611 B.R. 10
S.D.N.Y.2019Background
- Debtor Christopher Woodrow was sued in New York state court (action filed Oct. 10, 2014) for alleged embezzlement, breach of fiduciary duty, fraud, and related claims arising from his tenure as Worldview Inc.’s CEO.
- Woodrow filed Chapter 7 in the Central District of California on Mar. 14, 2019; plaintiffs then filed an adversary nondischargeability complaint in that bankruptcy.
- After the bankruptcy filing (and automatic stay as to claims against Woodrow), Woodrow removed the entire multi-party state action to the Southern District of New York; plaintiffs moved to remand and Woodrow cross-moved to transfer to the bankruptcy court in California.
- The Court held the automatic stay did not bar removal or this Court’s consideration of the remand motion because removal/restoration does not ``commence or continue'' a judicial proceeding.
- The Court found federal "related to" jurisdiction only over claims involving the debtor (plaintiffs’ claims against Woodrow and Woodrow’s counterclaims), but not over the non-debtor claims against third parties.
- Applying 28 U.S.C. § 1334(c)(2) and related factors (timeliness, forum expertise, bankruptcy status, impact on estate), the Court concluded mandatory abstention/permissive abstention and equitable remand were warranted; remand granted, transfer denied as moot.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Does the automatic stay bar removal or this Court from deciding remand? | Stay should prohibit any relocation of the state action post-bankruptcy. | Removal is a venue change and does not "commence or continue" the action, so the stay does not bar removal or remand consideration. | Stay does not prevent removal or Court from deciding remand. |
| Does the Court have subject-matter jurisdiction over all removed claims? | Entire action was removed under 28 U.S.C. § 1334; federal court should keep the case. | Only claims "related to" the bankruptcy (those involving the debtor) are within § 1334; non-debtor claims fall outside. | Jurisdiction exists only for claims involving the debtor; no jurisdiction over non-debtor claims. |
| Do the plaintiffs’ claims against the debtor and debtor’s counterclaims "relate to" the bankruptcy? | Plaintiffs: these claims are integral to estate and affect distribution. | Debtor: removal appropriate because claims affect estate and belong in bankruptcy forum. | Held "related to" jurisdiction exists for claims to which the debtor is a party. |
| Must the Court abstain and remand under 28 U.S.C. § 1334(c)(2)? | Plaintiffs: mandatory abstention applies because state-law claims can be timely adjudicated in state court and other prongs satisfied. | Debtor: federal forum (or bankruptcy court) is appropriate and abstention is inappropriate. | Court found all prongs met (including timeliness factors) and mandatory abstention, permissive abstention, and equitable remand were warranted; remand ordered. |
Key Cases Cited
- In re Tribune Co. Fraudulent Conveyance Litig., 818 F.3d 98 (2d Cir. 2016) (removal does not itself "commence or continue" a state-court action for stay purposes)
- In re Cashco, Inc., 599 B.R. 138 (Bankr. D. N.M. 2019) (discussing whether automatic stay prevents removal and remand; removal is a venue change)
- Stern v. Marshall, 564 U.S. 462 (2011) (distinguishing "arising under," "arising in," and "related to" bankruptcy jurisdiction)
- SPV Osus Ltd. v. UBS AG, 882 F.3d 333 (2d Cir. 2018) ("conceivable effect" test for "related to" jurisdiction and indemnity/contribution bases)
- Parmalat Capital Fin. Ltd. v. Bank of Am. Corp., 639 F.3d 572 (2d Cir. 2011) (factors for whether a matter can be timely adjudicated in state court under § 1334(c)(2))
- Celotex Corp. v. Edwards, 514 U.S. 300 (1995) (Congress intended comprehensive bankruptcy jurisdiction to deal with matters connected to the estate)
- Baker v. Simpson, 613 F.3d 346 (2d Cir. 2010) (defining "arising in" jurisdiction as causes that have no existence outside bankruptcy)