MAYAGUEZ MEDICAL CENTER DR RAMON E BETANCES INC v. MEDICAL EDUCATIONAL AND HEALTH SERVICES INC

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IN THE UNITED STATES BANKRUPTCY COURT FOR
THE DISTRICT OF PUERTO RICO
IN RE:
MEDICAL EDUCATIONAL & HEALTH
SERVICES, INC. 	CASE NO. 10-04905 BKT
DEBTOR
Chapter 11
MEDICAL EDUCATIONAL & HEALTH
SERVICES, INC.
PLAINTIFFS
VS.
ADV. NO.: 10-202
SISTEMAS INTEGRADOS DE SALUD DEL
SUROESTE, INC. & MAYAGUEZ MEDICAL
CENTER-DR. RAMON EMETERIO BETANCES,
INC.
DEFENDANTS
FILED & ENTERED ON 02/10/2011
OPINION AND ORDER
This proceeding is before the Court upon the Movant's notice of removal
[Dkt. No. 1], the Respondent's opposition [Dkt. No. 4], the Movant's sur reply
[Dkt. No. 11], and the Respondent's sur reply [Dkt. No. 18]. 	For the reasons set
forth below, this Court remands the lawsuit to the Commonwealth of Puerto Rico’s
Court of First Instance, Superior Court of Mayaguez.
I. FACTUAL BACKGROUND
The 	Defendant 	in 	the 	present 	action, 	Medical 	Educational 	and 	Health
Services, Inc. (“Defendant” or “MEDHS”) filed a motion for possessory injunction
on 	behalf 	of 	Debtor, 	Mayaguez 	Advanced 	Radiotherapy 	Center, 	Inc. 	(“MARC”),
against Sistemas Integrados de Salud del Suroeste, Inc. (“SISSO”) and Mayaguez
Medical 	Center 	(“MMC”) 	in 	the 	Commonwealth 	of 	Puerto 	Rico’s 	Court 	of 	First
Instance, Superior Court of Mayaguez (“the state action”). 	The complaint in the
state action avers that MARC leased a radio-oncology laboratory from MMC and that
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MMC 	improperly 	revoked 	that 	lease, 	dispossessing 	MEDHS 	and 	MARC 	of 	their
possessory interest therein. 	Specifically, the possessory rights involve the use
of parking facilities for its employees and access to a lateral entrance directly
into MARC’s facility located on MMC’s premises used by the facility’s cancer
patients. 	In the state action, MEDHS seeks a possessory injunction against SISSO
and MMC under section 690 of the Puerto Rico Code of Civil Procedure, 32 L.P.R.A.
§ 3561. 	MEDHS filed the present adversary proceeding seeking to remove the state
action to this Court under 28 U.S.C. § 1452 and Bankruptcy Rule 9028. 	In its
Notice of Removal, MEDHS argues that the bankruptcy removal statute, 28 U.S.C. §
1452(a), grants defendants the right to “remove any claim or cause of action in a
civil action […] to the district court for the district where such civil action
is pending, if such district court has jurisdiction of such claim or cause of
action under section 1334 of this title.” 	The matter is submitted.
II. JURISDICTION
Section 1334 of title 28, sets up two main categories of bankruptcy cases
over which the district court has jurisdiction. 	The first category is “cases
under 	title 	11,” 	over 	which 	the 	district 	court 	has 	original 	and 	exclusive
jurisdiction 	pursuant 	to 	28 	U.S.C. 	§ 	1334(a) 	(i.e., 	bankruptcy 	petitions
themselves). 	The second category is delineated into three distinct subcategories
of civil proceedings in which the district court has original, but not exclusive,
jurisdiction: proceedings “arising under” title 11; proceedings “arising in”
bankruptcy cases; and cases “related to” cases brought under title 11. 	28 U.S.C.
§ 1334(b); In re Middlesex Power Equipment & Marine Inc., 292 F.3d 61, 66 (1st
Cir. 	2002). 	The 	“arising 	under” 	language 	of 	§ 	1334(b) 	is 	analogous 	to 	the
“arising 	under” 	language 	in 	28 	U.S.C. 	§ 	1331. 	1 	Collier 	on 	Bankruptcy, 	¶
3.01[4][c][i], at 3-21. 	It is commonly said that “arising under” proceedings are
generally 	cases 	in 	which 	the 	cause 	of 	action 	is 	created 	by 	title 	11. 	Id.
Because the Plaintiffs in the state action seek relief under state law, the state
action 	cannot 	be 	said 	to 	“arise 	under” 	title 	11. 	“Arising 	in” 	proceedings
generally “are those that are not based on any right expressly created by title
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11, 	but 	nevertheless, 	would 	have 	no 	existence 	outside 	of 	the 	bankruptcy.”
Middlesex, 292 F.3d at 68 (quoting Wood v. Wood (In re Wood), 825 F.2d 90, 97
(5th Cir. 1987)). 	The cause of action in the state action is not expressly
created by title 11, but it would have existence outside of bankruptcy, since the
parties 	could 	have 	had 	this 	dispute 	regardless 	of 	the 	Debtor’s 	bankruptcy.
Accordingly, the state action cannot be said to either “arise under” title 11 or
“arise in” a bankruptcy case for jurisdiction purposes.
A civil proceeding is "related to" a bankruptcy case, for jurisdictional
purposes, when the action between the parties (1) affects how much property is
available for distribution to creditors of the bankruptcy estate or allocation of
property 	among 	such 	creditors; 	(2) 	could 	alter 	the 	debtor’s 	rights 	or
liabilities; 	or 	(3) 	could 	conceivably 	have 	any 	effect 	on 	the 	estate 	being
administered. 	In re G.S.F. Corp., 938 F.2d 1467, 1475 (1st Cir. 1991) (citing
Pacor, 	Inc. 	v. 	Higgins, 	743 	F.2d 	984, 	994 	(3rd 	Cir. 	1984)). 	“Related 	to"
jurisdiction is limited, in that it assumes that the matter does not ‘arise in’
the case at hand and therefore it requires some other nexus vis-à-vis the estate
involved. 	Here, the determination of the Debtor’s possessory interest in the
lease agreement “relates to” the main bankruptcy case in that it will directly
affect the debtor’s rights and liabilities, since it is the main asset of the
Debtor’s estate.
III. CORE VS. NON-CORE
The restructuring of debtor-creditor relationships is at the core of the
federal bankruptcy power, but the adjudication of state-created private rights is
not. Northern Pipeline Constr. Co. v. Marathon Pipeline Co., 458 U.S. 50, 71
(1982). 	The 	First 	Circuit 	further 	defines 	non-core 	proceedings 	as 	“claims
concerned only with state law issues that did not arise in the core bankruptcy
function of adjudicating debtor-creditor rights, referring to them as ‘Marathon-
type suits.’” In re Arnold Print Works, Inc., 815 F.2d at 167 (quoting 130 Cong.
Rec. H1848 (daily ed. March 21, 1984) (statement of Representative Kindness)).
The court in Arnold Print Works based its decision on Marathon, stating that:
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“[n]on-core proceedings, those that the statute calls ‘related to’ bankruptcy
cases, concern aspects of the bankruptcy case that Marathon barred non-Article
III judges from determining on their own.” 	Id.
SISSO maintains that, even if this Court were to determine that subject
matter 	jurisdiction 	exists, 	the 	lawsuit 	is 	a 	non-core 	proceeding 	subject 	to
mandatory abstention under 28 U.S.C. § 1334(c)(2) because the basis of the suit
rests solely on Commonwealth law, and it would not have been brought in federal
court absent the bankruptcy case. 	Such matters, SISSO states, are clearly better
suited for determination by the Commonwealth Courts. 	This Court has determined
that it has jurisdiction over the present controversy by virtue of “related to”
jurisdiction, but by its very definition, “related to” jurisdiction only applies
in non-core matters as an alternative basis of jurisdiction. A bankruptcy court’s
power to hear and determine non-core matters is limited. 	Section 157(c)(1)
provides that if a proceeding is non-core, but otherwise related to a case under
title 11, a bankruptcy court may hear the proceeding but may not enter a final
order or judgment. 	Instead, the bankruptcy court submits proposed findings of
fact and conclusions of law to the district court which, after consideration,
enters a final order or judgment. 	However, the bankruptcy court may enter a
final order or judgment with respect to a non-core, but related proceeding if all
parties consent. See, 28 U.S.C. § 157(c)(2). 	SISSO does not consent to have
this claim adjudicated by the bankruptcy court.
IV. ABSTENTION
Our analysis now turns to whether this Court should abstain from hearing
this proceeding altogether, even though jurisdiction has been established over
the 	controversy. 	28 	U.S.C. 	§ 	1334(c) 	provides 	for 	two 	types 	of 	abstention,
mandatory and discretionary (sometimes referred to as permissive). Mandatory
abstention under section 1334(c)(2) provides that:
“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
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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)(2).
“Pursuant to section 1334(c)(2), the ‘district court must abstain from
hearing 	a 	purely 	state 	law 	claim 	where 	there 	is 	no 	other 	basis 	for 	federal
jurisdiction other than its relatedness to a bankruptcy proceeding (including one
where the debtor is a party) and where the claim can be timely adjudicated in
state court.’” 	In re Interamericas Turnkey Development Co., Inc., 94 B.R. 9, 13
(Bankr. D.Puerto Rico 1988), citing Matter of Candelero Sand & Gravel, 66 B.R.
903, 907-08 (Bankr. D.Puerto Rico 1986) (quoting State Bank of Lombard v. Chart
House, 46 B.R. 468, 472 (Bankr. N.D. Ill. 1985)); see also Goya Foods v. Unanue-
Casal (In re Unanue-Casal), 164 B.R. 216, 222-23 (Bankr. D.Puerto Rico 1993)
(discussing requirements for mandatory abstention), aff'd., 32 F.3d 561 (1st Cir.
1994), 	In 	re 	Punto 	Aparte, 	2009 	WL 	249429 	(Bankr. 	D.Puerto 	Rico 	2009).
Therefore, in order for mandatory abstention to apply, the proceeding must: 1) be
based on a State law claim or cause of action; 2) lack a federal jurisdictional
basis absent the bankruptcy; 3) be commenced in a state forum of appropriate
jurisdiction; 	4) 	be 	capable 	of 	timely 	adjudication; 	and 	5) 	be 	a 	non-core
proceeding. 	28 U.S.C. § 1334(c)(2).
The present action is a non-core proceeding that stems from Commonwealth
law, lacks a federal jurisdictional basis outside of bankruptcy, and in the
absence of bankruptcy, could be timely resolved in the state court where it was
commenced.
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V. CONCLUSION
Having found that all of the factors for mandatory abstention under 28
U.S.C. § 1334(c)(2) apply to the present controversy, this Court remands the
lawsuit to the Commonwealth of Puerto Rico’s Court of First Instance, Superior
Court of Mayaguez.
SO ORDERED.
San Juan, Puerto Rico, this 10 day of February, 2011.
Brian K. Tester
U.S. Bankruptcy Judge
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