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3/26/2015
BANKRUPTCY
Jurisdiction, Removal, Remand, Trial, and Appeal
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pp
Federal Bar Association
Jurisdiction
• The basic jurisdictional statute
– The district courts of the United States shall have original and exclusive jurisdiction over all cases under title 11.
• 28 U.S.C. 1334(a)
– The “cases” referred to in the statute are the umbrella which contains all of the proceedings that follow the filing of a bankruptcy.
– There is no room for state court jurisdiction over bankruptcy proceedings themselves. 1
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Exceptions to Bankruptcy Jurisdiction
• Federal Agency Exception
– Very little caselaw to support this doctrine. – NextWave seemed to suggest that the bankruptcy court lacked jurisdiction over the FCC making licensing decisions with regards to a debtor. 200 F.3d 43 (2nd Cir. 1999).
– Other courts have not historically seemed uncomfortable with a bankruptcy court’s jurisdiction over a federal agency. See, e.g. In re ATP Oil & Gas Co., (Bankr. S.D. Tex.)
Exceptions to Bankruptcy Jurisdiction
• Probate Exception
– Jurisdictional concerns reserve to state probate courts the probate or annulment of a will and the administration of a decedents estate and precludes a federal court from endeavoring to dispose of property that is in the custody of the state probate court. Marshall v. Marshall, 546 U.S. 293 (2006)
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Exceptions to Bankruptcy Jurisdiction
• 11th Amendment Immunity
– This was a fierce debate for a while after the Supreme Court’s decision in Seminole Tribe of Florida v. Florida, where the Court held that Congress cannot use Article 1 powers to infringe on the states’ 11th amendment immunity from federal court litigation. 517 U.S. 44 (1996). – In Central Virginia Community College v. Katz, the Supreme Court clarified that the bankruptcy power found in Article I preempted states’ sovereign immunity. 546 U.S. 356 (2006).
Civil Proceedings
• The district courts of the United States shall have original but not exclusive jurisdiction over all civil proceedings arising under or arising in or related to a case under title 11. – 28 U.S.C. 1334(b).
• Note that here, the jurisdiction is non‐
exclusive. This non‐exclusivity will relate to abstention to be discussed later. 3
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Jurisdiction: Arising Under or Related To?
• The phrase “arising under” is for claims made under a provision of title 11.
– E.g., Claims for Turnover of estate property under section 541
– Claims for Exemptions under section 522.
– Discrimination under section 525. • Basically, when the cause of action is created by title 11, then the action arises under title 11. Jurisdiction: Arising Under or Related To?
• Related to matters are anything that has any conceivable effect on a bankruptcy estate. In re Wood, 825 F. 2d 90 (5th Cir. 1987).
• This grant is not limitless. • Post confirmation contract disputes are not related to a bankruptcy. In re Craig’s Stores of Tex., 266 F. 3d 388 (5th Cir. 2001). 4
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Core v. Non‐Core
• While federal district court has full jurisdiction over cases as discussed above, the bankruptcy court has full jurisdiction (i.e. the power to “hear and determine”) only over (1) cases under title 11 and (2) all core proceedings arising under title 11 or arising in a case under title 11. • The first category refers to the bankruptcy case of the debtor. The second category refers to core proceedings:
Core v. Non‐Core
• Bankruptcy judges can hear and enter final orders in core matters. 28 U.S.C. § 157(b)(1). With respect to non‐core matters, a bankruptcy judge may only “submit proposed findings of fact and conclusions of law to the district court,” which will then enter the final judgment after de novo
review. 28 U.S.C. § 157(c)(1). If all parties to a the proceeding consent, the bankruptcy judge may enter a final judgment in the non‐core proceeding. 28 U.S.C. § 157(c)(2). 5
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Core Proceedings
• Core proceedings are described in a non‐
exclusive list in 28 U.S.C. § 157(b)(2). Included in that list of claims are “matters concerning the administration of the estate, ” “motions to terminate, annul, or modify the automatic stay, ” and “other proceedings affecting the liquidation of assets of the estate or the adjustment of the debtor‐creditor or the equity security holder relationship.” See 28 U.S.C. § 157(b)(2)(A), (G), (O). Core Proceedings
• In this Circuit, the test is defined by the Wood
case. – If the proceeding involves a right created by the federal bankruptcy law, it is a core proceeding; for example, an action by the trustee to avoid a preference. If the proceeding is one that would arise only in bankruptcy, it is also a core proceeding for example, the filing of a proof of claim or an objection to the discharge of a particular debt. 6
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Core Proceedings
• If the proceeding does not invoke a substantive right created by the federal bankruptcy law and is one that could exist outside of bankruptcy it is not a core proceeding; it may be related to the bankruptcy because of its potential effect, but under section 157(c)(1) it is an “otherwise related” or non‐core proceeding.”
Non‐Core Matters
• Those that could exist outside of bankruptcy, but that nevertheless have some effect on the bankruptcy. Wood, 825 F.2d at 97. • Common examples include a debtor who has a state law claim against a creditor or some other party for breach of contract, or a claim against its former officers for breach of fiduciary duties.
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Non‐Core Matters
• Because these state law claims may augment a bankruptcy estate, non‐core matters are “related to” the bankruptcy and therefore are referred to as “related to” proceedings. So Who Cares?
• The core versus non‐core classification is important as it determines whether the bankruptcy court has adjudicatory jurisdiction (in core proceedings), or has a restricted judicial role (in non‐core proceedings).” Mirant Corp. v. The Southern Co., 337 B.R. 107, 115‐16 (N.D. Tex. 2006) (citations omitted).
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Stern v. Marshall
• Limits bankruptcy court jurisdiction over state law causes of action. 131 S.Ct. 2594 (2011).
• Followed up by Executive Benefits case which held that a bankruptcy court may still hear non‐
core matters without the consent of the parties, but must then enter proposed findings of fact and conclusions of law which must then be reviewed de novo by the district court, which then enters a final judgment. 134 S.Ct. 2165 (2014).
Estate Claims
• A Trustee is empowered to bring two different types of claims against third parties ‐
derivative claims and statutory claims. – Statutory claims emanate from the Bankruptcy Code
– Derivative claims emanate from other state or federal laws and could have been pursued by the debtor pre‐petition. 9
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Estate Claims
• This distinction makes a difference with respect to the enforcement of contractual provisions and the trustee’s opponents’ ability to assert defenses, such as in pari delicto.
Estate Claims
• Consider the enforcement of an arbitration clause:
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Estate Claims
• We reasoned in National Gypsum that, “at least where the cause of action at issue is not derivative from the debtor’s pre‐petition legal or equitable rights but rather is derived entirely from federal rights conferred by the Bankruptcy Code,” a bankruptcy court retains “significant discretion” to refuse to stay the adversary proceeding and compel arbitration. • In re Grandy, 299 F.3d 489 (5th Cir. 2002)
Estate Claims
• Any alter ego or single business enterprise claims that can be asserted by any of a debtor’s creditors are also property of the debtor’s bankruptcy estate and can be pursued by the debtor’s Trustee. • In re Schimmelpennick, 183 F.3d 347 (5th Cir. 1999).
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Estate Claims
• Creditors cannot (i) bring causes of action that belong to a corporate debtor, or (ii) recover or control of property of the corporate debtor. In re SI Acquisition, Inc., 817 F.2d 1142 (5th Cir. 1987). Estate Claims
• If a cause of action alleges only indirect harm to a creditor, and the debtor could have raised a claim for its direct injury under applicable law, then the cause of action belongs to the estate. In re Educators Group Health Trust, 25 F.3d 1281 (5th Cir. 1994). 12
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Bankruptcy Removal
• Removal is available for matters in which a court has bankruptcy jurisdiction under 28 U.S.C. 1452. • “Any claim or cause of action” may be removed. Removal
• Key differences between removal under section 1452 and section 1441. – First, you may remove any claim in addition to any cause of action. – Second, any party may remove and not just the defendant. – Third, there is no rule of unanimity in bankruptcy court removal. 13
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Removal
• Four types of cases cannot be removed. – noncivil actions
– Tax Court Proceedings
– certain types of governmental actions
– claims over which the court does not have jurisdiction
Removal
• If the claim or cause of action is pending when the bankruptcy commences, removal must be filed within the longest of (a) 90 days after the entry for order for relief, (b) 30 days after entry of an order terminating a stay if the claim has been stayed or (c) 30 days after a trustee qualifies in a chapter 11 but not later than 180 days after the order for relief. • This time can be extended by the debtor and often is.
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Removal
• If the claim is asserted after the commencement of the bankruptcy, notice of removal must be filed within shorter of (a) 30 days after receipt through service or otherwise of a copy of the pleading setting forth the claim or cause of action or (b) 30 days after receipt of the summons. • This is a trap for the unwary. If someone sends you a courtesy copy, it starts your clock.
Rule 9027
• Removals are governed by Fed. R. Bankr. P. 9027. • The matter is to be removed to the district court where the matter is located and then it is automatically referred to the bankruptcy courts by local rule. • Note that in some courts, local rule or practice allows removal directly to the bankruptcy court. 15
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Removal Procedure
• File a notice of removal in the district court where the civil action is pending. • The notice is signed pursuant to rule 9011 and contain a short statement of the facts entitling removal. • It must contain a statement of whether the action is core or noncore. • Some courts require a statement if you will consent to bankruptcy jurisdiction if non‐core.
Abstention and Remand
• Any litigant to the proceedings may seek abstention or a remand of the action. 16
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Mandatory Abstention
• Under § 1334(c)(2), only in “non‐core” proceedings must courts abstain from hearing a state law claim for which there is no independent basis for federal jurisdiction other than § 1334(b) “if an action is commenced, and can be timely adjudicated, in a state forum of appropriate jurisdiction.” Edge Petroleum Operating Co. v. GPR
Holdings, L.L.C., 483 F.3d 292 (5th Cir. 2007).
Permissive Abstention
• Some factors for determining whether permissive abstention is appropriate include:
Effect upon administration of the estate
Extent to which state law predominates
Difficulty of applicable state law
Existence of a jurisdictional basis other than bankruptcy
– burden on docket
– forum shopping
– jury trial
–
–
–
–
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Permissive Abstention
• Discretionary abstention is appropriate when unique, unsettled, or difficult issues of state law exist. In re Dow Corning Corp., 113 F.3d
565 (6th Cir.), cert. denied, 522 U.S. 977 (1997).
• The bankruptcy court may abstain sua sponte
under 28 U.S.C. § 1334(c)(1) governing permissive abstention. In re Gober, 100 F.3d
1195, 1207 n. 10 (5th Cir. 1996).
Equitable Remand
• Court may remand a claim or cause of action “on any equitable ground.”
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Equitable Remand Factors
• Forum non conveniens
• If removal caused bifurcation
• whether state court is better to respond to questions involving state law. • the expertise of the court
• judicial efficiency
• prejudice to the parties
• comity
• whether inconsistent results could occur
Withdrawal of the Reference
• 28 USC 157(a) provides that the district court may refer cases under title 11 and proceedings arising under title 11 to the bankruptcy judges of the district.
• 28 USC 157(d) allows the district court to withdraw that reference on its own motion or the timely motion of any party, for cause.
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Withdrawal of the Reference
• There are two types of withdrawal
– Discretionary withdrawal
– Mandatory withdrawal
• Procedure for withdrawal of the reference is found in FRBP 5011
• Motion is heard by the district court
Withdrawal of the Reference
• The filing of a motion to withdraw the reference does not stay the ongoing bankruptcy proceedings, not even in the matter in which withdrawal is sought.
• A motion to stay must be filed, and the circumstances in which a stay may be granted are similar to those in which a preliminary injunction would be grated under FRCP 65.
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Discretionary Withdrawal
• Factors the district judge will consider
– Whether the matter is core or non‐core
– Whether withdrawal promotes uniformity of bankruptcy administration
– Forum shopping and confusion
– Conservation of debtor’s and creditors’ resources
– Expediting the bankruptcy process
– The right to a jury trial
Mandatory withdrawal
• Two requirements; both must be met:
– Resolution of the civil proceeding requires consideration of title 11; and
– Resolution requires consideration of other federal law regulating organizations or activities affecting interstate commerce
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Appellate Procedure
• Before filing any bankruptcy appeal, the petitioner must determine whether the judgment is appealable immediately as a matter of right. • For appeal purposes, there are essentially three categories of bankruptcy orders
Appellate Procedure
• The first category consists of “final judgments, orders, and decrees” which are always appealable immediately. • The second category, which are also appealable immediately, consists of interlocutory orders that increase or decrease the time for filing a Chapter 11 plan.
• The third, more general, category consists of all other “interlocutory orders and decrees” that may be appealed “only by leave of court.” 28 U.S.C. § 158(a)(3).
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Appellate Procedures
• Orders of the bankruptcy court are appealed to the district court, not the court of appeals. • An appeal may be taken directly from the bankruptcy court to the court of appeals, however, if certain certification procedures are followed and if the court of appeals authorizes the direct appeal
Appeal from Final Orders
• Whether or not a bankruptcy court order is final is not necessarily easily determined. Courts take a pragmatic and flexible approach. See, e.g., In re Armstrong World Indus., Inc., 432 F.3d 507 (3rd Cir. 2005).
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Appeals from Final Orders
• “[t]he district courts of the United States shall have jurisdiction to hear appeals from final judgments, orders, and decrees, and, with leave of the court, from interlocutory orders and decrees of bankruptcy judges entered in cases and proceedings referred to the bankruptcy judges under section 157 of title [28].” 28 U.S.C. 158(a).
• Section 158(a) thus makes finality a prerequisite to appealability.
Appeals from Final Orders
• A final judgment is a decision that ends the litigation on the merits and leaves nothing for the court to do except execute the judgment. In the context of bankruptcy cases, however, it is well established that finality “is contingent upon the conclusion of an adversarial proceeding within the bankruptcy case, rather than the conclusion of the entire litigation.” The Fifth Circuit has explained that an order that “ends a discrete judicial unit in the larger case concludes a bankruptcy proceeding and is a final judgment for the purposes of section 158(d).” In re Chunn, 106 F.3d 1239 (5th Cir. 1997)
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Direct Appeal
• Appeals from decisions rendered by the bankruptcy court are heard by the district court (or a BAP in circuits that have them) before moving to an appellate court. • In addition to the time and cost involved in this “double appeal” system, decisions rendered by district courts (and BAPs) are generally not binding and lack stare decisis
value.
Direct Appeal
• Congress amended § 158(d) to establish a procedure to facilitate appeals of certain decisions, judgments, orders and decrees of the bankruptcy courts to the circuit courts of appeals by means of a two‐step certification process.
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Direct Appeal
• The first step is a certification by the bankruptcy court, district court, or BAP acting on its own motion or on the request of a party, or the appellants and appellees acting jointly. Direct Appeal
• Such certification must be issued by the lower court (1) if the lower court determines that the decision involves a question of law that is either unsettled, requires the resolution of conflicting decisions, or is a matter of public importance; or if an immediate appeal may materially advance the case; or (2) if a majority in number of the appellants and a majority in number of the appellees request certification and represent that one or more of the standards are met. 26
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Direct Appeal
• The second step is authorization by the circuit court of appeals.
Interlocutory Appeals
• When the order on appeal is not a final order, it may be considered to be interlocutory. An interlocutory order is “one which does not finally determine a cause of action but only decides some intervening matter pertaining to the cause, and which requires further steps to be taken in order to enable the court to adjudicate the cause on the merits.” In re Kutner, 656 F.2d 1107, 1111 (5th Cir. 1981), cert. denied, 455 U.S. 945, 102 S.Ct. 1443 (1982).
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Interlocutory Appeals
• Even if a party does not properly seek leave to appeal an interlocutory order, an appellate court can still decide to consider the improper appeal. Interlocutory Appeals
• “Leave to appeal a bankruptcy court’s interlocutory order lies in the discretion of the district court.” In re Reserve Production, Inc., 190 B.R. 287, 289 (E.D. Tex. 1995)
• However, “[b]ecause interlocutory appeals interfere with the overriding goal of the bankruptcy system, expeditious resolution of pressing economic difficulties, they are not favored.” In re Hunt Int’l Res. Corp., 57 B.R. 371, 372 (N.D. Tex. 1985).
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Interlocutory Appeals
• Section 158(a)(3) does not set forth a standard for a district court to use to determine whether to grant leave to appeal an interlocutory order from a bankruptcy court. • Although the Fifth Circuit has not expressly adopted specific criteria for the task, it has recognized that many district courts use the 28 U.S.C. § 1292(b) standard governing interlocutory appeals to circuit courts.
Interlocutory Appeals
• The standard under 28 U.S.C § 1292(b) consists of three elements: – “(1) a controlling issue of law must be involved; – (2) the question must be one where there is substantial ground for difference of opinion; and
– (3) an immediate appeal must materially advance the ultimate termination of the litigation.”
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Interlocutory Appeals
• An issue is characterized as a controlling question of law if it deals with the question of “pure” law, or of matters that can be decided quickly and cleanly without having to study the record. McFarland v. Conseco Servs., L.L.C., 381 F.3d 1251, 1258, 1260‐62 (11th Cir. 2004).
Interlocutory Appeals
• A movant must satisfy all three elements of the interlocutory standard for the court to grant leave to appeal. See Figueroa v. Wells Fargo Bank, N.A., 382 B.R. at 825.
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Collateral Order Doctrine
• A district court can also grant an interlocutory appeal under the “collateral order doctrine.” Cohen v. Beneficial Industrial Loan Corp., 337 U.S. 541 (1949). Collateral Order Doctrine
• The order must – (1) deal with an issue that is independent from the substance of the other claims; – (2) conclusively determine the question; – (3) be unreviewable on appeal from a final judgment; and
– (4) involve a serious and unsettled question of law. • Louisiana Ice Cream Distributors, Inc. v. Carvel Corp., 821 F.2d 1031, 1033 (5th Cir. 1987)
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Appeal Rules
• Bankruptcy Rules, Local Rule 83.4.2 and Rule 6 of the Rules of Appellate Procedure govern bankruptcy appeals procedure.
Appeal Rules
• Rule 8002 establishes jurisdictional time limits for filing an appeal, providing that a notice of appeal must be filed within 14 days after entry of the judgment or order. Rule 8002(c) governs the extension of time for filing a notice of appeal. Cross‐appeals must be filed within 14 days after original notice of appeal is filed. Rule 8001(f) provides procedures for seeking a direct appeal from the bankruptcy court to the court of appeals.
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Stay Pending Appeal
• Motions for stay pending appeal should be filed with the bankruptcy court and heard by the bankruptcy judge.
• If not first filed with the bankruptcy court, the motion should show why application was not first made to the bankruptcy judge. FRBP 8005.
Appeal Forms
• Official Form 17A is the Notice of Appeal and Optional Statement of Election (to have an appeal heard by the district court rather than by a bankruptcy appellate panel). Official Form 24 is a form to be used for certification by all parties seeking a direct appeal from the bankruptcy court to the court of appeals.
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