515 B.R. 52
Bankr. S.D.N.Y.2014Background
- RFC filed suit against UBS in NY Supreme Court for breach of contract and indemnification related to loans UBS sold to RFC.
- UBS filed a proof of claim in RFC’s bankruptcy proceeding; RFC objected to the claim on insufficient documentation.
- RFC’s action is pleaded as a counterclaim to UBS’s proof of claim, creating a bankruptcy-related dispute.
- The Court analyzes core vs. non-core status under 28 U.S.C. §157(b)(2) and abstention, and addresses Stem/Arkison implications.
- The Remand Motion seeks to send the action back to state court; the Court ultimately denies remand and finds jurisdiction remains in federal court.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the action is core under §157(b)(2)(C). | RFC—counterclaim by the estate against claimants is core. | UBS—counterclaims must relate to the claim to be core. | Action is core under §157(b)(2)(C). |
| Whether permissive abstention is warranted under §1334(c)(1). | abstention unnecessary given estate effects. | Abstention warranted due to state-law focus. | Permissive abstention not warranted; proceed in federal court. |
| Whether the court may enter final judgment on the counterclaims without consent due to Stem/Arkison. | Stem allows final adjudication as core counterclaims. | Arkison requires non-core treatment for Stem claims unless consent. | Court may adjudicate as core or non-core depending on constitutional constraints; proceed, final judgment subject to Article III constraints. |
| Whether the court has jurisdiction arising in or related to the bankruptcy case under §1334(b). | Counterclaims arise in the bankruptcy case; jurisdiction exists. | Relies on related-to theory and potential abstention concerns. | Court has arising-in jurisdiction under §1334(b) for this core counterclaim. |
Key Cases Cited
- Stern v. Marshall, 131 S. Ct. 2594 (Supreme Court 2011) (core counterclaims may not be finally adjudicated by bankruptcy court without consent)
- Arkison, 134 S. Ct. 2165 (Supreme Court 2014) (Stem claims may proceed as non-core under §157(c) when final adjudication is unconstitutional)
- In re Refco, Inc. Sec. Litig., 628 F. Supp. 2d 432 (S.D.N.Y. 2008) (burden to prove federal jurisdiction for removal)
- In re Iridium Operating LLC, 285 B.R. 822 (S.D.N.Y. 2002) (core vs non-core analysis for counterclaims related to proofs of claim)
- ACE Am. Ins. Co. v. DPH Holdings Corp., 448 F. App’x 134 (2d Cir. 2011) (close nexus/conceivable effect tests for post-confirmation jurisdiction)
- Katchen v. Landy, 382 U.S. 323 (Supreme Court 1966) (claims allowance process encompasses affiliated counterclaims)