Rodriguez et al v. Brutsche et al

UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF NEW MEXICO
In re:
RALPH LEO BRUTSCHE,
Debtor. 	No. 11-11-13326 SA
PERFECTO RODRIGUEZ,
et al.
v 	Adv. No. 11-1178 S
RALPH LEO BRUTSCHE and
SUMMIT PROPERTIES, INC.,
Defendants.
MEMORANDUM OPINION IN SUPPORT OF ORDER GRANTING MOTION
TO REMAND, ABSTAIN AND FOR STAY RELIEF (doc 19)
Plaintiffs’ Motion to Remand, Abstain and for Relief from
Automatic Stay (doc 19) (“Motion”) came before the Court for the
final hearing on January 24, 2012. 	The Motion seeks, inter alia,
to have this Court send back to the First Judicial District
Court, County of Santa Fe, State of New Mexico (“State Court”)
that certain action pending in the State Court styled and
numbered Rodriguez et al. v. Brutsche et al., D101-CV-2009-03580
(“State Court Action”). 	Having considered the evidence and the
arguments of the parties, the Court rules that it should abstain
from hearing the merits of this controversy and thus will order
that the State Court Action be remanded 1 to the State Court and
1 The Motion also requested stay relief, something
ordinarily to be sought in the underlying case. 	Nevertheless,
for the reasons set forth herein, the Court will grant that
relief also.
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the parties be permitted to continue the litigation in that
court. 2
Background
The State Court Action was filed on November 4, 2009. 	It
concerns a sewer line improperly located on a portion of the
Plaintiffs’ land in 1994 and a settlement agreement reached
between the parties to resolve that problem in 1995. 	The State
Court Action was still pending when on July 22, 2011 Ralph Leo
Brutsche filed his chapter 11 petition initiating his chapter 11
case. 	The State Court Action was timely removed by Brutsche to
this Court on October 20, 2011. 	Doc 1. 	Plaintiffs moved to have
the Court abstain and to remand the State Court Action to the
State Court, and to permit the action to continue there. 	Doc 19.
On June 8, 2012, the Court converted the chapter 11 case to one
under chapter 7 (doc 265), and Ms. Yvette Gonzales was appointed
the case trustee. 	Since then Trustee has filed nothing in the
adversary or the main case to suggest that she takes any
different position on the issues of abstention, remand or
modifying the stay to allow the State Court Action to continue in
the State Court.
Analysis
2 The Court has subject matter and personal jurisdiction
pursuant to 28 U.S.C. §§1334 and 157(b); this is a core
proceeding pursuant to 28 U.S.C. §157(b)(2)(A); and these are
findings of fact and conclusions of law as may be required by
Rule 7052 F.R.B.P.
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Debtor argues for both permissive abstention under
28 U.S.C. §1334(c)(1) and mandatory abstention under 28 U.S.C.
§1334(c)(2). 	That latter section provides as follows:
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.
The adversary proceeding initiating this removal action was
timely filed, F.R.B.P. 9027(a)(2), and following an initial
pretrial conference held on November 9, 2011 (minutes – doc 17;
the order arising out of the status conference was entered
January 3, 2012 – doc 22), Plaintiffs filed the Motion. 	Debtor
responded (doc 20) and Plaintiffs replied (doc 21). 	At the time
of the removal, Plaintiffs’ remaining cause of action was for
trespass against Debtor (now, against the estate) and summit
Properties, Inc., and the Debtor (now the estate) still retained
his counterclaim for specific performance on the 1995 agreement.
Doc 19, at 12. 	These are both eminently state law causes of
action that at best are related matters and not core; indeed,
Debtor conceded that the State Court Action was related to the
bankruptcy case but not core. 	Doc 20, at ¶2. 	While the causes
of action are related to the chapter 7 case, in that the
resolution of the dispute will determine claims against the
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estate and might provide substantial funds to (or generate
additional obligations for) the estate, they are not core
proceedings because the causes of action do not arise under or in
the chapter 11 case. 	See generally Personette v. Kennedy (In re
Midgard Corp.), 204 B.R. 764 (10th Cir. BAP 1997).
It is true that adjudicating the competing claims will
presumably liquidate the claims of the parties against each
other, thereby resulting in the allowance or disallowance of
claims by and against the estate, and in the process affecting
the administration of the estate and otherwise adjusting the
debtor-creditor relationship. 	See 28 U.S.C. §157(b)(2). 	But it
is not sufficient to argue the removed action must stay in the
bankruptcy court because there might be core matters to be
decided. 	Delphi Automotive Systems, LLC v. Segway, Inc., 519
F.Supp.2d 662, 671 (E.D. Mich. 2007)(“The state law claims
asserted in Plaintiff’s complaint predominate over any bankruptcy
issue that may arise due to Plaintiff’s chapter 11 proceeding.”);
Schmidt v. Klein Bank (In re Schmidt), 453 B.R. 346 (8 th Cir. BAP
2011) 	(pending state court causes of action were not core
proceedings notwithstanding that it was possible to place them
within one or more types of “core” proceedings identified in
§157(b)(2)). 	In any event, nothing in §1334(c)(2) allows for
such an exception; that is, if the requirements of §1334(c)(2)
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are met, the Court must abstain, even if what is at issue appears
to include core matters.
This action could not have been commenced in the United
States District Court absent the bankruptcy filing since there is
a lack of diversity: all the parties are New Mexico citizens.
Motion (doc 19) at 6; Response at 1.
Federal diversity jurisdiction requires complete diversity
of the parties. 	28 U.S.C. § 1332(a) 3; McPhail v. Deere & Co.,
529 F.3d 947, 951 (10 th Cir. 2008)(“[T]he citizenship of all
defendants must be different from the citizenship of all
plaintiffs.”); Strawbridge v. Curtiss, 7 U.S. (3 Cranch) 267
(1806)(Same.) 	See also 13E Wright, Miller, Cooper, Freer,
Steinman, Struve and Amar, Federal Practice & Procedure § 3605
(3d ed.). 	Obviously that diversity does not exist here and so
there is no federal jurisdiction outside the bankruptcy filing.
Finally, as the record of the proceedings in the State
Lawsuit filed by Defendants makes clear, the action was commenced
November 4, 2009, over a year and half before the filing of the
chapter 11 petition. 	The State Court Judge, the Honorable Sarah
M. Singleton, has presided over the case since February 12, 2010,
3 	That statute provides in relevant part as follows:
Diversity of citizenship; amount in controversy; costs.
(a) The district courts shall have original
jurisdiction of all civil actions where the matter in
controversy exceeds the sum or value of $75,000,
exclusive of interest and costs, and is between – (1)
citizens of different States....
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see entry for February 12, 2010 on State Court Action docket (doc
2, at 12 of 14), doing virtually all the substantive
adjudications and management of the case, including presiding
over discovery and granting and denying various motions for
summary judgment. 	The State Court also set a jury trial on the
merits, for August 15, 2011. 	See entry for December 21, 2010 on
State Court Action docket (doc 2, at 5 of 14). 	The jury trial
setting was subsequently vacated. 	See entry for June 15, 2011 on
State Court Action docket (doc 2, at 3 of 14). 	The State Court
then set a non-jury trial for September 19, 2011. 	See entry for
June 27, 2011 on State Court Action docket (doc 2, at 2 of 14).
It is apparent that the State Court can try this matter in a
timely fashion. 4
Thus it is clear that this Court must abstain from
adjudicating this state court action which must be remanded to
the State Court Judge for further proceedings.
Given the foregoing analysis, the Court need not consider
whether discretionary abstention under 28 U.S.C. §1334(c)(1) is
applicable. 	Nevertheless, the Court will also address the
discretionary abstention factors.
4 The Court also need not address the parties’ arguments in
connection with Stern v. Marshall, ___ U.S. ___, 131 S. Ct. 2594
(2011), since the Bankruptcy Court will not be adjudicating the
matter.
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The lists of the factors for discretionary abstention
pursuant to 28 U.S.C. §1334(c)(1) are set out in Tsinigi v.
Oakwood Acceptance Corp. (In re Oakwoood Acceptance Corp.), 308
B.R. 81 (Bankr. D. N.M. 2004):
Even assuming arguendo that this Court has core
jurisdiction to determine whether the mobile home is
property of the estate, the Court may remand the case
under the discretionary remand provision, which allows
a court to remand a proceeding on “any equitable
ground.” 	28 U.S.C. § 1452(b). 	The standards used to
determine whether equitable remand is warranted under §
1452(b) are virtually identical to those used to
determine whether discretionary abstention is merited
under § 1334(c)(1). 	See Frelin [v. Oakwood Homes
Corp.], 292 B.R. [369] at 383-84 [(Bankr. E.D. Ark.
2003)] (outlining factors for equitable remand and
discretionary abstention), citing Williams v. Motel 6
Multipurpose, Inc., 120 F.Supp.2d 776, 781 (E.D.Ark.
1998) and Arkansas Dept. of Human Services Div'n of
Medical Services v. Black & White Cab Co., Inc. (In re
Black & White Cab Co., Inc.), 202 B.R. 977 (Bankr.
E.D.Ark. 1996). The factors to consider in
discretionary abstention are:
1. the effect of remand on the efficient administration
of the estate;
2. the extent to which state law issues predominate
over bankruptcy issues;
3. the difficult or unsettled nature of the applicable
law;
4. the presence of a related proceeding commenced in
state court or other non-bankruptcy court;
5. the jurisdictional basis, if any, other than 28
U.S.C. § 1334;
6. the degree of relatedness of the proceeding to the
bankruptcy case;
7. the substance rather than the form of an asserted
“core” proceeding;
8. the feasibility of severing state law claims from
core bankruptcy matters;
9. the burden on the bankruptcy court's docket;
10. the likelihood that the proceeding involves forum
shopping;
11. the existence of a right to jury trial; and
12. the presence of non-debtor parties.
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Frelin, 292 B.R. at 383.
In addition to the factors outlined above, the
Court should consider these factors in considering a
motion to remand under § 1452(b):
1. whether remand serves principles of judicial
economy;
2. whether there is prejudice to parties not removed;
3. whether the remand lessens the possibilities of
inconsistent results; and
4. whether the court where the action originated has
greater expertise.
Id. at 384.
Id. at 86-88. 	The Court will address each factor.
1. 	The effect of remand on the efficient administration of the
estate:
The heart of the chapter 11 case was the reorganization of
the Debtor’s business of developing high-end real estate in Santa
Fe. 	That objective became impossible to meet once the stay was
modified to permit foreclosure on the development property, thus
setting the stage for the conversion of the case to a chapter 7
case. 	Now what remains is for Trustee to finish up litigation
such as this. 	What this adversary proceeding represents is
essentially a defense and collection action by Trustee; that is,
a related proceeding and thus not core. 	The Bankruptcy Court
need not hear it. 	It is true that a successful outcome for the
estate will presumably result in some additional assets for
distribution to creditors or at least the avoidance of additional
liability; an unsuccessful outcome may result in additional
claims against the estate. 	But that only affects the
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distribution to creditors and has little to do with the
administration of the estate.
2. 	The extent to which state law issues predominate over
bankruptcy issues:
As already noted, the matters in dispute are all state law
causes of action.
3. 	The difficult or unsettled nature of the applicable law.
As framed by the parties, it appears that there are no
difficult or unsettled questions of state law.
4. 	The presence of a related proceeding commenced in state
court or other non-bankruptcy court:
This litigation originated in the state court and can easily
be returned there. 	But more to the point, there is no other
related proceeding in any other court that would be adversely
affected by this Court retaining this adversary proceeding.
5. 	The jurisdictional basis, if any, other than 28 U.S.C. §
1334:
As noted, the State Court Action could not have been
commenced directly in the United States District Court pursuant
to 28 U.S.C. §1332(a)(1).
6. 	The degree of relatedness of the proceeding to the
bankruptcy case:
Also as noted, this defense/collection action is a related
proceeding, and not core.
7. 	The substance rather than the form of an asserted “core”
proceeding:
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As noted, despite Defendants’ claims that this litigation is
comprised of at least one core matter (allowance and disallowance
of claims against estate), it is not. 	In re Schmidt.
8. 	The feasibility of severing state law claims from core
bankruptcy matters:
Given that the matters being litigated are all state law
claims and none are core, there is no issue of feasibility.
9. 	The burden on the bankruptcy court's docket:
The Honorable Robert H. Jacobvitz, the bankruptcy judge who
would administer and adjudicate this adversary proceeding should
it remain in the Bankruptcy Court, continues to maintain a very
substantial workload, overseeing a number of complex and time-
consuming cases and writing many detailed and thorough opinions.
And given the current heavy chapter 11 caseload in this district
and on Judge Jacobvitz in particular (contrary to what appears to
be the case in most of the rest of the country), adding to his
caseload with this adversary proceeding would be a hindrance to
the completion of his other work.
10. 	The likelihood that the proceeding involves forum shopping:
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Of course there was “forum shopping” by Debtor’s counsel 5
(who, incidentally, have since been allowed to withdraw, though
not for any reason having to do with this issue – main case, doc
344). 	Any lawyer who is competent should consider whether
litigating in another forum will benefit the client, and if the
benefit is assessed to be substantial enough, should move to
change the forum. 	Thus whether this matter started in another
forum and is now here is basically irrelevant.
11. 	The existence of a right to jury trial:
As noted, the parties stipulated to a bench trial.
12. 	The presence of non-debtor parties:
Other than the chapter 7 estate and Plaintiffs, the
remaining party left in this litigation is Summit Properties,
Inc., a corporation indirectly albeit effectively controlled by
Trustee. 	The parties stipulated to the dismissal of the Santa Fe
Summit Homeowners’ Association from the litigation. 	See
Stipulation of Dismissal with Prejudice of all Claims Against
5 Like the term “fishing expedition” used in the context of
discovery disputes, the term “forum shopping” is more of a
conclusion than a description. 	By definition virtually every
discovery request is a “fishing expedition”, since the party
seeking the discovery is attempting to find something useful.
But when a court uses the term, what the court really means is
that it has decided that the search has exceeded reasonable
bounds. 	Similarly, when a court describes certain activity as
“forum shopping”, the court is in effect announcing a conclusion
that for whatever reason it disapproves of the “shopper’s”
attempt to change the forum.
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Santa Fe Summit Homeowners’ Association dated January 11, 2011
(doc 2 at 4 of 14).
13. 	Whether remand serves principles of judicial economy:
Should this adversary proceeding remain with this Court,
there will need to be a catch-up period for the Court to become
more acquainted with the details of the issues. 	Indeed, if
motions for summary judgment are raised again in the hopes of a
different outcome, the case may have to be tried virtually from
the beginning. 	On the other hand, as the record of the
proceedings in the State Court Action filed by Defendants makes
clear, the action was commenced November 4, 2009, over a year and
half before the filing of the chapter 11 petition, and the State
Court had set a non-jury trial for September 19, 2011. It is
apparent that the State Court can try this matter in a timely
fashion.
14. 	Whether there is prejudice to parties not removed:
Other than Summit Properties, Inc., under the at least
indirect control of the Trustee, there are no other parties to
this litigation. 	There is no prejudice to that company.
15. 	Whether the remand lessens the possibilities of inconsistent
results:
This proceeding is essentially a defense action with a
counterclaim. 	It has little to do with the remainder of the
bankruptcy case except as another matter for the Trustee to clean
up.
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16. 	Whether the court where the action originated has greater
expertise.
State courts routinely deal with trespass and settlement
agreement issues, but expertise on these matters is not
particularly exclusive to the state courts. 	Bankruptcy courts
adjudicate these issues as well.
Reviewing the foregoing sixteen factors, factors 1, 2, 4, 5,
6, 7, 8, 9, 13 and 15 favor abstention and remand, factors 2, 9,
and 13 strongly so. 	Factors 3, 11, 12, 14 and 16 favor this
Court retaining the adversary proceeding, none of them strongly.
Factor 10 is neutral. 	On balance, the factors incline decisively
toward abstention and remand.
Conclusion
Thus, it is clear that this Court must abstain pursuant to
28 U.S.C. §1334(c)(2), and should abstain, pursuant to 28 U.S.C.
§1334(c)(1), from adjudicating this State Court Action.
\
Honorable James S. Starzynski
United States Bankruptcy Judge
Date Entered on Docket: 	October 15, 2012
Copies to:
Edward Alexander Mazel
Former Attorney for Debtor
Arland & Associates, LLC
201 3rd ST NW, STE 505
Albuquerque, NM 87102-3331
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Clifford C Gramer, Jr
Attorney for Creditors
3733 Eubank Blvd NE
Albuquerque, NM 87111-3536
Ralph Leo Brutsche
P.O. Box 2046
Santa Fe, NM 87502
Yvette J. Gonzales
Trustee
PO Box 1037
Placitas, NM 87043-1037
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