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In re United States Brass Corporation

April 2, 1997

IN THE MATTER OF UNITED STATES BRASS CORPORATION, DEBTOR,

APPEALS OF UNITED STATES BRASS CORPORATION, ELJER INDUSTRIES, INC., AND ELJER MANUFACTURING, INC.

IN THE MATTER OF UNITED STATES BRASS CORP., ELJER MANUFACTURING, INC., AND ELJER INDUSTRIES, INC.,

PETITIONERS.



Application for a Writ of Mandamus to the United States District Court for the

Northern District of Illinois, Eastern Division. No. 95 C 67 Ann Claire Williams, Judge. Appeals from the United States District Court for the Northern District of Illinois, Eastern Division. Nos. 95 C 67, 95 C 68, 95 C 69, 95 C 70, 95 C 483 & 95 C 484 Ann Claire Williams, Judge.

Before POSNER, Chief Judge, and ROVNER and EVANS, Circuit Judges.

POSNER, Chief Judge.

ARGUED FEBRUARY 19, 1997

DECIDED APRIL 2, 1997

Bankrupt affiliated corporations known collectively as "Eljer" appeal from the affirmance of an order abstaining in six suits and remanding four of them to an Illinois state court. United States Brass Corp. v. California Union Ins. Co., 198 B.R. 940 (N.D. Ill. 1996). Eljer wants all six cases to proceed in bankruptcy court. With respect to the remanded cases Eljer asks in the alternative for a writ of mandamus to compel this.

Five of the six suits are declaratory judgment actions brought by Eljer's liability insurers to establish that their policies do not, as a matter of Illinois law conceded to govern most of the substantive issues in all six of the suits, cover the liability incurred by Eljer to purchasers of its "Qest System," a plumbing system that turned out to be defective (which goes to prove that if you can't spell, you're liable to make other mistakes as well). Of these five suits, one is a diversity suit originally filed in California and the other four are suits filed in an Illinois state court and not removable to federal court on the basis of diversity of citizenship because citizens of the same state are on both sides in each of the suits. The sixth suit is a mirror-image diversity suit by Eljer brought in the federal district court for the Northern District of Illinois and seeking to establish coverage. A similar diversity suit by Eljer was before us in Eljer Mfg., Inc. v. Liberty Mutual Ins. Co., 972 F.2d 805 (7th Cir. 1992), and we held that under Illinois law Eljer was entitled to coverage.

With four of the six current cases seemingly stuck (because of lack of complete diversity) in an Illinois state court that seemed, on the basis of some of its rulings, inclined to disagree with our ruling on coverage in the Liberty Mutual case, Eljer filed for bankruptcy in the Eastern District of Texas. Then, pursuant to 28 U.S.C. sec. 1452(a), which in conjunction with 28 U.S.C. sec. 1334(b) authorizes the removal to federal district court of cases that either arise under the Bankruptcy Code or are related to cases that arise under the Code, Eljer removed the four cases in the Illinois state court to the district court for the Northern District of Illinois. The district court referred all six cases to the bankruptcy court for the Northern District of Illinois.

The insurance companies responded to Eljer's removing the four cases by asking the bankruptcy court to remand them back to the Illinois state court under 28 U.S.C. secs. 1334(c) (abstention in favor of state courts in certain bankruptcy cases) and 1452(b) (remand of cases removed under 1452(a)). The bankruptcy judge obliged, and he also granted the insurers' further motion to abstain pursuant to section 1334(c)(1) in the other two cases. Last he rejected Eljer's motion to transfer the six cases to the Eastern District of Texas (anything to keep them out of the Illinois state court system!).

Eljer argues that by seeking to shift the suits to state court the insurers are trying to sidestep our decision in Liberty Mutual, hoping for a better outcome in the Illinois courts. This is no doubt true, but is their right; and we cannot share Eljer's indignation that questions of Illinois law should be decided by the state courts of Illinois rather than by this court. Eljer itself can hardly plead innocent to the charge of forum shopping that it hurls against its opponents. It removed the insurers' cases from state to federal court in order to have them decided by the court system that had decided the Liberty Mutual case in its favor. Its last-ditch effort to transfer the cases to Texas is another transparent effort at forum shopping. The use of the Bankruptcy Code to obtain a favorable forum should not be encouraged.

We lay the charges of forum shopping to one side and ask, first, whether we have jurisdiction over the appeals from the four remands. Section 1452(b) allows the bankruptcy court to remand "on any equitable ground" a case removed under the previous subsection and adds that the order of remand "is not reviewable by appeal or otherwise by the court of appeals . . . or by the Supreme Court." Read literally this language denies us jurisdiction to review the orders remanding the four cases to state court regardless of the basis of the orders or the grounds for challenging them. But we do not think the literal reading can be correct in light of Quackenbush v. Allstate Ins. Co., 116 S. Ct. 1712 (1996). The Supreme Court held there, albeit in the context of a different statute restricting appellate review of remands (28 U.S.C. sec. 1447(d)), that a statute which authorizes a remand on specified grounds and goes on to provide that remands under the statute are not reviewable bars review only of a remand based on one of those grounds. If the judge remands the case on a different ground, his action is reviewable. 116 S. Ct. at 1718. In this case, however, the bankruptcy judge remanded on a stated ground, indeed the only stated ground in section 1452(b) -- "any equitable ground," which means simply any appropriate ground. Hernandez v. Brakegate, Ltd., 942 F.2d 1223, 1226 (7th Cir. 1991); In re Cathedral of the Incarnation, 90 F.3d 28, 32-33 (2d Cir. 1996); Things Remembered, Inc. v. Petrarca, 116 S. Ct. 494, 499-501 (1995) (concurring opinion). He relied specifically on 28 U.S.C. sec. 1334(c), which authorizes (and in some cases requires) district courts to abstain in favor of state courts in some bankruptcy cases. Eljer doesn't think these four cases fall within the scope of section 1334(c) -- thinks in other words that the judge erred -- but that is precisely the type of error that cannot be reviewed. Hernandez v. Brakegate, Ltd., supra, 942 F.2d at 1226; In re Cathedral of the Incarnation, supra, 90 F.3d at 32-33; In re Conejo Enterprises, Inc., 96 F.3d 346, 350-51 (9th Cir. 1996)

It does not help Eljer that it bases its claim of error not only on the bankruptcy judge's having supposedly misinterpreted or misapplied section 1334(c) but also on his having (Eljer thinks) neglected two distinct and independent limitations on his powers under that section. The first is the principle, which Eljer derives from another part of the Supreme Court's opinion in Quackenbush, that abstention, being an equitable doctrine, can never be invoked in a suit for damages. See 116 S. Ct. at 1721-28. The second limitation is section 1334(d) (now 1334(e) as a result of recent amendments inapplicable to the present cases), which gives the district court in which the bankruptcy is filed, here the district court for the Eastern District of Texas, "exclusive jurisdiction of all of the property, wherever located, of the debtor as of the commencement of such case, and of property of the estate."

But the fact that the bankruptcy judge may have overlooked limitations on his equitable discretion does not mean that his ground for remanding the cases was not an equitable ground, even if "equitable ground" is read literally, which the cases cited earlier refuse to do. It just means that he made a mistake in thinking he had an equitable ground for the remand. The approach urged by Eljer would make the bar on appellate review in section 1452(b) a sieve, as it is always possible to argue that the ground on which the bankruptcy judge remanded the case was improper by reason of some other statute or doctrine. The source of the claimed error is irrelevant, provided that the judge's stated ground for remanding the case was an equitable ground, and it was -- in fact this is implicit in Eljer's argument that Quackenbush bars abstention in a nonequity case; Eljer deems abstention an exclusively equitable defense.

It would be different if the judge had said, "I'm remanding these cases because I don't like the hairdo of Eljer's lawyer." That would be an extra-statutory ground for remand -- it wouldn't fit "equitable ground" by the furthest stretch of the imagination -- and consequently it would be reviewable under the ...


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