STEFAN R. UNDERHILL, District Judge.
On January 9, 2015, plaintiff Marah Wood Productions, LLC ("MWP") commenced an interpleader action pursuant to section 52-484 of the Connecticut General Statutes in the Connecticut Superior Court, Judicial District of New Haven at New Haven. Named as defendants were debtor-defendant Ruth M. Jones and defendants Imperial Real Estate Holdings, LLC ("Imperial"); Property Management & Real Estate Services, LLC ("PMRES"); David House; and Richard Coan ("the Trustee"), trustee for the Jones bankruptcy
Based on the entire record before me and the reasons set forth in this ruling and order, Jones's motion for remand (doc. 14) is
A party seeking to remove an action from state to federal court bears the burden of proving federal jurisdiction. Montefiore Med. Ctr. v. Teamsters Local 272, 642 F.3d 321, 327 (2d Cir.2011) (citing Cal. Pub. Emps.' Ret. Sys. v. WorldCom, Inc., 368 F.3d 86, 100 (2d Cir.2004)). A federal court evaluates whether subject matter jurisdiction exists based on the jurisdictional facts set forth in the pleadings at the time when the defendant files its notice of removal. Blockbuster, Inc. v. Galeno, 472 F.3d 53, 56-57 (2d Cir.2006). Further, removal statutes are strictly construed against removal. Syngenta Crop Protection, Inc. v. Henson, 537 U.S. 28, 32, 123 S.Ct. 366, 154 L.Ed.2d 368 (2002) (citing Shamrock Oil & Gas Corp. v. Sheets, 313 U.S. 100, 108-09, 61 S.Ct. 868, 85 L.Ed. 1214 (1941)); In re Methyl Tertiary Butyl Ether ("MTBE") Prods. Liab. Litig., 488 F.3d 112, 124 (2d Cir.2007).
The Trustee asserts the following jurisdictional facts regarding removal of MWP's interpleader action from state to federal court. On August 14, 2009, Jones filed a voluntary petition for relief under Chapter 11 of the U.S. Bankruptcy Code, 11 U.S.C. § 1101 et seq. Trustee's Opp'n Br. 1.
On June 18, 2013, Jones endorsed a check for $438,350.00 to MWP, and she "directed or caused" an additional $30,000.00 to be wire transferred from PMRES to MWP. Notice of Removal, Ex. A (Complaint), at 1 (doc. 1-1). MWP continues to hold those funds, which total
Jones avers that the funds transferred to MWP were in fact a loan to Imperial for the purchase and development of the 102 Locust Avenue property, and on November 21, 2014, she commenced a lawsuit in the Connecticut Superior Court, Judicial District of Stamford/Norwalk at Stamford, seeking the return of the monies in MWP's Fund, as well as other alleged damages for breach of several contracts. See generally Compl., Ruth Jones v. Robert L. Deak, No. FST-CV14-6023913-S (Conn.Super. Nov.25, 2014) (http://civilinquiry.jud.ct.gov/CaseDetail/PublicCaseDetail.aspx? Docket No=FSTCV146023913). Shortly after Jones filed her civil action, MWP commenced this interpleader action in state court on January 9, 2015, naming the Trustee as one of several defendants asserting ownership of or claims against the Fund. Notice of Removal, Ex. A (Complaint), at 1. On January 23, 2015, the Trustee appeared in the state case and removed MWP's interpleader action to federal court, noting that the case was "related to" the Jones bankruptcy estate. Notice of Removal 3; Trustee's Opp'n Br. 3. On February 23, 2015, Jones moved to remand the interpleader case to state court.
Section 1452(a) provides that cases filed in state court may be removed to federal court if they are related to bankruptcy proceedings. 28 U.S.C. § 1452(a) ("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 title."). Section 1334(b) provides, "the district courts shall have original but not exclusive jurisdiction of all civil proceedings arising under title 11, or arising in or related to a case under title 11." 28 U.S.C. § 1334(b) (emphasis added). In his notice of removal, the Trustee invokes the "related to" provision of section 1334(b) to invoke this Court's jurisdiction and remove MWP's interpleader action to federal court.
The Supreme Court has noted that although Congress did not define the scope of "related to" jurisdiction, it departed from its prior construction of section 1334 and instead created a broader and more open-ended construction of the district court's "related to" jurisdiction. Celotex Corp. v. Edwards, 514 U.S. 300, 307-08, 115 S.Ct. 1493, 131 L.Ed.2d 403 (1995) ("Congress intended to grant comprehensive jurisdiction to the bankruptcy courts so they might deal efficiently and expeditiously with all matters connected with the bankruptcy estate." (internal citation omitted)). That broader construction allows for the removal of otherwise non-removable claims to federal court on the basis of the district court's concurrent jurisdiction regarding bankruptcy claims. Cf. In re
The Second Circuit has noted that litigation may fall within the district court's "related to" jurisdiction if the outcome of that litigation "might have any `conceivable effect' on the bankrupt estate." In re Cuyahoga Equip. Corp., 980 F.2d 110, 114 (2d Cir.1992) (citing In re Turner, 724 F.2d 338, 340-41 (2d Cir. 1983), and Pacor, Inc. v. Higgins, 743 F.2d 984, 994 (3d Cir.1984)); see also In re Quigley Co., 676 F.3d 45, 57 (2d Cir.2012). Elaborating on that principle, the Second Circuit has held, in the context of a Chapter 11 bankruptcy, that a bankruptcy estate encompasses "all legal or equitable interests of the debtor as of the commencement of the case," including "causes of action possessed by the debtor at the time of filing," In re Jackson, 593 F.3d 171, 176 (2d Cir.2010), and any "interest in property that the trustee recovers." In re Bernard L. Madoff Inv. Secs. LLC, 740 F.3d 81, 88 (2d Cir.2014) (citing in part 11 U.S.C. § 541(a)(3)). Accordingly, "related to" jurisdiction may attach to "[e]very conceivable interest of the debtor, future, non-possessory, contingent, speculative, and derivative." Id. (citing Chartschlaa v. Nationwide Mut. Ins. Co., 538 F.3d 116, 122 (2d Cir.2008)). Thus, any civil action that affects the kinds of interests described above may be sufficient to trigger section 1452(a)'s removal provisions.
Based on the Supreme Court and Second Circuit's formulation of "related to" jurisdiction, a case in which the parties' "claims bring into question the very distribution of the estate's property" and its allocation "undoubtedly" vests the district court with the power to approve that allocation or distribution. In re Cuyahoga Equip. Corp., 980 F.2d at 114-15; see also Olick v. Parker & Parsley Petroleum Co., 145 F.3d 513, 515 (2d Cir.1998) (holding that fees accrued for services rendered after the commencement of Chapter 13 bankruptcy, and "any causes of action possessed by the debtor" with respect to those fees, were the property of the bankruptcy estate); In re Ionosphere Clubs, Inc., 156 B.R. 414 (S.D.N.Y.1993), aff'd, 17 F.3d 600 (2d Cir.1994) (causes of action may become assets of the estate once bankruptcy petition is filed).
Jones argues that (1) the Fund belongs to the joint venture, not to Jones as an individual; (2) that her state court breach of contract case will resolve "all claims to" the Fund; (3) that any monies returned from the Fund to Jones are subject to garnishment to satisfy a prejudgment remedy obtained by House against Jones in a separate state court proceeding; (4) that the monies held by MWP are not the same
The issues that Jones has raised regarding ownership interests and evidentiary burdens are precisely the questions that an interpleader action is intended to resolve. The Trustee has asserted an ownership interest in the Fund, alleging that it contains earnings that belong to the Jones Bankruptcy Estate. See 11 U.S.C. § 1115(a) (all "earnings performed by the debtor after the commencement of the [Chapter 11] case but before the case is closed, dismissed, or converted to a case under chapter 7, 12, or 13, whichever occurs first," is property of the bankruptcy estate.). Several other individuals, including Jones, have also asserted property rights in the Fund. Jones's objections regarding ownership interests in the Fund are arguments aimed at adjudicating the merits of the interpleader action before considering whether removal to the federal district court is proper.
The test for determining whether an action falls within the district court's "related to" jurisdiction does not rely on the merits of the interpleader action, but rather, on the factual assertions set forth in MWP's complaint and in the Trustee's notice of removal. Although federal appellate courts have offered little guidance on a removing party's evidentiary burden in invoking a district court's "related to" jurisdiction, the Supreme Court and Second Circuit's case law regarding removal on the basis of diversity jurisdiction is instructive.
To determine if a removing party has met the "amount in controversy" requirement, the Supreme Court has instructed district courts to determine if the defendant's notice of removal includes "a plausible allegation that the amount in controversy exceeds the jurisdictional threshold" in order for diversity jurisdiction to attach. Dart Cherokee Basin Operating Co., LLC v. Owens, ___ U.S. ___, 135 S.Ct. 547, 554, 190 L.Ed.2d 495 (2014).
Having determined that the district court's subject matter jurisdiction attaches to the interpleader proceeding because of its nexus and likely impact on the Jones
As a general matter, proceedings that are "related to" cases under title 11 are considered "non-core" proceedings. Lead I JV, LP v. N. Fork Bank, 401 B.R. 571, 578-79 (E.D.N.Y.2009). Put another way, "non-core" proceedings may be "related to the bankruptcy case but do not arise under Title 11 and are typically based on common law." In re EMS Fin. Servs., LLC, 491 B.R. 196, 201 (E.D.N.Y.2013). If a proceeding is deemed to be a "non-core" proceeding, then a district court must determine if mandatory abstention, 28 U.S.C. § 1334(c)(2), applies. If a proceeding is a "core" proceeding, however, the statutory provision for mandatory abstention does not apply, and the party moving for remand must convince the district court to exercise "permissive abstention" and remand the case upon "any equitable ground." 28 U.S.C. § 1452(b).
In certain circumstances, a case removed under the district court's "related to" jurisdiction may be considered a core proceeding. By statute, core proceedings may include legal proceedings regarding "matters concerning the administration of the estate" and "orders to turn over property of the estate."
Jones argues that the district court must abstain from reviewing the interpleader action, or in the alternative, that it should permissively abstain from exercising its jurisdiction. For the reasons discussed below, Jones's arguments are unavailing.
In addition to conferring jurisdiction, Section 1334 provides the following "mandatory abstention" provision for non-core proceedings:
28 U.S.C. § 1334(c)(2). A party seeking mandatory abstention bears the burden of demonstrating that abstention is proper and must prove all the statutory requirements to prevail; i.e., that (1) the motion to abstain/remand was timely; (2) the action is based on a state law claim; (3) the action is "related to" but not "arising in" or "arising under" the Bankruptcy Code; (4) Section 1334 provides the sole basis for federal jurisdiction; (5) the action was commenced in state court; and (6) the action can be "timely adjudicated" in state court. In re WorldCom, Inc. Secs. Litig., 293 B.R. 308, 331 (S.D.N.Y.2003) (citing In re Adelphia Commc'ns Corp., 285 B.R. 127, 143-44 (Bankr.S.D.N.Y.2002)).
If a proceeding is designated as a "core" proceeding, the mandatory abstention provision cannot apply. As previously noted, proceedings in which the estate or the debtor seek to adjudicate their property rights in certain property constitute core proceedings, even if the adjudication of those rights is governed solely by state law. Consequently, section 1334's "mandatory abstention" provision is inapplicable to the interpleader action, which seeks to determine the property rights of several parties, including the debtor (Jones) and the Jones Bankruptcy Estate (the Trustee). If the interpleader action were a non-core proceeding, other statutory provisions maintain that non-core proceedings enumerated in 28 U.S.C. § 157(b)(2) "shall not be subject to the mandatory abstention provision of section 1334(c)(2)." 28 U.S.C. § 157(b)(2)(4). Thus, under either formulation, mandatory abstention would be inappropriate.
Whether a matter can be "timely adjudicated" is a mixed question of law and fact. Parmalat Capital Fin. Ltd. v. Bank of Am. Corp., 639 F.3d 572, 580-82 (2d Cir.2011). Although factual allegations are drawn in favor of the party seeking remand, a party moving for remand under a theory of mandatory abstention bears the burden of demonstrating that all statutory requirements have been satisfied, and it must offer some proof to support its assertions. Id. To determine timeliness, the district court must evaluate four factors:
Id. at 580 (citing In re Georgou, 157 B.R. 847, 851 (N.D.Ill.1993)). The movant's bare assertion that a matter can be timely adjudicated—without an evaluation of the ramifications of the size, complexity, and judicial inefficiency of litigating several separate civil actions before the state court—is insufficient to establish that the state court can timely adjudicate a matter. Conn. Res. Recovery Auth. v. Lay, 292 B.R. 464, 471-72 (D.Conn.2003); In re Leco Enters., Inc., 144 B.R. 244, 251 (S.D.N.Y.1992) (citing In re Consulting Actuarial Partners, Ltd. P'ship, 72 B.R. 821, 828 (Bankr.S.D.N.Y.1987) (a "naked assertion that the matter can be adjudicated in the state court, without more, is insufficient to satisfy this requirement.")).
Jones's statements in support of mandatory abstention lack a proper basis in fact and ignore key considerations regarding an evaluation of timely adjudication. Jones asserts in general terms that Connecticut state courts are not "backlogged," Jones Mot. Br. 12, but she fails to offer any information on the speed with which the state courts adjudicate interpleader actions (or fraudulent conveyance actions, which she contends is the nature of this case). Jones has also failed to offer any information on the relative backlog or speed of adjudication of an interpleader action in state or federal court.
Similarly, Jones does not evaluate the relative expertise of the Connecticut state courts and the U.S. District Court for the District of Connecticut.
With respect to the current progress of the Title 11 proceeding, Jones avers that the estate has nearly completed liquidation. Federal courts have noted that the "nature of the underlying [bankruptcy] proceeding" plays a significant role in determining whether state proceedings will impact the timely resolution of the estate. Parmalat Capital Fin. Ltd., 639 F.3d at 581 (citing In re Leco Enters., 144 B.R. at 251). Although Chapter 7 proceedings generally lack the same urgency as Chapter 11 proceedings, the Jones proceeding has been pending in the bankruptcy court for over six years, and according to Jones, has nearly completed the liquidation process. See Id. (citing In re World Solar Corp., 81 B.R. 603, 612 (Bankr.S.D.Cal. 1988)). Further, because the Trustee timely removed the state action to federal court, the state action has not entered discovery or engaged in motion practice, and thus removal is unlikely to undermine the efficient adjudication of the interpleader action. See Allied Mech. & Plumbing Corp. v. Dynamic Hostels Hous. Dev. Fund Co., 62 B.R. 873, 878 (Bankr. S.D.N.Y.1986) (noting that evaluation of timely adjudication may include an evaluation of the relative progress of the state action before the state court). Thus, this factor weighs slightly in favor of federal jurisdiction and against remand.
The last timeliness factor attempts to determine whether a state court proceeding would prolong the administration or liquidation of the estate. Parmalat, 639 F.3d at 581-82. Jones alleges that the estate has nearly completed liquidation. Based on that assertion, engaging in parallel state court proceedings will almost certainly slow and prolong the administration of the bankruptcy estate. Taken together, Jones has not met her burden to establish
Even if Jones had demonstrated that the interpleader action would be timely adjudicated in state court, which she has not, she has also failed to demonstrate that section 1334 provides the sole basis for federal jurisdiction. As noted above, the Bankruptcy Code designates certain civil actions as core proceedings that fall within the concurrent jurisdiction of both the bankruptcy and district courts. 28 U.S.C. § 157. Accordingly, both section 1334 and section 157 may convey jurisdiction.
Moreover, if a state proceeding falls within the non-exclusive list provided in section 157, regardless whether that proceeding is a core or non-core action, it "shall not be subject to the mandatory abstention provision of section 1334(c)(2)." 28 U.S.C. § 157(b)(2)(4). The state interpleader action may, at a minimum, affect "the administration of the [bankruptcy] estate," "orders to turn over property of the estate," and "proceedings to determine, avoid, or recover fraudulent conveyances." 28 U.S.C. § 157(b)(2)(A), (E) & (H). Consequently, Jones has failed to meet her evidentiary burden to demonstrate that mandatory abstention or remand is appropriate.
Section 1334(c)(1) provides that "[n]othing in this section prevents a district court in the interest of justice or in the interest of comity with State courts or respect for State law, from abstaining from hearing a particular proceeding . . . related to a case under title 11." 28 U.S.C. § 1334(c)(1). Nevertheless, permissive abstention is only appropriate under certain "extraordinary and narrow" circumstances, Colorado River Water Conservation District v. United States, 424 U.S. 800, 817, 96 S.Ct. 1236, 47 L.Ed.2d 483 (1976), and is "informed by and interpreted according to `principles developed under the judicial doctrines.'" In re WorldCom, Inc. Secs. Litig., 293 B.R. at 332 (citing In re Pan Am. Corp., 950 F.2d 839, 846 (2d Cir. 1991)); see also Woodford v. Cmty. Action Cty., 239 F.3d 517, 522 (2d Cir.2001). Unlike a motion for remand, when considering a motion to abstain, federal courts have a "virtually unflagging obligation . . . to exercise the jurisdiction given them." Colo. River Water Conservation Dist., 424 U.S. at 817, 96 S.Ct. 1236.
The analysis of a request for equitable remand under section 1452(b) and permissive abstention under section 1334(c)(1) is substantively the same. Camofi Master LDC v. U.S. Coal Corp., 527 B.R. 138, 143 (Bankr.S.D.N.Y.2015) (citing Residential Funding Co., LLC v. UBS Real Estate Secs., Inc., 515 B.R. 52, 67 (Bankr.S.D.N.Y.2014)). The movant bears the burden of establishing that permissive abstention is warranted. In re WorldCom, Inc. Secs. Litig., 293 B.R. at 334.
When determining whether equity requires remand to state court, a district court should consider factors such as:
Schumacher v. White, 429 B.R. 400, 405 (E.D.N.Y.2010) (citing Drexel Burnham Lambert Grp., Inc. v. Vigilant Ins. Co.,
On balance, the factors for evaluating a request for permissive abstention do not favor remand. Litigating a case focused on the property rights of multiple parties, including the alleged ownership rights of the Jones Bankruptcy Estate, will no doubt impede the efficient administration of the bankruptcy estate. In re Calpine Corp., 354 B.R. 45, 50 (Bankr. S.D.N.Y.2006) (litigation in separate venues can cause a "significant burden and distraction" from efficiently managing the estate). The second factor, conversely, weighs slightly in favor of remand because issues of state law predominate. Nevertheless, that factor is "modest" in light of the fact that district court judges regularly "address matters of state law," and the primary issues of state law, here, are not novel, complex, or within the unique expertise of state courts. In re Adelphia Commc'ns Corp., 285 B.R. 127, 145-46 (Bankr.S.D.N.Y.2002) (noting that areas in which state law expertise dominates include matters involving "family law, probate law, condemnation law, [and] other specialized areas of law not regularly addressed in the federal courts."). Similarly, Jones has not identified any unique or unsettled issues of state law that warrant abstention on comity grounds. Comity is "not a material factor where a matter does not involve state public policy or the state's public interest," Camofi Master LDC, 527 B.R. at 149 (citing In re River Ctr. Holdings, LLC, 288 B.R. 59, 70 (Bankr.S.D.N.Y.2003)), and Jones has provided no information to indicate that comity requires abstention in the present case. The interpleader action is relatively closely related to the original bankruptcy; its adjudication will determine whether certain property belongs to, or does not belong to, the bankruptcy estate. Further, because an interpleader action is an action in equity, it does not implicate or affect any right to a jury trial. Additionally, the other removed defendants will not be prejudiced, nor have they objected to, the Trustee's removal of this case to the district court. Factors regarding judicial economy or the risk of inconsistent results have no real import with respect to this action; Jones has not identified why proceeding before the district court is any more or less economical or onerous than litigating multiple lawsuits before several state court judges.
Finally, Jones's objection that she is prejudiced by proceeding in the district court lacks merit. As a preliminary matter,
Jones has failed to meet her burden in establishing that permissive abstention or equitable remand apply in this case; accordingly, her motion for remand is denied.
Jones's motion to remand is
It is so ordered.
Although this case arises under the court's bankruptcy jurisdiction, Jones does not allege that the interpleader action raises "difficult questions of state law bearing on policy problems of substantial public import," nor does she allege that adjudication of the action in federal court would disrupt state efforts to establish a coherent policy regarding property law or fraud. Instead, Jones simply notes that state courts should "speak directly on the issue of state law" raised in the lawsuit she has filed in state court, Ruth Jones v. Robert Deak, No. FST-CV14-6023913-S (Conn.Super.Ct.), http://civilinquiry.jud.ct.gov/Case Detail/PublicCaseDetail.aspx?DocketNo=FSTCV146023913S. There is no indication that the interpleader action will negate or undermine Jones's ability to participate in the active litigation of her state court lawsuit, which is currently pending before the Connecticut Superior Court.