ORDER REGARDING MOTION TO REMAND STATE COURT ACTION1
MIKE K. NAKAGAWA, Bankruptcy Judge.
On December 19, 2018, the court held a hearing on the Motion to Remand State Court Action ("Remand Motion") filed by Douglas B. Ross, M.D., an individual ("Ross"). Appearances were noted on the record. After arguments were presented, the matter was taken under submission.
BACKGROUND
On August 6, 2018, Jairo Alejandro Rodriguez ("Debtor") filed a voluntary Chapter 7 petition ("Petition"). (ECF No. 1). The case was assigned for administration to panel Chapter 7 bankruptcy trustee Lenard E. Schwartzer ("Trustee"). A Notice of Chapter 7 Bankruptcy Case ("Bankruptcy Notice") was mailed to all scheduled creditors. (ECF Nos. 40 and 44). The Bankruptcy Notice indicated that a meeting of creditors would be held on September 12, 2018, and that November 13, 2018, would be the deadline for creditors to file complaints objecting to the Debtor's discharge, or, to determine dischargeability of certain debts.
On August 17, 2018, Debtor filed his schedules of assets and liabilities ("Schedules") along with his statement of financial affairs ("SOFA"). (ECF No. 46). Both the Schedules and SOFA are signed by the Debtor under penalty of perjury. According to his Schedule A/B, Debtor has an interest in the following entities: CAF Medical, LLC dba Injury & Chronic Pain Center ("CAF Medical"), Rutishauser, LLC dba NLV Pain Management & Urgent Care ("Rutishauser"), Injury Medical Consultants, and Elite Firearms and Tactical, LLC.2 He attests that the value of his interests in all of the entities is $0.00. Debtor also lists an interest in unpaid wages of approximately $550,000 owed to him by Rutishauser, LLC. In his Schedule A/B, he also attests that he has no claims against third parties, nor contingent and unliquidated claims of every nature, including counterclaims and rights to set off claims. According to his SOFA, Debtor was the subject of two lawsuits pending at the time he filed his Petition: Douglas B. Ross, M.D. v. Jairo Rodriguez, PAC, Case No. A-15-728577-B ("Ross Litigation"), and Michael Ladner v. Jairo Rodriguez, M.D., NLV Pain Management & Urgent Care, Case No. A-18-767642-C. Both lawsuits are for breach of contract and were filed in the Eighth Judicial District Court, Clark County, Nevada ("State Court").
On the same date he filed his Petition, Debtor also filed a Notice of Removal ("Removal Notice") with respect to the Ross Litigation. (ECF No. 7). Copies of the pleadings and record from the State Court also were filed along with the Removal Notice. (ECF Nos. 7 through 39).3 Upon removal, the action was assigned Adversary Proceeding No. 18-01085-MKN ("Removal Adversary"). According to the State Court record, the original complaint in the Ross Litigation was filed on December 4, 2015 and named numerous individuals and entities as defendants.4 Since that time, the universe of additional parties now include counter claimants, third party plaintiffs, and third-party defendants, along with the plaintiff, the Debtor, and Rutishauser.5
On October 31, 2018, the Trustee filed and served a notice of assets and instructions for creditors to file proofs of claim no later than January 29, 2019 ("Trustee Asset Notice"). (ECF No. 83).
On November 13, 2018, Ross, who also is the plaintiff in the Ross Litigation, commenced an adversary proceeding against the Debtor, denominated Adversary Proceeding No. 18-01123-MKN ("Ross Non-Dischargeability Proceeding"). In his adversary complaint, Ross alleges that the Debtor's obligations to him are excepted from a Chapter 7 discharge as a result of misconduct encompassed by Sections 523(a)(2)(A), 523(a)(2)(B), and 523(a)(4). (AECF No. 1).6
On November 14, 2018, an order of discharge ("Discharge Order") was entered under Section 727. (ECF No. 87). As a result of the Discharge Order, Debtor's personal liability for his prebankruptcy debts have been discharged, except for those to be determined in the Ross Non-Dischargeability Proceeding.
On November 16, 2018, Ross filed the instant Remand Motion (AECF No. 9) and noticed it to be heard on December 19, 2018. (AECF No. 10).
On December 4, 2018, Ross filed a separate motion for relief from stay ("MRAS") (ECF No. 89) that was noticed to be heard on January 9, 2019. (ECF No. 92). The MRAS seeks authorization for Ross to proceed with the Ross Litigation in State Court.
On December 10, 2018, Debtor filed his opposition ("Opposition") to the Remand Motion. (AECF No. 18).
On December 12, 2018, Ross filed a reply ("Reply") in support of his Remand Motion. (AECF No. 19).7
On December 14 and 17, 2018, a joinder in the Debtor's Opposition was filed by Align Chiropractic, a Nevada corporation ("Align Chiro"). (ECF No. 94; AECF No. 22).
DISCUSSION
At the hearing on the Remand Motion, counsel for the Debtor informed the court that Rutishauser, LLC had filed a separate Chapter 7 proceeding the preceding day. The court's records indicate that a voluntary Chapter 7 petition was filed on behalf of Rutishauser on December 18, 2018, denominated Case No. 18-17397-BTB. The case was assigned to Chapter 7 panel trustee Lenard E. Schwartzer, i.e., the same bankruptcy trustee in the Debtor's case. The Chapter 7 petition for Rutishauser was signed by the Debtor as the owner of Rutishauser. Because the Debtor's interest in the entity Rutishauser is at the very least property of the Debtor's bankruptcy estate, however, the Debtor arguably had no authority to sign the Chapter 7 petition.8 Moreover, if Rutishauser is in fact a sole proprietorship as attested by the Debtor, see note 2, supra, it has no legal existence separate from the Debtor and would not qualify to file a separate bankruptcy petition. In either event, because the Debtor has exercised control over property of his bankruptcy estate without consent of the Trustee or prior authorization from this court, his filing of the voluntary Chapter 7 petition violated the automatic stay under Section 362(a)(3). Because the filing of the Rutishauser petition violated the automatic stay, it is void ab initio. See Schwartz v. U. S. (In re Schwartz), 954 F.2d 569, 571 (9th Cir. 1992).
The Ross Litigation encompasses or once encompassed a variety of individuals and entities who are not debtors or otherwise entitled to bankruptcy protection. The list of non-debtor parties who currently are or have been involved in the Ross Litigation is extensive: Douglas Ross MD PC, Infuze LLC, Stephen J. Massa, Beau McDougall, Align Chiropractic, Michael H. Hamilton, Esq., Michael Hamilton Attorney at Law LLC, Silver State Lab LLC, Candy Carillo RN,9 Injury Medical Consultants LLC, Align Med (Alfreda) LLC, Align MSO LLC, Ryan Kissing DC, Keith Quisberg DC, Michael D. Digregorio M.D., Thomas Alfreda Jr. DO, Robert Ingham M.D., Shannon Beal, and, Michael Braunstein M.D.10 Because these individuals and entities are not debtors in this case, and the Petition was not filed under Chapter 13, the automatic stay under Section 362 and the co-debtor stay under Section 1301 does not apply to any of them. Thus, the Ross Litigation was not stayed as to any of these parties when the Petition was filed. Likewise, discovery from the Debtor as a percipient witness also was not stayed.
In addition to the entities and individuals encompassed by the Ross Litigation, the proceeding also included the counterclaim that the Debtor and Rutishauer asserted against Ross before the Petition was filed. See discussion at note 5, supra. Although the Debtor did not disclose that claim in his Schedule A/B,11 it is property of the Debtor's bankruptcy estate under Section 541(a)(1). See Sierra Switchboard Co. v. Westinghouse Electric Corp., 789 F.2d 705, 707 (9th Cir. 1986). Because that counterclaim is an inseparable part of the Ross Litigation, the remand request has additional consequences to the bankruptcy case.
By the instant motion, Ross seeks to remand the Ross Litigation to the State Court pursuant to the bankruptcy removal statute. See 28 U.S.C. § 1452. Subsection (a) of that statute permits civil claims and causes of action to be removed to the court where a bankruptcy case is pending, while subsection (b) provides in pertinent part 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). In determining whether an equitable ground for remand exists, bankruptcy courts typically consider up to fourteen different factors. See Desert Palace, Inc. v. LLTQ Enterprises, LLC (In re Caesars Entertainment Operating Company, Inc.), 588 B.R. 233, 241 n.4 (B.A.P. 9th Cir. 2018). Those factors include:
(1) the effect or lack thereof on the efficient administration of the estate if the Court recommends [remand or] abstention; (2) extent to which state law issues predominate over bankruptcy issues; (3) difficult or unsettled nature of applicable law; (4) presence of related proceeding commenced in state court or other nonbankruptcy proceeding; (5) jurisdictional basis, if any, other than § 1334; (6) degree of relatedness or remoteness of proceeding to 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 in bankruptcy court involves forum shopping by one of the parties; (11) the existence of a right to a jury trial; (12) the presence in the proceeding of nondebtor parties; (13) comity; and (14) the possibility of prejudice to other parties in the action.
Nilsen v. Neilson (In re Cedar Funding, Inc.), 419 B.R. 807, 820 n. 18 (B.A.P. 9th Cir. 2009). No single factor appears to be more important than another. Compare McCarthy v. Prince (In re McCarthy), 230 B.R. 414, 418 (B.A.P. 9th Cir. 1999) ("Any of these, and a host of other reasons, would justify an exercise of discretion to order remand under 28 U.S.C. § 1452(b).").
The court having considered the record concludes that the various remand factors, taken as a whole, favor remand of the Ross Litigation to the State Court.
All of the causes of action asserted in the Ross Litigation are based on state law, rather than bankruptcy law. The various legal theories are typical of those asserted in business cases before the State Court. Deference to the application of state law by the State Court is warranted. There is no independent jurisdictional basis for those actions to be adjudicated in federal court, including this bankruptcy court. Moreover, even though Ross has commenced a separate adversary proceeding against the Debtor under Section 523(a)(2) and 523(a)(4), he does not consent to the bankruptcy court entering a final judgment with respect to his claims against the non-Debtor parties in the Ross Litigation. See Reply at 2:23-25. The consent of any non-Debtor defendants does not bind or constitute a waiver by Ross. The State Court record indicates that a bench trial was scheduled for July 1, 2019, rather than a trial by jury. This circumstance somewhat avoids the limitations on a bankruptcy court's ability to conduct a jury trial, but it does not overcome the absence of consent by Ross. Compare Fed.R.Bankr.P. 9015(b) (requirement of consent of the parties for the bankruptcy court to conduct a jury trial).
The specter of forum shopping is significant. The record indicates that shortly before the Petition and Removal Notice were filed, an evidentiary hearing was scheduled on a motion to hold the Debtor and various non-Debtor defendants, including Carillo, in civil contempt for violation of a preliminary injunction previously issued by the State Court. After numerous continuances, a three-day evidentiary hearing was scheduled for August 6 through 9, 2018. On August 1, 2018, Debtor and other non-Debtor defendants filed an emergency motion to continue the evidentiary hearing. The State Court scheduled a hearing on the emergency motion for August 7, 2018. Before that hearing could be held, however, Debtor filed his Chapter 7 petition. In ordinary circumstances, the automatic stay might have been sufficient to prevent further action against the Debtor. But the Debtor also removed the Ross Litigation to the bankruptcy court, which had the effect of preventing the State Court from conducting the hearing with respect to the non-Debtor defendants, including the Debtor's spouse. As a result, the State Court vacated the evidentiary hearing and other pending matters, subject to further proceedings in the bankruptcy court.
Proceedings to enforce a prior state court order typically are not subject to the automatic stay under Section 362(b)(4). That provision excepts from the automatic stay "the commencement or continuation of an action or proceeding by a governmental unit . . . to enforce such governmental unit's . . . police and regulatory power . . ." 11 U.S.C. § 362(b)(4). In this circuit, civil contempt proceedings brought to enforce a prior state court order imposing discovery sanctions fall within this provision. See Dingley v. Yellow Logistics, LLC (In re Dingley), 852 F.3d 1143, 1147 (9th Cir. 2017); In re Montee, 2018 WL 2176076, at *4-5 (Bankr. D. Idaho May 10, 2018). A contempt proceeding to enforce a preliminary injunction previously issued by a state court certainly falls within this provision. In this instance, however, Debtor's removal of the entire Ross Litigation had the effect of depriving the State Court of authority to exercise its police or regulatory power to enforce its preliminary injunction. See In re Cedar Funding, 419 B.R. at 820.
These circumstances clearly support the exercise of this court's discretion to remand under 28 U.S.C. § 1452(b). Absent the Debtor's removal of the Ross Litigation, the automatic stay would have applied to the Debtor under Section 362(a)(1), subject to the police power exception under Section 362(b)(4). The automatic stay arising upon the filing of the Debtor's Petition would not have applied to Rutishauser, Carillo, nor any other non-Debtor party in the Ross Litigation. Moreover, the automatic stay arising from the Debtor's bankruptcy Petition would have prevented continued prosecution of the Ross Litigation against the Debtor, but would not have prevented the Debtor from being required to testify or being subject to discovery with respect to claims against other parties. See Groner v. Miller (In re Miller), 262 B.R. 499, 505 (B.A.P. 9th Cir. 2001); Bartech Systems Int'l, Inc. v. Mobile Simple Solutions, Inc., 2018 WL 679905, at *2 (D. Nev. Jan. 4, 2018). Instead, the Ross Litigation could have moved forward to trial with the only material question being its impact on the Ross Non-Dischargeability Proceeding. But even that question has marginal significance inasmuch as cause for relief from stay may exist under Section 362(d)(1) to allow pending state court litigation to conclude, with the question of dischargeability reserved to the bankruptcy court.12 Compare Griffin v. Wardrobe (In re Wardrobe), 559 F.3d 932 (9th Cir. 2009) (relief from stay order permitted state court to enter judgment but not to make findings concerning dischargeability of debt under Section 523(a)(2)). See also Littlefield v. Holtkamp (Matter of Holtkamp), 669 F.2d 505 (7th Cir. 1982) (relief from stay granted to allow prepetition personal injury claim to proceed to judgment, but not enforced outside of Chapter XI proceeding). In essence, there was no material reason for the Ross Litigation to have been removed from the State Court. Retaining the matter in the bankruptcy court, with no prospect of entering an effective judgment in a manner acceptable to all of the litigants, simply interferes with the efficient administration of the Debtor's case.
IT IS THEREFORE ORDERED that the Motion to Remand State Court Action, brought by plaintiff Douglas Ross, M.D., Adversary Docket No. 9, be, and the same hereby is, GRANTED.
