638 B.R. 748
Bankr. E.D. Mich.2022Background
- Debtor Lynn Beth Baum removed four state-law claims from Oakland County Circuit Court to the bankruptcy court during her Chapter 13 case; the claims arise from a 2015 fraudulent-transfer action (the Fraser Action).
- In 2019 Baum obtained a $862,278.71 judgment against Fraser Equities, LLC; subsequent state-court proceedings included an injunction, a contempt finding, and a disgorgement order requiring Fraser’s counsel (Frank & Frank) to pay funds to Fraser’s court-appointed receiver.
- Frank & Frank obtained a stay on the disgorgement pending appeal and deposited $95,173.69 as a bond with the state court clerk; the appeal concluded unsuccessfully on January 4, 2022.
- Baum’s Claim No. 4 seeks an order that the state court clerk pay $88,509.25 of the appeal bond funds to her, asserting the funds are estate property or subject to her judgment lien; defendants (including Alliance Equities, LLC) contend the funds belong to Fraser and are controlled by Fraser’s receiver.
- Alliance Equities moved to remand the removed claims under mandatory abstention, 28 U.S.C. § 1334(c)(2); Baum conceded Claims 1–3 should be remanded but argued Claim 4 is a core proceeding and should remain in bankruptcy court.
- The bankruptcy court concluded all four claims are non-core "related to" matters, that § 1334(c)(2) abstention requirements are met (timeliness, state-law basis, relatedness, inability to have been filed in federal court absent § 1334, and timely adjudication in state court), and ordered remand of all claims.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether § 1334(c)(2) mandatory abstention requires remand of the removed claims | Baum conceded Claims 1–3 should be remanded; she opposed remand of Claim 4 | Alliance argued all four claims are state-law matters subject to mandatory abstention | Court held § 1334(c)(2) mandatory abstention applies to all four claims and remand is required |
| Whether Claim 4 is a "core" proceeding under 28 U.S.C. § 157(b)(2), specifically turnover (E) or (O) | Baum argued Claim 4 seeks turnover of estate property and affects asset liquidation, thus is core | Defendants argued Claim 4 concerns property of Fraser (a third party) and is a state-law enforcement claim, not turnover of estate property | Court held Claim 4 is non-core: it seeks turnover of Fraser’s property to enforce a state-law judgment lien, not turnover of property of the bankruptcy estate |
| Whether the removed claims "arise under" or "arise in" Title 11 | Baum implicitly argued Claim 4 relates to her bankruptcy estate | Defendants maintained none arise under or in Title 11; they are state-law claims | Court held none arise under or in Title 11; they are only "related to" the Chapter 13 case |
| Whether the requirements of § 1334(c)(2) (timeliness, ability to be adjudicated timely in state court, etc.) are satisfied | Baum did not contest timeliness or state-court adjudicability | Defendants asserted the motion was timely and state court can timely adjudicate | Court held the requirements are satisfied: motion was timely and state forum can timely adjudicate the claims |
Key Cases Cited
- Pacor, Inc. v. Higgins, 743 F.2d 984 (3d Cir. 1984) (articulates the test for "related to" bankruptcy jurisdiction)
- Wolverine Radio Co., Inc. v. Commissioner, 930 F.2d 1132 (6th Cir. 1991) (adopts Pacor test and explains "related to" standard)
- Celotex Corp. v. Edwards, 514 U.S. 300 (U.S. 1995) ("related to" jurisdiction can include suits between third parties that affect the estate)
- Bliss Technologies, Inc. v. HMI Indus., Inc., 307 B.R. 598 (Bankr. E.D. Mich. 2004) (distinguishes core proceedings from state-law claims and discusses § 157 categories)
- Lindsey v. O’Brien, Tanski, Tanzer & Young Health Care Providers of Conn. (In re Dow Corning Corp.), 86 F.3d 482 (6th Cir. 1996) (bankruptcy-related jurisdiction guidance)
- Loomis Elec., Inc. v. Lucerne Prods., Inc., 225 B.R. 381 (N.D. Ohio 1998) (state-law claims, including breach of contract, are not necessarily core proceedings)