In re Cashco, Inc.

• Decision Date: 25 March 2019
• Docket Number: No. 18-11968-j7,18-11968-j7
• Citation: 599 B.R. 138
• Parties: IN RE: CASHCO, INC., a New Mexico Corporation, Debtor.
• Court: U.S. Bankruptcy Court — District of New Mexico

599 B.R. 138

IN RE: CASHCO, INC., a New Mexico Corporation, Debtor.

No. 18-11968-j7

United States Bankruptcy Court, D. New Mexico.

Signed March 25, 2019

George D. Giddens, Jr., Attorney for Debtor, Giddens, Gatton & Jacobus, P.C., 10400 Academy Rd. NE Ste. 350, Albuquerque, NM 87111-1229

Daniel Andrew White, Attorney for Chapter 7 Trustee, Askew & Mazel, LLC, 1122 Central Ave. SW, Suite 1, Albuquerque, NM 87102

Rob Treinen, Attorney for Matthew Kitts, 500 Tijeras Avenue NW, Albuquerque, NM 87102

AMENDED MEMORANDUM OPINION

ROBERT H. JACOBVITZ, United States Bankruptcy Judge

Debtor Cashco, Inc. ("Debtor" or "Cashco") commenced Adversary Proceeding No. 18-1055-j in this Court by removing a state court class action lawsuit to bankruptcy court. See Docket No. 11 – Notice of Removal. Plaintiff in the adversary proceeding subsequently filed a motion for remand and abstention. See Adversary Proceeding No. 18-1055-j – Docket No. 10. At a status conference held December 12, 2018, an issue arose concerning the applicability of the automatic stay to the removal of the state court class action lawsuit to this Court, to the motion for remand and abstention, and to the continued prosecution of the adversary proceeding following removal. See Order Resulting from Status Conference – Docket No. 46.

After considering the briefs filed by the parties, on February 12, 2019, the Court issued a Memorandum Opinion and Order in which the Court determined that the automatic stay did not apply to the removal of the state court class action lawsuit to this Court and did not apply to the continuation of the removed lawsuit before this Court. See Memorandum Opinion and Order – Docket No. 83. Alternatively, the Court annulled the automatic stay to validate the removal of the state court class action lawsuit to this Court and terminated the automatic stay solely with respect to the continuation of the removed lawsuit before this Court. Id. Philip J. Montoya, Chapter 7 Trustee ("Trustee") subsequently filed a motion asking the Court to reconsider certain aspects of that ruling. See Chapter 7 Trustee's Motion for Relief from February 2, 2019 Memorandum Opinion and Order ("Motion for Reconsideration") – Docket No. 88. This Amended Memorandum and Opinion and Order supersedes the Memorandum Opinion and Order entered February 12, 2019 (Docket No. 83).

The Trustee requests the Court to reconsider the following conclusions: 1) that the automatic stay can never apply to judicial proceedings commenced in the bankruptcy court where the debtor's bankruptcy case is pending; and 2) that the Court can annul or terminate the automatic stay sua sponte pursuant to 11 U.S.C. § 105. See Motion for Reconsideration, p. 1. The Trustee does not request the Court to alter the outcome of its prior Memorandum Opinion or Order or change its conclusion that the Debtor's removal of the state court class action lawsuit to this Court is not subject to the automatic stay. Id.

The Court has considered the parties' briefs,¹ the Motion to Reconsider, and relevant case law. The case law considering whether the automatic stay applies to the removal and to the continued litigation of a removed state court action in the bankruptcy court is not uniform.² As the Court previously determined, the automatic stay does not apply to the Debtor's removal of the state court class action lawsuit to this Court. The Court is further convinced that the automatic stay does not apply to the Plaintiff's motion to remand the removed action to state court and for abstention. The Court is persuaded, however, that the automatic stay applies to the continued prosecution of the removed state court class action lawsuit under non-bankruptcy law, regardless of whether such proceeding is conducted in the "home" court where the Debtor's bankruptcy case is pending.³

BACKGROUND AND PROCEDURAL HISTORY

Cashco commenced this bankruptcy case by filing a voluntary petition under Chapter 7 of the Bankruptcy Code on August 6, 2018. See Docket No. 1. On the same date, Budget Payday also commenced a Chapter 7 case in this district. Budget Payday is a Chapter 7 debtor in Case No. 18-11967-t7 pending before Judge David T. Thuma.

Prior to commencement of the Cashco and Budget Payday Chapter 7 cases, Matthew Kitts commenced an action in the Second Judicial District Court as Cause No. D-202-CV-2016-01851 (the "State Court Action"). The State Court Action is a class action lawsuit against the Debtor; Budget Payday Loans, Limited Partnership ("Budget Payday"); and Hitex, Inc. ("Hitex"). Hitex is not in bankruptcy.

On August 23, 2018, Debtor filed a notice of removal of the State Court Action to this Court, initiating Adversary Proceeding No. 18-1055-J (the "Class Action Adversary Proceeding").See Adversary Proceeding No. 18-1055-J – Docket Nos. 18 and 19. Mr. Kitts, as Plaintiff in the Class Action Adversary Proceeding, filed a motion for remand and abstention, which the Court stayed pending the Court's ruling on the applicability of the automatic stay. See Class Action Adversary Proceeding – Docket Nos. 10 and 27.

Prior to removal of the State Court Action to bankruptcy court, the State Court certified a class as to claims against the Cashco. On February 27, 2019, the bankruptcy court in the Budget Payday Chapter 7 case entered a stipulated order granting relief from the automatic stay to permit certification of the class as to claims against Budget Payday. See Stipulated Order Granting Stay Relief, Case No. 18-11967-t7 – Docket No. 62. On March 6, 2019, this Court entered a stipulated order certifying the class as to claims against Budget Payday. See Stipulated Order on Class Certification, Class Action Adversary Proceeding – Docket No. 37. The class has not been certified as to claims against Hitex. 00

DISCUSSION

A. The Removal Process

Removal of claims related to bankruptcy cases is governed by 28 U.S.C. § 1452, which provides, in relevant part:

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.

28 U.S.C. § 1452(a).⁴ The removal statute thus has three applicable requirements: 1) the removed action must be a civil action and must not be a proceeding before the United States Tax Court or a civil action by a governmental unit to enforce its police or regulatory power; 2) the removing party must be a party to the civil action that is removed; 3) the action must be removed to the district court where the state court action is pending; and 4) the district court must have jurisdiction over the claim. 28 U.S.C. § 1452(a).

Although the removal statute provides for removal to the federal district court, all matters related to a bankruptcy case pending in the District of New Mexico are automatically referred to this Court. See Administrative Order – Misc. No. 84-0324 ("Pursuant to the authority of Section 157, Title 28, United States Code, and Rule 9029 of the Federal Rules of Bankruptcy Procedure... all cases under Title 11 and all proceedings arising under Title 11 or arising in or related to a case under Title 11 are referred to the bankruptcy judges for the district to the extent permitted by law.").⁵ Removal of a state court action involving claims within the scope of a district court's reference to the bankruptcy court pursuant to 28 U.S.C. § 157(a) may be removed to the bankruptcy court rather that the district court. Meritage Homes Corp. v. JPMorgan Chase Bank, N.A. , 474 B.R. 526, 534 (Bankr. S.D. Ohio 2012) (collecting cases). Bankruptcy Rule 9027 sets forth the procedure for removal, including time restrictions for timely filing a notice of removal. Fed. R. Bankr. P. 9027.

Cashco satisfied the statutory removal requirements and timely filed its notice of removal pursuant to Bankruptcy Rule 9027. Cashco was a party to the State Court Action and removed the action to the bankruptcy court in the district where the State Court Action was pending. This Court has jurisdiction over the class action claims asserted against Cashco in the State Court Action because such claims are related to Cashco's bankruptcy case. See 28 U.S.C. § 1334(b) (conferring jurisdiction over "all civil proceedings ... related to cases under title 11."). The State Court Action is related to Cashco's bankruptcy case because its outcome will have an effect on the administration of claims in the Cashco bankruptcy case. See In re Gardner , 913 F.2d 1515, 1518 (10th Cir. 1990) ("Related proceedings are civil proceedings that, in the absence of a bankruptcy petition, could have been brought in a district court or state court" and that a proceeding "is related to the bankruptcy if the outcome could alter the debtor's rights, liabilities, options, or freedom of action in any way, thereby impacting on the handling and administration of the bankruptcy estate.") (citations omitted). Finally, the notice of removal, filed on August 23, 2017, seventeen days after the filing of Cashco's voluntary Chapter 7 petition, was timely filed. See Fed. R. Bankr. P. 9027(a)(2) ("If the claim or cause of action in a civil action is pending when a case under the Code is commenced, a notice of removal may be filed ... within ... 90 days after the order for relief in the case under the Code"); 11 U.S.C. § 301(b) ("The commencement of a voluntary case under a chapter of this title constitutes an order for relief under such chapter.").

B. Applicability of the Automatic Stay

It is undisputed that that the State Court Action was stayed upon the filing of Cashco's and Budget Payday's respective bankruptcy petitions with respect to claims in the State Court Action asserted against the Cashco and Budget Payday. The State Court Action is a judicial proceeding filed against Cashco and Budget Payday to recover claims against them that arose before the commencement of their respective Chapter 7 bankruptcy cases...