In Re: Parmalat Securities Litigation, No. 09-4302 (2d Cir. 2011)
Annotate this Case
Justia Opinion Summary
Want to stay in the know about new opinions from the Second Circuit U.S. Court of Appeals?
Sign up for free summaries delivered directly to your inbox. Learn More ›
You already receive new opinion summaries from Second Circuit U.S. Court of Appeals. Did you know we offer summary newsletters for even more practice areas and jurisdictions? Explore them here.
Purchasers of Parmalat Capital Finance Limited ("Parmalat") debt and equity securities filed class action lawsuits against Parmalat and others for securities fraud ("Appellants"). At issue was whether the district court erred in exercising jurisdiction over plaintiffs' claims pursuant 28 U.S.C. 1334(b) and whether the district court properly declined to abstain from exercising that jurisdiction pursuant to 28 U.S.C. 1334(c)(2). The court held that the district court properly exercised removal jurisdiction where the estate at issue in a 11 U.S.C. 304 proceeding, wherever located, could conceivably be affected by the state law actions. The court also held that the district court erred in determining that appellants failed to file motions for abstention where the district court should have focused on the timely administration of the estate, not the section 304 proceeding.
This opinion or order relates to an opinion or order originally issued on January 18, 2011.
Download PDF
09-4302-cv (L), 09-4306-cv (con), 09-4373-cv (con) 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, 2010 Argued: November 2, 2010 Decided: January 18, 2011 Amended: April 8, 2011 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 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 43 Administrator G. Peter Pappas, Plaintiffs, 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-ClaimantsAppellees, 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 Thorton 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 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 Before: CABRANES, WESLEY, Circuit Judges, and KOELTL,* District Judge. Plaintiff-Appellant Parmalat Capital Finance Limited and Plaintiff-Counter-Defendant-Third-Party-DefendantAppellant Dr. Enrico Bondi (collectively, Appellants ) commenced these actions to recover damages that they contend are owed to them pursuant to Illinois state law. In this appeal, Appellants challenge orders of the United States District Court for the Southern District of New York (Kaplan, J.) and the Northern District of Illinois (Castillo, J.) denying Appellants motions for remand and abstention, and granting summary judgment to Defendants-Third-Party-Plaintiffs-Counter-ClaimantsAppellees Grant Thornton International and Grant Thornton LLP. We hold that the district courts had proper removal jurisdiction over these actions. As a matter of first impression in our Circuit, we set forth the standard for determining timely adjudication for the purposes of 28 U.S.C. § 1334(c)(2) abstention. We then VACATE and REMAND to allow the district court to consider, in light of this Opinion, whether abstention is mandatory in the circumstances presented here. AFFIRMED in part and VACATED and REMANDED in part. KATHLEEN M. SULLIVAN, Quinn Emanuel Urquhart & Sullivan, LLP, New York, NY (Peter E. Calamari, Terry L. Wit, Sanford I. Weisburst, on the brief), for Plaintiff-CounterDefendant-Third-Party Defendant-Appellant Bondi. J. GREGORY TAYLOR, Diamond McCarthy LLP, New York, NY (Allan B. Diamond, Richard I. Janvey, J. * 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 Benjamin King, on the brief), for PlaintiffAppellant Parmalat Capital Finance Limited. LINDA T. COBERLY, Winston & Strawn LLP, Chicago, IL (Bruce R. Braun, William P. Ferranti, on the brief), for Defendant-Third-Party-PlaintiffCounter-Claimant-Appellee Grant Thornton LLP. JOSEPH B. TOMPKINS JR., Sidley Austin LLP, Washington, DC (Alan C. Geolot, Mark P. Guerrera, Robert D. Keeling, A. Robert Peitrzak, Daniel A. McLaughlin, on the brief), for Defendants-Appellees Bank of America et al. JAMES L. BERNARD, Strook & Strook & Lavan LLP, New York, NY (Quinlan D. Murphy, Katherine I. Puzone, David M. Cheifetz, on the brief), for Defendant-Third-Party-Plaintiff-CounterClaimant-Appellees Grant Thornton International, Inc. and Grant Thornton International Ltd. PARTHA P. CHATTORAJ, Markowitz & Chattoraj LLP, New York, NY for Amicus Curiae Guido Alpa. GEORGE M. PAVIA, Pavia & Harcourt LLP, New York, NY for Amicus Curiae the Government of the Republic of Italy. WESLEY, Circuit Judge: The questions presented are (1) whether the district 35 court erred in exercising jurisdiction over plaintiffs 36 claims, pursuant to 28 U.S.C. § 1334(b); and (2) whether the 37 district court properly declined to abstain from exercising 38 that jurisdiction, pursuant to 28 U.S.C. § 1334(c)(2). 4 This 1 appeal is taken from judgments of the United States District 2 Court for the Southern District of New York (Kaplan, J.) and 3 challenges rulings made by that court and by the United 4 States District Court for the Northern District of Illinois 5 (Castillo, J.). 6 dated February 25, 2005 and February 16, 2006 finding 7 federal jurisdiction in the present cases and declining to 8 abstain from exercising that jurisdiction. 9 jurisdiction was proper, but remand to allow the district The contested rulings include two orders We conclude that 10 court1 to consider, in light of this Opinion, whether 11 abstention is mandatory. 12 I. BACKGROUND 13 These cases arise from the financial collapse of 14 Parmalat Finanziaria, S.p.A. and many of its subsidiaries. 15 Twenty-three Parmalat-related corporations are now in the 16 midst of bankruptcy and reorganization proceedings in Italy. 17 Italy s Minister of Finance appointed Dr. Enrico Bondi, here 18 the Plaintiff-Counter-Defendant-Third-Party-Defendant- 1 Although multiple courts were initially involved in these cases, the multidistrict litigation proceedings are now before the United States District Court for the Southern District of New York (Kaplan, J.). We thus remand to that court. References herein to the district court refer to the United States District Court for the Southern District of New York unless otherwise noted. 5 1 Appellant, to serve as Extraordinary Commissioner of these 2 bankruptcy proceedings in a role analogous to a Chapter 11 3 Trustee. 4 Parmalat subsidiary headquartered in the Grand Caymans, is 5 likewise insolvent and currently in liquidation proceedings. 6 These liquidation proceedings are ongoing in the Grand 7 Caymans and are overseen by Joint Official Liquidators 8 appointed by the Grand Court of the Cayman Islands. 9 Parmalat Capital Finance Limited ( PCFL ), a In January and June 2004 respectively, PCFL and Bondi 10 commenced separate proceedings pursuant to former 11 U.S.C. 11 § 304 in the Bankruptcy Court for the Southern District of 12 New York. 13 representatives of the foreign bankruptcy estates, to 14 commence bankruptcy cases in the United States in order to 15 enjoin litigation against PCFL and Parmalat in United States 16 courts.2 17 orders from the bankruptcy court regarding turnover of 18 property in the United States belonging to the respective 19 bankruptcy estates. 20 Section 304 permitted PCFL and Bondi, as Section 304 also empowered PCFL and Bondi to seek Meanwhile, purchasers of Parmalat s debt and equity 2 Although § 304 was repealed, it remains applicable to this case. See Pub. L. 109-8 (enacting Chapter 15 of the Bankruptcy Code and repealing 11 U.S.C. § 304 for all ancillary petitions filed after October 17, 2005). 6 1 securities filed class action lawsuits against Parmalat and 2 others for securities fraud. 3 before Judge Kaplan in the United States District Court. 4 Those cases were consolidated In August 2004, Bondi filed suit in Illinois state 5 court against Defendants-Third-Party-Plaintiffs-Counter- 6 Claimants-Appellees Grant Thornton International and Grant 7 Thornton LLP (collectively, Grant Thornton ). 8 alleges claims against Grant Thornton arising under Illinois 9 state law for professional malpractice, fraud, aiding and Bondi 10 abetting fraud and constructive fraud, negligent 11 misrepresentation, aiding and abetting breach of fiduciary 12 duty, theft and diversion of corporate assets, conversion, 13 unjust enrichment, aiding and abetting fraudulent transfer, 14 deepening insolvency, and unlawful civil conspiracy. 15 September 16, 2004, Grant Thornton removed the case to the 16 United States District Court for the Northern District of 17 Illinois on the basis of 28 U.S.C. §§ 1334(b) and 1452. 18 its Notice of Removal, Grant Thornton argued, among other 19 things, that removal was proper because the Illinois state 20 law case was related to Bondi s § 304 proceedings in the 21 Southern District of New York. 22 Motion to Remand to State Court. 23 that there was no federal jurisdiction over the case and, in 7 On In The next day, Bondi filed a Bondi argued therein 1 any event, the court should abstain pursuant to 28 U.S.C. § 2 1334(c)(2). 3 On December 9, 2004, the Judicial Panel on 4 Multidistrict Litigation transferred Bondi s action against 5 Grant Thornton to Judge Kaplan in the Southern District of 6 New York. 7 Motion to Remand to State Court. 8 that it had jurisdiction pursuant to § 1334(b) and that 9 abstention was not mandatory.3 On February 25, 2005, Judge Kaplan denied Bondi s The district court found The district court reasoned 10 that Bondi failed to file a motion for abstention and, in 11 the alternative, Bondi failed to demonstrate that his claims 12 could be timely adjudicated in Illinois state court.4 13 U.S.C. § 1334(c)(2). 14 In December 2005, PCFL likewise filed suit against 15 28 Grant Thornton in Illinois state court alleging similar 3 The district court likewise declined Bondi s motion to abstain pursuant to 28 U.S.C. § 1334(c)(1). It concluded that permissive abstention was not appropriate because of the importance of coordinating this proceeding with the international bankruptcy and the Securities Fraud Action outweighs any interest in comity with Illinois courts or Illinois law. Bondi does not challenge this ruling on appeal. 4 Shortly after the district court issued its order, Bondi filed a motion under 28 U.S.C. §1292(b) to certify questions of law related to remand and abstention. The district court denied Bondi s motion, precluding him from pursuing an interlocutory appeal. Accordingly, Bondi s first opportunity to challenge Judge Kaplan s ruling on remand and abstention arose in the present appeal following the entry of judgment below. 8 1 claims to those asserted by Bondi. On January 5, 2006, 2 Grant Thornton removed the case to the United States 3 District Court for the Northern District of Illinois on the 4 basis of 28 U.S.C. §§ 1334(b) and 1452. 5 Removal, Grant Thornton argued, as in the Bondi case, that 6 removal was appropriate because the state law claims were 7 related to PCFL s § 304 proceeding. 8 PCFL filed a motion titled Parmalat Capital Finance 9 Limited s Motion to Abstain and Remand. In its Notice of On January 20, 2006, Like Bondi, PCFL 10 argued that there was no federal jurisdiction over its case 11 and that abstention was mandatory pursuant to 28 U.S.C. § 12 1334(c)(2).5 13 Northern District of Illinois denied PCFL s motion, noting 14 that it fully adopt[ed] the reasoning of the Southern 15 District of New York s February 25, 2005 order denying 16 Bondi s remand motion. 17 United States District Court for the Southern District of 18 New York for consolidation with Bondi s case. 19 20 By short order on February 16, 2006, the The case was then transferred to the Following discovery, the district court entertained a series of motions to dismiss the complaints or to grant 5 In addition, PCFL moved for permissive abstention pursuant to 28 U.S.C. § 1334(c)(1). Like Bondi, PCFL does not challenge the denial of its motion for permissive abstention on appeal. 9 1 judgment in favor of defendants. 2 resolved the cases in final judgments for defendants, 3 dismissing the matters on grounds not relevant here. 4 re Parmalat Sec. Litig., 659 F. Supp. 2d 504 (S.D.N.Y. 5 2009). 6 Ultimately, the court Appellants filed this timely appeal. See In This opinion 7 focuses on the February 25, 2005 and February 16, 2006 8 orders to determine whether the district courts correctly 9 determined that those courts had jurisdiction and were not 10 required to abstain pursuant to § 1334(c)(2). Although 11 Appellants also raise other challenges relating to the 12 summary judgment proceedings in the district court, we need 13 not reach those claims. 14 II. DISCUSSION 15 Bondi and PCFL challenge the lower federal courts 16 exercise of jurisdiction on two grounds. First, Bondi and 17 PCFL contend that removal from Illinois state court was 18 improper because the Illinois actions are based solely on 19 state law claims and are not related to any bankruptcy 20 cases in federal court. 21 Bondi and PCFL contend that, even if removal was proper, the 22 district courts were required to abstain pursuant to 28 23 U.S.C. § 1334(c)(2), which provides that a district court See 28 U.S.C. § 1334(b). 10 Second, 1 shall abstain from hearing an applicable claim if an 2 action is commenced, and can be timely adjudicated, in a 3 State forum of appropriate jurisdiction. 4 We conclude that the cases were properly removed. As 5 to the abstention question, the meaning of timely 6 adjudicated is a matter of first impression in this 7 Circuit. 8 determining timely adjudication for the purposes of 28 9 U.S.C. § 1334(c)(2). Our task here then is to set forth a standard for We hold that the district court 10 employed the wrong standard. 11 judgment on the abstention issue and remand to allow the 12 district court to consider, in light of this decision, 13 whether abstention is mandatory. 14 A. 15 We therefore vacate the Removal Jurisdiction 28 U.S.C. § 1334(b) provides that the district courts 16 shall have original but not exclusive jurisdiction of all 17 civil proceedings arising under title 11, or arising in or 18 related to cases under title 11. 19 (emphasis added). 20 actions from Illinois state court as actions related to 21 the 11 U.S.C. § 304 proceedings in the Southern District of 28 U.S.C. § 1334(b) Grant Thornton removed the present 11 1 New York.6 2 contend that removal was improper because § 304 proceedings 3 are not cases within the meaning of the removal statute. 4 In the alternative, they argue that the state law claims are 5 not related to the § 304 proceedings. 6 counts. 7 1. 8 One need not look far to find substantial support for 9 PCFL and Bondi press a novel argument: they We disagree on both A Section 304 Proceeding is a Case Grant Thornton s contention that a § 304 proceeding is a 10 case within the context of the bankruptcy statute. 11 Bankruptcy Code repeatedly refers to § 304 proceedings as 12 cases and Section 304 itself is titled Cases ancillary to 13 foreign proceedings. 14 The Bankruptcy Code also defines petition as a petition 15 filed under section 301, 302, 303, or 304 of this title, as 16 the case may be, commencing a case under this title. 17 U.S.C. § 101(42) (emphasis added). 18 is clear: a § 304 proceeding is a case for the purposes of 19 subject matter jurisdiction under § 1334(b). 20 2. The 11 U.S.C. § 304 (emphasis added). 11 The statutory language State Law Claims may be Related to a Section 304 6 Grant Thornton also removed on the ground of relation to the United States bankruptcy of a subsidiary of Parmalat. Because of our resolution of the appellees principal claim, it is unnecessary to reach this argument. 12 1 Proceeding 2 For the purposes of removal jurisdiction, a civil 3 proceeding is related to a title 11 case if the action s 4 outcome might have any conceivable effect on the bankrupt 5 estate. 6 Cir. 1992). 7 here, Bondi and PCFL are attempting to recover damages that 8 they contend are due the respective bankruptcy estates in 9 Italy and the Grand Caymans. In re Cuyahoga Equip. Corp., 980 F.2d 110, 114 (2d In the Illinois state law actions at issue If either Bondi or PCFL is 10 successful in their claims against Grant Thornton, the funds 11 they recover will benefit the respective bankruptcy estates. 12 See In re Boston Reg l Med. Ctr., Inc., 410 F.3d 100, 107 13 (1st Cir. 2005) ( [The liquidating entity s] success or lack 14 of success in securing a share of the trust corpus will 15 directly impact the amount of the liquidating dividend 16 eventually paid to [the debtor s] creditors. 17 matter intimately connected with the efficacy of the 18 bankruptcy proceeding. ) 19 that the conceivable effect test is satisfied. 20 present actions are therefore related to the § 304 21 proceeding. That is a It is not difficult to conclude The 22 The fact that a § 304 proceeding, by definition, 23 involves a bankruptcy estate located abroad does not short 13 1 circuit the related to analysis. In the context of § 2 1334(b), there is no need to distinguish between estates 3 administered principally in foreign forums and those 4 administered principally in domestic forums. 5 district court explained below, [t]here is no reason why a 6 state law action designed to recover some of those assets 7 [of the foreign debtor] . . . and thus increase the size of 8 the estate involved in the Section 304 case is not related 9 to the Section 304 Proceeding within the meaning of Section As the 10 1334. 11 (S.D.N.Y. 2005). 12 proceeding, wherever located, may conceivably be affected by 13 the state law actions, those state law actions are related 14 to the § 304 case.7 15 Bondi v. Grant Thorton Int l, 322 B.R. 44, 48 So long as the estate at issue in a § 304 The district court properly exercised removal 16 jurisdiction pursuant to 28 U.S.C. § 1334(b). 17 B. Section 1334(c)(2) Abstention 7 We disagree with another court s approach in a similar case involving state law claims related to the Parmalat bankruptcy. In Bondi v. Citigroup, Inc., No. 04 CV 4373 (D.N.J. Nov. 18, 2004), the United States District Court for the District of New Jersey concluded that although the state law claims were related to the Parmalat estate, related to jurisdiction was nevertheless lacking because the Parmalat estate is located abroad. As explained above, we disagree with this conclusion. State law claims are related to § 304 proceedings so long as they satisfy our Court s related to test set forth in Cuyahoga, 980 F.2d at 114. Nothing more is required. 14 1 2 The jurisdiction-conferring statute covering bankruptcy cases and proceedings provides: 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 Upon timely motion of a party in a proceeding based upon a State law claim or State law cause of action, related to a case under title 11 but not arising under title 11 or arising in a case under title 11, with respect to which an action could not have been commenced in a court of the United States absent jurisdiction under this section, the district court shall abstain from hearing such proceeding if an action is commenced, and can be timely adjudicated, in a State forum of appropriate jurisdiction. 28 U.S.C. § 1334(c)(2) (emphasis added). 18 courts determined that abstention pursuant to § 1334(c)(2) 19 was not mandatory here because PCFL and Bondi failed to move 20 for abstention and, in the alternative, PCFL and Bondi 21 failed to show that their actions could be timely 22 adjudicated in state court as required by statute. 23 review these holdings in turn. The district We 24 1. Motion for Abstention 25 Bondi filed a motion titled Plaintiff s Motion for 26 Remand to State Court and explicitly argued that the court 27 should abstain pursuant to § 1334(c)(2). 28 motion titled Parmalat Capital Finance Limited s Motion to 29 Abstain and Remand. 30 explicitly argued that the court should abstain pursuant to PCFL filed a In that motion, PCFL likewise 15 1 § 1334(c)(2). 2 clearly erred in their determinations that PCFL and Bondi 3 failed to file motions for abstention. 4 5 6 2. Based on these filings, the district courts Timely Adjudication i. Standard of Review As explained above, § 1334(c)(2) abstention is 7 mandatory when, among other things, the matter can be 8 timely adjudicated in state court. 9 be timely adjudicated in state court is a mixed question of Whether an action can 10 law and fact. 11 case can be adjudicated in state court; the legal inquiry 12 asks if this pace is sufficiently swift. 13 question of law and fact, we review the court s 14 determination de novo. 15 Corp., 482 F.3d 184, 204 (2d Cir. 2007). 16 17 The factual inquiry focuses on how quickly a Given this mixed See McCarthy v. Dun & Bradstreet ii. What Constitutes Timely Four factors come into play in evaluating § 1334(c)(2) 18 timeliness: (1) the backlog of the state court s calendar 19 relative to the federal court s calendar; (2) the complexity 20 of the issues presented and the respective expertise of each 21 forum; (3) the status of the title 11 bankruptcy proceeding 22 to which the state law claims are related; and (4) whether 23 the state court proceeding would prolong the administration 16 1 or liquidation of the estate. 2 See In re Georgou, 157 B.R. 847, 851 (N.D. Ill. 1993). 3 The first two factors require a court to consider 4 timely adjudication in light of the particular factual and 5 procedural circumstances presented in the two courts being 6 compared. 7 fixed period of time. 8 situation-specific inquiry that requires a comparison of the 9 time in which the respective state and federal forums can Timeliness cannot reasonably be defined as a Instead, timeliness is a case- and 10 reasonably be expected to adjudicate the matter. The 11 inquiry does not turn exclusively on whether an action could 12 be adjudicated most quickly in state court. 13 informed by the comparative speeds of adjudication in the 14 federal and state forums. 15 the backlog of the state court s calendar (if any) relative 16 to the federal court s calendar. 17 a case are especially complex, the forum with the most 18 expertise in the relevant areas of law may well be expected 19 to adjudicate the matter in a more timely fashion relative 20 to the other forum.8 It is, however, A court should therefore consider Where the legal issues in On the other hand, when the facts in a 8 The district court may find that this factor particularly favors abstention here because one of the key issues in this case the defense of in pari delicto is a matter of Illinois state law and there is some doubt as to the nature and reach of the 17 1 case are especially complex, the forum with greater 2 familiarity with the record may likewise be expected to 3 adjudicate the matter more quickly. 4 relative adjudication times are not solely determinative, 5 but do shed light on whether the state court can timely 6 adjudicate the matter. 7 Ultimately, the As to the third factor the status of the related to 8 title 11 bankruptcy proceeding a court must consider 9 whether the litigants in a state proceeding need the state 10 law claims to be quickly resolved as a result of the status 11 of the ongoing title 11 bankruptcy proceeding. 12 instance, a trustee in a chapter 11 reorganization may 13 require expeditious resolution of the state law claims in 14 order to determine what resources are available to fund the 15 chapter 11 reorganization. 16 found that what might be timely in the Chapter 7 context is 17 not necessarily timely in Chapter 11 cases where time is of 18 the essence. 19 (S.D.N.Y. 1992). For For this reason, courts have See In re Leco Enters., 144 B.R. 244, 251 In the Chapter 7 context, some courts have defense. Notably, Illinois does not permit our Court to certify questions of Illinois state law to the Illinois Supreme Court. Ill. Sup. Ct. R. 20 (permitting certification only from the Supreme Court of the United States and the United States Court of Appeals for the Seventh Circuit). 18 1 even suggested that in deciding whether a matter may be 2 timely adjudicated, perhaps the single most important factor 3 is the nature of the underlying chapter proceeding. 4 (citation omitted).9 5 Id. Finally, the fourth factor asks whether the state court 6 proceeding would prolong the administration or liquidation 7 of the estate. 8 state court if abstention and remand of the state law claims 9 will unduly prolong the administration of the estate. A matter cannot be timely adjudicated in Thus, 10 in a case like the WorldCom bankruptcy, the close 11 connections between the defendants in [the] action and the 12 debtor, and the complexity of [the] litigation may suggest 13 that remanding to the state court could slow the pace of 14 litigation dramatically by leading to duplicative motions 15 practice, repetitious discovery, and parallel adjudication 16 of common issues. 17 B.R. 308, 331 (S.D.N.Y. 2003). 18 In re Worldcom, Inc. Sec. Litig., 293 In the present case, the district courts emphasized 9 Because a court overseeing a § 304 case is not tasked with overseeing reorganization or liquidation of the estate, we see no reason why, as a result of the § 304 proceeding, the litigants in a state law proceeding would require swift resolution of the state law claims. A court may, however, find that a particular § 304 proceeding does create a need for urgency among the litigants in the state law proceeding. 19 1 that remand would not promote timely adjudication because 2 this case is a complex bankruptcy-cum-securities fraud 3 multidistrict litigation[] such that the importance of 4 coordinating this proceeding with the international 5 bankruptcy and the Securities Fraud Action outweighs any 6 interest in comity with Illinois courts or Illinois law. 7 We disagree with this approach. 8 court proceedings on the securities class action itself, 9 absent evidence of prolonging the administration or The impact of the state 10 liquidation of the foreign estates, is immaterial to the 11 question of timely adjudication.10 12 district court here is not charged with administration of a 13 bankruptcy estate. 14 of the state court claims will slow down the § 304 15 proceeding is insufficient to show that state court 16 adjudication would be untimely. 17 is on the timely administration of the estate, not the § 304 18 proceeding. Unlike Worldcom, the As a result, the possibility that remand 10 The inquiry s proper focus It bears noting that Bondi and the Joint Official Liquidators, appointed by the Grand Court of the Cayman Islands and charged with overseeing PCFL, selected Illinois state court as the forum in which to prosecute their claims against Grant Thornton. Presumably, Bondi and the Joint Official Liquidators were well versed in the timeliness concerns of their respective foreign bankruptcy proceedings when they selected the state forum. 20 1 2 c. Remand to Assess Timely Adjudication Nearly six years has passed since Appellants sought 3 federal abstention in this matter. The record tells us 4 nothing of the current status of the domestic and foreign 5 bankruptcy proceedings. 6 to whether remanding these cases to Illinois state court 7 would prolong the administration of the foreign estates. 8 Accordingly, we cannot resolve the issue of timely 9 adjudication based on the record before us. 10 Similarly, the record is silent as On remand, the district court should determine whether 11 these cases can be timely adjudicated in Illinois state 12 court at the present time. 13 appeal the question of whether this case could have been 14 timely adjudicated in Illinois state court at the time the 15 district court declined to abstain in February 2005 (and 16 indeed sought to appeal the issue at that time), much may 17 have changed in the intervening years. 18 for the district court on remand to consider only the facts 19 known to it at the time of its initial order. 20 the district court should allow the parties to supplement 21 the record with current information to allow it to assess 22 timely adjudication in the present tense. 23 Stoe v. Flaherty, 2006 WL 2927272 (W.D. Pa. Oct. 11, 2006) Although Bondi preserved for 21 It would be futile Accordingly, See generally 1 (considering timely adjudication following a remand order 2 from the Third Circuit and noting that prior resolution of 3 the case on the merits in federal court was not dispositive 4 in the timely adjudication analysis). 5 On remand, the district court should also consider 6 which party should bear the burden to show that these 7 matters cannot be timely adjudicated in state court. 8 Although many courts have required the movant to 9 affirmatively show that a matter can be timely adjudicated 10 in state court, few cases have analyzed the question in 11 detail. 12 (3d Cir. 2006); but see XL Sports, Ltd. v. Lawler, 49 Fed. 13 App x 13, 20 (6th Cir. 2002) ( Nothing in the record 14 indicates that the Tennessee courts would not adjudicate the 15 claim in a timely fashion . . . . ). 16 seeking relief bears the burden to show he is entitled to 17 that relief. 18 F.3d 923, 944 (2d Cir. 2010). 19 party opposing remand may nevertheless be inconsistent with 20 the mandatory nature of abstention under § 1334(c)(2) as 21 well as the principles of comity, which presume that a state 22 court will operate efficiently and effectively. 23 v. Harris, 401 U.S. 37, 44 (1971). See, e.g., Stoe v. Flaherty, 436 F.3d 209, 219 n.5 Typically, a party See, e.g., In re the City of New York, 607 Placing the burden on the 22 See Younger Accordingly, when 1 examining this issue, the district court should consider 2 these significant competing concerns. 3 A mandate shall issue forthwith remanding these cases 4 to the district court to hold such proceedings as are 5 necessary to assess whether § 1334(c)(2) abstention is 6 mandatory. 7 to § 1334(c)(2) and remands these cases to the appropriate 8 Illinois state court, we will have no jurisdiction over an 9 appeal. If the district court elects to abstain pursuant See 28 U.S.C. § 1334(d); In re Cathedral of the 10 Incarnation, 90 F.3d 28, 32-34 (2d Cir. 1996) (holding that 11 a decision to remand based on mandatory abstention is not 12 reviewable on appeal). 13 determines that abstention is not mandatory, any party to 14 this appeal may restore jurisdiction to this court within 30 15 days by letter to the Clerk s Office seeking review, without 16 need for a new notice of appeal. 17 Jacobson, 15 F.3d 19, 22 (2d Cir. 1994). 18 will then set a briefing schedule and refer the appeal to 19 this panel for disposition. 20 21 If, however, the district court See United States v. The Clerk s Office III. CONCLUSION The Southern District of New York s February 25, 2005 22 order denying Bondi s motion for remand and the Northern 23 District of Illinois s February 16, 2006 order denying 23 1 PCFL s motion to abstain and remand are hereby AFFIRMED in 2 part and VACATED and REMANDED in part. 3 district courts s determinations that these cases were 4 properly removed under 28 U.S.C. § 1334(b). 5 district courts s abstention holdings and REMAND to the 6 Southern District of New York for proceedings consistent 7 with this Opinion. We affirm the We VACATE the The mandate shall issue forthwith. 24
Some case metadata and case summaries were written with the help of AI, which can produce inaccuracies. You should read the full case before relying on it for legal research purposes.
This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.
