Farmers Bank & Trust Co. v. Chickasaw Properties, LLC (In re Burrow)
505 B.R. 838
Bankr. E.D. Ark.2013Background
- Farmers Bank & Trust brought a state-court foreclosure action to establish its mortgage and judgment lien as senior on a Blytheville, Arkansas shopping center owned by Chickasaw Properties, LLC; Chickasaw’s sole member is debtor Terry Burrow.
- Wal‑Mart and other tenants assert lease or sublease interests (master lease originally to Wal‑Mart; sublease to J.C. Penney); Equitable Life and Farmers both hold competing mortgages and related litigation exists (including a Missouri judgment favoring Equitable Life).
- The Burrow Family Trust (a self-settled revocable trust with Burrow as trustee and beneficiary) allegedly holds interests in the master lease; Burrow has treated trust property as estate property in the bankruptcy case.
- Wal‑Mart removed the foreclosure action to bankruptcy court under 28 U.S.C. §§ 1441 and 1452, arguing the foreclosure is “related to” Burrow’s bankruptcy because Chickasaw’s property and the Burrow Trust interests affect the estate.
- The bankruptcy court found the shopping center is Chickasaw property (not debtor property) but concluded the Burrow Trust’s leasehold interests could be estate property, creating potential "related to" jurisdiction; however, the court determined mandatory abstention (and alternatively discretionary abstention/equitable remand) required remanding the entire foreclosure to state court.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether bankruptcy court has "related to" jurisdiction over the state foreclosure | Wal‑Mart: Debtor’s sole LLC membership means Chickasaw property is estate property; foreclosure affects estate. | Farmers: Chickasaw property is LLC property under Arkansas law, not debtor’s estate. | Court: Chickasaw property is not estate property; membership interest is, so no jurisdiction on that ground. |
| Whether trust-held lease interests are estate property and confer jurisdiction | Wal‑Mart: Burrow Trust is revocable; trust property is debtor property — lease interests affect the estate. | Farmers: Trust/lease issues are state-law and tangential; not enough to invoke bankruptcy jurisdiction. | Court: Treating Burrow Trust as revocable, trust leasehold interests could be estate property; so "related to" jurisdiction is conceivable for that piece. |
| Whether mandatory abstention under 28 U.S.C. § 1334(c)(2) requires remand | Farmers: Motion to remand/abstain timely; cause is state law, related to but did not arise in bankruptcy, etc.; state court can timely adjudicate. | Wal‑Mart: Removal proper because of "related to" jurisdiction and potential estate impact. | Court: All six mandatory-abstention factors met; court must abstain and remand the foreclosure. |
| Whether discretionary abstention or equitable remand alternatively support sending case back | Farmers: State-law predominance, noncore, tangential relation to bankruptcy, state court expertise, docket burden. | Wal‑Mart: Bankruptcy court may resolve priority/lien disputes as core under § 157(b)(2)(K). | Court: Discretionary abstention and equitable remand also weigh in favor of remand; state court better suited to resolve complex foreclosure and lien-priority issues. |
Key Cases Cited
- Abramowitz v. Palmer, 999 F.2d 1274 (8th Cir. 1993) (articulates the Eighth Circuit’s "conceivable effect" test for "related to" jurisdiction)
- Celotex Corp. v. Edwards, 514 U.S. 300 (1995) (discusses scope of federal bankruptcy jurisdiction and differences among circuits)
- Pacor, Inc. v. Higgins, 743 F.2d 984 (3d Cir. 1984) (formulates the "conceivable effect" test for "related to" jurisdiction)
- Dogpatch Props., Inc. v. Dogpatch U.S.A., Inc., 810 F.2d 782 (8th Cir. 1987) (applies "conceivable effect" test to find related-to jurisdiction where nondebtor dispute could trigger debtor liability)
- In re Williams, 256 B.R. 885 (8th Cir. BAP 2001) (lists discretionary-abstention factors relevant to § 1334(c)(1))