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Jurisdiction of the Bankruptcy Court


Dan B. Lain, Plan Trustee v. Watt, et al. (In re Dune Energy Inc.) (August 24, 2017)

Issues: A plan trustee under a liquidating plan (“Plaintiff”) filed suit against multiple former directors and officers of the Debtors (“Defendants”) for alleged misconduct (“Suit”). Plaintiff filed the Suit in Texas state court. Defendants then removed the Suit to federal court and the Suit was transferred to this Court. Plaintiff filed a Motion to abstain and remand the Suit to state court, which was opposed by Defendants. Issues addressed by the Court included: (1) whether the Court had bankruptcy subject matter jurisdiction over the post-confirmation Suit; (2) whether the Court was required to mandatorily abstain from the Suit; and (3) whether the Court should permissively abstain and equitably remand the Suit.

Holdings: First, the Court analyzed bankruptcy subject matter jurisdiction and the impact of plan confirmation on bankruptcy jurisdiction. The Court found that it had bankruptcy jurisdiction over the post-confirmation Suit as a “related to” (non-core) proceeding under 28 U.S.C. § 1334(b).  Second, the Court found that mandatory abstention was required with respect to the Suit under 28 U.S.C. § 1334(c)(2).  Plaintiff’s causes of action in the Suit were based on Texas and Delaware state law (not bankruptcy law) and were not “core” proceedings. Third, using a factors-based analysis, the Court found that permissive abstention and equitable remand of the Suit to state court was also warranted under 28 U.S.C. § 1334(c)(1) and 28 U.S.C. § 1452(b). As a result, the Court remanded the Suit to the state court.

Marroquin v. Taylor Bean & Whitaker Mortgage Corp.  (April 19, 2013)
Issue: Plaintiffs (borrowers) brought suit in Texas state court against Defendant (lender). Defendant was a Chapter 11 Debtor in a bankruptcy case pending in the U.S. Bankruptcy Court for the Middle District of Florida (“Florida Bankruptcy Court”). In general, Plaintiffs alleged in the state court suit that they were victims of a mortgage fraud by Debtor Defendant, that Debtor Defendant failed to comply with the law when foreclosing on their property, and Debtor Defendant failed to adhere to orders of the Florida Bankruptcy Court.  Debtor Defendant removed the state court suit to the U.S. Bankruptcy Court for the Western District of Texas (this Court). Debtor Defendant then filed a Motion to Transfer Venue with this Court, requesting this Court to transfer the suit to the Florida Bankruptcy Court, where Debtor Defendant’s bankruptcy case was pending.  Plaintiffs filed a Motion to Remand with this Court, requesting this Court to remand the suit back to state court.

Holding: The Court (in effect acting as a “conduit” court) granted the Debtor Defendant’s Motion to Transfer Venue of the suit to the Florida Bankruptcy Court under 28 U.S.C. §1412 and Bankruptcy Rule 7087. The Court weighed the factors in determining whether a transfer of venue would serve the interest of justice and concluded that the factors of economic administration of the pending Florida bankruptcy case, judicial consistency, as well as judicial efficiency, required a transfer of the suit to the Florida Bankruptcy Court. Key disputes raised in Plaintiffs’ suit involved interpretation of orders, settlements, a plan, and transactions approved by the Florida Bankruptcy Court. The Defendant Debtor was one of the largest independent mortgage lenders in the United States, and the Chapter 11 case pending in the Florida Bankruptcy Court was large and complex. The Court also determined that the “home bankruptcy court” (the Florida Bankruptcy Court) should decide whether or not the suit should be remanded back to Texas state court pursuant to Plaintiffs’ Motion to Remand.