In re Lorax Corp.
| Decision Date | 27 June 2003 |
| Docket Number | Bankruptcy No. 02-48396-DML-11.,Adversary No. 03-4128. |
| Citation | 295 B.R. 83 |
| Parties | In re LORAX CORPORATION, Debtor. Shawn K. Brown, as Trustee for the Lorax Corporation, Plaintiff, v. Phillip Shepherd, as Trustee of the Greenwall Liquidation Trust, Defendant. |
| Court | U.S. Bankruptcy Court — Northern District of Texas |
William J. Doby, Locke, Liddell and Sapp, Dallas, TX, for Shawn K. Brown, As Trustee for The Lorax Corporation.
Doug Stum, Austin, TX, for Phillip Shepherd, As Trustee of The Greenwall Liquidation Trust.
REVISED MEMORANDUM OPINION AND ORDER1
Before this court is Defendant's motion to abstain and dismiss (the "Motion"). The Court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 1334 and 157(b)(3).
Debtor is the purported lessee of real property and improvements located in Athens, Texas (the "Property") pursuant to a lease agreement between E. Herbert Gatlin ("Gatlin"), Defendant's predecessor as trustee of the Greenwall Liquidating Trust (the "Greenwall Trust"), and Debtor (as amended, the "Lease Agreement"). The Greenwall Trust was created to hold title to the Property as part a settlement between the Texas Natural Resource Conservation Commission (the "TNRCC"), a predecessor of the Texas Commission on Environmental Quality, and Curtis Mathes Manufacturing Company ("Curtis Mathes") and Harvey Industries, Inc. ("Harvey"). Curtis Mathes and Harvey, both chapter 11 debtors themselves, attempted to abandon the Property during the course of their respective cases. The TNRCC objected to the abandonment because of environmental issues concerning the Property. As part of the resulting settlement, title to the Property was placed in the Greenwall Trust, with the State of Texas as the beneficiary.
The Greenwall Trust entered into an environmental agreement (as amended, the "Environmental Agreement") and the Lease Agreement with Debtor (f/k/a/ Greenwall Insulation Company). Through that transaction, Debtor obtained a fully funded thirty-year ground lease on the Property2 and an option to purchase the Property for additional consideration in the amount of $200,000.3 From the testimony and evidence presented by the parties, the court understands Debtor's estate is comprised virtually entirely of whatever interest Debtor has in the Property, Lease Agreement and Environmental Agreement.
After entering into the Lease Agreement and the Environmental Agreement, Debtor entered into a loan agreement with Enterprise National Bank of Palm Beach ("Enterprise"), and, purportedly, granted Enterprise a security interest in Debtor's current and future rights under the Lease Agreement.4 Debtor then subleased part of the Property to a number of parties, including Dallas Manufacturing, Inc. ("DMC"), Texas Ragtime, Inc. ("TRI") and ATCO Products, Inc. ("API").
Henderson County Property Corporation ("HCPC") claims that, at some point after Debtor entered into the Environmental Agreement and the Lease Agreement, it acquired the State of Texas' beneficial interest in the Greenwall Trust.5 HCPC further claims to have removed Gatlin as trustee of the Greenwall Trust and to have replaced him with Defendant.6 Finally, HCPC claims to have acquired Enterprise's position with respect to Debtor's interests in the Lease Agreement and the Environmental Agreement.7
On September 17, 2002, Defendant filed a petition for declaratory judgment in the 353rd District Court, Travis County, Texas (the "Austin Suit"). Through the Austin Suit, Defendant sought declaratory judgment on three issues. First, he sought a declaration that Debtor defaulted under the Environmental Agreement. Second, Defendant sought a declaration that HCPC succeeded to all of the Texas Commission on Environmental Quality's rights, title and interests in the Environmental Agreement. Finally, Defendant sought a declaration that HCPC informed Debtor of its default under the Environmental Agreement and declared the Environmental Agreement terminated and all conveyances made pursuant thereto null and void.
On October 31, 2002, several creditors of Debtor filed an involuntary petition against Debtor, thereby instituting the above-captioned reorganization case in this court. The court entered an order for relief under chapter 11 of title 118 on December 2, 2002. On December 6, 2002, the court directed the United States Trustee to appoint a trustee to oversee the conduct of Debtor's chapter 11 case.9 On December 16, 2002, the United States Trustee appointed Plaintiff to serve in that capacity.
On February 28, 2003, Plaintiff caused the Austin Suit to be removed to the United States Bankruptcy Court for the Western District of Texas, Austin Division (the "Austin Bankruptcy Court"). Defendant opposed that removal and (acting in concert with HCPC) filed his motion for remand or abstention in that case on March 24, 2003 (the "Austin Motion"). On March 12, 2003, Plaintiff filed a motion to transfer venue of the Austin Suit to this court. On May 13, 2003 the Austin Bankruptcy Court transferred the Austin Suit to this court and on May 28, 2003 closed out the adversary proceeding on its docket.
On March 25, 2003, Plaintiff initiated the Fort Worth Suit. The parties agree that the Fort Worth Suit is the "mirror image" of the Austin Suit, and that both raise substantially the same issues. More specifically, the Fort Worth Suit seeks a declaration that (i) Debtor paid all lease payments related to the Lease Agreement; (ii) there are no existing defaults under the Lease Agreement, or, if there are such defaults, they may be cured; (iii) the Lease Agreement and Environmental Agreement have not been terminated; and (iv) Plaintiff may, if he chooses, cure the defaults, if any, and assume either the Lease Agreement or the Environmental Agreement (or both).
Before the court today is the narrow issue of whether abstention (either mandatory or permissive) applies with respect to the Fort Worth Suit.
Section 1334 grants the federal district courts jurisdiction over four types of bankruptcy matters: (1) cases under title 11, (2) proceedings arising under title 11, (3) proceedings "arising in" a case under title 11, and (4) proceedings "related to" a case under title 11.10 A proceeding is "related to" a bankruptcy if "the outcome of that proceeding could conceivably have any effect on the estate being administered in bankruptcy."11
If the district court of which it is a unit so chooses, a bankruptcy court may "hear and determine" certain matters falling within the jurisdictional grant of 28 U.S.C. § 1334.12 Specifically, 28 U.S.C. § 157(b)(1) gives bankruptcy courts full judicial power over "all cases under title 11 and all core proceedings arising under title 11, or arising in a case under title 11, referred under ... this section...."13 Non-core proceedings that are "otherwise related to a case under title 11" may be heard by a bankruptcy judge, but, absent consent of the parties, any final order or judgment must be entered by the district court.14 Thus, if a matter within the broad scope of section 1334(b) satisfies the narrower test for a core proceeding, section 157 authorizes the bankruptcy court (at least in most cases) to decide the matter and enter a final judgment.15 While title 28 does not define core proceedings, section 157(b)(2) does provide a nonexclusive list of examples.16 Moreover, the Fifth Circuit has held that under 28 U.S.C. § 157 proceedings that fall within the categories of "arising under" and "arising in" are core proceedings; therefore, a "proceeding is core under section 157 if it invokes a substantive right provided by title 11 or if it is a proceeding that, by its nature, could arise only in the context of a bankruptcy case."17
In summation, any matter that is a core proceeding is a "related to" proceeding as that concept has been defined. This is so because core proceedings, by their very nature, affect the estate being administered in bankruptcy. The converse, however, is not true. Not all "related to" proceedings rise to the level of being "core proceedings". The court, therefore, views matters "arising in" or "arising under" the Code and core proceedings to be subsets of the broader category of matters "related to" bankruptcy cases. Thus, there could never be a core proceeding that was not related to a bankruptcy, but it is possible to have a proceeding related to a bankruptcy that is not core.
Section 1334(c) of title 28 provides for both permissive abstention under section 1334(c)(1), and mandatory abstention under section 1334(c)(2). In the Motion, Defendant asserts that under section 1334(c)(2) mandatory abstention applies to the Fort Worth Suit. In the alternative, he argues that this court should permissively abstain under section 1334(c)(1).
Section 1334(c)(2) of title 28, which governs whether mandatory abstention applies, states that:
[u]pon timely motion of a party in a proceeding based upon a State law claim or State law cause of action, related to a case under title 11 but not arising under title 11 or arising in a case under title 11, with respect to which an action could not have been commenced in a court of the United States absent jurisdiction under this section, the district court shall abstain from hearing such proceeding if an action is commenced, and can be timely adjudicated, in a State forum of appropriate jurisdiction.
Section 1334(c)(1) of title 28 allows the court to abstain from hearing a matter that arises under title 11 or in a case under title 11, or that is related to a case under title 11. It states that
[n]othing in this section prevents a district court in the interest of justice, or in the interest of comity with State courts or respect for State law, from abstaining from hearing a...
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...state district court's or appellate court's calendar relative to that of this court. See, In re Trimjoist Corp., supra; In re Lorax Corp., 295 B.R. 83, 93 (N.D.Tex.2003). It could be persuasively argued that repeated applications to the state appellate courts to address non-dispositive disp......
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