Western Bank - Alamogordo et al v. Danley et al

UNITED STATES BANKRUPTCY COURT
DISTRICT OF NEW MEXICO
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06/11/06
Western Bank - Alamogordo, et al. v. Joel T. Danley, et al.
04-01158
Memorandum Opinion re: [22-1] Motion to Remand and for Mandatory Abstention and
Discretionary Abstention by Western Bank - Alamogordo.
Received on: 2004-10-01 14:14:49.000
2004-10-01 00:00:00.000
2004-10-04 00:00:00.000
James Burke
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1This objection does not appear on the docket of this
adversary proceeding as of September 29, 2004, because the
style of the document is from a different adversary
proceeding, Western Bank - Alamogordo v. Meadow Valley
Contractors, Inc., which is Adversary 04-1134S. However, the
adversary proceeding number on the document (Adversary No. 04-
1158)is correct. The Court has nevertheless considered this
objection.
UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF NEW MEXICO
In re:
JOEL T. DANLEY,
Debtor. No. 11-04-13378 SL
WESTERN BANK OF ALAMOGORDO,
Plaintiff,
v. Adv. No. 04-1158 S
JOEL T. DANLEY, et al.,
Defendants.
MEMORANDUM OPINION ON MOTION TO REMAND
This matter is before the Court on the Motion to Remand
and for Mandatory Abstention and Discretionary Abstention (doc
22) filed by Western Bank - Alamogordo (“Bank”). The Danley
defendants (Joel T. Danley, Johnson & Danley Construction,
Inc. and J.D. Materials, Inc.) objected (doc 24). Defendant
Joel T. Danley also filed a separate objection (doc 25).
Defendant Meadow Valley Contractors and Jobe Concrete
Materials, Inc. also filed an objection.1 Bank appears
through its attorney Scott & Kienzle, P.A. (Paul M. Kienzle
III). The Danley defendants appear through their attorney
Davis & Pierce, P.C. (William F. Davis). Joel T. Danley also
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appears through his attorney Russell C. Lowe. Meadow Valley
and Jobe Concrete appear through their attorney Jennings, Haug
& Cunningham, LLP (Curtis A. Jennings and Craig J. Bolton).
The determination of whether to abstain is a core
proceeding in which the bankruptcy court can enter final
orders. 28 U.S.C. § 157(b)(2)(A). Beneficial Nat’l Bank USA
v. Best Receptions Systems, Inc. (In re Best Reception
Systems, Inc.), 220 B.R. 932, 941 (Bankr. E.D. Tenn. 1998).
1. Bankruptcy Jurisdiction.
Federal courts are courts of limited jurisdiction, and
empowered to hear only those cases authorized and defined in
the Constitution and entrusted to them by Congress. Henry v,
Office of Thrift Supervision, 43 F.3d 507, 511 (10th Cir.
1994). Parties cannot waive lack of subject matter
jurisdiction. Id. Federal courts are obligated to examine
their own jurisdiction, and subject matter jurisdiction can be
raised at any time, by a party or by the court sua sponte.
May v. Missouri Department of Revenue (In re May), 251 B.R.
714, 719 (8th Cir. B.A.P. 2000).
Bankruptcy Court jurisdiction is established by 28 U.S.C.
§ 1334, which lists four types of matters over which the
district court has bankruptcy jurisdiction: 1) cases “under”
title 11 (which are the bankruptcy cases themselves, initiated
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by the filing of a Chapter 7, Chapter 11, etc. petition), 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. Wood v. Wood (In re Wood), 825 F.2d 90,
92 (5th Cir. 1987). In the District of New Mexico, all four
types have been referred to the bankruptcy court. See 28
U.S.C. § 157(a); Administrative Order, Misc. No. 84-0324 (D.
N.M. March 19, 1992). Jurisdiction is then further broken
down by 28 U.S.C. § 157, which grants full judicial power to
bankruptcy courts over “core” proceedings, but only limited
judicial power over “related” or “non-core” proceedings.
Wood, 825 F.2d at 91; Personette v. Kennedy (In re Midgard
Corporation), 204 B.R. 764, 771 (10th Cir. B.A.P. 1997).
“Core” proceedings are matters “arising under” and
“arising in” cases under title 11. Wood, 825 F.2d at 96;
Midgard, 204 B.R. at 771. Matters “arise under” title 11 if
they involve a cause of action created or determined by a
statutory provision of title 11. Wood, 825 F.2d at 96;
Midgard, 204 B.R. at 771. Matters “arise in” a bankruptcy if
they concern the admini-stration of the bankruptcy case and
have no existence outside of the bankruptcy. Wood, 825 F.2d
at 97; Midgard, 204 B.R. at 771.
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“Non-core” proceedings are those that do not depend on
the bankruptcy laws for their existence and that could proceed
in another court even in the absence of bankruptcy. Wood, 825
F.2d at 96; Midgard, 204 B.R. at 771. Bankruptcy courts have
jurisdiction over non-core proceedings if they are at least
“related to” a case under title 11. 28 U.S.C. § 157(c)(1)(“A
bankruptcy judge may hear a proceeding that is not a core
proceeding but that is otherwise related to a case under title
11.”)
“[T]he test for determining whether a civil
proceeding is related in bankruptcy is whether the
outcome of that proceeding could conceivably have
any effect on the estate being administered in
bankruptcy.” Pacor, Inc. v. Higgins, 743 F.2d 984,
994 (3rd Cir. 1984)(emphasis omitted.) Although the
proceeding need not be against the debtor or his
property, the proceeding is related to the
bankruptcy if the outcome could alter the debtor’s
rights, liabilities, options, or freedom of action
in any way, thereby impacting on the handling and
administration of the estate. Id. ...
[T]he bankruptcy court lacks related jurisdiction to
resolve controversies between third party creditors
which do not involve the debtor or his property
unless the court cannot complete administrative
duties without resolving the controversy. In re
Shirley Duke Assocs., 611 F.2d 15, 18 (2nd Cir.
1979).
Gardner v. United States (In re Gardner), 913 F.2d 1515, 1518
(10th Cir. 1990).
2. Abstention and Remand.
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In the bankruptcy context, the concepts of abstention and
remand are intertwined. Abstention is governed by 28 U.S.C. §
1334(c), which provides:
(C)(1) Nothing in this section prevents a district
court in the interests of justice, or in the
interest of comity with State courts or respect for
State law, from abstaining from hearing a particular
proceeding arising under title 11 or arising in or
related to a case under title 11.
(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.
In Oakwood Acceptance Corp. v. Tsinigini (In re Oakwood
Acceptance Corp.), 308 B.R. 81, 86 (Bankr. D. N.M. 2004),
Judge McFeeley stated:
The Tenth Circuit Bankruptcy Appellate Panel has
held that if a bankruptcy court has only “related
to” jurisdiction over the removed proceeding, the
bankruptcy court must remand if it is required to
abstain under 28 U.S.C. § 1334(c)(2)(the mandatory
abstention provision.) Personette v. Kennedy (In re
Midgard Corp.), 204 B.R. 764, 775 (10th Cir. BAP
1997)(finding that if abstention is required under §
1334(c)(2), a court should remand to state court.)
In his separate brief, Debtor suggests that due to the
importance of this removed case to his overall bankruptcy
case, the Court should retain jurisdiction and not order
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abstention (doc 25, p. 2). While this argument has a certain
appeal, it cannot be sustained. Section 1334(c)(2), also
called the “mandatory abstention” provision, requires
abstention if the listed factors are met. The importance of
the case to the Debtor is simply not a factor the Court
considers.
3. This removed case is a non-core related-to case that
should be remanded.
This removed case is a foreclosure suit based on state
law that was pending in Otero County. It is not a case under
Title 11, it does not involve a cause of action created or
determined by a statutory provision of title 11, and it does
not concern the administration of the bankruptcy case. The
removed case had its own existence outside of the bankruptcy.
It does not depend on the bankruptcy laws for its existence
and it can proceed in another court even in the absence of
bankruptcy. It is therefore non-core.
The Danley defendants assert that one of the pending
matters in state court is their motion to amend their answer
to assert lender liability counterclaims against Bank. Doc
24, p. 3. Therefore, they claim that the removed case
“becomes part and parcel of a claims objection and, therefore,
is a core proceeding under 28 U.S.C. 157(b)(2)(A), (B), (C),
and (O).” Id., p. 7. The Court disagrees. Jurisdiction is
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determined by reference to the existing pleadings at the time
of removal. Allen v. City Finance Co., 224 B.R. 347, 351
(S.D. Miss. 1998); Borne v. New Orleans Health Care, Inc., 116
B.R. 487, 489 (Bankr. E.D. La. 1990). When removed, this case
was only a state law foreclosure case, and that is a non-core
proceeding. Balcor/Morristown Limited Partnership v. Vector
Whippany Assoc., 181 B.R. 781, 790 (D. N.J. 1995)(“Bankruptcy
courts have frequently held that an action for foreclosure is
not core.” (Citations omitted.))(Holding that mortgage
foreclosure case with proposed amendments seeking equitable
subordination and avoidance of fraudulent transfers was not
core, but suggesting that if a counterclaim challenged the
validity of the mortgage itself, that may be core.)
Furthermore, even if defendants had been successful in adding
counterclaims before removal, those counterclaims would still
be prepetition non-core actions. Peterson v. 610 W. 142
Owners Corp. (In re 610 W. 142 Owners Corp.), 219 B.R. 363,
371 (Bankr. S.D. N.Y. 1998). See also Celotex v. Edwards, 514
U.S. 300, 307 n. 5 (1995) (“Proceedings ‘related to’ the
bankruptcy include (1) causes of action owned by the debtor
which become property of the estate pursuant to 11 U.S.C. §
541...”).
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2 Meadow Valley removed the case on July 26, 2004 (doc 1).
Bank filed its motion to remand on August 20, 2004 (doc 22).
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Meadow Valley and Jobe Concrete in their response do not
oppose remand of the action, except that they want this Court,
before it remands, to sever from this adversary proceeding
their claims to the severed materials now stockpiled on the
site so that this Court can adjudicate that issue together
with the issues in Western Bank - Alamogordo v. Meadow Valley
Contractors, Inc., Adversary 04-1134S. To the extent that the
interests of Meadow Valley and Jobe Concrete need to be
adjudicated in the bankruptcy court (a position that the Court
does not necessarily agree with), that process can take place
in the Adversary Proceeding 04-1134, by means of the
appropriately amended or supplemental pleadings (assuming any
such amendments or supplements are even needed). There is no
need to take any further action in this adversary proceeding
other than to remand it.
The removed case that constitutes this adversary
proceeding has no basis for federal jurisdiction other than
the bankruptcy code. Bank made a timely motion to remand or
abstain.2 The removed case can be timely adjudicated in the
state court. In fact, the state court announced its judgment
with respect to the Danley defendants on April 20, 2004.
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Debtor filed his bankruptcy on May 6, 2004, staying entry of
the judgment as to Debtor. The Court has now entered an order
in the main case modifying the stay to permit the foreclosure
action to go forward, and it is now appropriate to remand this
foreclosure action back to the state court for further
proceedings.
4. Bank’s request for attorney fees and costs.
Bank seeks an award of attorney fees and costs associated
with the removal/remand matter. In support, Bank argues that
1) the papers submitted were not all the pleadings in the
state court case, and some of the papers were not submitted
timely, 2) it was plain to see that abstention is appropriate,
3) the circumstances under which Meadow Valley removed the
case are suspicious, and 4) general bad faith.
With regard to an incomplete record, even if there were
technically noncompliance with the Rule, the Court finds that
this problem could be easily remedied through refiling
necessary papers. See Balcor/Morristown Limited Partnership,
181 B.R. at 787 (Characterizing incomplete record of a removed
case as a “procedural step”.)
With regard to whether it was plain to see that
abstention would be appropriate, that is an entirely different
question from whether there was bankruptcy jurisdiction such
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that the case could be removed. 28 U.S.C. § 1452 allows a
party to remove any claim or cause of action (with certain
noted exceptions not here applicable) if there is jurisdiction
under 28 U.S.C. § 1334. 28 U.S.C. § 1334(b) grants federal
bankruptcy jurisdiction over “related to” matters. In our
case, the removed action, while not a core proceeding, was
certainly “related to” under the Pacor, Inc. v. Higgins test.
Therefore, there is bankruptcy court jurisdiction, and removal
was not inappropriate. Compare Daleske v. Fairfield
Communities, Inc., 17 F.3d 321, 323 (“The district court found
that the matters raised in the state suit were neither “core”
nor “related” to the bankruptcy proceeding and ordered the
case remanded to the state court.”) and 325 (“Fairfield had a
legitimate basis for believing the case fell within the
district court’s bankruptcy jurisdiction. Thus, the district
court did not abuse its discretion in declining to award fees
and costs under either 28 U.S.C. § 1447(c) or Bankr.R. 9011.”)
With regard to the suspicious nature of the removal, the
Court construes the removal as a tactical decision and not
sanctionable. Similarly, the Court does not see that the
removal was done in bad faith.
5. Conclusion.
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Bank has demonstrated that this case fits within the
mandatory abstention provisions, and under Oakwood Acceptance
Corp. and Personette v. Kennedy the action should be remanded.
Bank is not entitled to an award of fees or costs. The Court
will enter an Order in conformity with this Opinion.
Honorable James S. Starzynski
United States Bankruptcy Judge
I hereby certify that on October 1, 2004, a true and correct
copy of the foregoing was electronically transmitted, faxed,
delivered, or mailed to the listed counsel and/or parties.
Paul M Kienzle, III
PO Box 587
Albuquerque, NM 87103-0587
William F Davis
PO Box 6
Albuquerque, NM 87103-0006
Ann Maloney Conway
PO Box 1190
Albuquerque, NM 87103-1190
Craig Bolton
2800 North Central, Ste 1800
Phoenix, AZ 85004-1049
Curtis A Jennings
2800 N Central Ste 1800
Phoenix, AZ 85004-1049
Russell C Lowe
PO Box 90536
Albuquerque, NM 87199-0536
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