Sears v. Sears (In re Sears)
2015 U.S. Dist. LEXIS 131121
D. Neb.2015Background
- Appellees (Robert A. Sears and Korley B. Sears) sued Appellants (members of the Sears family and related trusts) in state court for breach of contract, fiduciary duty, unjust enrichment, conspiracy, tortious interference, and seeking restitution tied to prior AFY, Inc. bankruptcy proceedings.
- Appellants removed the state action to the bankruptcy court under 28 U.S.C. § 1452(a), initiating an adversary proceeding in the Chapter 11 of Korley B. Sears.
- The bankruptcy court sua sponte ordered permissive abstention under 28 U.S.C. § 1334(c)(1) and equitable remand under § 1452(b), remanding the action back to state court without prior notice to the parties or an abstention motion on the record.
- Appellants appealed the remand to the district court, arguing they were not given notice or an opportunity to be heard before abstention/remand was decided.
- The district court held that permissive abstention and equitable remand decisions are reviewed for abuse of discretion and reversed the bankruptcy court because the court acted sua sponte without giving Appellants an opportunity to be heard.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether bankruptcy court properly abstained and remanded under § 1334(c)(1) and § 1452(b) | Sears argued state-law claims predominate and jury demand & lack of consent justify abstention/remand | Appellants argued the claims are related to bankruptcy matters, prior bankruptcy rulings, and removal was proper so bankruptcy court should retain jurisdiction | Remand reversed: court abused discretion by deciding abstention/remand sua sponte without giving Appellants notice/opportunity to be heard |
| Whether sua sponte abstention may be exercised without notice | Sears implicitly relied on court’s authority to abstain sua sponte | Appellants argued procedural requirement: parties must have notice and chance to be heard when court raises abstention sua sponte | Held: Sua sponte abstention/remand is permissible only if parties have advance notice and opportunity to be heard; lack of notice was reversible error |
| Applicability of core vs. non-core classification to claims | Sears: claims are state-law and non-core; bankruptcy court previously decided related claims so state court best handles new claims | Appellants: issues affect bankruptcy estates, relate to prior bankruptcy rulings, and preclusion arguments should be addressed in bankruptcy context | Held: Court did not decide merits of core classification; remand reversed on procedural grounds so bankruptcy court to reconsider with parties heard |
| Standard of review for abstention/remand decision | Sears: discretionary (abuse of discretion) so deference due | Appellants: abuse of discretion where legal/procedural errors occurred | Held: Review is for abuse of discretion; here abuse found because of procedural irregularity (no notice/opportunity to be heard) |
Key Cases Cited
- Things Remembered, Inc. v. Petrarca, 516 U.S. 124 (1995) (limits appellate review of certain remand orders)
- In re Williams, 256 B.R. 885 (8th Cir. BAP 2001) (permissive abstention factors and standard)
- In re Stabler, 418 B.R. 764 (8th Cir. BAP 2009) (sua sponte abstention allowed if parties had notice)
- In re Panther Mountain Land Development, LLC, 686 F.3d 916 (8th Cir. 2012) (courts must give notice before applying doctrines sua sponte that affect parties’ rights)
- In re Burrow, 505 B.R. 838 (Bankr. E.D. Ark. 2013) (equitable remand factors substantially overlap abstention analysis)
- Specialty Mills, Inc. v. Citizens State Bank, 51 F.3d 770 (8th Cir. 1995) (state court actions may be removed directly to bankruptcy court)