Health for Life Brands, Inc. v. Powley

• Decision Date: 05 November 2002
• Docket Number: No. 1 CA-CV 01-0242.,1 CA-CV 01-0242.
• Citation: 57 P.3d 726,203 Ariz. 536
• Parties: HEALTH FOR LIFE BRANDS, INC., a Delaware corporation, Plaintiff-Appellee, and Larry Weber, Third Party Defendant-Appellee, v. David M. POWLEY and Caroline Powley, husband and wife, Defendants-Third Party Plaintiffs-Appellants.
• Court: Arizona Court of Appeals

57 P.3d 726

203 Ariz. 536

HEALTH FOR LIFE BRANDS, INC., a Delaware corporation, Plaintiff-Appellee, and Larry Weber, Third Party Defendant-Appellee, v. David M. POWLEY and Caroline Powley, husband and wife, Defendants-Third Party Plaintiffs-Appellants.

No. -0242.

Court of Appeals of Arizona, Division 1, Department B.

November 5, 2002.

Squire, Sanders & Dempsey, L.L.P. by Donald A. Wall Kimberly J. Cilke, Phoenix, Attorneys for Plaintiff-Appellee and Third Party Defendant-Appellee.

Richard L. Hoffman, Mesa, Attorney for Defendants-Third Party Plaintiffs-Appellants.

OPINION

GEMMILL, Judge.

¶ 1 After a case has been removed from superior court to federal district court, transferred to bankruptcy court and then remanded to superior court, does the superior court have authority to proceed with the case if the bankruptcy court clerk did not mail a copy of the order of remand to superior court? Appellants David Powley and Caroline Powley contend that the superior court proceeded without subject matter jurisdiction. For the reasons set forth in this opinion, we hold that the superior court regained its power to proceed with this case when the bankruptcy court entered the order of remand. The Powleys also argue that the superior court erred in failing to conduct a jury trial, but we conclude that the court appropriately allowed Appellees Health for Life Brands, Inc. ("HFL") and Larry Weber to withdraw their jury trial demand. Accordingly, we affirm.

FACTS AND PROCEDURAL HISTORY

¶ 2 The Powleys purchased stock in Health for Life Brands of Arizona, Inc. ("HFLAZ") from HFL. To accomplish the stock purchase, the Powleys signed a stock purchase agreement with HFL and also personally guaranteed payment to HFL of certain obligations of HFLAZ. Alleging that the Powleys failed to pay the promised amounts, HFL filed a breach of contract action in June 1998 against the Powleys in Maricopa County Superior Court. The Powleys answered, counterclaimed against HFL, and brought a third party action against Larry Weber, president of HFL.¹ HFLAZ was not a party in the superior court action.

¶ 3 In July 1998, HFLAZ filed for Chapter 11 protection in federal bankruptcy court. The Powleys then filed a notice of removal of this case to the United States District Court for the District of Arizona. The notice asserted that removal was justified under 28 U.S.C. § 1452 (1994) because the case was related to the pending HFLAZ bankruptcy proceeding.

¶ 4 Following removal, the federal district court transferred the case to the bankruptcy court because of the alleged relationship with the HFLAZ bankruptcy. HFL filed a motion asking the bankruptcy court to remand the case to the superior court. The bankruptcy court concluded that the action did not arise under bankruptcy law and was not sufficiently related to the HFLAZ bankruptcy to support federal jurisdiction and therefore granted the motion to remand. The written order of remand was entered in the bankruptcy court docket on January 3, 2000, but there is no record that a copy was mailed to the superior court.²

¶ 5 In January 2000, HFL filed in superior court a motion for partial summary judgment on the contract claim. In a minute entry filed March 17, 2000, the court acknowledged receipt of HFL's motion but noted that the action had been removed and that the case "has not been remanded back to Superior Court. Court staff has determined in conversation with District Court personnel that this matter was terminated in the District Court on September 14, 1999, and referred to the Bankruptcy Court.... Bankruptcy Court personnel advise that the bankruptcy case is still open." The court ordered that the case be placed on the inactive calendar for dismissal on June 15, 2000 and stated that the matter is "currently within the jurisdiction of the Bankruptcy Court and presumably subject to the automatic stay."

¶ 6 The next document in the record from superior court is a response by the Powleys to HFL's motion for partial summary judgment, filed in April 2000. The record does not reveal if HFL's motion was denied, withdrawn, or simply abandoned. Nor does the record contain any specific explanation or correction of the court's statement in the March 17, 2000 minute entry that the case was still within the jurisdiction of the bankruptcy court. In July 2000, HFL filed a Motion to Set and Certificate of Readiness.³ The trial court then set the matter for trial to a jury commencing on January 31, 2001.

¶ 7 In November 2000, counsel for the Powleys filed an application for withdrawal as counsel, supported by an affidavit of counsel and the signatures of the Powleys. The application recited, immediately above the Powleys' signatures, that the "undersigned" were "advised of the trial date of January 31, 2001 and all other pending deadlines set in this matter and have made suitable arrangements to be prepared for trial" and that they consented to the withdrawal of their attorney. The court approved the application for withdrawal of counsel.

¶ 8 Thereafter, the Powleys failed to submit a list of witnesses and exhibits, failed to participate in the preparation of a pretrial statement, and failed to appear for trial on January 31, 2001. Although HFL had previously demanded a jury trial, it agreed in open court on January 31, 2001 to proceed without a jury. The court accepted this unilateral withdrawal of the jury trial demand and conducted a bench trial. At the conclusion of trial, the court resolved the claims in HFL's favor and entered a judgment. Our review of the record reveals no objection by the Powleys to the jurisdiction of the superior court, from the time of entry of the remand order in January 2000 until after the trial in January 2001. The Powleys filed post-trial motions for relief from judgment and for a new trial, challenging the jurisdiction of the superior court. These motions were denied, and this appeal followed.

THE SUPERIOR COURT'S POWER TO PROCEED

¶ 9 The Powleys argue that the bankruptcy court retained jurisdiction over this case and therefore the superior court had no power to proceed, with the result that the judgment against them is void and must be set aside. Thus, the initial issue in this appeal is whether the superior court had jurisdiction to proceed with this breach of contract action following remand from bankruptcy court. This issue poses a question of law that we independently review. R.A.J. v. L.B.V., 169 Ariz. 92, 94, 817 P.2d 37, 39 (App.1991).

¶ 10 The Powleys assert two reasons why the superior court lacked subject matter jurisdiction to proceed with this case. First, they argue that only the federal district court, not the bankruptcy court, could order a remand to state court. Second, because the bankruptcy court clerk did not mail a copy of the order of remand to superior court as required by statute, the Powleys contend that the superior court never regained jurisdiction over the case.

¶ 11 Before addressing these arguments, however, we first consider HFL's contention that the Powleys have waived their right to make these arguments by failing to assert them before or during trial. HFL characterizes these arguments as involving mere procedural defects rather than the absence of genuine subject matter jurisdiction. HFL then correctly points out that procedural defects are usually waived if not raised and preserved in the trial court. See, e.g., Medina v. Arizona Dept. of Transport., 185 Ariz. 414, 418, 916 P.2d 1130, 1134 (App.1995).

¶ 12 On the other hand, challenges to subject matter jurisdiction may be raised at any time, including for the first time on appeal. Swichtenberg v. Brimer, 171 Ariz. 77, 82, 828 P.2d 1218, 1223 (App.1991). HFL argues that the superior court never lost jurisdiction but was merely limited by federal statutes in its power to proceed until the case was remanded to superior court. According to HFL, because the issue was the superior court's power to proceed and not true subject matter jurisdiction, the usual rule of waiver should be applied.

¶ 13 We need not decide, however, if there is a difference between subject matter jurisdiction and power to proceed for all purposes. We conclude only that the issue of a state court's power to proceed following remand from federal court is so akin to the issue of subject matter jurisdiction as to warrant application of the same rule of nonwaiver. See First State Bank of Princeton v. Leffelman, 167 Ill.App.3d 362, 118 Ill.Dec. 127, 521 N.E.2d 195, 197 (1988) (allowing a challenge, asserted for the first time on appeal, of whether the state court had jurisdiction to proceed following a remand from federal court). Therefore, the Powleys have not waived their right to challenge the superior court's power to proceed with this action. We turn now to their substantive arguments.

The Bankruptcy Court Had Power to Order a Remand

¶ 14 The Powleys point out that the remand of this case was ordered by the bankruptcy court, not the district court, and they argue that the bankruptcy court does not have the authority to order a remand. Therefore, they assert that the case has never been properly remanded and the superior court never regained the jurisdiction to proceed with the case. We disagree.

¶ 15 First, a bankruptcy court is a unit of a federal district court. 28 U.S.C. § 151 (1993); In re Price Waterhouse Ltd., 202 Ariz. 397, 398, ¶ 1, 46 P.3d 408, 409 (2002). Second, the authority relied upon by the Powleys is outdated. They cite In re Global Int'l Airways Corp., 75 B.R. 804, 806 (Bankr. W.D.Mo.1987), which held that because that case was removed to the district court, only the district court — and not the bankruptcy court — had the power to remand the case. In re Global Int'l Airways, however, predates the 1990 and 1991 amendments to 28 U.S.C. §§ 1334 and 1452 and the Federal Bankruptcy Rules of Procedure that now empower a bankruptcy court to enter final orders regarding both abstention and...