Baxter Healthcare Corp. v. Hemex Liquidation Trust

Decision Date23 October 1991
Docket NumberNo. 91 C 2814.,91 C 2814.
Citation132 BR 863
PartiesBAXTER HEALTHCARE CORPORATION, a Delaware Corporation, Plaintiff, v. HEMEX LIQUIDATION TRUST, a Louisiana liquidating trust, as successor to Cicatrix, Inc., f/k/a Hemex Scientific, Inc., a dissolved Louisiana Corporation; Russell C. Chambers, Individually and as Co-Trustee of the Hemex Liquidation Trust; Jerome Klawittner; Julius Tabin; and Edwin Hunter, Individually and as Co-Trustee of the Hemex Liquidation Trust, Defendants.
CourtU.S. District Court — Northern District of Illinois

Marla Susan Persky, Baxter Travenol Laboratories, Inc., Deerfield, Ill. and Prentice Henry Marshall Jr., Sidley & Austin, Chicago, Ill., for plaintiff.

William H. Theis, Chicago, Ill., for defendants.


ALESIA, District Judge.

The court visits this case for the second time, and remarkably, the case is in somewhat the same procedural posture as it was before. For all the parties' litigatory machinations, the court detects no progress in bringing this lawsuit to a just disposition. This action was brought by plaintiff, Baxter Healthcare Corporation ("Baxter"), a Delaware corporation, with its principal place of business in Illinois. The defendants are Hemex Liquidation Trust ("Hemex"), a Louisiana trust, Russell C. Chambers and Edwin Hunter, individually and as co-trustees of Hemex, and Jerome Klawittner and Julius Tabin ("Tabin"), all of whom are citizens of states other than Illinois except Tabin, who is an Illinois citizen. Hemex is a trust created to wind up and liquidate Cicatrix, Inc. ("Cicatrix"), formerly a Louisiana corporation. Cicatrix was originally named Hemex Scientific, Inc.

This case was brought originally in the Circuit Court for the Nineteenth Judicial Circuit, Lake County, Illinois ("Lake County court"). Defendants have undertaken to remove this action to the District Court for the Northern District of Illinois once before, claiming diversity jurisdiction and the fact that Tabin was allegedly joined fraudulently. The court remanded the case to the Lake County court in an order dated March 6, 1991. See Baxter Healthcare Corp. v. Hemex Liquidation Trust, et al., No. 90 C 7194, 1991 WL 223761 (March 6, 1991). Defendants1 have again removed this action pursuant to 28 U.S.C. §§ 1334,2 1441, 1452(a). As a basis for the removal, Hemex states it has filed a voluntary bankruptcy proceeding under Chapter 11 in the United States Bankruptcy Court for the Western District of Louisiana. Hemex argues that the case currently removed to this court is a case "related to a case under title 11 the Louisiana bankruptcy action" and thus this court has jurisdiction under 28 U.S.C. § 1334. After filing the notice of removal, defendants filed a motion to transfer the venue of this action to the Western District of Louisiana pursuant to 28 U.S.C. § 1412.3 Baxter has filed briefs in opposition to the defendants' motion. Baxter has also filed a motion asking this court to abstain from hearing this case and to remand it to the Lake County court. For the following reasons, the court remands this action to the Circuit Court for the Nineteenth Judicial Circuit, Lake County, Illinois. The discussion below necessarily moots the defendants' motion to transfer the venue of this action.


As in our first order, a detailed recitation of facts is unnecessary to decide the motions currently before the court. In Baxter's original state court suit, Baxter seeks a declaratory judgment that it is entitled to the assets in a General Liability Fund and a Product Liability Fund ("Funds"), created by the Asset Purchase Agreement ("Agreement") between Baxter's predecessor corporation, American Hospital Supply Corporation (hereinafter referred to as Baxter) and Hemex Scientific Corporation. The purchase of Hemex Scientific Corporation by Baxter was memorialized in the Agreement. The parties to that Agreement were Baxter, Hemex Scientific Corporation and the four named individual defendants. In the Agreement, defendants made certain warranties to Baxter. One of the warranties made was that ninety-seven percent of the Duromedics prosthetic heart valves developed by Hemex would be of a quality which would be usable or salable at a normal price within two years. Plaintiff states that an important consideration for the purchase of Hemex was the assignment Federal Drug Administration ("FDA") approval of the Duromedics heart valve, the existing inventory of the valves and the patent rights for the valves. Subsequent to the purchase of Hemex by Baxter, some of the Duromedics valves malfunctioned. Baxter contends that the valves that malfunctioned were manufactured prior to the closing of the sale of Hemex to Baxter. After consultations with the FDA, Baxter suspended further distribution of the valves and issued a worldwide recall of all unimplanted Duromedics valves. Baxter claims that it is entitled to the $4,400,000 in the Funds to partially reimburse it for its $10,000,000 loss and to a money judgment for breach of warranty against the defendants for the difference between the amount in the Funds and its loss.


Before this court can properly act upon the defendants' motion to transfer venue, we must examine whether this case is properly removed to the federal district court. If the case is not properly removed, the court lacks jurisdiction to transfer venue. Defendants state as a basis for removal the following statutory sections: 28 U.S.C. §§ 1334, 1441, 1452(a). We examine first section 1452(a) which specifies when a claim related to a bankruptcy case may be removed.

A. Removal under 28 U.S.C. § 1452(a).

Section 1452(a) of title 28 states: "A party may 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." Thus, before a district court may accept the removed action, it must determine whether it has jurisdiction under section 28 U.S.C. § 1334. Section 1334 states:

(a) Except as provided in subsection (b) of this section, the district courts shall have original and exclusive jurisdiction of all cases under title 11.
(b) 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.
(c)(1) Nothing in this section prevents a district court in the interest of justice, or in the interests 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.

Subsection (a) of section 1334 gives the district court original and exclusive jurisdiction over cases under title 11. Title 11 codifies the law of bankruptcy. See 11 U.S.C. § 101 et seq. Baxter's suit is based in state law and asks for declaratory relief based upon an alleged breach of warranty and indemnification agreement. Clearly, such a suit is not a case under the bankruptcy laws. See 1 COLLIER'S ON BANKRUPTCY ¶ 3.01, at 3-20 to 3-21 (Lawrence P. King ed., 15th ed. 1991). Subsection (b) of section 1334 gives the district court original but non-exclusive jurisdiction of civil cases arising in or related to a bankruptcy case. Accordingly, the court must determine if Baxter's suit arises in or is related to Hemex's Louisiana bankruptcy action.

At the outset, we note that Hemex's bankruptcy petition in the Western District of Louisiana has been dismissed. See In re Hemex Liquidation Trust, 129 B.R. 91 (Bankr.W.D.La.1991). Hemex has appealed the decision of the bankruptcy court to the appropriate district court. Had Hemex not appealed the bankruptcy court's determination, our discussion would be short. The case currently removed would not be a related case under 28 U.S.C. § 1334(b) because there would be no corresponding bankruptcy case. Nevertheless, we need not wait for the outcome of Hemex's appeal. While the court agrees with Hemex's contention that Baxter's civil suit is related to Hemex's bankruptcy petition, the court finds it must abstain from considering the civil suit and must remand the suit to the Lake County court. However Hemex's appeal turns out, therefore, Baxter's civil suit will not remain before this court.

Courts generally have adopted an expansive view of the concept of "relatedness," such that "related to" jurisdiction is broadly interpreted. See 1 COLLIER'S ON BANKRUPTCY ¶ 3.01, at 3-20 (Lawrence P. King ed., 15th ed. 1991). The usual rule when "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. . . . An action is related to bankruptcy if the outcome could alter the debtor's rights, liabilities, options, or freedom of action (either positively or negatively) and which in anyway impacts upon the handling and administration of the bankrupt estate." Pacor, Inc. v. Higgins, 743 F.2d 984, 994 (3d Cir.1984) (emphasis original) (citations omitted). The Seventh Circuit Court of Appeals has held that a "`dispute is related to the bankruptcy when it affects the amount of property available for distribution or the allocation of property...

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