IN RE MIDGARD CORPORATION, (B.A.P. 10th Cir. 1997)

IN RE MIDGARD CORPORATION, Debtor. DAVID PERSONETTE, Plaintiff-Appellant, MIDGARD CORPORATION, Plaintiff-Counter-Defendant-Appellant, v. CURTIS KENNEDY and CLAUDNELL KENNEDY, Defendants-Counter-Claimants-Appellees.

BAP No. WO-96-21United States Bankruptcy Appellate Panel, Tenth Circuit
Filed January 4, 1997

Appeal from the United States Bankruptcy Court for the Western District of Oklahoma Bankr. No. 93-12740-BH Adv. No. 96-1218-BH.

Submitted on the briefs:

Wilburn C. Hall, Jr., Norman, Oklahoma, for Plaintiffs-Appellants. David Pomeroy of Fuller, Tubb Pomeroy, Oklahoma City, Oklahoma, for Defendants-Appellees.

Before McFEELEY, Chief Judge, and PUSATERI and CLARK, Bankruptcy Judges.

OPINION
CLARK, Bankruptcy Judge.

[1] The debtor, Midgard Corporation (“Debtor”), and David Personette, an insider of the Debtor (“Personette”), appeal the order of the United States Bankruptcy Court for the Western District of Oklahoma denying their motion for remand and their motion for reconsideration. We reverse and remand this proceeding to the Bankruptcy Court with instructions to remand it to state court.[1]

I. Background
[2] On May 13, 1993, the Debtor filed a petition in the Bankruptcy Court seeking relief under chapter 11 of the Bankruptcy Code. In May 1994, the Bankruptcy Court entered an order confirming the Debtor’s chapter 11 plan of reorganization.

[3] On May 20, 1996, approximately two years after the Debtor’s plan was confirmed, the Debtor and Personette filed a petition in the District Court of Cleveland County, State of Oklahoma (“State Court”) asserting various tort claims against Curtis and Claudnell Kennedy, the owners of real property located adjacent to the Debtor’s place of business (“Kennedys”). The Kennedys removed the State Court action to the Bankruptcy Court where the Debtor’s bankruptcy case was still pending, and filed an answer to the petition and counterclaim in the Bankruptcy Court.

[4] The Debtor and Personette specially appeared in the Bankruptcy Court to contest the Court’s jurisdiction over the State Court action and to request that it remand the action to State Court (the “Remand Motion”). In their Remand Motion, the Debtor and Personette stated that they did “not consent to entry of final orders or judgment by the bankruptcy judge. . . .” Plaintiffs’ Removal Statement and Motion for Remand and Brief in Support 6 5. The Debtor and Personette also argued that the Bankruptcy Court was required to abstain from hearing the State Court action. Id. 6 10.

[5] After a hearing, the Bankruptcy Court took the matter under advisement and thereafter entered an order denying the Remand Motion concluding, in relevant part, that: (1) it had jurisdiction over the State Court action under the terms of the Debtor’s confirmed plan and 28 U.S.C. § 157(b) and 1334(b); (2) it had jurisdiction over Personette; (3) removal of the action from the State Court was proper under 28 U.S.C. § 1452(a); and (4) mandatory abstention under 28 U.S.C. § 1334(c)(2) was not required as a matter of law. The Debtor and Personette timely filed a motion requesting the Bankruptcy Court to reconsider its order denying their Remand Motion. That motion was denied by the Bankruptcy Court, and this appeal followed.

II. Appellate Jurisdiction
[6] Although the parties have not raised any issues regarding appellate jurisdiction, two questions merit discussion: (1) whether we should decline review of the Bankruptcy Court’s orders denying abstention and remand of the State Court action under 28 U.S.C. § 1334(c)(2) 1452(b); and (2) whether the Bankruptcy Court’s orders are “final orders” as required under 28 U.S.C. § 158(a)(1) or appealable interlocutory orders under 28 U.S.C. § 158(a)(3). See Bender v. Williamsport Area School Dist., 475 U.S. 534, 541 (1986) (federal appellate court must satisfy itself that it has jurisdiction over appeal even if the parties concede it); City of Chanute v. Williams Natural Gas Co., 31 F.3d 1041, 1045 n. 8 (10th Cir. 1994), cert. denied 115 S.Ct. 1254 (1995) (same). We conclude that appellate jurisdiction is proper.

A. Sections 1334(c)(2) And 1452(b) Do Not Bar Appellate Review
[7] Sections 1334(c)(2)[2] and 1452(b) of title 28 of the United States Code limit appellate review of abstention and remand orders. Section 1334(c), governing abstention in bankruptcy cases, provides, in relevant part, that:

(2). . . . Any decision to abstain or not to abstain made under this subsection is not reviewable by appeal or otherwise by the court of appeals under section 158(d), 1291, or 1292 of this title or by the Supreme Court of the United States under section 1254 of this title.

[8] 28 U.S.C. § 1334(c)(2). Section 1452(b), governing remand of claims and causes of action in bankruptcy cases, states, in relevant part, that:

An order entered under this subsection remanding a claim or cause of action, or a decision to not remand, is not reviewable by appeal or otherwise by the court of appeals under section 158(d), 1291, or 1292 of this title or by the Supreme Court of the United States under section 1254 of this title.

[9] 28 U.S.C. § 1452(b).

[10] The Bankruptcy Court’s orders are decisions not to abstain from or remand the State Court action which would, at first glance, appear to be barred from appellate review under sections 1334(c)(2) and 1452(b). However, this Court is not the court of appeals referred to in sections 1334(c)(2) and 1452(b). The appellate jurisdiction of this Court arises under 28 U.S.C. § 158(a)-(c). Since the Court’s jurisdiction does not arise under 28 U.S.C. § 158(d), 1291 or 1292, our jurisdiction is not limited by sections 1334(c)(2) or 1452(b). See 136 Cong. Rec. S 17,580 (daily ed. Oct. 27, 1990) (remarks of Sen. Grassley) (remand and abstention orders are subject to review by the district court, but not circuit courts of appeals).

B. The Bankruptcy Court’s Orders Are “Final Orders” Or Are Appealable Interlocutory Orders
[11] This Court has “jurisdiction to hear appeals from . . . final judgments, orders, and decrees[.]” 28 U.S.C. § 158(a)(1); see 28 U.S.C. § 158(c). “[A] decision is ordinarily considered final and appealable under § 1291 [and § 158(a)] only if it `ends the litigation on the merits and leaves nothing for the court to do but execute the judgment.'” Quackenbush v. Allstate Ins. Co., 116 S.Ct. 1712, 1718 (1996) (quoting Catlin v. United States, 324 U.S. 229, 233 (1945)). Orders may also be considered “final” if they meet the requirements of the collateral order doctrine. See, e.g., Quackenbush, 116 S.Ct. at 1718; Digital Equip. Corp. v. Desktop Direct, Inc., 511 U.S. 863 (1994); Cohen v. Beneficial Indus. Loan Corp., 337 U.S. 541 (1949). In Quackenbush, the Supreme Court held that an order requiring abstention and remand was a final order under the collateral order doctrine because it (1) conclusively determined a disputed question that was completely separate from the merits of the action, (2) was effectively unreviewable on appeal from a final judgment, and (3) was too important to be denied review. 116 S.Ct. at 1719-20 (relying on Richardson-Merrell Inc. v. Koller, 472 U.S. 424, 431 (1985); Coopers Lybrand v. Livesay, 437 U.S. 463, 468 (1978); Cohen, 337 U.S. at 546)).[3]

[12] The Bankruptcy Court’s orders in the present case are final orders under the collateral order doctrine. They conclusively determine the disputed questions of the Bankruptcy Court’s jurisdiction, resolve an important issue completely separate from the merits of the action, and would be effectively unreviewable on appeal from a final judgment on the merits.

[13] In Quackenbush, the lower court abstained from hearing an action and remanded it to state court, while in this case the Bankruptcy Court has refused to abstain from hearing the Debtor and Personette’s action or to remand it to State Court. Quackenbush, however, does not preclude application of the collateral order doctrine to orders refusing to abstain and remand.[4]

[14] Even if the Bankruptcy Court’s orders are not “final” under the collateral order doctrine, we grant leave to appeal under 28 U.S.C. § 158(a)(3).[5] Leave to hear appeals from interlocutory orders should be granted with discrimination and reserved for cases of exceptional circumstances. Appealable interlocutory orders must involve a controlling question of law as to which there is substantial ground for difference of opinion, and the immediate resolution of the order may materially advance the ultimate termination of the litigation. See 28 U.S.C. § 1292(b); Fed.R.Bankr.P. 8018(b); American Freight Sys., Inc. v. Transport Ins. Co. (In re American Freight Sys., Inc.), 194 B.R. 659, 661 (D. Kan. 1996); Intercontinental Enter., Inc. v. Keller (In re Blinder Robinson Co.), 132 B.R. 759, 764
(D. Colo. 1991). The Bankruptcy Court’s orders involve a controlling question of law as to which there is a substantial ground for difference of opinion and an immediate appeal may materially advance the ultimate termination of the litigation. See 9 James W. Moore, Moore’s Federal Practice 6 110.22[2], at 271-72 (2d ed. 1996)(“An order refusing to remand an action to the state court presents a controlling question [of law] and it may be certified” for interlocutory appeal). Accordingly, we have jurisdiction to hear this appeal. III. Standard Of Review

[15] “For purposes of standard of review, decisions by judges are traditionally divided into three categories, denominated questions of law (reviewable de novo), questions of fact (reviewable for clear error), and matters of discretion (reviewable for `abuse of discretion’).” Pierce v. Underwood, 487 U.S. 552, 558 (1988); see Fed.R.Bankr.P. 8013; Fowler Bros. v. Young (In re Young), 91 F.3d 1367, 1370 (10th Cir. 1996).

[16] We must decide whether the Bankruptcy Court had jurisdiction over the State Court action and, if so, whether it was correct in refusing to abstain from hearing the action under 28 U.S.C. § 1334(c)(2). Questions involving the jurisdiction of the Bankruptcy Court are subject to de novo review. See, e.g., Jones v. Bank of Santa Fe (In re Courtesy Inns, Ltd., Inc.), 40 F.3d 1084, 1085 (10th Cir. 1994); see also FDIC v. Hulsey, 22 F.3d 1472, 1479 (10th Cir. 1994) (jurisdiction is a question of law). Review of the Bankruptcy Court’s decision refusing to abstain from hearing the State Court action involves mixed questions of law and fact, but is primarily based on interpretation of section 1334(c)(2). As such, the Bankruptcy Court’s decision related to abstention is also subject to de novo review. See Armstrong v. Commissioner, 15 F.3d 970, 973 (10th Cir. 1994)(“We review mixed questions under the clearly erroneous or de novo standard, depending on whether the mixed question involves primarily a factual inquiry or the consideration of legal principles.”)

[17] Applying these standards, we conclude that the State Court action is, at most, a non-core proceeding which is merely “related to” the Debtor’s bankruptcy case, but may be a proceeding which is not even “related to” the bankruptcy case and, therefore, is not subject to Bankruptcy Court jurisdiction. See 28 U.S.C. § 157(a) 1334(b). Either decision leads to the same result: the Bankruptcy Court must remand the action to State Court. If the State Court action is “related to” the Debtor’s bankruptcy case, the Bankruptcy Court, for the reasons discussed below, erred in refusing to abstain from hearing it under 28 U.S.C. § 1334(c)(2). On the other hand, if the Bankruptcy Court lacked jurisdiction over the State Court action, removal of the action to the Bankruptcy Court was improper under 28 U.S.C. § 1452(a) thus requiring remand under 28 U.S.C. § 1447(c) 1452(b); Daleske v. Fairfield Communities, Inc., 17 F.3d 321, 324 (10th Cir. 1994) (section 1447(c), which requires remand if a district court lacks juridiction over a removed case, applies to bankruptcy cases). Accordingly, we reverse the Bankruptcy Court and instruct it to remand the action to State Court.

IV. Discussion A. Jurisdiction Of The Bankruptcy Court
[18] Section 1334(b) of title 28 of the United States Code states that “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.”28 U.S.C. § 1334(b).[6] District courts “may provide that . . . any or all proceedings arising under title 11 or arising in or related to a case under title 11 shall be referred to the bankruptcy judges for the district.” 28 U.S.C. § 157(a). The United States District Court for the Western District of Oklahoma has referred all such matters to the Bankruptcy Court. W.D. Okla. LR84.1 (general referral) LR81.3 (referral of removed causes of action).

[19] “Bankruptcy judges may hear and determine all cases under title 11 and all core proceedings arising under title 11, or arising in a case under title 11, referred to under subsection (a) of [section 157], and may enter appropriate orders and judgments. . . .” 28 U.S.C. § 157(b)(1). The term “core proceeding,” which, under section 157(b)(1), includes matters arising under and arising in bankruptcy cases, is defined in 28 U.S.C. § 157(b)(2). Bankruptcy judges are charged with determining whether a proceeding is a core proceeding or “is otherwise related to a case under title 11.”28 U.S.C. § 157(b)(3).

[20] A bankruptcy judge may also hear a proceeding that is not a core proceeding but that is otherwise “related to” a case under title 11. In such a proceeding, however, the bankruptcy judge is required to “submit proposed findings of fact and conclusions of law to the district court, and any final order or judgment shall be determined by the district judge. . . .”28 U.S.C. § 157(c)(1). However, parties may consent to a bankruptcy judge entering judgment in a non-core, “related to” case. Id. at § 157(c)(2). If a proceeding does not “arise under” the Bankruptcy Code or does not “arise in” or is not “related to” a bankruptcy case, however, a bankruptcy court cannot exercise jurisdiction. Celotex Corp. v. Edwards, 115 S.Ct. 1493, 1498 (1995).

[21] A proceeding “arises under” the Bankruptcy Code if it asserts a cause of action created by the Code, such as exemption claims under 11 U.S.C. § 522, avoidance actions under 11 U.S.C. § 544, 547, 548, or 549, or claims of discrimination under 11 U.S.C. § 525. H.R. Rep. No. 595, 95th Cong., 1st Sess. 445 (1977); Bergstrom v. Dalkon Shield Claimants Trust (In re A.H. Robins Co.), 86 F.3d 364, 371 (4th Cir.), cert. denied, 117 S.Ct. 483 (1996); Eastport Assocs. v. City of Los Angeles (In re Eastport Assocs.), 935 F.2d 1071, 1076 (9th Cir. 1991); Barnett v. Stern, 909 F.2d 973, 981 (7th Cir. 1990); Gower v. Farmers Home Admin. (In re Davis), 899 F.2d 1136, 1140-41 (11th Cir.), cert. denied, 498 U.S. 981 (1990); Wood v. Wood (In re Wood), 825 F.2d 90, 96 (5th Cir. 1987). Proceedings “arising in” in a bankruptcy case are those that could not exist outside of a bankruptcy case, but that are not causes of action created by the Bankruptcy Code. A.H. Robins, 86 F.3d at 371; Eastport, 935 F.2d at 1076; Wood, 825 F.2d at 97. For example, orders respecting the obtaining of credit, confirmation of a plan, the assumption or rejection of a contract are all matters which could not exist absent the filing of a bankruptcy case, but are not causes of action created by the Bankruptcy Code. Wood, 825 F.2d at 97; see 1 Lawrence P. King, Collier on Bankruptcy 6 3.01(c)[v] (15th ed. 1996) [hereinafter referred to as “Collier”]. This interpretation is supported by the fact that, as discussed above, “core proceedings” in bankruptcy include proceedings that “arise under” the Bankruptcy Code and “arise in” bankruptcy cases, but do not include proceedings that are “related to” a bankruptcy case. 28 U.S.C. § 157(b)-(c)(1).

[22] A proceeding is “related to” a bankruptcy case if it could have been commenced in federal or state court independently of the bankruptcy case, but the “`outcome of that proceeding could conceivably have an effect on the estate being administered in bankruptcy.'” Gardner v. United States (In re Gardner), 913 F.2d 1515, 1518 (10th Cir. 1990) (per curiam) (quoting Pacor, Inc. v. Higgins, 743 F.2d 984, 994 (3rd Cir. 1984)); see Celotex, 115 S.Ct. at 1498-99 n. 5 (recognizing this test). Related 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.” Celotex, 115 S.Ct. at 1499 n. 5.

[23] The Bankruptcy Court held that it had jurisdiction over the State Court action as a proceeding “arising in” and “related to” the Debtor’s bankruptcy case.[7] It concluded that the facts giving rise to the State Court action pre-dated the Debtor’s bankruptcy case, and provisions in the Debtor’s confirmed plan related to the lease of its business premises required it to address the concerns of the Kennedys that ultimately became the grounds for their counterclaim against the Debtor and Personette. The Bankruptcy Court also found that the outcome of the State Court action could affect distribution to creditors under the Debtor’s confirmed plan. In addition to finding that it had jurisdiction over the State Court action under section 1334(b), the Bankruptcy Court also held that it had jurisdiction over the action under the terms of the Debtor’s confirmed plan.

[24] The record before us does not contain sufficient facts to allow us to determine whether jurisdiction exists under the Bankruptcy Code. But, based on the same record, we are certain that if the Bankruptcy Court has jurisdiction over the State Court action it is because the action is “related to” the Debtor’s bankruptcy case, and not because it is a proceeding “arising in” the case as decided by the Bankruptcy Court.[8] The action, which is based entirely on state tort law, is in no way dependent on the Debtor’s bankruptcy case for its existence and, therefore, is not a proceeding “arising in” the case.[9] Rather, the State Court action is a proceeding that could be and was commenced independently of the Debtor’s bankruptcy case and may conceivably have an effect on the administration of the bankruptcy estate. Thus, as a matter of law the State Court action is at most a proceeding “related to” the Debtor’s bankruptcy case.[10] The fact that Personette is a party to the State Court action would not, as argued by the Debtor and Personette, change this result. Proceedings that are “related to” a bankruptcy case need not be against the debtor or debtor’s property if the outcome may have some effect on the estate. Gardner, 913 F.2d at 1518; Pacor, Inc. v. Higgins, 743 F.2d at 994; see Celotex, 115 S.Ct. at 1498-99 n. 5.

[25] Regardless of whether the State Court action is a “related to” proceeding or a proceeding over which the Bankruptcy Court has no jurisdiction, however, the Bankruptcy Court erred in refusing to remand it to State Court. If it lacked jurisdiction, the Bankruptcy Court was required as a matter of law to remand the State Court action because removal under 28 U.S.C. § 1452(a) is contingent on jurisdiction under 28 U.S.C. § 1334. 28 U.S.C. § 1447(c) 1452; Daleske, 17 F.3d at 324 (section 1447(c) requires remand of removed actions where bankruptcy court juridiction is lacking). If, on the other hand, the Bankruptcy Court had jurisdiction over the State Court action as a proceeding “related to” the Debtor’s bankruptcy case, it also should have remanded the action to State Court because, as discussed in greater detail below, the Bankruptcy Court was required to abstain from hearing the action under 28 U.S.C. `1334(c)(2). See S.G. Phillips Constructors., Inc. v. City of Burlington (In re S.G. Phillips Constructors, Inc.), 45 F.3d 702, 708 (2d Cir. 1995)(“[A]bstention provisions implicate the question whether the bankruptcy court should exercise jurisdiction, not whether the court has jurisdiction in the first instance.”).[11]

[26] B. Mandatory Abstention

[27] Section 1334(c)(2) of title 28 of the United States Code states, in relevant part, that:

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. . . .

[28] 28 U.S.C. § 1334(c)(2).

[29] There is substantial disagreement as to whether section 1334(c)(2) applies to removed proceedings, such as the State Court action. See e.g., Sintz, Campbell, Duke Taylor v. United States, 197 B.R. 351 (S.D. Ala. 1996); Borne v. New Orleans Health Care, Inc., 116 B.R. 487, 493 n. 25 (E.D. La. 1990); First Fed. Sav. Loan Assoc. v. Drake (In re Ramada Inn — Paragould Gen. Partnership), 137 B.R. 31, 33 n. 3 (Bankr. E.D. Ark. 1992); Malone v. Hughes (In re Hughes), 98 B.R. 115 (Bankr. D. D.C. 1988) (recognizing issue). This debate was not addressed by the Bankruptcy Court and has not been discussed by parties in this appeal. We nevertheless will deal with the issue since it has a direct impact on the outcome of this appeal.

[30] Some courts hold that abstention can never apply to a removed proceeding because: (1) abstention requires two actions (one in state court and one in federal court) or the potential for two actions; and (2) abstaining from hearing a removed case does not send the case back to state court, but rather results in a stay or dismissal of the case. Fedders North Am., Inc. v. Branded Products, Inc. (In re Branded Products, Inc.), 154 B.R. 936
(Bankr. W.D. Tex. 1993); Paul v. Chemical Bank (In re 666 Assocs.), 57 B.R. 8 (Bankr. S.D.N.Y. 1985); see O’Rourke v. Cairns, 129 B.R. 87, 89 (E.D. La. 1991); Manges v. Atlas (In re Duval County Ranch Co.), 167 B.R. 848, 849 (Bankr. S.D. Tex. 1994); Southern Marine Indus. Servs., Inc. v. AK Engineering, Inc. (In re AK Servs., Inc.), 159 B.R. 76, 83-4 (Bankr. D. Mass. 1993); Paxton Nat’l Ins. Co. v. British Am. Assoc. (In re Pacor, Inc.), 72 B.R. 927, 931 (Bankr. E.D. Pa.), aff’d, 86 B.R. 808
(E.D. Pa. 1987), appeal dismissed, 1988 WL 235479 (3rd Cir. 1988); Bleichner Bonta Martinez Brown, Inc. v. Nat’l Bank (In re Micro Mart, Inc.), 72 B.R. 63, 64-5 (Bankr. N.D.Ga. 1987); General Am. Corp. v. Merrill Lynch Commodities, Inc. (In re Ross), 64 B.R. 829, 834 (Bankr. S.D.N.Y. 1986); see also Princess Louise Corp. v. Pac. Lighting Leasing Co. (In re Princess Louise Corp), 77 B.R. 766, 771 (Bankr. C.D. Cal. 1987); Ridgefield, Inc. v. Unity Foods, Inc. (In re Unity Foods, Inc.), 35 B.R. 876, 860 (Bankr. N.D.Ga. 1983).

[31] The majority of courts, however, hold that abstention is applicable to removed cases. These courts find that two proceedings are not necessary for abstention to apply and abstention, or abstention coupled with remand, transfers a removed proceeding to state court. See, e.g., Robinson v. Michigan Consol. Gas Co., 918 F.2d 579, 584 n. 3 (6th Cir. 1990); Balcor/Morristown Ltd. Partnership v. Vector Whippany Assocs., 181 B.R. 781, 788 n. 2 (D.N.J. 1995); Williams v. Shell Oil Co., 169 B.R. 684, 690-91 (S.D. Cal. 1994); Baldwin Park Inn Assocs. v. City of Baldwin Park (In re Baldwin Park Inn Assocs.), 144 B.R. 475, 481 (C.D. Cal. 1992); Baxter Healthcare Corp. v. Hemex Liquidation Trust, 132 B.R. 863, 867 (N.D. Ill. 1991); Marshall v. Michigan Dep’t of Agric. (In re Marshall), 118 B.R. 954, 964-65 (W.D. Mich. 1990); Murray v. On-Line Bus. Sys., Inc. (In re Revco D.S., Inc.), 99 B.R. 768, 773-74 (N.D. Ohio 1989); Chiodo v. NBC Bank-Brooks Field (In re Chiodo), 88 B.R. 780, 784-85
(W.D. Tex. 1988); St. Vincent’s Hosp. v. Norrell (In re Norrell), 198 B.R. 987, 996-99 (Bankr. N.D. Ala. 1996); Roddam v. Metro Loans, Inc. (In re Roddam), 193 B.R. 971, 978 (Bankr. N.D. Ala. 1996); Anderson v. Hoechst Celanese Corp. (In re U.S. Brass Corp.), 173 B.R. 1000, 1004 (Bankr. E.D. Tex. 1994); Dunkirk Ltd. Partnership v. TJX Cos., 139 B.R. 643, 645 (Bankr. N.D. Ohio 1992); see also Walker v. Commercial Credit Corp., 192 B.R. 260
(M.D. Ala. 1996) (applying abstention to removed case without discussing controversy); Luevano v. Dow Corning Corp., 183 B.R. 751
(W.D. Tex. 1995)(same); Abadie v. Poppin, 154 B.R. 86 (N.D. Cal. 1993)(same); Su-Ra Enter., Inc. v. Barnett Bank, 142 B.R. 502
(S.D. Fla. 1992)(same); Wilkins v. Bolar Pharmaceutical Co. (In re Pharmakinetics Lab., Inc.), 139 B.R. 350 (D. Md. 1992)(same); Chambers v. Marathon Home Loans (In re Marathon Home Loans), 96 B.R. 296, 301 (E.D. Cal. 1989)(same); Gonzales Constr. Co. v. Fulfer (In re Fulfer), 159 B.R. 921 (Bankr. D. Idaho 1993)(same); Wood v. Jasperson (In re Jasperson), 116 B.R. 740, 746 (Bankr. S.D. Cal. 1990)(same).

[32] We conclude that the majority position that abstention applies to removed cases is correct for several reasons. In Branded Products, 154 B.R. at 940, the leading case finding that abstention does not apply to removed cases, the court based its analysis almost exclusively on 17A C. Wright, A. Miller, E. Cooper, Federal Practice and Procedure, Jurisdiction 2d § 4245 (2d ed. 1988) [hereinafter referred to as Wright Miller]. The court’s reliance on the discussion in Wright Miller of federal common law abstention principles, however, is misplaced. Unlike general federal court practice where abstention is founded exclusively on common law, courts presiding over bankruptcy cases are required to apply the abstention standards set forth in section 1334(c). See Cathedral of the Incarnation v. Garden City Co. (In re Cathedral of the Incarnation), 99 F.3d 66, 68-69 (2d Cir. 1996) (“A judicially created rule of abstention must yield to a statutory duty to rule under Congress’s grant of jurisdiction.”).

[33] Section 1334(c)(2) does not require the existence of two proceedings. Rather, this section states that abstention is mandatory when an action is “commenced” in a state forum of appropriate jurisdiction.

[34] In addition, while section 1334(c) does not state the procedural implications of abstaining from hearing a case, it does not prohibit a federal court from remanding a case to a state court if it finds it necessary to abstain under section 1334(c)(2). Indeed, there is nothing in section 1334(c)(2) that either supports or rejects the conclusion in Branded Products that the appropriate procedure is dismissal or stay of the federal action.[12]

[35] That silence in section 1334(c)(2) as to the procedural ramifications of abstention can be read to allow remand is supported by Carnegie-Mellon Univ. v. Cohill, 484 U.S. 343
(1988). In this case, the Court addressed the question of whether a federal district court had discretion under the doctrine of pendent jurisdiction to remand a properly removed case to state court when all federal-law claims in the action had been eliminated and only the pendent state-law claims remained. Concluding that the district court correctly remanded the action to state court, the Court stated:

Petitioners argue that the federal removal statute prohibits a district court from remanding properly removed cases involving pendent claims. This argument is based not on the language of Congress, but on its silence. Petitioners note that the removal statute explicitly authorizes remands in two situations. By failing similarly to provide for remands of removed cases involving pendent claims, petitioners assert, Congress intended to preclude district courts from remanding such cases.
We cannot accept petitioners’ reasoning. We do not dispute that Congress could set a limitation of this kind on the federal courts’ administration of the doctrine of pendent jurisdiction. But Congress has not done so, expressly or otherwise, in the removal statute. The principal flaw in petitioner’s argument is that it fails to recognize that the removal statute [28 U.S.C. § 1441(a)] does not address specifically any aspect of a district court’s power to dispose of pendent state-law claims after removal: just as the statute makes no reference to a district court’s power to remand pendent claims, so too the statute makes no reference to a district court’s power to dismiss them. Yet petitioners concede, as they must, that a federal court has discretion to dismiss a removed case involving pendent claims. Given that Congress’ silence in the removal statute does not negate the power to dismiss such cases, that silence cannot sensibly be read to negate the power to remand them.

[36] Id. at 353-54.

[37] Thus, for the reasons set forth above, we reject the minority line of cases and find that abstention may apply to proceedings removed to a bankruptcy court. If abstention is required under section 1334(c)(2), a court may remand the proceeding to state court under 28 U.S.C. § 1452(b), which allows a court to remand a “claim or cause of action on any equitable ground[;]” Revco, 99 B.R. at 776 (finding that section 1452(b) allows remand if mandatory abstention is required); Chiodo, 88 B.R. at 785
(same); see Fulfer, 159 B.R. at 923 (remanding proceeding under section 1452(b) where abstention required under section 1334(c)(2));[13] or under its general discretionary powers. 11 U.S.C. § 105(a)(“The court may issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of this title. . . .”); see Carnegie-Mellon, 484 U.S. at 353-55 n. 11 (although expressly limited to pendent jurisdiction claims, the Court held that federal courts have “wide discretion” to remand in the absence of statute allowing remand).

[38] Having concluded that abstention applies to removed actions, we must consider whether all of the requirements for mandatory abstention as set forth in section 1334(c)(2) have been met in this case. Each element is discussed below.

(i) Timely Motion Requirement
[39] Section 1332(c)(2) requires abstention only “upon timely motion of a party. . . .” 28 U.S.C. `1334(c)(2). Thus, the right to require a bankruptcy court to abstain can be waived by a party who delays in making a motion for abstention. See S.G. Phillips Constructors, Inc., 45 F.3d at 708 (mandatory abstention is not jurisdictional); Robinson, 918 F.2d at 584 (“Mandatory abstention . . . is not jurisdictional and must be raised in a timely motion.”); Federation of Puerto Rican Organizations v. Howe, 157 B.R. 206, 211 (E.D.N.Y. 1993) (absent timely motion to abstain, case is properly before federal court); Novak v. Lorenz (In re Novak), 116 B.R. 626, 628 (N.D. Ill. 1990) (motion for abstention filed one year after answer not timely and thus abstention did not apply).

[40] Section 1334(c)(2) does not define what constitutes a “timely motion” for abstention. Federal Rule of Bankruptcy Procedure 5011, which sets forth procedures related to abstention, also does not state a time period in which motions seeking mandatory abstention must be filed. This Rule merely states that “[a] motion for abstention pursuant to 28 U.S.C. § 1334(c) shall be governed by Rule 9014 and shall be served on the parties to the proceeding.” Fed.R.Bankr.P. 5011(b). Similarly, the local rules of the United States District Court for the Western District of Oklahoma do not provide a time period for filing abstention motions, but merely state that “[m]otions to abstain from hearing a particular proceeding pursuant to 28 U.S.C. `1334(c) shall be first presented to and heard by the bankruptcy judge and shall be governed by Rules 5011 and 9014, Fed.R.Bankr.P.” W.D. Okla. LR84.1(b)(1). Given this lack of direction in the statute and applicable rules, it has been held that “a party acts in a timely fashion when he or she moves as soon as possible after he or she should have learned the grounds for such a motion.” Novak, 116 B.R. at 628 (citing cases).[14]

[41] Contrary to the Bankruptcy Court’s suggestion that the Debtor and Personette did not make a timely motion under section 1334(c)(2), we find that the record clearly shows that a timely motion was made. The Kennedys filed their notice of removal on June 19, 1996. On June 27, 1996, the Debtor and Personette filed their Remand Motion. Although not stated in the caption, the Remand Motion expressly states that the Debtor and Personette were requesting the Bankruptcy Court to abstain from hearing the State Court action. Remand Motion 6 10 (“The foregoing factors make this a matter of mandatory abstention and compel remand to the state court.”) Moreover, at the hearing on the Motion, counsel for the Debtor and Personette again asserted that the Bankruptcy Court was required to abstain from hearing the State Court action. Transcript at pp. 4-7. On August 2, 1996, the Bankruptcy Court entered its order denying the Remand Motion. On August 8, 1996, the Debtor and Personette filed their motion for reconsideration, which does not cite section 1334(c)(2), but expressly requests mandatory abstention. This motion was denied by the Bankruptcy Court on August 12, 1996, and this timely appeal followed.

[42] The Debtor and Personette, who filed their initial motion requesting abstention only eight days after the Kennedys removed the State Court action to the Bankruptcy Court, acted in a timely fashion. They moved for abstention as soon as possible after they learned the grounds for abstention. The Remand Motion, while not as articulate as would have been desired, clearly requested that the Bankruptcy Court abstain from hearing the State Court action. See Marathon Home Loans, 96 B.R. at 301
(motion for remand that does not even mention abstention is a timely filed motion because abstention is a limitation on removal that cannot be ignored). Accordingly, the Debtor and Personette made a “timely motion” under section 1334(c)(2).

(ii) State Law Claim Requirement
[43] Section 1334(c)(2) requires that the proceeding in question be “based upon a State law claim or State law cause of action.”28 U.S.C. § 1334(c)(2). The petition filed by the Debtor and Personette asserts claims for malicious prosecution, interference with business relations, and abuse of process. The Kennedys’s counterclaim is for private nuisance. The proceeding is therefore clearly based solely upon state law claims or causes of action.

(iii) “Related To” Jurisdiction Requirement
[44] Section 1334(c)(2) requires that the proceeding be “related to a case under title 11 but not arising under title 11 or arising in a case under title 11.” 28 U.S.C. § 1334(c)(2); see S.G. Phillips Constructors., Inc., 45 F.3d at 708 (section 1334(c)(2) only applies to “related to” proceedings). As discussed above, the State Court action is not a proceeding “arising under” the Bankruptcy Code or “arising in” the Debtor’s bankruptcy case. Rather, assuming jurisdiction exists, the State Court action is a proceeding “related to” the Debtor’s bankruptcy case.

(iv) No Independent Federal Jurisdiction Requirement
[45] Abstention is only allowed under section 1334(c)(2) if the proceeding “could not have been commenced in a court of the United States absent jurisdiction under [section 1334]. . . .”28 U.S.C. § 1334(c)(2). That federal jurisdiction does not exist absent the Debtor’s bankruptcy case is not a point of contention between the parties, and no finding was made by the Bankruptcy Court on this prong of the mandatory abstention test. An independent review of the record reveals that the State Court action could not have been commenced in federal court absent jurisdiction under section 1334.

[46] Jurisdiction of the federal district courts is governed by 28 U.S.C. § 1330 et. seq. The State Court action could not have been commenced in a court of the United States under any applicable provision other than section 1334, except possibly section 1332. Section 1332(a) states, in relevant part, that the “district courts shall have original jurisdiction of all civil actions where the matter in controversy exceeds the sum or value of $50,000, exclusive of interest and costs, and is between — (1) citizens of different States. . . .”28 U.S.C. § 1332(a)(1). A corporation is “deemed to be a citizen of any State by which it has been incorporated and of the State where it has its principal place of business. . . .” Id. at § 1332(c). It is uncontested that all of the parties are citizens of Oklahoma[15] and, therefore, diversity jurisdiction does not exist. Accordingly, the State Court action could not have been commenced in federal court absent jurisdiction under section 1334.

(v) Action Must be Commenced in State Court
[47] Section 1334(c)(2) next requires that the proceeding in question must have been “commenced . . . in a State forum of appropriate jurisdiction.” 28 U.S.C. § 1334(c)(2).[16] It is not contested that the State Court action was commenced in a State forum of appropriate jurisdiction and, therefore, this requirement has been met.

(vi) Action Must be Capable of Timely Adjudication in State Court
[48] Abstention is required under section 1334(c)(2) if the State Court action “can be timely adjudicated, in a State forum of appropriate jurisdiction.” 28 U.S.C. § 1334(c)(2). The burden of proving timely adjudication is on the party seeking abstention. See J.D. Marshall Int’l, Inc. v. Redstart, Inc., 74 B.R. 651, 654 (N.D. Ill. 1987); Arid Waterproofing, Inc. v. Pennsylvania Dep’t of Gen. Servs. (In re Arid Waterproofing, Inc.), 175 B.R. 172, 180 n. 8 (Bankr. E.D.Pa. 1994); Burgess v. Liberty Sav. Ass’n (In re Burgess, 51 B.R. 300, 302 (Bankr. S.D. Ohio 1985); but see Acolyte Elec. Corp. v. City of New York, 69 B.R. 155, 180 (Bankr. E.D.N.Y. 1986) (burden on party requesting bankruptcy court to retain jurisdiction), aff’d, 1987 WL 47763 (E.D.N.Y. 1987).

[49] The phrase “timely adjudication” is not defined in the Bankruptcy Code. Courts interpreting this phrase have focused on whether allowing an action to proceed in state court will have any unfavorable effect on the administration of a bankruptcy case. See World Solar Corp. v. Steinbaum (In re World Solar Corp.), 81 B.R. 603, 612 (Bankr. S.D. Ca. 1988); J.D. Marshall, Int’l, 74 B.R. at 655; Allard v. Benjamin (In re DeLorean Motor Co.), 49 B.R. 900, 911 (Bankr. E.D. Mich. 1985); Frazier v. Lawyers Title Ins. Corp. (In re Butcher), 46 B.R. 109, 113
(Bankr. N.D. Ga. 1985). This focus is in accord with the fact that “Congress intended to grant comprehensive jurisdiction to the bankruptcy courts so that they might deal efficiently and expeditiously with all matters connected with the bankruptcy estate.” Pacor, Inc. v. Higgins, 743 F.2d at 994, quoted in Celotex, 115 S.Ct. at 1499; see H.R. No. 595, 95th Cong., 1st Sess. 43-48 (1977).

[50] In considering whether allowing a case to proceed in state court will adversely affect the administration of a bankruptcy case, courts have considered some or all of the following factors: (1) backlog of the state court and federal court calendar; (2) status of the proceeding in state court prior to being removed (i.e., whether discovery had been commenced); (3) status of the proceeding in the bankruptcy court; (4) the complexity of the issues to be resolved; (5) whether the parties consent to the bankruptcy court entering judgment in the non-core case;[17] (6) whether a jury demand has been made;[18] and (7) whether the underlying bankruptcy case is a reorganization or liquidation case. See, e.g., Chiodo, 88 B.R. at 787; World Solar, 81 B.R. at 612; J.D. Marshall, Int’l, 74 B.R. at 654-55; In re DeLorean Motor, 49 B.R. at 911. While some of these factors require the moving party to present evidence, such as the status of the state court calendar and status of proceedings in the state court, other factors are evident from a bankruptcy court’s record, such as the status of the adversary proceeding before it, the consent of parties to have the court enter judgments, and the nature of the underlying bankruptcy case.

[51] The Bankruptcy Court found that the Debtor and Personette did not prove that the State Court action could be timely adjudicated in the State Court. This conclusion was based on the fact that they did not present any evidence on the State Court’s trial calendar. As noted above, however, this is only one of several factors to be considered in determining whether adjudication in State Court will be timely, and does not, taken alone, focus on the larger concern of whether the administration of the bankruptcy case will be impaired by adjudication in State Court. If bankruptcy case administration is the primary focus, the nature of the bankruptcy case is the single most important factor to be considered. This is true because timeliness is relative. As one court has noted:

[W]here a Chapter 11 reorganization is pending, the court must be sensitive to the needs of the debtor attempting to reorganize. Lengthy delays in collecting outstanding accounts or resolving other claims which might substantially enhance the viability of the estate, may prove fatal to reorganization efforts. Therefore, in considering whether or not to abstain, timely adjudication necessarily weighs heavily for a Chapter 11 debtor.

[52] World Solar, 81 B.R. at 612. On the other hand, in a chapter 7 case or a chapter 11 case with a confirmed liquidating plan, where the primary concern is the orderly accumulation and distribution of assets, the requirement of timely adjudication is seldom significant. Id. Moreover, timely adjudication may be of little significance in a chapter 11 case with a confirmed plan of reorganization if implementation of the plan is not centered around the resolution of the state court proceeding. This is generally evident when the plan does not mention the state court proceeding and the party charged with implementing the confirmed plan is the party seeking to litigate the proceeding in a forum other than the Bankruptcy Court.

[53] Weighing all factors, we find that the State Court action can be timely adjudicated in the State Court because administration of the estate will not be impaired by its proceeding in that forum. From the record it is clear that the Debtor’s bankruptcy case is a chapter 11 case with a confirmed plan of reorganization. The reorganized Debtor and Personette, not the Kennedys, are seeking to litigate the State Court action in the State Court. The Debtor’s confirmed plan does not mention the State Court action. There is no provision in the plan for paying the Kennedys if they are successful in their counterclaim against the Debtor, nor is there any provision in the plan requiring the Debtor to pay a specific entity any monies that it may collect from the Kennedys if it is successful in the State Court action. As such, implementation of the Debtor’s confirmed plan will not be impaired by proceeding in the State Court even if the State Court could not resolve the matter in more timely than the federal courts.

[54] Furthermore, the Debtor and Personette have not consented to the Bankruptcy Court hearing this non-core “related to” proceeding, a jury demand has been made, no discovery has been taken and preliminary motions have not been made in the Bankruptcy Court proceeding, and the State Court action involves a small number of parties and uncomplicated issues of State law. The lack of evidence regarding the State Court and federal courts’ calendars does not outweigh these factors.

[55] Accordingly, assuming that it had jurisdiction over the State Court action, the Bankruptcy Court was required to abstain from hearing the action because: (1) the Debtor and Personette’s motion for abstention was timely made; (2) the proceeding is based exclusively on State law causes of action; (3) the causes of action asserted are related to the Debtor’s bankruptcy case but do not arise under the Bankruptcy Code or arise in the bankruptcy case; (4) the State Court action could not have been commenced in federal court absent the Debtor’s bankruptcy case; (5) the action was commenced in State Court and later removed to the Bankruptcy Court; and (6) the action can be timely adjudicated in the State Court.[19]

C. Allegations Of Bias Are Unsupported By The Record
[56] The Debtor and Personette assert that the Bankruptcy Court judge was biased. The record, however, is devoid of any proof in support of this very serious allegation, and they have never moved to disqualify the judge under 28 U.S.C. § 455. See 28 U.S.C. § 144. The Debtor and Personette seem to argue that bias is evident because the judge ruled against them. Such an allegation is not sufficient to prove bias; see 28 U.S.C. § 455
(setting forth grounds for disqualification); Liteky v. United States, 510 U.S. 540 (1994) (interpreting bias in the context of section 455); and may be sanctionable. See Fed.R.App.P. 38; Fed.R.Bankr.P. 8018; 10th Cir. BAP L.R. 8018-1(e); Braley v. Campbell, 832 F.2d 1504 (10th Cir. 1987); see also Burkhart v. FDIC (In re Burkhart), 84 B.R. 658 (9th Cir. BAP 1987) (Bankruptcy Appellate Panel may award sanctions under Rule 38). Even if the record did support this allegation, which we expressly hold it does not, the Debtor and Personette have not been harmed because we reverse the Bankruptcy Court.

V. Conclusion
[57] For the reasons stated above, the Court concludes that the Bankruptcy Court was required to abstain from hearing the State Court action under section 1334(c)(2). Accordingly, the order of the Bankruptcy Court is hereby REVERSED and this matter is REMANDED to the Bankruptcy Court with directions to enter an order remanding the State Court action to the State Court.