In re Pacor, Inc.

• Decision Date: 30 April 1987
• Docket Number: Adv. No. 86-1129G.,Bankruptcy No. 86-03252G
• Citation: 72 BR 927
• Parties: In re PACOR, INC., Debtor. PAXTON NATIONAL INSURANCE COMPANY, Plaintiff, v. BRITISH AMERICAN ASSOCIATES and Simkiss Agency, Inc. and Pacor, Inc., Defendants.
• Court: U.S. Bankruptcy Court — Eastern District of Pennsylvania

72 B.R. 927 (1987)

In re PACOR, INC., Debtor PAXTON NATIONAL INSURANCE COMPANY, Plaintiff, v. BRITISH AMERICAN ASSOCIATES and Simkiss Agency, Inc. and Pacor, Inc., Defendants.

Bankruptcy No. 86-03252G, Adv. No. 86-1129G.

United States Bankruptcy Court, E.D. Pennsylvania.

April 30, 1987.

James W. Christie, Alan S. Gold, Griffith & Burr, Philadelphia, Pa. for plaintiff, Paxton Nat. Ins. Co.

Wayne A. Schaible, Duane, Morris & Heckscher, Philadelphia, Pa., for defendant, British American Associates, Inc.

Eugene J. Maginnis, Jr., Cozen and O'Connor, Philadelphia, Pa., for defendant, Simkiss Agency, Inc.

Stephen Levin, Jacoby, Donner & Jacoby, P.C., Philadelphia, Pa., for debtor/defendant, Pacor, Inc.

OPINION

BRUCE FOX, Bankruptcy Judge:

The plaintiff, Paxton National Insurance Company (Paxton), has filed a motion to remand this adversary proceeding to state court and a motion for mandatory abstention. For the reasons set forth below, I conclude that neither remand under either 28 U.S.C. § 1452(a) or (b) nor mandatory abstention is appropriate. I will enter an order denying the mandatory abstention motion. However, because a decision on the remand motion is nonreviewable, I believe that it should be entered only by the district court. As a result, I shall recommend to the district court that it deny the remand motion.

I

The facts surrounding this motion are not at issue. The debtor, Pacor, Inc., is the object of numerous lawsuits brought by individuals who have alleged that they were injured by exposure to asbestos and that Pacor (formerly the Philadelphia Asbestos Co.) is responsible for these injuries. In January 1979, Paxton issued an insurance policy in favor of Pacor through the efforts of insurance brokers British American Associates, Inc. (British) and Simkiss Agency (Simkiss). In February 1979, Paxton notified Pacor that it was cancelling this policy. In May 1984, Paxton sought relief against Pacor, British and Simkiss seeking only a declaration that there was never a valid policy in effect due to Pacor's alleged failure to provide accurate information in its insurance application form. Pacor counterclaimed against Paxton seeking recovery under the policy and also cross-claimed against British and Simkiss. In July 1986, Pacor filed a voluntary petition in bankruptcy under chapter 11 and in September 1986 removed this state court lawsuit to bankruptcy court pursuant to 28 U.S.C. § 1452(a) and Bankr. Rule 9027.

In December 1986, I held a pretrial conference, with all parties attending, which resulted in agreed upon deadlines being set for motions, discovery and pretrial statements, as well as the establishment of a trial date. Shortly before the date set for trial, Paxton filed the instant motion which, in turn, followed a recent motion to amend its complaint. By order dated April 24, 1987, I granted the request for amendment in part only. I denied, inter alia, Paxton's attempt to assert indemnification claims against British and Simkiss since such claims are unrelated to the debtor's bankruptcy case and I would have no jurisdiction to resolve such matters. See Pacor, Inc. v. Higgins, 743 F.2d 984 (3d Cir.1984).

Paxton now desires that this matter return to state court and raises in support a number of issues arising from the unique jurisdictional structure of bankruptcy courts which occurred as a result of the Bankruptcy Amendments and Federal Judgeship Act of 1984 (BAFJA), Pub.L. No. 98-353. Primarily, it argues that this matter was never removed timely and so must now be remanded. An analysis of the question forces me to look into what one court has already called "one of the worst legislative quagmires caused by" BAFJA. In re Eagle Bend Development, 61 B.R. 451, 452 (Bankr.W.D.La.1986).

II

Prior to enactment of the Bankruptcy Reform Act of 1978, removal of state court lawsuits to "bankruptcy court" (which was then the district court), could be had "only under the same conditions as govern removal generally." 2 Collier on Bankruptcy ¶ 23.21 (14th ed. 1976). That meant compliance with the provisions of 28 U.S.C. §§ 1441 et seq., which governed removal of matters to district court. As early as 1973, it was recognized that certain limitations embodied in the general federal removal statutes were not compatible with the plan to expand the jurisdiction of bankruptcy judges. Such expansion was designed to allow all matters relating to a bankruptcy case to be tried in one forum. See generally Creasy v. Colman Furniture Corp., 763 F.2d 656, 661 (4th Cir.1985). To remedy this situation, the Commission on the Bankruptcy Laws of the United States recommended the enactment of an additional removal statute exclusively for proceedings related to bankruptcy cases. Report of Commission on the Bankruptcy Laws of the United States, H.R.Doc. 93-137, 93d Cong., 1st Sess., Pt. II, at 33 (1973). Both the House and Senate accepted this recommendation, though in slightly different forms. See S.Rep. No. 95-989, 95th Cong., 2d Sess. 156 (1978); H.Rep. No. 95-595, 95th Cong., 1st Sess. 448 (1977). The resulting compromise produced former 28 U.S.C. § 1478. Among the differences between 28 U.S.C. § 1441 and former 28 U.S.C. § 1478 is that the latter does not restrict a removal petition to a defendant. See Creasy v. Coleman Furniture Corp., 763 F.2d at 460-661; 1 Collier on Bankruptcy, ¶ 3.01, at 3-72 (15th ed. 1987) ("Collier").

As the Third Circuit Court of Appeals noted, in Pacor, Inc. v. Higgins, 743 F.2d, at 991-992:

Section 1478(a) thus authorizes a very different type of removal than does section 1441. Under its provisions, a proceeding from any other court (including another federal court) may be removed to the bankruptcy court, provided the bankruptcy court has jurisdiction of the action under 28 U.S.C. § 1471. We find that, at the time the Bankruptcy Reform Act was passed, section 1478 removals simply could not be included within the general framework of sections 1441-1447. By its own terms, section 1478 deals with removals to the bankruptcy court, which — at least at the time the 1978 Act was enacted — was an entirely separate entity from the district court. On the other hand, it allows removals not only from a state court, but from other federal courts as well, thus permitting removals which sections 1441-1447 do not. A double incongruity with sections 1441-1447 would therefore arise if we were to construe the two sets of statutes as embracing the exact same circumstances.

The fact that any attempt to apply the general removal provisions to removals brought under section 1478 would create a number of statutory conflicts and inconsistencies, supports the conclusion that the provisions of sections 1441-1447 were never meant to be read into the procedures for bankruptcy removals. Since, by their own terms, sections 1441-1447 can only apply to removal from state courts, while bankruptcy removals may come both from state and federal courts, an inexplicable hiatus would develop if the two statutes were engrafted onto each other, whereby some removed bankruptcy cases would be covered by the procedures of sections 1441-1447, while others would not. Similarly, section 1441 allows only a defendant to seek removal, whereas section 1478 allows any party to remove. Sections 1441-1447, again by their own terms, could not apply to matters removed by a plaintiff, creating another statutory limbo. We decline to read such incongrous results into the legislation.

(footnote omitted).¹

Section 1478(a) allowed proceedings falling within the jurisdictional ambit of bankruptcy courts to be removed to those courts, but the statute set no time deadlines nor did it set forth a removal procedure. That procedure was ultimately established, along with time deadlines, by the Supreme Court through its rulemaking power granted in 28 U.S.C. § 2075.² Between the enactment of nationwide rules of bankruptcy procedure and the passage of the § 1478, which was part of the Bankruptcy Reform Act of 1978, Pub.L. No. 95-598, some removal procedure was required. Since 28 U.S.C. § 1446 set forth the procedure for removal under § 1441, and removal under § 1478 was not exactly parallel to § 1441, the terms of § 1446 did not apply in this interim period. Rather, the Advisory Committee on Bankruptcy Rules of the Judicial Conference of the United States drafted "Suggested Interim Bankruptcy Rules" which were adopted in various districts as local rules of bankruptcy procedure. Among the interim rules was Rule 7004 which, while borrowing from Section 1446, set out its own procedures and time limits for removing proceedings to bankruptcy court. See In re Potts, 724 F.2d 47, 51 (6th Cir.1984); Weintraub and Resnick, Bankruptcy Law Manual ¶ 6.045 (1980). Generally, the interim rule established the deadline for filing a removal application as 30 days from the date of the order for relief.

The procedures and deadlines set forth in Interim Rule 7004 were ultimately supplanted in 1983 by Bankr. Rule 9027. As the lengthy Advisory Committee Note to Rule 9027 makes clear, the removal procedures and time deadlines established by this rule are different from those set out in 28 U.S.C. §§ 1441, 1446 because of unique concerns and policies embodied in the Bankruptcy Code. For example, a state law case may have been brought prepetition by a plaintiff who later files for bankruptcy; a bankruptcy trustee (or debtor in possession) who has interests distinct from the debtor's may conclude that those interests are better served by removal to bankruptcy court. Rule 9027(a)(2) would permit such removal, while § 1446 would not. Similarly, the debtor may have been sued prepetition in state court but this lawsuit is stayed by 11 U.S.C. § 362(a) upon the debtor's filing a bankruptcy petition. While the stay is in place, the debtor may not desire removal; yet Rule 9027(a)(2) allows removal if the stay is later lifted.³ Section 1446 does not allow such flexibility.

Former...