In re: Hard Rock Exploration, Inc.
Filing
28
MEMORANDUM OPINION AND ORDER re: 24 JOINT MOTION by Duane Yost, James Stephens, Gregory Laughlin, Monica Francisco to Remand Case to Circuit Court of Monongalia County and 21 Bankruptcy Court's Report and Recommendation. The Court ADO PTS the 21 Bankruptcy Court's Report and Recommendation, and TRANSFERS the two adversary proceedings to the Northern District of West Virginia; directing the Clerk to remove this case from the Court's active docket. Signed by Judge Thomas E. Johnston on 5/3/2022. (cc: counsel of record; any unrepresented party) (mk) [Transferred from West Virginia Southern on 5/4/2022.]
Case 1:22-cv-00039-TSK Document 28 Filed 05/03/22 Page 1 of 16 PageID #: 8683
IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF WEST VIRGINIA
IN RE: HARD ROCK EXPLORATION, INC.
Debtor.
DUANE YOST, et al.,
Appellants,
v.
Civil Action No.
2:20-cv-00276
THE HUNTINGTON NATIONAL BANK, et al.,
Appellees.
JAMES STEPHENS, JR.;
MONICA FRANCISCO;
DUANE YOST; and
GREGORY LAUGHLIN,
Plaintiffs,
v.
Miscellaneous Proceeding No.: 2:17-mp-02001
THE HUNTINGTON NATIONAL BANK;
and CHAD PRATHER,
Defendants.
_____________________________________________________________________________
THE HUNTINGTON NATIONAL BANK,
Plaintiff,
v.
Adversary Proceeding No.:
DUANE YOST; JAMES STEPHENS,
JR.; GREGORY LAUGHLIN; and
MONICA FRANCISCO,
Defendants.
2:18-ap-02005
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MEMORANDUM OPINION AND ORDER
Pending before the Court are the Bankruptcy Court’s Report and Recommendation, (ECF
No. 21), and the Joint Motion to Remand, (ECF No. 24). This matter was referred to Bankruptcy
Judge Paul M. Black of the Western District of Virginia for submission of proposed findings and
a recommendation for disposition (“PF&R”). On May 18, 2021, Judge Black filed his PF&R,
finding that the court lacked subject matter jurisdiction to preside over these matters and
recommending that this Court transfer Adversary Proceeding No. 2:18-ap-02005 (“Federal Court
Action”) to the United States District Court for the Northern District of West Virginia and stay
Miscellaneous Proceeding No. 2:17-mp-02001 (“State Court Action”) pending further action in
the Federal Court Action. (ECF No. 21.) Duane Yost, Gregory Laughlin, James Stephens, Jr.,
and Monica Francisco (the “Individuals”) filed objections on May 31, 2021, (ECF No. 22), and
Huntington National Bank (“Huntington”) filed objections on June 1, 2021, (ECF No. 23).
For the reasons discussed herein, the Court ADOPTS the PF&R, (ECF No. 21), and
TRANSFERS the Federal Court Action and State Court Action to the United States District
Court for the Northern District of West Virginia.
I. BACKGROUND
A detailed recitation of the extensive facts of this action can be found in Judge Black’s
PF&R and therefore need not be repeated here. The Court will provide a discussion of any
relevant facts as necessary throughout this opinion to resolve the parties’ objections.
II. LEGAL STANDARD
The Bankruptcy Court is authorized to submit proposed findings and recommendations to
the district court on non-core matters that are otherwise related to a case under Title 11. 28
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U.S.C. § 157(c)(1). In such a proceeding, the district court has jurisdiction to make a de novo
review of “those matters to which any party has timely and specifically objected.” Id.; Fed. R.
Bankr. P. 9033(d) (authorizing district courts to “make a de novo review upon the record . . . of
any portion of the bankruptcy judge’s findings of fact or conclusions of law to which specific
written objection has been made”); see also Humboldt Express, Inc. v. Wise Co. (In re Apex
Express Corp.), 190 F.3d 624, 630 (4th Cir. 1999) (de novo standard applies to both findings of
fact and conclusions of law); Executive Benefits Ins. Agency v. Arkison, 573 U.S. 25, 33 (2014).
The district court “may accept, reject, or modify the proposed findings of fact or conclusions of
law, receive further evidence, or recommit the matter to the bankruptcy judge with instructions.”
Fed. R. Bankr. P. 9033(d).
III. DISCUSSION
Regarding the PF&R, Huntington narrowly objects to the finding that subject matter
jurisdiction does not exist, arguing that the wrong legal test was applied. (ECF No. 23 at 5–6.)
However, while Huntington argues the incorrect legal analysis was applied, it “agrees with the
outcomes in the Report and Recommendation[.]” (Id. at 5.) Conversely, the Individuals agree
with the finding that subject matter jurisdiction does not exist, but object to the PF&R’s
recommendation to stay the State Court Action pending resolution of the Federal Court Action.
(ECF No. 22 at 5, 7, ¶¶ 5, 11.) The Individuals argue that because there is no bankruptcy or
federal court subject matter jurisdiction over the State Court Action, “the stay recommended by
Judge Black is without legal basis and would constitute a ruling in excess of this Court’s
authority and jurisdiction,” and would result in the deprivation of the Individuals’ “substantive
and procedural due process.” (Id. at 7–8, ¶ 13.) Each is discussed in turn.
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A. Bankruptcy Court Jurisdiction.
Federal law provides that 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.” 28
U.S.C. § 1334(b). This Court’s local rules provide that “all cases under Title 11, and all
proceedings arising under Title 11 or arising in or related to a case under Title 11, are referred to
the Bankruptcy Court for disposition.” L.R. Civ. P. 83.13 (citing 28 U.S.C. § 157(a)). If a
proceeding fails to relate to, arise in or arise under Title 11, then the court lacks jurisdiction
under 28 U.S.C. § 1334(b).
In this case, Judge Black determined that this Court does not have “arising under,”
“arising in,” or “related to” subject matter jurisdiction over the remaining two adversary
proceedings. Huntington objects, arguing that all three types of subject matter jurisdiction exist.
While persuasive, Huntington’s rationale ultimately falls short.
1. “Core” Bankruptcy Jurisdiction
Title 11 of the United States Code governs bankruptcy and the terms “arising under,”
“arising in” and “related to” are terms with special meanings in relation to bankruptcy law. See
New Horizon of NY, LLC v. Jacobs, 231 F.3d 143, 150-51 (4th Cir. 2000).
Claims or
proceedings that “arise under” or “arise in” Title 11 are considered “core” proceedings. See 28
U.S.C. § 157(b)(2). A proceeding arises under Title 11 “if it is a cause of action created by the
Bankruptcy Code, and which lacks existence outside the context of bankruptcy.” In re Kirkland,
600 F.3d 310, 316 (4th Cir. 2010). Examples of proceedings that arise under Title 11 “include
administrative matters, allowance or disallowance of claims, determination of liens and other
matters that take place as part of the administration of the bankruptcy estate.” Barge v. W. S. Life
4
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Ins. Co., 307 B.R. 541, 544 (S. D. W. Va. 2004) (citing 1 Collier on Bankruptcy ¶ 3.01(4)(b)(iv)
(15th ed. 2003)). A proceeding arises in Title 11 when it is “not based on any right expressly
created by Title 11, but nevertheless . . . would have no practical existence but for the
bankruptcy.” Valley Historic Ltd. P’ship v. Bank of NY, 486 F.3d 831, 835 (4th Cir. 2007); In re
AH Robins Co., Inc., 86 F.3d 364, 372 (4th Cir. 1996).
This Court has noted that “[s]imply because the proceeding presents questions of state
law does not necessarily mean that the proceeding is ‘non-core’ or otherwise beyond the
jurisdiction of the bankruptcy courts.” In re Albertson, 535 B.R. 662, 667 (S.D. W. Va. 2015)
(internal citations omitted). Rather, in determining whether a proceeding is core or noncore,
courts have considered whether (1) the claims are specifically identified as core proceedings
under 28 U.S.C. § 157(b)(2); (2) the claims existed prior to the filing of the bankruptcy case; (3)
the claims are based entirely on state law or otherwise exist independently from Title 11; and (4)
the parties' rights or obligations are significantly affected by the outcome of the bankruptcy
proceedings. Id. (collecting cases).
Huntington objects to Judge Black’s PF&R because “as explained by Huntington in the
Jurisdiction briefs, the Adversary Proceedings involve claims which are property of the estate
and subject to the ‘core’ jurisdiction of the Bankruptcy Court.” (ECF No. 23 at 5 (“Because the
counterclaims of the Individual[s] are simply disguised claims of the Hard Rock Entities[,] they
are ‘core’ within the meaning of 28 U.S.C. § 157.”).) Notably, while Huntington does not direct
the Court to a specific error in the PF&R’s analysis and instead “incorporates” its previous
briefings to its objection, 1 the Court disagrees with its position that these proceedings are core.
This “specific objection” requirement in 28 U.S.C. § 157(c)(1) and Fed. R. Bankr. P. 9033(d) is similar to the
standard of review given to objections to a magistrate judge’s proposed findings and recommended disposition of a
1
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First, these claims are not based on any right expressly created by Title 11, nor are they
specifically identified as core proceedings in 28 U.S.C. § 157(b)(2). See Valley Historic Ltd.
P’ship, 486 F.3d at 835–36; In re Albertson, 535 B.R. at 667. As the PF&R noted, each of these
claims are based in West Virginia state law, not the bankruptcy code, and were “antecedent” to
the filing of bankruptcy. (ECF No. 21 at 9.) “It seems self-evident that a claim, like the Debtor's
breach of contract claim, that pre-dates the filing of the Chapter 11 case cannot be said to have
arisen within that case, and whether it caused the bankruptcy is immaterial.” Valley Historic Ltd.
P'ship, 486 F.3d at 836. Moreover, and as the PF&R observed, “[t]he Individuals’ claims in
their personal capacity as guarantors, however, did not become property of the estate,” a finding
further solidified with the dismissal of the Debtors’ claims against Huntington. (ECF No. 21 at
11 (emphasis added).) Evidently, then, the parties’ rights and obligations are not significantly
affected by the confirmation of the bankruptcy plan, and the claims clearly exist outside of the
bankruptcy. See Valley Historic Ltd. P’ship, 486 F.3d at 835; In re Albertson, 535 B.R. at 667.
Therefore, because the claims themselves did not “arise in” or “arise under” Title 11, they cannot
be said be core proceedings.
Admittedly, the position advanced by Huntington invokes complex questions of
jurisdiction. However, because the Individuals’ lender liability claims were never within the
scope of core bankruptcy jurisdiction, as discussed above, it is axiomatic that the issue of their
dispositive matter. See Fed. R. Bankr. P. 9033 advisory committee's note (subdivision (d) adopts the de novo review
provisions of Fed. R. Civ. P. 72(b)). In this sense, “[a]n ‘objection’ that does nothing more than state a
disagreement with a magistrate's suggested resolution, or simply summarizes what has been presented before, is not
an ‘objection’ as that term is used in this context.” Aldrich v. Bock, 327 F.Supp.2d 743, 747 (E.D.Mich.2004). See
also Silagy v. Morris, No. 5:13-cv-2645, 2015 WL 853499, at *13 (N.D. Oh. Feb. 26, 2015) (rejecting as nonspecific party’s objection by incorporation of previous arguments); In re Tronox Inc., No. 14-cv-5495 (KBF), 2014
WL 5825308, at *6, n.10 (S.D.N.Y. Nov. 10, 2014) (refusing to consider arguments incorporated by reference,
unless specifically set forth).
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standing regarding those claims is not within the scope of core bankruptcy jurisdiction.
“Bankruptcy courts, like other federal courts, are courts of limited jurisdiction.” In re Tara
Retail Grp., LLC, 634 B.R. 509, 516 (Bankr. N.D. W. Va. 2021) (emphasis added).
Accordingly, bankruptcy courts “must be alert to avoid overstepping their limited grants of
jurisdiction.” McCorkle v. First Pa. Banking & Trust Co., 459 F.2d 243, 244 n.1 (4th Cir. 1972).
The limited grant is threefold: Bankruptcy courts are granted constitutional authority pursuant to
Article I, Section 8, Clause 4 of the United States Constitution; subject matter jurisdiction
pursuant to 28 U.S.C. § 1334; and statutory authority pursuant to 28 U.S.C. § 157. See Harvey v.
Dambowsky (In re Dambowsky), 526 B.R. 590, 595 (Bankr. M.D. N.C. 2015). “Therefore, in
order for a bankruptcy court to hear and determine any matter, it must have subject
matter jurisdiction . . ., statutory authority . . ., and constitutional authority.” Id.
Entangled in this question of the Bankruptcy Court’s jurisdiction and authority is that of
standing. 2 While Huntington contends that the lender liability claims “are the exclusive property
of the bankruptcy estate and cannot be pursued by the Individuals,” (ECF No. 23-1 at 13), the
Individuals’ alleged lack of standing does not bring these claims within the scope of 28 U.S.C. §
157, and the Bankruptcy Court lacks statutory authority—and ultimately, jurisdiction—as a
result. 3 And as already explained, because these claims did not arise in or under Title 11, they
While the Court is cognizant that standing is typically a “threshold jurisdictional question which ensures that a suit
is a case or controversy appropriate for the exercise of the courts' judicial powers under the Constitution of the
United States,” see Pye v. United States, 269 F.3d 459, 466 (4th Cir. 2001), the added wrinkles of bankruptcy
subject matter jurisdiction clearly show that the Bankruptcy Court lacks core jurisdiction over this matter. Cf. Sierra
Club v. Morton, 405 U.S. 727, 732 (1972) (“Where, however, Congress . . . has provided by statute for judicial
review of those actions under certain circumstances, the inquiry as to standing must begin with a determination of
whether the statute in question authorizes review at the behest of the plaintiff.”)
2
On this point, the Court notes that the Individual Defendants maintain that they have brought claims independent of
those asserted by the Debtor, memorialized in the hearing held on April 9, 2021 in the bankruptcy court:
3
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cannot be considered “core.” Accordingly, Huntington’s objections to this portion of the PF&R
are OVERRULED.
2. Non-core Bankruptcy Jurisdiction
A proceeding that is “related to a case under title 11, but not arising under title 11, or
arising in a case under title 11” is a “non-core” proceeding. Bowles v. Massey Energy Co., No.
2:12-cv-05997, 2012 WL 6628953, at *4 (S. D. W. Va. Dec. 19, 2012) (internal quotations
omitted). A proceeding is related to a case under Title 11 “if the outcome [of the proceeding]
could alter the debtor’s rights, liabilities, options, or freedom of action . . . and [the proceeding]
in any way impacts upon the handling and administration of the bankrupt estate.” New Horizon,
231 F.3d at 151 (citing Spartan Mills v. Bank of Am. Ill., 112 F.3d 1251, 1255-56 (4th Cir.
1997)). Furthermore, “common issues of fact between a civil proceeding and a controversy
involving a bankruptcy estate” alone “does not bring the matter within the scope of [§ 1334(b)].”
Id. (citing Pacor, Inc. v. Higgins, 743 F.2d 984, 994 (3d Cir. 1984), overruled on other grounds
by Nuveen Mun. Trust ex rel. Nuveen High Yield Mun. Bond Fund v. WithumSmith Brown, P.C.,
692 F.3d 283, 293-95 (3d Cir. 2012)). 4 See also Valley Historic, 486 F.3d at 836.
MR. BENNINGER: As we state in our papers, [the Individual Defendants] are borrowers; they’re
makers on the notes on – on Obligation No. 42, which is $6.25 million, that they took out
themselves. And again, co-counsel, if I’ve mis-stated something here – but, and then they also
have another –
THE COURT: Are they makers with the Debtor or are they independent borrowers? Or does that
matter?
MR. BENNINGER: Independent borrowers.
(ECF No. 25-1 at 37:10–21.) As explained above, reaching even the threshold question of standing means reaching
beyond the bounds of the statutory authority granted to bankruptcy courts.
4
In Nuveen, the Third Circuit distinguished its previous holding in Pacor:
There is one twist to the otherwise straightforward application of Pacor’s conceivability standard.
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Here, Huntington argues that the PF&R applied the wrong legal test. The PF&R applied
the Pacor test despite the fact that Pacor was decided in a pre-confirmation context because
“[w]hile a plan has been confirmed here, these adversary proceedings were commenced preconfirmation[.]” (ECF No. 21 at 10 n. 6.) Huntington contends, though, that the Porges test
should have been applied because these adversary proceedings were commenced preconfirmation. Huntington argues that applying Porges is appropriate because the Bankruptcy
Court should have analyzed the question as to retaining jurisdiction, rather than exercising
jurisdiction in the first instance as contemplated by Pacor. (ECF No. 23 at 6.) Notably, neither
Porges nor Pacor fits neatly with the procedural stance of this case, yet the result is the same
when either is applied.
The United States Circuit Court of Appeals for the Third Circuit addressed the issue of
jurisdiction in Pacor, Inc. v. Higgins, 743 F.2d 984 (3d Cir. 1984). 5 There, John and Louise
Higgins brought suit against Pacor, Inc. in the Pennsylvania Court of Common Pleas, seeking
damages for Mr. Higgins’ alleged exposure to asbestos. Id. at 986. Pacor, Inc. then filed a thirdparty complaint against the Johns-Manville Corporation, the alleged manufacturer of the
asbestos. Id. Subsequently, Johns-Manville filed for bankruptcy. Id. However, the following
If an action is brought after the confirmation of a plan in a related bankruptcy proceeding, the
post-confirmation context of the dispute alters the related to inquiry. Because a bankruptcy court’s
jurisdiction wanes after the confirmation of a case, retention of bankruptcy jurisdiction may be
problematic . . . . At the most literal level, it is impossible for the bankrupt debtor’s estate to be
affected by a post-confirmation dispute because the debtor’s estate ceases to exist once
confirmation has occurred. Nonetheless, courts do not usually apply Pacor’s effect on the
bankruptcy estate test so literally as to entirely bar post-confirmation bankruptcy jurisdiction.
Instead, they apply varying standards that focus on whether the action could conceivably affect the
implementation of the confirmed plan.
Nuveen, 692 F.3d at 294-95 (internal citations and quotations omitted).
The Supreme Court has since overruled Pacor in part, see Things Remembered, Inc. v. Petrarca, 516 U.S. 124
(1995) (overruling Pacor's holding that the prohibition against review of a remand order in 28 U.S.C. § 1447(d) is
not applicable in a bankruptcy case), but has not disturbed the “related to” jurisdiction test.
5
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month, the Court of Common Pleas severed the third-party action from the main Higgins action.
Id. Shortly before the main Higgins action went to trial, Pacor, Inc. filed a petition for removal,
seeking to remove the entire action—including the severed third-party action—to the bankruptcy
court. Id. While the bankruptcy court initially ruled that the removal was time-barred by the
thirty-day time limit contained in Interim Bankruptcy Rule 7004(a), the district court held on
appeal that the time limit could be extended, but that regardless, the original Higgins action was
not “related to” the Johns-Manville bankruptcy, such that the bankruptcy court lacked
jurisdiction under 28 U.S.C. § 1471(b). Id. Regarding the third-party action, however, the
district court found that it was “related to” the bankruptcy proceeding and remanded that portion
of the case to the bankruptcy court. Id.
Pacor, Inc. appealed the portion of the district court order remanding the original Higgins
action to state court, arguing that the action was sufficiently related to the bankruptcy proceeding
such that the bankruptcy court could exercise jurisdiction. Id. at 995. The Third Circuit, in
addressing this argument, articulated the following test for whether a civil proceeding is related
to bankruptcy: A reviewing court must determine “whether the outcome of that proceeding could
conceivably have an effect on the estate being administered in bankruptcy.” Id. (emphasis in
original).
In examining the original Higgins action, the Third Circuit reasoned that the
controversy was between two non-parties to the bankruptcy; could not affect the Johns-Manville
bankruptcy estate; and “could not determine any rights, liabilities, or course of action” of JohnsManville. Id. Addressing Pacor, Inc.’s argument regarding third-party indemnification, the
Third Circuit stated that, “[a]t best, it is a mere precursor to the potential third party claim for
indemnification by Pacor against Manville.” Id.
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While Pacor was decided in a pre-confirmation context, the Fourth Circuit recognized
that in post-confirmation cases it was important to retain the “essential inquiry” of the “related
to” jurisdiction. Valley Historic Ltd. Partnership v. Bank of New York, 486 F.3d 831, 836 (4th
Cir. 2007). That essential inquiry “appears to be whether there is a close nexus to the bankruptcy
plan or proceeding sufficient to uphold bankruptcy court jurisdiction over the matter.” Id.
(quoting Binder v. Price Waterhouse & Co. (In re Resorts Int’l, Inc.), 372 F.3d 154, 166 (3d Cir.
2004)). Accordingly, “[m]atters that affect the interpretation, implementation, consummation,
execution, or administration of the confirmed plan will typically have the requisite close nexus.”
Id.
The Court now turns to Huntington’s assertion that the PF&R should have applied the
test articulated in Porges. In Porges, the Chapter 13 debtor and former stockbroker had a New
York Stock Exchange arbitration commenced against him by his former employer to recover on
promissory notes. In re Porges, 44 F.3d 159, 161 (2d Cir. 1995). Three days before the first
arbitration hearing, the debtor filed for bankruptcy, triggering the automatic stay of the
arbitration. Id. The employer then initiated an adversary proceeding in the bankruptcy case
against the debtor. Id. Shortly following a bench trial on the adversary proceeding, in which the
court orally ruled in the employer’s favor, the debtor moved to dismiss his petition.
Id.
Ultimately, the bankruptcy court granted the dismissal of the petition, but expressly retained
jurisdiction of the adversary proceeding pursuant to 11 U.S.C. § 349. Id. at 162. The debtor
appealed the bankruptcy court’s retention of jurisdiction, first to the district court and then to the
circuit court of appeals. Id. On appeal, the Second Circuit held that the bankruptcy court
properly retained jurisdiction over the adversary proceeding by considering four factors. Those
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factors, otherwise known as the “Porges Test,” are as follows: (1) judicial economy, (2)
convenience to the parties, (3) fairness, and (4) comity. Id. at 163. See also In re Affiliate Servs.,
LLC, No. 2:20-MC-00155, 2021 WL 2078006, at *3 (S.D.W. Va. May 24, 2021).
Despite Huntington’s assertions to the contrary, the Court believes that the Porges test is
not appropriate in this case. To begin, the procedural posture in the present case differs from
Porges. As explained above, the employer in Porges initiated the adversary proceeding after the
commencement of the bankruptcy case, and the bankruptcy itself ended with no confirmed plan.
See Porges, 44 F.3d at 161. Here, the adversary proceedings were drawn into the bankruptcy
case, as they had existed prior to its commencement, and the bankruptcy case itself was resolved
with a confirmed Chapter 11 plan. (See ECF No. 21 at 5.) Additionally, Porges provided for the
exercise of post-dismissal jurisdiction where the bankruptcy court expressly retained jurisdiction
over the related proceeding. Id. Again, that differs from the matter at hand, where the issue of
jurisdiction was raised sua sponte.
Regardless, the Porges factors do not necessarily support Huntington’s position. 6 First,
as to judicial economy, these claims would admittedly be better adjudicated in one forum. But
that forum is not the bankruptcy court, as efficiency would be hindered considering further de
novo review of the bankruptcy court’s findings, absent consent of the parties. In re Travers, 507
B.R. 62, 74 (Bankr. R.I. 2014) (also noting that “greater delay may attend this proceeding if [the
bankruptcy court] retains jurisdiction to rule on the merits; . . ., another layer of de novo judicial
review by the district court would be required for the entry of a final judgment”). Second, as to
convenience to the parties, while the Court is again faced with the convenience of adjudicating
The Court again notes the deficiency in Huntington’s objection, as it primarily notes that it believes the PF&R
applied the wrong test, while directing the Court to its prior briefing on the issue. See supra, at 5, n.1.
6
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the remaining claims in a single forum, the Court notes too that these cases originated outside of
this district. These claims all originated in the Northern District of West Virginia, including the
corresponding state action, so to litigate them in the Southern District seems an inconvenience in
itself. But, beyond this, Huntington has failed to identify any notable inconvenience to the
parties. Third, as to fairness, neither party will be unfairly asked to relitigate any issue. Id.
Moreover, any completed discovery can continue to be utilized by the parties.
See In re
Adelphia Commc’ns Corp. Sec. & Derivative Litig., No. 03 MDL 1529(LMM), 2010 WL
4910223 at *1 (S.D.N.Y. Nov. 22, 2010).
However, Huntington asserts that it would be “monumentally unfair” if the lenderliability claims were returned to their originating courts because the “determination as to whether
the lender liability claims of the Individual Defendants are property of the bankruptcy estate”
involves “bankruptcy issues,” running a high risk of a “flawed ruling on pure bankruptcy issues
from a court lacking in bankruptcy expertise.” (ECF No. 23-1 at 5.) Yet, this argument is
premised on the assumption that the Individuals’ claims are property of the estate, which the
PF&R expressly found they were not, a finding supported by the dismissal of the Debtors’ claims
against Huntington. (ECF No. 21 at 11.) As to the remaining factor, comity, the State Court
Action was filed before the Federal Court Action. Thus, the Federal Court Action is not entitled
to any preference over the State Court Action and to treat it as such would violate the notion of
comity. Moreover, these claims do not involve any interpretation of bankruptcy law, rendering
the bankruptcy court “no better equipped to adjudicate them than any other judicial forum.” Id.
at 74. Instead, these claims all involve application of West Virginia state law, which both the
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federal and state court are well-positioned to address. Thus, when balancing these factors, it is
apparent that the bankruptcy court should not retain jurisdiction in this instance.
While the Court believes that the Pacor “related to” test and the Valley Historic progeny
are more instructive to the case at hand, the application of either Pacor or Porges results in the
same conclusion. Ultimately, as this Court has recently explained
[T]he decision of whether to retain jurisdiction over an adversary proceeding
when the underlying bankruptcy case is dismissed is generally left to the sound
discretion of the court. While the dismissal of the bankruptcy case does not
automatically divest the bankruptcy court of jurisdiction over related proceedings,
the dismissal of those adversary proceedings is generally favored.
In re Affiliate Servs., LLC, 2021 WL 2078006, at *3 (internal quotations and citations omitted).
Here, the one place these adversary proceedings do not belong is in the Southern District of West
Virginia.
Thus, because it is within the Court’s discretion as to whether to hear these
proceedings, the Court declines to do so. Huntington’s objections to this portion of the PF&R
are OVERRULED. Accordingly, because these are not core proceedings and the bankruptcy
court lacks non-core jurisdiction, the reference shall be WITHDRAWN.
B. Stay of the State Court Action
In deciding what to do with this “procedural conundrum,” the PF&R recommended
staying the State Court Action pending the resolution of the Federal Court Action because the
parties agreed that nothing alleged in the State Court Action could not be resolved in the Federal
Court Action. (ECF No. 21 at 14.) The Individuals object, arguing that this recommendation
“lacks a factual and legal basis.” (ECF No. 25 at 4.) As to a factual basis, they contend that
there are issues in the State Court Action that cannot be resolved in the Federal Court Action—
namely, Chad Prather, Huntington’s loan official, is a named party in the State Court Action but
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not the Federal Court Action. (Id. at 5.) The Individuals then direct the Court to their Joint
Motion to Remand, (ECF No. 24).
This motion notes that the Judge Stamp previously
determined that no federal subject matter jurisdiction existed regarding the State Court Action,
and that each Individual filed motions to remand in September 2017 while the State Court Action
was pending in the Bankruptcy Court for the Northern District of West Virginia. (ECF No. 24 at
3.)
In this case, Judge Stamp already determined that no federal subject matter jurisdiction
exists regarding the State Court Action. Hard Rock Expl., Inc. v. Huntington Bancshares Inc.,
No. 1:16CV46, 2016 WL 1599489, at *3–5 (N.D. W. Va. Apr. 20, 2016). And, as discussed
above, bankruptcy jurisdiction no longer exists. Thus, this Court lacks the authority to stay the
State Court Action. See Steel Co. v. Citizens for a Better Env’t, 523 U.S. 83, 89 (1998)
(“[S]ubject matter jurisdiction [is] the courts’ . . . power to adjudicate the case.”). Instead,
because “there is a want of jurisdiction,” 28 U.S.C. § 1631, this Court will transfer the two
adversary proceedings to the Northern District of West Virginia, with the instruction that the
State Court Action be remanded to the Circuit Court of Monongalia County, and the
recommendation that the Circuit Court stay the State Court Action pending resolution of the
Federal Court Action.
IV. CONCLUSION
For the foregoing reasons, the Court ADOPTS the PF&R, (ECF No. 21), and
TRANSFERS the two adversary proceedings to the Northern District of West Virginia. The
Court further DIRECTS the Clerk to remove this case from the Court’s active docket.
IT IS SO ORDERED.
15
Case 1:22-cv-00039-TSK Document 28 Filed 05/03/22 Page 16 of 16 PageID #: 8698
The Court DIRECTS the Clerk to send a copy of this Order to counsel of record and any
unrepresented party.
ENTER:
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May 3, 2022
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