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Klohr v. Martin & Bayley

May 3, 2006

DAVID ALBERT KLOHR AND JUDITH LEE KLOHR, PLAINTIFFS,
v.
MARTIN & BAYLEY, INC., D/B/A HUCKS CONVENIENCE STORE, DEFENDANT.



The opinion of the court was delivered by: Murphy, Chief District Judge

MEMORANDUM AND ORDER

This action is before the Court on the Motion for Mandatory Abstention, or in the Alternative for Permissive Abstention, or in the Alternative Remand brought by Plaintiffs David Albert Klohr and Judith Lee Klohr (Doc. 10). For the following reasons, the motion is GRANTED.

INTRODUCTION

Plaintiffs originally filed this action in February 2005 in the Circuit Court for the Third Judicial Circuit, Madison County, Illinois, asserting claims for consumer fraud, breach of warranty, strict products liability, negligence, and loss of consortium against Defendant Martin & Bayley, Inc. ("Huck's Convenience Store") in connection with sales of Marlboro Lights cigarettes. In April 2005, Plaintiffs filed a joint voluntary personal bankruptcy petition under Chapter 13 of the Bankruptcy Code in the United States Bankruptcy Court for the Southern District of Illinois.

In June 2005, Defendant removed the state court action to the bankruptcy court under 28 U.S.C. § 1452. Thereafter, Plaintiffs moved for remand of this action on grounds of mandatory Page 1 of 11 abstention, permissive abstention, and equitable remand. By Order entered January 27, 2006, the Court withdrew the reference of this case to the bankruptcy court. On May 1, 2006, the Court conducted a hearing on Plaintiffs' motion for remand of the action to state court. At the close of the hearing, the Court granted Plaintiffs' motion. As stated in the Court's minute entry regarding the May 1st hearing, the Court now issues this Order setting forth the grounds for remand.

DISCUSSION

The bankruptcy jurisdiction of the federal courts is governed by 28 U.S.C. § 1334, which provides, in pertinent part, that "the district courts shall have original and exclusive jurisdiction of all cases under title 11" of the United States Code, as well as "original but not exclusive jurisdiction of all civil proceedings arising under title 11, or arising in or related to cases under title 11."

28 U.S.C. § 1334(a)-(b). "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 U.S.C. § 1452(a). "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 or by the Supreme Court of the United States under section 1254 of this title." Id. § 1452(b).

A. Mandatory Abstention

Mandatory abstention in bankruptcy cases is governed by 28 U.S.C. § 1334, which provides, in pertinent part:

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). Mandatory abstention is appropriate where four criteria are met: (1) the case is based on a state-law claim that, although related to a case under title 11, does not arise under title 11 or arise under a case under title 11; (2) there is no independent basis for federal jurisdiction for the claim other than the bankruptcy proceeding; (3) an action has been commenced in a state forum; and (4) the case could be timely adjudicated in state court. See In re Demert & Dougherty, Inc., No. 01CV7289, 2001 WL 1539063, at *7 (N.D. Ill. Nov. 30, 2001); In re Bill Cullen Elec. Contracting Co., 160 B.R. 581, 585 (Bankr. N.D. Ill. 1993); Bates & Rogers Constr. Corp. v. Continental Bank, N.A.,97 B.R. 905, 907 (N.D. Ill. 1989). If a motion to abstain is disputed, the movant has the burden of proof on the existence of these elements. See In re Talon Holdings, Inc., 221 B.R. 214, 221 (Bankr. N.D. Ill. 1998); In re Carlson, 202 B.R. 946, 949 (Bankr. N.D. Ill. 1996); In re Coan, 95 B.R. 87, 89 (Bankr. N.D. Ill. 1988); but see McCormick v. Kochar, No. CIV. A. 99-5045, 1999 WL 1051776, at *1 (E.D. Pa. Nov. 19, 1999) (placing the burden on the party opposing abstention to demonstrate that a case could not be timely adjudicated in the state court).

In this case, Plaintiffs moved for remand on grounds of mandatory abstention less than thirty days after this case was removed so that their request for mandatory abstention is timely. See Allen v. J.K. Harris & Co., LLC, 331 B.R. 634, 642-44 (E.D. Pa. 2005) (a motion for mandatory abstention in a state court action removed to federal court based on a debtor's bankruptcy filing was timely, though it was not filed until after the movant successfully moved for withdrawal of the reference to the district court, where the motion was filed within thirty days of removal of the proceeding from state court); In re Chiodo, 88 B.R. 780, 785-86 (W.D. Tex. 1988) (a motion for abstention and to remand was timely filed, where the motion for abstention, filed one month after a third party was made a party, was the first pleading filed by the third party); cf. In re Novak, 116 B.R. 626, 628 (N.D. Ill. 1990) (mandatory abstention was waived because the motion to abstain was filed by the defendant one year after it had answered the complaint in an adversary proceeding).

The first requirement for mandatory abstention is met in this instance because this case is based on state-law claims that, although related to a case under title 11, do not arise under title 11 or arise under a case under title 11. Cases arising under title 11 or under a case under title 11 constitute of course core proceedings. See 28 U.S.C. § 157(b)(2); In re United States Brass Corp., 110 F.3d 1261, 1268-69 (7th Cir. 1997). Under the law of this Circuit, "a proceeding is core under section 157 if it invokes a substantive right provided by title 11 or if it is a proceeding that, by its nature, could arise only in the context of a bankruptcy case." Barnett v. Stern, 909 F.2d 973, 981 (7th Cir. 1990) (quoting In re Wood, 825 F.2d 90, 97 (5th Cir. 1987)). By contrast, a proceeding is non-core if it "does not invoke a substantive right created by the federal bankruptcy law and is one that could exist outside of bankruptcy." Id. Although such a proceeding "may be related to the bankruptcy because of its potential effect, . . . it is [nonetheless] an 'otherwise related' or non-core proceeding." Id. (emphasis in original). In this case, the rights asserted are all created by state law, not bankruptcy law, and this case clearly could exist outside of bankruptcy court. See Wood, 825 F.2d at 97 (holding that "a state contract action that, ...


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