The opinion of the court was delivered by: MATHEW KENNELLY, District Judge
MEMORANDUM OPINION AND ORDER
Appellant Gregg E. Szilagyi, Chapter 11 trustee for Resource Technology
Corp. ("RTC"), appeals from a bankruptcy judge's June 24, 2003 decision
to abstain from hearing a contract dispute between RTC, its former
director, and National Seal Corp. ("NSC"). For the reasons stated below,
the Court affirms the ruling of the bankruptcy judge.
RTC is in the business of extracting methane gas from landfills for
disposal or conversion into usable energy. From 1996 through 1998, RTC
contracted with NSC to provide labor and materials to construct methane
collection systems at several Illinois landfills; NSC sent RTC invoices
for services rendered. On January 20, 1998, Leon Greenblatt, who was an
officer and director of RTC, signed a promissory note in favor of NSC for
$2,607,067.73 allegedly to induce NSC to hold off suing RTC for unpaid
invoices. Under the note's terms, NSC assigned its claims against RTC to
Greenblatt to the extent of any payments he made on the note.
On April 29, 1999, NSC sued RTC and Greenblatt in the Circuit Court of
claiming RTC owed it payments for services rendered and seeking to
enforce the note against Greenblatt in the amount of $1,762,927.73. RTC
and Greenblatt asserted several affirmative defenses to NSC's contract
claim, arguing among other things that NSC did not provide some services
contracted for and provided other services inadequately. RTC also argued
that Greenblatt's promissory note was a novation superseding the prior
contracts between RTC and NSC and, thus, the note released RTC from
further liability to NSC.
Involuntary bankruptcy proceedings were initiated against RTC on
November 15, 1999 under Chapter 7 of the Bankruptcy Code. The case was
later converted to a Chapter 11 case. NSC filed a proof of claim on June
12, 2000 alleging an unsecured claim of $2,231,418 plus interest and
costs relating to the contracts that were at issue in the state court
proceeding. RTC objected to NSC's proof of claim for the same reasons it
disputed NSC's claim in state court and alleged it was entitled to a set
off of more than $1 million for costs related to NSC's inadequate
performance. NSC increased its claim by $887,585 on February 8, 2002.
Greenblatt filed a contingent proof of claim against RTC on April 15,
2003 because if he were found liable on the promissory note, he could
pursue NSC's claims against RTC for the amount of the judgment against
him. RTC faces a total of $12 million in liquidated unsecured claims.
NSC filed a motion for permissive abstention under 28 U.S.C. § 1334(c)(1)
on April 28, 2003, asking the bankruptcy judge to allow the state court
to resolve its contract dispute with RTC. The bankruptcy judge granted
the motion on June 24, 2003 in an oral ruling. Appellant appeals from the
judge's decision to abstain.
An order to permissively abstain is treated as a final order and is
Brizzolara v. Fisher Pen Co., 158 B.R. 761, 768 (Bankr. N.D. Ill. 1993);
In re Ascher, 128 B.R. 639, 645 (Bankr. N.D. Ill. 1991). "We review the
reorganization court's decision to abstain under section 1334(c)(1) for
an abuse of discretion." In re Chicago, Milwaukee, St. Paul & Pacific
R.R. Co., 6 F.3d 1184, 1188 (7th Cir. 1993) (citations omitted)
(hereinafter "In re Chicago, Milwaukee R.R.") Despite this deferential
standard, the Court "must nonetheless conduct a `meaningful review'" of
the bankruptcy judge's decision. Id. at 1189 (citation omitted). The
Seventh Circuit cautions that "federal courts generally should exercise
their jurisdiction if properly conferred and that abstention is the
exception rather than the rule." Id.(citation omitted).
Under 28 U.S.C. § 1334(c)(1), a bankruptcy judge is permitted to
abstain "in the interest of justice, or comity with state courts, or out
of respect for state law." In re Carlson, 202 B.R. 946, 949 (Bankr. N.D.
Ill. 1996) (citation omitted). The party seeking a permissive abstention
has the burden of proving by a preponderance of the evidence mat
abstention is appropriate. Brizzolara, 158 B.R. at 769 (citation
omitted). The Seventh Circuit has enumerated twelve factors a bankruptcy
judge should consider when deciding whether to abstain:
(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 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 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 of [the
bankruptcy court's] 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.
In re Chicago, Milwaukee R.R., 6 F.3d at 1189 (quoting In Re Eastport
Assoc., 935 F.2d 1071, 1075-76 (9th Cir. 1991)). The Seventh Circuit
advises that "[c]ourts should apply these factors flexibly, for their
relevance and importance will vary with the particular circumstances of
each case, and no one factor is necessarily determinative." Id.
Applying this legal standard, the bankruptcy judge found three factors
weighed against abstention: the state law at issue was neither difficult
nor unsettled; the substance of the dispute was a core proceeding under
28 U.S.C. § 157(b)(2)(B) as a claim against the estate; and the claim had
"substantial significance" to the bankruptcy proceeding because of the
large amount of money at issue. June 24, 2003 Tr. at 6, But he found that
the "substantial majority and weight of the factors favor abstention."
Id. He reasoned that a resolution of NSC's claims against RTC in state
court would enhance the efficient administration of the estate because a
state court could consider NSC's claims against both RTC and Greenblatt,
whereas if he denied abstention, NSC's claims against RTC ...