599 B.R. 138
Bankr. D.N.M.2019Background
- Cashco, Inc. and Budget Payday filed Chapter 7 petitions; a prepetition state-court class action (Kitts) named Cashco, Budget Payday, and non‑debtor Hitex.
- Cashco removed the state-court class action to the bankruptcy court, initiating Adversary No. 18‑1055‑J; plaintiff moved to remand and for abstention.
- The Chapter 7 Trustee questioned whether the automatic stay barred removal, the remand/abstention motion, and continued prosecution of the removed action.
- The bankruptcy court previously held removal and remand motions are not stayed but annulled/terminated the stay as an alternative; the Trustee sought reconsideration.
- On reconsideration the court reaffirmed: removal and remand/abstention are not barred by §362, but continuation of the removed litigation (adjudication/merits activity) remains subject to the automatic stay unless stay relief is granted.
Issues
| Issue | Plaintiff's Argument (Trustee/Kitts) | Defendant's Argument (Cashco) | Held |
|---|---|---|---|
| Does the automatic stay bar removal of a prepetition state‑court action to the debtor’s home bankruptcy court? | Removal continues stayed litigation and thus violated §362; removal without stay relief is void. | Removal is a venue/filing change (commences an adversary); it does not advance merits and is not a "continuation" under §362. | The stay does not bar removal to the home bankruptcy court. |
| Does the automatic stay bar a motion to remand or abstain after removal? | Remand would continue the litigation and thus be barred. | A remand/abstention motion restores status quo and does not adjudicate merits; it is procedural and not stayed. | The stay does not bar remand or abstention motions. |
| Does the automatic stay bar continuation (merits/proceedings) of the removed action in bankruptcy court? | If removal is allowed, continuation should be barred absent stay relief. | Continuation is not stayed because bankruptcy court is the proper forum. | Continuation/adjudication of the removed state‑court claims is subject to §362; litigation cannot proceed without stay relief. |
| Does joining/substituting the chapter 7 trustee for the debtor in the removed action violate the stay? | Joining substitutes a party and is an act against the debtor that could violate §362. | Trustee succeeds to debtor’s litigation rights; joinder makes the real-party-in-interest present and does not act against the debtor. | Substitution/joinder of the Chapter 7 Trustee does not violate the stay. |
Key Cases Cited
- In re Gardner, 913 F.2d 1515 (10th Cir.) (defines "related to" bankruptcy jurisdiction)
- TW Telecom Holdings Inc. v. Carolina Internet, Ltd., 661 F.3d 495 (10th Cir.) (discusses stay scope and debtor/creditor litigation)
- United States v. Ron Pair Enters., Inc., 489 U.S. 235 (1989) (statutory interpretation: avoid literal reads that produce absurd results)
- Robbins v. Chronister, 435 F.3d 1238 (10th Cir.) (limits on literal statutory application)
- Rajala v. Gardner, 709 F.3d 1031 (10th Cir.) (statutory construction principles)
- In re Bird, 229 B.R. 90 (Bankr. S.D.N.Y.) (application of §362 to proceedings in bankruptcy court would be absurd)
- In re N. Coast Vill., Ltd., 135 B.R. 641 (9th Cir. BAP) (stay should not apply to proceedings in the home bankruptcy court)
- Campbell v. Countrywide Home Loans, Inc., 545 F.3d 348 (5th Cir.) (filing proofs of claim and certain in‑bankruptcy acts not subject to the stay)
- Matter of Cowin, 864 F.3d 344 (5th Cir.) (discusses unique role of home bankruptcy court and stay implications)