This month I want to visit section 1452 of Title 28: removal of actions. 1Section 1452 states:
(a) A party may remove any claim or cause of action in a civil action other than a proceeding before the United States Tax Court or a civil action by a governmental unit to enforce such governmental unit’s police or regulatory power, 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 USCS §1334].
(b) The court to which such claim or cause of action is removed may remand such claim or cause of action on any equitable ground. An order entered under this subsection remanding a claim or cause of action, or a decision to not remand, is not reviewable by appeal or otherwise by the court of appeals under section 158(d), 1291, or 1292 of this title [28 USCS §158(d), 1291, or 1292] or by the Supreme Court of the United States under section 1254 of this title [28 USCS §1254].
The powers of removal provided by that provision to the practitioner are part of the jurisdictional scheme developed by Congress for a trustee or debtor in possession to take advantage of one of the significant benefits that come with the commencement of a bankruptcy case: the centralized forum for resolution of issues related to a debtor or the debtor’s estate.
When Congress adopted the Bankruptcy Code in 1978, it also added provisions to Title 28 meant to give the bankruptcy courts very broad jurisdiction to ensure their effectiveness as central fora. However, as a result of a compromise between the House of Representatives and the Senate, 2See N. Pipeline Constr. Co. v. Marathon Pipeline Co., 458 U.S. 50, 60 n.12 (1982). bankruptcy judges were denied Article III status resulting in the Supreme Court’s determination in Marathon that the key provision, 28 U.S.C. §1471, was unconstitutional. 3Id. at 84. The “fix” fashioned by Congress in 1984 gave bankruptcy jurisdiction to the (Article III) District Courts, 4See 28 U.S.C. §1334. leaving to those courts the decision whether to refer bankruptcy cases and related proceeding to the bankruptcy courts. 5See 28 U.S.C. §157. Even that scheme has proven less than constitutionally satisfactory, and the High Court has called it into question in Stern. 6See Stern v. Marshall, 131 S. Ct. 2594, 2618 (2011)(23 BBLR 815, 6/30/11). How much the reasoning of Stern will affect the viability of the bankruptcy court as a central forum remains to be seen, but gloomy prognostications certainly are not beyond the realm of reason. 7Recently, the Court of Appeals for the Sixth Circuit held matters within the scope of Stern could not be decided by the bankruptcy courts even by consent of the parties. See Waldman v. Stone, No. 10-6497, 2012 BL 283334, at *5-*10 (6th Cir. Oct. 26, 2012). As the progeny of Stern (and there already are many opinions interpreting Stern) pass through the courts, the advantage of a central forum may be reduced dramatically.
It is in this context that we must consider the effectiveness of removal as a tool for practitioners. It is clear, at least, that the utility of removal will be less in the future than it was prior to Stern.
Removal under 28 U.S.C. §1452 is different from ordinary removal to federal court under section 1441. To begin with, the latter provision is dependent upon a showing of jurisdiction under either section 1331 or 1332 of Title 28 (federal question and diversity respectively, as cited by sections 1441(a) and 1441(c)). Neither diversity or the presence of a federal question is a basis for jurisdiction available to the bankruptcy courts. 8Despite the reference in 28 U.S.C. §1334(c)(2) to other bases for federal jurisdiction besides a bankruptcy, the presence of a federal question or diversity in a matter does not expand bankruptcy court jurisdiction. Lately I have seen removals pursued jointly under sections 1452 and 1441, but where, as in my district, removal under the former section is direct to the bankruptcy court, 9See infra note 16. reliance on section 1441 can create at least complications in procedure. 10See, e.g., Fisher v. JPMorgan Chase Bank (In re Fort Worth Osteopathic Hosp., Inc.), 406 B.R. 741, 748 n.13 (Bankr. N.D. Tex. 2009). For example, if a case is removed under both sections directly to bankruptcy court and that court determines it lacks or should not exercise jurisdiction under section 1334, as the bankruptcy court lacks the jurisdictional authority to remove under 28 U.S.C. §1441, the district court must decide remaining removal issues; because the removal was originally to the bankruptcy courts, however, it is arguably too late for the district court to do so.
Second, there are procedural differences between the way removal is handled. Removal under section 1452 is generally governed by Fed. R. Bankr. P. 9027, while 28 U.S.C. §§1446 and 1447, which sections of the Judicial Code also may have application in removal under section 1452, 11See Things Remembered, Inc. v. Petrarca, 516 U.S. 124, 129 (1995) (“If an order remands a bankruptcy case to state court because of a timely raised defect in removal procedure or lack of subject-matter jurisdiction, then a court of appeals lacks jurisdiction to review that order under §1447(d), regardless of whether the case was removed under §1441(a) or §1452(a).”); J.D. Marshall Int’l, Inc. v. Redstart, Inc., 74 B.R. 651, 654 (finding 30-day period in §1446 applicable to cases removed under §1452). are applicable under section 1441. Particularly if counsel elects to invoke both section 1452 and section 1441, the difference in time limits and methods for dealing with responsive pleadings, remand, etc. merit careful study.
Also, Rule 9027 requires that a party admit or deny core status and consent or not to entry by the bankruptcy court of final judgment. See Rule 9027(e). Of course, in light of Stern and its progeny (especially given Waldman) the consent may not be effective, particularly if presumed from a failure to indicate non-consent. 12Consent was so implied in Edge Petroleum Operating Co., Inc. v. GPR Holdings L.L.C. (In re TXNB Internal Case), 483 F.3d 292, 298 (5th Cir. 2007). Certainly Stern, in which the party opposing bankruptcy court jurisdiction had filed a claim, raises questions about implied consent to bankruptcy court jurisdiction.
Section 1452 is also different from section 1441 in that the latter provides for removal of “any civil action” while section 1452 permits removal of “any claim or cause of action in a civil action.” Thus, under section 1452 removal may be limited to those portions of a civil action related to a bankruptcy case, leaving the balance of the suit pending in the original court. While—at least in my experience—removal under section 1452 is usually sought as to the entire pending suit, the flexibility afforded by section 1452 can ameliorate the jurisdictional problems posed by transferring an entire, multifaceted suit to federal court based on bankruptcy jurisdiction.
Another difference between sections 1441 and 1452 is that section 1441 is limited to removal from state court. Although section 1452 is not so limited, 13Section 1452(a) somewhat limits the source from which removal may occur and section 1445 limits the types of claims that may be removed. Though it is not entirely clear, and could be argued the other way, section 1445’s limitations would seem to apply to removal under section 1452. I have always been puzzled about the effect of removing a claim from one federal district court to another federal district court sitting in bankruptcy. At least in the districts where removal is to the district court (rather than the bankruptcy court), the result of removal is unclear. Perhaps, where only a claim or cause of action—as opposed to the entire suit—is removed, the result is bifurcation of the original action.
One interesting fact I learned from a lawyer friend was that removal of a matter on appeal in the state courts is possible. Though there are no decisions so applying section 1452, removal of matters on appeal in connection with a court insolvency proceeding under Title 12 has occurred. 14See, e.g., FDIC v. Meyerland Co., 960 F.2d 512 (5th Cir. 1992) (holding broad removal language of 12 U.S.C. §1819(b)(2)(C) permitted removal of state court appeal to federal district court), cert., denied 506 U.S. 1049 (1993). Depending on whether a state court appeal is removed to the district court or bankruptcy court, such appeal could be reviewed by either the federal court of appeals or the district court, respectively. Whichever court receives the removed action then refers it to the applicable appellate court. As section 1452 is comparable to the Title 12 counterpart, 1512 U.S.C. §1819(b)(2). the same procedures should be applicable under it. A question, however, arises as to whether the entire appeal—as opposed to claims or causes of action—must be removed.
One issue that has divided the courts is the court to which removal occurs: the bankruptcy court or the district court. Rule 9027 seems to call for removal to the district court. In some districts—which includes my district, however, removal is directly to the bankruptcy court. 16See N.D.TX L.B.R. 9027-1; see also Indus. Clearinghouse, Inc. v. Mims (In re Coastal Plains, Inc.), 326 B.R. 102, 107-08 (Bankr. N.D. Tex. 2005) (citing N.D. TEX. MISC. RULE 33), aff’d, 338 B.R. 703 (N.D. Tex. 2006). Practitioners should consult local rules to determine where removal papers must be filed.
Another issue involves remand of a removed proceeding. The Court of Appeals for the Ninth Circuit has held that remand by one court should be to the court from which the proceeding was received. 17Hudson-Ram L.P. v. Archer (In re U.S. Ref. & Mktg. Co. Inc.), 210 F.3d 387 (9th Cir. 2000). I share this view, 18See In re Interlink Home Health Care, Inc., 283 B.R. 429, 441 (Bankr. N.D. Tex. 2002); Garner v. Todd (In re Todd Entm’t), 397 B.R. 795, 800 (Bankr. N.D. Tex 2008) (“[T]his court has previously held that any remand by it of an action must be to the court transferring the action to this court.”) (citations omitted). but some courts have indicated that remand should be directly to the court from which the proceeding was initially removed. 19See, e.g., Terral v. SCH Mgmt. Solutions, Inc., No. Civ.A. 04-1545, 2012 BL _______, at *____ (E.D. La. 2004) (“The Court finds that the Bankruptcy Court has the power to remand this case across district lines directly to the state court from which it was removed.”). The difference can be significant, as following removal from a state court to the local district or bankruptcy court, the removing party often asks that venue of the matter be transferred to the district in which the underlying bankruptcy is pending.
Before closing this column out, it is worth noting that 28 U.S.C. §157(b)(5) has also been used to effect removal of personal injury claims directly to the district court for the district where the debtor-tortfeasor’s case is pending. 20See, e.g., Murray v. Pan Am. World Airways (In re Pan Am Corp.), 16 F.3d 513, 515 (2d Cir. 1994). Section 157(b)(5) states:
The district court shall order that personal injury tort and wrongful death claims shall be tried in the district court in which the bankruptcy case is pending, or in the district court in the district in which the claim arose, as determined by the district court in which the bankruptcy case is pending.
While this provision, at least on its face, does not appear to grant the power to remove and transfer claims (including cross claims) it has been effectively so used in most tort cases, and it certainly eases the burden for a debtor and the courts.
The ability to remove matters to the central forum offered by the bankruptcy court is a key element in the bankruptcy process. By centralizing in one court (or two counting the district court) claims by and against a debtor, not only are expenses for the estate held down but the coordination of other critical litigation with the bankruptcy process is facilitated.
Time will tell how Stern and its progeny will impact the ability of the bankruptcy court to serve the function of a central forum. In some jurisdictions—mine, for example—cordial relations and mutual respect between bankruptcy judges and district judges will ameliorate some of the threat to centrality inherent in Stern. Regardless, at least until Stern is substantially extended, removal remains a key tool for the practitioner.
