569 B.R. 563
Bankr. S.D.N.Y.2017Background
- CORE Media and affiliates ("CORE") borrowed under First- and Second‑Lien Term Loan Agreements containing successor‑obligor and change‑of‑control clauses; Apollo acquired CORE in 2011 and lenders held liens.
- CORE and related debtors filed chapter 11; the confirmed plan created the CORE Litigation Trust ("Trust") as assignee of lenders’ litigation rights to pursue prepetition tort claims against non‑debtors.
- The Trust sued defendants in California state court for inducing breach of contract and tortious interference; defendants removed to federal court, venue transferred to SDNY, and the matter was referred to the bankruptcy court.
- Defendants asserted removal based on bankruptcy jurisdiction because Apollo entities filed indemnification proofs of claim in the CORE case and the Trust’s suit could affect those claims.
- Trust moved to remand and for mandatory abstention under 28 U.S.C. § 1334(c)(2); defendants argued the bankruptcy court had core or at least related jurisdiction and that state court could not timely adjudicate the case.
- The bankruptcy court held it lacked core jurisdiction but had post‑confirmation related‑to jurisdiction; it concluded the action can be timely adjudicated in California state court and that mandatory abstention and remand were required.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether bankruptcy court has core jurisdiction over Trust’s state‑law tort claims | Trust: claims are state law between non‑debtors and predate bankruptcy; not core | Defs: indemnification proofs of claim and plan language create core jurisdiction | Held: Not core; only non‑core (related‑to) post‑confirmation jurisdiction exists |
| Whether bankruptcy court has related‑to jurisdiction post‑confirmation | Trust: Plan and Trust assignment plus indemnification claims link the suit to the estate | Defs: indemnification claims and Trust reservation of jurisdiction confer jurisdiction | Held: Related‑to jurisdiction exists post‑confirmation under a "close nexus" because indemnity claims are payable from plan distributions |
| Whether mandatory abstention under 28 U.S.C. § 1334(c)(2) applies (timely adjudication in state court) | Trust: motion timely; remaining §1334(c)(2) elements satisfied; California court can timely adjudicate | Defs: state court backlog, choice‑of‑law, privilege/discovery issues, and need for prompt resolution prevent timely adjudication | Held: Mandatory abstention required — California state court can timely adjudicate; four‑factor timeliness test favors abstention overall |
| Whether equitable remand or permissive abstention required if mandatory abstention fails | Trust: alternatively seek permissive abstention or equitable remand | Defs: oppose remand; assert federal forum preferable | Held: Court did not reach equitable remand or permissive abstention because mandatory abstention dispositive |
Key Cases Cited
- Mt. McKinley Ins. Co. v. Corning Inc., 399 F.3d 436 (2d Cir. 2005) (removal and abstention principles apply to actions removed to federal court)
- In re WorldCom, Inc. Secs. Litig., 293 B.R. 308 (S.D.N.Y. 2003) (framework for mandatory abstention under § 1334(c)(2))
- Parmalat Capital Fin. Ltd. v. Bank of Am. Corp., 639 F.3d 572 (2d Cir. 2011) (timely‑adjudication factor and burden of proof discussion)
- Stern v. Marshall, 564 U.S. 462 (U.S. 2011) (distinction between core and non‑core proceedings)
- United States Lines, Inc. v. Am. S.S. Owners Mut. Prot. & Indem. Ass’n, 197 F.3d 631 (2d Cir. 1999) (when proceedings directly affect core bankruptcy functions)
- Pacor, Inc. v. Higgins, 743 F.2d 984 (3d Cir. 1984) (related‑to jurisdiction "conceivable effect" test)
- In re Exide Techs., 544 F.3d 196 (3d Cir. 2008) (contingent indemnity proof of claim does not convert state claims against non‑debtors into core proceedings)
- In re Methyl Tertiary Butyl Ether (MTBE) Prod. Liab. Litig., 488 F.3d 112 (2d Cir. 2007) (removal doubts resolved against federal jurisdiction)