CATHERINE J. FURAY, Bankruptcy Judge.
This proceeding was removed from the Oneida County Circuit Court by the Debtor, Paula D. Laddusire. It is now before the Court on the motion of the Plaintiff, Bank of America, N.A. ("BANA"), for abstention, remand, or dismissal. On March 28, 2013, the Court held a telephone conference on the motion. Following oral argument on the record, the parties agreed that no additional written argument was necessary.
For the reasons set forth below, the Court grants the motion in part, denies the motion is part, and remands the proceeding to the Oneida County Circuit Court. The motion is denied with respect to BANA's request that this Court dismiss the adversary proceeding and to BANA's request for sanctions against the Debtor.
On January 7, 2009, Ocwen Home Loan Servicing, LLC ("Ocwen") filed a Complaint against the Debtor, Paula Dean Laddusire, and her then-husband, Todd, in Oneida County Circuit Court. The Complaint asserts that Ocwen is the servicer of the mortgage on the Debtor's residence, and that HSBC Bank USA, N.A. ("HSBC") is the owner of the mortgage. Ocwen alleged that the Laddusires had defaulted on the note and mortgage and
A year later, on January 8, 2010, BANA also filed a Complaint in Oneida County Circuit Court against the Debtor, a John Doe defendant, AIG Federal Savings Bank, PNC Bank, N.A., and HSBC. Like Ocwen's, BANA's Complaint sought a foreclosure judgment against the Debtor's residence, and alleged that BANA was the current holder of the note and mortgage.
On July 19, 2010, the Oneida County Circuit Court entered an Order to Consolidate the two actions ("Foreclosure Action"). A stipulation was entered on February 23, 2011, in which Ocwen acknowledged that its interests are junior and subordinate to BANA, and agreed to withdraw its claims against all parties in the action. On February 6, 2012, BANA filed a Motion for Summary and Default Judgment. On May 21, 2012, the state court ordered BANA and the Debtor to begin mediation, and stayed the summary judgment proceedings until mediation was completed. Mediation was then adjourned pending the completion of a document exchange hearing scheduled for December 7, 2012.
The Debtor filed a Chapter 13 petition on December 7, 2012, the same day the parties were to meet and exchange documents in Oneida County Circuit Court. She filed a Chapter 13 plan on January 7, 2013, and then filed a motion to convert to a Chapter 11 case on February 13, 2013. Her motion to convert was granted on March 11, 2013. Her Notice of Removal was filed on March 5, 2013, and an essentially identical Amended Notice of Removal Under Bankruptcy Rule 9027 was filed the same day ("Amended Notice"). The Amended Notice invokes 28 U.S.C. §§ 157, 1334(b), 1334(e)(1), and 1452, as well as 11 U.S.C. § 105 and Bankruptcy Rule 9027 as the basis for removal. She asserts it is necessary to remove the Foreclosure Action because it "involves property of the [Debtor's] bankruptcy estate" in the form of "the nonexempt portion of Debtor's homestead" and nonexempt money damages arising from a variety of claims related to the origination and collection of her mortgage. She says the matter is a core proceeding because it involves recovery of money for the bankruptcy estate. On March 20, 2013, BANA filed a motion to remand, abstain, or dismiss ("Motion").
Once a proceeding is removed pursuant to 28 U.S.C. § 1452(a), it may be remanded to the state court on any equitable ground. 28 U.S.C. § 1452(b) and Fed. R. Bankr.P. 9027(d). To determine whether the matter should be remanded, the court must first decide whether it has jurisdiction and, if it does, whether to exercise it.
Section 1452(a) of Title 28 permits a party to remove a "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." A district court has jurisdiction under section 1334(b) "of all civil proceedings arising under title 11, or arising in or related to cases under title 11." It may, however, refer such cases to the bankruptcy judges for its district. 28 U.S.C. § 157(a). The District Court for the Western District of Wisconsin has made such a reference. Western District of Wisconsin Administrative Order 161 (July 12, 1984).
Bankruptcy Rule 9027 applies to civil actions removed from state court under 28 U.S.C. § 1452:
Under 11 U.S.C. § 301(b), the filing of a voluntary case under Chapter 13 constitutes an order for relief. Therefore, pursuant to Bankruptcy Rule 9027(a)(2)(A) the Debtor had until March 7, 2013, ninety days from the date she filed her petition, to file a Notice of Removal. By filing the Notice of Removal and the Amended Notice on March 5, 2013, the Debtor met this deadline.
There are circumstances in which a federal court must abstain from hearing a case. 28 U.S.C. § 1334(c)(2). That provision has been distilled by courts into discrete elements: 1) the motion for abstention must be timely; 2) the removed proceeding must be based upon a state-law claim or state-law cause of action; 3) the proceeding must be a non-core but "related to" proceeding; 4) the action could not have been commenced in federal court absent jurisdiction under 28 U.S.C. § 1334; and 5) an action has been commenced, and can be timely adjudicated, in a state forum of appropriate jurisdiction. See, e.g., Stoe v. Flaherty, 436 F.3d 209, 213 (3d Cir.2006); Taub v. Taub (In re Taub), 413 B.R. 69, 75 (Bankr.E.D.N.Y. 2009); Eaton v. Taskin, Inc., No. 07-3056, 2007 WL 2700554, at *3 (C.D.Ill. July 20, 2007) (citing Christo v. Padgett, 223 F.3d 1324, 1331 (11th Cir.2000)).
If each of these elements is satisfied, the court is required to abstain. The Debtor's position is that abstention is not mandatory. While she seems to concede that the first two elements are satisfied, she argues that the last three are not.
The Debtor argues that the Foreclosure Action is a core proceeding because she intends to bring counterclaims against BANA to determine the priority of its lien, to avoid its lien, for an accounting of payments, and other counterclaims that she says will adjust the debtor-creditor relationship. See Debtor's Opposition Brief at ¶¶ 9, 14. She has not yet pleaded them, she explains, because BANA's alleged fraud on the state court and the parties has prevented her from doing so. See id. Whether or not this allegation is true, the fact remains that the counterclaims have not actually been pleaded.
The Court of Appeals for the Seventh Circuit has explained that "[c]ore proceedings are actions by or against the debtor that arise under the Bankruptcy Code in the strong sense that the Code itself is the source of the claimant's right or remedy, rather than just the procedural vehicle for the assertion of a right conferred by some other body of law, normally state law." In re United States Brass Corp., 110 F.3d 1261, 1268 (7th Cir.1997). In other words, "[a] proceeding is core under section 157 if it invokes a substantive right provided by title 11 or if it is a proceeding that, by its nature, could arise only in the context of a bankruptcy case." Barnett v. Stern, 909 F.2d 973, 981 (7th Cir.1990) (quoting Wood v. Wood (In re Wood), 825 F.2d 90, 97 (5th Cir.1987)).
By comparison, a proceeding is non-core if it "does not invoke a substantive right created by the federal bankruptcy law and is one that could exist outside of bankruptcy." Id. Such a proceeding "may be related to the bankruptcy because of its potential effect, but ... it is ... [a] non-core proceeding." Id. Bankruptcy courts may determine whether a proceeding is core or non-core. 28 U.S.C. § 157(b)(3).
The Foreclosure Action did not arise under title 11, or in a case under title 11. It commenced as a state-law claim years before the bankruptcy petition was ever filed. Further, the only connection between the Foreclosure Action and the bankruptcy proceeding is the fact the Debtor filed bankruptcy. See, e.g., Schmid v. Bank of America, N.A., et al. (In re Schmid), No. 10-12142-13, Adv. No. 12-160, 2013 WL 1755550, at *4-5 (Bankr. W.D.Wis. Apr. 24, 2013) (allegations concerning fraud and other defects in state court action not core proceedings); Rinaldi v. HSBC Bank USA, N.A. (In re Rinaldi), 487 B.R. 516, 524 (Bankr.E.D.Wis. 2013) ("The only relationship the allegedly fraudulent assignment bears to the Debtors' bankruptcy case is that the Debtors have filed bankruptcy, and presumably, any money damages awarded would increase the funds in the Debtors' estate."). As such, this Court concludes that the Foreclosure Action is a non-core proceeding. The Court declines the Debtor's invitation to speculate whether her unpleaded counterclaims might be core proceedings for the simple reason that they are not before the Court.
The Debtor also argues that the Foreclosure Action cannot be timely adjudicated in state court. Here she reiterates that her counterclaims have not been pleaded, and that "all that is pending is a stale summary judgment motion." Debtor's Opposition Brief at ¶ 14. In other words, she appears to argue that because she has not actually brought any of her asserted counterclaims, they cannot be timely adjudicated in the state court. Her brief is full of odd
Over the course of four and a half years, she has had abundant time to plead whatever counterclaims and defenses she believed were available to her. She failed to do so. Then the Debtor's bankruptcy petition stayed the Foreclosure Action at a crucial juncture. It was her prerogative to file bankruptcy. But it is at best disingenuous now to suggest that the state court cannot timely adjudicate the Foreclosure Action when she has not bothered to plead the very counterclaims or defenses she claims that court cannot timely decide.
The Debtor asserts that there is an independent basis for federal jurisdiction under 28 U.S.C. § 1349.
The Debtor also contends incorrectly that 28 U.S.C. § 2410(a)
In fact, the Debtor's twenty-page brief fails to address the one requirement for mandatory abstention about which there may be a legitimate question. Namely, that there could be an independent basis for federal jurisdiction under 28 U.S.C. § 1332(a)(1). The state court record indicates that upon the dismissal of Todd Laddusire as a defendant, both actions against the Debtor appeared to satisfy the requirements of diversity of citizenship and an amount in controversy in excess of $75,000. If there was diversity jurisdiction under 28 U.S.C. § 1332(a)(1), then abstention would not be mandatory under section 1334(c)(2) because there would be a basis for jurisdiction other than section 1334.
There are reasons to believe that 28 U.S.C. § 1332 does not provide an independent basis for federal jurisdiction. Ordinarily, proceedings may not be removed on the basis of diversity more than one year after the commencement of the action unless the district court finds that the plaintiff acted in bad faith to prevent removal. 28 U.S.C. § 1446(c)(1). However, Bankruptcy Rule 9027(a)(2) revives the deadline for removal of pending civil actions that are connected to a bankruptcy case. The Debtor does not allege that BANA acted in bad faith to prevent removal, and nearly four and a half years have passed since the Foreclosure Action commenced. As a result, 28 U.S.C. § 1446(c)(1) may not apply, so the Debtor's only foothold could be section 1334 and Bankruptcy Rule 9027(a)(2). If this is the case, then this Court would be required to abstain pursuant to 28 U.S.C. § 1334(c)(2) if the other requirements of that subsection are met.
However, resolution of this issue is beyond the scope of this decision. In the interest of judicial economy and efficiency, it is not necessary for this Court to rule on the question of diversity jurisdiction or the applicability of 28 U.S.C. § 1334(c)(2) in light of its determination under section 1334(c)(1). Pursuant to that provision, the court may choose to abstain "in the interest of justice, or in the interest of comity with State courts or respect for State law... from hearing a particular proceeding arising under title 11 or arising in or related to a case under title 11." As discussed below, this Court finds that it is appropriate to abstain under section 1334(c)(1).
See In re Chicago, Milwaukee, St. Paul & Pac. R.R. Co., 6 F.3d 1184, 1189 (7th Cir. 1993) (citing In re Eastport Assoc., 935 F.2d 1071, 1075-76 (9th Cir.1991)). These considerations should be applied flexibly to the particular facts of each case. Id. at 1189 (citing Thompson v. Magnolia Petroleum Co., 309 U.S. 478, 483, 60 S.Ct. 628, 630, 84 L.Ed. 876 (1940)). While no one factor is determinative, "because section 1334(c)(1) is concerned with comity and respect for state law, whether a case involves unsettled issues of state law is always significant." Id. Moreover, when cases are removed from state court to federal court on the basis of being "related to" a bankruptcy proceeding, it is generally appropriate that "questions of [state] law ... be decided by the state courts ... rather than [a federal court]." In re United States Brass Corp., 110 F.3d at 1265. With these considerations in mind, the facts weigh heavily in favor of permissive abstention and remand.
First, there will be little effect on the efficient administration of the bankruptcy estate if the Foreclosure Action is remanded. In fact, the impact on the estate could be much worse if the matter is not remanded. Administration could be delayed considerably if the parties are forced to re-litigate issues before the bankruptcy court that have already progressed in the state court. BANA's motion for summary judgment is currently pending, but has been stayed by the Debtor's bankruptcy filing. It makes little sense to interrupt proceedings that have been under way for almost four and a half years when they are on the verge of at least partial resolution. Moreover, the Foreclosure Action is decidedly non-core. As a result, absent consent of the parties, this Court would be statutorily prevented from entering a final judgment on the matter — a fact that would further delay the litigation and aggravate the potential prejudice to the parties.
Next, the fact that the Foreclosure Action is purely a matter of state law weighs heavily in favor of abstention. Literally every aspect of the Debtor's case entails state-law issues except for the fact that she filed bankruptcy and sought to remove the Foreclosure Action to this Court. To wit:
The illusory counterclaims and defenses brandished in Debtor's brief do not change this analysis. Questions of the validity of mortgages, of mortgage fraud, of the amounts owed on promissory notes, of defects in the negotiation of mortgage instruments, and of candor in the state court are all state-law issues. While these claims are not necessarily beyond the purview of this Court, principles of comity strongly suggest that, even if they had been pleaded, her claims do not belong here. See, e.g., Hutchins v. JPMorgan Chase Bank (In re Hutchins), No. 12-24579, Adv. No. 1564, 2012 WL 5247730, at *4 (Bankr. D.Colo. Oct. 24, 2012). Even if, in the dark recesses of the record, there were some speck of a federal claim, at best it would merely be related to the bankruptcy proceeding, as her state-law claims are — and only tenuously at that. "The bankruptcy jurisdiction hauls into federal court a host of state-law claims, and whatever the precise relief sought the court ought to have the power to return such a case to the state courts. That is the only sensible meaning [of section 1334(c)(1) ], and happily it coincides with the literal meaning." In re United States Brass Corp., 110 F.3d at 1267. In this case, all roads lead to the Oneida County Circuit Court. Either BANA is entitled to foreclose under state law, or it is not. In any event, it is a matter best resolved in state court. See, e.g., Brown v. JP Morgan Chase Bank (In re Brown), No. 12-01140, Adv. No. 12-174, 2013 WL 85131, at *2 (Bankr.M.D.Fla. Jan. 8, 2013); Hutchins v. JPMorgan Chase Bank (In re Hutchins), 2012 WL 5247730, at *4; In re 19 Court St. Assocs., LLC v. Resolution Trust Corp. (In re 19 Court St. Assocs., LLC), 190 B.R. 983, 1001 (Bankr.S.D.N.Y.1996).
Finally, given the timing of the Debtor's bankruptcy petition and her Amended Notice, it appears that the removal is motivated at least in part by a desire to draw out the proceedings. As noted, Ocwen's initial complaint in this matter was filed nearly four and a half years ago. The bankruptcy petition was filed the day she was to appear in the state court for a document exchange related to summary judgment proceedings, and the Amended Notice was filed only a few days before the end of the timeliness window under Bankruptcy Rule 9027. Whether intentional or not, the resultant delays do carry a real risk of prejudice to the other parties in the action. By further forestalling a determination of BANA's claims in state court, the administration of the estate is delayed. The timing of both the bankruptcy petition and the removal appear to have been motivated less by a legitimate concern that the bankruptcy court was an appropriate forum for the litigation and more as a gambit for additional time.
Having determined that abstention under 28 U.S.C. § 1334(c)(1) is appropriate,
When the basis for removal is, as here, simply based on a debtor's bankruptcy filing, there is a liberal approach to bankruptcy remands. Cargill, Inc. v. Man Fin., Inc. (In re Refco, Inc.), 354 B.R. 515, 520 (8th Cir. BAP 2006). Abstention without remand would leave the parties in an awkward position. It would leave the suit homeless. Based on considerations of judicial economy, comity, respect for the decision-making capabilities of the state court, and the predominance of state-law issues, this Court concludes that abstention is appropriate under 28 U.S.C. § 1334(c)(1) and remands the case to the Oneida County Circuit Court under 28 U.S.C. § 1452(b).
Based on the foregoing, it is unnecessary for the Court to rule on BANA's request that the Foreclosure Action be dismissed.
It is worth noting, however, that BANA's request appears improvident at best. The Court gathers that BANA is under the impression that a dismissal could nip the Debtor's unpleaded counterclaims in the bud while permitting BANA's own claims to proceed. Whatever the precise theory behind it, the request for dismissal is misguided. Dismissal would leave the parties at square one. Obviously this would not facilitate the timely determination of the state law questions that motivates this Court's decision to abstain and remand.
Likewise, the Court denies BANA's request for sanctions against the Debtor. Although BANA does not elaborate on the basis for which it seeks sanctions, this Court will assume its motion is made under Bankruptcy Rule 9011. That Rule permits the imposition of sanctions if an attorney proceeds in a bankruptcy case for an improper purpose, such as causing unnecessary delay or needlessly increasing the cost of litigation; for making arguments that are frivolous or not based in existing law; and for making allegations that lack evidentiary support. Bankruptcy Rule 9011(b). However, the Rule also requires that motions for sanctions be made separately from other motions and describe the specific conduct complained of. It must also be served in accordance with Bankruptcy Rule 7004. Since these steps have not been taken, this Court will not entertain BANA's speculative request for sanctions any more than it will entertain the Debtor's speculative counterclaims.
As such, BANA's Motion is denied with respect to its request for dismissal and for sanctions.
Based on the foregoing findings of fact and conclusions of law, BANA's Motion is granted in part and denied in part.
A separate order consistent with this opinion will be entered.