In re DeLorean Motor Co.
| Decision Date | 30 June 1993 |
| Docket Number | Bankruptcy No. LA 82-06031-KM,Adv. No. AD 82-06666.,CC-92-1291-PVO and CC-92-1326-PVO,BAP No. CC-92-1281-PVO |
| Court | Bankruptcy Appellate Panels. U.S. Bankruptcy Appellate Panel, Ninth Circuit |
| Parties | In re DELOREAN MOTOR COMPANY, a Michigan corporation, Debtor. HONIGMAN, MILLER, SCHWARTZ & COHN; Sheldon S. Toll; and Robert B. Weiss, Appellants, v. Howard L. WEITZMAN, an individual, Appellee. David W. ALLARD, Jr., Trustee of the Debtor Estate of the DeLorean Motor Company, Appellant, v. Howard L. WEITZMAN; Honigman, Miller, Schwartz & Cohn; Sheldon S. Toll; Robert B. Weiss; Lorenz, Alhadeff, Lundin & Oggel; Keith E. McWilliams; and Malcolm R. Schade, Appellees. Malcolm R. SCHADE, Appellant, v. Howard L. WEITZMAN; David W. Allard, Jr.; Honigman, Miller, Schwartz & Cohn; Sheldon S. Toll; Robert B. Weiss; Keith E. McWilliams; and Lorenz, Alhadeff, Lundin & Oggel, Appellees. |
Mason C. Brown, Los Angeles, CA, for Honigman, Miller et al.
Douglas M. Parker, New York City, for Malsolm R. Schade.
Andrea Sheridan Ordin, Los Angeles, CA, for David W. Allard, Trustee.
Todd Alberstone, Los Angeles, CA, for Howard L. Weitzman.
Before: PERRIS, VOLINN and OLLASON, Bankruptcy Judges.
The appellee, Howard Weitzman, filed a malicious prosecution action in state court against, inter alia, the debtor's Chapter 7 trustee, counsel for the trustee and the chairman of the debtor's creditors' committee. The trustee removed the action to the bankruptcy court. Weitzman dismissed the trustee and filed a motion requesting that the bankruptcy court abstain and remand the action to the state court. The bankruptcy court granted Weitzman's motion and denied counsel's motion to transfer the action to the Michigan bankruptcy court. We REVERSE in part, VACATE in part and REMAND for further proceedings consistent with this opinion.
In 1982, the debtor, DeLorean Motor Company (DMC") filed a Chapter 11 petition in the United States Bankruptcy Court for the Eastern District of Michigan. Thereafter, DMC converted its case to a case under Chapter 7 and the Michigan bankruptcy court appointed David W. Allard, Jr. ("the trustee"), the appellant in BAP No. CC-92-1291-PVO, as DMC's Chapter 7 trustee. The court appointed the law firm of Honigman, Miller, Schwartz and Cohn, and two partners in that firm, Sheldon S. Toll and Robert B. Weiss, to serve as general counsel to the trustee. The Honigman firm, Toll and Weiss (collectively, "the Honigman defendants") are the appellants in BAP No. CC-92-1281-PVO. The court also appointed Malcolm R. Schade, the appellant in BAP No. CC-92-1326-PVO, to the Chapter 7 Unsecured Creditors' Committee and Schade was elected chairman of that committee.
In 1984, the trustee filed a fraudulent conveyance action against John Z. DeLorean ("DeLorean") and Weitzman, alleging that DeLorean owed the estate several million dollars, was insolvent and had fraudulently transferred to his attorney Weitzman real property located in Pauma Valley, California ("the Pauma Valley action"). After a bench trial, the district judge ruled in favor of DeLorean and Weitzman. Before entry of judgment, the trustee and DeLorean settled their dispute.1 Weitzman did not participate in the settlement and the district court entered a judgment in favor of Weitzman. The Ninth Circuit dismissed the trustee's appeal of the judgment in favor of Weitzman. See Allard v. DeLorean, 884 F.2d 464 (9th Cir.1989).
In January of 1991, Weitzman filed an action in California state court ("the Weitzman action") against the appellants and others asserting a cause of action for malicious prosecution based on the Pauma Valley action. The trustee removed the Weitzman action to the United States District Court which then referred it to the United States Bankruptcy Court for the Central District of California. The trustee and the Honigman defendants filed motions to change venue to the Eastern District of Michigan, where the liquidation of the DMC estate is still pending.
The trustee also filed, in the Michigan bankruptcy court, an adversary proceeding ("the injunction proceeding") seeking to enjoin further prosecution of the Weitzman action and to recover damages incurred as a result of having to defend against that action. On October 15, 1992, Weitzman voluntarily dismissed the trustee from the Weitzman action without prejudice. Subsequently, because of the trustee's dismissal from the Weitzman action, the Michigan bankruptcy court vacated a preliminary injunction granted to the trustee. The Michigan bankruptcy court also dismissed the injunction proceeding, reasoning that the Weitzman action was not against the Trustee, that the protections of 28 U.S.C. § 959(a) did not extend to Schade and the Honigman defendants and that Weitzman action did not affect the administration or assets of the estate. The United States District Court for the Eastern District of Michigan affirmed the bankruptcy court's decision. The trustee appealed to the Sixth Circuit.
Meanwhile, back in the Weitzman action, Weitzman filed a motion, on November 6, 1991, requesting that the California bankruptcy court abstain and remand the action to California state court. On January 23, 1992, three days before the hearing scheduled on Weitzman's motion, Schade filed a third party complaint for indemnification and/or contribution against the trustee.
On March 13, 1992, the California bankruptcy court entered an order remanding the Weitzman Action to the California state court under the mandatory abstention provisions of 28 U.S.C. § 1334(c)(2) and alternatively under the discretionary abstention provisions of 28 U.S.C. § 1334(c)(1).2 The court also denied the Honigman defendants' motion to change venue and ordered that Schade's third-party complaint would not be remanded but would be retained in the California bankruptcy court. The Honigman defendants, Allard and Schade (collectively "the appellants") filed these timely appeals.
Subsequently, the Sixth Circuit reversed the bankruptcy court's orders vacating the preliminary injunction and dismissing the injunction proceeding. In re DeLorean Motor Co., 991 F.2d 1236 (6th Cir.1993). The Sixth Circuit held that the requirement that a party suing a trustee obtain leave of the bankruptcy court applies to suits against counsel for or representatives of the trustee, such counsel being the functional equivalent of a trustee where they act at the direction of the trustee for the purpose of administering the estate or protecting its assets.3 991 F.2d at 1241.
the action should be remanded to the California state court under the doctrines of mandatory and discretionary abstention.
The issue of mandatory abstention turns upon the jurisdiction question and the construction of pertinent statutes and is therefore a question of law subject to de novo review. The issues of discretionary abstention under section 1334(c)(1) and remand on an equitable basis are reviewed for an abuse of discretion. See In re Eastport Associates, 935 F.2d 1071, 1075 (9th Cir.1991); Harrell v. 20th Century Insurance Co., 934 F.2d 203, 205 (9th Cir.1991). Similarly, a ruling on a motion to transfer a proceeding is reviewed for an abuse of discretion. E.g., Allen v. Scribner, 812 F.2d 426, amended, 828 F.2d 1445 (9th Cir.1987). The bankruptcy court determined the judicial immunity question as a matter of law in the context of this case and, therefore, de novo review of that issue is appropriate.
28 U.S.C. § 1452(b) provides that a court to which a claim or cause of action is removed "may remand such claim or cause of action on any equitable ground." The bankruptcy court ordered remand on the basis of mandatory abstention under 28 U.S.C. § 1334(c)(2) and alternatively on the basis of discretionary abstention under 28 U.S.C. § 1334(c)(1). For the reasons set forth below, we reverse the bankruptcy court's decision.
28 U.S.C. § 1334(c)(2) requires a court to abstain from hearing a proceeding based upon a state law claim or cause of action that is related to a case under title 11 but does not arise under title 11 or arise in a case under title 11 and that could not have been commenced in federal court absent federal bankruptcy jurisdiction if the action is commenced and can be timely adjudicated in a state forum. With respect to mandatory abstention, the dispositive issue is whether this is a core proceeding (arises under title 11 or arises in a case under title 11), thereby rendering mandatory abstention inappropriate.
28 U.S.C. § 1334(c)(1) allows a court to abstain from hearing a particular proceeding arising under title 11 or arising in or related to a case under title 11 "in the interest of justice or in the interest of comity with State courts or respect for State law . . ." The Ninth Circuit has provided courts several factors to consider in deciding whether to abstain under section 1334(c)(1):
(1) the effect or lack thereof on the efficient administration of the estate if a Court recommends abstention, (2) the extent to which state law issues predominate over bankruptcy issues, (3) the difficult or unsettled nature of the applicable law, (4) the presence of a related proceeding commenced in state court or other nonbankruptcy court, (5) the jurisdictional basis, if any, other than 28 U.S.C. § 1334, (6) the degree of relatedness or remoteness of the proceeding to the main bankruptcy case, (7) the substance rather than the form of an...
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