Mugica v. Helena Chemical Co. (In Re Mugica)Mugica v. Helena Chemical Co. (In Re Mugica)
MEMORANDUM OPINION
On October 31, 2003, Diego and Sylvia Mugica 1 filed a complaint in the District Court of Hidalgo County, Texas, against multiple defendants, both diverse and non-diverse, asserting claims of negligence, trespass, nuisance and nuisance per se, gross negligence and malice, intentional infliction of emotional distress and strict liability. The claims were related to the alleged contamination of the Mugica’s property. Mr. and Mrs. Mugica allege that, as land developers, they purchased land in July 2001, which only later was found to be contaminated and under investigation by various environmental agencies.
On January 31, 2006, Diego Mugica (“Debtor”) filed a chapter 7 bankruptcy petition. Helena Chemical (“Defendant”) removed the state court proceeding to this Court on February 21, 2006. On March 3, 2006, Sylvia Mugica
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timely filed a motion
During the course of the abatement, all defendants were either dismissed or settled except for Helena Chemical (“Defendant”). Defendant is a diverse party. On October 11, 2006, Defendant filed a motion for withdrawal of reference asserting that this proceeding should not be remanded to state court. Specifically, Defendant asserts that remand is not necessary if a separate basis for federal jurisdiction, apart from 28 U.S.C. § 1334, exists. Defendant asserts that the “separate basis” is the newly created diversity jurisdiction. Accordingly, Defendant argues that regardless of jurisdiction created by § 1334, federal courts now have jurisdiction under 28 U.S.C. § 1332.
The issues raised by the parties require an analysis of 28 U.S.C. § 1334(a)(b) which grants subject matter jurisdiction of cases involving title 11 to the district courts, 28 U.S.C. § 157 which allows district courts to transfer matters to the bankruptcy courts, 28 U.S.C. §§ 1334(c) and 1452(b) which addresses abstention of district courts when claims are based on state law, and 28 U.S.C. § 1446(b) which dictates the procedures and limitations for removal based on diversity jurisdiction.
If the suit presently before the Court is “core” as defined under 28 U.S.C. § 157, the Court will likely retain the proceeding. A determination of “core” status generally implicates a significant probability of an effect on the bankruptcy estate. However, if the suit is not core and is merely “related to” title 11, this Court must determine whether under 28 U.S.C. §§ 1334(c) and 1452(b) state law issues either mandate or equitably demand abstention and remand. Regardless of whether the Court finds that state law issues do require abstention and remand, consideration must be given to Defendant’s assertion that this matter should be heard by courts of the United States because of the newly created diversity jurisdiction. Finally, if the Court finds this proceeding should be retained by federal courts, the Court must determine whether it is proper to submit a recommendation for withdrawal of reference to the district court.
1. Subject Matter Jurisdiction of Bankruptcy Courts: Core v. Noiu-Core
Congress conferred authority to bankruptcy judges through two sections of title 28 of the United States Code: (1) § 1334 which grants subject matter jurisdiction in cases under or related to title 11 to the district courts; and (2) § 157 which allows district courts to transfer cases under title 11 or related to cases under title 11 to bankruptcy courts. 28 U.S.C. § 1334(a); 28 U.S.C § 157(a).
Under § 1334(a) district courts have original and exclusive jurisdiction in cases brought under title 11. 28 U.S.C. § 1334(a). District courts also have “original but not exclusive jurisdiction of all civil proceedings
arising under
title 11, or
arising in or related to
cases under title 11.” 28 U.S.C. § 1334(b) (emphasis added). Because “arising in a case under” and “related to a case under” title 11 are considered to “operate conjunctively to define
The Supreme Court has noted “related to” bankruptcy proceedings include “(1) causes of action owned by the debtor which become property of the estate pursuant to 11 U.S.C. § 541, and (2) suits between third parties which have an effect on the bankruptcy estate.”
Arnold v. Garlock,
Once the court has determined a suit is “related to” title 11, subject matter jurisdiction vests with the district courts. Bankruptcy judges then have authority by reference under 28 U.S.C. § 157.
Section 157 states that each district court may provide that “proceedings arising under title 11 or arising in or related to a case under title 11 shall be referred to the bankruptcy judges.” 28 U.S.C. § 157(a). Bankruptcy judges may “hear and determine all cases under title 11 and all core proceedings arising under title 11, or arising in a ease under title 11 ... and may enter appropriate orders and judgments.” 28 U.S.C. § 157(b).
When evaluating core versus non-core, the Court is much more limited to looking at the direct effect on the estate than it is in evaluating “related-to.” The statute provides a nonexclusive list of sixteen matters considered “core.” 28 U.S.C. § 157(b)(2)(A)-(P). The Fifth Circuit has held a “proceeding is core under section 157 if it invokes a substantive right provided by title 11 or if it is a proceeding that, by its nature, could arise only in the context of a bankruptcy case.”
Wood
Under the sixteen matters considered “core,” as listed in § 157(b)(2), there is only one possibly applicable provisions to the current proceeding: § 157(b)(2)(0).
Section 157(b)(2)(0) states a core proceeding includes, “other proceedings affecting the liquidation of the assets of the estate or the adjustment of the debtor-creditor or the equity security holder relationship, except personal injury tort or wrongful death claims.” 28 U.S.C. § 157(b)(2)(0). While this provision may appear to be broadly-worded, this Court will follow the Fifth Circuit and give it a narrow interpretation.
See Wood,
If Debtor were to recover in this proceeding, such recovery could “conceivably” affect the estate. This proceeding is clearly “related-to” a suit under title 11. Any funds paid may become part of
As a non-core proceeding, the Court must determine if state law issues require abstention and remand, as requested by Plaintiffs. However, prior to making such a determination, the Court will first address Defendant’s argument that diversity jurisdiction exists. Defendant asserts that regardless of the possibility of any dominating state law issues, because the non-diverse parties have settled, diversity jurisdiction now permits Defendant to have this proceeding heard by the federal courts.
2. Diversity Jurisdiction
Defendants may “remove an action on the basis of diversity of citizenship if there is complete diversity between all named plaintiffs and all named defendants, and no defendant is a citizen of the forum State.”
Lincoln Prop. Co. v. Roche,
The statute plainly holds that a “defendant may not remove the case based on diversity jurisdiction if more than one year has passed since the ‘commencement’ of the action.”
Perez v. Lancer Ins. Co.,
No. C-06-388,
This state court action was filed on October 31, 2003. The Court finds it was on this date this action was commenced. Defendant filed its notice of removal in this Court on February 21, 2006. On October 11, 2006, Defendant filed its motion to withdraw the reference in which it first asserted that regardless of Plaintiffs’ request for remand, based on the diversity of the parties, the federal courts should retain jurisdiction over this proceeding.
Defendant filed its second amended response to Plaintiffs’ motion to remand on
The policy behind § 1446(b) is that “Congress found [r]emoval late in the proceedings may result in substantial delay and disruption of a case, and, [therefore], enacted the one-year limit as ‘a means of reducing the opportunity for removal after substantial progress has been made in state court.’ ”
Perez,
When a party files bankruptcy, suits involving claims relating to the bankruptcy may be removed to the bankruptcy court.
See. e.g. Khan v. Hakim,
The legislative history of §§ 1334(c)(1),
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(2)
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clearly illustrate that when adjudication in state court would not interfere with the efficient administration
Defendant now attempts to circumvent Plaintiffs’ ability to remand by asserting that diversity jurisdiction, newly created by the non-diverse parties’ settlements, dictates that this proceeding be heard by the federal courts. For Defendant to now assert jurisdiction based on diverse parties, over three years since this proceeding was commenced, Defendant must support its argument as to why the one-year limit on removal under § 1446(b) does not apply. In support of its proposition, Defendant cites
New York Life Ins. Co. v. Deshotel,
The Court rejects Defendant’s reliance on
New York Life.
The Court in
New York Life
was faced with the question of whether § 1446(b) “applies only to those state court cases that are not initially removable or to all diversity cases that a defendant seeks to remove” whether initially removable or not.
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New York Life Ins. Co.,
The Court in
New York Life
found that the' one-year time limit was enacted to “address[] problems that arise from a change of parties as an action progresses toward trial in state court, such as when the elimination of parties may create for the first time a party alignment that supports diversity jurisdiction.”
New York Life Ins. Co.
This proceeding had been pending for over two years in state court before it was removed to this Court. The Court will not accept the principle, advanced by Defendant, that Congress could intend that a party finding itself subject to federal jurisdiction under § 1334, having a colorable basis for remand, lose the protection of the one-year limit on an assertion of diversity jurisdiction. Congress’ intent, as codified in 28 U.S.C. §§ 1332, 1334, & 1452, has been to encourage the efficient administration of judicial proceedings while maintaining respect for the plaintiffs choice of forum. In New York Life, the Fifth Circuit explicitly recognized that the one-year limit was enacted to address problems such as the one currently before this Court. Id. When this action was commenced, the parties were non-diverse. More than one year had passed before the parties became sufficiently diverse to invoke diversity jurisdiction. The Court rejects Defendant’s assertion that it may now retain federal jurisdiction based on diversity jurisdiction.
3. Mandatory Abstention:
Plaintiffs have requested that this Court abstain from hearing this proceeding and remand to state court. First, Plaintiffs argue that mandatory abstention applies pursuant to § 1334(c)(2). Section 1334(c)(2) provides that:
[u]pon timely motion of a party in a proceeding based upon a State law claim or State law cause of action, related to a case under title 11 but not arising under title 11 or arising in a case under title 11, with respect to which an action could not have been commenced in a court of the United States absent jurisdiction under this section, the district court shall abstain from hearing such proceeding if an action is commenced, and can be timely adjudicated, in a State forum of appropriate jurisdiction.
Id.
The Eastern District of Louisiana has parsed this statute into a four part test for determining when a district court must abstain from hearing state law claims: “(1) the claims have no independent basis for federal jurisdiction other than § 1334(b); (2) the claims are non-core; (3) an action has been commenced in state court; and (4) the action can be timely adjudicated in state court.”
Patterson v. Morris,
Initially, the Court recognizes that Sylvia Mugica filed a timely motion to abstain.
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This suit was removed from
As to the four factors stated above, the Court has already established that the claims have no independent basis for federal jurisdiction other than § 1334(b) and that this suit is non-core. Additionally, this Court recognizes that this proceeding was initially filed in state court. The only fact in dispute is whether this proceeding could be timely adjudicated in state court.
Defendant asserts that a trial in Hidalgo County will not commenced any sooner than 12 months from the date of remand. Plaintiffs assert they will be able to reach trial faster in state court than in federal court. Further, Plaintiffs assert they need not show the matter can be more timely adjudicated in state court only that the matter can be timely adjudicated in state court. The Court agrees.
J.T. Thorpe Co. v. American Motorists,
No. Civ.A. H-02-4598,
A party asserting that an action can be timely adjudicated in state court, however, must provide the court with more than a “naked assertion” of such.
In re Doctors Hosp.1997, L.P.,
At the time this case was removed by Defendants, the state court had issued a trial date of April 24, 2006; issued a scheduling order which all parties had complied with (including the designation of plaintiffs’ experts on January 12, 2006 and the defendants’ experts on March 1, 2006); heard and denied the defendants dispositive motions for summary judgment on July 18, 2005; and the parties conducted significant discovery, both written and depositions, in advancing this case to resolution.
Pl.’s Br. Supp. Mot. to Abstain & Remand ¶ 8. The Court finds that Plaintiffs have met their burden on demonstrating that this matter can be timely adjudicated in state court. Plaintiffs have provided sufficient evidence to show this proceeding has been prosecuted in state court and that the state court should be familiar with the case. Indeed, on February 21, 2006, when this proceeding was removed to this court, this matter had been litigated in state court since October 31, 2003, and had a trial date set for April 24, 2006. The Court, therefore, finds that Plaintiffs have met the requirements of mandatory abstention.
This proceeding will be remanded to the 139th Judicial District Court of Hidalgo County, Texas. A separate order will issue. Plaintiffs’ request for permissive abstention and equitable remand is moot. Defendant’s motion to withdraw the reference is moot.
Notes
. Since filing the state court complaint, but prior to Debtor's bankruptcy, Diego and Sylvia Mugica divorced. The lawsuit forming the basis of this adversary proceeding was not mentioned in the divorce decree. The divorce decree, however, did state that “any assets of the parties not awarded or divided by this Final Decree of Divorce are subject to future division as provided in the Texas Family Code.” (docket 16, exhibit 1). The Texas Family Code provides that either former spouse may file a suit to divide property not divided in a final decree of divorce. Tex. Fam.Code § 9.201. To this Court's knowledge, neither party has filed suit to determine the extent of ownership over these claims. A hearing was held before this Court on May 15, 2006. At that hearing the Court recognized that under Texas law, Mr. and Mrs. Mugica would now be tenants in common with respect to the lawsuit.
See
39 Aloysius A. Loepold & Gerry W. Beyer, Tex. Prac., Marital Property & Homesteads § 20.20 (citing
Busby v. Busby,
. Defendant filed an objection to the motion to abstain asserting that Debtor only owned an interest in the action and, therefore, Mrs.
. Legislative history as to 28 U.S.C. § 1334(c)(1) is quite sparse. However, courts have looked to § 1334(c)(l)’s predecessor, § 1471(d).
See e.g. In re Hospitality Ventures/Lavista,
. As to 28 U.S.C. § 1334(c)(2), see
Stoe v. Flaherty,
. The Fifth Circuit compared cases where a plaintiff filed a claim meeting the prerequisites for diversity jurisdiction and then failed to serve it until after one year had passed, therefore depriving a defendant the opportunity to remove.
New York Life Ins. Co.,
. The Supreme Court recognized the one year limitation in
Caterpillar Inc. v. Lewis,
519 U.S.
. Although there is some confusion over whether Debtor joined in the motion to ab-slain, the Court finds that § 1334(c)(2) only requires "a” party to filed a motion to abstain to invoke mandatory abstention. Therefore, for purposes of this analysis it is irrelevant whether Debtor joined in this motion.
See Connecticut Nat. Bank v. Germain,