Sears et al v. Sears et al
MEMORANDUM AND ORDER - Appellants' motion to supplement the record on appeal (Filing No. 13 ) is granted instanter, and the court takes judicial notice of the documents attached to such motion. The order entered by the United States Bankruptcy Court for the District of Nebraska on December 9, 2014, remanding the adversary proceeding to the District Court of Madison County, Nebraska, is reversed, and the case is remanded to the bankruptcy court for further proceedings. Judgment shall be entered by separate document. Ordered by Senior Judge Richard G. Kopf. (LAC)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEBRASKA
ROBERT A. SEARS,
ROBERT A. SEARS; ROBERT A.
TRUSTEE; AND KORLEY B.
RHETT R. SEARS; RHETT SEARS )
REVOCABLE TRUST; RONALD H. )
SEARS; RON H. SEARS TRUST;
and DANE SEARS,
Case No. 4:14CV3247
Bankruptcy Case No. 10-40275
Adversary Proceeding No. 14-04062
This is an appeal from an order entered by the United States Bankruptcy Court
for the District of Nebraska on December 9, 2014, remanding an adversary proceeding
to the District Court of Madison County, Nebraska. For the reasons discussed below,
the bankruptcy court’s order will be reversed and the case will be remanded for further
I find that oral argument is not needed because the facts and legal arguments
are adequately presented in the briefs and record and the decisional process would not
be significantly aided by oral argument. See Fed. R. Bankr. P. 8019(b)(3). Appellants’
motion to supplement the record (Filing No. 13) will be granted instanter.
On October 20, 2014, Robert A. Sears, individually and as testamentary trustee
under the will of Redmond Sears, deceased, and Korley B. Sears (“Appellees), filed
a complaint in state court alleging that Rhett R. Sears, Rhett Sears Revocable Trust,
Ronald H. Sears, Ron H. Sears Trust, and Dane Sears (“Appellants”), breached an
agreement for the sale of their shares of AFY, Inc. stock to Korley B. Sears and the
corporation, and that Ronald H. Sears and Dane Sears breached their fiduciary duties
as employees of the corporation. Appellees also sought restitution of distributions
Appellants received from the bankruptcy estate of AFY, Inc. (Case No. 10-40875),
and claimed that Appellants tortiously interfered with the Chapter 11 reorganization
of AFY, Inc., and filed “bogus” claims as creditors.
On November 24, 2014, Appellants filed a notice of removal in the Chapter 11
bankruptcy of Robert A. Sears (Case No. 10-40275),2 thereby initiating Adversary
Proceeding No. 14-04062.3 The bankruptcy court has subject matter jurisdiction over
the adversary proceeding pursuant to 28 U.S.C. § 1334(b) (for claims “arising in or
related to cases under” the Bankruptcy Code).
However, on December 11, 2014, the bankruptcy court ordered sua sponte
that the adversary proceeding be remanded to the state court under the permissive
abstention doctrine of 28 U.S.C. § 1334(c)(1) and the equitable remand doctrine of 28
U.S.C. § 1452(b). Appellants timely appealed the order to this court on December 24,
2014. See Fed. R. Bankr. P. 8002(a)(1).
The Eighth Circuit has indicated that state court actions may be removed
directly to a bankruptcy court, rather than removed to a district court and then referred
to a bankruptcy court. See Specialty Mills, Inc. v. Citizens State Bank, 51 F.3d 770,
773 n.4 (8th Cir. 1995).
Notices of removal were also filed in the converted Chapter 7 bankruptcy of
AFY, Inc. (Case No. 10-40875, Adversary Proceeding No. 14-04060) and the Chapter
11 bankruptcy of Korley B. Sears (Case No. 10-40277, Adversary Proceeding No. 1404061).
This court has jurisdiction to hear this appeal pursuant to 28 U.S.C. § 158(a).
Although 28 U.S.C. §§ 1334(d) and 1452(b) provide that decisions to, or not to,
abstain or remand are not subject to review by appeal or otherwise by a “court of
appeals” or by “the Supreme Court of the United States,” appellate review by a district
court (or bankruptcy appellate panel) is permitted. In re Schmidt, 453 B.R. 346, 349
(8th Cir. B.A.P. 2011); Cargill, Inc. v. Man Fin., Inc. (In re Refco, Inc.), 354 B.R.
515, 518 (8th Cir. B.A.P. 2006). In addition, 28 U.S.C. § 1447(d) only prohibits
appellate review of cases in which remand was based on a timely raised defect in the
removal procedure or on the lack of subject matter jurisdiction, neither of which is
present here. See Things Remembered, Inc. v. Petrarca, 516 U.S. 124, 127 (1995).
Permissive abstention decisions under § 1334(c)(1) and equitable remand
decisions under § 1452(b) are reviewed for an abuse of discretion. In re Williams, 256
B.R. 885, 891 (8th Cir. B.A.P. 2001) (citing In re DeLorean Motor Co., 155 B.R. 521,
524 (9th Cir. B.A.P. 1993)). “A bankruptcy court abuses its discretion if it bases its
decision on an erroneous view of the law or clearly erroneous factual findings.” Id.
The bankruptcy court’s remand order (Doc. 15) reads in its entirety:
This matter is before the court on the defendants’ notice of
removal (Fil. No. 1). Brian J. Koenig, Kristin M.V. Krueger, and Donald
L. Swanson represent the defendants. Jerrold L. Strasheim represents the
This is a lawsuit brought by current shareholders of AFY, Inc.,
against former shareholders of the corporation concerning the terms of
the sale of the former shareholders’ stock to the current shareholders.
The buyers and sellers are all members of the same extended family. The
individual plaintiffs filed bankruptcy petitions in early 2010 and the
matters at bar have been in litigation in one form or another ever since.
This court has ruled that AFY and Korley Sears owe the defendants in
this case more than $5 million; one of those orders is final (the claim
against AFY), and one is currently on appeal in the United States District
Court (the claim against Korley Sears). Notwithstanding those rulings,
the plaintiffs filed this lawsuit in Madison County District Court on
October 20, 2014, alleging breach of contract as to the stock sale
agreement, breach of fiduciary duty, unjust enrichment, conspiracy and
tortious interference with business expectancies, and abuse of process.
The defendants removed the case to this court pursuant to 28
U.S.C. § 1452(a), which provides that a party may remove any claim or
cause of action in a civil action to the district court for the district where
such civil action is pending when the federal court has jurisdiction of
such claim or cause of action under 28 U.S.C. § 1334. Section 1334(a)
gives the federal district courts “original and exclusive jurisdiction over
cases under title 11,” which are bankruptcy cases themselves. Section
1334(b) gives federal courts non-exclusive jurisdiction over “all civil
proceedings arising under title 11, or arising in or related to cases under
title 11.” Those civil proceedings are further divided into two categories:
core proceedings and non-core, related proceedings. Core proceedings
are those cases arising under title 11, or arising in a case under title 11,
while non-core, related-to proceedings are those which could
conceivably have an effect on the estate being administered in
Certainly, the validity of the proofs of claim of the defendants
against the bankruptcy estates of AFY, Inc., and Korley Sears are core
proceedings within the jurisdiction of the Bankruptcy Court to enter final
judgment. 28 U.S.C. § 157(b)(2)(B). However, those issues have already
been decided by this court and the plaintiffs’ causes of action are matters
of common law; they are not sufficiently inherent to the bankruptcy case
that they could be considered core proceedings. In that regard, §
1334(c)(1) permits a court to abstain from hearing a particular
proceeding in favor of the state courts: “[N]othing in this section
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.”
In deciding whether permissive abstention under § 1334(c)(1) is
appropriate under the broad statutory guidelines of the interests of justice
or comity, and keeping in mind “the premise that federal courts should
exercise their jurisdiction if it is properly conferred and that abstention
is the exception rather than the rule,” [Williams v. Citifinancial Mortg.
Co. (In re Williams), 256 B.R. 885, 894 (B.A.P. 8th Cir. 2001),] courts
consider the following factors:
(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
(3) the difficult or unsettled nature of the applicable 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 relatedness or remoteness of the proceeding to
the main bankruptcy case;
(7) the substance rather than the form of an asserted “core”
(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 on the bankruptcy court’s docket;
(10) the likelihood that the commencement of the proceeding
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 non-debtor parties. Stabler
v. Beyers (In re Stabler), 418 B.R. 764, 769 (B.A.P. 8th Cir. 2009)
(citing Williams, 256 B.R. at 893-94 and In re Chicago, Milwaukee, St.
Paul & Pac. R.R. Co., 6 F.3d 1184, 1189 (7th Cir. 1993) (“Courts should
apply these factors flexibly, for their relevance and importance will vary
with the particular circumstances of each case, and no one factor is
Section 1452(b) also permits equitable remand of a removed
action: “The court to which such claim or cause of action is removed
may remand such claim or cause of action on any equitable ground.” The
analysis used to determine whether equitable remand under § 1452(b) is
appropriate is virtually identical to the permissive abstention analysis,
with the consideration of four additional factors:
(1) whether remand serves principles of judicial economy;
(2) whether there is prejudice to unremoved parties;
(3) whether the remand lessens the possibilities of inconsistent
(4) whether the court where the action originated has greater
expertise. Farmers Bank & Trust Co. v. Chickasaw Prop., LLC (In re
Burrow), 505 B.R. 838, 849-50 (Bankr. E.D. Ark. 2013).
The majority of these factors favor abstention and remand. As
noted above, the allegations in the pending complaint pertain solely to
state law causes of action. The case does not involve any bankruptcy law
issues and no issues exclusive to bankruptcy. The plaintiffs have
requested a jury trial and do not consent to entry of final judgment by the
bankruptcy court. The state court is in the best position to determine the
various issues raised in the complaint. To the extent the defendants feel
that certain of the plaintiffs’ claims are precluded due to prior rulings by
this court in the bankruptcy cases, they are able to raise those preclusion
arguments in state court. Those preclusion arguments are not bankruptcy
issues or unique to bankruptcy courts. For these reasons, this court will
abstain from hearing the lawsuit and will remand the case to state court.
IT IS ORDERED: This lawsuit should be remanded to the District
Court of Madison County, Nebraska. Relief from the automatic stay is
hereby granted to the parties to pursue the state court litigation. The
parties are directed to file a copy of this order with the Madison County
A bankruptcy court may reach the issue of abstention sua sponte, but only if the
parties have advance notice that the court is considering abstention. See Stabler v.
Beyers (In re Stabler), 418 B.R. 764, 769 (8th Cir. B.A.P. 2009) (“[T]he procedure by
which the [abstention] issue came before the bankruptcy court is largely irrelevant, as
long as the Debtors had notice that the court was considering abstention.”); PRN
Pharmaceutical Services, LP, v. Brownsburg Healthcare LLC (In re Kentuckiana
Healthcare, LLC),Civil Action No. 3:12CV-705-S, 2014 WL 906121, at *3 (W.D.Ky.
Mar. 7, 2014) (“The question of permissive abstention may be raised by this court sua
sponte, as long as the parties have an opportunity to be heard.”); Gregory v. RHO
Mobili D'Epocha (In re Gregory), Bankr. No. 11-07081, Adv. No. 11-0465A, 2011
WL 5118457, at *1 (Bkrtcy.M.D.Tenn. Oct. 27, 2011) (“Although abstention from the
exercise of federal jurisdiction is the exception rather than the rule, the decision to do
so is ‘in the sound discretion of the bankruptcy judge and can be raised sua sponte as
long as the parties have an opportunity to be heard.’”) (quoting Underwood v. United
Student Aid Funds, Inc. (In re Underwood), 299 B.R. 471, 476 (Bankr.S.D.Ohio
2003)); Vernell v. Washington Mutual Bank, F.A. (In re Vernell), Bankr. No. 0715396, Adv. No. 07-01889, 2008 WL 434718, at *1 (Bkrtcy.S.D.Fla., Feb. 13, 2008)
“Abstention from the exercise of federal jurisdiction is in the sound discretion of the
Bankruptcy Court and can be raised sua sponte as long as the parties have an
opportunity to be heard.”); see also In re Panther Mountain Land Development, LLC,
686 F.3d 916, 928 (8th Cir. 2012) (concluding that the bankruptcy court improperly
applied the doctrine of laches to a creditor’s motion for relief from the automatic stay
because the creditor “was not on notice that the court intended to sua sponte apply
laches” and thus “had no reason to present evidence to justify its delay.”).
Here, the bankruptcy court issued the remand order sua sponte, based solely on
the notice of removal that was filed by Appellants. There was no motion before the
court requesting that it abstain from hearing the adversary proceeding or that it
remand the case to state court. In the notice of removal, Appellants complied with
Rule 9027, which requires only “a short and plain statement of the facts which entitle
the party filing the notice to remove” and a “statement that upon removal of the claim
or cause of action the proceeding is core or non-core and, if non-core, that the party
filing the notice does or does not consent to entry of final orders or judgment by the
bankruptcy judge.” Fed. R. Bank. P. 9027 (a)(1). When filing the notice of removal,
Appellants were not required to anticipate that the bankruptcy court would decide
questions of permissive abstention and equitable remand on its own motion, without
any advance notice. On this appeal, Appellants have presented a convincing argument
(discussing each of the factors identified in the bankruptcy court’s order) as to why
Appellees’ action does not belong in state court.
The bankruptcy court abused its discretion by not affording Appellants an
opportunity to present such an argument to it. Because of this procedural irregularity,
the remand order must be reversed. The adversary proceeding will be remanded to the
bankruptcy court for further proceedings.
IT IS ORDERED that:
Appellants’ motion to supplement the record on appeal (Filing No. 13)
is granted instanter, and the court takes judicial notice of the documents
attached to such motion.
The order entered by the United States Bankruptcy Court for the District
of Nebraska on December 9, 2014, remanding the adversary proceeding
to the District Court of Madison County, Nebraska, is reversed, and the
case is remanded to the bankruptcy court for further proceedings.
Judgment shall be entered by separate document.
DATED this 28th day of September, 2015.
BY THE COURT:
Richard G. Kopf
Senior United States District Judge
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