In re: Parmalat Securities Litigation, No. 09-4302 (2d Cir. 2012)
Annotate this CaseThis opinion or order relates to an opinion or order originally issued on January 18, 2011.
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09-4302-cv (L) In re: Parmalat Securities Litigation 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT ____________________________________ August Term, 2011 Argued: December 7, 2011 Decided: February 21, 2012 Docket Nos. 09-4302-cv (L); 09-4306-cv (con); 09-4373-cv (con) ____________________________________ PARMALAT CAPITAL FINANCE LIMITED, Plaintiff-Appellant, DR. ENRICO BONDI, EXTRAORDINARY COMMISSIONER OF PARMALAT FINANZIARIA S.P.A., PARMALAT S.P.A., AND OTHER AFFILIATED ENTITIES, IN EXTRAORDINARY ADMINISTRATION UNDER THE LAWS OF ITALY, Plaintiff-Counter-Defendant-Third-Party-Defendant-Appellant, CAPITAL & FINANCE ASSET MANAGEMENT S.A., CATTOLICA PARTECIPAZIONI S.P.A., HERMES FOCUS ASSET MANAGEMENT EUROPE LIMITED, ERSTE SPARINVEST KAPITALANLAGEGESELLSCHAFT M.B.H., SOLOTRAT, SOCIETE MODERNE DES TERRASSEMENTS PARISIENS, RENATO ESPOSITO, FONDAZIONE ITALO MONZINO, SOUTHERN ALASKA CARPENTERS PENSION FUND, ON BEHALF OF ITSELF AND ALL OTHERS SIMILARLY SITUATED, CRISTINA PONCIBO, MARGERY LOUISE KRONENGOLD, ROBERT MCQUEEN, CUSTODIAN, INDIVIDUALLY AND ON BEHALF OF ALL OTHERS SIMILARLY SITUATED, FERRI GIAMPOLO, FOOD HOLDINGS LIMITED, DAIRY HOLDINGS LIMITED, G. JAMES CLEAVER, GORDON I. MACRAE, GERALD K. SMITH, LAURA J. STURAITIS, MONUMENTAL LIFE INSURANCE COMPANY, TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY, TRANSAMERICA LIFE INSURANCE COMPANY, AVIVA LIFE INSURANCE COMPANY, PRINCIPAL GLOBAL INVESTORS, LLC, PRINCIPAL LIFE INSURANCE COMPANY, SCOTTISH RE (US) INC., HARTFORD LIFE INSURANCE COMPANY, PLAN ADMINISTRATOR G. PETER PAPPAS, Plaintiffs, 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 v. BANK OF AMERICA CORPORATION, BANC OF AMERICA SECURITIES LIMITED, BANK OF AMERICA, N.A., BANK OF AMERICA NATIONAL TRUST & SAVINGS ASSOCIATION, BANC OF AMERICA SECURITIES LLC, BANK OF AMERICA INTERNATIONAL, LTD., GRANT THORNTON INTERNATIONAL, LTD., Defendants-Appellees, GRANT THORNTON INTERNATIONAL, GRANT THORNTON LLP, Defendants Third-Party-Plaintiffs-Counter-Claimants-Appellees, DEUTSCHE BANK AG, MORGAN STANLEY & CO., INCORPORATED, BONLAT FINANCING CORPORATION, CALISTO TANZI, FAUSTO TONNA, COLONIALE S.P.A., CITIGROUP INC., BUCONERO, LLC, ZINNI & ASSOCIATES, P.C., DELOITTE TOUCHE TOHMATSU, DELOITTE & TOUCHE S.P.A., A SOCIETA PER AZIONI UNDER THE LAWS OF ITALY, JAMES E. COPELAND JR., PARMALAT FINANZIARIA S.P.A., STEFANO TANZI, LUCIANO DEL SOLDATO, DOMENICO BARILI, FRANCESCO GIUFFREDI, GIOVANNI TANZI, DELOITTE & TOUCHE USA, LLP, DELOITTE & TOUCHE L.L.P., CREDIT SUISSE FIRST BOSTON, CITIBANK, EUREKA SECURITISATION PLC, VIALATTEA LLC, PAVIA E ANSALDO, BANCA NAZIONALE DEL LAVORO S.P.A., CITIBANK, N.A., PROFESSOR MARIA MARTELLINI, BANCA INTESA S.P.A., DELOITTE & TOUCHE TOHMATSU AUDITORES INDEPENDENTES, CREDIT SUISSE INTERNATIONAL, CREDIT SUISSE SECURITIES (EUROPE) LIMITED, CREDIT SUISSE, CREDIT SUISSE GROUP, GRANT THORNTON S.P.A., A SOCIETA PER AZIONI UNDER THE LAWS OF ITALY, NOW KNOWN AS ITALAUDIT, S.P.A., Defendants, PARMATOUR S.P.A., Defendant-Third-Party-Defendant. ___________________________________ -2- 1 2 3 4 5 6 Before: CABRANES and WESLEY, Circuit Judges, and KOELTL, District Judge.* This is an appeal from the judgments of the United States 7 District Court for the Southern District of New York (Kaplan, 8 J.) dismissing the claims of plaintiffs-appellants Parmalat 9 Capital Finance Limited and Dr. Enrico Bondi against the Grant 10 Thornton defendants after determining, pursuant to the mandate 11 of this Court, that mandatory abstention under 28 U.S.C. 12 § 1334(c)(2) was not required in these bankruptcy-related cases. 13 Because we find that mandatory abstention was required in these 14 cases under the test we laid out in our prior Opinion, we vacate 15 the judgments of the District Court, and remand these cases to 16 the District Court with instructions to transfer them to the 17 United States District Court for the Northern District of 18 Illinois so that they can be remanded to Illinois state court. 19 * The Honorable John G. Koeltl, of the United States District Court for the Southern District of New York, sitting by designation. -3- 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 ______________ J. GREGORY TAYLOR, Allan B. Diamond, J. Benjamin King, Diamond McCarthy LLP, for Appellant Parmalat Capital Finance Limited. KATHLEEN M. SULLIVAN, Peter E. Calamari, Terry L. Wit, Sanford I. Weisburst, Quinn Emanuel Urquhart & Sullivan, LLP, New York, NY, for Appellant Dr. Enrico Bondi. JAMES L. BERNARD, David M. Cheifetz, Stroock & Stroock & Lavan LLP, New York, NY, for Appellees Grant Thornton International, Inc. and Grant Thornton International Ltd. LINDA T. COBERLY, Bruce R. Braun, William P. Ferranti, Winston & Strawn LLP, Chicago, IL, for Appellee Grant Thornton LLP. ______________ 39 40 41 -4- 1 2 PER CURIAM: Plaintiffs-appellants Parmalat Capital Finance Limited 3 ( PCFL ) and Dr. Enrico Bondi ( Bondi, and collectively, 4 Appellants ) appeal from the judgments of the United States 5 District Court for the Southern District of New York (Kaplan, 6 J.) dismissing their claims against Grant Thornton 7 International, Inc., Grant Thornton International Ltd, and Grant 8 Thornton LLP (collectively, Grant Thornton or Appellees ). 9 In our prior Opinion in this case, Parmalat Capital Fin. Ltd. v. 10 Bank of America Corp. ( Parmalat ), 639 F.3d 572, 582-83 (2d 11 Cir. 2011), we vacated the decisions not to abstain from 12 deciding these cases pursuant to the mandatory abstention 13 provision in 28 U.S.C. § 1334(c)(2) that applied to these 14 bankruptcy-related proceedings. 15 We remanded the cases to the District Court for a 16 determination of whether the cases could be timely adjudicated 17 in Illinois state court in accordance with the factors we set 18 forth in that Opinion. 19 concluded that mandatory abstention did not apply, In re 20 Parmalat Sec. Litig., Nos. 04 Civ. 9771, 06 Civ. 2991, 2011 WL 21 3874824, at *1 (S.D.N.Y. Aug. 31, 2011), and the Appellants 22 renewed their appeals to this Court arguing for mandatory 23 abstention. 24 adjudicated within the meaning of the statute and pursuant to On remand, the District Court again Because we find that these cases can be timely -5- 1 the test we laid out in our prior Opinion, we conclude that 2 abstention was mandatory in these cases. 3 the judgments of the District Court and remand these cases with 4 instructions that the cases be transferred to the Northern 5 District of Illinois and remanded to Illinois state court. Accordingly, we vacate 6 7 8 9 10 11 BACKGROUND The facts in these long-running cases were fully set forth in our prior Opinion, Parmalat, 639 F.3d at 576-78, and we provide only a summary here. These cases arise out of the collapse of Parmalat 12 Finanziaria, S.p.A. ( Old Parmalat ) in 2003. 13 appellant Bondi represents Old Parmalat s Italian bankruptcy 14 estate as its Extraordinary Commissioner under Italian law. 15 Parmalat s plan of reorganization, the Concordato, was approved 16 after the commencement of these lawsuits, and is proceeding in 17 Italy. 18 corporate subsidiary of Parmalat. 19 Cayman Islands. 20 Plaintiff- Plaintiff-appellant PCFL is a Grand Caymans-based PCFL is in liquidation in the In 2004, PCFL and Bondi commenced separate proceedings 21 pursuant to former 11 U.S.C. § 304 in the Bankruptcy Court for 22 the Southern District of New York. 23 PCFL and Bondi, as representatives of the foreign bankruptcy 24 estates, to commence bankruptcy cases in the United States in -6- These proceedings permitted 1 order to enjoin litigation against PCFL and Parmalat in the 2 United States courts. 3 preliminary injunction shielding Old Parmalat from American 4 lawsuits. 5 securities had filed securities fraud class action lawsuits in 6 the United States against Old Parmalat and against various banks 7 and auditing firms that had allegedly participated in the fraud, 8 including Appellees Grant Thornton, who had been auditors for 9 Old Parmalat and PCFL. The bankruptcy court entered a Purchasers of Old Parmalat s debt and equity After the issuance of the preliminary 10 injunction, the securities fraud plaintiffs dropped Old Parmalat 11 as a defendant. 12 In August 2004, Bondi filed suit in Illinois state court 13 against Grant Thornton, alleging claims arising under Illinois 14 law including professional malpractice, fraud, negligent 15 misrepresentation, and unlawful civil conspiracy. 16 similar suit in New Jersey state court against Citigroup. 17 September 2004, Grant Thornton removed the Illinois case to the 18 United States District Court for the Northern District of 19 Illinois on the basis of 28 U.S.C. §§ 1334(b) and 1452, arguing 20 that removal was proper because the case was related to 21 Bondi s § 304 proceeding in the Southern District of New York. 22 Bondi filed a motion to remand, arguing that the court was 23 required to abstain from hearing the case pursuant to 28 U.S.C. 24 § 1334(c)(2). Bondi filed a In The Judicial Panel on Multidistrict Litigation -7- 1 transferred Bondi's action against Grant Thornton to Judge 2 Kaplan in the Southern District of New York. 3 2005, Judge Kaplan denied Bondi's motion to remand to state 4 court. 5 pursuant to § 1334(b) and that abstention was not mandatory. 6 The District Court denied Bondi s motion for an interlocutory 7 appeal pursuant to 28 U.S.C. § 1252(b). 8 9 On February 25, The District Court found that it had jurisdiction In December 2005, PCFL filed suit against Grant Thornton in the same Illinois state court, alleging similar claims to those 10 asserted by Bondi. PCFL also filed a complaint in North 11 Carolina state court against Bank of America alleging some 12 similar claims. 13 United States District Court for the Northern District of 14 Illinois, again arguing that removal was proper because the 15 state law claims were related to PCFL s § 304 proceeding. 16 like Bondi, filed a motion to abstain and remand, arguing that 17 abstention was mandatory pursuant to 28 U.S.C. 18 The Northern District of Illinois denied PCFL's motion. 19 court then transferred the case to Judge Kaplan in the Southern 20 District of New York for consolidation with Bondi s case. 21 separate proceeding, the North Carolina case against Bank of Grant Thornton removed the Illinois case to the -8- PCFL, § 1334(c)(2). That In a 1 America was also transferred to the Southern District of New 2 York.1 3 In October, 2005, the Italian bankruptcy court approved the 4 Concordato. Under the Concordato, a newly formed entity, 5 Parmalat, S.p.A. ( New Parmalat ), assumed all of the legal 6 liabilities, as well as the assets, of its predecessor 7 companies. 8 creditors of Old Parmalat under the Concordato. 9 Capital & Fin. Asset Mgmt. S.A., 535 F.3d 87, 89 (2d Cir. 2008). New Parmalat acts as a claims administrator for See Bondi v. 10 In June 2007, the District Court denied Bondi s motion to bar 11 the securities fraud plaintiffs from bringing direct claims 12 against New Parmalat. 13 Supp. 2d 723 (S.D.N.Y. 2007), aff d, Bondi, 535 F.3d at 94. 14 District Court also granted a motion to permit Grant Thornton to 15 file third party contribution claims against Parmalat in the 16 securities class action. 17 Supp. 2d 582 (S.D.N.Y.), aff d, 240 F. App x 916 (2d Cir. 2007). 18 The securities class actions eventually settled. 19 See In re Parmalat Sec. Litig., 493 F. The See In re Parmalat Sec. Litig., 472 F. Meanwhile, the Illinois and North Carolina actions 20 continued in the Southern District of New York. 21 discovery, the District Court issued a detailed and thoughtful 1 Following Bondi s New Jersey case against Citigroup remained in New Jersey state court. See, e.g., Bondi v. Citigroup, Inc., 32 A.3d 1158 (N.J. Super. Ct. App. Div. 2011). -9- 1 opinion granting summary judgment to the defendants. See In re 2 Parmalat Sec. Litig., 659 F. Supp. 2d 504 (S.D.N.Y. 2009). 3 regard to the North Carolina action, we affirmed the District 4 Court s grant of summary judgment to Bank of America. 5 Parmalat Capital Fin. Ltd. v. Bank of Am. Corp., 412 F. App x 6 325 (2d Cir. 2011) (summary order). With See 7 In a separate Opinion regarding the Illinois actions 8 against Grant Thornton, we vacated the decisions not to abstain 9 from deciding these cases pursuant to the mandatory abstention 10 provision in 28 U.S.C. § 1334(c)(2). 11 v. Bank of Am. Corp., 639 F.3d 572, 582-83 (2d Cir. 2011). 12 remanded the Illinois cases to the District Court for a 13 determination of whether the cases could be timely adjudicated 14 in Illinois state court within the meaning of § 1334(c)(2), in 15 accordance with the factors we set forth in that Opinion. 16 remand, the District Court again concluded that mandatory 17 abstention did not apply. 18 Civ. 9771, 06 Civ. 2991, 2011 WL 3874824, at *1 (S.D.N.Y. Aug. 19 31, 2011). 20 arguing for mandatory abstention. Parmalat Capital Fin. Ltd. We On In re Parmalat Sec. Litig., Nos. 04 The Appellants renewed their appeals to this Court 21 22 23 24 -10- 1 DISCUSSION 2 Section 1334(c)(2) provides that, in certain circumstances, 3 a district court must abstain from hearing state law claims that 4 are related to a bankruptcy case when those proceedings can be 5 timely adjudicated in state court. 6 In our previous Opinion, we explained that [f]our factors come 7 into play in evaluating § 1334(c)(2) timeliness: (1) the backlog 8 of the state court's calendar relative to the federal court's 9 calendar; (2) the complexity of the issues presented and the 28 U.S.C. § 1334(c)(2). 10 respective expertise of each forum; (3) the status of the title 11 11 bankruptcy proceeding to which the state law claims are 12 related; and (4) whether the state court proceeding would 13 prolong the administration or liquidation of the estate. 14 Parmalat, 639 F.3d at 580 (citing In re Georgou, 157 B.R. 847, 15 851 (N.D. Ill. 1993)). 16 whether that four factor test was met in these cases. 17 the decision whether to abstain de novo. The issue on this renewed appeal is We review Id. 18 19 20 I. With regard to the first factor, the backlog of the state 21 court s calendar relative to the federal court s calendar, we 22 explained that [t]he inquiry does not turn exclusively on 23 whether an action could be adjudicated most quickly in state 24 court[, but] is, however, informed by the comparative speeds of -11- 1 adjudication in the federal and state forums. 2 District Court found that this factor ultimately weighs in favor 3 of denying abstention. 4 *3. 5 abstention, but this factor is not dispositive. 6 the case that, were this claim to remain in federal court, we 7 would reach the merits of the already-decided motions for 8 summary judgment. 9 sooner if abstention were denied. 10 Id. The In re Parmalat, 2011 WL 3874824, at *1- We agree that this factor weighs in favor of denying It is plainly There would be a decision on the merits But that difference in timing appears to be a matter of months, rather than years. 11 The Appellants have conceded that, if this case were 12 remanded to the Illinois state courts, the Appellants will not 13 seek to relitigate the discovery issues already decided by the 14 District Court. 15 then be appealed directly through the Illinois appellate courts. 16 There is no allegation in the record that the Illinois courts 17 are backlogged, and no dispute over the assertion that the 18 difference in the time it takes to resolve a case between 19 federal and Illinois state courts, when both start at the same 20 time, is no more than a few months. 21 would be years of delay from a remand overestimates, based 22 solely on the complexity of the record, the amount of time an 23 Illinois court might take to decide or review a summary judgment 24 motion. If they received an adverse judgment, it could -12- The conclusion that there 1 On balance, this factor does tip in favor of denying 2 abstention. At the very least, there will be delay added for 3 the review of the summary judgment motion by an Illinois trial 4 court. 5 whether an action could be adjudicated most quickly in state 6 court. 7 544 F.3d 196, 218 n.14 (3d Cir. 2008) ( The question is not 8 whether the action would be more quickly adjudicated in [the 9 bankruptcy court] than in state court, but rather, whether the But the entire inquiry cannot turn exclusively on Parmalat, 639 F.3d at 580; see also In re Exide Techs., 10 action can be timely adjudicated in the state court. 11 (alterations in original) (internal quotation marks omitted)). 12 13 The District Court did not specifically address each of the other three factors.2 14 We now address them in turn. The second factor, the complexity of the issues presented 15 and the respective expertise of each forum cuts in favor of 16 remand. 17 court may find that this factor particularly favors abstention 18 here because one of the key issues in this case the defense of 19 in pari delicto is a matter of Illinois state law and there is 20 some doubt as to the nature and reach of the defense. 21 Parmalat, 639 F.3d at 580 n.8. 22 address these legal issues, despite the fact that, as the We explained in our prior Opinion that [t]he district The District Court did not 2 The remaining factors solely involve issues of law that are not premised on findings of fact. -13- 1 Appellees conceded at oral argument, basic questions regarding 2 in pari delicto under Illinois law are unsettled. 3 Peterson v. McGladrey & Pullen, LLP, --- F. Supp. 2d ----, 2010 4 WL 4435543, at *2-*3 (N.D. Ill. 2010) ( [T]here is no 5 controlling authority in the Seventh Circuit or Illinois on 6 whether the defense of in pari delicto is available against a 7 bankruptcy trustee. ), on appeal, No. 10-3770 (7th Cir.) (argued 8 Sept. 8, 2011).3 9 See, e.g., Instead, the District Court appeared to find that this 10 factor supported denying abstention, because the facts in the 11 case are complex, and the District Court is already familiar 12 with them. 13 District Court did not address the complexity of the legal 14 issues, even though we specifically highlighted that the 15 complexity of state law issues here particularly favors 16 abstention, and despite the fact that the District Court=s 17 disposition of these cases rested on its prediction and 18 interpretation of Illinois law. In re Parmalat, 2011 WL 3874824, at *2-*3. But the See In re Parmalat Sec. Litig., 3 Although Amici Curiae have argued that in pari delicto should not apply to Bondi because he is an appointed public official charged with overseeing Parmalat s bankruptcy affairs, Bondi has analogized his position to that of a bankruptcy trustee throughout this litigation. Indeed, Bondi conceded to the District Court that he stands in the shoes of Parmalat, and on appeal, he likewise did not assert that in pari delicto did not apply to him on the basis of his position as Extraordinary Commissioner of Old Parmalat. -14- 1 659 F. Supp. 2d 504, 519-20 & nn. 101, 103 (S.D.N.Y. 2009); id. 2 at 530-32 & nn. 162, 166-168, 170. 3 case, found that the application of in pari delicto to auditor 4 malpractice under New York law was sufficiently important and 5 unsettled to warrant certifying questions to the New York Court 6 of Appeals. 7 2009); 938 N.E.2d 941 (N.Y. 2010) (responding to certified 8 questions). 9 each issued recent decisions limiting the in pari delicto This Court, in another See Kirschner v. KPMG LLP, 590 F.3d 186 (2d Cir. The high courts of Pennsylvania and New Jersey have 10 doctrine in auditor malpractice cases. 11 Unsecured Creditors of Allegheny Health Educ. & Research Found. 12 v. PricewaterhouseCoopers, LLP, 989 A.2d 313 (Pa. 2010); NCP 13 Litig. Trust v. KPMG LLP, 901 A.2d 871 (N.J. 2006). 14 prior Opinion we specifically noted that, Illinois does not 15 permit our Court to certify questions of Illinois state law to 16 the Illinois Supreme Court. 17 Remand will allow the state courts of Illinois to speak directly 18 on these issues of state law. 19 factual issues in these cases is tempered by the fact that there 20 is a thorough summary judgment record that will accompany this 21 case back to the Illinois state court. 22 See Official Comm. of In our Parmalat, 639 F.3d at 580 n.8. Moreover, the complexity of the The third factor, the status of the title 11 bankruptcy 23 proceeding to which the state law claims are related, also 24 favors remand. We specifically explained in our prior Opinion -15- 1 that [b]ecause a [bankruptcy] court overseeing a ' 304 case is 2 not tasked with overseeing reorganization or liquidation of the 3 estate, we see no reason why, as a result of the ' 304 4 proceeding, the litigants in a state law proceeding would 5 require swift resolution of the state law claims. 6 639 F.3d at 581 n.9. 7 such swift resolution of the ' 304 proceeding was required here, 8 or even whether a quicker resolution of the Illinois claims 9 would have any effect on the ' 304 proceeding. Parmalat, The District Court did not explain why It is difficult 10 to see how these actions will affect the § 304 proceeding, and 11 the Appellees do not claim that they would. 12 factor is neutral, but it is not, in our view, neutral. 13 supports the proposition that these cases can be timely 14 adjudicated in state court without affecting the federal 15 interest in related-to jurisdiction. They argue that the It 16 The fourth factor, whether the state court proceeding 17 would prolong the administration or liquidation of the estate, 18 also favors remand. 19 assertion that the ability of New Parmalat to pay creditors 20 according to the Concordato does not depend on the resolution of 21 the Illinois claims. 22 reorganization of Parmalat will be completed when the current 23 appeal in Italy is concluded, so that the pendency of the 24 Illinois cases will not affect the reorganization of Parmalat. The Appellees do not challenge the It appears undisputed that the Italian -16- 1 Nor is there any dispute that PCFL is in liquidation in the 2 Cayman Islands. 3 251 (S.D.N.Y. 1992) ( In deciding whether a matter may be timely 4 adjudicated, perhaps the single most important factor is the 5 nature of the underlying chapter proceeding. 6 proceeding there is no administrative urgency or plan of 7 reorganization to facilitate and timely adjudication can be 8 weighed relatively lightly. (alterations and internal quotation 9 marks omitted)); accord Bates & Rogers Constr. Corp. v. Cont l 10 Bank, N.A., 97 B.R. 905, 908 (N.D. Ill. 1989) ( Bates & Rogers 11 is involved in a liquidating Chapter 11 which involves no 12 reorganization. Consequently, no administrative urgency or plan 13 of reorganization exists to facilitate. 14 we do not believe that a potential delay in state court will 15 significantly affect the administration or liquidation of the 16 estate. (citation omitted)); see also Parmalat, 639 F.3d at 17 581-82 ( Unlike WorldCom, the district court here is not charged 18 with administration of a bankruptcy estate. 19 possibility that remand of the state court claims will slow down 20 the ' 304 proceeding is insufficient to show that state court 21 adjudication would be untimely. 22 the timely administration of the estate, not the ' 304 23 proceeding. ). See In re Leco Enters., Inc., 144 B.R. 244, In a Chapter 7 In light of this fact, As a result, the The inquiry=s proper focus is on -17- 1 The District Court did not address this factor with 2 specific reference to the types of proceedings at issue, but the 3 Appellees argue that remand would harm the creditors by 4 increasing the cost of litigation. 5 plainly not whether abstention increases the ultimate payout to 6 the creditors, but whether it unduly prolong[s] the 7 administration of the estate at issue. 8 581. 9 estates at issue, and were presumably well versed in the 10 timeliness concerns of their respective foreign bankruptcy 11 proceedings when they selected the state forum. 12 n.10. 13 foreign bankruptcy proceedings and the extent to which they do 14 not depend on the Illinois claims for resolution. 15 The issue, though, is Parmalat, 639 F.3d at As we noted, the Appellants are the administrators of the Id. at 581 That presumption is only buttressed by the nature of the These are unusual cases. They have existed in parallel 16 with a securities fraud class action that was also before the 17 District Court, in which Grant Thornton had asserted third-party 18 contribution claims against Parmalat. 19 could have asserted Parmalat s state law claims against Grant 20 Thornton in that securities fraud action, but he chose not to do 21 so. 22 action in a state forum, and the unusual procedural posture of 23 these cases reflects that decision. 24 abstention affords that choice. At least Bondi likely Instead, Bondi chose to assert these claims as a separate However, mandatory By contrast, when PCFL -18- 1 attempted to sue Bank of America in North Carolina state court, 2 there was an independent basis for federal jurisdiction, 3 unrelated to bankruptcy jurisdiction. 4 not apply in that case, and we summarily affirmed the District 5 Court s grant of summary judgment to Bank of America. 6 Mandatory abstention did In sum, the four factors weigh in favor of abstention. 7 While some additional time will be expended by remanding these 8 cases, that delay does not outweigh the substantial factors that 9 militate in favor of abstention, namely the complexity of the 10 state law issues, the deference owed to state courts in deciding 11 state law issues where possible, and the minimal effect of the 12 state cases on the federal bankruptcy action and on the 13 administration of the underlying estates. 14 The four factors are meant to guide courts= analyses with 15 respect to the ultimate balance, struck by Congress, between, on 16 the one hand, creating a federal forum for purely state law 17 cases which, due to delay, might impinge upon the federal 18 interest in the administration of a bankruptcy estate, and, on 19 the other, ensuring that purely state law cases remain in state 20 courts when they would not significantly affect that federal 21 interest. 22 comports with principles of federalism ); cf. Stern v. 23 Marshall, 131 S. Ct. 2594, 2619-20 (2011) ( The dissent asserts 24 . . . that, to be effective, a single tribunal must have broad See Leco, 144 B.R. at 252 (' 1334 mandatory abstention -19- 1 authority to restructure debtor-creditor relations. But the 2 framework Congress adopted in the 1984 Act already contemplates 3 that certain state law matters in bankruptcy cases will be 4 resolved by judges other than those of the bankruptcy courts. 5 Section 1334(c)(2), for example, requires that bankruptcy courts 6 abstain from hearing specified non-core, state law claims that 7 can be timely adjudicated in a State forum of appropriate 8 jurisdiction (citation and alterations omitted)). 9 are ultimately interrelated: an action might be timely The factors 10 adjudicated in state court, despite some substantial delay, 11 where the delay has little or no effect on the bankruptcy estate 12 which creates the federal interest. 13 F.3d 209, 219 (3d Cir. 2006) ( [T]imeliness in this context must 14 be determined with respect to needs of the title 11 case and not 15 solely by reference to the relative alacrity with which the 16 state and federal court can be expected to proceed. ). 17 Conversely, even a relatively brief delay might make state court 18 adjudication untimely where the state action substantially 19 affects the bankruptcy estate, or where the estate=s resolution 20 is contingent upon the state action. 21 facts of these cases, the four-factor test indicates that these -20- See Stoe v. Flaherty, 436 Based on the particular 1 cases can be timely adjudicated in Illinois state court.4 2 Abstention is therefore mandatory. 3 4 II. 5 The District Court also concluded that, even if this case 6 could be timely adjudicated in the Illinois state courts, 7 mandatory abstention did not apply because these cases could . 8 . . have been commenced in federal court. 9 2011 WL 3874824, at *3 (citing 28 U.S.C. See In re Parmalat, § 10 1334(c)(2)). 11 had been waived, and because it was outside the scope of the 12 mandate set forth in our previous Opinion. 13 It was error to consider this argument, because it It is plain that this argument was waived in the initial 14 appeal, because it had not been raised with the District Court 15 as a basis to avoid mandatory abstention. 16 v. Wulff, 428 U.S. 106, 120 (1976) ( It is the general rule, of 17 course, that a federal appellate court does not consider an 18 issue not passed upon below. ); see also Stoe, 436 F.3d at 219. 4 See, e.g., Singleton The District Court did not resolve the issue of which party bears the burden of showing timely adjudication. Our previous Opinion, while noting that other courts have held to the contrary, explained that there were reasons for imposing the burden on the party opposing abstention. Parmalat, 639 F.3d at 582 (citing Younger v. Harris, 401 U.S. 37, 44 (1971)). However, because the balance of the four factors weighs in favor of abstention, we do not need to resolve this issue. -21- 1 The argument was not raised on the initial appeal, and we 2 issued a mandate that focused specifically and exclusively on 3 the question of timely adjudication. 4 582. 5 read as allowing consideration of an alternative basis for 6 denying mandatory abstention. 7 determine whether an issue remains open for reconsideration on 8 remand, the trial court should look to both the specific 9 dictates of the remand order as well as the broader spirit of Parmalat, 639 F.3d at The Appellees argue that the mandate reasonably can be We have explained that, [t]o 10 the mandate. 11 Cir. 2001). 12 and the spirit of the mandate focus entirely on the question 13 of timely adjudication, with no mention of an alternative basis 14 for denying mandatory abstention. 15 construe the mandate as allowing alternative, dispositive bases 16 for denying abstention to be raised for the first time on 17 remand, particularly when the cases had been pending for years 18 and had already been the subject of an appeal. 19 reasonable reading of the mandate is that it directed the 20 District Court to examine the issue of timely adjudication as a 21 bar to abstention, and that alternative grounds for denying 22 abstention that had not been raised either before the District 23 Court or on the initial appeal were impliedly decided to have United States v. Ben Zvi, 242 F.3d 89, 95 (2d Here, both the specific dictates of the mandate -22- It is not reasonable to The more 1 been waived in the first instance. Id. The District Court 2 therefore should not have entertained this argument. 3 4 CONCLUSION 5 We have considered all of the arguments of the parties. 6 the extent not specifically addressed above, they are either 7 moot or without merit. 8 VACATE the judgments of the District Court and REMAND these 9 cases to the District Court with instructions to transfer them To For the reasons explained above, we 10 to the Northern District of Illinois so that they can be 11 remanded to Illinois state court.5 12 forthwith. The mandate shall issue 13 14 15 5 The proper procedure to remand a case subject to mandatory abstention under 28 U.S.C. § 1334(c)(2) is found in 28 U.S.C. § 1452(b). See Covanta Onondaga Ltd. v. Onondaga Cnty. Res. Recovery Agency, 318 F.3d 392, 398-99 (2d Cir. 2003). However, under § 1452(b), the appropriate court to remand a case to state court is the court to which [the] claim or cause of action [was] removed. 28 U.S.C. § 1452(b). Because the Illinois state court actions were originally removed to the United States District Court for the Northern District of Illinois, from which they were transferred to the District Court for the Southern District of New York, only the District Court for the Northern District of Illinois has the authority to remand the actions back to the Illinois state court. Thus, on remand, the District Court for the Southern District of New York should transfer the actions to the District Court for the Northern District of Illinois, which can then remand the actions to Illinois state court. -23-
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