GEORGE P. STOE, Appellant v. WILLIAM E. FLAHERTY; DAVID CARPENTER; JAMES CARPENTER; WILLIAM SMELAS; ROBERT SUNDERMAN; RONALD STATILE
No. 04-3947
United States Court of Appeals for the Third Circuit
January 23, 2006
PRECEDENTIAL. On Appeal From the United States District Court For the Western District of Pennsylvania (D.C. Civil Action No. 04-cv-00489). District Judge: Hon. Donetta W. Ambrose. Argued October 18, 2005. BEFORE: SMITH, STAPLETON and NYGAARD, Circuit Judges.
Erik Sobkiewicz (Argued)
Douglas A. Campbell
Campbell & Levine, LLC
1700 Grant Building
Pittsburgh, PA 15219
Attorneys for Appellant
Steven S. Santoro (Argued)
Santoro & Gonzalez
407 Station Street
Pittsburgh, PA 15017
Attorney for Appellee
William E. Flaherty
Laura B. Hoguet
Edna Sussman (Argued)
Houget Newman & Regal
10 East 40th Street
New York, NY 10016
and
Thomas H. May
Dickie, McCamey & Chilcote
Two PPG Place - Suite 400
Pittsburgh, PA 15222
Attorneys for Appellees
David O. Carpenter and D. James Carpenter
David B. Florenzo
Benjamin M. Gipson
Kirkland & Ellis
655 Fifteenth Street, N.W.
Washington, D.C. 20005
Attorneys for Appellees
William Smelas, Robert Sunderman
and Ronald Statile
OPINION OF THE COURT
STAPLETON, Circuit Judge.
Plaintiff-appellant George Stoe (“Stoe“) brought a state-law action in state court to recover unpaid severance benefits from current and former officers of his previous employer, which is now bankrupt. The defendants removed the case to federal court pursuant to
I.
Stoe was formerly the president of Zinc Corporation of America (“Zinc“), a division of Horsehead Industries, Inc. (“Horsehead“). In April 2002, Stoe entered into a severance agreement with Zinc that provided for Stoe to receive a severance of $648,000, payable in biweekly installments of $13,500, for services he had rendered to the company prior to his departure. Zinc and Horsehead made all payments required by the severance agreement until Horsehead filed for Chapter 11 bankruptcy in the United States District Court for the Southern District of New York in August 2002. The Bankruptcy Code prohibited Horsehead from making further payments to Stoe after the filing of the petition. See Belcufine v. Aloe, 112 F.3d 633, 634 (3d Cir. 1997) (noting that filing of a Chapter 11 petition bars the payment of pre-petition claims by the company).
Stoe brought an action to recover the unpaid severance payments under Pennsylvania‘s Wage Payment and Collection Law,
After removing Stoe‘s state court action to federal court, the defendants moved to dismiss Stoe‘s action under
The District Court denied Stoe‘s motion to remand or to abstain. With respect to mandatory abstention, the court made two rulings. First, it ruled that “abstention cannot apply to removed cases.” App. at 9. Second, the District Court concluded that even if mandatory abstention applied as a general matter to removed cases, it would not apply to Stoe‘s case because mandatory abstention requires that the state law claim be only “related to” the bankruptcy proceeding, and not “arise under” the Bankruptcy Code or “arise in” a bankruptcy case. In the District Court‘s view, Stoe‘s claim was “inextricably intertwined with the Bankruptcy Code and would not exist, but for, the bankruptcy filing.” As a result, the District Court held that Stoe‘s claim “‘arises in’ the bankruptcy proceeding.” Id. at 10.
After Stoe responded to the defendants’ motions to dismiss, the District Court ruled, following our decision in Belcufine v. Aloe, 112 F.3d 633 (3d Cir. 1997), that Stoe did not state a valid claim under the WPCL. Stoe does not challenge the
II.
We have jurisdiction to review the District Court‘s order dismissing Stoe‘s action pursuant to
Section 1334 of title 28 provides, in pertinent part:
(a) Except as provided in subsection (b) of this section, the district courts shall have original and exclusive jurisdiction of all cases under title 11.
(b) Notwithstanding any Act of Congress that confers exclusive jurisdiction on a court or courts other than the district courts, the district courts shall have original but not exclusive jurisdiction of all civil proceedings arising under title 11, or arising in or related to cases under title 11.
(c). . . (2) Upon 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.
Thus, upon a timely motion under
The first requirement is not disputed in this appeal. Stoe‘s claim is plainly based on Pennsylvania‘s WPCL and he does not assert a federal cause of action. The District Court‘s blanket assertion that mandatory abstention does not apply to removed cases relates to the requirement that an action “is commenced” in a state forum. Accordingly, we address that requirement first.
A.
In support of the proposition that mandatory abstention cannot apply to removed cases, the defendants insist that “the fundamental premise” of the concept of abstention is the existence of a parallel proceeding in whose favor the court can abstain, and, that in the context of removed cases, there is no such ongoing proceeding. This is confirmed, in the defendants’ view, by the use of the present tense in
First, the existence of an ongoing state proceeding is not inherent in the nature of abstention. Burford, Pullman, and Thibodaux abstention, as well as other forms of abstention, apply without regard to the existence of an ongoing proceeding. Louisiana Power & Light Co. v. City of Thibodaux, 360 U.S. 25 (1959) (upholding abstention in eminent domain proceeding removed from state court); Burford v. Sun Oil Co., 319 U.S. 315 (1943) (requiring abstention and dismissal of case raising uncertain questions of state law in favor of resolution through centralized state administrative procedures); R.R. Comm‘n of Texas v. Pullman Co., 312 U.S. 496 (1941) (requiring abstention when state law is uncertain and clarification of state law in subsequent state court proceeding might obviate need for federal constitutional ruling); see generally Erwin Chemerinsky, Federal Jurisdiction § 12.2 (4th ed. 2003) (discussing various federal abstention doctrines).
Nor does the text of
Significantly, the defendants have suggested no persuasive reason why Congress might have been motivated to make a distinction in
Finally, mandatory abstention is not in conflict with
(a) A party may remove any claim or cause of action in a civil action . . . to the district court for the district where such civil action is pending, if such district court has jurisdiction of such claim or cause of action under section 1334 of this title.
(b) The court to which such claim or cause of action is removed may remand such claim or cause of action on any equitable ground. . . .
We also find unpersuasive defendants’ related argument that if mandatory abstention applies to removed cases, the abstention provision will swallow the removal provision. Nearly every removed bankruptcy-related case, they argue, will simply be returned to state court when the district court determines that mandatory abstention applies. However, the requirement of “timely adjudication” in a state forum can serve to retain a significant number of cases in federal court. Cavender, supra, at 305-07.2 Moreover, the removal provision of
Four of the five courts of appeals to have considered the issue of whether
In conclusion, the mandatory abstention provision of
B.
Bankruptcy jurisdiction extends to four types of title 11 matters: (1) cases “under” title 11; (2) proceedings “arising under” title 11; (3) proceedings “arising in” a case under title 11; and (4) proceedings “related to” a case under title 11. In re Combustion Eng‘g, Inc., 391 F.3d 190, 225 (3d Cir. 2005). The category of cases “under” title 11 “refers merely to the bankruptcy petition itself.” Id. at 225-26 n.38 (quotation and citation omitted). A case “arises under” title 11 “if it invokes a substantive right provided by title 11.” Torkelsen v. Maggio (In re Guild & Gallery Plus, Inc.), 72 F.3d 1171, 1178 (3d Cir. 1996). Bankruptcy “arising under” jurisdiction is analogous to
The question presented here is whether Stoe‘s claim “arises under” title 11, “arises in” a bankruptcy case, or is merely “related to” a bankruptcy case. This is equivalent to the question whether Stoe‘s claim is a “core” proceeding or a “non-core” proceeding within the meaning of
The defendants insist that Stoe‘s claim both “arises under” the Bankruptcy Code and “arises in” a bankruptcy case. Third Circuit precedent mandates that it does neither.
Whether a proceeding is a “core” proceeding that “arises under” title 11 depends upon whether the Bankruptcy Code
In Belcufine, we construed the WPCL, as a matter of Pennsylvania law, to preclude liability for corporate managers when the corporation‘s non-payment of wages is required by the operation of federal bankruptcy law. We reasoned that
[t]he liability of corporate managers under the WPCL is a ‘contingent’ liability, i.e., it is contingent on the corporation‘s failure to pay debts that it owes. Once a corporation files a Chapter 11 petition, however, it is obligated to pay wages and benefits only to the extent required by the bankruptcy workout. Hence, when a corporation under Chapter 11 fails to make payments that the Bankruptcy Code does not permit, the contingency needed to trigger the liability of corporate managers under the Pennsylvania WPCL never occurs.
Id. at 639 (citations omitted). While federal bankruptcy law certainly informed our analysis, our decision in Belcufine was
The fact that federal bankruptcy law is implicated as a defense to Stoe‘s claim, does not change the fact that Stoe‘s claim itself does not “arise under” title 11. The Bankruptcy Code did not create Stoe‘s cause of action. Constitutional “arising under” federal question jurisdiction may, of course, be implicated by a federal defense to a state law claim. See Osborn v. Bank of the United States, 22 U.S. (9 Wheat) 738 (1824). But bankruptcy “arising under” jurisdiction is analogous to the narrower statutory “arising under” federal question jurisdiction of
Nor can we accept the District Court‘s conclusion that Stoe‘s claim “arises in” a bankruptcy case. It reasoned that, because Horsehead stopped making payments as a consequence of its bankruptcy, Stoe‘s claim for severance benefit “would not exist, but for the bankruptcy filing.” App. at 10. But claims that “arise in” a bankruptcy case are claims that by their nature, not their particular factual circumstance, could only arise in the context of a bankruptcy case. See Halper, 164 F.3d at 836 (proceeding is “core” “if it is a proceeding that, by its nature, could arise only in the context of a bankruptcy case“) (quotation omitted) (emphasis added); 1 Collier on Bankruptcy § 3.01[4][c][iv] at 3-31 (noting that “administrative matters” such as allowance and disallowance of claims, orders in respect to
We find the situation in Halper v. Halper, 164 F.3d 830 (3d Cir. 1999), indistinguishable from the one here presented. Our decision there mandates a conclusion that Stoe‘s claim is not a “core” proceeding. In Halper, the plaintiff, Irwin Halper, one of four prior owners of Halper Bros., Inc. (“HBI“), sued his cousin, Barry Halper, also an owner of HBI. 164 F.3d at 833-34. Irwin had entered into a contract with HBI which provided for ongoing payments to Irwin. Id. Barry and Irwin entered into a Guaranty and Indemnity Agreement by which Barry personally guaranteed HBI‘s payments to Irwin under the contract. Id. HBI subsequently entered bankruptcy. Id. at 834. Irwin sued in state court to enforce Barry‘s personal guarantee, and Barry removed to the Bankruptcy Court. We ruled that Irwin‘s action to enforce Barry‘s personal guarantee–“a state law claim for breach of a pre-bankruptcy contract to which the debtor was not
[T]hese claims involve a dispute between two parties, neither of whom is the debtor, over a prepetition contract between them. They must be resolved under New Jersey guaranty and contract law and could have been brought in state court. While Barry asserts that New Jersey law would not enforce the Guaranty if HBI‘s underlying obligation is void under federal bankruptcy law, this does not render these claims core proceedings.
Id. at 838 (emphasis added). However, the claim nevertheless fell within the Bankruptcy Court‘s jurisdiction as a “related to” proceeding because it could “conceivably affect” HBI‘s estate in bankruptcy. Id.
Stoe‘s claim against the defendants is on all fours with Irwin‘s claim against Barry in Halper. Both claims involve prepetition obligations between a nondebtor-plaintiff and a third party whose obligation to the plaintiff was contingent upon the debtor‘s failure to meet its obligations to the plaintiff. Both are state law claims where liability under state law may be affected by the operation of the Bankruptcy Code. The sole difference between the two cases is that Stoe‘s guarantee claim is based upon a state statute and Irwin‘s guarantee claim is based on state common law (i.e., contract law). In the context
Stoe‘s claim is “related to” a bankruptcy case, but it does not “arise under” the Bankruptcy Code or “arise in” a bankruptcy case.
C.
One set of defendants, for the first time on appeal, proposes an alternative basis for federal court jurisdiction in
Trustees, receivers or managers of any property, including debtors in possession, may be sued, without leave of the court appointing them, with respect to any of their acts or transactions in carrying on business connected with such property. Such actions shall be subject to the general equity power of such court so far as the same may be necessary to the ends of justice, but this shall not deprive a litigant of his right to trial by jury.
D.
The defendants urge that we can decide “timely adjudication” on the record before us. The thrust of their argument is that: (1) the question of timely adjudication involves a comparison between the speed of resolution in state and federal court; (2) the case is already resolved in federal court
IV.
The District Court‘s judgment will be reversed, and this matter will be remanded to the District Court for further proceedings consistent with this opinion.