Opinion
CIVIL ACTION NO. 99-3490 SECTION "T".
April 19, 2000.
April 20, 2000.
ORDER AND REASONS
The Court, after considering the appeal from the United States Bankruptcy Court for the Eastern District of Louisiana, the record, the briefs submitted on behalf of the parties, and the applicable law, hereby AFFIRMS the judgment of the United States Bankruptcy Court.
STANDARD OF REVIEW
In reviewing a decision of the Bankruptcy Court, the District Court applies a "clearly erroneous" standard of review to findings of fact, and a de novo standard of review to questions of law. See U.S.C. § 158(c); Bankruptcy Rule 8013; In re T-H New Orleans Ltd. Partnership, 116 F.3d 790 (5th Cir. 1997). In addition, when reviewing a Bankruptcy Court's determination regarding a disclosure statement, the District Court applies an "abuse of discretion" standard of review. In re Texas Extrusion Corp., 844 F.2d 1142 (5th Cir. 1988).
BACKGROUND
The Appellants, Heller, Hickox, Dimeling, Schrieber and Park, a partnership, and Douglas P. Heller, George K. Hickox, Jr., William R. Dimeling, Richard R. Sebreiber, Steven G. Park, and John C. Tuten (collectively "HHDSP"), are shareholders and/or directors of the debtor, Sun Drilling Products Corporation ("Sun Drilling"). HHDSP purchased approximately seventy-five percent (75%) of the stock of Sun Drilling from Appellee, Jerry J. Rayborn, Sr. ("Rayborn") on February 21, 1995. There was a series of transactions which were entered into by the parties to compensate Rayborn for his seventy-five percent (75%) interest in Sun Drilling, one of which was the "Royalty Agreement". The Royalty Agreement provided for Rayborn to be compensated: (1) as an employee of Sun Drilling for five (5) years after the consummation of the transaction at an annual salary of $120,000 plus normal fringe benefits; and (2) on the basis of product royalties in the amount of seven percent (7%) of the gross product sales of Sun Drilling for a period often (10) years commencing on May 1, 1998 and ending on May 1, 2008.
However, Rayborn was terminated from employment at Sun Drilling on March 17, 1997. In the Royalty Agreement, section 12 provides that Rayborn's employment may be terminated prior to the expiration of the employment term upon notice for cause. This provision nonetheless in no way impacts Rayborn's right to receive royalties. Sun Drilling suggested a series of actions taken by Rayborn served as the basis for his termination. Most importantly was Rayborn's efforts to collect $1.3 million that he suggested was owed to him in connection with the sale of Sun Drilling.
On March 17, 1997, Sun Drilling initiated this action in the 25th Judicial District Court, Parish of Plaquemines, by filing a Petition against Rayborn. In the Petition, Sun Drilling sought declaratory relief for two reasons: 1) that Sun Drilling's termination of Rayborn's employment was just and proper and in accordance with the Royalty Agreement; and 2) that its termination of Rayborn's royalty payments was just and proper. On May 2, 1997, Rayborn filed a Reconventional Demand against Sun Drilling and a Third Party Demand against HHDSP and the Heller Hickox Group. In the demand, Rayborn alleged fourteen causes of action relating to breaches of contract, fraud, and violations of numerous Louisiana state laws. This case was tried in state court over a period of two weeks in the summer and fall of 1998 in the 25th Judicial District Court for the Parish of Plaquemines, State of Louisiana. On May 20, 1999, the trial judge issued his Reasons for Judgment and ordered that the parties were to submit Proposed Judgments effectuating said reasons and findings of fact. In the Reasons for Judgment, the court recognized that the central issues were: 1) whether the termination was with cause; and 2) if with cause, then was it sufficient to terminate his employment or the Royalty Agreement. The court found two critical facts: 1) Rayborn was not terminated for any reason other than to free the corporation from his royalty interest to make it more marketable as a commodity; and 2) none of the professed reasons for termination were sufficient to terminate either his employment or the Royalty Agreement. Nonetheless, prior to the trial judge issuing his judgment, Sun Drilling filed bankruptcy.
On August 2, 1999, Sun Drilling filed a Notice of Removal of this case from the 25th Judicial District Court. On August 25, 1999, Rayborn filed a Motion to Remand the Removed State Action in the Bankruptcy Court. The Bankruptcy Court on October 22, 1999 issued its order remanding the removed state action as to all parties except the debtor, Sun Drilling. Appellants, HHDSP, filed their notice of appeal of said ruling on October 28, 1999.
LAW AND ARGUMENT
In a bankruptcy appeal, findings of fact are not set aside unless they are found to be clearly erroneous, and due regard shall be given to the opportunity of the Bankruptcy Court to judge the credibility of the witnesses. See Bankruptcy Rule 8013. In this case, the issue for the Court to consider is whether the Bankruptcy Court erred in remanding this proceeding to the 25th Judicial District Court for the Parish of Plaquemines, State of Louisiana.
A. Remand
In considering whether remand is appropriate under the circumstances presented in this case, the Court looks to 28 U.S.C. § 1452(b) and 28 U.S.C. § 1334(c). Section 1452(b) provides that the court to which the action has been removed "may remand such claim or cause of action on any equitable ground." 28 U.S.C. § 1452(b). Alternatively, the Court is vested with the discretion to abstain from hearing a matter in § 1334(c)(1) which provides that: "[n]othing . . . prevents a district court in the interest of justice, or in the interest of comity with State courts or respect for State law, from abstaining from hearing a particular proceeding arising under title 11 or arising in or related to a case under title 11." 28 U.S.C. § 1334(c)(1). In addition, § 1334(c)(2) provides mandatory abstention principles.
The statute provides in pertinent part that:
Upon timely motion of a party in a proceeding based upon a State law claim or State law cause of action, related to a case under title 11 but not arising under title 11 or arising in a case under title 11, with respect to which an action could not have been commenced in a court of the United States absent jurisdiction under this section, the district court shall abstain from hearing such proceeding if an action is commenced, and can be timely adjudicated, in a State forum of appropriate jurisdiction.28 U.S.C. § 1334(c)(2).
1. Equitable grounds
The Fifth Circuit has identified several factors that may be considered in deciding whether equitable remand is appropriate: (I) forum non conveniens; (2) if the civil action was bifurcated, the entire action should be tried in the same court; (3) a state court is better able to respond to state law; (4) the expertise of a particular court; (5) the duplicative or wasteful use of judicial resources; (6) the prejudice to the involuntary removed parties; (7) comity issues; and, (8) a diminished likelihood of inconsistent results. See Browning v. Navarro, 743 F.2d 1069, 1076 n. 21 (5th Cir. 1984); see also KSJ Development Co. v. Lambert, 223 B.R. 677 (E.D. La. 1998).
In applying some of these factors it is evident that the action was properly remanded to state court. First, because only state law is involved in this action, a state court "seems more appropriate for resolving the case, and . . . the result reached will more likely be consistent with other state law decisions."KSJ, 223 B.R. at 680. Second, because the case was tried and Reasons for Judgment, consisting of twenty-one pages, have already been issued by the state court, all that needs to be done is for the state court to issue its formal judgment. Thus, re-trying the case would be a wasteful use of judicial resources duplicating work already done by the state court. Finally, comity is "a `vital consideration' the Supreme Court has defined as `a proper respect for state functions, a recognition of the fact that the entire country is made up of a Union of separate state governments, and a continuance of the belief that the National Government will fair best if the States and their institutions are left free to perform their separate functions in their separate ways." Id. The application of comity in the judicial context "requires a federal respect for state courts' competency to conduct proceedings and enter judgments." Id. n. 5. Moreover, the fact that Sun Drilling has filed for bankruptcy cannot serve as a shield to prevent execution of judgment against HHDSP, who are not in bankruptcy. Thus, this matter was properly remanded on equitable grounds.
This Court notes that following the Bankruptcy Court's order remanding this matter, a Final Judgment was entered by the trial court dated March 9, 2000.
2. Mandatory abstention
Mandatory abstention principles are provided for by § 1334(c), and the most recent test adopted in this District for making this determination was set out in O'Rourke v. Cairns, 129 B.R. 87, 90 (E.D.La. 1991). In O'Rourke, the following four factor test for entitlement was set forth:
(1) the motion must be made timely; (2) the claim must be based on state law and is only `related to' the case under title 11; (3) the claim can not have been brought in federal court, absent the court's bankruptcy jurisdiction; and (4) the court finds that timely resolution of the claim can occur in state court.Id.
According to this test, the Bankruptcy Court properly remanded the removed state action. First, Rayborn's motion to remand was timely filed within thirty (30) days after the removal of this action. Second, the removed state action is based solely upon state law claims and state law causes of action. The action did not arise under title 11 bankruptcy though it is related to the title 11 bankruptcy. Third, the action could not have commenced in this court absent the § 1334 jurisdiction because there is no diversity between the parties and no federal questions are involved. Fourth, the action can be timely adjudicated in the state forum because the action has already been fully tried in state court and reasons for judgment have been issued. Therefore, this action was properly remanded to state court under the law and jurisprudence surrounding § 1334(c).
3. Discretionary abstention
Discretionary abstention, found in 28 U.S.C. § 1334(c)(1), was broken down into twelve factors that may be considered in determining whether a district court should exercise its discretion to abstain from hearing a "related to" proceeding or remand such a case. See Borne v. New Orleans Health Care, Inc., 116 B.R. 487, 494-95 (E.D.La. 1990). The factors are as follows:
1) the effect or lack thereof on the efficient administration of the estate if a Court recommends abstention;
2) the extent to which state law issues predominate over bankruptcy issues;
3) the difficulty or unsettled nature of the applicable state law;
4) the presence of a related proceeding commenced in state court or other non-bankruptcy court;
5) the jurisdictional basis, if any, other than 28 U.S.C. § 1334;
6) the degree of readiness or remoteness of the proceeding to the main bankruptcy case;
7) the substance rather than 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 the enforcement left to the bankruptcy court;
9) the burden upon the docket;
10) the likelihood that the commencement of the proceeding in bankruptcy court 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.
Id.
In Borne, the court stated that both abstention and remand were appropriate because only state law was at issue; the action was merely "related to" the bankruptcy proceeding; the state action could exist outside of the bankruptcy proceeding; and, § 1334 was the only basis for federal jurisdiction. Id. at 495. As discussed previously, these factors were also present in the instant case. Therefore, because the factors weigh in favor of this Court remanding, the action was properly remanded to state court.
B. Injunctive relief
Appellants consider the Bankruptcy Court's decision to remand in error because they were entitled to an injunction pursuant to 11 U.S.C. § 105(a). However, the Bankruptcy Court denied the requested relief and no appeal was taken by the Appellants. Thus, the propriety of the Bankruptcy Court's denial of the stay and injunctive relief to the appellants in the "Injunction Action" is not an issue in this appeal.
This Court further notes that this relief was sought in the "Injunction Action" which was conducted under a different case number from the present litigation.
Accordingly,
IT IS ORDERED that the judgment of the United States Bankruptcy Court for the Eastern District of Louisiana be AFFIRMED.