Williams v. Cujas et al

IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
GEORGE JUNIOR REPUBLIC
IN PENNSYLVANIA
Defendant-Appellant
v.
FRANCES WILLIAMS,
Administratrix of the Estate of
Nathaniel M. McCoy
Plaintiff-Appellee
CIVIL ACTION
No. 07-4537
Appeal from Bankr. Adv.
No. 07-00228
MEMORANDUM AND ORDER
Joyner, J. March 19, 2008
This matter being brought before this Court on appeal by
Appellant George Junior Republic's ("GJR"), from the September
28, 2007 Opinion by the United States Bankruptcy Judge Eric L.
Frank granting Appellee's Motion to Remand the Philadelphia State
Court Action to the Court of Common Pleas, Philadelphia County.
For the reasons which follow, the Remand Order is reversed and
remanded with instructions to transfer the state court litigation
to the United States District Court for the Western District of
Pennsylvania so that the court may determine whether remand is
appropriate.
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Background
Defendant-Appellant GJR operates a residential facility for
adjudicated delinquents in Mercer County, Pennsylvania. GJR
formerly employed Aaron J. Cujas at its facility. Nathaniel M.
McCoy was a resident of GJR's in 2004. On June 9, 2004, Mr.
Cujas and another employee took Mr. McCoy and several other
residents swimming at Slippery Rock Creek in Lawrence County,
Pennsylvania. While at Slippery Rock, Mr. McCoy drowned.
Plaintiff Frances Williams, as administratrix of Mr. McCoy's
estate, initiated a wrongful death action against and Mr. Cujas
and GJR in April 2006 in the Court of Common Pleas of
Philadelphia County, Pennsylvania alleging that Mr. Cujas, in the
course of his employment at GJR, engaged in intentional and/or
reckless conduct that resulted in the death of Mr. McCoy.1
Mr. Cujas filed a voluntary petition for relief under
chapter 7 of Title 11 of the United States Code in the United
States Bankruptcy Court for the Western District of Pennsylvania
on April 20, 2007.
On June 27, 2007, GJR filed a notice of removal in the
United States Bankruptcy Court for the Eastern District of
Pennsylvania, pursuant to 28 U.S.C. § 1452(a). GJR additionally
Plaintiff subsequently filed a motion to amend her complaint to
include a claim for punitive damages base4 upon additional information
that became available through discovery. ' • '' '
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filed with the United States Bankruptcy Court for the Eastern
District of Pennsylvania a motion to transfer venue to the United
States District Court for the Western District of Pennsylvania
pursuant to 28 U.S.C. § 157 (b) (5). Plaintiff subsequently filed
a motion in the Bankruptcy Court for the Eastern District of
Pennsylvania seeking remand and abstention of the state court
litigation to the Philadelphia Court of Common Pleas.
Then, on August 1, 2007, GJR filed a nondischargability
complaint in the Bankruptcy Court for the Western District of
Pennsylvania against Mr. Cujas, initiating an adversary
proceeding, seeking determination pursuant to Section 523 (a) (6)
of the Bankruptcy Code whether its claim against Mr. Cujas was
nondischargeable.
Bankruptcy Judge Eric Frank issued his Order on September
28, 2007, from which GJR appeals, granting Plaintiffs motion for
remand and denying GJR's motion to transfer as moot. The Court
also denied GJR's motion for removal for lack of subject matter
jurisdiction.
Standard of Review
This Court has jurisdiction over this appeal pursuant to 28
U.S.C. §158(a), which states:
The district courts of the United States shall have
jurisdiction to hear appeals
(1) from final judgments, orders, and decrees;
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(2) from interlocutory orders and decrees issued under
section 1121(d) of title 11 increasing or reducing the
time periods referred to in section 1121 of such title;
and
(3) with leave of the court, from other interlocutory
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 this title. An appeal under this subsection shall be
taken only to the district court for the judicial district
in which the bankruptcy judge is serving.
Under Fed.R.Bankr.P. 8013,
On an appeal the district court or bankruptcy appellate
panel may affirm, modify, or reverse a bankruptcy judge's
judgment, order, or decree or remand with instructions for
further proceedings. Findings of fact, whether based on
oral or documentary evidence, shall not be set aside, unless
clearly erroneous, and due regard shall be given to the
opportunity of the bankruptcy court to judge the credibility
of the witnesses.
In considering such appeals from bankruptcy court decisions, the
district courts are thus required to review the bankruptcy
court's findings of fact for clear error, its legal conclusions
de novOf and its exercise of discretion for abuse thereof. IRS
v. Pranskv, 318 F.3d 536, 542 (3d Cir. 2003); Professional
Insurance Management v. Ohio Casualty Group of Insurance
Companies, 285 F.3d 268, 282-283 (3d Cir. 2002); In re Krvstal
Cadillac Oldsmobile GMC Truck, Inc., 142 F.3d 631, 635 (3d Cir.
1998). An abuse of discretion can be based on a clearly
erroneous finding of fact, an errant conclusion of law or an
improper application of law to fact. In re Myers, 334 B.R. 136,
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142 (E.D.Pa. 2005), citing In re SGL Carbon Corp.. 200 F.3d 154,
159 (3d Cir. 1999).
Discussion
Bankruptcy Judge Frank's September 27, 2007 Order granted
Plaintiff-Appellee's Motion to Remand and denied Defendant-
Appellee's Motion to Transfer as Moot. In reaching its
conclusion, the court also determined that GJR improperly removed
the case to federal court because the court lacked subject matter
jurisdiction over the wrongful death action. (Order, at p. 14).
By this appeal, GJR challenges the Bankruptcy Court's ruling for
the following reasons: 1) that the Court's test to determine
subject matter jurisdiction was improper, and thus they erred in
concluding that the wrongful death action was not "related to"
Mr. Cujas' pending bankruptcy action; 2) that the court erred in
considering Plaintiff-Appellee's motion for remand rather than
transferring the case to the "home court" (where the bankruptcy
action is pending) for a proper determination of venue; and 3)
that the Court, as an Article I court, lacked the authority to
determine the venue of a wrongful death action under 28 U.S.C. §
157(b) (5) .
We will first address the Bankruptcy Court's conclusion that
the state court action was improperly removed by GJR. We will
then review the appropriateness of the Bankruptcy Court's
decision to analyze the merits of Plaintiff-Appellee's motion for
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remand rather than transferring the matter to the United States
District Court for the Western District of Pennsylvania for a
proper determination of venue.2
Removal
Pursuant to 28 U.S.C. § 1452(a), a party may remove a claim
or cause of action to the district court for the district where
the claim is pending if the district court has jurisdiction of
the claim under 21 U.S.C. § 1334. See 28 U.S.C. § 1452. Section
1334 establishes jurisdiction in the district court for claims
that are, inter alia, "related to cases under title 11." 21
U.S.C. § 1334(b). The Third Circuit has explained that in order
for an action to be deemed "related to" a bankruptcy case, there
must be some "nexus" between the civil proceeding and the title
11 case. Pacor v. Hiqqins. 743 F.2d 984, 994 (3d Cir. 1984).
The court, in Pacor, expounded on the nexus requirement:
The usual articulation of the test for determining whether
a civil proceeding is related to bankruptcy is whether the
outcome of that proceeding could conceivably have any
effect on the estate being administered in bankruptcy.
Thus, the proceeding need not necessarily be against the
debtor or against the debtor's property. An action is
related to the bankruptcy if the outcome could alter the
debtor's rights, liabilities, options, or freedom of action
(either positively or negatively) and which in any way
impacts upon the handling and administration of the
2We decline to address GJR's third argument regarding the
authority of a bankruptcy court, as an Article I court, to determine
venue. As we shall discuss, infra, we reverse the court's decision to
remand the case to state court other grounds.
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estate."
Id. (emphasis added).
The Federal Rules of Bankruptcy Procedure set forth the
procedural requirements for effectuating removal. Pursuant to
Rule 9027 (a) (a), a notice of removal shall be filed with the
district court in the district within which the civil action is
pending. See Fed. R. Bankr. P. 9027 (a) (1).
Bankruptcy Judge Frank determined that Defendant-
Appellant's notice of removal was proper procedurally. (Order,
at p. 13). However, he concluded that the state court case had
been improperly removed by GJR because the bankruptcy court
lacked subject matter jurisdiction over the action. Id. at 15-
16. We find this conclusion erroneous. Removal was proper as
there was "related to" bankruptcy jurisdiction as contemplated
by 28 U.S.C, § 1334 (b).
The court's Order correctly cites Pullman v. Jenkins, 305
U.S. 534, 59 S.Ct. 347 (1939), Carpenters Pension Trust for
Southern California v. Ebbers, 299 B.R. 610, 613 (C.D. Cal.
2003) and related cases which have held that subject matter
jurisdiction must exist at the time that a notice of removal is
filed. (Order at, p. 14-15).
However, in applying the facts of this case to that
holding, we find that the bankruptcy court improperly excluded
the fact of GJR's nondischargeability claim its jurisdictional
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analysis. The bankruptcy court refused to consider GJR's
adversary complaint in its analysis because doing so violated
what it deemed the "snapshot in time rule".3
We agree with Defendant-Appellant, however, that GJR's claim
for nondischargeability existed at the time of removal and should
have been considered in the court's analysis. The alleged facts
supporting GJR's nondischargeability complaint were known to the
parties at the time that GJR removed the case to federal court.
In its nondischargeability complaint, GJR has alleged that Mr.
Cujas' conduct prior to and immediately following Mr. McCoy's
death was willful and malicious. As a result, should Plaintiff
succeed at trial, any monetary judgment entered against GJR, due
to the actions of Mr. Cujas, would be the result of willful and
malicious injury caused by Mr. Cujas against GJR. (Adversary
Complaint, 121). Pursuant to § 523 (a) (6) of the Bankruptcy Code,
a monetary judgment is nondischargeable if it is a debt for
willful and malicious injury. See 11 U.S.C. § 523(a)(6).
Indeed, GJR's basis for alleging that Mr. Cujas' conduct was
willful and malicious stems from facts that have been alleged by
Plaintiff regarding Mr. Cujas' conduct.4
When Mr. Cujas filed his bankruptcy petition in the United
3A1though GJR had filed its notice of removal on June 27, 2007,
its nondischargeability suit was not filed until August 1, 2007.
4See Appellee's Motion for Leave of Court to Amend the Ad Damnum
Clause of the Complaint to Include a Claim for Punitive Damages 1 4,
n. 3.
8
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States Bankruptcy Court for the Western District of Pennsylvania,
his creditors were notified of their right to object to the
discharge of his debts.5 The fact that Mr. Cujas' creditors
might have challenged his right to discharge was clearly
contemplated by his home bankruptcy court at the time he filed
his petition. Thus, we believe that GJR's nondischargeable claim
became fixed as of the date that Mr. Cujas filed his petition
bankruptcy petition.6 As the court in In re James has explained,
discharge of one's debts is not automatic:
The filing of a petition in bankruptcy operates as an
application for a discharge. That discharge is of course,
retroactive to the date of the filing of the petition and
discharges the bankrupt from all "dischargeable debts."
Those dischargeable debts were fixed as of the date of the
filing of the petition in bankruptcy. Of course,
declarations of the effect of the discharge occur
thereafter, but the critical date is the date of the
filing of the petition applying for a discharge. If then
the rights of the parties were vested, the subsequent
repealer does not operate to change...the relationship
between the parties.
In re James, 4 B.R. 115, 117-18 (Bankr. W.D. Pa. 1980).
Because of the retroactive effect of the filing of a
bankruptcy petition as it pertains to the potential claims of a
*The bankruptcy court's clerk informed all parties that the
deadline for filing a complaint objecting to Mr. Cujas' discharge was
August 27, 2007. GJR timely filed its adversary against Mr. Cujas on
August 1, 2007.
6See Section 101(5) of the Bankruptcy Code defining a claim
as "right to payment, whether or not such right is reduced to
judgment, liquidated, unliquidated, fixed, contingent, matured,
unmatured, disputed, undisputed, legal, equitable, secured or
unsecured. 11 U.S.C. § 101(5).
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debtor's creditors, we believe that the GJR's claim seeking
judicial determination that Mr. Cujas' debt is nondischargeable
fixed as of the date of the filing of his bankruptcy petition.
Moreover, the claim for nondischargeability pursuant to 11 U.S.C.
§ 523 (a) (6) that GJR has filed against Mr. Cujas necessarily
involves pre-removal facts. For those reasons, we believe that
the nondischargeability claim should have been considered in the
bankruptcy court's jurisdictional analysis.
As we have noted, the test to determine whether an action is
"related to" a bankruptcy case is "whether the outcome of the
proceeding could conceivably have any effect on the estate being
administered in bankruptcy". Halper v. Halper. 164 F.3d 830, 837
(3d. Cir. 1999)(quoting Pacor. 743 F.2d at 994). Under these
circumstances, we find that the wrongful death action is
sufficiently related to the bankruptcy case to grant
jurisdiction.
While we recognize that Plaintiff has waived her right to
collect any non-dischargeable claims against Mr. Cujas7, Mr.
Cujas has not been relieved of his liability to GJR if Plaintiff
succeeds at trial. Should Plaintiff prove that Mr. Cujas'
conduct was willful and malicious, the same conduct that GJR's
must prove its adversary claim against Mr. Cujas, his ability to
be relieved of his debts (which is the aim of a chapter 7 filing)
7See Plaintiff-Appellee's Brief, at p. 12.
10
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that when a bankruptcy court is simultaneously confronted with
(1) a motion to transfer or change venue of an action which has
been removed to it pursuant to 28 U.S.C. § 1452 (a) and (2) a
motion to remand or otherwise abstain from hearing the change of
venue action pursuant to 28 U.S.C. § 1334 (c), the action should
be transferred to the home court of the bankruptcy to decide the
issue of whether to remand or abstain from hearing the action.
See e.g. Stanrni y. Rapco Foam, Inc. 21 B.R. 715, (Bankr. W.D. Pa.
1982); In re Allegheny Health. 199 WL 1033566 at *1 (Bankr. E.D.
Pa. 1999); Everett v. Friedman's Inc., 329 B.R. 40, 41 (E.D.
Miss. 2005); In re Aztec Industries. Inc., 84 B.R. 464, 467 (N.D.
Ohio 1987).
In Stamm, the plaintiff filed a complaint against the
defendant in the United States District Court for the Western
District of Pennsylvania. Thereafter, the defendant filed a
bankruptcy petition under Chapter 11 of the Code in South
Carolina. The defendant-debtor then filed an application for
removal in the United States Bankruptcy Court for the Western
District of Pennsylvania. The defendant-debtor also filed in
that court a motion to transfer the district court action to the
United States Bankruptcy Court for the District of South
Carolina. The United States Bankruptcy court for the Western
District of Pennsylvania, in transferring the case to the
bankruptcy court in South Carolina explained:
12
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The local bankruptcy court is the most convenient court to
receive removal petitions and acts as the first court to
review them. If it is also the "home" court [where the
bankruptcy case was commenced], it will decide whether to
hear the matter or remand it to the district court pursuant
to Section 1478 (b). If the local district court is not the
"home court", it should transfer the case to the "home
court".
Id. at 735.
This preference for transferring the case to the "home
court" to determine venue is rooted in the logical conclusion
that the "home court" is in the best position to evaluate the
claims and determine whether remand is appropriate. Id. at 724.
This is particularly appropriate when the court to which the case
has been removed has no interest in the proceedings but for the
operation of section 1478 (a) mandating that removal of a state
court action be to the bankruptcy court in the district in which
the civil action is pending. Id; see also DVI Financial
Services, Inc. v. Cardiovascular Labratories, Inc., 2004 Lexis
353 at *12.
For reasons which we have discussed, the Untied States
District Court for the Western District of Pennsylvania has an
overwhelming interest in these proceedings. Thus, transferring
the case to that court to evaluate the issue of remand is most
appropriate.
13
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Conclusion
For the reasons that we that we have stated, this court is
of the view that the removal was not deficient from a procedural
or jurisdictional standpoint. Thus, the court is not persuaded
that any impediment existed as to consideration of Defendant-
Appellant's motion to transfer. And, relying on the weight of
authority in this district and in an effort to promote judicial
economy, we conclude that the United States District Court for
the Western District of Pennsylvania (the "home court") remains
in the best position to determine if the case should remain in
federal court. Therefore, we remand the case to the bankruptcy
court with instructions to transfer the case to the United States
District Court for the Western District of Pennsylvania so it may
decide if remand is appropriate. An order follows.
14
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IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
GEORGE JUNIOR REPUBLIC
IN PENNSYLVANIA
Defendant-Appellant
v.
FRANCES WILLIAMS,
Administratrix of the Estate of
Nathaniel M. McCoy
Plaintiff-Appellee
ORDER
CIVIL ACTION
No. 07-4537
Appeal from Bankr. Adv,
No. 07-00228
Joyner, J. March , 2008
AND NOW, this 19th day of March, 2008, upon consideration of
Appellant GJR's Appeal from the September 27, 2007 Opinion and
Order of the Bankruptcy Court for the United States District
Court for the Eastern District of Pennsylvania, it is hereby
ORDERED that the Decision rendered therein granting Plaintiff's
Motion for Remand is REVERSED for the reasons set forth in the
preceding Memorandum Opinion and this matter is REMANDED to the
Bankruptcy Court with instructions to transfer the action to the
United States District Court for the Western District of
15
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Pennsylvania to determine whether remand of the action to state
court is appropriate.
BY THE COURT:
s/J. Curtis Jovn.er
J. CURTIS JOYNER, J.
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