Mount Canaan Full Gospel Church, Inc. v. Kerr-McGee Refining Corporation et al

UNITED STATES BANKRUPTCY COURT 	NOT FOR PUBLICATION
SOUTHERN DISTRICT OF NEW YORK
____________________________________
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In re 	) 	Chapter 11
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TRONOX INCORPORATED, et al., 	) 	Case No. 09-10156 (ALG)
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Debtors. 	) 	Jointly Administered
___________________________________ )
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Mount Canaan Full Gospel Church, Inc., 	)
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Plaintiff, 	)
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v. 	) 	Adversary Proceeding No. 09-01537 (ALG)
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Kerr-McGee Refining Corporation, et al., 	)
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Defendants. 	)
___________________________________ )
DECISION AND ORDER REMANDING ACTION
A P P E A R A N C E S:
BURR & FORMAN LLP
Counsel for Mt. Canaan Full Gospel Church, Inc.
By: Robert B. Rubin
D. Christopher Carson
John R. Lehman II
3400 Wachovia Tower
420 N 20 th Street
Birmingham, AL 35203
KIRKLAND & ELLIS LLP
Counsel for the Debtors, Tronox Inc., et al.
By: Jonathan S. Henes
Michael A. Cohen
601 Lexington Ave.
New York, NY 10022-4611
By: Patrick J. Nash, Jr.
Jeffrey J. Zeiger
David H. DeCelles
300 North LaSalle Street
Chicago, IL 60654
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BINGHAM McCUTCHEON LLP
Counsel for Kerr-McGee Corporation
By: Milissa A. Murray
2020 K Street, NW
Washington, DC 20006
MAYNARD COOPER & GALE PC
Counsel for Colonial Pipeline
By: James L. Goyer III
Christopher J. Williams
1901 Sixth Avenue North
2400 Regions/Harbert Plaza
Birmingham, AL 35203
ALLAN L. GROPPER
UNITED STATES BANKRUPTCY JUDGE
Mount Canaan Full Gospel Church, Inc. (“Mt. Canaan” or “Plaintiff”) has moved for an
order remanding this adversary proceeding (“the Mt. Canaan Suit” or the “Alabama lawsuit”),
abstaining in favor of the State Court, and for relief from the automatic stay, so that a trial on the
merits may proceed in the Circuit Court of Jefferson County, Alabama (“the Alabama State
Court”). For the reasons set forth below, the case is remanded to the Alabama State Court for
further proceedings. The automatic stay no longer applies, and relief therefrom is not needed.
BACKGROUND
Mt. Canaan initiated the case at bar as a civil action in the Alabama State Court on April
27, 2006. The complaint asserts claims of negligence, trespass, nuisance, and strict liability for
environmental contamination caused by defendants’ alleged operation of a petrochemical facility
in Birmingham, Alabama, with resulting harm to Mt. Canaan’s property. The defendants named
in the complaint are Kerr-McGee Corporation, Kerr-McGee Refining Corporation, Triangle
Terminal of Birmingham, Inc., Triangle Refineries, Inc., Allied Energy Corporation, and
Colonial Pipeline Company (“Colonial”). Colonial filed an answer to the complaint which
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named Kerr-McGee Corporation, Tronox, Inc. (“Tronox”), and Triple S Refining Corporation as
cross-claim defendants.
Tronox and certain affiliates, including cross-claim defendant Triple S Refining
Corporation, filed petitions in the above-captioned chapter 11 cases on January 12, 2009, after
which a Suggestion of Bankruptcy was filed in the Plaintiff’s case.1 Prior to the date of the
petitions, Triple S Refining Corporation had filed an answer to the Plaintiff’s complaint stating
that it had formerly been known as Kerr-McGee Refining Corporation and that it was also
successor-in-interest to the named defendants Triangle Terminal of Birmingham, Incorporated
and Triangle Refineries, Incorporated. After the Debtors’ chapter 11 filings, the automatic stay
under 11 U.S.C. § 362 halted further proceedings in the Alabama State Court.
Kerr-McGee Corporation (“KMC”), a named defendant in the Alabama suit, filed a
notice of removal in the United States District Court for the Northern District of Alabama on
April 29, 2009, asserting that bankruptcy jurisdiction existed under 28 U.S.C. § 1334(b) and that
removal was proper under 28 U.S.C. § 1452(a). KMC then filed a motion to transfer venue to
this Court. The Plaintiff responded to that motion with a motion to remand or abstain as well as
a motion for relief from the automatic stay. The District Court entered an order on May 7, 2009
referring the case to the Bankruptcy Court for the Northern District of Alabama. Judge Bennett
of that Court granted the motion to transfer venue on October 1, 2009, and provided in his order
that this Court should decide the questions of remand, abstention and relief from the stay.
Although “Kerr-McGee Corporation” is named as a defendant in the Mt. Canaan
complaint, KMC asserted in its Notice of Removal that it is not the entity that once owned the
1 The Debtors in these cases include: Tronox Luxembourg S.ar.l; Tronox Incorporated; Cimarron Corporation;
Southwestern Refining Company, Inc.; Transworld Drilling Company; Triangle Refineries, Inc.; Triple S, Inc.;
Triple S Environmental Management Corporation; Triple S Minerals Resources Corporation; Triple S Refining
Corporation; Tronox LLC; Tronox Finance Corp.; Tronox Holdings, Inc.; Tronox Pigments (Savannah) Inc.; and
Tronox Worldwide LLC.
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allegedly contaminated property in Alabama. KMC asserted that it is a wholly owned subsidiary
of Anadarko Petroleum Corporation (“Anadarko”) and is not a successor to another entity
formerly known as “Kerr-McGee Corporation.” That entity, according to KMC, was “renamed
Kerr-McGee Operating Corporation in 2001, merged into Kerr-McGee Chemical Worldwide
LLC in 2002 and changed its name to Tronox Worldwide LLC in 2005.” 2 It is now a subsidiary
of Tronox and also a debtor in the above chapter 11 cases. KMC argued that it should be
considered a third-party defendant on the grounds that it was not correctly named in the initial
complaint or validly served with process in the State action until being named as a “cross-claim
defendant” by Colonial. Notice of Removal, ¶ 5.
A hearing on the request by Mt. Canaan for relief from the automatic stay and for remand
and abstention was held before this Court on November 9, 2010. The Court was informed that
the Debtors and the Plaintiff had resolved their disputes, and a stipulated settlement between Mt.
Canaan and the Debtors was approved by this Court in an order dated November 15, 2010. Case
No. 09-01537, Dkt. No. 94. Pursuant to the stipulation, Mt. Canaan released each of the Debtors
from all claims and any liability related to the Mt. Canaan Suit, and the Debtors agreed not to
oppose the remand of this case and its prosecution against non-debtor defendants by Mt. Canaan.
A separate stipulation between the Debtors and Colonial was entered on November 30,
2010, dismissing its cross-claims against the Debtor defendants. Case No. 09-01537, Dkt. No.
97. In exchange, Colonial’s claims against the Debtors were allowed in the aggregate amount of
$500,000; Colonial reserved its rights to pursue recovery from other non-debtor parties.
On November 30, 2010, the Debtors’ plan of reorganization was confirmed, pursuant to
which an environmental settlement agreement was entered into with the United States and other
2 There is no dispute that the Debtors or some of them are the successors to “Old Kerr-McGee Corporation” and that
the oil and gas business of Old Kerr-McGee was spun off into a new company which took the same name and is
now known as Kerr-McGee Corporation. It was acquired by Anadarko in 2006.
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governmental stakeholders. On January 26, 2010, a stipulation was approved by this Court
setting the amount of the proof of claim filed by Anadarko and KMC (“New Kerr-McGee”) for
damages arising in connection with the spin-off of Tronox from KMC at $29 million.
DISCUSSION
The present matter was removed from the Alabama State Court pursuant to 28 U.S.C. §
1452(a), which provides for removal of “a civil action . . . to the district court for the district
where such civil action is pending, if such district court has jurisdiction . . . under section 1334 of
this title.” 28 U.S.C. § 1452(a). There is no apparent dispute that at the time of removal Debtors
were defendants in the State Court action and the Court had jurisdiction under 28 U.S.C. §
1334(b) as a civil proceeding related to the Debtors’ bankruptcy.
Mt. Canaan seeks remand or abstention under 28 U.S.C. §§ 1447(c), 1452(b), 1334(c)(1)
and (2), and Federal Rules of Bankruptcy Procedure 9014 and 9027(d). Turning first to the
question of remand, 28 U.S.C. § 1452(b) provides that the court may remand a removed claim or
cause of action “on any equitable ground.” Courts in this district considering remand under §
1452(b) frequently apply the equitable grounds examined in Drexel Burnham Lambert Group,
Inc. v. Vigilant Ins. Co., 130 B.R. 405, 407 (S.D.N.Y. 1991), which include:
(1) The effect on the efficient administration of the bankruptcy
estate;
(2) The extent to which issues of state law predominate;
(3) The difficulty or unsettled nature of the applicable state law;
(4) Comity;
(5) The degree of relatedness or remoteness of the proceeding to
the main bankruptcy case;
(6) The existence of the right to a jury trial; and
(7) Prejudice to the involuntarily removed defendants.
Application of these factors to the case at bar establishes that remand of this case to the Alabama
State Court is appropriate.
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The confirmation of the Debtors’ plan of reorganization and the approval of stipulations
releasing or fixing the liability of the Debtors to the other parties in the Alabama lawsuit have
obviated any issues regarding the effect of this case on the efficient administration of the
bankruptcy. The Plaintiffs’ claims against the Debtors have been dropped and cross-claims by
Colonial and potential third-party claims by KMC have been quantified or liquidated. Further
proceedings by which Mt. Canaan would pursue a claim against KMC or any of the other
defendants would no longer have an effect on the bankruptcy estates.
KMC argues that an adversary proceeding brought by the Debtors against Anadarko and
KMC, which includes allegations under the Bankruptcy Code and Oklahoma law of fraudulent
conveyance, breach of fiduciary duty, and conspiracy and aiding and abetting of breach of
fiduciary duty (“the Anadarko Litigation”), is inextricably related to the causes of action brought
by Mt. Canaan in this suit. See Tronox Inc. v. Anadarko Petroleum Corp. and Kerr-McGee
Corp., 429 B.R. 73 (Bankr. S.D.N.Y. 2010). However, the Anadarko Litigation is concerned
with the corporate transactions that gave rise to the spin-off. These claims are independent of
those in the Mt. Canaan Suit, which is based solely on Alabama law and relates only to events
and property located in Alabama. A determination in the Alabama Court as to the liability of
KMC or any other party on the claims brought by Mt. Canaan under Alabama law would not
appear to have any effect on the Anadarko Litigation.
The fact that Alabama law is at issue in the Alabama lawsuit and that Mt. Canaan and
Colonial have requested a jury for the trial of their claims also favor remand under the second,
third, fourth, and sixth factors listed in Drexel. Remand will allow the Alabama courts to decide
any legal questions relevant to the remaining claims in a manner consistent with State
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jurisprudence. Moreover, it appears that the evidence and witnesses necessary to present
testimony to a jury are all located in Alabama.
In addition to the factors favoring remand, it would appear that mandatory abstention
would be required here. KMC’s primary argument against the application of mandatory
abstention under § 1334(c)(2) was that this action is closely related to the chapter 11 proceedings
and that the needs of these proceedings would make it impossible for Mt. Canaan to satisfy the
requirement that the action “can be timely adjudicated” in the Alabama State court. 28 U.S.C. §
1334(c)(2). The Second Circuit’s recent decision in Parmalat Capital Finance Ltd. v. Bank of
America Corp., No. 09-4302-cv, 2011 WL 135810 (2d Cir. Jan. 18, 2011), sets forth four factors
to consider in assessing whether a State court can “timely adjudicate” a case under § 1334(c)(2):
(1) The backlog of the state court’s calendar relative to the federal
court’s calendar;
(2) The complexity of the issues presented and the respective
expertise of each forum;
(3) The status of the title 11 bankruptcy proceeding to which the
state law claims are related;
(4) Whether the state court proceeding would prolong the
administration or liquidation of the estate.
Id. at 16-17. The party opposing remand “bears the burden to show that these matters cannot be
timely adjudicated in state court.” Id. at 21. When a significant length of time has elapsed since
removal, the decision to remand should be based on an updated factual record. See id.
In the present case, developments have made litigation of the Alabama case largely of no
moment in connection with these chapter 11 proceedings. A plan of reorganization has been
confirmed in the chapter 11 cases and stipulations have been approved between the Debtors and,
respectively, Mt. Canaan, Colonial, and KMC. These stipulations fix the interests of these
parties in the bankruptcy estate and render the results in Alabama largely irrelevant to the
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ongoing chapter 11 cases. Although the issue of mandatory abstention need not be reached, it
would appear that abstention under § 1334(c)(2) would be appropriate.
CONCLUSION
This case is remanded, pursuant to 28 U.S.C. § 1452(b), to the Circuit Court of Jefferson
County, Alabama for further proceedings. Upon remand, the automatic stay under 11 U.S.C. §
362 will no longer affect prosecution of the remaining claims in the Alabama action and that case
can proceed free of any bankruptcy stay.
IT IS SO ORDERED.
Dated: 	New York, New York
February 4, 2011 	/s/ Allan L. Gropper
HONORABLE ALLAN L. GROPPER
UNITED STATES BANKRUPTCY JUDGE
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