Cook v. El Llano Summit Caja Del Rio, LLC et al

UNITED STATES BANKRUPTCY COURT
DISTRICT OF NEW MEXICO
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06/10/06
Richard P. Cook v. El Llano Summit Caja Del Rio, LLC, et al.
05-01218
Order Granting [5-1] Motion to remand this proceeding to the First Judicial
District Court by Richard P. Cook .
Received on: 2006-03-27 14:04:33.000
2006-03-27 00:00:00.000
2006-03-27 00:00:00.000
Patti Hennessy
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UNITED STATES BANKRUPTCY COURT
DISTRICT OF NEW MEXICO
In re: JEFFERY POTTER, No. 11-05-14071 MS
Debtor.
_____________________________________________________________________________
RICHARD P. COOK,
Plaintiff,
v. Adversary No. 05-1218 M
EL LLANO SUMMIT CAJA DEL RIO, LLC,
a New Mexico Limited Liability Company, and
JEFFERY POTTER,
Defendants.
ORDER GRANTING MOTION TO REMAND
THIS MATTER is before the Court on Richard P. Cook’s Motion to Remand (“Motion”).
Defendant Jeffery Potter objected to the Motion, and the Court held a final hearing on the Motion on
March 15, 2006, after which the Court took the matter under advisement. After considering the
arguments of counsel and reviewing the documents filed in this adversary proceeding, the Court finds
that this removed proceeding is a proceeding over which the Court has “related to” jurisdiction, and
that given the nature and procedural posture of this proceeding, sufficient cause exists to remand this
adversary proceeding to the First Judicial District Court. In reaching this conclusion, the Court
FINDS:
1. In 2003, Richard P. Cook (“Plaintiff”) filed a complaint for foreclosure, declaratory
judgment, and cancellation of instrument against El Llano Summit Caja Del Rio, LLC, a New Mexico
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Limited Liability Company (“El Llano/Caja”), and against Jeffery Potter in the First Judicial District
Court, State of New Mexico, County of Santa Fe, as Cause No. D-101-CV-2003-01251 (“State
Court Action”).
2. Jeffery Potter (“Debtor”) filed a voluntary petition under Chapter 11 of the Bankruptcy
Code on May 19, 2005.
3. The subject of The State Court Action is a promissory note secured by a mortgage on
property located in Santa Fe County, New Mexico.
4. Debtor claims to hold a note and mortgage on the same property which is the subject of the
State Court Action.
5. Debtor has not filed any counter-claims in the State Court Action.
6. Prior to the filing of the Debtor’s bankruptcy proceeding, Plaintiff had filed a motion for
partial summary judgment in the State Court Action, seeking summary judgment on the issue of
foreclosure of the mortgage on the property as a first position lien against the property, and to declare
the principal amount secured by the mortgage immediately due and payable. The motion was not heard
prior to the filing of the Debtor’s bankruptcy proceeding.
7. On June 3, 2005, Debtor filed a notice of automatic stay in the State Court Action.
8. Debtor filed a notice of removal of the State Court Action on September 29, 2005.
9. Plaintiff does not consent to the entry of final orders or judgment by this Court. See
Amended Statement of Richard Cook Pursuant to Fed.R.Bankr.P. 9027(e)(3) - Docket # 2.
10. Plaintiff seeks to remand the State Court Action, solely for the purpose of foreclosing on
the real property which is the subject of the State Court Action. See Motion, ¶ 9. Plaintiff does not
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intend to pursue any individual claims against the Debtor as part of the State Court Action, although in
the event Debtor claims that the note and mortgage he claims against the property which is the subject
of the State Court Action are superior to Plaintiff’s, Plaintiff concedes that Debtor’s claim would have
to be litigated as part of the State Court Action. Id.; Richard Cook’s Reply in Support of Motion to
Remand.
11. Plaintiff filed a proof of claim in Case No. 11-05-14071 MS for an unsecured claim
against the Debtor’s bankruptcy estate. See Claim No. 16. The proof of claim is not based on any
claims raised by Plaintiff in the State Court Action.
12. The Debtor objected to Plaintiff’s proof of claim and asserted a counterclaim against
Plaintiff. See Debtors’ [sic.] Objection to Proof of Claim Filed by Richard Cook and Counter-Claim
Against Richard Cook - Docket # 151 filed in Case No. 11-05-14071 MS. The counter-claim is set
forth in two other state court matters: 1) Valley National Bank v. Jeffery Potter, First Judicial District
Court, State of New Mexico, County of Santa Fe, Cause No. D-0101-CV-2003-00673; and 2) El
Llano Company, Inc., Santa Fe Business Park, LLC, Summit Floormart, LLC, and Richard Cook
v. Summit Investment Company, LLC, Summit Valdes Business Park, LLC, and Jeffery Potter,
First Judicial District Court, State of New Mexico, County of Rio Arriba, Cause No. D-117-CV-
2003-00057. Id.
DISCUSSION
Remand is governed by 28 U.S.C. § 1452(b), which provides, in relevant part:
The court to which such claim or cause of action is removed may remand such claim or cause
of action on any equitable ground.
28 U.S.C. § 1452(b).
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Because remand can be based on “any equitable ground” courts often apply the standards applicable to
the abstention statute when considering whether remand is appropriate. See, e.g., Personette v.
Kennedy (In re Midgard Corp.), 204 B.R. 764, 775 (10th Cir. BAP 1997) (finding that if abstention is
required under 28 U.S.C. § 1334(c)(2), a court should remand the matter to state court); In re
Premier Hotel Development Group, 270 B.R. 243, 258 (Bankr.E.D.Tenn. 2001) (“‘The presence of
factors suggesting discretionary abstention pursuant to 1334(c)(1) and factors requiring mandatory
abstention under 1334(c)(2) provides ample equitable grounds for remand of the lawsuit to state
court.’”) (quoting Roddam v. Metro Loans, Inc. (In re Roddam), 193 B.R. 971, 981 (Bankr.
N.D.Ala. 1996)( citation omitted)); Ernst & Young, LLP v. Devan (In re Merry-go-Round
Enterprises, Inc.), 222 B.R. 254, 256 (D.Md. 1998) (noting that “[s]ome courts have conflated the
concepts of abstention and remand . . . . virtually the same (if not identical) factors have emerged for
judging the propriety of permissive abstention under § 1334(c)(1) as have been articulated for deciding
the propriety of a remand under § 1452(b).”).
Abstention is governed by 28 U.S.C. § 1334(c), which provides:
(1) Nothing in this section prevents a district court in the interest 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.
28 U.S.C. § 1334(c)(1) and (2).
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Section 1334(c)(2) addresses situations where the court must abstain, and pertains only to non-core
proceedings, whereas § 1334(c)(1) allows for permissive abstention from core matters when abstention
best serves the interest of justice, judicial economy, or respect for state law. See Premier Hotel, 270
B.R. at 250 (“Mandatory abstention does not apply to core proceedings . . . “).
“Core” proceedings are proceedings which involve rights created by bankruptcy law, or
which would only arise within a bankruptcy proceeding. Gardner v. United States (In re Gardner),
913 F.2d 1515, 1518 (10th Cir. 1990) (“Core proceedings are proceedings which have no existence
outside of bankruptcy.”) (citation omitted); 28 U.S.C. § 157(2)(A) - (O) (listing matters included within
core proceedings). “Non core” proceedings do not invoke substantive rights created by bankruptcy
law, and can exist independent from the bankruptcy. Wood v. Wood (In re Wood), 825 F.2d 90, 97
(5th Cir. 1987). The bankruptcy court has jurisdiction over non-core proceedings when they are
related to the bankruptcy in that they could conceivably have an effect on the bankruptcy estate.
Gardner, 913 F.2d at 1518 (“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 bankruptcy estate.”) (citing Pacor, Inc. v. Higgins, 743 F.2d 984, 994 (3rd
Cir. 1984) (“[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.”)).
Plaintiff asserts that this is a non-core proceeding, that mandatory abstention applies, that all the
requirements for mandatory abstention have been satisfied, and that remand is, therefore, appropriate.
Debtor opposes remand and contends that the objection to Plaintiff's proof of claim filed in Debtor’s
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bankruptcy proceeding, which involves counterclaims by Debtor against Plaintiff, renders this
proceeding a core-proceeding. Debtor argues further that his counterclaims against Plaintiff are based
on business dealings between Debtor, Plaintiff, and various inter-related business entities, and that all of
the matters are intertwined such that this proceeding is a core proceeding. This Court disagrees.
The State Court Action involves state law issues and does not invoke a substantive right
created under the Bankruptcy Code. Because the State Court Action existed prior to the filing of the
Debtor’s bankruptcy proceeding, it cannot “arise in” a case under Title 11. See In re Schempp Real
Estate, LLC, 303 B.R. 867, 873 (Bankr.D.Colo. 2003) (noting that “by definition, this case, which
was initiated in state court prior to the existence of the bankruptcy case, is not a core proceeding
because it did not arise under title 11 or in a case under title 11.”). Nor does it “arise under” Title 11
because it does not involve rights derived from a provision contained in the Bankruptcy Code. See In
re United Fruit & Vegetable, Inc., 191 B.R. 445, 451 (Bankr.D.Kan. 1996) (stating that “a
proceeding only ‘arises under title 11' if it involves rights derived from a provision of the
Bankruptcy Code.”) (citing Wood, 825 F.2d at 96-97 (emphasis in original) (remaining citations
omitted)). Moreover, the property sought to be foreclosed is not titled in the Debtor. Debtor asserts
that his counterclaims and his objection to Plaintiff’s proof of claim make this a “core” proceeding. It is
correct that the claims adjudication process is central to the bankruptcy process and is clearly a core
matter. See 28 U.S.C. § 157(b)(2)(B) (“Core proceedings include . . . . allowance or disallowance of
claims against the estate.”). See also, Peoples State Bank and Trust Co. v. Krug (In re Krug), 172
B.R. 79, 82 (Bankr.D.Kan. 1994) (noting that “[s]everal courts have held that proceedings which are
basically equivalent to claims litigation are core proceedings.”). Likewise “counterclaims by the estate
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1As discussed in Midgard Corp., 204 B.R. at 774 - 775, there is some disagreement among
courts as to whether abstention may apply to proceedings removed to bankruptcy court. The Tenth
Circuit Bankruptcy Appellate Panel concluded that if abstention is required, a court may remand in
accordance with 28 U.S.C. § 1452(b). Id. at 775. See also, Allen v. J.K. Harris & Co., LLC, 331
B.R. 634, 639 (E.D.Pa. 2005) (same).
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against persons filing claims against the estate” are core proceedings under 28 U.S.C. § 157(b)(2)(C).
However, neither Plaintiff’s proof of claim, nor the counterclaims raised by Debtor in his objection to
Plaintiff’s proof of claim directly relate to this State Court Action. No counterclaims were filed in the
State Court Action as of the date of the removal. The counterclaims raised by Debtor in his objection
to Plaintiff’s proof of claim are stated in two separate state court matters. Debtor’s assertion that his
claims and counterclaims are so intertwined as to bring those claims, and, by association, the State
Court Action under the umbrella of core bankruptcy jurisdiction fails to make the State Court Action a
core proceeding. As the bankruptcy court in Schempp observed,
[l]itigants cannot create core jurisdiction that does not otherwise exist . . . . The Court’s remand
analysis must focus on the case as it was postured at the time of removal, so whether . . . the
debtor has counterclaims that may be stated as [causes of action created by the Bankruptcy
Code] . . . has no relevance to the character of the Court’s jurisdiction or whether remand is
appropriate.
Schempp, 303 B.R. at 873 (citations omitted).
Clearly at the time the State Court Action was removed, Debtor had not asserted any counterclaims in
the State Court Action. The State Court Action is, therefore, non-core.
Because this is a non-core proceeding, mandatory abstention factors may be relevant to
determining the propriety of remand.1 Under 28 U.S.C. § 1334(c)(2), the Court must abstain from
hearing a matter when the following six requirements are satisfied: 1) the motion to abstain was timely;
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2That section provides:
Notwithstanding any Act of Congress that confers exclusive jurisdiction on a court or
courts other than the district courts, 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)(1) (emphasis added).
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2) the action is based on state law; 3) an action has been commenced in state court; 4) the action can
be timely adjudicated in state court; 5) there is no independent basis for federal jurisdiction other than
the bankruptcy; and 6) the matter is non-core. See Midgard Corp., 204 B.R. at 776-778 (10th Cir.
BAP 1997). All of these elements are present, although the first factor is not strictly applicable
because Plaintiff seeks remand, not abstention.
Debtor filed a notice of removal on September 29, 2005. On November 21, 2005, Plaintiff
filed his Motion. The Motion was filed less than two months after the matter was removed, and prior to
the date set by the Court for a status conference for the removed case. The Court, therefore finds, to
the extent necessary, that the Motion was timely. Elements 2) and 3) are likewise easily satisfied: the
State Court Action was pending before the matter was removed to this Court, and all of the claims
asserted in the State Court Action are based on state law. None of the claims raise a federal question,
nor are the parties to the State Court Action from different state jurisdictions which would create
federal jurisdiction based on diversity; therefore, no federal jurisdiction for this proceeding exists other
than the limited federal jurisdiction that arises by virtue of the bankruptcy and the application of 28
U.S.C. § 1334(b)(1).2
Relevant to the consideration of whether an action can be timely adjudicated in state court is
the extent to which allowing the case to go forward in state court will have an adverse effect on the
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administration of the bankruptcy case. Schempp, 303 B.R. at 874. Some or all of the following
factors may be relevant to this issue:
(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; (6) whether a jury demand has been made; and (7) whether the
underlying bankruptcy case is a reorganization or liquidation case.
Midgard, 204 B.R. at 778-779.
At the time the State Court Action was removed, the State Court Action had been pending for
over two years, and Plaintiff had filed a motion for summary judgment. Absent the filing of the
bankruptcy, the State Court Action would have proceeded in its normal course. The record of the
State Court Action indicates that several of the state court judges assigned to the State Court Action
were either excused upon request by Debtor or recused themselves, and there appear to be unresolved
discovery disputes that have caused some delay. The record also indicates that the Debtor has had
several changes in counsel which may also have contributed to the delay. Despite these delays, there is
no indication that the State Court Action cannot now be timely adjudicated in state court. The matter is
poised for adjudication of Plaintiff’s motion for partial summary judgment. In addition, Plaintiff has
indicated that it does not consent to the entry of a final judgment by the bankruptcy court. Thus even if
the Court were to retain this adversary proceeding, it could not fully resolve the case and could only
make proposed findings of fact and conclusions of law to the district court in accordance with 28
U.S.C. § 157(c). Nor will the resolution of the State Court Action have an adverse effect on the
administration of the Debtor’s bankruptcy proceeding. The State Court Action seeks to foreclose on
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3The Court is aware that the members of El Lano/Caja limited liability include limited liability
companies in which the Debtor is managing member.
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certain real property that is not titled in the name of the Debtor.3 The Court therefore finds that the
requirement for a timely adjudication in state court has been satisfied.
Finally, as discussed in greater detail above, the matter is non-core. “A case which has been
commenced in state court is, by definition, a non-core proceeding (at best, “related to”) because
‘[a]ctions . . . which could proceed in another court are not core proceedings.’” Schempp, 303 B.R. at
873 (quoting Gardner, 913 F.2d at 1518)).
Based on the foregoing, the Court concludes that remand is appropriate.
WHEREFORE, IT IS HEREBY ORDERED that the Motion is GRANTED. This proceeding
is hereby remanded to the First Judicial District Court, State of New Mexico, County of Santa Fe.
________________________________________
MARK B. McFEELEY
United States Bankruptcy Judge
I certify that on the date shown on the attached document verification, a true and correct copy of
the foregoing was either electronically transmitted, faxed, delivered or mailed to the listed counsel
and/or parties.
Grey Handy Martin Friedlander
Paula Cook Attorney for El Lano Summit Caja Del Rio
Attorneys for Plaintiff 10350 Wilshire Blvd. Suite 603
PO Box 669 Los Angeles, CA 90024-4717
Santa Fe, NM 87504
Chris Pierce
Attorney for Defendant Jeffery Potter ____________________________
PO Box 6 Patti G. Hennessy
Albuquerque, NM 87103 Law Clerk
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