Pratt v. Maale (In re Maale)
| Decision Date | 05 March 2014 |
| Docket Number | Adversary No. 13-02511,Bankruptcy Number: 11-35330 |
| Parties | In re: GERHARD EMIL MAALE, III, Debtor. BRAD PRATT AND KAYE PRATT, dba, PROMED BILLING, INC., Plaintiffs, v. GERHARD EMIL MAALE, III, an individual, and DALLAS - FORT WORTH SARCOMA GROUP, P.A., Defendants. |
| Court | U.S. Bankruptcy Court — District of Utah |
MEMORANDUM DECISION DETERMINING MOTION TO REMAND AND
On February 19, 2014, the Court held hearings on a Motion to Remand or Abstain brought by Brad and Kaye Pratt, dba Promed Billing Inc., (the "Pratts") and a Motion to Transfer Venue brought by Gerhard E. Maale ("Maale") and the Dallas-Fort Worth Sarcoma Group, P.A., (the "Sarcoma Group"). R. Stephen Marshall represented the Pratts and Jeremy Sink represented Maale and the Sarcoma Group. Following oral argument, the Court took the matter under advisement. After considering the arguments, reviewing the pleadings, and conducting its own research, the Court issues the following ruling:
I. Facts
Maale filed an individual chapter 11 petition in the Northern District of Texas on August 25, 2011. Robert Yaquinto (the "Trustee") was appointed trustee on October 18, 2011. On or about March 20, 2012, during the pendency of the case, Maale and the Sarcoma Group entered into a contract (the "Contract") with the Pratts for billing services. Both Maale and the Sarcoma Group signed the Contract.
The Pratts were aware after conversations with the Trustee that Maale had previously filed for bankruptcy. The parties dispute whether the Pratts were aware that Maale was in bankruptcy when the Contract was entered into. The parties appear to agree that in either event the Pratts did not receive formal notice of any deadlines in connection with Maale's bankruptcy case.
On or about February 8, 2013, the Sarcoma Group terminated the Contract. Both parties allege the other breached.
Maale's Chapter 11 Plan (the "Plan") was confirmed on September 25, 2013 with an effective date of October 7, 2013. The bar date to request an administrative expense was November 6, 2013. The Pratts did not file a proof of claim or a request for an administrativeexpense.
The Pratts filed a complaint in Utah state court on or about October 28, 2013 against Maale and the Sarcoma Group for breach of contract and unjust enrichment. The Pratts requested damages of $48,106.01. Maale and the Sarcoma Group counterclaimed for damages in excess of $75,000.
Maale removed the proceeding to this Court on December 20, 2013, arguing that it is a core proceeding under 28 U.S.C. § 157(b)(2)(A), (B), and (O). The Pratts filed the Motion to Remand under 28 U.S.C § 1452(b) or Abstain under 28 U.S.C. § 1334(c)(1) and (2) on January 21, 2014. The Pratts argued that abstention or permissive remand was appropriate because the claims arose solely under state law. On January 23, 2014, Maale and the Sarcoma Group filed the Motion to Transfer Venue to the United States Bankruptcy or District Court for the Northern District of Texas, Dallas Division, where Maale's case was filed and is still open.
For the convenience of the parties and the Court, the Court authorized the hearings on the Pratts' Motion to Remand and Maale's Motion to Transfer Venue to be heard together. The Court specifically finds that notice of hearing on the motions are and has been adequate. Venue and jurisdiction are discussed hereafter.
II. Analysis
The proceeding was initially removed because Maale argued that the proceeding "involves" administrative claims. The Pratts argued in response that the Court must abstain because the causes of action arise solely under state law. After this point, the parties' memoranda took a different form: the parties began to focus their argument on whether the Pratts' recovery was barred by the Plan. The Pratts based their argument on due process. They cite to Reliable Elec.Co., Inc. v. Olson Const. Co., 726 F.2d 620 (10th Cir. 1984) for the proposition that reasonable notice of the confirmation hearing, which under Reliable they did not receive, is required before a claim can be discharged. Oral argument focused almost entirely on this issue.
With the parties focusing on the issues of due process and discharge, the parties did not contest the Court's subject matter jurisdiction over the removed complaint. The Court must nonetheless determine whether it has jurisdiction before it may issue a ruling. Basso v. Utah Power & Light Co., 495 F.2d 906, 909 (10th Cir. 1974) ().
The pertinent removal statue is 28 U.S.C. section 1452. Section 1452 provides that "[a] party may remove any claim or cause of action in a civil action . . . to the district court for the district where such civil action is pending . . . if such district court has jurisdiction of such claim or cause of action under section 1334 of this title." 28 U.S.C. § 1452(a) (emphasis added). 28 U.S.C. section 1334 of grants bankruptcy subject matter jurisdiction over three distinct types of civil proceedings: (1) proceedings "arising under" title 11; (2) proceedings "arising in" a case under title 11; and (3) proceedings "related to" a case under title 11. 28 U.S.C. § 1334(b). 28 U.S.C. section 157 further divides bankruptcy court jurisdiction into two categories: (1) core jurisdiction, over which the bankruptcy court may enter final orders; and (2) non-core jurisdiction, over which the bankruptcy court may not enter final orders. 28 U.S.C. § 157(b)-(c). Proceedings "arising under" title 11 or "arising in" a case under title 11 are core proceedings. 28 U.S.C. § 157(b)(1). Proceedings which are only "related to" a case are non-core proceedings. 28 U.S.C. § 157(c)(1).
There are six causes of action over which this Court is requested to rule. These causes of actions can be placed in four categories: (1) the Pratts' breach of contract and unjust enrichment causes of action against the Sarcoma Group; (2) the Pratts' breach of contract and unjust enrichment causes of action against Maale; (3) Maale's breach of contract counterclaim against the Pratts; and (4) the Sarcoma Group's breach of contract counterclaim against the Pratts. The Court will take each in turn.
"Actions which do not depend on the bankruptcy laws for their existence and which could proceed in another court are not core proceedings." In re Gardner, 913 F.2d 1515, 1518 (10th Cir. 1990).
Both prongs of the Gardner test are met here. First, the causes of action do not depend on the bankruptcy laws for their existence: they are based solely on state-created rights. Second, the proceeding was originally brought in state court and would have proceeded there had it not been removed. The proceeding thus could proceed in another court. Therefore, the actions are not core.
"[T]he test for determining whether a civil proceeding is related in bankruptcy is whether the outcome of that proceeding could conceivably have any effect on the estate being administered in bankruptcy." In re Gardner, 913 F.2d at 1518 (citing Pacor, Inc. v. Higgins, 743 F.2d 984, 994 (3d Cir.1984)).
The Court does not see how the Pratts' causes of action against the Sarcoma Group couldaffect the bankruptcy estate. Neither the Pratts nor the Sarcoma Group was a debtor to the case, nor would recovery by any party go towards paying creditors of the estate.
The only relation that the Sarcoma Group has to the bankruptcy estate is that Maale's ownership shares in the Sarcoma Group were at one point property of the estate. See 11 U.S.C. § 541. Upon confirmation, however, the shares vested in Maale. See 11 U.S.C. § 1141(b). Thus, as the Pratts' causes of action against the Sarcoma Group involves no debtors, would not result in any payment to creditors, and does not involve property of the estate, the proceeding is not related to the bankruptcy case. See Gardner 913 F.2d at 1518 (); accord In re Barnes, 365 B.R. 1, 4 (Bankr. D.D.C. 2007) ().
The Pratts' causes of action against Maale are not core because they arise exclusively under state law and could be brought in Utah state court. See Gardner, 913 F.2d at 1518.
Maale asserts that the Court has core jurisdiction over this proceeding because it "involves" an administrative claim. A look at the claims register in Maale's bankruptcy case reveals that the Pratts were not allowed an administrative claim. Moreover, the Pratts do not seek an administrative claim; they seek only state court judgments against Maale and the Sarcoma Group.
Maale argues that the Pratts accrued an administrative claim which they failed to file. Underthe Plan, administrative claims which were not filed by the applicable bar date are "forever barred and discharged."
The complaint before the Court is not one to determine the dischargeability of a claim and so the Court is unwilling to rule on that issue. However, even under this theory, the suit does not "involve" an administrative...
To continue reading
Request your trial