FALTAS-FOUAD v. ST. MARY'S HOSPITAL, PASSAIC, N.J., 2:14-cv-05228

Dr. Suzan Faltas-Fouad was employed by St. Mary’s under a 2007 Employment Contract that required the hospital to maintain physician malpractice insurance naming her as an insured. The policy was a "claims-made" policy issued by Princeton Insurance.
St. Mary’s filed Chapter 11 in 2009 and its confirmed plan (effective March 10, 2010) rejected the Employment Contract; despite rejection, St. Mary’s continued to employ Faltas-Fouad at-will and renew the policy while she remained a named insured.
Faltas-Fouad treated Nativad Abreu in March 2011; Abreu sued for malpractice in November 2012 and died in March 2013. Faltas-Fouad left St. Mary’s on December 31, 2011; the hospital renewed the policy the next day but removed Faltas-Fouad as a named insured and did not purchase tail coverage for her.
Faltas-Fouad sued St. Mary’s in state court for breach of the Employment Contract (failure to provide tail coverage). Urena (as proposed administratrix of Abreu’s estate) filed a related declaratory-judgment action against St. Mary’s and Princeton seeking coverage/reformation and third-party-beneficiary status.
St. Mary’s removed both state actions to federal court asserting federal bankruptcy jurisdiction under 28 U.S.C. § 1334(b) because the Employment Contract had been rejected in the confirmed Chapter 11 plan; Plaintiffs moved to remand.

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether federal jurisdiction exists under 28 U.S.C. § 1334(b) (‘related to’ jurisdiction)	The claims are state-law contract/declaratory claims and do not depend on federal bankruptcy law; they belong in state court.	The suits are "related to" St. Mary’s bankruptcy because a ruling could increase the debtor’s liabilities and undermine the confirmed plan’s rejection of the contract.	Court: Jurisdiction exists — the actions are "related to" the confirmed Chapter 11 because they could affect the debtor’s liabilities and plan administration.
Whether the federal court must abstain and remand under 28 U.S.C. § 1334(c)(2) (mandatory abstention) / whether claims are core proceedings (‘arise in’ or ‘arise under’)	Plaintiffs moved to remand, arguing the claims are non-core, state-law causes of action that can be timely adjudicated in state court, so mandatory abstention applies.	St. Mary’s argued the matters are core or otherwise fit within bankruptcy jurisdiction because the plan rejection implicates the Bankruptcy Code.	Court: Mandatory abstention applies. The claims do not ‘arise in’ or ‘arise under’ Title 11 (they are non-core state-law claims), all §1334(c)(2) elements are met, and the actions must be remanded.

Stoe v. Flaherty, 436 F.3d 209 (3d Cir. 2006) (defines when a proceeding is "related to" a bankruptcy: conceivable effect on the estate)
Pacor, Inc. v. Higgins, 743 F.2d 984 (3d Cir. 1984) (outcome that could alter debtor’s rights/liabilities qualifies as "related to")
Nuveen Mun. Tr. ex rel. Nuveen High Yield Mun. Bond Fund v. Withumsmith Brown, P.C., 692 F.3d 283 (3d Cir. 2012) (relevant to how post-confirmation claims can affect debtor liabilities)
In re Resorts Int’l, Inc., 372 F.3d 154 (3d Cir. 2004) (bankruptcy jurisdiction diminishes but does not disappear after plan confirmation; tests for post-confirmation "related to" jurisdiction)
In re Combustion Eng’g, Inc., 391 F.3d 190 (3d Cir. 2005) (distinguishes core proceedings from non-core ones that merely relate to bankruptcy)
Rivet v. Regions Bank of La., 522 U.S. 470 (1998) (federal defense does not create federal-question jurisdiction)