In re GF Corp., Bankruptcy No. 490-00621

Decision Date07 March 1991
Docket NumberBankruptcy No. 490-00621,Adv. No. 90-0064.,490-00622
Citation127 BR 384
PartiesIn re GF CORPORATION, Debtor. In re GF FURNITURE SYSTEMS, INC., Debtor. William J. BLACKBURN, Plaintiff, v. BLUE CROSS & BLUE SHIELD OF NORTHERN OHIO, Defendant.
CourtU.S. Bankruptcy Court — Northern District of Ohio

Neil D. Schor, Youngstown, Ohio, for William J. Blackburn.

Mark Schlachet, Cleveland, Ohio for Blue Cross & Blue Shield of Northern Ohio.

MEMORANDUM OPINION

WILLIAM T. BODOH, Bankruptcy Judge.

I. PRELIMINARY STATEMENT AND FACTS

This adversary proceeding, which was initiated in State Court and removed to this Court, is now before the Court upon Plaintiff's Motion for Remand and Plaintiff's Motion for Abstention. The issue here is this Court's jurisdiction to hear the present matter. Specifically, this Court must make three determinations:

1. whether this proceeding is one which is "related to" a case under Title 11,
2. whether this proceeding is a "core" proceeding under 28 U.S.C. § 157, and
3. whether, if there is jurisdiction, this Court must abstain, or should abstain, from hearing this case pursuant to 28 U.S.C. § 1334.

If this case does not meet the threshold inquiry as being a "related to" proceeding, then this Court does not have jurisdiction under 28 U.S.C. § 1334, and the case should be remanded to State Court pursuant to 28 U.S.C. § 1452. Similarly, if this Court determines that it should, or that it must, abstain under § 1334, the case will be allowed to proceed in State Court. Finally, if this Court retains jurisdiction, the core/non-core determination must be made in order to discern whether this Court may enter a final order or judgment in this matter. 28 U.S.C. § 157(c).

This Court may enter a dispositive order on the issue of whether this proceeding is core or non-core. 28 U.S.C. § 157(b)(3); Central Nat'l Bank v. Kwak, 49 B.R. 337 (Bankr.N.D.Ohio 1985). Moreover, Congress recently amended the Bankruptcy Code to provide that bankruptcy judges may enter binding orders in abstention and remand matters which then may be appealed to district court. Section 309 of the Judicial Improvements Act of 1990 (P.L. 101-650) amends 11 U.S.C. § 305(c) and 28 U.S.C. §§ 1334(c)(2) and 1452(b) to permit the appeal of abstention and remand issues to the district court, thereby permitting the bankruptcy court to enter dispositive orders in these matters. The Judicial Improvements Act was signed by the President and became effective December 1, 1990. 104 Stat. 5089, 5113 (1990).

Plaintiff, William J. Blackburn, initiated this proceeding by filing a Complaint on July 2, 1990 against Defendant, Blue Cross & Blue Shield of Northern Ohio ("BCBS"), in the Youngstown Municipal Court. Plaintiff is a retiree of GF Furniture Systems, Inc., currently a Chapter 11 Debtor before this Court, who alleges that BCBS is contractually liable to compensate him for approximately Four Thousand Dollars ($4,000.00) of medical expenses which he has incurred. The Complaint states: "Defendant Blue Cross & Blue Shield by denying these payments of Plaintiff's bills breached its contractual obligation to Plaintiff, and/or its contractual obligation with GF Office Furniture, Inc. to pay the employee medical benefits of Plaintiff."

On August 3, 1990, BCBS filed an Application with this Court to remove the State Court action to Bankruptcy Court. Plaintiff subsequently filed a Motion to Remand this proceeding back to the State Court and a Motion requesting that the Bankruptcy Court abstain from hearing this case. The Motion for Abstention was originally sustained; however, this Court later vacated its Order sustaining the Motion, preferring to have the parties brief both the jurisdiction and abstention issues simultaneously. Both parties submitted briefs on these issues in a timely fashion.

II. "RELATED TO" JURISDICTION

The history of the jurisdictional issues raised in the present case is a long and complicated one which need not be recited here in detail. Suffice it to say that the broad powers vested in the bankruptcy courts by Congress in the Bankruptcy Reform Act of 1978 were determined to be unconstitutional by the Supreme Court in Northern Pipeline Constr. Co. v. Marathon Pipe Line Co., 458 U.S. 50, 102 S.Ct. 2858, 73 L.Ed.2d 598 (1982). Essentially, the Supreme Court decided that the 1978 Act had vested Article III Judicial Power in Article I Judges. Congress responded by enacting the Bankruptcy Amendments and Federal Judgeship Act of 1984 ("BAFJA"). BAFJA divided bankruptcy jurisdiction into "core" proceedings, in which the bankruptcy courts may enter dispositive motions, and "related to" or "non-core" proceedings, in which the authority to enter dispositive orders is reserved to the district courts. 28 U.S.C. §§ 157 and 1334; see, In re United Sec. & Communications, Inc., 93 B.R. 945 (Bankr.S.D.Ohio 1988) (providing thorough discussion of bankruptcy court jurisdiction under BAFJA).

It is a broad standard which is used to determine whether there is federal jurisdiction of civil proceedings which are "related to cases under title 11, pursuant to 28 U.S.C. § 1334(b)." The prevailing test for relatedness, which has been endorsed by the Sixth Circuit, is simply "whether the outcome of the proceeding could conceivably have any effect upon the estate being administered in bankruptcy." In re Salem Mortgage Co., 783 F.2d 626, 634 (6th Cir. 1986) (quoting, In re General Oil Distribs., Inc., 21 B.R. 888, 892 n. 13 (Bankr.E.D. N.Y. 1982)); Pacor, Inc. v. Higgins, 743 F.2d 984, 994 (3rd Cir.1984); Dogpatch Properties, Inc. v. Dogpatch USA, Inc. (In re Dogpatch USA, Inc., 810 F.2d 782, 786 (8th Cir.1987).

In light of this broad standard, it is clear that the present case is a civil proceeding which is related to the GF bankruptcy case. The impact that the present proceeding will have on the GF bankruptcy case is certainly significant and potentially enormous. An understanding of the background of this case is necessary to recognize the extent of this impact.

Plaintiff here is one of approximately 2,000 GF employees and retirees whose health insurance coverage was terminated shortly before GF filed its Chapter 11 Petition. Pursuant to a compromise between the Debtor, the Unsecured Creditors' Committee, the authorized representative of Union Retirees, and the Non-Union Retirees' Committee, retiree benefit obligations up to July 31, 1990 (the date collective bargaining agreements were rejected) will be treated as allowed administrative expenses pursuant to 11 U.S.C. § 1114(e)(2). See, In re GF Corp., 120 B.R. 421 (Bankr.N.D.Ohio 1990); In re GF Corp., 115 B.R. 579 (Bankr.N.D.Ohio 1990). A bar date for the filing of claims will be set for the near future, after which time the Debtor will make an application to this Court for the payment of all administrative expenses, including retiree benefits.

BCBS asserts that under GF's plan of health insurance, BCBS administered the claims adjudication and payment process, but GF was ultimately liable for the payment of claims. As such, BCBS asserts, it would have a claim for indemnification against GF for any recovery Plaintiff would obtain against it in the present proceeding. Because the Debtor's self-insured status has been asserted repeatedly and has not been disputed by any party in any of the GF proceedings up to this point, see, GF Corp., 115 B.R. at 580-581, BCBS's claim of a right of indemnification appears to be meritorious; however, this Court has made no findings of fact at this stage of these proceedings, so we reach no conclusions in this regard.

Nonetheless, this proceeding will have a substantial impact on the administration of the bankruptcy case whether or not BCBS has a right of indemnification against the Debtor. Plaintiff asserts that even if a right of indemnification exists, he is not seeking to recover from assets of the estate, and that, therefore, only the name of the claimant, not the nature of the claim, would be affected. What Plaintiff fails to acknowledge, however, is that following any successful recovery by him, there would be hundreds of similar suits seeking to recover against BCBS, a far more solvent party than GF. The result would be a sort of alternative claims process where judgments against BCBS would have to be matched against claims already filed with this Court in order to prevent claimants from recovering on the same claim twice. Moreover, if Plaintiff recovers but BCBS has no right of indemnification, the same "matching" process would have to be undertaken; however, the effect on the estate would be much greater because the Debtor would then be free from what, according to present estimates, appear to be millions of dollars in administrative expenses. Finally, if Plaintiff's civil suit is allowed to proceed in State Court and similar suits are filed, the two scenarios described above would become complicated further by the possibility that such actions would produce inconsistent findings and judgments. For these reasons, this Court concludes that it has jurisdiction of this proceeding as it is clearly related to a case under Title 11. 28 U.S.C. § 1334(b).

III. CORE PROCEEDING

Having determined that this proceeding is at least a "related to" proceeding under § 1334(b), this Court now turns its attention to whether this proceeding constitutes a core proceeding pursuant to 28 U.S.C. § 157. Section 157(b)(2)(A)-(O) provides a non-exclusive list of examples of core proceedings. As Judge Cole noted in United Sec.:

The core/noncore dichotomy established by § 157 is based upon the distinction articulated by the Marathon plurality between the "restructuring of debtor-creditor relations which is at the core of the federal bankruptcy power" and the "adjudication of state-created private rights."

United Sec., 93 B.R. 945 at 954 (quoting, Marathon, 458 U.S. at 71, 102 S.Ct. at 2871). As one might expect, the most difficult task for the bankruptcy courts is the...

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