Phoenix Envtl., LLC v. Xeric Oil & Gas, Inc. (In re Phoenix Envtl., LLC)

• Decision Date: 03 October 2012
• Docket Number: Adv. No. 12-1007 S,No. 11-11-15031 SA,11-11-15031 SA
• Parties: In re: PHOENIX ENVIRONMENTAL, LLC, Debtor. PHOENIX ENVIRONMENTAL, LLC, Plaintiff, v. XERIC OIL AND GAS, INC., BAKER MO SERVICES, INC., and DAN JOHNSON and COLLEEN JOHNSON, dba DC Energy, Defendants.
• Court: U.S. Bankruptcy Court — District of New Mexico

In re: PHOENIX ENVIRONMENTAL, LLC, Debtor.PHOENIX ENVIRONMENTAL, LLC, Plaintiff,

v. XERIC OIL AND GAS, INC., BAKER MO SERVICES, INC.,and DAN JOHNSON and COLLEEN JOHNSON, dba DC Energy, Defendants.

No. 11-11-15031 SA

Adv. No. 12-1007 S

UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF NEW MEXICO

Dated: October 3, 2012

REPLACEMENT¹ MEMORANDUM OPINION IN SUPPORT OF ORDER

ABSTAINING FROM HEARING ADVERSARY PROCEEDING

AND REMANDING ADVERSARY PROCEEDING TO STATE COURT

Debtor in possession Phoenix Environmental, LLC ("Debtor") moved this Court to abstain from adjudicating this adversaryproceeding ("Abstention Motion"). Doc 13. For the reasons set out below, the Court grants the Abstention Motion.²

Background

On or about September 14, 2009, Phoenix Environmental, LLC filed a Verified Complaint for Debt and Money Due and to Foreclose Oil and Gas Liens in the Fifth Judicial District, Lea County, New Mexico ("State Court Action"). The named defendants were Xeric Oil and Gas, Inc. (which incurred the debts and was the owner of the oil and gas leases at the time the purported liens attached), Baker Mo Services, Inc., also a lien claimant on some of the properties³ , and Dan and Colleen Johnson dba DC Energy, who had purchased the leases from Xeric prior to thefiling of the State Court Action. Debtor filed its voluntary chapter 11 petition on November 20, 2011 (main case, doc 1). Defendants Dan Johnson and Colleen Johnson ("Defendants") removed the State Court Action to this Court by filing their Notice of Removal on January 19, 2012. Doc 1. Debtor moved to remand on the basis of both mandatory and discretionary abstention. Doc 13. Defendants responded in opposition, doc 15, Debtor replied, doc 17, to which Defendants sur-replied. Doc 21. The parties have not asked for an evidentiary hearing, and so the Court has decided this matter on the papers submitted.⁴

Analysis

Debtor argues for both permissive abstention under 28 U.S.C. §1334(c)(1) and mandatory abstention under 28 U.S.C. §1334(c)(2). That latter section provides as follows:

Upon 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.

The adversary proceeding initiating this removal action was timely filed, F.R.B.P. 9027(a)(2), and following an initial pretrial conference held on February 6, 2012 (minutes - doc 6) and the entry of the order arising out the initial pretrial conference on March 7 (doc 12), Debtor promptly filed the Abstention Motion on March 12. The causes of action in the complaint and in the proposed counterclaim and cross-claim - collection of a debt, foreclosure of purported liens, deceptive trade practices, slander of title and quiet title (doc 1-5, at 7-9) - are all eminently state law causes of action that are related matters and not core. While they are related to the chapter 11 case, in that the resolution of the dispute might provide substantial funds to (or generate additional obligations for) the estate, they are not core proceedings because the causes of action do not arise under or in the chapter 11 case. 28 U.S.C. §157(b); Stern v. Marshall, ___ U.S. ___, 131 S. Ct. 2594, 2603-05 (2011); see generally Personette v. Kennedy (In re Midgard Corp.), 204 B.R. 764 (10th Cir. BAP 1997).⁵

It is true that adjudicating the competing claims will presumably liquidate the claims of the parties against each other, thereby affecting the administration of the estate, resulting in the allowance or disallowance of claims by and against the estate, determining the validity, extent and priority of liens, and otherwise adjusting the debtor-creditor relationship. See 28 U.S.C. §157(b)(2). But it is not sufficient to argue the removed action must stay in the bankruptcy court because there might be core matters to be decided. Schmidt v. Klein Bank (In re Schmidt), 453 B.R. 346 (8th Cir. BAP 2011) (pending state court causes of action were not core proceedings notwithstanding that it was possible to place them within one or more types of "core" proceedings identified in §157(b)(2)); see also Delphi Automotive Systems, LLC v. Segway, Inc., 519 F.Supp.2d 662, 671 (E.D. Mich. 2007) ("The state law claims asserted in Plaintiff's complaint predominate over any bankruptcy issue that may arise due to Plaintiff's chapter 11 proceeding.") . In any event, nothing in §1334(c)(2) allows for such an exception; that is, if therequirements of §1334(c)(2) are met, the Court must abstain, even if what is at issue appears to include core matters.

However, what makes §1334(c)(2) inapplicable is that this action could have been commenced in the United States District Court absent the bankruptcy filing. That is, the requirements for federal jurisdiction pursuant to a jurisdictional provision other than 28 U.S.C. §1334 - specifically 28 U.S.C. §1332(a)⁶ - have been met. First, the amount in issue is approximately $152,000 plus interest allegedly accruing at the rate of 15% per annum from November 2008, easily exceeding the $75,000 jurisdictional minimum. Second, the requisite diversity of citizenship exists. The Johnsons themselves are Georgia citizens. DC Energy, LLC is a New Mexico limited liability company.⁷ Compare Verified Complaint, ¶4 (Johnsons d/b/a DC Energy of Dallas, Georgia) (doc 1-2) with Answer to Verified Complaint, ¶2 ("This Defendant [sic] denies the allegations ofParagraph Four and affirmatively states that DC Energy, LLC is a New Mexico Limited Liability Company.") (doc 1-4). But as Defendants have usefully pointed out to the Court, the citizenship of a limited liability company is determined by the citizenship of its members. E.g., THI of New Mexico at Las Cruces, LLC v. Fox, 727 F.Supp.2d 1195, 1211 n. 6 (D.N.M. 2010):

THI of Las Cruces is a limited liability company whose sole member, THI of Baltimore, Inc., is a citizen of Delaware and Maryland, see Johnson v. Columbia Props. Anchorage, LP, 437 F.3d 894, 899 (9th Cir. 2006)("We therefore join our sister circuits and hold that, like a partnership, an LLC is a citizen of every state of which its owners/members are citizens."); Pramco, LLC ex rel. CFSC Consortium, LLC v. San Juan Bay Marina, Inc., 435 F.3d 51 (1st Cir. 2006); Handelsman v. Bedford Village Assocs. Ltd. P'ship, 213 F.3d 48 (2d Cir. 2000); Gen. Tech. Applications, Inc. v. Exro Ltda., 388 F.3d 114 (4th Cir. 2004); Harvey v. Grey Wolf Drilling Co., 542 F.3d 1077 (5th Cir. 2008); Homfeld II, L.L.C. v. Comair Holdings, Inc., 53 Fed.Appx. 731 (6th Cir. 2002); Wise v. Wachovia Securities, LLC, 450 F.3d 265 (7th Cir. 2006); GMAC Commercial Credit LLC v. Dillard Dept. Stores, Inc., 357 F.3d 827 (8th Cir. 2004); Rolling Greens MHP, L.P. v. Comcast SCH Holdings L.L.C., 374 F.3d 1020 (11th Cir. 2004). S. Fox is a New Mexico citizen and Zis [sic - should be Zia] Trust, Inc. is a New Mexico corporation with its principal place of business in Albuquerque, New Mexico. See Complaint to Compel Arbitration ¶¶ 2-3, at 1; Defendants' Answer ¶¶ 2-3, at 1. The underlying matter which THI of Las Cruces seeks to arbitrate involves an amount in controversy exceeding $75,000.00, exclusive of interest and costs. See Woodmen of World of Life Ins. Soc'y v. Manganaro, 342 F.3d 1213, 1217 (10th Cir. 2003)("[T]he requisite jurisdictional amount will be satisfied in a suit to compel arbitration unless it is legally certain that the stakes of the arbitration are $75,000 or less.").

Thus, the alignment of the parties is a New Mexico limited liability company whose members (Everett Allen Hodge and JanaHodge) are New Mexico citizens as plaintiff and as defendants two Georgia citizens and a New Mexico limited liability company treated as a Georgia citizen. Whether the liened properties are owned by the Johnsons individually, or perhaps by DC Energy, LLC, the fact is that for purposes of federal diversity jurisdiction, the requisite complete diversity of the parties exists. 28 U.S.C. §1332(a); McPhail v. Deere & Co., 529 F.3d 947, 951 (10th Cir. 2008)("[T]he citizenship of all defendants must be different from the citizenship of all plaintiffs."); Strawbridge v. Curtiss, 7 U.S. (3 Cranch) 267 (1806)(Same.) See also 13E Wright, Miller, Cooper, Freer, Steinman, Struve and Amar, Federal Practice & Procedure § 3605 (3d ed.). In consequence, the Court must deny the request for mandatory abstention.

The lists of the factors for discretionary abstention pursuant to 28 U.S.C. §1334(c)(1) are set out in Tsinigi v. Oakwood Acceptance Corp. (In re Oakwoood Acceptance Corp.), 308 B.R. 81 (Bankr. D.N.M. 2004):

Even assuming arguendo that this Court has core jurisdiction to determine whether the mobile home is property of the estate, the Court may remand the case under the discretionary remand provision, which allows a court to remand a proceeding on "any equitable ground." 28 U.S.C. § 1452(b). The standards used to determine whether equitable remand is warranted under § 1452(b) are virtually identical to those used to determine whether discretionary abstention is merited under § 1334(c)(1). See Frelin [v. Oakwood Homes Corp.], 292 B.R. [369] at 383-84 [(Bankr. E.D. Ark. 2003)] (outlining factors for equitable remand and discretionary abstention), citing Williams v. Motel 6 Multipurpose, Inc., 120 F.Supp.2d 776, 781 (E.D.Ark.1998) and Arkansas Dept. of Human Services Div'n of Medical Services v. Black & White Cab Co., Inc. (In re Black & White Cab Co., Inc.), 202 B.R. 977 (Bankr. E.D.Ark. 1996). The factors to consider in discretionary abstention are:

1. the effect of remand on the efficient administration of the estate;

2. the extent to which state law issues

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