Zahn Law Firm, P.A. v. Ronald Baker

United States Bankruptcy Appellate Panel
For the Eighth Circuit
___________________________
No. 17-6015
___________________________
In re: Ronald Stuart Baker
lllllllllllllllllllllDebtor
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Zahn Law Firm, P.A.
lllllllllllllllllllll Plaintiff - Appellee
v.
Ronald Stuart Baker
lllllllllllllllllllll Defendant - Appellant
____________
Appeal from United States Bankruptcy Court
for the District of Minnesota - Minneapolis
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Submitted: October 2, 2017
Filed: November 16, 2017
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Before SCHERMER, NAIL, and DOW, Bankruptcy Judges.
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NAIL, Bankruptcy Judge.
Ronald Stuart Baker ("Debtor") appeals the May 3, 2017 order of the
bankruptcy court1 remanding an adversary proceeding brought against Debtor by
Zahn Law Firm, P.A. ("Law Firm").2 We affirm.
BACKGROUND
In August 2015, Law Firm commenced an action against Debtor in Minnesota
state court, alleging breach of contract and account stated. Debtor answered and
counterclaimed, alleging Law Firm's representation agreement was unenforceable and
seeking recovery of sums Debtor had paid Law Firm. Law Firm replied, raising
various affirmative defenses to Debtor's counterclaim.
The state court action bumped along for many months. In June 2016, both
parties filed motions to amend their respective pleadings, which were heard by the
state court on June 24, 2016 and taken under advisement. In July 2016, Law Firm
filed a motion for summary judgment, which was scheduled to be heard by the state
court on August 24, 2016.
The hearing on Law Firm's motion for summary judgment never took place.
On August 10, 2016, Debtor filed a petition for relief under chapter 13 of the
1
The Honorable Kathleen H. Sanberg, Chief Judge, United States Bankruptcy
Court for the District of Minnesota.
2
While "decisions to abstain or remand are not subject to review by appeal or
otherwise by the court of appeals or by the Supreme Court of the United States, . . .
appellate review by [the bankruptcy appellate panel] is fully permitted." Cargill, Inc.
v. Man Fin., Inc. (In re Refco, Inc.), 354 B.R. 515, 518 (B.A.P. 8th Cir. 2006) (citing
28 U.S.C. §§ 1334(d) and 1452(b)) (internal quotation marks omitted).
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bankruptcy code. This stayed further proceedings in the state court.3 Five days later,
Debtor removed the state court action to the bankruptcy court.
In April 2017, the bankruptcy court entered an order directing the parties to
appear and show cause why the adversary proceeding that was opened following the
removal of the state court action should not be remanded to the state court. Both
parties appeared and were heard. Debtor opposed remand; Law Firm did not. After
hearing the arguments of counsel, the bankruptcy court determined remand was
appropriate. The bankruptcy court memorialized its oral ruling in an order entered
May 3, 2017. Debtor timely appealed.
STANDARD OF REVIEW
We review a bankruptcy court's decision to remand for an abuse of discretion.
Sears v. Sears (In re Sears), 539 B.R. 368, 370 (D. Neb. 2015).
A court abuses its discretion when a relevant factor that
should have been given significant weight is not
considered; when an irrelevant or improper factor is
considered and given significant weight; or when all proper
factors and no improper ones are considered, but the court
commits a clear error of judgment in weighing those
factors.
City of Duluth v. Fond du Lac Band of Lake Superior Chippewa, 702 F.3d 1147, 1152
(8th Cir. 2013).
3
The filing of a petition for relief under title 11 automatically stays the
continuation of a judicial action or proceeding against the debtor that was commenced
before the bankruptcy case was filed. 11 U.S.C. § 362(a)(1).
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DISCUSSION
A bankruptcy court may remand a claim or cause of action on any equitable
ground. 28 U.S.C. § 1452(b). In determining whether to remand, a bankruptcy court
should first consider the same criteria used in determining whether to abstain from
hearing a matter under 28 U.S.C. § 1334(c)(1). Sears, 539 B.R. at 371-72 ("The
analysis used to determine whether equitable remand under § 1452(b) is appropriate
is virtually identical to the permissive abstention analysis[.]"). These criteria include:
(1) the effect or lack thereof on the efficient administration
of the estate if a [bankruptcy court] recommends
abstention,
(2) the extent to which state law issues predominate over
bankruptcy issues,
(3) the difficult or unsettled nature of the applicable law,
(4) the presence of a related proceeding commenced in
state court or other nonbankruptcy court,
(5) the jurisdictional basis, if any, other than 28 U.S.C.
§ 1334,
(6) the degree of relatedness or remoteness of the
proceeding to the main bankruptcy case,
(7) the substance rather than the form of an asserted "core"
proceeding,
(8) the feasibility of severing state law claims from core
bankruptcy matters to allow judgments to be entered in
state court with enforcement left to the bankruptcy court,
(9) the burden on the bankruptcy court's docket,
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(10) the likelihood that the commencement of the
proceeding involves forum shopping by one of the parties,
(11) the existence of a right to a jury trial, and
(12) the presence in the proceeding of nondebtor parties.
Stabler v. Beyers (In re Stabler), 418 B.R. 764, 769 (B.A.P. 8th Cir. 2009). A
bankruptcy court should also consider:
(1) whether remand serves principles of judicial economy;
(2) whether there is prejudice to unremoved parties;
(3) whether the remand lessens the possibilities of
inconsistent results; and
(4) whether the court where the action originated has
greater expertise.
Sears, 539 B.R. at 372.
In this case, the bankruptcy court considered and addressed each of the listed
criteria, and it considered and addressed only the listed criteria. Thus, the bankruptcy
court did not abuse its discretion either by failing to consider a relevant factor that
should have been given significant weight or by considering and giving significant
weight to an irrelevant or improper factor.
The bankruptcy court found ten of the first twelve criteria and three of the four
additional criteria weighed in favor of remand. It found the remaining criteria did not
weigh in favor of remand. Debtor challenges the bankruptcy court's findings
regarding four of the first twelve criteria: the first, third, fifth, and tenth.
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With respect to the first criterion–the effect, if any, on the efficient
administration of the bankruptcy estate–the bankruptcy court noted the state court
action had been pending since August 31, 2015 and there had been numerous motions
and hearings before the state court. The bankruptcy court also noted because of
Debtor's jury demand, the bankruptcy court would only be able to hear the adversary
proceeding through the discovery phase, and the district court would then need to try
the matter. Debtor challenges neither of these findings. We agree with the
bankruptcy court. The state court record is voluminous, and the bankruptcy court
would need to devote substantial time and effort to adequately familiarize itself with
that record. Starting over in the bankruptcy court would thus have an adverse effect
on the efficient administration of the bankruptcy case, which would only be
exacerbated by involving two federal courts in fully resolving the matter.
With respect to the third criterion–the difficult or unsettled nature of the
applicable law–the bankruptcy court found the case involved no difficult or unsettled
law. Debtor argues this weighs against remand. As it appears both Law Firm's
complaint and Debtor's counterclaim will be determined solely by reference to state
law–neither the state court nor the bankruptcy court has given Debtor leave to amend
his counterclaim to assert a RICO claim–Debtor may be correct. If that state law is
neither difficult nor unsettled, the state court is in no better position than the
bankruptcy court to apply it to the facts of the case. However, this is but one of
sixteen criteria the bankruptcy court considered before remanding the matter, and it
does not appear–and Debtor does not suggest–this was the deciding factor in the
bankruptcy court's decision. Any error in applying this single criterion is therefore
harmless.
With respect to the fifth criterion–the jurisdictional basis, if any, other than
28 U.S.C. § 1334–the bankruptcy court noted the "majority of" the basis for
jurisdiction of the adversary proceeding was "related to" jurisdiction under 28 U.S.C.
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§ 1334,4 the lone exception being Debtor's RICO claim, for which there would be an
independent basis for federal jurisdiction. See 18 U.S.C. § 1961 et seq. As noted
above, however, neither the state court nor the bankruptcy court has given Debtor
leave to amend his counterclaim to asset a RICO claim, which leaves only the state
law claims set forth in Law Firm's complaint and Debtor's counterclaim. And Debtor
has identified no statute other than 28 U.S.C. § 1334 under which the bankruptcy
court would have jurisdiction of those state law claims. Debtor makes much ado
about the bankruptcy court's suggestion that Debtor's RICO claim appears to be
frivolous. Regardless of whether the bankruptcy court was correct in its assessment
of that potential claim, however, we agree with the bankruptcy court's assessment of
the jurisdictional basis of the adversary proceeding. But for 28 U.S.C. § 1334, the
bankruptcy court would lack jurisdiction of Debtor's state law claims.
With respect to the tenth criterion–the likelihood that the commencement of the
adversary proceeding involved forum shopping–the bankruptcy court found the
timing of Debtor's removal of the state court action was evidence of forum shopping.
As Debtor does not deny he removed the state court action after the state court
entered rulings that were adverse to him, this is a permissible view of the record.
Debtor offers a different interpretation of his motivation in removing the matter to the
bankruptcy court: An appeal of the state court's rulings would have caused delay that
would have adversely affected the efficient administration of the bankruptcy estate.
Even assuming arguendo this is an equally permissible view of the record, we cannot
say the bankruptcy court's finding was clearly erroneous. Anderson v. City of
Bessemer City, North Carolina, 470 U.S. 564, 574 (1985) ("Where there are two
4
The district courts have original and exclusive jurisdiction of all cases under
title 11 and original but not exclusive jurisdiction of all civil proceedings arising
under title 11 or arising in or related to cases under title 11. 28 U.S.C. § 1334(a) and
(b). A district court may refer any or all such cases and any or all such proceedings
to the bankruptcy court. 28 U.S.C. § 157(a).
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permissible views of the evidence, the factfinder's choice between them cannot be
clearly erroneous.”).
In sum, the bankruptcy court found the overwhelming weight of the listed
criteria supported abstention. We agree. The bankruptcy court's analysis
demonstrates its exercising jurisdiction in this case would not resolve any bankruptcy
issue or serve any bankruptcy purpose that is not at least equally well-served by
remanding the matter to the state court. Thus, the bankruptcy court did not abuse its
discretion by committing a clear error of judgment in weighing the listed criteria,
either.
Debtor raises two additional arguments. First, he argues he is being required
to proceed in the state court without the automatic stay being lifted, modified, or
conditioned. Nothing in the record suggests this is so.
Second, Debtor argues the bankruptcy court's order remanding the adversary
proceeding to the state court is ambiguous as to its scope: "There is nothing in the
record . . . which limits the remand to a determination of the estimated value of [Law
Firm's] claim against [Debtor]." This is patently untrue. In its oral ruling, which it
incorporated by reference in its order, the bankruptcy court stated, "The State Court
can make a determination on fact and legal issues[,] and any enforcement of those
decisions would come back to [the bankruptcy court]."
CONCLUSION
Having concluded the bankruptcy court did not abuse its discretion in
remanding the adversary proceeding brought against Debtor by Law Firm, we affirm
the bankruptcy court's May 3, 2017 Order of Remand.
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