Curtis v. Shpak (In re Curtis)

• Decision Date: 18 August 2017
• Docket Number: Adv. No. 6:16–ap–01159–SY,Bk. No. 6:16–bk–15373–SY,BAP No. CC–16–1288–LTaKu
• Citation: 571 B.R. 441
• Parties: IN RE: Malcolm CURTIS and Judith Curtis, Debtors. Malcolm Curtis; Judith Curtis, Appellants, v. Natasha Shpak, Appellee.
• Court: U.S. Bankruptcy Appellate Panel, Ninth Circuit

571 B.R. 441

IN RE: Malcolm CURTIS and Judith Curtis, Debtors.Malcolm Curtis; Judith Curtis, Appellants,

v.Natasha Shpak, Appellee.

BAP No. CC–16–1288–LTaKu

Bk. No. 6:16–bk–15373–SY

Adv. No. 6:16–ap–01159–SY

United States Bankruptcy Appellate Panel of the Ninth Circuit.

Argued and Submitted on June 22, 2017 at Pasadena, California

Filed August 18, 2017

Rebekah L. Parker of the Law Office of Rebekah L. Parker argued for Appellants Malcolm Curtis and Judith Curtis.

Before: LAFFERTY, TAYLOR, and KURTZ, Bankruptcy Judges.

OPINION

LAFFERTY, Bankruptcy Judge:

In this case, the bankruptcy court granted Appellee's motion to strike a notice of removal attempting to transfer a lawsuit pending in the U.S. District Court for the Eastern District of New York to the Bankruptcy Court for the Central District of California.

This appeal presents the question whether 28 U.S.C. § 1452 authorizes removal of a case from a federal district court to a bankruptcy court. We conclude it does not, based on the plain language of the statute. More fundamentally, we conclude that to interpret the statute otherwise would unconstitutionally undermine the district courts' referral power under 28 U.S.C. § 157(a), which was enacted by Congress in 1984 in response to the Supreme Court's holding in Northern Pipeline Construction Co. v. Marathon Pipe Line Co. , 458 U.S. 50, 102 S.Ct. 2858, 73 L.Ed.2d 598 (1982). Accordingly, we AFFIRM.

FACTS

Pre-petition, Malcolm and Judith Curtis and related entities were defendants in a lawsuit filed in 2010 in the U.S. District Court for the Eastern District of New York by Appellee Natasha Shpak and her parents (the "EDNY Lawsuit"). In the EDNY Lawsuit, plaintiffs sought damages of $500,000 for (1) violation of "civil rights law section 80(b)"; (2) breach of contract; (3) fraud—conspiracy; (4) breach of fiduciary duty; (5) unjust enrichment; (6) conversion/replevin; (7) conversion; (8) aiding and abetting breach of fiduciary duty; (9) actual fraudulent conveyance; and (10) constructive fraudulent conveyance, all based on the Curtises' and their son's alleged fraudulent scheme to deprive plaintiffs of valuable restaurant equipment. A jury trial was scheduled in the EDNY Lawsuit for June 20, 2016, but, after defendants' counsel passed away, the court struck the trial date to give defendants time to obtain new counsel.

On June 15, 2016, before a new trial date could be set, the Curtises filed a chapter 11¹ petition in the Bankruptcy Court for the Central District of California. A few days later, they filed a notice of removal of the EDNY Lawsuit to the bankruptcy court where their chapter 11 was pending.

Ms. Shpak subsequently filed a motion to strike the notice of removal and/or to remand the EDNY Lawsuit, arguing that there was no basis under the removal statutes, 28 U.S.C. § 1441 – 1452, to remove a lawsuit from federal district court to bankruptcy court. In the alternative, Ms. Shpak argued that the bankruptcy court should abstain from hearing the matter.

In their opposition, Debtors informed the bankruptcy court that they had filed a "2nd Amended Notice of Removal" removing the EDNY Litigation to the U.S. District Court for the Central District of California ("CACD"). Debtors thus argued that the motion to remand was moot and agreed to dismiss the adversary proceeding and permit CACD to dispose of the matter.

The CACD, however, dismissed without prejudice the EDNY Lawsuit on grounds that the cited authorities ( 28 U.S.C. §§ 1332, 1334, 1446, and 1452 ) did not authorize removal from one federal district court to another and thus the purported "removal" constituted a "meaningless act." Debtors timely appealed the dismissal to the Ninth Circuit Court of Appeals, where the matter remains pending (Case No. 16–56323).

At the hearing on the motion to strike/remand held in August 2016, Debtors' counsel acknowledged CACD's dismissal of the lawsuit and stated that she intended to advise her clients to appeal that dismissal. She then requested that the bankruptcy court dismiss the adversary proceeding, after which she would request that the matter be certified for a direct appeal to the Ninth Circuit Court of Appeals. After hearing argument, the bankruptcy court concluded:

You can't remove a district court lawsuit to another district court or to a bankruptcy court. The way [ 28 U.S.C. §] 1452 works, you remove a civil action to the district court where the civil action is pending. Here the civil action is pending in the United States District Court for the Eastern District of New York.

So, if you technically want to comply with 1452, you have to remove that lawsuit from the United States District Court in the Eastern District of New York to the United States District Court in Eastern District of New York, because that's where the civil action is pending. That's the district. That's a nullity .... You can't remove a district court lawsuit to the district court where the civil action is pending, because you can't remove a lawsuit from [and] to ... the same Court. So this doesn't work.

Based on this reasoning, the bankruptcy court granted the motion to strike the notice of removal, and Debtors timely appealed.

Debtors thereafter requested certification of a direct appeal to the Ninth Circuit Court of Appeals, which was denied by both the bankruptcy court and this Panel.

JURISDICTION

The bankruptcy court had jurisdiction pursuant to 28 U.S.C. §§ 1334 and 157(b)(2)(A). We have jurisdiction under 28 U.S.C. § 158.

ISSUE

Does 28 U.S.C. § 1452 authorize removal of cases from federal district court to bankruptcy court?

STANDARD OF REVIEW

We review de novo the bankruptcy court's interpretation of a federal statute. Etalco, Inc. v. AMK Indus., Inc. (In re Etalco, Inc.) , 273 B.R. 211, 218 (9th Cir. BAP 2001) (federal venue statute). "De novo means review is independent, with no deference given to the trial court's conclusion." Deitz v. Ford (In re Deitz) , 469 B.R. 11, 16 (9th Cir. BAP 2012), aff'd , 760 F.3d 1038 (9th Cir. 2014) (citing Barclay v. Mackenzie (In re AFI Holding, Inc.) , 525 F.3d 700, 702 (9th Cir. 2008) ).

DISCUSSION

28 U.S.C. § 1452 is one of several statutes comprising Chapter 89 of the U.S. Code, which is entitled "District Courts; Removal of Cases from State Courts."² 28 U.S.C. § 1452, the "bankruptcy removal statute," is entitled "Removal of claims related to bankruptcy cases" and provides:

(a) A party may remove any claim or cause of action in a civil action other than a proceeding before the United States Tax Court or a civil action by a governmental unit to enforce such governmental unit's police or regulatory power, 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.

(b) The court to which such claim or cause of action is removed may remand such claim or cause of action on any equitable ground. An order entered under this subsection remanding a claim or cause of action, or a decision to not remand, is not reviewable by appeal or otherwise by the court of appeals under section 158(d), 1291, or 1292 of this title or by the Supreme Court of the United States under section 1254 of this title.

Debtors assert—correctly—that 28 U.S.C. § 1452(a) is designed to further Congress's purpose of centralizing bankruptcy litigation in a federal forum. California Pub. Employees' Ret. Sys. v. WorldCom, Inc. , 368 F.3d 86, 103 (2d Cir. 2004). Citing that policy, Debtors contend that the statute authorizes removal of an action pending in a federal district court to the federal district court or the bankruptcy court in the district where the bankruptcy case is pending. We agree with the bankruptcy court's conclusion that it does not.

Although we have found no Ninth Circuit or other appellate decision on point, numerous trial courts have concluded that 28 U.S.C. § 1452 does not permit removal of cases from federal district court to bankruptcy court. See LMRT Assoc., LC v. MB Airmont Farms, LLC , 447 B.R. 470, 472–73 (E.D. Va. 2011) ; Wellness Int'l Network v. J.P. Morgan Chase Bank, N.A. (In re Sharif) , 407 B.R. 316 (Bankr. N.D. Ill. 2009) ; Doyle v. Mellon Bank, N.A. , 307 B.R. 462, 464 (E.D. Pa. 2004) ; Cornell & Co., Inc. v. Se. Pa. Transp. Auth. (In re Cornell & Co., Inc.) , 203 B.R. 585, 586 (Bankr. E.D. Pa. 1997) ; Mitchell v. Fukuoka Daiei Hawks Baseball Club (In re Mitchell) , 206 B.R. 204, 209 (Bankr. C.D. Cal. 1997) ; Centrust Sav. Bank , 131 B.R. at 67 ; Thomas Steel Corp. v. Bethlehem Rebar Indus., Inc. , 101 B.R. 16, 19 (Bankr. N.D. Ill. 1989). There are virtually no published decisions to the contrary, with the arguable exceptions of Philadelphia Gold Corp. v. Fauzio (In re Philadephia Gold Corp.) , 56 B.R. 87 (Bankr. E.D. Pa. 1985) and MATV–Cable Satellite, Inc. v. Phoenix Leasing, Inc. , 159 B.R. 56 (Bankr. S.D. Fla. 1993), discussed below.

Courts concluding that 28 U.S.C. § 1452 does not permit removal from a federal district court directly to the bankruptcy court cite two reasons: first, the plain language of the statute does not support a contrary conclusion; and second, to interpret the bankruptcy removal statute as Debtors urge would thwart the district courts' power to refer matters to bankruptcy courts. We agree with those courts.

A. The plain language of 28 U.S.C. § 1452 does not support Debtors' interpretation.

28 U.S.C. § 1452 does not authorize removal to a bankruptcy court. The statute authorizes removal "to the district court for the district where such civil action is pending" if the district court has jurisdiction under 28 U.S.C. § 1334. As the bankruptcy court recognized, it is illogical to interpret the bankruptcy removal statute to authorize removal from a district court to the district court in the same district. See In re Mitchell , 206 B.R. at 209 ("It violates the plain language of 28 U.S.C. § 1452(a) to say that an action can be removed 'to district court' when it is already pending in ...