Opinion
Bankruptcy 18-33707 Adversary Proc. 18-03094
05-09-2022
In re: Diocese of Winona-Rochester, Debtor. v. United States Fire Insurance Company, et al., Defendants. DW Harrow & Associates, LLC, as Trustee of the Diocese of Winona-Rochester Settlement Trust, Plaintiff,
MEAGHER & GEER, PLLP Charles E. Spevacek MEISSNER TIERNEY FISHER & NICHOLS S.C. Michael J. Cohen, pro hac vice Pamela J. Tillman, pro hac vice George R. Calhoun, pro hac vice Ifrah PLLC Attorneys for United States Fire Insurance Company
Chapter 11
MEAGHER & GEER, PLLP Charles E. Spevacek MEISSNER TIERNEY FISHER & NICHOLS S.C. Michael J. Cohen, pro hac vice Pamela J. Tillman, pro hac vice George R. Calhoun, pro hac vice Ifrah PLLC Attorneys for United States Fire Insurance Company
DEFENDANT'S BRIEF IN SUPPORT OF ABSTENTION OR TRANSFER
INTRODUCTION
In accordance with the Court's directions, United States Fire Insurance Company ("U.S. Fire") submits this brief in support of abstention, or in the alternative, transfer. In its February 16, 2022 order, the Court directed the parties to brief whether "abstention [is] otherwise appropriate under 28 U.S.C. § 1334(c)(1)?" The answer is "yes." In addition to § 1334(c)(1), remand is appropriate under 28 U.S.C. § 1452(b).
PROCEDURAL AND FACTUAL BACKGROUND
1. U.S. Fire issued various policies of insurance to the Diocese of Winona-Rochester ("the Diocese" or "Debtor"). The Diocese, and now the Trustee who has replaced the Diocese as the real party in interest, also now contends that U.S. Fire also issued additional excess policies of insurance from 1967-1976. U.S. Fire denies the existence of these alleged policies.
2. In 2013, Minnesota created a temporary, three-year window in its civil statute of limitations to allow victims of child sexual abuse with time-barred claims to file lawsuits for damages. Minn. Stat. § 541.073 (2013). This window allowed individuals to file lawsuits against the Diocese alleging that they had suffered injuries resulting from sexual abuse caused by the Diocese's negligence ("Underlying Claims"). Notice of Removal p. 19, Complaint for Declaratory Relief ¶ 28; Notice of Removal p. 301. The Diocese sought coverage for multiple claims alleging abuse, including claims based on alleged abuse by former priest Fr. Thomas Adamson ("Adamson"). U.S. Fire has accepted coverage and agreed to provide a defense for the "non-Adamson" claims. With respect to the claims alleging abuse by Adamson, U.S. Fire has denied coverage because Father Adamson's continued abuse of minors was "expected" or "intended" by the Diocese.
3. U.S. Fire's denial of coverage for the Adamson claims is also supported by two controlling rulings: the Eighth Circuit's decision in Diocese of Winona v. Interstate Fire & Casualty Co., 89 F.3d 1386 (8th Cir. 1996) and the district court's ruling in U.S. Fire Insurance Co. v. Diocese of Winona, 503 F.Supp.2d 1129 (D. Minn. 2007), both of which held the Diocese was not entitled to coverage for claims arising from Fr. Adamson's sexual abuse. U.S. Fire contends that, as a result of these decisions, Plaintiff is collaterally estopped from arguing that the Diocese did not "expect" Fr. Adamson's continued abuse.
4. On July 18, 2018, the Diocese filed its Complaint in the Third Judicial District of the Minnesota Judicial Branch, case number 85-CV-18-1439, naming as defendants a number of its insurers, including U.S. Fire. Notice of Removal p. 86, Notice of Case Filing and Assignment.
5. The Diocese amended its Complaint on November 7, 2018. See Notice of Removal p. 373, First Am. Compl. for Declaratory Relief ("Complaint"). The Amended Complaint sought a declaratory judgment of the Diocese's and its insurers', including U.S. Fire's, rights related to the underlying actions and claims. Compl. ¶ 35.
6. None of the Diocese's original Claims arise under 11 U.S.C. § 1101, et seq. ("Bankruptcy Code"). Rather, through its original Claims, the Diocese sought an adjudication as to whether, under its insurance policies, it was entitled to declaratory judgment that:
• the Underlying Claims constitute an "occurrence";
• the injuries alleged in the Underlying Claims constitute "bodily injury";
• the Underlying Claims constitute "personal injuries";
• the Underlying Claims fell within the periods covered by the insurance coverage; and,
• the Diocese provided timely notice of the Underlying Claims to its insurers.Compl. ¶ 38.
7. The Diocese demanded a jury trial on its Claims. Compl. p. 11. U.S. Fire similarly has a jury trial right and sought a jury trial on the Claims.
8. On November 30, 2018, the Diocese filed a voluntary petition for relief under chapter 11 of the Bankruptcy Code, in the Bankruptcy Court for the District of Minnesota.
9. The Diocese removed the Adversary Proceeding to the Court from Minnesota state court on December 3, 2018. See Docket No. 1. The Court automatically referred the Adversary Proceeding to the Bankruptcy Court, pursuant to Local Rule 1071.
10. The Diocese filed its proposed plan of reorganization (“Plan”) on February 9, 2021.
11. U.S. Fire objected to the proposed Plan, but the Diocese and U.S. Fire successfully negotiated plan language that resolved U.S. Fire objections.
12. Prior to confirmation, the Diocese and certain Parishes and Schools entered into agreements with the Adamson Claimants consistent with Miller v. Shugart, 316 N.W.2d 719 (Minn. 1982) (the "Miller-Shugart Agreements") that assigned the Diocese's and the co-defendants' rights under the U.S. Fire policies to the Adamson Claimants. Plaintiff further acknowledges that various stipulated judgments were entered pursuant to the resulting Miller-Shugart Agreements; and that as part of those Miller-Shugart Agreements, the Adamson Claimants covenanted not to execute on the stipulated judgments entered against the Diocese, and to seek recovery on such stipulated judgments only against U.S. Fire. (Am. Compl. ¶¶ 14, 49, 58-59.).
13. The Bankruptcy Court confirmed the Plan, as modified, on October 14, 2021.
14. The confirmed Plan expressly contemplates that the coverage issues will proceed to trial (see Plan at §§ 6.14(m), 7.3). The Plan also contains bargained-for insurance neutrality provisions (see, e.g., Plan at § 8.4), which were intended to prevent the Plan from having any impact on the parties' rights or obligations in the pending Adversary Proceeding. That language provides:
8.4THE PLAN IS NEUTRAL AS TO NON-SETTLING INSURER POLICIES.
For the avoidance of doubt, solely with respect to the Non-Settling Insurers, except as set forth in Sections 6.7(a)(2) and 8.1(a) above, nothing in the Plan, the Trust Agreement, the Trust Distribution Plan, the Confirmation
Order, any order approving a settlement, or any other order, judgment, conclusion of law, finding of fact, determination or statement (written or verbal) of the Bankruptcy Court (or any other Court exercising jurisdiction over this Chapter 11 case) to the contrary (including any other provision that purports to be preemptory or supervening or grants a release): (i) shall affect, impair, or prejudice the rights and defenses of any Non-Settling Insurer against the Debtor or any other insureds under any Non-Settling Insurer Policies, including any factual or legal defenses to any claim for insurance; (ii) shall affect, impair, or prejudice the rights and defenses of any Protected Party, the Trust, or any other insureds under Non-Settling Insurer Policies in any manner, including any factual or legal defenses to any claim for insurance; (iii) shall constitute a settlement or resolution of any Protected Party's liability to a Tort Claimant; (iv) shall in any way operate to, or have the effect of, impairing or having any res judicata, collateral estoppel, or other preclusive effect on, any party's legal, equitable, or contractual rights or obligations under any Non-Settling Insurer Policy; or (v) shall otherwise determine the applicability or nonapplicability of any provision of any Non-Settling Insurer Policy and any such rights and obligations shall be determined under the Non-Settling Insurer Policy and applicable law. For the avoidance of doubt, the Supplemental Settling Insurer Injunction and the Channeling Injunction apply to the Non-Settling Insurers.
To the extent it becomes necessary to enforce the terms of this Article 8.4 in any subsequent coverage, garnishment action, or other proceeding related to a Non-Settling Insurer, the party seeking to enforce this article may offer or tender the terms of this Article 8.4 to the judge presiding over such proceeding, and the Debtor, the Trustee (on behalf of the Trust), the Non-Settling Insurer(s), or any DoW Entity, in each case to the extent such Person is a party to such proceeding, shall stipulate and agree that this Article 8.4 is binding upon them and was approved by the Bankruptcy Court in the Confirmation Order
15. Following confirmation, the DW Harrow & Associates, LLC, as trustee of the Diocese of Winona-Rochester Settlement Trust (hereinafter "Plaintiff" or "Trustee") was substituted as the real party in interest in this coverage action by order entered December 5, 2021.
16. On December 15, 2021, the Plaintiff filed a second Amended Complaint (the "Amended Complaint") asserting six new distinct causes of action. Count I asserts a state law breach of contract claim for allegedly breaching a duty to defend the Adamson claims. Count II asserts a state law breach of contract claim for allegedly breaching a duty to accept reasonable settlements of the Adamson Claims. Count III asserts a state law "common law" bad faith failure to settle the Adamson Claims but was voluntarily dismissed by the Trustee. Count IV similarly asserts a state law "common law" bad faith failure to settle the Non-Adamson Claims but was also voluntarily dismissed by the Trustee. Count V seeks a declaration that the Miller-Shugart settlements entered into by the Debtor are reasonable. This is a classic non-core coverage issue that does not depend on or affect any aspect of the now-closed bankruptcy case. Notably, this claim never belonged to the bankruptcy estate; claims for collection of the Miller-Shugart settlements belong to the creditors that are claimants against the Trust. Count VI seeks a declaration concerning the existence, terms, and limits of alleged excess policies (see, supra, ¶ 1). Again, this is a classic "non-core" coverage issue that does not depend on or affect any aspect of the now-closed bankruptcy case.
Although erroneously labeled as the First Amended Complaint, it actually was the second amendment complaint.
17. U.S. Fire moved to dismiss the Amended Complaint. Thereafter, on or about January 28, 2022, the Plaintiff filed a third amended complaint (the "Second Amended Complaint"). In the Second Amended Complaint, the Plaintiff dropped the bad faith counts as well as a number of the Miller-Shugart claims. _Despite streamlining the claims, the Second Amendment Complaint, if not dismissed, interjects new claims and triggers new defenses not previously joined in the pleadings between the parties.
18. The Claims in the Second Amended Complaint arise under state law.
ARGUMENT
A. Permissive Abstention Is Appropriate
The bankruptcy court's jurisdiction is set forth in 28 U.S.C. § 1334. Subsections (c)(1) and (c)(2) provide for mandatory and permissive abstention. The Court has asked the parties to brief whether permissive abstention is appropriate under Section 1334(c)(1). That subsection provides:
Under § 1334(c)(2), this Court is required to abstain from hearing, any proceeding where "(1) the proceeding is based on state law or a state cause of action; (2) the matter is a 'related to' proceeding rather than a proceeding 'arising under' or 'arising in' a Title 11 case; (3) the action could not have been commenced in a federal court absent bankruptcy; (4) an action in state court has been commenced; and (5) the state court action can be timely adjudicated." In re Kamine/Besicorp Allegany, L.P., 214 B.R. 953, 974 (Bankr. D.N.J. 1997). But for the possibility of diversity jurisdiction, mandatory abstention under subsection (c)(2) would have applied. Because the deadline for removal based on diversity has long since passed (and no Defendant sought diversity removal), the only basis for federal jurisdiction was the bankruptcy removal statute (28 U.S.C. § 1452(a)). As such, mandatory abstention applies.
Except with respect to a case under chapter 15 of title 11, 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 11.28 U.S.C. §1334(c)(1). The decision concerning whether to abstain is one falling within the court's discretion. 28 U.S.C. § 1334(d); In re Chicago, Milwaukee, St. Paul & Pacific R.R., 6 F.3d 1184, 1188 (7th Cir. 1993); In re Pan American Corp., 950 F.2d 839, 844 (2d Cir. 1991). "Because the statute provides only general standards for determining whether abstention is appropriate, i.e., 'in the interest of justice, or ... comity,' courts have been guided by 'well developed notions of judicial abstention…'" In re Williams, 256 B.R. 885 (8th Cir. BAP 2001) (internal quotations omitted). The courts typically examine twelve factors in determining whether abstention is appropriate. These include:
(1)the effect or lack thereof on the efficient administration of the estate if a Court recommends abstention,
(2)the extent to which state law issues predominate over bankruptcy issues,
(3)the difficult or unsettled nature of the applicable 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 the 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 [on] the bankruptcy court's docket,
(10) the likelihood that the commencement of the proceeding involves forum shopping by one of the parties,
(11)the existence of a right to a jury trial, and
(12)the presence in the proceeding of nondebtor parties.Id. at 894 (citing In re Phelps Technologies, 238 B.R. 819, 821 (Bankr. W. D. Mo. 1999)). See also, In re Tucson Estates, Inc. 912 F.2d 1162, 1166 (9th Cir. 1990); Matter of Chicago, Milwaukee, St. Paul & Pacific Railroad Co., 6 F.3d at 1189 ("Courts should apply these factors flexibly, for their relevance and importance will vary with the particular circumstances of each case, and no one factor is necessarily determinative."). In general, "[w]here a state court proceeding sounds in state law and bears a limited connection to [a] debtor's bankruptcy case, abstention is particularly compelling." In re Koperski, 540 B.R. at 402 (quoting Nat'l Union Fire Ins. Co. v. Titan Energy (In re Titan Energy, Inc.), 837 F.2d 325, 332 (8th Cir. 1988)); see also In re Stillmunkes, 2020 WL 2121267 at *4 (Bankr. N.D. Iowa, April 30, 2020) (same). As discussed below, these factors overwhelmingly support abstention.
(1) the effect or lack thereof on the efficient administration of the estate if a Court recommends abstention.
There will be no impact on administration of the estate if the Court recommends abstention. The insurance coverage issues involved in this matter are not dependent on bankruptcy law in any way. Moreover, the Debtor's plan is confirmed and the estate is fully administered. The Plaintiff is now the Trust which is not a successor to the Debtor and is a separate legal entity. This factor supports abstention.
U.S. Fire also incorporates by reference the arguments made on these issues in connection with its motion to dismiss for lack of subject matter jurisdiction.
(2) the extent to which state law issues predominate over bankruptcy issues.
The adversary proceeding involves only state law issues. Indeed, when the Diocese was a party, it first brought the case in state court (see Notice of Removal, ECF No. 1). As the bankruptcy court has acknowledged previously, no issues arising from bankruptcy law are involved.
(3) the difficult or unsettled nature of the applicable law.
The applicable law is largely settled, but difficult fact issues will be involved in the trial on certain of the insurance issues. This factor neither favors nor disfavors abstention.
(4) the presence of a related proceeding commenced in state court or other nonbankruptcy court.
The case was originally filed by the Diocese in state court but was removed to the bankruptcy court. Other than the Ninth Circuit, courts considering abstention treat a removed case as a pending state court case. See Mt. McKinley Insurance Co. v. Corning, Inc. 399 F.3d 436 at 446-47 (2d Cir. 2005) (collecting cases). This factor favors abstention.
(5) the jurisdictional basis, if any, other than 28 U.S.C. § 1334.
Jurisdiction could possibly exist under 28 U.S.C. § 1332 because the new parties are fully diverse. This factor weighs against abstention.
(6) the degree of relatedness or remoteness of the proceeding to the main bankruptcy case.
There is no significant relatedness to the main bankruptcy case. First, the main bankruptcy case has concluded and there are no ongoing bankruptcy issues to determine. Second, the adversary proceeding involves state law issues that could - and did - exist wholly independent of the bankruptcy. This factor supports abstention.
(7) the substance rather than the form of an asserted 'core' proceeding.
No party asserts that the proceeding is "core." Indeed, this Court has acknowledged repeatedly that the matters involved are not core. The substance of this proceeding pertains to state law insurance law issues that could exist wholly independent of the bankruptcy. Insurance coverage actions that arise from state law are not "core" proceedings. See Amatex Corp. v. Aetna Cas. & Surety Co., 107 B.R. 856, 863 (E.D. Pa. 1989), aff'd 908 F.2d 961 (3d Cir. 1990); see also In re G-1 Holdings, Inc., 278 B.R. 376, 384 (Bankr. N.J. 2002) (prepetition coverage action was non-core proceeding). Consequently, they are "related to" Title 11, but do not "arise under" Title 11 or "arise in" a case under Title 11. See In re Marcus Hook Dev. Park, Inc., 943 F.2d 261, 267 (3d Cir. 1991) (holding that an action is a core proceeding "if it invokes a substantive right provided by title 11 or if it is a proceeding that, by its nature, could arise only in the context of a bankruptcy case"); see also In re U.S. Brass Corp., 110 F.3d 1261, 1268-69 (7th Cir. 1997) ("[The] claimed right to insurance coverage [is non-core because it] is a creation of state contract law and one that could be vindicated in an ordinary breach of contract suit if [a party] were not a bankrupt."). This factor supports abstention.
(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.
There are no core bankruptcy matters involved. This factor supports abstention.
(9) the burden [on] the bankruptcy court's docket.
The adversary proceeding will take significant time. If it retains this matter, the Court will be required to hear all discovery and summary judgment matters and to make multiple written recommendations and proposed findings to the District Court. The weight of this factor, however, must be determined by the Court.
(10) the likelihood that the commencement of the proceeding involves forum shopping by one of the parties.
U.S. Fire believes that the Trust seeks to have this matter litigated in the bankruptcy court (for pretrial matters anyway) to gain a forum advantage. To the extent this factor is relevant, it supports abstention.
(11) the existence of a right to a jury trial.
U.S. Fire has a jury trial right and, based on communications with the Plaintiff, U.S. Fire believes this fact is undisputed.
The main issues presented in this matter are the insurance coverage defenses of "expected or intended" injury, the existence of certain alleged polices, and the Miller-Shugart settlement issues of "reasonableness" and "allocation." The law in Minnesota, in the Eighth Circuit applying Minnesota law, and in this District is clear that U.S. Fire has a jury trial right on all these issues.
On the "expected or intended" issue, the Eighth Circuit, the Minnesota Court of Appeals, and the Minnesota Jury Instruction Guide all accept as a fait accompli that this presents a jury issue. See Auto-Owners Ins. Co. v. Jensen, 667 F.2d 714, 717-20 (8th Cir. 1981) (Minn.) (observing that district court's role is to instruct the jury regarding the meaning of the policy and submit to them the questions of fact, and holding that district court incorrectly instructed the jury on the meaning of "expected," requiring a new trial on that "question[] of fact"); Gopher Oil Co. v. Am. Hardware Mut. Ins. Co., 588 N.W.2d 756, 766-67 (Minn.Ct.App. 1999) (affirming trial court's jury instruction regarding expected or intended injury exclusion); see also Insurance Policy Exclusion Burden of Proof, 4 Minn. Prac., Jury Instr. Guides--Civil CIVJIG 59.15 (6th ed.) (providing model jury instruction on policy exclusions).
Regarding the alleged policies, the Minnesota Supreme Court has confirmed this presents a jury issue. Domtar, Inc. v. Niagara Fire Ins. Co., 563 N.W.2d 724, 736 (Minn. 1997) (indicating agreement with appellant's assertion that existence, terms, and conditions of lost policy are questions of fact to be presented to jury). See also Am. States Ins. Co. v. Mankato Iron & Metal, Inc., 848 F.Supp. 1436, 1441 (D. Minn. 1993) ("Taking all of Mankato's evidence as true, and drawing from it all reasonable inferences, the Court determines that a jury could reasonably find that Western issued CGL policies to Mankato between July 1, 1978 and August 31, 1983 that contained language substantially the same as that found in the August 31, 1983 CGL policy." (emphasis added))
Notably, in the prior Diocese of Winona v. Interstate Fire & Casualty Co. case, the Eighth Circuit described the question of whether Father Adamson's abuse was "substantially probable" - and therefore expected, for purposes of the definition of "occurrence" - as "a mixed question of fact and law." 89 F.3d 1386, 1392 (8th Cir. 1996).
Because the facts pertinent to the "expected" issue were undisputed, the court ruled on the issue as a matter of law. Id. at 1394. But that was just a determination there were no disputed facts for the jury to decide; not that a jury was unavailable.
With regard to the Miller-Shugart issues of "reasonableness" and "allocation," District Judge Nelson has held expressly that these issues invoke a party's jury trial right in Federal Court notwithstanding potentially contradictory authority in Alton M. Johnson Co. v. M.A.I. Co., 463 N.W.2d 277 (Minn. 1990). See In re RFC & RESCAP Liquidating Tr. Action, 332 F.Supp.3d 1101 (D. Minn. 2018). In that case, RFC was a residential mortgage-backed securities broker. It bought mortgages from mortgage lenders, packaged them into securities, and sold them to investors. During the recession, these securities failed, and investors sued RFC. RFC settled with the investors and then filed Chapter 11 bankruptcy. During the bankruptcy proceedings (before Bankruptcy Judge Martin Glenn), other creditors objected to the settlement. Bankruptcy Judge James Peck mediated, and the resulting settlement was confirmed and the plan was approved.
RFC then sued the mortgage lenders from whom it had purchased the mortgages. Key to the lawsuit was an indemnification provision in the RFC-lender contracts. At summary judgment, Judge Nelson reasoned that the Miller-Shugart framework applied to the claim for contractual indemnification of RFC's bankruptcy settlement, but held that the record did not lend itself to resolution of the settlement's reasonableness at summary judgment. She ordered supplemental briefing on whether the settlement's reasonableness posed a jury question.
After receiving that briefing, "the Court conclude[d] that the Seventh Amendment requires ResCap to prove to a jury that the Bankruptcy Settlements were 'reasonable and prudent.' Miller v. Shugart, 316 N.W.2d 729, 735 (Minn. 1982)." 2018 WL 4469249, at *4 (D. Minn. Sept. 18, 2018). Citing Alton, Judge Nelson reasoned: "Although the Court acknowledges that Minnesota law treats the reasonableness of pretrial settlements as an equitable matter to be decided by a court, an analysis under the federal law framework reveals that this issue is better categorized as legal, rather than equitable." Id. at *2. Applying the Seventh Amendment framework, she ruled that the reasonableness of the bankruptcy settlement presented a factual question for the jury. In addition, she distinguished several District of Minnesota cases which had treated Miller-Shugart reasonableness as a question for the court, reasoning that those cases merely cited Alton in passing, did not analyze the Seventh Amendment, and never made it past summary judgment.
U.S. Fire thus respectfully submits the law is undisputed that it has a right to a jury trial on most, if not all, of the issues presented in this action. How that conclusion impacts the manner in which this case proceeds to trial is not an issue the Court has asked that we address in this submission, and thus is a topic - if at all - for discussion on another day. As to the matter presently at hand, U.S. Fire is unquestionably entitled to a jury trial in this case.
This factor strongly supports abstention.
(12) the presence in the proceeding of nondebtor parties.
The proceeding involves only non-debtor parties. This factor strongly supports abstention.
Of the twelve factors for consideration, almost all weigh in favor of abstention. The presence of a jury trial right and the absence of any bankruptcy cause of action weigh heavily in favor of abstention. The only factor that weighs against abstention is the possibility of diversity jurisdiction. Even as to that factor, however, the Court should note that the Diocese chose to remove this action to the bankruptcy court after first filing it in state court. Absent bankruptcy removal, this case would have remained in state court and adjudicated there under state law. As the court noted in Stillmunkes, supra, such cases are particularly appropriate for abstention.
B. Remand Is Appropriate Under 28 U.S.C. 1452(b).
With respect to cases removed to the bankruptcy court from state court, as was this case, 28 U.S.C. § 1452(b) provides that "[t]he court to which such claim or cause of action is removed may remand such claim or cause of action on any equitable ground. …" The equitable grounds permitting remand are not defined by statute. "This 'any equitable ground' remand standard is an unusually broad grant of authority. It subsumes and reaches beyond all of the reasons for remand under nonbankruptcy removal statutes. [Citation omitted.] At bottom, the question is committed to the sound discretion of the bankruptcy judge." McCarthy v. Prince (In re McCarthy), 230 B.R. 414 (9th Cir. BAP 1999).
Notably, neither § 1452 nor Rule 9027 contains any time limitation for the filing of a motion to remand. In re Refco, Inc., 354 B.R. 515 (8th Cir. 2006). A bankruptcy court may reach the issue of abstention sua sponte, but only if the parties have advance notice that the court is considering abstention. See Stabler v. Beyers (In re Stabler), 418 B.R. 764, 769 (8th Cir. BAP 2009) ("[T]he procedure by which the [abstention] issue came before the bankruptcy court is largely irrelevant, as long as the Debtors had notice that the court was considering abstention.").
Generally, the factors that bankruptcy courts consider in deciding whether removed action should be remanded to state court are: whether remand would prevent duplication or uneconomical use of judicial resources; effect of remand on administration of bankruptcy estate; whether the case involves questions of state law better addressed by state court; comity; prejudice to involuntarily removed parties; whether remand will lessen possibility of inconsistent results; and expertise of the court in which action originated. River Cement Co. v. Bangert Bros. Const. Co., 852 F.Supp. 25, 27 (D. Colo. 1994). Moreover, the factors applicable to remand under § 1452 are substantially like those applicable to abstention. See Hopkins v. Plant Insulation Co., 349 B.R. 805, 813 (N.D. Cal. 2006); In re Riverside Nursing Home, 144 B.R. 951, 957 (S.D.N.Y. 1992). Some courts have said that the two considerations are the same, but that in determining remand, the Court should consider four additional factors:
(1)whether remand serves principles of judicial economy;
(2)whether there is prejudice to unremoved parties;
(3)whether the remand lessens the possibilities of inconsistent results; and
(4)whether the court where the action originated has greater expertise.See Farmers Bank & Trust Co. v. Chickasaw Prop., LLC (In re Burrow), 505 B.R. 838, 849-50 (Bankr. E.D. Ark. 2013). These factors generally relate to judicial efficiency and comity.
Despite the breadth of factors that the Court could consider, if abstention is appropriate, the bankruptcy court has authority to remand the case to state court pursuant to § 1452. See In re Mattson, 448 B.r. 540 (Bankr. D. Kan. 2011).
Even if the Court finds it necessary to consider the above-listed factors, it should find that equitable grounds exist to remand the case. For example, in a silica tort case pending in California, the bankruptcy court remanded the matter to state court despite concluding that it could exercise subject matter jurisdiction over state law claims asserted between non-debtors. See TIG Ins. Co. v. Smolker, 264 B.R. 661 (Bankr. C.D. Cal. 2001). Despite cross-claims had been filed against the debtor in that case, the court remanded the claims because the claims were based entirely upon state law and interests of judicial economy could be served by having claims resolved in state court. Id. at 667. The same factors predominate here. This action was filed in state court and despite the recent amendment it continues to involve only issues of state insurance coverage law. The state courts are most expert in evaluating and applying state insurance law. As such, and given the efficiency factors discussed above, remand is appropriate.
C. In the Alternative, the Court Should Transfer the Case
If the Court concludes that it has jurisdiction and chooses not to abstain or remand, transfer to the District Court is mandated under Local Rule 5011-3. Local Rule 5011-3 provides in pertinent part:
On the judge's own initiative or on motion of a party in interest, the bankruptcy judge shall transfer to the district court: 1) any proceeding in which the court has determined that there is a right to trial by jury of the issues for which a jury trial has been timely demanded, and the parties have not consented to the bankruptcy judge conducting the jury trial … and may transfer any non-core proceeding in which a party has not consented to entry of final orders by the bankruptcy court. Local Rule 5011-3 (emphasis added). Here, this Court will be unable to try this case because U.S. Fire has a jury trial right and this Court is not empowered to hold a jury trial without U.S. Fire's consent, which has not been granted. The rule mandates transfer in this situation. Because U.S. Fire otherwise has not consented to the entry of final orders, the Rule further authorizes permissive transfer of non-core proceedings such as this one. 18 Accordingly, the Court should either abstain from hearing this case or transfer it to the District Court.