Welch Family Ltd. v. Brown (In re Re)
| Decision Date | 14 December 2018 |
| Docket Number | Adversary Proceeding No. 18-10013,Case No. 18-00434 |
| Parties | In re A V CAR & HOME, LLC, Debtor. WELCH FAMILY LIMITED PARTNERSHIP FOUR, Plaintiff, v. DAVID J. BROWN, et al., Defendants. |
| Court | United States Bankruptcy Courts – District of Columbia Circuit |
Not for publication in West's Bankruptcy Reporter.
The debtor, A V Car & Home, LLC ("AV"), a defendant in this adversary proceeding, removed this adversary proceeding from the Superior Court of the District of Columbia where it was pending as a civil action (Case No. 2016-CA-004991 R(RP)). The plaintiff, Welch Family Limited Partnership Four ("Welch Four"), has moved to remand the proceeding to the Superior Court.
Welch Four asserts that abstention of this court is required under 28 U.S.C. § 1334(c)(2), and that, alternatively, discretionary abstention is warranted under 28 U.S.C. § 1334(c)(1) and § 1452(b).
As the Superior Court noted in an order of October 4, 2017, the proceeding involves a thirty-inch walkway that is partially deeded to two adjacent properties, one owned by Welch Four and the other, located at 309 H Street NW, Washington, D.C. (the "Property"), owned by AV and David J. Brown, with each holding a 50% interest. Welch Four claims ownership of the entire walkway by reason of adverse possession or a prescriptive easement. Welch Family Limited Partnership Nine ("Welch Nine"), an entity related to Welch Four, holds a deed of trust against the Property. There appears to be no dispute that the Property has substantial equity in excess of Welch Nine's deed of trust claim.
I
AV concedes that the issues regarding mandatory abstention boil down to whether this is a core proceeding and whether the action can be timely adjudicated in the Superior Court.
Under 28 U.S.C. § 1334(c)(2) mandatory abstention does not apply if a proceeding is a core proceeding. The action principally involves Welch Four's claim to ownership of part ofthe Property by reason of adverse possession or a prescriptive easement, and the court must address whether that is a core proceeding. For the following reasons, those claims are not a core proceeding.1 The claims are not claims against the estate, a matter that a bankruptcy judge plainly may hear and decide, via an objection to claim as a core proceeding, without running afoul of Article III of the Constitution. Instead, the claims are claims of ownership of part of the Property as to which AV and claims ownership. Although record title to the Property (including the portion in dispute) rests in AV and Brown, Welch Four's claims, if upheld, would result in the portion in dispute, as a matter of District of Columbia law, being Welch Four's, with that portion not being property of the estate.
One would think that adjudicating the extent of the estate's property rights goes to the core of a bankruptcy case. "At its most basic level, bankruptcy is 'an adjudication of interests claimed in a res,'" Wellness Intern. Network, Ltd. v. Sharif, --- U.S. ----, 135 S.Ct. 1932, 1952, 191 L.Ed.2d 911 (2015) (Roberts,C.J. dissenting) (quoting Katchen v. Landy, 382 U.S. 323, 329, 86 S.Ct. 467, 15 L.Ed.2d 391 (1966)). "Defining what constitutes the estate is the necessary starting point of every bankruptcy; a court cannot divide up the estate without first knowing what's in it." Id. Accordingly, "[i]dentifying property that constitutes the estate has long been a central feature of bankruptcy adjudication." Id. Indeed, under 28 U.S.C. § 157(b)(2)(A), "matters concerning the administration of the estate" are classified as core proceedings. See Marah Wood Prods., LLC v. Jones, 534 B.R. 465, 474 (D. Conn. 2015) ()
Regardless of how central a property ownership dispute like this may be to resolving a bankruptcy case, and thought of as going to the core of the case, this proceeding must be treated as a non-core proceeding. Statutorily the proceeding may be a core proceeding, but that is not the end of the inquiry.
The classification of proceedings as core or non-core under 28 U.S.C. § 157(b)(2) was designed to address what claims a bankruptcy judge could decide without transgressing Article III of the Constitution. The Supreme Court has held that Article III of the Constitution bars bankruptcy judges from deciding aproceeding to determine ownership as a core proceeding if the third party's claim to the property is not merely colorable (that is, if the claim is a substantial adverse claim of ownership). See Sharif, 135 S.Ct. at 1950 and 1953 (Roberts, C.J. dissenting). See also Reed v. Nathan, 558 B.R. 800, 816 (E.D. Mich. 2016) ().
When a proceeding that is statutorily a core proceeding under 28 U.S.C. § 157(b)(2) but under Article III of the Constitution may not be heard by the bankruptcy judge, § 157(b)(2) is unconstitutional in regard to treating the particular proceeding as a core proceeding that the bankruptcy judge may hear and decide. See Executive Benefits Insurance Agency v. Arkison, 573 U.S. 25 (2014). In that event, the bankruptcy judge may only treat the proceeding as a non-core proceeding. Id.
AV has not contended that Welch Four's claim of ownership is merely colorable. Accordingly, by reason of the Supreme Court's Article III jurisprudence regarding whether a claim to ownership of property can be treated as a core proceeding that the bankruptcy judge may hear and decide, I conclude that Welch Four's claim in this proceeding must be treated as a non-core proceeding. The other claims in the proceeding are plainlystatutorily non-core or would have to be treated as such under Article III jurisprudence. Accordingly, this proceeding in its entirety is treated as a non-core proceeding.
The remaining issue with respect to mandatory abstention is whether the proceeding can be timely adjudicated by the Superior Court. As held in Power Plant Entm't Casino Resort Ind., LLC v. Mangano, 484 B.R. 290, 298-99 (Bankr. D. Md. 2012), the burden on the timeliness issue is more appropriately placed on the party opposing abstention. See also Parmalat Capital Fin. Ltd. v. Bank of Am. Corp., 639 F.3d 572, 582 (2d Cir. 2011); In re AOG Entm't, Inc., 569 B.R. 563, 573 (Bankr. S.D.N.Y. 2017) (); Commonwealth of Va. ex rel. Integra Rec LLC v. Countrywide Sec. Corp., 2015 WL 3540473, at *6 (E.D. Va. June 3, 2015). AV has failed to demonstrate that the matter cannot be timely adjudicated in the Superior Court. Even if the burden of proof regarding this issue is on Welch Four, Welch Four has shown that the matter can be timely adjudicated in the Superior Court.
Four factors come into play in evaluating § 1334(c)(2) timeliness: (1) the backlog of the state court's calendar relative to the federal court's calendar; (2) the complexity of the issues presented and the respective expertise of each forum; (3) the status of the title 11 bankruptcy proceeding to which the state law claims are related; and (4) whether the state court proceeding wouldprolong the administration or liquidation of the estate. See In re Georgou, 157 B.R. 847, 851 (N.D. Ill. 1993).
Parmalat, 639 F.3d at 580. As held in another decision, factors to consider are:
(1) backlog of the state court and federal court calendar; (2) status of the proceeding in state court prior to being removed (i.e., whether discovery had been commenced); (3) status of the bankruptcy case; (4) the complexity of the issues to be resolved; (5) whether the parties consent to the bankruptcy court entering judgment in the non-core case; (6) whether a jury demand has been made; and (7) whether the underlying bankruptcy case is a reorganization or liquidation case.
Personette v. Midgard Corp. (In re Midgard Corp.), 204 B.R. 764, 779 (10th Cir. B.A.P. 1997)).
As to the backlog factor, it is important to review the history of the proceeding. The proceeding has faced substantial delays, but the procedural history of the proceeding shows that the intervention of Brown's and AV's bankruptcy cases, and AV's initial inattention to the proceeding have caused the proceeding to move in fits and starts, and that the substantial delay cannot be attributed to any backlog in the Superior Court's calendar.
The proceeding began as a civil action in the Superior Court on July 11, 2016, via Welch Four's filing its complaint against AV and Brown. Welch Four has noted that on July 11, 2016, it mailed copies to Brown and to Brown as the registered agent of AV. On August 15, 2016, Brown filed a document titled Answer and Counterclaim, and Emergency Stay of Foreclosure, without awaitingpersonal service of a summons. On August 19, 2016, the Superior Court denied that document's request for a stay of foreclosure.
On September 8, 2016, Brown, acting without counsel, filed a voluntary petition in this court, Case No. 16-00466, commencing a case under Chapter 11 of the Bankruptcy Code, with Brown serving as a debtor in possession exercising the powers of a trustee (including the right to defend against Welch Four's complaint). On November 2, 2016, this court granted relief from the automatic stay of 11 U.S.C. § 362(a) in Brown's case to permit Welch Four to pursue its complaint in the Superior Court. On December 15, 2016, Welch Four made personal service on Brown and on Brown as the personal representative of AV. On December 16, 2016, Welch Four filed a praecipe in the Superior Court advising it that the automatic stay had been lifted. On January 6, 2017, the Superior Court held a status...
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