Searcy v. Knostman
| Decision Date | 09 June 1993 |
| Docket Number | Civ. A. No. J92-0035(W). |
| Citation | 155 BR 699 |
| Court | U.S. District Court — Southern District of Mississippi |
| Parties | Mary Ruth Jones SEARCY, Mary Willie Johnson Jones, Virginia Elizabeth Jones Martin, Clemover Corp., Wil-Ken Production Company, Jerry Zoble, and C. Ward Bannerman v. Gary KNOSTMAN, Trustee for the Estate of Tomlinson Interests, Inc., Albert F. Thomasson, Burgess A. Thomasson, Sea Island Exploration, Ltd., McMillan-Johns Exploration, Inc., Viking Petroleum, Inc., V & P 79A Private Drilling Program, and Transcontinental Gas Pipe Line Corp. |
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Charles G. Copeland, Glenn Gates Taylor, Jackson, MS, for plaintiffs.
Barry H. Powell, John E. Wade, Jr., Jackson, MS, for defendants.
Before the court are the plaintiffs' objections to two Orders entered by the Magistrate-Judge. The first Order denied plaintiffs' motion to remand this matter to the state court where it originated or, in the alternative, for the court to abstain. The second Order granted defendants' motion for referral and motion to transfer venue, ordering that this entire action be transferred to the Bankruptcy Court in Houston, Texas. In reaching his conclusions, the Magistrate-Judge held that this lawsuit over the proceeds of natural gas wells, between plaintiff royalty owners and one defendant presently in bankruptcy, is essentially a core bankruptcy proceeding as recognized by 28 U.S.C. § 157. The Magistrate-Judge further found that this entire action, which involves other defendants who are not in bankruptcy, should be transferred to the Bankruptcy Court in Houston, Texas, which presently is adjudicating the bankruptcy of defendant Knostman.
Pursuant to 28 U.S.C. § 636(b)(1)(A),1 a district court may modify or set aside any portion of the Magistrate-Judge's Order relating to a nondispositive motion only if the Order is clearly erroneous or contrary to law. Rule 72(a)2 of the Federal Rules of Civil Procedure similarly states that a district court must apply the clearly erroneous standard, a deferential standard of review. Since the motions for review before this court concern transfer and remand, and thus are non-dispositive, they clearly fall under this deferential standard of review. See City of Jackson v. Lakeland Lounge, 147 F.R.D. 122, 124 (S.D.Miss.1993) (), and Holmes v. TV-3, Inc., et al., 141 F.R.D. 697, 699 (W.D.La. 1991) (). Cognizant of the applicable standard, this court finds that after a review of the memoranda of the parties, together with all attached exhibits, and after having heard oral arguments in this matter, the Magistrate-Judge's Orders are clearly erroneous and contrary to law and, thus, must be modified and set aside. Specifically, this court finds that this lawsuit is not a core proceeding and, further, that pursuant to 28 U.S.C. § 1334(c)(1) and § 1452(b) this lawsuit is ripe for abstention and should be remanded to the Mississippi state court from where it was removed here.
The plaintiffs' lawsuit sub judice against the defendants is based on common-law breach of contract and tort principles. Plaintiffs are royalty owners of natural gas wells in the Johns Field located in Rankin County, Mississippi. The defendants, excluding Transcontinental Gas Pipeline Corporation hereinafter Transco, are lessees with working interests in plaintiffs' wells who participate in the purchase and sale of the gas produced. Defendant Transco, a purchaser of natural gas, entered into a contract in 1982 called the "Transco contract" with defendant lessees for the purchase of gas from the wells in Rankin County, Mississippi. By 1989, Transco desired a release from the obligations under the 1982 contract and, as a consequence, filed a lawsuit against defendant Knostman and other lessees3 alleging, in part, that events "force majeure" relieved it of its contractual duties.
The event which spawned this lawsuit and its various claims was a settlement agreement reached in 1991 between the defendant Transco and Knostman in the United States Bankruptcy Court for the Southern District of Texas, Houston Division.4 The agreement, among other things, released Transco from its contractual duty to pay the lessees $9.00 per MCF and lowered the purchase price to approximately $3.00 per MCF.5 The settlement also provided substantial lump sum monies to the lessees.6
The plaintiff royalty owners, although not parties to the litigation in the bankruptcy court, were dissatisfied with the terms of the settlement. Plaintiffs, as royalty owners, possessed certain financial interests in the compromise since plaintiffs' profits depended upon Transco's price paid for natural gas.
Aggrieved over the provisions of the settlement reducing Transco's purchasing commitment, plaintiffs filed the present lawsuit in the Circuit Court of Rankin County, Mississippi. Defendants then removed the matter to this court pursuant to 28 U.S.C. § 1452(a)7 and § 1334(b).8 Plaintiffs in their complaint seek recovery against the lessees and Transco for breach of the "Transco contract"; for breach of division order contracts between lessees and royalty owners; for breach of implied obligations; for failure to pay royalties; and for tortious breach and interference with contractual relations. The plaintiffs request that this court award them compensatory and punitive damages resulting from the alleged breach of the various contracts or, in the alternative, plaintiffs desire a payment of royalties under the terms of the 1982 Transco contract.9
Title 28 U.S.C. § 1452 states that "a party may remove a 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 has jurisdiction of such claim or cause of action under section 1334 of this title." Title 28 U.S.C. § 1334(b) provides that "... the district courts shall have original but not exclusive jurisdiction of all civil proceedings arising under title 11, or arising in or related to cases under title 11." (emphasis added). Thus, this court has subject matter jurisdiction to hear this case removed from state court if the controversy is at least "related to" a case under Title 11. For an action to be "related to" a case under Title 11, the test applied by the Fifth Circuit is "`whether the outcome of that proceeding the state court action could conceivably have any effect on the estate being administered in bankruptcy.'" Matter of Wood, 825 F.2d 90, 93 (5th Cir.1987) (quoting Pacor, Inc. v. Higgins, 743 F.2d 984, 994 (3rd Cir.1984)). E.g., Matter of Majestic Energy Corp., 835 F.2d 87, 90 (5th Cir.1988); Da Silva v. American Sav., 145 B.R. 9, 11 (S.D.Tex.1992). Accord In re Marcus Hook Development Park, Inc., 943 F.2d 261, 264 (3rd Cir.1991); In re A.H. Robins Co., 788 F.2d 994, 1002 n. 11 (4th Cir.), cert. denied, 479 U.S. 876, 107 S.Ct. 251, 93 L.Ed.2d 177 (1986); In re Dogpatch, U.S.A., Inc., 810 F.2d 782, 786 (8th Cir. 1987); In re Fietz, 852 F.2d 455, 457 (9th Cir.1988); In re Gardner, 913 F.2d 1515, 1518 (10th Cir.1990); Matter of Lemco Gypsum, Inc., 910 F.2d 784, 788 (11th Cir. 1990). The present suit, in part, attacks a settlement agreement reached in the Bankruptcy Court in Houston, Texas, between defendant Knostman and defendant Transco. Any monetary judgment and/or injunctive relief that may be obtained by the plaintiffs in the present case would clearly have an impact on the estate being administered in bankruptcy. Plaintiffs could seek enforcement of a judgment against Knostman in the United States Bankruptcy Court for the Southern District of Texas, and such action certainly would affect the affairs in bankruptcy. Accordingly, the jurisdictional prerequisites under § 1334(b) have been satisfied.
Plaintiffs, however, contend that this court is without jurisdiction to hear this case because the defendants improperly filed their removal petition with the district court instead of with the bankruptcy court clerk. Title 28 U.S.C. § 1452(a) states that a state court case may be removed "to the district court for the district where such civil action is pending." The plain language of the statute supports removal of a case related to bankruptcy to the district court for filing with the district court clerk. The district court may then refer the action to the bankruptcy court in accordance with 28 U.S.C. § 157(a).10 Although some jurisdictions have interpreted bankruptcy statutes to support removal directly to the bankruptcy court, Hendersonville Condominium Homes, Inc. v. Contractors Performance Corp., 84 B.R. 510, 511 (M.D.Tenn.1988), this court is in agreement with those jurisdictions which hold that removal should be to the district court clerk for possible referral to the bankruptcy court.11 Centrust Savings Bank v. Love, 131 B.R. 64, 65-66 (S.D.Tex.1991), and Helena Chemical Co. v. Manley, 47 B.R. 72, 75 (N.D.Miss.1985).
The Magistrate-Judge's Order transferring this lawsuit to the Bankruptcy Court in Houston, Texas, relies upon the implicit finding that the proceedings before this court are "core" bankruptcy proceedings. The significant distinction between "core" and "non-core" lawsuits is that in a "core" case, the bankruptcy judge may enter a final judgment pursuant to 28 U.S.C. § 157(b)(1)12 subject to review on appeal by the district court under 28 U.S.C. § 158(a).13 In a "non-core" case, the role of the bankruptcy judge is similar to that of a magistrate in that, without consent of the parties, the bankruptcy judge may only submit proposed findings of fact and conclusion of law to the district court. See 28 U.S.C. § 157(c)(1);14see also In re Cinematronics, Inc., 916 F.2d 1444, 1449 (9th Cir. 1990).
Title 28 U.S.C. § 157 does not define what constitutes...
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