In re Jackson Brook Institute, Inc.

• Decision Date: 24 November 1998
• Docket Number: No. Civ. 98-MC-80-P-C.,Civ. 98-MC-80-P-C.
• Citation: 227 BR 569
• Parties: In re JACKSON BROOK INSTITUTE, INC., Debtor-Appellee. BANCBOSTON REAL ESTATE CAPITAL CORPORATION, Plaintiff-Appellee, v. JBI ASSOCIATES LIMITED PARTNERSHIP, Defendant-Appellant.
• Court: U.S. District Court — District of Maine

227 B.R. 569 (1998)

In re JACKSON BROOK INSTITUTE, INC., Debtor-Appellee.

BANCBOSTON REAL ESTATE CAPITAL CORPORATION, Plaintiff-Appellee, v. JBI ASSOCIATES LIMITED PARTNERSHIP, Defendant-Appellant.

No. Civ. 98-MC-80-P-C.

United States District Court, D. Maine.

November 24, 1998.

COPYRIGHT MATERIAL OMITTED

Roger Clement, Verrill & Dana, Portland, ME, for debtor.

Robert J. Keach, Bernstein, Shur, Sawyer & Nelson, Portland, ME, for plaintiff.

Daniel L. Cummings, Norman, Hanson & Detroy, Portland, Maine, John L. Whitlock, Palmer & Dodge, LLP, Boston, MA, for JBI Associates Limited Partnership.

John C. Walker, John C. Walker & Associates, Windham, ME, for Running Hill Associates Limited Partnership.

MEMORANDUM OF DECISION AND ORDER

CARTER, District Judge.

JBI Associates Limited Partnership ("Associates") appeals the order of the United States Bankruptcy Court for the District of Maine denying its Motion to Abstain, or in the Alternative to Remand, entered on July 24, 1998 ("the Bankruptcy Order"). Associates is a limited partnership that built a hospital with funds borrowed from BancBoston Real Estate Capital Corporation ("BancBoston") which is now seeking to foreclose in the Maine Superior Court the mortgage it was holding as security for the debt. The state foreclosure action named Associates as a party defendant and Jackson Brooks Institute ("the Debtor") a party-in-interest. The Debtor subsequently filed for bankruptcy and removed the state foreclosure action to bankruptcy court to be heard as part of its pending Chapter 11 action. Shortly thereafter, Associates filed a motion in bankruptcy court requesting that the court abstain or, in the alternative, remand the state foreclosure action to state court. The bankruptcy court denied Associates's motion. On appeal, Associates argues principally that the bankruptcy court erred in refusing to: (1) abstain from hearing the state foreclosure action pursuant to 28 U.S.C. § 1334(c)(2)¹, and, in the alternative, (2) remand, pursuant to section 1452(b), the state foreclosure action. Specifically Associates challenges the bankruptcy court's determination that the state foreclosure action is a core issue in the Debtor's bankruptcy proceeding.

This appeal requires the Court to determine the following: (1) Whether it has jurisdiction to hear the appeal pursuant to section 158(a) and (2) whether the removed state foreclosure action is a core proceeding in the Debtor's bankruptcy action. This Court holds that it does not have jurisdiction to hear the appeal pursuant to section 158(a)(1) as an appeal from a final order. However, this Court will grant leave to appeal the Bankruptcy Order pursuant to section 158(a)(3). The Court finds that, under the circumstances of this case, the remanded state foreclosure action is a core proceeding in the Debtor's bankruptcy proceeding. Mandatory abstention was not, therefore, required. In addition, this Court finds no equitable grounds requiring remand. This Court also concludes that the bankruptcy court did not abuse its discretion in deciding not to abstain. The Court affirms the bankruptcy court's decision.

I. BACKGROUND

A. Creation of Obligations.

On or about May 11, 1983, Associates obtained construction and permanent financing from Casco Northern Bank, N.A. ("Casco") to build an acute care psychiatric hospital. The project was organized into a three-party transaction. The hospital was built on land owned by Running Hill Associates Limited Partnership ("Running Hill"), and Running Hill has maintained its fee simple interest in the real estate at all times. Associates entered into a ground lease with Running Hill, obtained the financing to construct the hospital, and, in turn, subleased the land and the hospital to the Debtor. JBI Associates Limited Partnership's Notice of Appeal and Conditional Motion for Leave to Appeal, ("Notice of Appeal") (Docket No. 1) at 4; Tape of July 15, 1998, hearing before Bankruptcy Judge Goodman ("Taped Proceeding"). The Debtor administered the hospital. Id. The promissory note for the permanent financing in the amount of $4 million was secured by a mortgage encumbering the land owned by Running Hill, the hospital, and a collateral assignment of a lease of the property ("the Sublease") by Associates to the Debtor. Notice of Appeal at 4. Casco's note has now been assigned to BancBoston. Id.

Under the terms of the Sublease, the Debtor, which operates the hospital, is obligated to pay monthly basic rent and additional rent, taxes, insurance, maintenance, and other expenses of the property to Associates. Notice of Appeal at 5. The arrangement was structured so that the Debtor's payment of the basic rent enabled Associates to fulfill its payment obligations under the Casco note. Id. In 1999, the Debtor is required under the terms of the Sublease to offer to purchase the leased premises for $10 million or its fair market value, whichever is greater.² Taped Proceeding. Under the ground lease between Associates and Running Hill, Associates is required to make a mandatory offer to purchase the premises from Running Hill in 1999. Id. Thus, under the terms of the agreement, the Debtor must make an offer to purchase the land from Associates in 1999. The mandatory option under the lease to purchase the hospital is an asset of the Debtor's estate.

B. The Foreclosure Action.

On or about October 29, 1997, BancBoston commenced a foreclosure action for the purposes of exercising its rights under the Casco note and mortgage, including foreclosure of its interest in the property.³Id. In its foreclosure complaint, BancBoston named Running Hill, Associates, the Debtor, and other interested parties. Id; Taped Proceeding.

C. The Bankruptcy Action.

The Debtor filed a voluntary chapter 11 petition for bankruptcy pursuant to the United States Bankruptcy Code, 11 U.S.C. §§ 101-1330, on March 27, 1998, several months after the foreclosure action was commenced against the Debtor and Associates. Notice of Appeal at 6. Pursuant to the April 9, 1998, Order Requiring Performance Under Section 365(d)(3), Debtor is required to pay all rent due post-petition, with certain exceptions not relevant hereto, directly to BancBoston.

On or about May 20, 1998, with the consent and support of the Debtor, the bankruptcy court entered an order granting BancBoston's motion for relief from the automatic stay. Id. The order authorized BancBoston to recommence prosecution of the foreclosure action. Id. In pleadings filed in connection with its motion for relief from the stay, BancBoston agreed under a Non-Disturbance, Attornment and Subordination Agreement ("Non-Disturbance Agreement") that if the Debtor is not in terminable default under the lease, BancBoston shall not disturb the lease or the rights of the Debtor under the lease. Furthermore, any foreclosure sale will be made subject to the lease. Id; Taped Proceeding.

D. Removal of the Foreclosure Action.

On or about June 8, 1998, the Debtor removed the foreclosure action commenced by BancBoston against the Debtor and Associates to the United States Bankruptcy Court for the District of Maine ("Removed Foreclosure Action"). Id; BancBoston's Motion to Dismiss Appeal for Lack of Jurisdiction and Answer to Conditional Motion for Leave to Appeal, ("Motion to Dismiss") (Docket No. 2) at 2. Therein, the Debtor asserted that the Removed Foreclosure Action is a core matter and, in the alternative, consented to entry of final orders by the bankruptcy court if it found the Removed Foreclosure Action to be a noncore matter. Id. Both BancBoston and Associates filed separate statements pursuant to Fed.R.Bankr.P. 9027(e). In its statement, BancBoston consented to entry of final orders and a judgment by the bankruptcy court. Id. On the other hand, Associates denied that the Removed Foreclosure Action was a core proceeding and stated that it did not consent to entry of final orders or a judgment by the bankruptcy court. Id. Associates subsequently filed the instant Motion to Abstain, asking the bankruptcy court to abstain from hearing the Removed Foreclosure Action pursuant to section 1334(c)(2) (mandatory abstention) or pursuant to section 1334(c)(1) (discretionary abstention). Motion to Abstain at 1. The Motion to Abstain further requested the bankruptcy court to remand the Removed Foreclosure Action to the state court upon equitable grounds under section 1452(b). Id.

At a hearing held on July 15, 1998, Bankruptcy Judge Goodman denied the abstention motion and concluded that the Removed Foreclosure Action was a core proceeding pursuant to section 157(b).⁴ Taped Proceeding. In reaching this conclusion, the bankruptcy court found that mandatory abstention section 1334(c)(2) did not apply to the Removed Foreclosure Action and that Associates had failed to establish grounds for discretionary abstention under section 1334(c)(1) or for remand under section 1452(b). Id.

E. This Appeal.

On August 3, 1998, pursuant to section 158(a), Associates appealed the Bankruptcy Order refusing to abstain or remand the Removed Foreclosure Action to the superior court. Associates timely filed Notices of Appeal.⁵ Pursuant to Fed.R.Bankr.P. 8001(c), Associates filed a Statement of Election requesting the appeal be heard by a district court pursuant to section 158(c)(1) rather than by the bankruptcy appellate panel. Statement of Election (Docket No. 1).

Associates seeks leave to appeal the Bankruptcy Order to the extent it determined the following:

(i) that the foreclosure action was a core proceeding;

(ii) that abstention by the bankruptcy court with respect to the adversary proceeding is not mandatory or appropriate, pursuant to 28 U.S.C. § 1334(c)(1), (2);

(iii) that it would not remand the adversary preceding, pursuant to 28 U.S.C. § 1452(b);

(iv) that only a portion, if any, of the foreclosure action was removed to the bankruptcy court, pursuant to 28 U.S.C. § 1452(a);

(v) that the removal was procedurally

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