Reynolds v. Behrman Capital IV L.P., et al

Filing 77

MEMORANDUM OPINION AND ORDER The court GRANTS IN PART AND DENIES IN PART Mr. Reynolds' motion to remand or abstain, or in the alternative, to refer to the bankruptcy court 26 . The court SEVERS this case into three cases: (1) Counts One through Seven; (2) Counts Eight through Ten; and (3) Counts Eleven through Thirteen. The court GRANTS the motion to remand Counts Eight through Ten and REMANDS those counts to the Jefferson County Circuit Court. The court DENIES the motion to remand Counts One through Seven and Eleven through Thirteen, DENIES the motion to abstain from considering Counts One through Seven and Eleven through Thirteen, and DENIES the motion to refer Counts One through Seven and Eleven through Thirteen to the ba nkruptcy court. The court DIRECTS the Clerk of Court to keep Counts One through Seven under this civil action number and to create a new civil action number for Counts Eleven through Thirteen, with the new action assigned directly to the undersigned. The court DIRECTS the Clerk of Court to file Mintz Levin's motion to dismiss 30 in the newly created civil action number, and to term the same on this case's docket. Signed by Judge Annemarie Carney Axon on 9/6/18. (SAC )

FILED
2018 Sep-06 PM 12:12
U.S. DISTRICT COURT
N.D. OF ALABAMA

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ALABAMA
SOUTHERN DIVISION
THOMAS E. REYNOLDS, as Trustee,
Plaintiff,
v.
BEHRMAN CAPITAL IV L.P., et al.,
Defendants.

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2:18-cv-00514-ACA

MEMORANDUM OPINION AND ORDER
This matter comes before the court on Plaintiff’s motion to remand this case
under 28 U.S.C. § 1447 or, in the alternative, to abstain or refer the case to the
bankruptcy court. (Doc. 26). For the reasons set out below, the court GRANTS
IN PART and DENIES IN PART the motion.
The court concludes that, under 28 U.S.C. § 1334(b), it has original
jurisdiction over every claim in the complaint because each claim either arises
under the Bankruptcy Code, or arises in or relates to a case under the Bankruptcy
Code. Having determined that the court has original jurisdiction over the case, the
court next sua sponte SEVERS Counts One through Seven, Counts Eight through
Ten, and Counts Eleven through Thirteen, because they are misjoined.
The court finds that neither mandatory nor permissive abstention preclude it
from considering Counts One through Seven or Eleven through Thirteen, but

mandatory abstention requires it to abstain from considering Counts Eight through
Ten. As a result, the court DENIES the motion to remand Counts One through
Seven and Eleven through Thirteen, but GRANTS the motion to remand Counts
Eight through Ten.
Finally, the court considers whether to refer Counts One through Seven and
Eleven through Thirteen to the bankruptcy court. Because consideration of those
counts may involve a determination of non-bankruptcy federal law, the court
DENIES the request to refer those counts to the bankruptcy court.
I.

BACKGROUND

In March 2018, Plaintiff Thomas Reynolds, as Chapter 7 trustee of the
estates of Atherotech Inc. and Atherotech Holdings, filed this lawsuit in the Circuit
Court of Jefferson County, Alabama, naming thirty-two defendants. (See Doc. 1-1
at 9–40). For ease of reference, the court divides the defendants into three groups:
the “Investors,” “Behrman Management,” and “Mintz Levin.”
Atherotech Holdings was the sole shareholder of Atherotech Inc. (Id. at 16).
In turn, the Investors are all companies or board members of companies that were
shareholders of Atherotech Holdings: Behrman Capital IV, LP; Behrman Brothers
IV, LLC; MidCap Financial Investment, LP; AXA Primary Fund America IV, LP;
AXA Private Capital I, LP; Core Americas/Global Holdings, LP; CS Strategic
Partners IV Investments, LP; Global Fund Partners II, LP; MetLife Insurance

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Company of Connecticut; Partners Group Direct Investments 2006, LP; Partners
Group Global Opportunities Subholding Limited; PE Holding USD Gmbh;
Portfolio Advisors Secondary Fund, LP; Stepstone Private Equity Partners III
Cayman Holdings, LP; StepStone Private Equity Partners III LP; the Governor an
Company of the Bank of Ireland; Varma Mutual Pension Insurance Company; ASF
III Bluenote Limited; the Douglas E. Behrman Trust; the Kimberly E. Behrman
Trust; Amanda Zeitlin; Greg Behrman; Gregory Chiate; Gary Dieber; Mark
Grimes; Simon Longergan; William Matthes; Michael Rapport; Padyut Shah; and
Jeffrey Wu. (Id. at 16–18).
The two remaining sets of defendants are made up of a single defendant
each.

Behrman Management is Behrman Brothers Management Corporation,

which provided financial and operational advice to Atherotech Inc. (Doc. 1-1 at
19). And Mintz Levin is Mintz, Levin, Cohn, Ferris, Govsky, and Popeo, PC., a
law firm that represented Atherotech Inc. (Id. at 27).
The complaint alleges that Atherotech Inc. operated a laboratory that
conducted testing on blood cholesterol levels. (Id. at 20). Atherotech Inc. would
pay physicians who ordered such testing a processing and handling fee, also known
as a P&H fee.

(Id.).

Beginning in 2011, Behrman Management advised

Atherotech Inc. to grow by increasing direct sales to physicians, a plan that

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Berhman Management knew would require Atherotech Inc. to pay P&H fees. (Id.
at 21).
Although Medicare rules and regulations prohibit the payment of P&H fees,
Atherotech Inc. would nevertheless submit claims that included the payment of
those fees to Medicare and other federal healthcare programs. (Id. at 20–21).
Mintz Levin advised Atherotech Inc. to report its competitors’ payments of P&H
fees to the Department of Justice and, although Mintz Levin “knew or should have
known that Atherotech’s practice of paying P&H fees put Atherotech at risk of
violating the False Claims Act,” it failed to advise Atherotech Inc. to stop making
those payments. (Id. at 27–29).
In 2012, the Department of Justice began to investigate Atherotech Inc.’s
payments of P&H fees for violation of the federal False Claims Act, 31 U.S.C.
§§ 3729–3730, and the federal Anti-Kickback Statute, 42 U.S.C. § 1320a-7b.
(Id. at 21, 28).

In 2013, while the Department of Justice investigation was

ongoing, Atherotech Inc.—already insolvent in light of contingent liabilities for
violations of the False Claims Act—executed a dividend recapitalization under
which it paid Atherotech Holdings’ shareholders millions of dollars. (Id. at 23–24,
26). But until June 2014, Berhman Management continued to advise Atherotech
Inc. to continue paying physicians P&H fees.

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(Id. at 22).

By July 2014,

Atherotech could no longer pay P&H fees and its revenues decreased significantly.
(Id. at 29).
In March 2016, Atherotech Inc. and Atherotech Holdings filed for
bankruptcy. (Id. at 16–17). Among other creditors, Mintz Levin filed a claim
against Atherotech Inc. (Id. at 29). The bankruptcy court appointed Mr. Reynolds
as the Chapter 7 trustee for Atherotech Inc. and Atherotech Holdings. (Id. at 16).
Mr. Reynolds filed this lawsuit, asserting the following sets of claims. The
first set (Counts One through Seven) asserts against various combinations of the
Investors claims of intentionally fraudulent transfer, constructively fraudulent
transfer, and recovery of fraudulent transfer, citing the Bankruptcy Code and
Alabama law. (Doc. 1-1 at 30–34). Specifically, Counts One, Two, and Three
allege intentionally fraudulent transfer and constructively fraudulent transfer under
11 U.S.C. § 544 and Alabama law. (Id. at 30–32). Counts Four, Five, Six, and
Seven seek recovery of fraudulent transfer under 11 U.S.C. § 550(a)(1) and (a)(2).
(Id. at 32–34). This first set of claims relates to Atherotech Inc’s payment of the
dividend to its investors. (Id.).
The second set (Counts Eight though Ten) asserts against Behrman
Management state law claims of negligence, breach of contract, and breach of
fiduciary duty. (Id. at 34–37). Those claims all relate to Behrman Management’s
advice about the amount of debt and equity that Atherotech Inc. should maintain,

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the advisability of paying out the dividend in 2013, and the business strategy of
paying P&H fees to physicians. (Id.).
The final set (Counts Eleven through Thirteen) asserts against Mintz Levin
state law claims of unjust enrichment and negligence, and an objection to Mintz
Levin’s bankruptcy claim. (Id. at 37–39). Those claims all relate to Mintz Levin’s
failure to advise Atherotech Inc. to stop paying P&H fees. (Id.).
Defendants removed the case to this court under 28 U.S.C. § 1441(a),
contending that the court has federal question jurisdiction because, although each
cause of action alleged is one of state law, to prevail on each claim Mr. Reynolds
will have to prove that Atherotech Inc. violated the Anti-Kickback Statute or the
False Claims Act. (Doc. 1 at 3–4). See Grable & Sons Metal Prods., Inc. v. Darue
Eng’g & Mfg., 545 U.S. 308, 312 (2005) (“[I]n certain cases federal-question
jurisdiction will lie over state-law claims that implicate significant federal
issues.”). They also argue that the court has federal question jurisdiction because
Counts One through Seven arise under the Bankruptcy Code. (Doc. 1 at 10).
Finally, they assert that removal is proper under 28 U.S.C. § 1452(a) because the
court has jurisdiction under 28 U.S.C. § 1334(b), which provides “original but not
exclusive jurisdiction of all civil proceedings arising under title 11, or arising in or
related to cases under title 11.” (Doc. 1 at 11). Title 11, of course, is the
Bankruptcy Code.

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II.

DISCUSSION

Federal law permits defendants to remove “any civil action brought in a
State court of which the district courts of the United States have original
jurisdiction.” 28 U.S.C. § 1441(a). Of relevance to this case, federal courts have
original jurisdiction if (1) the action “aris[es] under the Constitution, laws, or
treaties of the United States,” 28 U.S.C. § 1331; (2) the case “aris[es] under title
11, or aris[es] in or relate[s] to cases under title 11,” 28 U.S.C. § 1334(b); or
(3) the amount in controversy exceeds $75,000 and the parties are completely
diverse, 28 U.S.C. § 1332(a).
The court notes that Defendants do not—and cannot—assert that the court
has diversity jurisdiction, because at least some of the defendants share their
Delaware citizenship with Mr. Reynolds. 1 (See Doc. 1-1 at 10–15). Instead, they
contend that the court has federal question jurisdiction under § 1331 because the
state law claims are all based on purported violations of federal law. (Doc. 1 at 3–
10).

In the alternative, Defendants assert that the court has federal question

jurisdiction over Counts One through Seven under § 1334(b). (Id. at 10–12).
Mr. Reynolds’ citizenship is determined by reference to the citizenship of
Atherotech Inc. and Atherotech Holdings. See Lesti v. Wells Fargo Bank, N.A.,
960 F. Supp. 2d 1311, 1319 (M.D. Fla. 2013) (“It is the citizenship of the bankrupt
rather than the citizenship of the trustee in bankruptcy that is determinative for
diversity jurisdiction.”) (alteration omitted) (quoting Carlton v. Baww, Inc., 751
F.2d 781, 786–87 (5th Cir. 1985)). Because both Atherotech Inc. and Atherotech
Holdings are citizens of Delaware, so is Mr. Reynolds in his capacity as trustee of
their bankruptcy estates.
1

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Mr. Reynolds moves to remand the case to the Jefferson County Circuit
Court. (Doc. 26). He contends that the court lacks subject matter jurisdiction
because his claims do not involve an “actually disputed and substantial” question
of federal law, as he can prevail even without proving a violation of any federal
statute. (Id. at 6–12). And he argues that, although 28 U.S.C. § 1334(b) confers
original jurisdiction on the court, § 1334(c)(2) requires the court to abstain from
hearing the case. (Id. at 13–17). Finally, he asserts that if the court will not abstain
from hearing the case, it should refer the case to the bankruptcy court. (Id. at 19).
The court’s discussion will proceed as follows. First, the court determines
that it has original jurisdiction over each claim in the complaint. Second, the court
concludes that, because the claims are misjoined, the court must sever this case
into three cases, made up of (1) Counts One through Seven, (2) Counts Eight
through Ten, and (3) Counts Eleven through Thirteen. Third, the court finds that
neither mandatory nor discretionary abstention requires the court to abstain from
considering Counts One through Seven or Eleven through Thirteen, but that
mandatory abstention does require the court to abstain from hearing Counts Eight
through Ten. Fourth and finally, the court determines that it should not refer the
remaining claims to the bankruptcy court.

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1.

Original Jurisdiction

Defendants contend that the court has original jurisdiction for two reasons:
(1) because Mr. Reynolds must prove a violation of the Anti-Kickback Statute or
the False Claims Act to prevail on his state law claims; and (2) because Counts
One through Seven arise under the Bankruptcy Code, 11 U.S.C. §§ 544 and 550.
(Doc. 1 at 3–11).
As to the first argument, where a removing defendant asserts that a court has
federal question jurisdiction over a state law claim, “the question is, does [the]
state-law claim necessarily raise a stated federal issue, actually disputed and
substantial, which a federal forum may entertain without disturbing any
congressionally approved balance of federal and state judicial responsibilities.”
Grable & Sons Metal Prod., Inc., 545 U.S. at 314. In this case, the answer is no.
Whether Atherotech Inc. violated the Anti-Kickback Statute or the False Claims
Act is not an essential element to any of the state law claims raised against any of
the defendants because Mr. Reynolds could prevail on those claims without
proving a violation of those federal statutes.
But the court agrees with Defendants’ argument that 28 U.S.C. § 1334 grants
this court jurisdiction over Counts One through Seven. Section 1334(b) provides
that “the district courts shall have original but not exclusive jurisdiction of all civil
proceedings arising under title 11, or arising in or related to cases under title 11.”

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The Eleventh Circuit has not defined precisely what “arising under” or “arising in”
mean under § 1334(b), but it has defined those terms as they are used in another
part of the Bankruptcy Code, which provides that “[b]ankruptcy judges may hear
and determine . . . all core proceedings arising under title 11, or arising in a case
under title 11.” 11 U.S.C. § 157(b)(1) (emphases added).
In that context, the Court has held that “‘[a]rising under’ means that a
proceeding invokes a cause of action, or substantive right, created by a specific
section of the Bankruptcy Code. ‘Arising in’ describes administrative matters
unique to the management of a bankruptcy estate.” In re Toledo, 170 F.3d 1340,
1349 (11th Cir. 1999) (citations omitted); see also Lawrence v. Goldberg, 573 F.3d
1265, 1270 (11th. Cir. 2009). And “related to” means “the proceeding could
conceivably have an effect on the estate being administered in bankruptcy.” In re
Fundamental Long Term Care, 873 F.3d 1325, 1336 (11th Cir. 2017) (quotation
marks and alteration omitted) (emphasis in original).
The court concludes that Counts One through Seven “arise under” the
Bankruptcy Code because they “invoke[ ] a cause of action, or substantive right,
created by a specific section of the Bankruptcy Code.” In re Toledo, 170 F.3d at
1349.

Counts One, Two, and Three allege intentionally and constructively

fraudulent transfer, under 11 U.S.C. § 544 and Alabama law. (Doc. 1-1 at 30–32).
Section 544(b) provides that “the trustee may avoid any transfer of an interest of

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the debtor in property or any obligation incurred by the debtor that is voidable
under applicable law.” 11 U.S.C. § 544(b)(1). “Applicable law” is the relevant
state law—in this case, Alabama law. Cf. In re Custom Contractors, LLC, 745
F.3d 1342, 1348–49 (11th Cir. 2014) (using state law to determine whether
transfers were fraudulent under § 544).
The Eleventh Circuit has not addressed whether a trustee’s action under
§ 544 “arises under” the Bankruptcy Code, but the Fifth Circuit has held that it
“clearly” does. Carlton v. Baww, Inc., 751 F.2d 781, 787 (5th Cir. 1985) (“A
proceeding by a trustee to void a fraudulent conveyance clearly ‘arises under title
11.’”). This court agrees. Although a determination of whether the trustee may
avoid the transfer depends on an analysis of state law, federal law creates the
ability to avoid the transfer. Thus, an action to avoid a transfer under § 544 “arises
under” the Bankruptcy Code, giving this court jurisdiction under § 1334(b).
Even if actions to avoid transfers under § 544 did not “arise under” the
Bankruptcy Code, Counts Four through Seven, which are based on another section
of the Code, does. In those counts, Mr. Reynolds seeks recovery of fraudulent
transfers under 11 U.S.C. § 550. (Doc. 1-1 at 32–33). Section 550 provides that
“to the extent that a transfer is avoided under section 544 [or other sections], the
trustee may recover, for the benefit of the estate, the property transferred, or . . . the
value of such property.” 11 U.S.C. § 550(a). Section 550, therefore, creates a

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“substantive right” and Mr. Reynolds’ counts seeking recovery under it “arise
under” the Bankruptcy Code. See In re Toledo, 170 F.3d at 1349.
Finally, even if claims based on §§ 544 and 550 do not “arise under” the
Bankruptcy Code, those claims clearly “relate to” the Bankruptcy Code because
they “could conceivably have an effect on the estate being administered in
bankruptcy.” In re Fundamental Long Term Care, 873 F.3d at 1336 (quotation
marks and alteration omitted) (emphasis in original).

Accordingly, the court

concludes that it has original (but not exclusive) jurisdiction over Counts One
through Seven of Mr. Reynolds’ complaint.
The court must also briefly address Count Thirteen, raised against Mintz
Levin, which is titled “Objection to Mintz Levin’s Claim.” (Doc. 1-1 at 39). The
claim to which it refers is the claim Mintz Levin filed in Atherotech Inc.’s
bankruptcy case.

(Id. at 29).

Section 502 of the Bankruptcy Code governs

allowance of and objections to bankruptcy claims. 11 U.S.C. § 502. Accordingly,
the court concludes that it has jurisdiction over Count Thirteen based on either the
court’s “arising in” or “arising under” jurisdiction. 28 U.S.C. § 1334(b); In re
Toledo, 170 F.3d at 1349 (“‘Arising under’ means that that a proceeding invokes a
cause of action, or substantive right, created by a specific section of the
Bankruptcy Code. ‘Arising in’ describes administrative matters unique to the
management of a bankruptcy estate.”) (citation omitted); see also Stoe v. Flaherty,

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436 F.3d 209, 216 (3d Cir. 2006), as amended (Mar. 17, 2006) (“Proceedings ‘arise
in’ a bankruptcy case, if they have no existence outside of the bankruptcy.”) (some
quotation marks omitted).
The question remains whether the court also has jurisdiction over the
remaining counts—Counts Eight through Twelve—which assert only state law
causes of action. The court concludes that it has original jurisdiction because those
claims are “related to” the Atherotech bankruptcy cases. 28 U.S.C. § 1334(b).
Although the state law claims asserted in Counts Eight through Twelve do not
assert causes of action created by the Bankruptcy Code or describe administrative
matters unique to the management of a bankruptcy estate, the resolution of those
claims “could conceivably have an effect on the estate being administered in
bankruptcy.” In re Fundamental Long Term Care, 873 F.3d at 1336 (quotation
marks and alteration omitted) (emphasis in original).
In short, the court has original jurisdiction over Counts One through Seven
and Thirteen because those claims “arise in” or “arise under” the Bankruptcy Code,
and it has original jurisdiction over Counts Eight through Twelve because those
counts “relate to” the Atherotech bankruptcy cases. Next, the court will address
whether the three sets of claims are misjoined.

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2.

Misjoinder

The only party to address misjoinder is Mintz Levin, which argues that
Mr. Reynolds fraudulently joined it to defeat diversity jurisdiction. (Doc. 59 at
10). The court, however, has concluded that it has original jurisdiction even in the
absence of diversity jurisdiction, so it will not address the allegation of fraudulent
joinder. Nevertheless, Federal Rule of Civil Procedure 21 provides that “[o]n
motion or on its own, the court may at any time, on just terms, add or drop a party.
The court may also sever any claim against a party.” Accordingly, the court will
sua sponte consider whether the claims and defendants are properly joined under
Federal Rules of Civil Procedure 18, 19, and 20.
Rule 18 permits a party asserting a claim to “join, as independent or
alternative claims, as many claims as it has against an opposing party.”
Fed. R. Civ. P. 18(a). With limited exceptions, Rule 19 requires a party to join
another party if (1) “in that person’s absence, the court cannot accord complete
relief among existing parties”; or (2) “that person claims an interest relating to the
subject of the action” and the party’s absence may “impair or impede the person’s
ability to protect that interest” or “leave an existing party subject to a substantial
risk of incurring double, multiple, or otherwise inconsistent obligations because of
the interest.”

Fed. R. Civ. P. 19(a)(1).

And Rule 20 permits the joinder of

defendants if (1) “any right to relief is asserted against them jointly, severally, or in

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the alternative with respect to or arising out of the same transaction, occurrence, or
series of transactions or occurrences”; and (2) the action involves a question of law
or fact common to all defendants. Fed. R. Civ. P. 20(a)(2).
As discussed above, the court has divided the thirteen claims raised in this
complaint into three sets: Counts One through Seven, raised against the Investors;
Counts Eight through Ten, raised against Behrman Management; and Counts
Eleven through Thirteen, raised against Mintz Levin. The court did this because
the claims and defendants named within each set are properly joined.
First, in Counts One through Seven, Mr. Reynolds names twenty-nine
defendants that are either companies or board members of companies that were
shareholders of Atherotech Holdings, and he alleges that Atherotech Inc.’s
payment of a dividend to those defendants was a fraudulent transfer under
Alabama law. (Doc. 1-1 at 16–18, 30–34). As a result, the joinder of those seven
claims and twenty-nine defendants was proper. See Fed. R. Civ. P. 18(a), 20(a)(2).
Similarly, in Counts Eight through Ten, Mr. Reynolds alleges that Behrman
Management is liable for negligence, breach of contract, and breach of fiduciary
duty. (Doc. 1-1 at 34–37). The joinder of those three claims against a single
defendant is proper under Rule 18(a). And finally, in Counts Eleven through
Thirteen, Mr. Reynolds asserts that Mintz Levin is liable for unjust enrichment and
negligence, and that its liability for those state law torts negates its claim against

15

Atherotech Inc.’s bankruptcy estate. (Id. at 37–39). Again, the joinder of those
claims against a single defendant is proper under Rule 18(a).
But Counts One through Seven are not properly joined with Counts Eight
through Ten or Eleven through Thirteen, nor are Counts Eight through Ten
properly joined with Counts Eleven through Thirteen. Counts Eight through Ten
deal with one defendant—Behrman Management—that is not named in the other
two sets of claims.

And Counts Eleven through Thirteen deal with another

defendant—Mintz Levin—that is not named in the other two sets of claims.
Accordingly, Counts One through Seven, Counts Eight through Ten, and Counts
Eleven through Twelve are not properly joined because no common defendant is
named in each set. See Fed. R. Civ. P. 18(a).
In addition, Behrman Management and Mintz Levin are not properly joined
as defendants, to either the Investors or to each other. Behrman Management and
Mintz Levin are not required parties in the claims against the Investors because the
court could afford complete relief among the existing parties to Counts One
through Seven even without Behrman Management or Mintz Levin, and neither
Behrman Management nor Mintz Levin claims an interest relating to the dividend.
See Fed. R. Civ. P. 19(a)(1). And Behrman Management and Mintz Levin cannot
be permissively joined with the Investors because Mr. Reynolds does not seek any
relief against the Investors, Behrman Management, and Mintz Levin jointly,

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severally, or in the alternative. See Fed. R. Civ. P. 19(a)(2). Accordingly, the
court finds that the claims against the Investors (Counts One through Seven) are
misjoined with the claims against Behrman Management (Counts Eight through
Ten) and Mintz Levin (Counts Eleven through Thirteen).
Furthermore, the court concludes that the Behrman Management and Mintz
Levin are not properly joined defendants. Neither Behrman Management nor
Mintz Levin is a required party in the claims against the other defendant: the court
could afford complete relief in each set of claims without the joinder of the other
defendant, and neither defendant claims an interest relating to the subject of the
claims against the other defendant. See Fed. R. Civ. P. 19(a)(1). Nor is Behrman
Management or Mintz Levin a permissive party in the claims against the other
defendant: no right to relief is asserted against Behrman Management and Mintz
Levin jointly, severally, or in the alternative. See Fed. R. Civ. P. 20(a)(2).
Accordingly, the court concludes that Counts One through Seven, naming
the Investors; Counts Eight through Ten, naming Behrman Management; and
Counts Eleven through Thirteen, naming Mintz Levin, are misjoined. As a result,
the court SEVERS those counts, pursuant to Rule 21, into three separate cases.
Having severed the counts, the court will next address whether it must or should
abstain from each of the three cases, under 28 U.S.C. § 1334(c).

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3.

Abstention

Mr. Reynolds contends that the court must abstain under § 1334(c)(2), or if
mandatory abstention does not apply, that it should abstain under § 1334(c)(1).
(Doc. 26 at 13–18).
Section 1334(c)(1) permits—but does not require—a court to abstain when
the proceedings “aris[e] under title 11 or aris[e] in or relate[ ] to a case under title
11” and “the interest of justice” or “the interest of comity with State courts or
respect for State law” calls for abstention.

Id. § 1334(c)(1).

By contrast,

§ 1334(c)(2) requires a court to abstain when five factors have been satisfied: (1) a
party files a “timely” motion to abstain; (2) the action is based on a state law claim;
(3) the action “relate[s] to a case under title 11” but it does not “aris[e] under title
11 or aris[e] in a case under title 11”; (4) the court has no other basis for subject
matter jurisdiction; and (5) “an action is commenced” in a state court that can
timely adjudicate it. Because the court has severed the claims, the court will
address each set of claims separately.
i.

Counts One through Seven

As discussed above, the court has found that it has original jurisdiction over
Counts One through Seven because those claims “arise under” the Bankruptcy
Code.

As a result, mandatory abstention does not apply, and the court will

18

consider only whether it should exercise its discretion to abstain from considering
those claims. See 28 U.S.C. § 1334(c).
Mr. Reynolds contends that abstention is appropriate in this case because he
has made a jury demand and issues of comity weigh in favor of remand. (Doc. 26
at 18). The court concludes that Mr. Reynolds’ jury demand does not warrant
remand because this court can hold a jury trial. And although Mr. Reynolds’
claims are based on state law, the state law issues are neither novel nor complex,
and they do potentially implicate issues of federal law.

Given “the virtually

unflagging obligation of the federal courts to exercise the jurisdiction given them,”
and the Supreme Court’s admonition to abstain only in “exceptional
circumstances,” the court finds that the interests of justice prohibit the court from
abstaining in Counts One through Seven. See Colo. River Water Conservation
Dist. v. United States, 424 U.S. 800, 813, 96 S. Ct. 1236, 1244, 47 L. Ed. 2d 483
(1976)
ii.

Counts Eight through Ten

The court has found that it has jurisdiction over Counts Eight through Ten
based solely on the court’s “related to” jurisdiction. As a result, the court must
determine whether the other four elements of mandatory abstention are present.
Those elements are: (1) a party files a “timely” motion to abstain; (2) the action is
based on a state law claim; (3) the court has no basis for subject matter jurisdiction

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other than § 1334(b); and (4) “an action is commenced” in a state court that can
timely adjudicate it. 28 U.S.C. § 1334(c)(2).
Mr. Reynolds has satisfied those elements. First, Mr. Reynolds expressly
seeks abstention in his motion to remand the case, and the court finds that the
motion was timely filed. (See Doc. 26 at 13–17). Second, Counts Eight, Nine, and
Ten are state law claims. Third, the court has no other basis for subject matter
jurisdiction. As discussed above, the court lacks federal question jurisdiction
because the state law claims do not implicate a disputed and substantial federal
question, and the court lacks diversity jurisdiction because both Behrman
Management and Mr. Reynolds are citizens of Delaware. (Doc. 1-1 at 10, 15). As
a result, the only basis for jurisdiction is § 1334(b).
Finally, Mr. Reynolds commenced this case in a State forum of appropriate
jurisdiction that is capable of adjudicating the case in a timely fashion. Defendants
contend that Mr. Reynolds does not satisfy the last requirement because he filed
the state court complaint after the commencement of the Chapter 7 bankruptcy
proceedings. The court rejects that argument based on the bankruptcy court’s
persuasive decision holding that “[m]andatory abstention can apply even if the
state court case post-dated the bankruptcy.” In re Danley, 552 B.R. 871, 887 n.13
(M.D. Ala. 2016). Accordingly, the court finds that Mr. Reynolds has shown that
the court must abstain, under § 1334(c)(2), from hearing Counts Eight through

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Ten. The court REMANDS those claims to the state court from which they were
removed.
iii.

Counts Eleven through Thirteen

Like the other sets of claims, the court has already determined that it has
jurisdiction over Counts Eleven through Thirteen under § 1334(b). But the court
notes that, now that it has severed these three claims from the others, it also
diversity jurisdiction over these three claims. The amount in controversy is at least
$181,397.99—the amount of the claim Mintz Levin has made in Atherotech Inc.’s
bankruptcy case. (See Doc. 1-1 at 29). And unlike Mr. Reynolds, who is a citizen
of Delaware, Mintz Levin is citizen of Massachusetts. (Id. at 10, 15; Doc. 76).
Because the court has diversity jurisdiction over Counts Eleven through
Thirteen, mandatory abstention does not apply.

See 28 U.S.C. § 1334(b)(2)

(requiring abstention only where “an action could not have been commenced in a
court of the United States absent jurisdiction under [§ 1334]”). Thus, the court will
consider only whether it should abstain under § 1334(b)(1).
As in Counts One through Seven, Mr. Reynolds contends that the court
should abstain because he has made a jury demand and issues of comity weigh in
favor of remand. (Doc. 26 at 18). And as in those counts, the court concludes that
those factors do not weigh in favor of abstention. Because the interest of justice

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favors the court’s consideration of these counts, the court will not abstain from
considering them.
4.

Referral to the Bankruptcy Court

Mr. Reynolds contends that, if the court will not remand or abstain in this
case, it should refer the case to the bankruptcy court. (Doc. 26 at 19). Defendants
respond that the court must not refer the case because 28 U.S.C. § 157(d) requires
a district court to withdraw the reference of a case to bankruptcy court if
“resolution of the proceeding requires consideration of both title 11 and other laws
of the United States regulating organizations or activities affecting interstate
commerce.” (Doc. 60 at 29–30).
Although the court has already found that the claims over which it has
jurisdiction do not implicate a substantial and disputed question of federal law, the
court agrees with Defendants that resolution of those claims will require at least
some consideration of non-Bankruptcy Code federal law. In Counts One through
Seven, one of Mr. Reynolds’ theories supporting the allegedly fraudulent transfer
is that Atherotech Inc. was insolvent because of contingent liabilities for violations
of the False Claims Act and the Anti-Kickback Statute, both federal laws that
regulate activities affecting interstate commerce. (Doc. 1-1 at 30–34). And in
Counts Eleven through Thirteen, Mr. Reynolds contends that Mintz Levin is liable
for providing bad advice about the legality, under the Anti-Kickback Statute and

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the False Claims Act, of paying P&H fees. (Id. at 37–39). Accordingly, the court
DENIES Mr. Reynolds’ request to refer the claims to the bankruptcy court.
III.

CONCLUSION

The court GRANTS IN PART AND DENIES IN PART Mr. Reynolds’
motion to remand or abstain, or in the alternative, to refer to the bankruptcy court.
(Doc. 26).
The court SEVERS this case into three cases: (1) Counts One through
Seven; (2) Counts Eight through Ten; and (3) Counts Eleven through Thirteen.
The court GRANTS the motion to remand Counts Eight through Ten and
REMANDS those counts to the Jefferson County Circuit Court.
The court DENIES the motion to remand Counts One through Seven and
Eleven through Thirteen, DENIES the motion to abstain from considering Counts
One through Seven and Eleven through Thirteen, and DENIES the motion to refer
Counts One through Seven and Eleven through Thirteen to the bankruptcy court.
The court DIRECTS the Clerk of Court to keep Counts One through Seven
under this civil action number and to create a new civil action number for Counts
Eleven through Thirteen, with the new action assigned directly to the undersigned.
The court WAIVES the filing fee for the new civil action number to which Counts
Eleven through Thirteen will be assigned. The court DIRECTS the Clerk of Court

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to file Mintz Levin’s motion to dismiss (doc. 30) in the newly created civil action
number, and to term the motion to dismiss (doc. 30) from this case’s docket.
DONE and ORDERED this September 6, 2018.

_________________________________
ANNEMARIE CARNEY AXON
UNITED STATES DISTRICT JUDGE

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