Removal of District Court Actions to Bankruptcy Court May Be Improper

Bankruptcy attorneys sometimes find themselves in the unique
position of determining how to effect transfer of apending federal
district court action to bankruptcy court. Some may consider removing
the action. Indeed, they mayargue that on its face, §1452(a) of
Title 28, which authorizes removal of actions related to a bankruptcy
case, can beconstrued to apply to district court actions. A close
examination of applicable law, however, renders thisinterpretation
questionable. For instance, because a bankruptcy court technically
constitutes a "unit" of a district court, removal of a district court
action to bankruptcy court seems to produce the apparent absurdity of
removing acase from itself to itself. Additional grounds, implicating
the Marathon case and the Code's 1984 amendments,provide even
stronger support for denying the right to removal.

This article
briefly examines (1) the historical evolution of §1452(a), (2) the
arguments in favor of application of §1452(a) to district court
actions and (3) the potential weaknesses of these arguments.

History
of Bankruptcy Removal

In 1973, the Commission on the Bankruptcy
Laws of the United States, established by Congress torecommend changes
to the existing Bankruptcy Act, drafted a proposed new bankruptcy
law.¹ Included in
theproposed new law was a section expressly authorizing the removal to
bankruptcy court of a federal district courtaction relating to a
bankruptcy case.²

Subsection 1478(a) of Title 28, the
provision ultimately adopted by Congress, did not, however, containan
explicit reference to district court actions. It provided: "A party may
remove any claim or cause of action in acivil action, other than a
proceeding before the U.S. Tax Court or a civil action by a government
unit to enforce such government unit's police or regulatory power, to
the bankruptcy court for the district where such civil action ispending,

if the bankruptcy courts have jurisdiction over such claim or cause of
action."³

Despite

the absence of express authority in this provision, courts applying it
permitted removal of districtcourt actions to bankruptcy
courts.⁴

In 1984,

Congress, in response to the Supreme Court's decision in Northern
Pipeline Constr. Co. v.Marathon Pipe Line Co., 458 U.S. 50 (1982),
and concomitantly, in order to provide district courts withsupervisory
jurisdiction over bankruptcy cases, amended the jurisdiction provisions
of the Bankruptcy Code,including §1478(a). In addition to making
certain immaterial changes, it deleted from that provision all
references tothe term "bankruptcy courts." Hence, the removal provision,

moved to §1452, now provides: "A party may removeany claim or cause

of action in a civil action other than a proceeding before the U.S. Tax
Court or a civil action by agovernmental unit to enforce such unit's
police or regulatory power, to the district court for the district where

suchcivil action is pending, if such district court has jurisdiction of
such claim or cause of action under §1334 of this
title."⁵

In the
wake of the enactment of this subsection, disputes have arisen with
respect to the issue of whether a district court action can be removed
to a bankruptcy court.⁶

Arguments Supporting
Removal

First, statutory construction may support removal. For
instance, while it prohibits removal from the taxcourt, §1452(a)
does not expressly proscribe removal from the district
court.⁷ Further,
subpart (a)(1) of Federal Ruleof Bankruptcy Procedure 9027, providing
the procedural requirements for removal, states: "[A]n application for
removal shall be filed with the clerk for the district and division
within which is located the state or federal court where the
civil action is pending."⁸ Likewise, the Advisory Committee Notes to
the 1987 Amendments to that ruleprovide that "§1452 of Title 28,
with certain exceptions, provides for removal of claims or causes of
action in civilactions pending in state or federal court when the

claim or cause of action is within the jurisdiction conferred by
28U.S.C. §1334."⁹

Second, if it had intended to disallow
removal of district court actions, Congress could easily
haveincorporated language to that effect. Indeed, as shown above, an
early version of the applicable removal provisionexplicitly referred to
district court actions.

Third, §1441, the general removal
provision, specifically limits removal to cases pending in state
court.¹⁰In
contrast, §1452, on its face, does not limit removal to state court

cases.¹¹

Fourth, the alteration in language,
from §1478(a) to §1452(a), arguably constitutes only an
attempt tocomply with Marathon rather than an attempt to
foreclose removal from federal district court to bankruptcy
court.¹²

Fifth,

because the term "district court" in the 1984 Act can be interpreted to
mean "bankruptcy court" whenread in light of the referral provisions of
28 U.S.C. §157, authorizing district courts to refer bankruptcy
cases tobankruptcy courts, the replacement of the term "bankruptcy
court" with the expression "district court" in 28U.S.C.A. §1452
arguably effected no substantive change.¹³

Finally, perhaps efficiency and
pragmatism mandate removal from a district court. "The advantage
ofremoval is that the case moves to bankruptcy court within a few days
of the filing for removal under [Rule]9027."¹⁴ Meanwhile, "[t]he disadvantage of filing

a motion to refer or to implement referral in the district court isthat
[the] district judges are overburdened, primarily by their criminal
cases, which are under intense timeconstraints and which do not permit
the assignment of the priority to bankruptcy-related cases that the
bankruptcylitigants might like."¹⁵ Moreover, one must recognize the danger
of "spending more time arguing about where totry a case than in trying
the case."¹⁶

"From the point of view of getting our work done," one court has
concluded,"it seems more important that we decide where the case should
be handled than whether it is laid before us as aremoval or
referral."¹⁷

Potential Weaknesses of
Arguments

As courts have determined, these arguments can be
opposed, if not discredited. First, a textualinterpretation of
§1452(a) does not necessarily support removal. In fact, the
language in §1452(a), referring to "acivil action other than a
proceeding before the U.S. Tax Court," may logically establish that only

cases from federalcourts other than district court can be
removed.¹⁸

Further, timing provides an
explanation for the apparent inconsistency between §1452(a) and
Rule9027(a).¹⁹
While Rule 9027 was adopted in 1983, §1452(a) was enacted in
1984.²⁰ Because
courts, as notedabove, construed §1478(a) to authorize direct
removal to a bankruptcy court, the retention of the language in Rule9027

(a)(1) constitutes an apparent oversight.²¹ Also, the term "federal court" in Rule
9027(a)(1) can be construedto refer to only those federal courts, such
as those described in the preceding paragraph, from which removal
isactually permitted under §1452(a). Finally, insofar as a
judicially promulgated rule is inconsistent with a statute,the statute
controls.²²

Hence, Rule 9027(a)(1) must be read so as not to conflict with
§1452(a).²³

Second, if it had intended to allow
removal of district court actions, Congress could just as easily
haveemployed language reflecting this intent. In addition, resorting to
legislative history is necessary only where astatute is
ambiguous.²⁴
Here, the current removal provision does not appear to contain an
ambiguity warranting anexamination of its legislative history. Thus,
consideration of legislative history, and in particular, proposed
earlyversions of the bankruptcy removal provision, is likely
inappropriate.

Third, both §1441 and §1452(a) are located in

a chapter entitled "Removal of Cases from State
Courts."²⁵Therefore, the absence of reference to
"state court" in §1452 does not necessarily mean, a
fortiori, that removal of adistrict court action is
proper.

Fourth, allowing removal from district court to bankruptcy
court ignores the power accorded to districtcourts, in connection with
the 1984 amendments, to retain all bankruptcy cases; hence, it creates a

"significant gap"in that power, thereby actually causing violation of,
rather than compliance with, Marathon.²⁶

Reference to subpart (c) of Rule 9027
reinforces this argument. That subpart provides that "[t]he partiesshall

proceed no further in that court [from which the action is removed]
unless and until the claim or cause ofaction is remanded."²⁷ Application of this subpart
in the context of district court action removal would likewiseinterfere
with the district court's jurisdiction and ability to withdraw the
reference.

Fifth, equating the term "bankruptcy court" with the term
"district court" ignores the exchange of these terms in the removal
provision in the 1984 amendments. More importantly, construing the term
"district court" tomean or encompass "bankruptcy court" appears to yield

an absurdity. Under such a construction, removal of adistrict court
action to bankruptcy court would, in essence, effect removal of the
action from the district court toitself.²⁸ Also, such an interpretation would
appear to contravene Rule 9027(a)(3), referring to removal of "a
claimor cause of action...asserted in another court."²⁹

Case law addressing removal

of Securities Investor Protection Act matters may provide support for
thisargument. In Turner v. Davis, Gillenwater & Lynch (In re Inv.
Bankers Inc.), 4 F.3d 1556 (10th Cir. 1993), the Tenth Circuit held
that 15 U.S.C. §78eee(b)(4), authorizing removal of SIPA cases to
"the court of the UnitedStates in the same judicial district having
jurisdiction over cases under Title 11," does not require removal of
suchcases to district courts. It reasoned that, because district courts
already have exclusive jurisdiction over such cases,removal to such
courts would lead to an absurd result: requiring district courts to
remove SIPA cases tothemselves.³⁰ Incidentally, the court held also that
removal of SIPA cases to bankruptcy court is permissible. Suchholding is

inapposite for the purposes of this article, however. For instance, the
court noted that Congress hadexpressly intended that §78eee(b)(4)
authorize removal to bankruptcy courts.³¹ No such intent can be found withrespect
to §1452(a).

Finally, if the need or desire to avoid time and
expense in litigating jurisdiction questions were the sole or primary
factor in the determination of jurisdiction, no court would likely ever
transfer jurisdiction to the appropriateforum, or even address such
questions. Insofar as it is a factor, judicial economy seems to require
denial of removal." If indeed a civil action in the district court
belongs before the district court rather than the bankruptcy court, it
defies any sense of judicial economy to allow a party to remove the
action as a matter of right to the bankruptcy court and to impose the
burden of moving for withdrawal of reference on the other
parties."³²

Therefore, in thisinstance, the burden should be placed on the party
seeking to effect transfer of the district court action. Courts
haveadopted this reasoning; of those denying application of
§1452(a) to district court actions, most have concluded thatthe
proper procedure for transfer of a lawsuit pending in district court to
bankruptcy court in the same district is amotion to refer, pursuant to
§157(a) of Title 28, the lawsuit to bankruptcy court.³³

Conclusion

Although

arguments supporting removal of district court actions can be made, a
party seeking to effecttransfer of a matter from federal district court
to its local bankruptcy court should, for the reasons cited above,
moveto refer, rather than remove, the
matter.

Footnotes

¹ Gibson, Elizabeth S., "Removal of Claims
Related to Bankruptcy Cases: What Is a 'Claim or Cause of Action?'" 34
U.C.L.A. L. Rev. 1, 6-7 (1986). Return to
article

² Id. at
11-12, n.49 ("Any civil action brought before or after the date of a
petition under this Act in a state or federal district court involving a

controversy or matter of which thebankruptcy courts have original
jurisdiction...may be removed by the plaintiff or defendant to the
bankruptcy court for the territory within which such action is
pending."(quoting Bankruptcy Act of the Commission on the
Bankruptcy Laws of the United States, H.R. Doc. 137, Part II, 93rd
Cong., 1st Sess. 30, 33 (1973)). Return to
article

³ 28 U.S.C.
§1478(a). Return to article

⁴ See, e.g., Stamm v. Rapco Foam Inc.,

21 B.R. 715, 725 (Bankr. W.D. Pa. 1982) (granting petition for removal
of action filed in U.S. District Court for Western District
ofPennsylvania); Griffith v. Realty Execs. Inc., 6 B.R. 753, 755
(Bankr. D. N.M. 1980) (exercising jurisdiction over case removed from
U.S. District Court for the District of NewMexico). Return

to article

⁵ 28 U.S.C.
§1452(a). Return to article

⁶ This article assumes that, despite the
deletion of the term "bankruptcy court" from subsection 1452(a), removal

to bankruptcy court is not per se prohibited. See, e.g., Levin
v.State of New York Dep't. of Health (In re Levin), 284 B.R. 308,
312 (Bankr. S.D. Fla. 2002) (observing that although subsection 1452(a)
speaks of removal to the district court,"the majority of courts faced
with bankruptcy removal find the applications for removal may be made in

the bankruptcy court" (quoting In re Boyer, 108 B.R. 19, 24
(Bankr.N.D.N.Y. 1988))). It assumes also that a party can remove an
action only to the district in which it is pending. See, e.g., U-Haul

Int'l. Inc. v. Gross Metal Prods. Inc. (In re GrossMetal Prods.
Inc.), No. 97-30376DAS, 1997 WL 778756 at *1 (Bankr. E.D. Pa. Dec,
16, 1997) (holding that because "[subsection 1452(a)] speaks of removal
to the district wherethe removed matter is pending," "it seems clear
that a removal to a court in a different district is not permissible").
Incidentally, courts have disagreed over the issue of whetherdistrict
court actions may be removed to district court. Compare Aurora
Parking Co. v. Hide Co., No. 90 C 7332, 1991 WL 275047, at *4 n.1
(N.D. Ill. Dec. 17, 1991) (citingtreatise for the propositions that
"where a bankruptcy case is involved, the district court wears two hats:

one qua district court; secondly as the court to which 28 U.S.C.
§1334(a)and (b) has assigned bankruptcy jurisdiction" and that
"[t]he removal petition is the document which transfers a pending piece
of litigation from the district court acting in theformer capacity to
the district court acting in the latter capacity..." (quoting Collier

on Bankruptcy, ¶3.02 (15th ed. 1990))); Gabel v. Engra Inc.
(In re Engra Inc.), 86 B.R.890, 896 (S.D. Tex. 1988) ("[W]hen a
party files an application for removal, although technically the
proceeding is removed to the district court, the reference of
proceedingsrelated to a bankruptcy case is invoked, and the proceeding
is automatically referred to the bankruptcy court."), with Mitchell
v. Fukuoka Daiei Hawks Baseball Club (In reMitchell), 206 B.R. 204,
210 (Bankr. C.D. Cal. 1997) ("It violates the plain language of 28
U.S.C. §1452(a) to say that an action can be removed 'to district
court' when it isalready pending in district court, because the words
'to district court' by necessity involve the concept of bringing the
action to district court from some other forum."). Return
to article

⁷ Gabel v.

Engra Inc. (In re Engra Inc.), 86 B.R. 890, 896 (S.D. Tex. 1988)
("Congress considered removal inappropriate from one federal court,
namely the U.S. Tax Court,which suggests that removal from other federal

courts is not improper."). Return to
article

⁸ Id. at
896 n. 6 (quoting Fed. R. Bankr. P. 9027(a) (emphasis added)). Return to article

⁹ Id. Return to
article

¹⁰ Id.

at 896 (citing §1141). Return to
article

¹¹ Id.
at 896. Return to article

¹² Id. Return to
article

¹³

Philadelphia Gold Corp. v. Fauzio (In re Philadelphia Gold
Corp.), 56 B.R. 87, 89-90 (Bankr. E.D. Pa. 1985). See, also,
MATV-Cable Satellite Inc. v. Phoenix Leasing Inc., 159B.R. 56, 59
(Bankr. S.D. Fla. 1993) ("It can be argued that the term 'district
court' may be read as 'bankruptcy court,' since the latter is a unit of
the former pursuant to 28U.S.C. §151."). Return to
article

¹⁴ MATV,

159 B.R. at 60. Return to article

¹⁵ Id. Return to
article

¹⁶ Id.

Return to article

¹⁷ Id. Return to
article

¹⁸ Mitchell
v. Fukuoka Daiei Hawks Baseball Club (In re Mitchell), 206 B.R. 204,

211 (Bankr. C.D. Cal. 1997). See, also, Centrust Savs. Bank v.
Love, 131 B.R. 64, 66-67 (S.D.Tex. 1991) ("The word 'federal' is
included to allow removal from courts of the United States other than
the U.S. District Court, like the local courts of the District of
Columbiaor the territorial courts of Guam."). Return to
article

¹⁹ Sharp
Elecs. Corp. v. Deutsche Fin. Servs. Corp., 222 B.R. 259, 263
(Bankr. D. Md. 1998). Return to
article

²⁰ Id.

Return to article

²¹ Id.; Helena Chem. Co. v. Manley,
47 B.R. 72, 74 (Bankr. N.D. Miss. 1985) (determining that "[s]ince
[§1478(a)] has now been repealed, the overall thrust of Rule 9027
hasbecome unworkable" and "[t]his rule, along with numerous others, will

have to be redrafted so that it will properly interface with the new
bankruptcy court structure and thebankruptcy amendments"). Return to article

²² Sharp, 222 B.R. at 264. Return to article

²³ Id. Return to
article

²⁴ See,
e.g., Patterson v. Shumate, 504 U.S. 753, 761 (1992). Return to article

²⁵ See, e.g., Centrust, 131 B.R. at
67 (emphasis added); Safeco Ins. Co. of America v. Mahaney (In re
Watson-Mahaney Inc.), 70 B.R. 578, 581 (Bankr. N.D. Ill. 1987). Return to article

²⁶ See, e.g., Thomas Steel Corp. v.
Bethlehem Rebar Indus. Inc., 101 B.R. 16, 19-20 (Bankr. N.D. Ill.
1989). See, also, Centrust, 131 B.R. at 67 (noting that
"[b]ecause bankruptcycourts are units of the district court, the
district court is responsible for the administration of the bankruptcy
courts," and hence, "[r]emoval...directly to bankruptcy court wouldgive
the parties, and not this court, the say on the allocation of cases to
bankruptcy"); Sharp, 222 B.R. at 264 (noting that "[t]he
introduction of removal as a second optionwould subvert the
discretionary nature of the district court's reference of its bankruptcy

jurisdiction"). Return to article

²⁷ Fed. R. Bankr. P. 9027(c). Return to article

²⁸ See, e.g., Engra, 86 B.R. at 896
(conceding that "[s]ince a party must remove 'to the district court for
the district where such civil action is pending,' if a party removed
anaction from federal district court to bankruptcy court the removed
proceeding would appear to end up where it started"); Cornell & Co.
Inc. v. Southeastern Pennsylvania Transp.Auth. (In re Cornell & Co.
Inc.), 203 B.R. 585, 586 (Bankr. E.D. Pa. 1997) ("Literally,
§1452, as applied to the remand of a [district court] action, would

nonsensically effect aremoval to the [district court] itself."). Return to article

²⁹ Fed. R. Bankr. P. 9027(a)(3). Return to article

³⁰ Turner, 4 F.3d at 1564. Return to article

³¹ Id. at 1564-65. Return to article

³² Sharp, 222 B.R. at 264. Return to article

³³ See, e.g., EEOC v. Shelbyville Mixing
Ctr. Inc. (In re Shelbyville Mixing Ctr. Inc.), 288 B.R. 765, 768
(Bankr. E.D. Ky. 2002); Sharp, 222 B.R. at 264; Mitchell,

206 B.R. at210; Thomas Steel, 101 B.R. at 22; Helena, 47
B.R. at 75; Bancohio Nat'l. Bank v. Long (In re Long), 43 B.R.
692, 697 (Bankr. N.D. Ohio 1984). Return to
article