against the remaining defendants are removed does not affect the analysis on the issue of mandatory abstention.
There is a dispute among federal courts over whether the mandatory abstention provision applies in the context of removal and remand. Three of the four circuit Courts of Appeal to have addressed the issue have found that mandatory abstention can apply to removed actions. Compare Christo v. Padgett, 223 F.3d 1324, 1331-32 (11th Cir. 2000) (abstention may apply to removed action); Southmark Corp. v. Coopers Lybrand (In re Southmark Corp.), 163 F.3d 925, 929 (5th Cir. 1999) (same); Robinson v. Mich. Consol. Gas Co. Inc., 918 F.2d 579, 584 n. 3 (6th Cir. 1990) (same);with Schulman v. California (In re Lazar), 237 F.3d 967, 981-82 (9th Cir. 2001) (abstention requires parallel state court proceeding and does not apply to removed action). The Court of Appeals for the Second Circuit has not directly addressed the issue and is not likely to do so because the Court of Appeals recently held that a district court's decision not to abstain under § 1334(c)(2) is not reviewable. See Beightol v. UBS Painewebber, Inc., No. 03-7710, 2004 WL 27715, at *2 (2d Cir. Jan. 6, 2004) (citing 28 U.S.C. § 1334(d)), dismissing appeal from In re Global Crossings, Ltd. Sec. Litig., No. 02 Civ. 1186, 2003 WL 21507466, at *2 n. 1 (S.D.N.Y. Jun. 30, 2003) (recognizing that that Second Circuit Court of Appeals had not resolved issue of whether mandatory abstention applies in removal context, but not reaching issue because action could not be timely adjudicated in state court and abstention was inappropriate for that reason).
Courts in this district, however, have "almost uniformly" found that abstention does not apply to removed actions. Renaissance Cosmetics, 277 B.R. at 12-13 (internal quotations omitted) (collecting cases); see, e.g., Blackacre Bridge Capital LLC v. Korff (In re River Ctr. Holdings, LLC), 288 B.R. 59, 67-68 nn. 21-22 (Bankr. S.D.N.Y. 2003). For the reasons stated by the majority of courts in this district and the Court of Appeals for the Ninth Circuit, this Court finds that abstention does not apply to the claims against the removed defendants because there is no longer a parallel state court proceeding where those claims are being timely adjudicated.
The mechanism created in 28 U.S.C. § 1334 (c) assumes that the removing party is involved in a separate state proceeding to which the federal court defers. As explained by the Court of Appeals for the Ninth Circuit, "Abstention can exist only where there is a parallel proceeding in state court. That is, inherent in the concept of abstention is the presence of a pendant state action in favor of which the federal court must, or may, abstain." Sec. Farms v. Int'l Bhd. of Teamsters, Chauffers, Warehousemen Helpers, 124 F.3d 999, 1009-10 (9th Cir. 1997), quoted in part by In re Lazar, 237 F.3d at 981;see also Montague Pipeline Tech. Corp. v. Grace/Lansing, 209 B.R. 295, 304 (Bankr. E.D.N.Y. 1997) ("[A]bstention requires a pending proceeding in state court, but upon filing a notice of removal there is no longer a state court action."). In this case, Basic and Lummus have removed the claims against them from the state court action, and the Plaintiff's acknowledge that any claims against other defendants remaining in state court will have no effect on Basic and Lummus. (See Tr. at 54-55.) Thus there is no longer a parallel state court proceeding involving Basic and Lummus. Abstention is inapplicable because there is no threat of interfering with an ongoing state court adjudication of the claims against these defendants.
When a claim or cause of action is removed pursuant to § 1452(a), remand is governed by § 1452(b), not § 1334(c), and section § 1452(b) provides that a court " may remand [a] claim or cause of action on any equitable ground." 28 U.S.C. § 1452(b) (emphasis added); see also Montague Pipeline, 209 B.R. at 304 (stating that " § 1452(b) provides no indication that abstention principles should apply in the remand context," and finding that requiring parallel state action makes more sense of statute and provides "a clear delineation of when the doctrine applies"); Weisman v. Southeast Hotel Prop. Ltd. P'ship, No. 91 Civ. 6232, 1992 WL 131080, at *5 (S.D.N.Y. June 1, 1992) (noting that Congress cross-referenced § 1334 in § 1452(a) and could have cross-referenced § 1334(c) in § 1452(b) but did not). The wording of § 1452(b) and the very notion of equitable remand implies a measure of discretion in tension with mandatory abstention. Indeed, the factors for equitable remand are virtually identical to the factors for discretionary abstention pursuant to § 1334(c)(1). See, e.g., In re Worldcom, Inc. Sec. Litig., 293 B.R. at 334 (noting that equitable remand analysis "is essentially the same as the Section 1334(c)(1) abstention analysis"); Renaissance Cosmetics, 277 B.R. at 17-18.
Applying § 1334(c) only where there is a parallel proceeding involving the same claims makes sense of the statutory scheme. Such an interpretation gives a separate meaning to § 1334(c)(1) and § 1452(b) while reconciling both provisions with § 1334(c)(2). Section 1334(b) allows a suit to be brought directly in federal court. However, where there is a separate and parallel state action, § 1334(c)(2) requires the court to abstain from hearing a non-core proceeding under certain circumstances. Section 1334(c)(1) permits abstention if the case is a core proceeding or a non-core proceeding that does not otherwise meet the criteria for mandatory abstention. Section 1452(b), meanwhile, applies to claims removed on § 1334(b) grounds and allows for remand on equitable grounds.
The Plaintiff's raise several considerations in favor of hearing the case in state court, such as ensuring fairness to the Plaintiff's and protecting the interests of the forum state. Those considerations do not call for a mandatory abstention doctrine and are better addressed through equitable remand and a case-sensitive analysis that balances a number of factors. See Montague Pipeline, 209 B.R. at 304 (finding that mandatory abstention did not apply to removed action but that equitable remand was appropriate); Artsk, Inc. v. Audre Recognition Sys., Inc., No. 95 Civ. 10519, 1996 WL 229883, at *5-*6 (S.D.N.Y. May 7, 1996) (rejecting mandatory abstention for removed action but finding that considerations "of comity and of fairness to the plaintiff" militated in favor of remand); cf. Drexel Burnham Lambert Group, Inc. v. Vigilant Ins. Co., 130 B.R. 405, 407 (S.D.N.Y. 1991) (listing equitable remand factors, including extent to which state law dominates, comity, degree of relation to bankruptcy proceeding, prejudice to removed party, and efficiency in administering bankrupt estate).
The Court thus adopts the majority rule in this district and finds that § 1334(c)(2) does not apply to removed claims. Because there are no claims pending in state court to which the moving defendants are parties, mandatory abstention is not appropriate in this case.
IV.
The Plaintiff's next argue that the Court should exercise discretionary abstention or order equitable remand. For the reasons explained above, the issue should be framed as whether there are "any equitable grounds" to remand the case pursuant to § 1452(b), rather than whether the court should abstain pursuant to § 1334(c)(1). While the Plaintiff's' motion for equitable remand and the defendants' motion to transfer the case to Delaware are analytically distinct, they are effectively related. The logical options for the Court are to remand the claims against the defendants to New York state court, or to transfer the claims to the District Court in Delaware so that the claims can be referred to the Delaware Bankruptcy Court. See Renaissance Cosmetics, 277 B.R. at 11 (noting that remand and venue motions are analytically distinct but that decision on whether to remand will generally take into account possibility of transfer). Core concerns of efficiency and fairness underlie the analyses for both equitable remand and transfer of venue, and under the tests for both motions, the Delaware courts should have the opportunity to review the issues in this case and determine where they should be litigated. See Nemsa Establishment, S.A. v. Viral Testing Sys. Corp., No. 95 Civ. 0277, 1995 WL 489711, at *7-*8, *11-*12 (denying motion for equitable remand and granting motion to transfer venue based on overlapping concerns about trial efficiency).
The factors for determining whether equitable remand is appropriate include: (1) the effect on the efficient administration of the bankruptcy estate; (2) the extent to which issues of state law predominate; (3) the difficulty or unsettled nature of the applicable state law; (4) comity; (5) the degree of relatedness or remoteness of the proceeding to the main bankruptcy case; (6) the existence of the right to a jury trial; and (7) prejudice to the involuntarily removed defendants. Drexel, 130 B.R. at 407; see also Renaissance Cosmetics, 277 B.R. at 14-17 (listing and applying "Drexel factors").
The Bankruptcy Court in Delaware is in the best position to determine the effect of the defendants' insurance agreements on the Reorganization Plan and the effect of the Reorganization Plan on the insurance agreements. It is thus in the best position to determine how the interests of the parties and the relevant fora should be balanced. The Plaintiff's assert solely New York state law claims and contend that the case raises difficult issues of state insurance law. But the difficulties arise primarily out of the factual details and nature of Reorganization Plan, rather than issues of state law. The complexity of the matter only confirms that the Delaware Bankruptcy Court should have an opportunity to review the Plaintiff's' claims. New York has an interest in insurance agreements made in the state, but the fair administration of the bankruptcy estate weighs heavily in favor of ensuring the integrity of a reorganization plan developed after substantial effort by Delaware bankruptcy and district courts.
Fairness to the Plaintiff's does not require that the claims be remanded to state court. Regardless of the actual "effect" on the bankruptcy estate, this case is clearly related to the bankruptcy proceeding because it arises out of the CE Plan. The relatedness of this action to the bankruptcy case and two other related cases currently pending before the Delaware Bankruptcy Court shows that considerations of efficiency weigh against remand. See Nemsa, 1995 WL 489711, at *8 (refusing to remand where non-debtor defendants were "inextricably intertwined" with debtor and its bankruptcy case and where remand would result in duplicative litigation). While the Plaintiff's indicate that they have a right to a jury trial, they appear to have brought solely equitable claims for declaratory judgment against the defendants. In any event, the ultimate right to a jury trial would not preclude a case from proceeding in the Bankruptcy Court until the case is ready for trial, at which point the Plaintiff's can make a motion to withdraw the reference.See, e.g., Ames Dep't Stores, 190 B.R. at 162-63.
Therefore, the Drexel factors and general equitable concerns counsel against remand. Moreover, all of these equitable concerns are best addressed by the Delaware courts, which could decide that New York state court is the appropriate forum to litigate this dispute. However, as explained below, the Delaware courts should be the ones to make those determinations.
V.
The defendants have moved pursuant to 28 U.S.C. § 1404(a) for a transfer of venue to the District of Delaware so that the district court can refer the action to the bankruptcy court. See 28 U.S.C. § 157 (a);Industri Skipsbanken A/S v. Levy, 183 B.R. 58, 65 (S.D.N.Y. 1995) (finding that compelling reason for transferring action to Texas district court was to allow for subsequent referral to bankruptcy court). Section 1404(a) provides:
For the convenience of parties and witnesses, in the interest of justice, a district court may transfer any civil action to any other district or division where it might have been brought.28 U.S.C. § 1404(a). Section 1404(a) "requires the district court to `weigh in the balance a number of case-specific factors,'" and the burden of establishing the propriety of a change of forum rests on the moving party. Elite Parfums, Ltd. v. Rivera, 872 F. Supp. 1269, 1271 (S.D.N.Y. 1995) (quoting Stewart Org., Inc. v. Ricoh Corp., 487 U.S. 22, 29 (1988), and listing factors); see also Renaissance Cosmetics, 277 B.R. at 18-20 (listing and applying factors and granting transfer so that action could be heard by Delaware Bankruptcy Court); Nemsa, 1995 WL 489711, at *10-*12 (finding that defendants met their burden to justify transfer despite deference due to plaintiff's choice of forum). While the plaintiff's choice of forum is normally entitled to great weight, that fact is not always dispositive. See Renaissance Cosmetics, 277 B.R. at 18; Nemsa, 1995 WL 489711, at *12. In determining whether to transfer venue, the Court has "broad discretion" to consider "notions of convenience and fairness on a case-by-case basis." In re Cuyahoga Equip. Corp., 980 F.2d at 117. In allowing courts to transfer venue in the interests of justice, the statute uses "a term broad enough to cover the particular circumstances of each case, which in sum indicate that the administration of justice will be advanced by a transfer." Schneider v. H.A. Sears, 265 F. Supp. 257, 263 (S.D.N.Y. 1967) (Weinfeld, J.).
The connection of this case to the bankruptcy proceeding in Delaware is a compelling reason for the transfer of venue to the District of Delaware. See Industri Skipsbanken A/S, 183 B.R. at 64; see also Harvé Bernard Ltd. v. Rothschild, No. 02 Civ. 4033, 2003 WL 367859, at *7 (S.D.N.Y. Feb 19, 2003) (transferring case in view of its relationship to bankruptcy proceeding and "the expertise of the bankruptcy court"). In the course of reviewing and approving the Plan, the Bankruptcy Court received objections from insurance companies and stated that "the Plan has been modified to make clear that nothing impairs their rights." (Findings at 27; see also Confirmation Order ¶ 17 (finding that Plan "shall [not] in any way operate to, or have the effect of, impairing the insurer's legal, equitable or contractual rights").) The Delaware Bankruptcy Court is in the best position to determine whether the plan has impaired the Plaintiff's' rights. See Harvé Bernard, 2003 WL 367859, at *6 (finding strong policies in favor of transfer where bankruptcy court was "clearly best suited" to assess potential effect of case on bankruptcy estate).
Moreover, two other related cases arising out of the Reorganization Plan are currently pending in the Delaware Bankruptcy Court before Judge Fitzgerald. Like the case before this Court, both of those cases involve insurance companies arguing that they should be released from indemnifying Basic and Lummus. A parallel proceeding was brought by CE, Basic, and Lummus against numerous insurers, including the Plaintiff's, for declaratory judgment and breach of contract based on the insurers' refusal to indemnify CE, Basic, and Lummus for asbestos-related claims. (See CE Compl.) A second proceeding, initiated by two insurers against CE and Basic, arises out of a different part of the Plan but contains issues of fact and law in common with this case. (See TIG/North River Compl.)
Allowing for the current claims and those related claims to be litigated in the same tribunal serves the interests of the efficient administration of justice. The Bankruptcy Court in Delaware is already familiar with the extensive history and factual background to the case. A transfer could also avoid duplicative litigation, limiting the expense to the parties and conserving judicial resources. Finally, transfer would help avoid potentially inconsistent results. If the Delaware Bankruptcy Court determines that it is not the appropriate forum to handle this dispute, the action can be transferred and remanded. The motion to transfer venue to the Delaware District Court is therefore granted with respect to the claims against Basic, Lummus, and Liberty Mutual.
The motion is granted with respect to the claims against Basic and Lummus, as well as those against Liberty Mutual, which filed a supplemental notice of removal and non-objection to transfer and then later filed a submission supporting the defendants' motion to transfer and opposing the Plaintiff's' motion to remand. See supra note 1. Pursuant to § 1404(a), a district court transfers the civil action before it, and this action now consists of the claims against Basic, Lummus, and Liberty Mutual.
Conclusion
For the reasons explained above, with respect to the claims against Basic and Lummus, the Court finds that: (1) there is "related to" jurisdiction pursuant to 28 U.S.C. § 1334(b); (2) abstention pursuant to § 1334(c) is inappropriate because there is no parallel state court proceeding involving the claims against the defendants; (3) the motion for equitable remand pursuant to 28 U.S.C. § 1452(b) is denied; and (4) the motion for a transfer of venue for this action to the District Court for the District of Delaware pursuant to 28 U.S.C. § 1404 (a) is granted so that the action can then be referred to the Delaware Bankruptcy Court. The Clerk of the Court is directed to transfer this case to the District Court for the District of Delaware and to close the case on the docket of this Court.SO ORDERED.