495 B.R. 332
Bankr. W.D. Ky.2013Background
- Eastern Livestock Co., LLC refinanced debt with Fifth Third Bank in 2004 and granted a $22.5 million revolving line with liens on collateral; from 2004–2010 Eastern Livestock routinely bought cattle from Plaintiffs using Fifth Third accounts.
- A check kiting scheme involving Eastern Livestock officers Brangers, Gibson, and McDonald manipulated inter-account checks to incubate cash flow while hiding insolvency; Fifth Third allegedly knew of the scheme as early as 2007 but did not act.
- In 2010 Fifth Third froze Eastern Livestock’s accounts on November 2, leading to further check processing and use of deposits as collateral to cover the scheme; Plaintiffs’ cattle and proceeds became part of the bankruptcy estate after an involuntary Chapter 11 filing on December 6, 2010.
- Plaintiffs filed suit in Allen Circuit Court on November 2, 2012, naming Fifth Third, Brangers, Gibson, McDonald, and West Kentucky Livestock Market; Fifth Third removed the case to federal court asserting diversity, bankruptcy, and supplemental jurisdiction.
- Plaintiffs later filed a Second Amended Complaint; Fifth Third amended its removal notice arguing federal question jurisdiction; the Court will analyze removability and abstention arguments, with focus on fraudulent joinder of Brangers and PSA-related issues.
- The case subsequently proceeded to address removal jurisdiction, fraudulent joinder, bankruptcy jurisdiction, and mandatory/permissive abstention, ultimately granting abstention/remand to the Allen Circuit Court.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Brangers is fraudulently joined to defeat diversity. | Two-year limit (KRS 413.125) arguably applies; Brangers not time-barred. | Brangers is time-barred under KRS 413.140(1)(j) (one-year); fraudulent joinder should defeat diversity. | Brangers not fraudulently joined; no diversity dismissal. |
| Whether the action arises under or relates to PSA and thus federal question jurisdiction exists. | PSA issues are central; claims implicate federal regulation. | State-law claims predominate; PSA issues are not central. | No federal question jurisdiction; abstention appropriate. |
| Whether the case is related to bankruptcy and within §1334 jurisdiction. | Case will impact bankruptcy estate; related-to jurisdiction applies. | Limitations of related-to scope; removal improper if not related. | Case is related to bankruptcy; jurisdiction exists but abstention applies. |
| Whether mandatory or permissive abstention should apply under §1334(c). | State-law predominates; unsettled state-law questions; related-to case. | Federal interest in PSA; disturb balance of courts. | Mandatory abstention granted; remand; permissive abstention also warranted. |
Key Cases Cited
- Alexander v. Elec. Data Sys. Corp., 13 F.3d 940 (6th Cir.1994) (subject-matter jurisdiction tested at removal; amend not superseding)
- Coyne v. Am. Tobacco Co., 183 F.3d 488 (6th Cir.1999) (fraudulent joinder standard; doubts resolved in plaintiff's favor)
- Harper v. AutoAlliance Int'l, Inc., 392 F.3d 195 (6th Cir.2004) (jurisdictional analysis at time of removal; subsequent amendments do not destroy jurisdiction)
- Rockwell Int’l Corp. v. United States, 549 U.S. 457 (U.S. 2007) (test for jurisdiction when a plaintiff amends complaint)
- Mikulski v. Centerior Energy Corp., 501 F.3d 555 (6th Cir.2007) (four factors for substantial federal interest in PSA context)
- In re Wolverine Radio Co., 930 F.2d 1132 (6th Cir.1991) (related-to bankruptcy jurisdiction standard)
- Pacor, Inc. v. Higgins, 743 F.2d 984 (3d Cir.1984) (defines 'related to' bankruptcy jurisdiction)
- Ball v. Stalnaker, 517 F.Supp.2d 946 (E.D. Ky.2007) (statute-of-limitations analysis in PSAs context)