In re Ramirez

• Decision Date: 24 June 2009
• Docket Number: Adversary No. 09-07004.,Bankruptcy No. 09-70051.
• Parties: In re Anita C. RAMIREZ, Debtor. Anita Ramirez, Plaintiff v. Jose Alberto Rodriguez, Defendant.
• Court: United States Bankruptcy Courts. Fifth Circuit. U.S. Bankruptcy Court — Southern District of Texas

413 B.R. 621

In re Anita C. RAMIREZ, Debtor.

Anita Ramirez, Plaintiff v. Jose Alberto Rodriguez, Defendant.

Bankruptcy No. 09-70051.

Adversary No. 09-07004.

United States Bankruptcy Court, S.D. Texas, McAllen Division.

June 24, 2009.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

Albert Villegas, Villegas Law Firm, Brownsville, TX, for Plaintiff.

Demetrio Duarte, Jr, Attorney at Law, San Antonio, TX, for Defendant.

MEMORANDUM OPINION DENYING THE JOINT MOTION TO REMAND

MARVIN ISGUR, Bankruptcy Judge.

For the reasons set forth below, the Court denies the Joint Motion to Remand or, Alternatively, Joint Motion to Abstain from Hearing Plaintiffs' Original Petition and Remand to State Court filed by the chapter 7 Trustee ("the Trustee") and Jose Alberto Rodriguez, Patricia Rodriguez, individually as next friend of Roberto Rodriguez, and Maria Rodriguez ("the Rodriguezes") ("Motion to Remand") (docket no. 8).

1. Jurisdiction

The Court has jurisdiction over this proceeding pursuant to 28 U.S.C. §§ 1334(b) and 157(a). Venue is proper in this District pursuant to 28 U.S.C. § 1409. This is a core proceeding under 28 U.S.C. § 157(b)(2).

2. Background

On February 13, 2009, joint debtors¹ Anita C. Ramirez and Leonardo Ramirez, Sr. ("Debtors") filed this adversary proceeding against the Rodriguezes. The adversary concerns: (1) the dischargeability of a $19.5 million judgment against Debtors from a 2006 state court lawsuit² ("the 2006 case") with the Rodriguezes; (2) the validity of Debtors' 2005 and 2006 transfers to their children of real property that Debtors contingently claim as an exempt homestead; and (3) interests in certain certificates of deposit that Debtors claim they held only as nominal owners. Debtors request injunctive relief and a declaratory judgment.

On the petition date, Debtors removed a pending state court lawsuit that was initiated in 2008³ ("the removed case"). Debtors seek to have the removed case joined with the declaratory judgment adversary proceeding. In the removed case, the Rodriguezes are suing Debtors, their three children and two other persons⁴ for: (1) Debtors' alleged fraudulent transfers of the real property Debtors now contingently claim as homestead and of certain personal property that include the same certificates of deposit involved in the adversary; and (2) common law fraud. The Rodriguezes assert that Debtors, in concert with the other defendants, transferred their assets to the other defendants with the intent to hinder, delay, and defraud the Rodriguezes from recovering their $19.5 million judgment from the 2006 case. The Rodriguezes are seeking: (1) a judgment voiding the transfers under the Texas Uniform Fraudulent Transfer Act ("the TUFTA claim"); (2) a recovery against each defendant-transferee for a sum of at least $5,000,000.00; (3) punitive or exemplary damages of at least $3 million against each individual defendant; (4) court costs; (5) legal fees of at least $225,000.00; (6) pre-judgment and post-judgment interest; and (6) all other remedies at law or in equity.

On February 24, 2009, the Trustee filed a Motion to Intervene in Adversary as True Party-Plaintiff and Demand for Jury Trial (docket no. 7), which the Court granted on March 16, 2009 (docket no. 16). The Court designated the Trustee as the sole party-plaintiff with respect to the TUFTA claim and as a co-party plaintiff with the Rodriguezes as to the balance of the claims in the removed case.

3. The Motion to Remand

The Trustee and the Rodriguezes filed the Motion to Remand on February 24, 2009. The Trustee and the Rodriguezes assert that: (1) because Debtors did not comply with the removal requirements under 28 U.S.C. § 1446, FED. R. BANKR.P. 9027, and Local Rule 9027, Debtors' Notice of Removal is defective; (2) the removed case is based on state law claims and should proceed in state court; and (3) at the very least, the Court should permissively abstain or equitably remand the removed case.

On March 16, 2009, the Court conducted a hearing on the Motion to Remand and made the following rulings on the record:

(1) The Trustee and the Rodriguezes are not requesting abstention with respect to Debtors' declaratory action regarding dischargeability of the $19.5 million judgment. As such, Debtors' declaratory action remains with the Court.⁵

(2) With respect to Debtors' defective Notice of Removal, it is a procedural issue that does not divest the Court of jurisdiction to determine the substantive merits of abstention. The Court subsequently granted Debtors leave to correct defects in the original Notice of Removal. The First Amended Notice was filed April 17, 2009. With respect to mandatory abstention, permissive abstention, and equitable remand, the Court ordered the parties to submit briefs.

A. Mandatory Abstention

The Trustee and the Rodriguezes argue that mandatory abstention applies pursuant to 28 U.S.C. § 1334(c)(2). Section 1334(c)(2) provides 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.

28 U.S.C. § 1334(c)(2). In other words, the Court:

must abstain from hearing a state law claim if the following requirements are met: (1) a motion has been timely filed requesting abstention; (2) the cause of action is essentially one that is premised on state law; (3) the claim is a non-core proceeding, i.e. it is "related to" a case under title 11 but does not arise under or in a case under title 11; (4) the proceeding could not otherwise have been commenced in federal court absent federal jurisdiction under § 1334(b); (5) an action has been commenced in state court; and (6) the action could be adjudicated timely in state court.

J.T. Thorpe Co. v. Am. Motorists, No. H-02-4598, 2003 WL 23323005, at *2, 2003 U.S. Dist. LEXIS 26016, at *10 (S.D.Tex. June 6, 2003). See Schuster v. Mims (In re Rupp & Bowman Co.), 109 F.3d 237, 239 (5th Cir.1997).

The claims were removed to this Court on February 13, 2009. The Motion to Remand was filed on February 24, 2009, within 30 days after the notice of removal. As a result, the Motion to Remand was timely filed. 28 USC § 1447(c). The first requirement is met. The claims at issue are the TUFTA and common law fraud claims. Both of these claims are premised on state law, so the second requirement is met. The claims have no independent basis for federal jurisdiction other than § 1334(b). Therefore, the fourth requirement is met. Finally, the removed claims were initially filed in state court. The fifth requirement is met. The third and last requirements remain.

With respect to the third requirement, whether the claim is core or non-core, the Court finds it helpful to clarify how core status relates to bankruptcy jurisdiction. "Bankruptcy jurisdiction extends to four types of proceedings: (1) cases `under' title 11, that is, the bankruptcy petition; (2) proceedings `arising under title 11;' (3) proceedings `arising in' a bankruptcy case; and (4) proceedings `related to' a bankruptcy case." In re Exide Techs., 544 F.3d 196, 205 (3d Cir.2008) (citing 28 U.S.C. § 1334(b); In re Combustion Eng'g, Inc., 391 F.3d 190, 225 (3d Cir.2004)); Wood v. Wood (In re Wood), 825 F.2d 90, 92 (5th Cir.1987). "`[A]rising under title 11' ... describes those proceedings that involve a cause of action created or determined by a statutory provision of title 11." Id. at 96. "The meaning of `arising in' proceedings is less clear, but seems to be a reference to `those administrative' matters that arise only in bankruptcy cases." Id. at 97 (citing 1 COLLIER ON BANKRUPTCY ¶ 3.01 at 3-27 (1987)) (emphasis original). "Related to" proceedings are those where "`the outcome of that proceeding could conceivably have any effect on the estate being administered in bankruptcy.'" Id. at 93 (quoting Pacor, Inc. v. Higgins, 743 F.2d 984, 994 (3d Cir.1984)) (emphasis in original). Even when there is a "possibility [a] suit may ultimately have no effect on the bankruptcy," this possibility is not enough to conclude "that it will have no conceivable effect." Id.

Section 157(b)(2) of Title 28 contains a list of "core-proceedings." 28 U.S.C. § 157(b)(2)(A)-(P). However, not all claims that fit within the literal language of § 157(b)(2) can be treated as core claims consistent with the Supreme Court's Marathon decision. Northern Pipeline Const. Co. v. Marathon Pipe Line Co., 458 U.S. 50, 102 S.Ct. 2858, 73 L.Ed.2d 598 (1982). For example, § 157(b)(2)(O) characterizes as core proceedings any proceeding that could affect "the adjustment of the debtor-creditor" relationship. Any state law contract or tort claim will affect the debtor-creditor relationship and fit within the literal language of § 157(b)(2)(O) in that the outcome of the claim could increase or decrease estate assets available for distribution to creditors. However, Marathon found it unconstitutional for bankruptcy courts to exercise full Article III judicial authority over many types of pure state law claims. Id.

In Marathon, the defendant challenged the constitutionality of a bankruptcy court's authority to exercise full Article III judicial power over breach of contract, warranty, misrepresentation, coercion, and duress claims asserted against defendant. Id. at 56-57, 102 S.Ct. 2858. These state law claims would affect the debtor's estate and fall under the literal language of § 157(b)(2)(O) in that they could lead to a judgment that would increase estate assets. Yet Marathon explicitly stated that bankruptcy courts could not exercise Article III judicial power with respect to pure...