533 B.R. 511
M.D.N.C.2015Background
- UDX (NC LLC) sued several related corporate defendants and James Heavner (an individual allegedly guarantor/manager) in state court over loans and guaranties; corporate defendants filed Chapter 11 petitions shortly after.
- Corporate defendants removed the case to federal court under 28 U.S.C. § 1452 as related to the bankruptcy; UDX subsequently voluntarily dismissed all claims against the corporate defendants, leaving only Heavner.
- Heavner moved to refer the matter to the district’s bankruptcy court as "related to" the pending bankruptcy case; UDX moved for mandatory abstention under 28 U.S.C. § 1334(c)(2) and alternatively for equitable remand under § 1452(b).
- UDX amended its complaint to assert three state-law claims against Heavner (breach of contract on guaranty, defamation, unfair/deceptive trade practices).
- The district court analyzed whether mandatory abstention applied (timeliness, state-law basis, non-core relatedness, federal-court commencement, ability for timely state adjudication) and whether remand was equitable; the court also considered whether diversity jurisdiction existed after UDX’s voluntary dismissals.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the court must mandatorily abstain under 28 U.S.C. § 1334(c)(2) | UDX: § 1334(c)(2) applies because claims are state-law, related to bankruptcy, and could not have been brought in federal court absent § 1334 (no diversity) | Heavner: Diversity exists now (after UDX dismissed corporate defendants); UDX’s motion untimely and movant bears burden to prove abstention | Denied — UDX failed to prove mandatory abstention; diversity existed after voluntary dismissals and requirements unmet |
| Whether the court should equitably remand under 28 U.S.C. § 1452(b) | UDX: equitable factors favor remand (state-law issues, comity, prejudice) | Heavner: Bankruptcy court already handling related matters; remand would be duplicative and inefficient | Denied — equitable factors weigh against remand; referral to bankruptcy court is more efficient |
| Whether case is "related to" the pending bankruptcy such that referral is appropriate | UDX implicitly conceded relatedness but sought abstention/remand instead | Heavner: Claims against guarantor directly relate to administration of the debtor’s estate and should be handled by bankruptcy court | Granted — court held the action is "related to" the bankruptcy and referred the case to the bankruptcy court |
| Whether Heavner is a citizen of a state creating diversity jurisdiction | UDX: Heavner domiciled in North Carolina | Heavner: Domicile is South Carolina (voter registration, driver’s license, state tax returns, federal returns) | Court found Heavner domiciled in South Carolina; diversity jurisdiction existed after UDX’s voluntary dismissals |
Key Cases Cited
- Axel Johnson, Inc. v. Carroll Carolina Oil Co., 145 F.3d 660 (4th Cir.) (governs domicile inquiry for diversity jurisdiction)
- Johnson v. Advance Am., 549 F.3d 932 (4th Cir.) (defines domicile as physical presence plus intent)
- In re A.H. Robins Co., Inc., 86 F.3d 364 (4th Cir.) (scope of "related to" bankruptcy jurisdiction)
- Pacor, Inc. v. Higgins, 743 F.2d 984 (3d Cir.) (formulation of "related to" test)
- Moffitt v. Residential Funding Co., LLC, 604 F.3d 156 (4th Cir.) (voluntary plaintiff acts can create federal jurisdiction post-removal)
- Yamevic v. Brink’s, Inc., 102 F.3d 753 (4th Cir.) (rule that diversity may be created by plaintiff’s voluntary acts)