571 B.R. 441
9th Cir. BAP2017Background
- Prepetition, Shpak sued Malcolm and Judith Curtis in the U.S. District Court for the Eastern District of New York (EDNY) seeking damages for fraud, breach of contract, conversion and related claims; a jury trial was scheduled for June 2016.
- The Curtises filed Chapter 11 in the Central District of California (CDCA) on June 15, 2016 and then filed a notice purporting to remove the EDNY lawsuit to the bankruptcy court in CDCA.
- Shpak moved to strike the notice of removal (and/or remand), arguing § 1452 does not authorize removal from one federal district court to a bankruptcy court.
- The Curtises attempted a second removal to the U.S. District Court for the Central District of California; that district dismissed the “removal” as unauthorized and the Curtises appealed to the Ninth Circuit.
- The bankruptcy court struck the original notice of removal; the Curtises appealed to the Bankruptcy Appellate Panel, which considered whether 28 U.S.C. § 1452 permits removal from federal district court to bankruptcy court.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether 28 U.S.C. § 1452 authorizes removal of a civil action from a federal district court to a bankruptcy court | Shpak: § 1452 does not permit removal from one federal district court to a bankruptcy court; removal is improper | Curtises: § 1452 should allow removal of a district-court action to the district or bankruptcy court where the bankruptcy case is pending to centralize bankruptcy-related litigation | Held: § 1452 does not authorize removal from a federal district court to a bankruptcy court; the notice of removal was properly struck |
| Whether § 1452(a) can be read to permit removal to the same district court where the action is pending | Shpak: That reading is nonsensical and contrary to the statute’s plain language | Curtises: § 1452 should be read broadly to facilitate centralization of bankruptcy litigation | Held: Plain language authorizes removal only “to the district court for the district where such civil action is pending,” so it does not provide a mechanism to move a case from a district court into a bankruptcy court |
| Whether reading § 1452 to permit district-to-bankruptcy removal would raise constitutional problems | Shpak: Such a reading would undermine district courts’ Article III referral power under § 157 and risk constitutional infirmity | Curtises: Centralization goals justify the reading and practical transfer mechanisms exist | Held: Permitting direct removal would interfere with Congress’s 1984 scheme (the post-Marathon referral system) and raise constitutional concerns, so that interpretation is avoided |
| Proper procedure to move a district-court action into a bankruptcy forum | Shpak: Transfer must be accomplished by district-court referral (and venue transfer if pending in a different district), not by § 1452 removal | Curtises: Argued removal could effect the transfer to the bankruptcy forum | Held: Transfer requires district-court referral or venue transfer; § 1452 is not the proper vehicle |
Key Cases Cited
- Northern Pipeline Const. Co. v. Marathon Pipe Line Co., 458 U.S. 50 (1982) (bankruptcy courts’ broad 1978 Act jurisdiction held unconstitutional under Article III)
- California Pub. Employees’ Ret. Sys. v. WorldCom, Inc., 368 F.3d 86 (2d Cir.) (discussing § 1452’s role in centralizing bankruptcy litigation)
- I.N.S. v. St. Cyr, 533 U.S. 289 (2001) (statutory interpretation should avoid constitutional questions)
- Crowell v. Benson, 285 U.S. 22 (1932) (principle of avoiding constitutional questions in statutory construction)
- Ford v. Deitz (In re Deitz), 760 F.3d 1038 (9th Cir.) (describing de novo review of statutory interpretation in bankruptcy context)
- Quality Tooling, Inc. v. United States, 47 F.3d 1569 (Fed. Cir.) (construing § 1452 as authorizing removal from certain federal tribunals to district court)