|LARRY LAWRENCE and
|Bankruptcy No. L-86-02849C|
|LARRY LAWRENCE||Adversary No. L-92-0077C|
|DAVID GRINDE R. FRED DUMBAUGH
CHILDERS AND VESTLE P.C. f/k/a
DUMBAUGH & CHILDERS P.C.
DUMBAUGH & CHILDERS, P.C., ) )
Ruling Re: Motion to Remand. Abstain or Withdraw Reference
The matter before the Court is the motion of plaintiff, Larry Lawrence, ("Lawrence"), to remand this matter to state court for lack of jurisdiction, or alternatively for this Court to abstain from hearing this matter.(1) The defendants removed this matter from the Iowa District Court, and oppose Lawrence's motion to remand or abstain. The following memorandum and order grants Lawrence's motion to remand to the Iowa District Court.
The relevant facts are provided in this Court's order dated
July 29, 1992, denying the trustee's motion to sell this cause of action. The Court found that the cause of action was not property of the estate and as such that the trustee had no right to sell the cause of action because the estate did not have any interest in it.
The issue presented here is whether the Bankruptcy Court should hear and preside over this matter. Lawrence argues that this Court lacks jurisdiction under 28 U.S.C. § 1334(b) and should remand this matter to the Iowa District Court, or alternatively that this Court should abstain from hearing this matter pursuant to either 28 U.S.C. § 1334(c)(1) or (c)(2). The defendants contend that this Court has jurisdiction over this matter pursuant to 28 U.S.C. § 1334 and that this Court is the appropriate forum for resolving this dispute. Hence, defendants urge the Court to deny the motion to remand and the motion to abstain.
The provision governing bankruptcy jurisdiction is 28 U.S.C. § 1334, which states in relevant part:
(a) Except as provided in subsection (b) of this section, the district court shall have original and exclusive jurisdiction of all cases under title 11.
(b) 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.
As the Fifth Circuit pointed out in Wood v. Wood (In re Wood), 825 F.2d 90, 92 (5th Cir. 1987):
[S]ection 1334 lists four types of matters over which the district court has jurisdiction:
1. "cases under title 11",
2. "proceedings arising under title 11",
3. proceedings "arising in" a case under title 11, and
4. proceedings "related to" a case under title 11.
The first category refers merely to the bankruptcy petition itself. Id.; 28 U.S.C. § 1334(a). The focus of the other three types of jurisdiction deals with "proceedings" within a case. 28 U.S.C. § 1334(b). Here, the issue is whether the present proceeding falls into one of the three categories listed in § 1334(b).
The defendants make no argument for "arising under"
jurisdiction. For a proceeding to arise under title 11, the cause of action must be created by title 11. This legal malpractice cause of action was not created by title 11 and, thus, this proceeding is not one "arising under" title 11.
The defendants argue that this Court has jurisdiction pursuant to 28 U.S.C. § 1334(b) because this proceeding either "arises in" or "relates to" Lawrence's bankruptcy case. A proceeding "arising in" a title 11 case generally refers to "those administrative matters that arise only in bankruptcy cases. In other words, arising in' proceedings are those that are not based on any right expressly created by title 11, but nevertheless, would have no existence outside of bankruptcy." Wood, 825 F.2d at 97. Examples of proceedings "arising in" bankruptcy are administrative matters, counterclaims of the estate against creditors making claims, orders for turnover of property of the estate, determinations of extent, validity, and priority of liens, contempt orders, and motions to appoint a trustee or examiner among other things. 1 Collier on Bankruptcy ¶ 3.01[v] (15th Ed. 1992). The core of "arising in" jurisdiction generally is "administrative matters", which include allowance and disallowance of claims, orders regarding obtaining credit, dischargeability determinations, discharges, plan confirmations, and other similar matters. Id.
Here, this matter does not constitute a proceeding "arising in" bankruptcy. The cause of action Lawrence asserts is not an administrative matter arising only in bankruptcy; it is a legal malpractice case which does not depend on a bankruptcy case to exist. The single fact that it occurred in a bankruptcy setting does not bring it within the class of cases associated with administrative matters with no existence outside of bankruptcy. Moreover, because this Court already has determined that the cause of action is not property of the estate, there is no conceivable way that it could be considered a matter dealing with administration of the case.
For similar reasons, this Court finds that the present matter does not qualify as a case "related to" Lawrence's bankruptcy. The Eighth Circuit has adopted the following standard for "related to" jurisdiction:
For a proceeding to be "related to" a bankruptcy case for purposes of bankruptcy jurisdiction, courts require that it "have some effect on the administration of the debtor's estate." Zweyqardt v. Colorado Nat'l Bank, 52 B.R. 229, 233 (D. Colo. 1985). As the Third Circuit recently stated:
[T]he test for determining whether a civil proceeding is related to bankruptcy is whether the outcome of that Proceeding could conceivably have any effect on the estate being-administered in bankruptcy. * * * An action is related to bankruptcy if the outcome could alter the debtor's rights, liabilities, options, or freedom of action * * * and which in any way impacts upon the handling and administration of the bankruptcy estate.
Pacor v. Higgins, 743 F.2d 984, 994 (3rd Cir. 1984) (emphasis included). See National City Bank v. Coopers and Lybrand, 802 F.2d 990 (8th Cir. 1986).
Dogpatch Properties, Inc. v. Dogpatch U.S.A., Inc. (In re Doqpatch U.S.A., Inc.), 810 F.2d 782, 786 (8th Cir. 1987); see also In re Titan Energy, 837 F.2d 325, 326 (8th Cir. 1988) (also apply Pacor test). Again, the Court's determination that the cause of action Lawrence asserts is not property of the estate precludes that cause of action from having any conceivable effect on Lawrence's bankruptcy. Hence, this proceeding does not satisfy "related to" jurisdiction under 28 U.S.C. § 1334(b).
The Court believes that the Eighth Circuit decision in National City Bank v. Coopers and Lybrand, 802 F.2d 990 (8th Cir. 1986) provides additional support to the above conclusions. In the Coopers and Lybrand case, the Eighth Circuit applied the same test adopted in Titan Energy and Dogpatch. The Coopers and Lybrand case found that the district court properly concluded that a professional malpractice cause of action against an accounting firm working for the bankruptcy debtor did not give rise to "arising in" or "related to" jurisdiction when the results of the malpractice action could not affect the bankruptcy estate. 802 F.2d at 994. The Eighth Circuit then affirmed the district court's remand of the case back to the state court based on its finding of no jurisdiction. Based on the Coopers and Lybrand case, and the other 8th Circuit authority, this Court will remand Lawrence's professional malpractice action against the defendants to the Iowa District Court, because this Court does not have jurisdiction over the proceeding under 28 U.S.C. § 1334(b).
Even if the Court assumed, arguendo, that there was some basis for jurisdiction under 28 U.S.C. § 1334(b), this would still be an appropriate case for abstention under 28 U.S.C. § 1334(c), which provides:
(c)(1) 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 or related to a case under title 11.
(2) Upon 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. Any decision to abstain made under this subsection is not reviewable by appeal or otherwise . . . .
Section 1334(c)(1) provides for what has been referred to as discretionary abstention, and § 1334(c)(2) provides for what is commonly referred to as mandatory abstention. Either type of abstention is appropriate in this case.
To make out a case for mandatory abstention the following six factors must be present:
(1) a timely motion is made; (2) the proceeding is based upon a state law claim or state law cause of action; (3) the proceeding is related to a case under Title 11; (4) the proceeding does not arise under Title 11; (5) the action could not have been commenced in a federal court absent jurisdiction under 28 U.S.C. § 1334; and (6) an action is commenced, and can be timely adjudicated, in a state forum of appropriate jurisdiction.
Lomas & Nettleton Co. v. Warren (In re Warren), 125 B.R. 128, 131 (E.D. Pa. 1991) (citing numerous other cases setting forth factors). If the Court assumed, arguendo, that the proceeding was related to this case, then these factors are all present in this case. Hence, the Court finds that even if it had "related to" jurisdiction it would be required to abstain from hearing this case.
However, the Court believes that even if all of the factors for mandatory abstention are not satisfied, this is nonetheless an appropriate proceeding for discretionary abstention. The Eighth Circuit has observed that 28 U.S.C. § 1334(c)(1) "limited discretion . . . to a bankruptcy court to require matters to be litigated in state courts even where jurisdiction exists in the bankruptcy court." Titan Energy, 837 F.2d at 330; see also In re West Electronics, 128 B.R. 900, 905 (Bankr. D.N.J. 1991) (decision whether to abstain rests in sound discretion of bankruptcy court) (citing In re Howe, 913 F.2d 1138, 1143 (5th Cir. 1990)) (other citations omitted). The factors to be considered in determining whether to exercise discretionary abstention are:
The effect of abstention on the administration of the estate; the extent to which state law issues predominate over bankruptcy law issues; the difficulty or uncertain nature of the state law issues involved; the degree of relatedness to the bankruptcy proceeding; and the likelihood that forum shopping may have been practiced by one of the parties.
Williams v. Stefan, 133 B.R. 119, 123 (N.D. Ill. 1991) (citing In re Republic Reader's Service, Inc., 81 B.R. 422, 425, 429 (Bankr. S.D. Tex. 1987)); see also Marcus Dairy, Inc. v. Belford (In re Naugatuck Dairy Ice Cream Co., Inc.), 106 B.R. 24, 28-29 (Bankr. D. Conn. 1989) (citing similar list of factors). These factors weigh in favor of discretionary abstention in this case. In particular, the Court notes that abstention will not effect the administration of the estate because the malpractice action is not property of the estate, that state law issues certainly predominate over bankruptcy issues, and that the case has little or no degree of relatedness to the bankruptcy. Hence, the Court finds that this is an appropriate case for discretionary abstention.
This Bankruptcy Court is not the appropriate forum for this proceeding. This Court has no jurisdiction over this proceeding under 28 U.S.C. § 1334(b). Moreover, this Court finds that even if it had jurisdiction, this is an appropriate case for either mandatory or permissive abstention under 28 U.S.C. § 1334(c)(1) & (2). Hence, this Court will remand the case back to the Iowa District Court.
IT IS THEREFORE ORDERED that Lawrence's motion to remand this proceeding to the Iowa District Court is granted.
IT IS FURTHER ORDERED that this case is remanded to the Iowa District Court for Linn County.
DONE AND ORDERED this 10th day of August, 1992.
|Michael J. Melloy|
|Chief Bankruptcy Judge|
1. Lawrence's motion also requests as a third alternative that the reference be withdrawn from the Court to the district court. This Court will not address the issue because this matter will be disposed of on other grounds.