MARTIN GLENN, UNITED STATES BANKRUPTCY JUDGE
Debtor Residential Funding Company, LLC ("RFC") filed this lawsuit against UBS Real Estate Securities, Inc. ("UBS") in the New York State Supreme Court, seeking breach of contract damages and indemnification related to loans UBS sold to RFC. RFC then removed the action to this Court, and UBS now seeks to remand
The complaint filed in this action is substantially similar to complaints in 83 other lawsuits (the "RMBS Actions") initiated by RFC or its successor in interest, the ResCap Liquidating Trust (the "Trust"). The majority of the RMBS Actions are currently pending in the U.S. District Court for the District of Minnesota. Thirteen adversary proceedings substantially similar to this action are currently pending before this Court, under the central docket In re ResCap Liquidating Trust Mortgage Purchase Litigation, Adv. No. 14-07900 (Bankr.S.D.N.Y.). At least ten defendants in those adversary proceedings have pending motions to withdraw the bankruptcy reference and/or transfer venue, each in front of a different district judge.
The RMBS Actions involve similar state law claims for breach of contract and indemnification related to the packaging and sale of residential mortgage backed securities ("RMBS"). What sets the UBS action apart is the fact that UBS filed a proof of claim against RFC in the bankruptcy case. That distinction is determinative of the outcome of this Motion. UBS's proof of claim seeks contract breach damages and indemnification under a separate but similar contract governing the sale of loans
RFC asserts common law causes of action for breach of contract and contractual indemnification arising out of RFC's purchase of loans from UBS (the "Loans"). (See Second Amended Complaint ("SAC"), ECF Doc. #33 ¶¶ 81-91). According to RFC, it purchased over 2,200 mortgage loans from UBS, with an original principal balance in excess of half a billion dollars. (Id. ¶¶ 18, 20.) In connection with that sale, the parties entered into a Master Seller's Purchase and Warranties Agreement dated May 12, 2005 (the "MSPA," SAC Ex. A), under which UBS represented and warranted that the Loans would meet certain criteria and satisfy certain characteristics (the "Warranties"). (See SAC ¶ 25.) UBS also agreed to indemnify RFC against any liabilities and losses that RFC might incur if UBS's Warranties were false. (See, e.g., MSPA § 3.03; SAC ¶ 28.)
After purchasing the Loans, RFC either securitized them by creating so-called "RMBS Trusts," or sold them into whole loan pools. (SAC ¶¶ 22-24.) In doing so, RFC made certain representations to the RMBS or whole-loan purchasers concerning the characteristics of the Loans, relying on information provided by UBS and other mortgage originators. (Id. ¶¶ 26, 32.)
RFC alleges that the performance of the Loans revealed that the Loans contained a massive number of defects, in violation of
On May 14, 2012, RFC, Residential Capital, LLC, and numerous affiliates (the "Debtors") filed for chapter 11 bankruptcy protection, due in part to their enormous potential exposure from these RMBS-related lawsuits. (Id. ¶ 74.) RMBS investors, monoline insurers, whole-loan purchasers, indenture trustees, and others filed hundreds of proofs of claim in these bankruptcy proceedings, many of which mirrored pre-petition litigation, and all of which stemmed from allegedly defective mortgage loans. (Id. ¶ 75.) After protracted and contested proceedings, and through a lengthy mediation process, a global settlement was reached that provided for the resolution of all of the Debtors' RMBS-related liabilities — including liability arising from the Loans purchased from UBS — in exchange for over $10 billion in allowed claims, allocated by various means to the RMBS Trusts, monoline insurers, FHFA, securities law claimants, and others (the "Global Settlement"). (Id. ¶ 78.)
On December 11, 2013, the Court entered an order (the "Confirmation Order," Ch. 11 ECF Doc. #6065)
RFC filed this action on December 17, 2013, after its RMBS-related liabilities became fixed through confirmation of the Plan. RFC asserts that
(SAC ¶ 80.)
On November 9, 2012 — before RFC filed this action — UBS timely filed proof of claim number 4200 (the "UBS Claim") in RFC's bankruptcy proceeding. The UBS
RFC filed this action against UBS in the New York State Supreme Court, New York County, on December 17, 2013. (See Compl., ECF Doc. #1-2.) In its state court Complaint, RFC alleged that jurisdiction was proper in New York state court under CPLR sections 301 and 302, and that venue was proper under CPLR sections 501 and 503. (Compl. ¶¶ 13-14.)
On March 27, 2014, RFC removed this action under 28 U.S.C. § 1452(a) to the District Court for the Southern District of New York, invoking 28 U.S.C. § 1334 as its sole ground for federal jurisdiction and asserting that the action is a "core" bankruptcy proceeding. (See Notice of Removal, ECF Doc. #1-2 at 3-5; ¶ 13 ("The Removed Case is a core proceeding because it: concerns issues and claims similar and in some respects identical to those Defendant is asserting in its proof of claim in RFC's bankruptcy case; is in substance and effect a counterclaim by the bankruptcy estate; relates to the administration of the estate and the Trust's obligation to liquidate RFC's assets; and may affect the allowance or disallowance of claims against the estate.").) On April 1, 2014, the action was referred to this Court under 28 U.S.C. § 157(a) and the S.D.N.Y. Amended Standing Order of Reference. See Amended Standing Order of Reference (M-431), Case No. 12 Misc. 00032 (S.D.N.Y. Jan. 31, 2012).
In its Second Amended Complaint, RFC alleges that jurisdiction is proper in this Court since this action is a core proceeding under 28 U.S.C. § 157(b)(2)(C) as a counterclaim to UBS's proof of claim, and also under § 157(b)(2)(A), (L), and (O) in that it
UBS's Remand Motion seeks to remand this action to the New York State Supreme Court. UBS argues that (1) this Court has neither core nor "related to" jurisdiction over this proceeding, and (2) even if the Court does have jurisdiction, the Court should abstain from hearing the case. UBS also does not consent to the entry of final orders or judgment by this Court if it is determined that a bankruptcy judge, absent consent of the parties, cannot enter final orders or judgment consistent with Article III of the Constitution.
The party seeking removal of an action from state to federal court bears the burden of proving federal jurisdiction. Kirschner v. Grant Thornton LLP (In re Refco, Inc. Sec. Litig.), 628 F.Supp.2d 432, 437 (S.D.N.Y.2008). RFC asserts that federal jurisdiction exists over this action under 28 U.S.C. § 1334, which provides federal district courts with jurisdiction over "all civil proceedings arising under title 11, or arising in or related to cases under title 11." 28 U.S.C. § 1334(b). Title 28 further provides that district courts may refer "any or all cases under title 11 and any or all proceedings arising under title 11 or arising or related to a case under title 11... to the bankruptcy judges for the district." 28 U.S.C. § 157(a). Under the statute, matters that may be referred to the bankruptcy courts are divided into two categories: "core" and "non-core" proceedings. See generally 28 U.S.C. § 157; see also Arkison, 134 S.Ct. at 2171.
RFC asserts that this Court has jurisdiction over this action as a "core" proceeding since it is a counterclaim against UBS's proof of claim. See 28 U.S.C. § 157(b)(2)(C) (stating that core proceedings include "counterclaims by the estate against persons filing claims against the estate"). UBS disagrees, arguing that counterclaims must relate to a proof of claim to be considered "core." The Court rejects UBS's argument; the connection between a counterclaim and a proof claim is irrelevant for establishing federal subject matter jurisdiction over the counterclaim. The relationship between the claim and counterclaim — and specifically, whether both will necessarily be resolved as part of the claims allowance process — is determinative only of whether a bankruptcy court may finally adjudicate the counterclaim in question. See Stern v. Marshall, ___ U.S. ___, 131 S.Ct. 2594, 2620, 180 L.Ed.2d 475 (2011). Thus, this proceeding is statutorily core as a "counterclaim[] by the estate against persons filing claims against the estate."
Courts have grappled with constitutional and statutory limits on bankruptcy jurisdiction since before the current bankruptcy court system was created in the Bankruptcy Act of 1978 (the "1978 Act"). The inquiry commonly focused on whether a bankruptcy estate's affirmative claim against a third party involved the claims allowance process. For example, in Katchen v. Landy, 382 U.S. 323, 86 S.Ct. 467, 15 L.Ed.2d 391 (1966), the Supreme Court held that a bankruptcy judge had authority to enter judgment on a bankruptcy estate's preference action against a creditor that filed a proof of claim in the bankruptcy case, and to enter judgment against the creditor for an amount in excess of its proof of claim. The Court held that the preference action in question was, like any other claims objection, "part and parcel" of the claims allowance process, and therefore subject to adjudication by a bankruptcy court. Id. at 330, 86 S.Ct. 467. The Court explained: "he who invokes the aid of the bankruptcy court by offering a proof of claim and demanding its allowance must abide the consequences of that procedure." Id. at 333, 86 S.Ct. 467 n.9. "[O]ne of those consequences was resolution of the preference issue as part of the process of allowing or disallowing claims...." Stern, 131 S.Ct. at 2616 (explaining Katchen).
The contours of bankruptcy jurisdiction remained unclear after enactment of the 1978 Act. In a landmark decision, the Supreme Court struck down as unconstitutional the provisions of the 1978 Act that granted bankruptcy courts final adjudicative authority over certain state law claims brought against third parties who were not otherwise part of the bankruptcy proceeding. Northern Pipeline Constr. Co. v. Marathon Pipe Line Co., 458 U.S. 50, 102 S.Ct. 2858, 73 L.Ed.2d 598 (1982). The Court explained that Article III of the Constitution required those matters to be adjudicated by an Article III court, not an Article I bankruptcy court. Id. at 71-72, 102 S.Ct. 2858; see also In re New York Skyline, Inc., 512 B.R. 159, 171 (S.D.N.Y. 2014) (discussing Marathon). Notably, the defendant in Marathon had not filed a proof of claim in the bankruptcy case — an important distinction from Katchen. See Stern, 131 S.Ct. at 2615-18 (discussing Katchen and Marathon).
To address the constitutional issues raised in Marathon, Congress enacted the
Proceedings involving the "allowance or disallowance of claims" are listed as core proceedings under 28 U.S.C. § 157(b)(2)(B). Even after Marathon, it remained clear — as it had been since Katchen — that bankruptcy courts could constitutionally determine matters that were part of the claims allowance process. See, e.g., Langenkamp v. Culp, 498 U.S. 42, 44, 111 S.Ct. 330, 112 L.Ed.2d 343 (1990) ("[B]y filing a claim against a bankruptcy estate the creditor triggers the process of `allowance and disallowance of claims,' thereby subjecting himself to the bankruptcy court's equitable power.") (citing Granfinanciera, S.A. v. Nordberg, 492 U.S. 33, 58-59, 109 S.Ct. 2782, 106 L.Ed.2d 26 (1989)). This authority is codified in 28 U.S.C. § 157(b)(2)(B). But it was unclear whether Congress, by listing counterclaims as core in section 157(b)(2)(C), had provided that the filing of a proof of claim subjected a creditor to final adjudication by the bankruptcy court of all counterclaims by the estate (regardless of connection to the proof of claim), and, if so, whether that act was constitutional. See 1 COLLIER ON BANKRUPTCY ¶ 3.02[d][i] (16th ed. rev. 2014).
The Supreme Court addressed this issue in Stern v. Marshall. In Stern, a creditor filed a proof of claim for defamation in the debtor's bankruptcy case, and the debtor defended the complaint and filed a counterclaim for tortious interference. See Stern, 131 S.Ct. at 2601. The bankruptcy court treated the counterclaim as core, and entered judgment in favor of the debtor. See id. at 2601-02. The district court disagreed that the counterclaim was core, and conducted a de novo review of the record as if the claim was non-core. See id. at 2602. On further appeal, the Ninth Circuit held that the debtor's counterclaim, although compulsory, was not a core proceeding under section 157(b)(2)(C). Marshall v. Stern (In re Marshall), 600 F.3d 1037, 1057-58 (9th Cir.2010). Specifically, the court stated that
Id. at 1058 (internal quotation marks omitted).
On appeal to the Supreme Court, one of the questions presented was "[w]hether the Ninth Circuit opinion, which render[ed] § 157(b)(2)(C) surplusage in light of § 157(b)(2)(B), contravene[d] Congress' intent in enacting § 157(b)(2)(C)." Petition for Writ of Certiorari at ii, Stern, 131 S.Ct. 2594 (No. 05-1631), 2010 WL 3068082. The Supreme Court answered this question in the affirmative, rejecting the Ninth Circuit's reasoning. The Court held that the counterclaim at issue was indeed statutorily core under section 157(b)(2)(C) as a "counterclaim by the estate against persons filing claims against the estate." Stern, 131 S.Ct. at 2604. See also 1 COLLIER ON BANKRUPTCY ¶ 3.02[d][i]. But even though the counterclaim was statutorily core, the Court concluded that Congress could not constitutionally authorize bankruptcy courts to finally determine the counterclaim, since the bankruptcy court "lacked the constitutional authority to enter a final judgment on a state law counterclaim that is not resolved in the process of ruling on a creditor's proof of claim." Stern, 131 S.Ct. at 2620. Thus, "Stern made clear that some claims labeled by Congress as `core' may not be adjudicated by a bankruptcy court in the manner designated by § 157(b)." Arkison, 134 S.Ct. at 2172. It is important to note, though, that Stern explicitly held that the debtor's counterclaim was "core" under section 157(b)(2)(C). See Stern, 131 S.Ct. at 2605 ("[W]e agree with [the creditor] that designating all counterclaims as `core' proceedings raises serious constitutional concerns.... We would have to `rewrit[e]' the statute, not interpret it, to bypass the constitutional issue § 157(b)(2)(C) presents. That we may not do.") (alteration in original) (quoting Commodity Futures Trading Comm'n v. Schor, 478 U.S. 833, 841, 106 S.Ct. 3245, 92 L.Ed.2d 675 (1986)). Nor did Stern alter the subject matter jurisdiction of the bankruptcy courts. See, e.g., Geron v. Peebler (In re Pali Holdings, Inc.), 488 B.R. 841, 848 n.26 (Bankr.S.D.N.Y.2013) ("Stern, which affects the constitutional power of a bankruptcy judge to issue a final judgment in a matter as to which the bankruptcy court already has subject matter jurisdiction, does not in any way deprive bankruptcy courts of subject matter jurisdiction."). As the Supreme Court stated, "[s]ection 157 allocates the authority to enter final judgment between the bankruptcy court and the district court. That allocation does not implicate questions of subject matter jurisdiction." Stern, 131 S.Ct. at 2607.
Against this backdrop, the Court turns to the issue presented in the Remand Motion — whether federal subject matter jurisdiction exists over the state law claims asserted in this action. As discussed above, the core/non-core distinction generally does not bear on the question of federal subject matter jurisdiction — federal courts have jurisdiction to hear both core matters and non-core matters. See 28 U.S.C. § 1334(b). But if the current proceeding qualifies as one of the core proceedings enumerated in section 157(b)(2), then it follows that the Court has subject matter jurisdiction over the action as one "arising in" a bankruptcy case, and the Court need not determine whether the claims are "related to" the bankruptcy proceeding.
RFC asserts that this action is core as a "counterclaim[] by the estate against persons filing claims against the estate." 28 U.S.C. § 157(b)(2)(C). Specifically, RFC contends that the claims it asserts against UBS in this action are the "mirror image" of the claims asserted against it in the UBS proof of claim. (Opp. at 8.) Even though the claims in this action and the UBS Claim are based on wholly distinct contracts, involving entirely different sets of loans, the Court agrees with RFC that the claims are counterclaims under Rule 13 of the Federal Rules of Civil Procedure, made applicable to this proceeding by Federal Rule of Bankruptcy Procedure 7013. See FED.R.CIV.P. 13(c) ("A counterclaim need not diminish or defeat the recovery sought by the opposing party. It may request relief that exceeds in amount or differs in kind from the relief sought by the opposing party.").
UBS argues that the counterclaims asserted in this action are non-core, since they involve distinct issues and facts from its proof of claim and therefore do not qualify as counterclaims under section 157(b)(2)(C). (See Mem. at 11-12; Reply at 3-4.) UBS's argument relies indirectly on a number of pre-Stern decisions by courts in this district that held that section 157(b)(2)(C) confers core bankruptcy jurisdiction over a state law counterclaim only when there is some connection between the counterclaim and the creditor's proof of claim. See, e.g., Statutory Comm. of Unsecured Creditors v. Motorola, Inc. (In re Iridium Operating LLC), 285 B.R. 822, 832 (S.D.N.Y.2002) ("Traditionally non-core claims against a creditor in an adversary proceeding will be considered core if: (1) the claim arises out of the same transaction as the creditor's proofs of claim or setoff claim, or (2) the adjudication of the adversary proceeding claim would require consideration of issues raised by the proofs of claim or setoff claim such that the two claims are logically connected."); In re Lombard-Wall Inc., 48 B.R. 986, 990-91 (S.D.N.Y.1985) ("Although [section 157(b)(2)(C)] would appear to extend the bankruptcy court's jurisdiction to all counterclaims, courts have traditionally permitted bankruptcy courts to assert jurisdiction over counterclaims by a trustee only when there exists some connection between the claims of the creditor and those of the trustee.").
UBS's reliance on this line of reasoning is misplaced in light of the Supreme Court's ruling in Stern. As the above discussion makes clear, before Stern, courts attempted to reconcile a bankruptcy court's core jurisdiction with the Supreme Court's earlier rulings that appeared to require a connection between a bankruptcy
The Court also rejects UBS's argument that the Supreme Court's recent decision in Arkison transforms counterclaims like the one asserted here into non-core claims. (See Reply at 4-5.) As explained above, "Stern made clear that some claims labeled by Congress as `core' may not be adjudicated by a bankruptcy court in the manner designated by § 157(b). Stern did not, however, address how the bankruptcy court should proceed under those circumstances." Arkison, 134 S.Ct. at 2168. Thus, after Stern, courts were divided on how to proceed when faced with a "Stern claim" — i.e., "a claim designated for final adjudication in the bankruptcy court as a statutory matter, but prohibited from proceeding in that way as a constitutional matter." Id. at 2170. Bankruptcy judges lack constitutional authority to finally adjudicate Stern claims, but section 157(c)(1) — allowing for the submission of proposed findings of fact and conclusions of law — applies on its face only to non-core claims. See 28 U.S.C. § 157(c)(1). The Supreme Court addressed this apparent "statutory gap" in Arkison, holding that "[t]he statute permits Stern claims to proceed as non-core within the meaning of § 157(c)." Arkison, 134 S.Ct. at 2172-73. The Court explained:
Id.
UBS argues that the above language from Arkison renders this action non-core. The Court disagrees. Writing for a unanimous court in Arkison, Justice Thomas did not specify which subsection of section 157(b) would be invalidly applied to a Stern claim. Under this Court's reading of Stern and Arkison, a bankruptcy court is foreclosed from applying the procedures delineated in section 157(b)(1) — i.e., final adjudication of core claims — to certain claims labeled as core by Congress in section 157(b)(2). Instead, adjudication of Stern claims is channeled to section 157(c), permitting the bankruptcy court to submit proposed findings of fact and conclusions of law, as if the claim was non-core.
For these reasons, the Court holds that this action is core as a counterclaim against the UBS proof of claim, and the Court therefore has core jurisdiction over the action as a matter "arising in" the bankruptcy proceeding. Accordingly, the Court need not address any of RFC's alternative bases for establishing core jurisdiction. Further, because the action is core, mandatory abstention principles do not apply. See 28 U.S.C. 1334(c); see also Shipley Garcia Enters., LLC v. Cureton, No. 12-cv-0089, 2012 WL 3249544, at *10 (S.D.Tex. Aug. 7, 2012) (holding that mandatory abstention does not apply to Stern claims because "although Stern determined that a bankruptcy court may not constitutionally enter final judgment on certain counterclaims under § 157(b)(2)(C), it did not rewrite the statute and reclassify those claims as `related to' proceedings under §§ 157(c)(1) or 1334(c)."). Therefore, the only remaining issue is whether the Court should abstain under permissive abstention principles. The Court concludes that it should not.
UBS argues that even if the Court concludes that it has core jurisdiction over this proceeding (which it does), the Court should nonetheless remand the action by exercising its discretion to abstain from hearing the case. See 28 U.S.C. § 1334(c)(1) ("[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 arising under title 11 or arising in or related to a case under title 11."). The Court disagrees. Courts in this district
In re WorldCom, Inc. Sec. Litig., 293 B.R. 308, 332 (S.D.N.Y.2003) (quoting In re Masterwear Corp., 241 B.R. 511, 520 (Bankr.S.D.N.Y.1999)). See also Bayerische Landesbank v. Deutsche Bank AG (In re Residential Capital, LLC), 488 B.R. 565, 577 (Bankr.S.D.N.Y.2013).
Section 1334(c)(1) must be interpreted according to the principle that "federal courts have a `virtually unflagging obligation ... to exercise the jurisdiction given them,' and may abstain only for a few `extraordinary and narrow exception[s].'" Id. (alterations in original) (quoting Colo. River Water Conservation Dist. v. United States, 424 U.S. 800, 817, 813, 96 S.Ct. 1236, 47 L.Ed.2d 483); see also Lothian, 487 B.R. at 165 (noting the "presumption against abstention"); Refco, 628 F.Supp.2d at 447 (stating that "[f]ederal courts ... must be sparing in their exercise of discretionary abstention" (internal quotation marks omitted)). The movant bears the burden of establishing that permissive abstention is warranted. Residential Capital, 488 B.R. at 577 (citing In re Margulies, 476 B.R. 393, 402 (Bankr. S.D.N.Y.2012)). The Court finds that the relevant factors for permissive abstention weigh against abstaining from exercising the Court's jurisdiction over this proceeding.
First, the court rejects UBS's argument that "this action will have — at best — a contingent and remote effect on the [b]ankruptcy [p]roceedings." (Mem. at 18.) As UBS acknowledges, any recovery in this action will go to RFC's creditors under the terms of the confirmed Plan. (See id.) Thus, the bankruptcy estate will benefit from any judgment RFC obtains, and the cases cited by UBS are therefore distinguishable. For example, in Allstate Insurance Co. v. CitiMortgage, Inc., the court applied permissive abstention in a proceeding between two non-debtors, where the defendant had filed an indemnification claim against the debtor. No. 11 Civ. 1927(RJS), 2012 WL 967582, at *5-6 (S.D.N.Y. Mar. 13, 2012). The court found that the action between the two non-debtors would have no impact on the efficient administration of the bankruptcy proceeding, especially because the defendant's indemnification claim against the debtor had already been fully liquidated. Id.; see also Residential Capital, 488 B.R. at 577 (recommending that the district court abstain from hearing a case between two non-debtors where the defendant had filed an indemnification claim against the bankruptcy
Second, although this action involves only state law claims, none of the issues are particularly complex, so comity does not require abstention. See Refco, 628 F.Supp.2d at 446 (holding that "the state law claims are straightforward common-law claims that do not involve arcane or idiosyncratic provisions of state law that would warrant abstention based on comity concerns" (internal quotation marks omitted)); WorldCom, 293 B.R. at 332 ("NYCERS has not identified any unique or unsettled issues of state law that warrant abstention based on comity concerns."). The Court dealt extensively with similar claims asserted against RFC during the bankruptcy case; the claims were settled in the Global Settlement incorporated into the confirmed Plan. UBS argues that the law regarding the statute of limitations to apply in this case was recently thrown into doubt by ACE Securities Corp. v. DB Structured Products, Inc., 112 A.D.3d 522, 977 N.Y.S.2d 229 (2013), over which the New York Court of Appeals recently granted leave to appeal. See No. APL-2014-156, 2014 WL 2891678, 2014 N.Y. Slip Op. 76202 (June 26, 2014). Regardless of UBS's contentions, this Court, like other federal courts in this district, is prepared to address the implications of ACE if those issues are raised by UBS in a dispositive motion. See, e.g., Deutsche Bank Nat. Trust Co. v. Quicken Loans Inc., No. 13 Civ. 6482(PAC), 2014 WL 3819356, at *3-4 (discussing district court treatment of ACE and finding "no persuasive evidence that the New York Court of Appeals would abrogate the rule stated in [ACE] and the well-reasoned cases following it in this District"). In any event, the issue may be resolved by the New York Court of Appeals before this Court will have to address it.
Third, the Court rejects UBS's argument that it "will suffer prejudice absent remand by being subjected to unnecessary delay and duplicative proceedings." (Mem. at 19.) The Court will not opine whether this action can be timely adjudicated by a New York state court. Suffice it to say that this Court is ready now to proceed with this action in an expeditious manner, coordinated with the other RMBS Actions pending before the Court. The Court has already entered two case management and scheduling orders in these cases.
The Court need not address the other factors for permissive abstention, other than to say that it has considered all of
There is a split in authority whether a motion to remand is itself a "core" proceeding, or whether the "proceeding" referenced in 28 U.S.C. § 157 is the underlying lawsuit subject to a remand motion. See Residential Capital, 488 B.R. at 571-72 (discussing split in authority). In two prior cases, without resolving the issue, this Court submitted proposed findings of fact and conclusions of law to the district court, recommending remand of a state court action. See id.; Sealink Funding Ltd. v. Deutsche Bank AG (In re Residential Capital, LLC), 489 B.R. 36, 43-44 (Bankr.S.D.N.Y.2013). In those cases, where motions to withdraw the reference were pending, this Court's decision to grant the remand motions would have removed the cases from federal court on a final basis, rendering the withdrawal of the reference motions moot. See Residential Capital, 488 B.R. at 572; Residential Capital, 489 B.R. at 43-44. This Order denying the Remand Motion, however, is an interlocutory order, and not a final judgment, since the case will continue in front of this Court. See, e.g., O'Toole v. McTaggart (In re Trinsum Grp., Inc.), 467 B.R. 734, 740 (Bankr.S.D.N.Y.2012) ("In adversary proceedings, orders dismissing fewer than all claims are considered to be interlocutory."); see also LTV Steel Co., Inc. v. United Mine Workers of Am. (In re Chateaugay Corp.), 922 F.2d 86, 90 (2d Cir. 1990) ("Orders in bankruptcy cases may be immediately appealed if they resolve discrete disputes within the larger case. The disposition of a discrete dispute is generally considered to be the resolution of an adversary proceeding within the bankruptcy action." (internal citations omitted)). Therefore, the Court has authority to enter this Order, and is not limited to submitting proposed findings of fact and conclusions of law to the district court. See Trinsum Grp., 467 B.R. at 740 (holding that, after Stern, bankruptcy judges have the authority to enter interlocutory orders in non-core proceedings and in core proceedings as to which the bankruptcy court may not enter final orders or judgment consistent with Article III absent consent). This Order is still subject to discretionary review by the district court under 28 U.S.C. § 158(a)(3). See id. at 741.
For all of the foregoing reasons, the Motion is
In one of the RMBS Actions, Judge Hellerstein granted a motion to withdraw the reference and transfer venue to the District of Minnesota, enforcing a contractual forum selection clause. See ResCap Liquidating Trust v. RBC Mortg. Co., No. 14-cv-04457 (AKH), ECF Doc. #10 (S.D.N.Y. July 18, 2014). Judge Hellerstein's decision was based, in part, on his holding that RFC's claims in that action are non-core since a "breach-of-contract action by a debtor against a party to a prepetition contract, who has filed no claim with the bankruptcy court, is non-core." Id. at 3 (quoting In re Orion Pictures Corp., 4 F.3d 1095, 1101 (2d Cir.1993)). Judge Hellerstein later denied RFC's request to stay his decision to withdraw the reference and transfer venue pending this Court's disposition of this Remand Motion. See Case No. 14-cv-04457, ECF Doc. #14 (S.D.N.Y. July 29, 2014).
Some courts apply the "close nexus" test even when the debtor liquidates; other courts apply the "conceivable effect" test. See Allstate Ins. Co. v. CitiMortgage, Inc., No. 11 Civ.1927(RJS), 2012 WL 967582, at *5 (S.D.N.Y. Mar. 13, 2012) (summarizing the division within the circuit). This Court previously applied the conceivable effect test in a liquidation case. See In re Cross Media Mktg. Corp., 367 B.R. 435, 444 (Bankr.S.D.N.Y. 2007) (holding that a bankruptcy court's jurisdiction does not diminish post confirmation if the debtor, pursuant to a liquidating plan, seeks to commence litigation to collect the debtor's assets for the benefit of its creditors). The Court adopted the reasoning of the First Circuit that a bankruptcy court's jurisdiction should not shrink post-confirmation in a liquidation proceeding because "a liquidating debtor exists for the singular purpose of executing an order of the bankruptcy court. Any litigation involving such a debtor thus relates much more directly to a proceeding under title 11." In re Boston Reg'l Med. Ctr., Inc., 410 F.3d 100, 107 (1st Cir.2005).
Judge Abrams did not decide the applicable standard because she found that the action satisfied the "close nexus" test. See J. Abrams Order at 4 ("The Court need not decide which standard applies, however, because the present action meets even the more onerous `close nexus' standard." (citing Refco, 628 F.Supp.2d at 441-43)). Specifically, Judge Abrams found that "[t]he claims RFC has asserted against SunTrust ... directly affect the `implementation, consummation, execution or administration' of the Plan, as the Plan expressly preserves such claims, transfers them from RFC to the Liquidating Trust, and provides for RFC's creditors to receive a share of recovery from them." Id. at 4-5 (citations omitted).
Since the Court finds it has core jurisdiction over this action as a counterclaim to the UBS Claim, the Court need not reach the question here. This issue may need to be addressed in the other similar RMBS Actions filed by RFC or the Trust where the defendant did not file a proof of claim against the Debtors. The Court will first have to determine whether the RMBS Actions are core (other than under section 157(b)(2)(C)), and, if not, whether the claims are "related to" the bankruptcy under the applicable test — either the conceivable effect or close nexus test.
