Opinion
Case No. 2:04-CV-535-F.
January 21, 2005
Wesley L. Laird, Attorney for May's Distributing Co. Inc.
Lynda M. Hill, Attorney for Cleveland Tubing Inc.
J. Ross Foreman, Attorney for Total Containment Inc.
William H. Brooks, Attorney for Parker Hannifin Corp.
Neil Richard Clement, Attorney for Oil Equipment Co. Inc.
Seth Moskowitz, Attorney for Ticona Polymers Inc.
Kimberly Sayoc, Attorney for Dayco Products Inc. Mark IV Industries Ltd.
John Olinde, Attorney for Underwriters Laboratories Inc.
Philip Bridwell, Attorney for Altofina Chemicals Inc. Elf-Atochem North America Inc.
REPORT AND RECOMMENDATION OF UNITED STATES BANKRUPTCY JUDGE WILLIAM R. SAWYER TO THE UNITED STATES DISTRICT COURT
This Civil Action was referred to the undersigned pursuant to the District Court's Order of November 30, 2004. (Doc. 50). The District Court has requested that the undersigned submit proposed findings of fact and conclusions of law on the Motion to Remand filed by the Plaintiffs. (Docs. 25, 26). For the reasons set forth below, the undersigned recommends that the Plaintiff's Motion to Remand be GRANTED and that this Civil Action be REMANDED to the Circuit Court for Bullock County, Alabama.
FINDINGS OF FACT
The facts may be gleaned from the record in this case and are summarized as follows. On January 3, 2003, Plaintiff May's Distributing Company, Inc., filed suit against Defendants Total Containment, Inc., and Oil Equipment Company, Inc., in the Circuit Court of Bullock County, Alabama under Civil No. CV-03-02. May's brought suit on behalf of itself and a class of others similarly situated. It does not appear that the class has been certified. For purposes of simplicity the Court will refer to the Plaintiff as "May's." On July 1, 2003, May's amended its complaint adding six additional defendants, including Defendant Cleveland Tubing, Inc., the party who filed the notice of removal. On April 1, 2004, May's filed its second amended complaint, adding three additional defendants.
The gist of May's complaint is that it purchased pipe for use in its gasoline distribution. May's claims that the pipe has failed and alleges liability under a variety of theories. It is not necessary to examine these theories in detail for purposes of deciding the pending motion except to say that all of the theories of liability are founded under state law causes of action. There are no federal causes of action alleged in this civil action. May's seeks compensatory and punitive damages as a result of the allegedly defective design, manufacture and installation of pipe.
On March 4, 2004, Defendant Total Containment, Inc., filed a voluntary petition in bankruptcy in the United States Bankruptcy Court for the Eastern District of Pennsylvania under Case No. 04-13144. On June 1, 2004, Defendant Cleveland Tubing, Inc., filed a Notice of Removal, removing this civil action from the Circuit Court in Bullock County to this Court. On July 2, 2004, May's filed a Motion to Remand. (Docs. 25, 26).
CONCLUSIONS OF LAW
The undersigned is of the view that the motion to remand should be granted as the District Court lacks subject matter jurisdiction. That is, the underlying cause of action is not "related to" the bankruptcy proceeding within the meaning of 28 U.S.C. § 1334(b). In the alternative, the District Court should abstain from hearing this civil action under the provisions of 28 U.S.C. § 1334(c)(1) or (2). For these reasons, the motion to remand filed by May's should be granted.
A. Subject matter jurisdiction 1. Law
In the Notice of Removal filed by Defendant Cleveland Tubing it is alleged that this Court has subject matter jurisdiction to hear this matter pursuant to 28 U.S.C. § 1334(b), which provides as follows:
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.
It is not contended that the underlying civil action is a proceeding "arising under title 11" or "arising in" a case under title 11. Therefore, the Court must consider whether this civil action is "related to" a case under title 11.
In a decision handed down by Judge Albritton last year, the test for "related to" jurisdiction was articulated as follows:
The test for determining whether a civil proceeding is related to bankruptcy is whether the outcome of the proceeding could conceivably have an effect on the estate being administered in bankruptcy. The proceeding need not necessarily be against the debtor or the debtor's property. An 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 estate.Transouth Financial Corp v. Murry, 311 B.R. 99, 105-06 (M.D. Ala. 2004) (Albritton, J), citing Miller v. Kemira, Inc., (In re: Lemco Gypsum, Inc.), 910 F.2d 784 (11th Cir. 1990); and In re: Toledo, 170 F.3d 1340, 1345 (11th Cir. 1999).
2. Application of Law to Facts
The task at hand is to examine the underlying civil action and determine whether it will have an effect upon the bankruptcy case of Defendant Total Containment. One should first summarize where these proceedings stand. Prior to March 4, 2004, May's had a civil action in state court alleging multiple state law causes of action against multiple defendants. On March 4, 2004, Total Containment, filed a petition in bankruptcy in the Eastern District of Pennsylvania. At that time, an automatic stay came into being, staying the civil action against Total Containment, leaving May's free to proceed against all of the other Defendants. May's is free to file a claim in the Total Containment bankruptcy. In addition, the other Defendants are free to file claims for indemnification and contribution against Total Containment in bankruptcy court as well. Those claims fit squarely within the jurisdiction of the bankruptcy court. The question becomes whether the nondebtor parties to this civil action may use the bankruptcy court, or its jurisdiction to be more precise, to sort out the various claims among the nondebtor parties.
At first glance, it would appear that the resolution of the claims of the nondebtor parties would have no impact upon the bankruptcy proceeding. However, the outcome may give rise to a claim for indemnification or contribution which could affect the estate. In the case at bar, if we assume May's prevails against Cleveland Tubing, then Cleveland Tubing may have an action for indemnification against Total Containment, which is a debtor in a bankruptcy case in Pennsylvania. In my view, the action between the nondebtor parties is too attenuated to give rise to "related to" jurisdiction.
A Bankruptcy Judge in Massachusetts, in a case factually similar to the one at bar, stated the following:
A recovery by the plaintiff against the defendants will not directly affect the Debtor's bankruptcy estate. The defendants might have contribution claims against the Debtor in the future if the plaintiff is successful. However, this is only a precursor to the potential contribution claim, and it is too tenuous and speculative an event at this point in time to confer "related to" jurisdiction.Cenith Partners, L.P. v. Hambrecht Quist, Inc., (In re: videOcart), 165 B.R. 740, 744 (Bankr. D. Mass. 1994); see also, Armstrong v. Honeywell International, Inc., 198 F.Supp. 2d 899, 900 (S.D. Tex. 2002) (potential indemnity claim is not sufficient to create "related to" jurisdiction); The Foley Company v. Aetna Casualty Surety Company, (In re: S M Constructors, Inc.), 144 B.R. 855, 858 (Bankr. W.D. Mo. 1992) (to same effect); Wise v. Travelers Indemnity Company, 192 F.Supp.2d 506, 516 (N.D. W.Va. 2002) (large majority of cases reject the notion that "related to" jurisdiction arises because of potential third-party actions).
The most often cited case for "related to" jurisdiction was handed down by the Third Circuit in Pacor, Inc., v. Higgins, 743 F.2d 984 (3rd Cir. 1984). In Pacor, a man named Higgins who suffered from exposure to asbestos brought suit against Pacor, Inc. In turn, Pacor filed a third-party complaint against Johns-Manville. The action was brought in a state court in Pennsylvania. Johns-Manville subsequently filed bankruptcy. The state court in Pennsylvania severed the claim against Johns-Manville and set the claim of Higgins against Pacor for trial. Pacor attempted to remove Higgins' suit to federal court contending that it had "related to" jurisdiction, under a federal statute which was the predecessor to 28 U.S.C. § 1334.
In its decision in Pacor, the Third Circuit articulated the often repeated test for "related to" jurisdiction which is:
. . . whether the outcome of that proceeding could conceivably have any effect on the estate being administered in bankruptcy. [citations omitted]. Thus, the proceeding need not necessarily be against the debtor or against the debtor's property. An 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.
On the other hand, the mere fact that there may be common issues of fact between a civil proceeding and a controversy involving the bankruptcy estate does not bring the matter within the scope of section 1471(b) [now § 1334(b)]. Judicial economy itself does not justify federal jurisdiction.
* * *
Our examination of the Higgins-Pacor-Manville controversy leads us to conclude that the primary action between Higgins and Pacor would have no effect on the Manville bankruptcy estate, and therefore is not "related to" bankruptcy within the meaning of section 1471(b). At best, it is a mere precursor to the potential third party claim for indemnification by Pacor against Manville. Yet the outcome of the Higgins-Pacor action would in no way bind Manville, in that it could not determine any rights, liabilities, or course of action against the debtor. Since Manville is not a party to the Higgins-Pacor action, it could not be bound by res judicata or collateral estoppel.Pacor, Inc. v. Higgins, 743 F.2d 984, 994-95. The Eleventh Circuit adopted the Pacor test in Miller v. Kemira, Inc., (In re: Lemco Gypsum, Inc.), 910 F.2d 784, 787-88 (11th Cir. 1990). As the civil action in question here is a mere precursor to any potential liability owed by the Debtor Total Containment, there is no "related to" jurisdiction within the meaning of § 1334(b). For this reason, the motion to remand should be granted.
B. Abstention
In the event the District Court finds, contrary to the recommendation of the undersigned, that it has "related to" jurisdiction pursuant to 28 U.S.C. § 1334(b), the District Court may abstain either on the grounds of mandatory or permissive abstention. 28 U.S.C. § 1334(c). I will discuss both kinds of abstention below.
1. Mandatory Abstention
Section 1334(c)(2) provides as follows:
Upon a 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.
In the event the District Court either finds or assumes that it has jurisdiction, mandatory abstention under this provision applies. First, examination of the complaint in this civil action shows that the causes of action alleged arise solely under state law. Second, there is no federal jurisdiction, except under § 1334(b), if the District Court either finds or assumes that such jurisdiction exists. Third, an action has been commenced. Fourth, the action may be timely adjudicated in the Circuit Court for Bullock County. Therefore, if "related to" jurisdiction is either found or assumed, the elements of mandatory jurisdiction clearly apply.
2. Permissive Abstention
Section 1334(c)(1) provides 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 District Court handed down two decisions in 2002, where it avoided difficult jurisdictional and procedural issues, ruling instead on the basis of permissive abstention. Retirement Systems of Alabama v. J.P. Morgan Chase Co., 285 B.R. 519 (RSA I) (M.D. Ala. 2002) (Albritton, C.J.); Retirement Systems of Alabama v. Merrill Lynch Co., 209 F.Supp.2d 1257 (RSA II) (M.D. Ala. 2002) (Albritton, C.J.). Decisions to abstain or remand are not reviewable on appeal. 28 U.S.C. §§ 1334(d), 1452(b); The Retirement Systems of Alabama v. J.P. Morgan Chase Co., 2003 WL 23536878 (11th Cir. 2003).
The District Court has identified twelve nonexclusive factors to consider in deciding a question of permissive abstention. See, RSA I at 530-31. The undersigned will consider the twelve factors here.
1. The effect, or lack thereof, on the efficient administration of the bankruptcy estate if permissive abstention is exercised. In this case, there will be no effect upon the administration of the bankrupt estate if permissive abstention is exercised, which favors remand.
2. The extent to which state laws predominate over bankruptcy issues. In this case, state law issues predominate as there are no bankruptcy issues, which favors remand.
3. The difficulty or unsettled nature of the applicable state law. This does not appear to be a factor in this case.
4. The presence of related proceedings commenced in state court or other non-bankruptcy courts. The record here does not show that there are any related proceedings in any other courts, therefore this is not a factor here.
5. The jurisdictional basis, if any, other than § 1334. There is no other jurisdictional basis, therefore this factor favors remand.
6. The degree of relatedness or remoteness of the proceedings to the main bankruptcy case. As discussed in Part A above, the proceedings are not directly related. The fact that the state court claim may give rise to a claim of indemnity makes the proceedings in state court remote to the proceedings in bankruptcy court, which favors remand.
7. The substance rather than the form of an asserted "core" proceedings. As this is not a core proceeding, this is not a factor.
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. This is not a factor here as there are no core bankruptcy matters involved.
If Mays files a claim in the Total Containment bankruptcy case and if Total Containment objects to the claim there will be such a core proceeding, which is readily severable from this civil action.
9. The burden on the bankruptcy court's docket. Granting the motion to remand will spare a bankruptcy court from having to hear the claims between the nonbankrupt parties. Moreover, it should be noted that while Cleveland Tubing has removed this civil action, it has not consented to permit a Bankruptcy Judge to enter final orders as provided by 28 U.S.C. § 157(c).
A brief review of some bankruptcy law history will shed some light on the difficulty which will be created here if the motion to remand is denied. Prior to the enactment of the Bankruptcy Reform Act in 1978, bankruptcy cases were heard by referees, who had limited jurisdiction to issue orders, leaving many controversies to the District Judges. The Bankruptcy Reform Act created the new office of Bankruptcy Judge and vested the Bankruptcy Judges with jurisdiction which was considerably broader than that previously exercised by referees. In 1982, the United States Supreme Court handed down its decision in Northern Pipeline Construction Co. v. Marathon Pipe Line Company, 458 U.S. 50, 102 S.Ct. 2858 (1982). In Northern Pipeline, the Supreme Court held that portions of the Bankruptcy Reform Act were unconstitutional in that Article III powers had impermissibly been granted to Bankruptcy Judges.
In response to Marathon Pipe Line, Congress enacted the Bankruptcy Amendments Act of 1984, which creates the jurisdictional scheme we now have. All bankruptcy jurisdiction is vested in the District Court. 28 U.S.C. § 1334. The District Courts may refer bankruptcy proceedings to the Bankruptcy Judges. 28 U.S.C. § 157. Bankruptcy Judges may hear and determine "core proceedings" subject to the right of any aggrieved party to appeal to the District Court. Moreover, "non-core" proceedings may be heard by a Bankruptcy Judge, however, a Bankruptcy Judge may not enter a final order unless all parties consent. 28 U.S.C. § 157(c). Where, as here, a matter is not core and where all of the parties have not consented to entry of final orders by a Bankruptcy Judge, proposed findings and conclusions must be entered by the Bankruptcy Judge and then reviewed by the District Court.
Where a proceeding is simple, this process is usually not unduly burdensome. However, where there are several parties and numerous claims, this procedure becomes cumbersome. By removing a case from state court to bankruptcy court, but not consenting to entry of a final order by a Bankruptcy Judge, it appears that Cleveland Tubing is deliberately exploiting this anomaly in the law to complicate these proceedings. In the view of the undersigned, there is no good reason to dance in the twilight of § 1334 jurisdiction, in the shadows between those powers granted Bankruptcy Judges and those reserved for Article III Judges, when all of this procedural complexity may be avoided by remand to a state court of general jurisdiction. The underlying cause of action is purely a creature of Alabama law, which could most expeditiously be heard and determined in an Alabama Court of general jurisdiction, thereby avoiding all of the unnecessary turbulence in the wake of Marathon Pipe Line. By granting May's motion to remand, these proceedings are, at least from a procedural standpoint, simplified considerably. This factor alone in my view provides more than a sufficient grounds for a decision to remand on the grounds of permissive abstention.
10. The likelihood that the commencement of the proceeding in bankruptcy court involves forum shopping by one of the parties. This factor also appears to be present, which is another reason to remand this case to the Circuit Court for Bullock County.
11. The existence of a right to jury trial. This case may be heard by a jury in Bullock County as well as in the Middle District. This factor does not favor either party.
12. The presence in the proceeding of non-debtor parties. Again, this factor favors remand. Cleveland Tubing, the party who removed to this Court is a non-debtor who has no legitimate interest in having its case heard by a federal court exercising § 1334 (bankruptcy) jurisdiction. It strikes me as more than a little ironic that a non-debtor party has removed this case asserting § 1334 jurisdiction while refusing to consent it its determination before a Bankruptcy Judge.
Viewing the factors for permissive remand as a whole, I believe that remand is appropriate. Moreover, Cleveland Tubing has not articulated any plausible reason why this case should be heard in federal court.
3. Procedural Issues
In addition to the jurisdictional issue and the question of abstention, the parties raise a thicket of procedural issues which I would summarize as follows: (1) Whether all Defendants must join in a Notice of Removal; (2) If so, whether all Defendants in fact joined here; (3) Whether the Notice of Removal was timely filed; (4) Whether the Motion to Remand was timely filed; (5) Assuming one or more procedural defects are present, whether these defects result in a waiver of either the right to remove or the right to file a motion to remand.
As discussed by the District Court in RSA I and RSA II, these procedural issues involve complex questions which have divided courts across the United States. As the District Court may dispose of this pending motion in a straight-forward manner on the grounds of subject matter jurisdiction, or under either of the abstention doctrines, it would appear to be unnecessary to address the various procedural issues raised.
CONCLUSION
In my view, the motion to remand should be granted because I believe this Court lacks subject matter jurisdiction to hear this civil action. In the alternative, I believe this Court should abstain under either the doctrine of mandatory abstention or permissive abstention. For these reasons, I believe that the motion to remand should be granted and this civil action should be remanded to the Circuit Court for Bullock County, Alabama.