[1]“Removal” refers to the process of transferring litigation to a federal court from another forum. Bankruptcy practitioners should be aware of two provisions that provide for removal of civil litigation to federal court: 28 U.S.C. § 1441, the general removal statute, and § 1452,[2] the bankruptcy removal provision. Since the U.S. Supreme Court has indicated that removal of bankruptcy-related litigation might be effectuated under either provision,[3] it is important to understand how they differ.
Jurisdictional Requirements
Practitioners should first recognize that the § 1441 removal jurisdiction is much broader than § 1452. To remove litigation under § 1441, there must be “original jurisdiction.”[4] Although the most common types of original jurisdiction are federal question jurisdiction and diversity jurisdiction, bankruptcy jurisdiction, outlined in § 1334, is another type.[5] In contrast, the removal of litigation under § 1452 is limited to situations where there is bankruptcy jurisdiction under § 1334.[6]
Section 1334(a) and (b) gives the “district courts … original and exclusive jurisdiction of all cases under title 11” and “original but not exclusive jurisdiction over all civil proceedings arising under title 11, or arising in or related to cases under title 11.” Typically, removed bankruptcy litigation will constitute a "related to" civil proceeding. A civil proceeding is "related to" a bankruptcy if the outcome of the proceeding "could conceivably have an effect on the estate being administered in bankruptcy."[7]
Notably, the presence of related to bankruptcy jurisdiction will satisfy the jurisdictional requirements of both §§ 1441 and 1452.[8] However, whether removal can be effectuated under one or both provisions depends on if any of the statutory differences that are discussed below come into play.
Statutory Differences
A statutory comparison of §§ 1441 and 1452 reveals several key distinctions. First, because § 1441(a) only references removal by “the defendant or the defendants,” plaintiffs cannot use the general removal provision.[9] Section 1452(a) provides that “a party” can seek removal. Consequently, a plaintiff may use § 1452 to remove its own action to federal court.[10]
Second, the scope of the two removal provisions is different. Section § 1441(a) provides for the removal of “any civil action,” whereas § 1452(a) authorizes the removal of “any claim or cause of action in a civil action.” Thus, while the general removal provision contemplates removal of the entire civil action, the bankruptcy removal provision permits part of the civil action to be removed. Moreover, if the civil action solely consists of removable § 1452(a) claims, then the entire civil action might be removed under the bankruptcy removal statute.[11] The scope of the party’s notice of removal determines what is removed.[12]
Third, the two removal provisions also differ in that § 1441(a) only applies to a “civil action brought in State court.” Section 1452(a) simply references removal of a “civil action” and goes on to prohibit removal of proceedings before a U.S. tax court and civil actions by governmental units to enforce their police or regulatory power. These differences have enabled parties to use § 1452 to remove litigation that is pending in other federal and non-state forums.[13]
Nevertheless, most courts have stopped short of permitting the use of § 1452(a) to remove litigation that is pending in a federal district court to a bankruptcy court in that district.[14] These courts reason that a bankruptcy court is a statutory “unit” of the district court under § 151 and permitting removal would create the absurdity of transferring litigation to the very court where the litigation was already pending.[15]
Filing the Notice of Removal
Another statutory question is whether the notice of removal may be filed directly in the bankruptcy court, given that both §§ 1441 and 1452 refer to removal to the “district court.” Some courts have construed “district court” narrowly to exclude removal filings directly in the bankruptcy court.[16] One court has held that such a filing is a technical error that is not fatal to removal.[17]
Most courts permit the notice of removal to be filed directly in the bankruptcy court, notwithstanding the term “district court,”[18] based on the following reasoning: (1) the bankruptcy court is a statutory unit of the district court; (2) the Federal Rules of Bankruptcy Procedure permit the filing of a notice of removal with a “clerk,” which includes a bankruptcy clerk; and (3) pursuant to § 157(a), many of the local standing orders of the district courts transfer removed bankruptcy-related suits from district court to bankruptcy court.[19] In districts that have not yet addressed the issue of where to file the notice of removal, the safest practice might be to file the notice with the clerk of the district court.[20]
The Rule of Unanimity
Another important procedural difference between the two removal provisions is that § 1441 removals are governed by § 1446 and must comply with the “rule of unanimity.” This rule, recently codified in § 1446(b)(2)(A),[21] requires “all defendants who have been properly joined and served [to] join in or consent to the removal of the action.”
Courts disagree on whether the rule of unanimity applies to § 1452 removals. Most courts have concluded that § 1452(a)’s reference to “a party,” means that any one party can remove a claim or cause of action so unanimous consent is not required.[22] Some courts have applied the rule,[23] one reasoning that “a party” under § 1452(a) is no different than “a defendant” under § 1446.[24] These cases may have been implicitly overruled by the addition of § 1446(b)(2)(A). The prefatory clause of this provisions states that “[w]hen a civil action is removed solely under section 1441(a)….” This language suggests that when removal is made under § 1452, § 1446(b)(2)(A) does not apply.
Timeliness of Removal
Lastly, the time to remove litigation under the two removal provisions differs considerably. To remove an action under § 1441, § 1446(b) requires the defendant to file a notice of removal within 30 days after being served. Bankruptcy Rule 9027(a)(2), applicable to § 1452 removals, generally gives a party 90 days from the filing of the bankruptcy petition to remove pending pre-petition litigation.[25] However, a handful of courts have held that Bankruptcy Rule 9027 does not apply because it was tied to 28 U.S.C. § 1478(a), the removal statute that § 1452 replaced.[26] Most courts disagree with this view,[27] giving parties significantly more time to decide whether to remove litigation.
Conclusion
A comparison of §§ 1441 and 1452 establishes that the bankruptcy removal statute will usually provide an easier avenue for removing litigation related to bankruptcy. The general removal statute might only be useful in cases where there is bankruptcy jurisdiction over part of litigation, and the remainder comes within another type of original jurisdiction. In those cases, it is not entirely clear where the notice of removal must be filed because the bankruptcy court may only hear matters over which there is bankruptcy jurisdiction.
In any event, successfully removing litigation is only half of the battle. A remand, which transfers removed litigation back to the original forum, always remains a real possibility. Courts have considerable discretion in remanding litigation and remand orders are generally not appealable.
[1] The views expressed herein are solely those of the author.
[2] Unless otherwise specified, all statutory references are to title 28 of the U.S. Code.
[3] See Things Remembered Inc. v. Petrarca, 516 U.S. 124, 129 (1995) (“There is no express indication in § 1452 that Congress intended that statute to be the exclusive provision governing removals and remands in bankruptcy.”).
[4] See § 1441(a).
[5] See §§ 1331, 1332(a) and 1334(a)-(b).
[6] See § 1452(a).
[7] Pacor Inc. v. Higgins, 743 F.2d 984, 994 (3d Cir. 1984).
[8] Sykes v. Texas Air Corp., 834 F.2d 488, 491 (5th Cir. 1987).
[9] See McKenzie v. United States, 678 F.2d 571, 574 (5th Cir. 1982).
[10] See In re Enron Corp., 292 B.R. 752, 756-57 (Bankr. S.D.N.Y. 2003) (plaintiff removed summary judgment motion to bankruptcy court); see also Patricia C. Williams and Keller W. Allen, “Removal of State Court Cases to Bankruptcy Court,” 27 Gonz. L. Rev. 109, 111 (1992) (“It appears that section 1452 refers to parties rather than defendants because a trustee or plaintiff might want to remove a case to the jurisdiction of the bankruptcy court.”).
[11] See Northwood Flavors Co. Inc. v. Dollar Bank, Fed. Sav. Bank (In re Northwood Flavors, Inc.), 202 B.R. 63, 67 (Bankr. W.D. Pa. 1996); Princess Louise Corp. v. Pac. Lighting Leasing Co. (In re Princess Louise Corp.), 77 B.R. 766, 771 (Bankr. C.D. Cal. 1987).
[12] Princess Louise, 77 B.R. at 771.
[13] Quality Tooling Inc. v. United States, 47 F.3d 1569, 1572 (Fed. Cir. 1995) (action in court of federal claims removed to district court); Chickaway v. Bank One Dayton NA, 261 B.R. 646, 649 (S.D. Miss. 2001) (fraud action in Choctaw tribal court removed to district court); Adams v. Grand Traverse Band of Ottawa & Chippewa Indians Econ. Dev. Auth. (In re Adams), 133 B.R. 191, 194 (Bankr. W.D. Mich. 1991) (wrongful discharge action in Grand Traverse Band Tribal Court to bankruptcy court).
[14] Compare Morris Black & Sons Inc. v. 23S23 Constr. Inc. (In re Carriage House Condos. LP), 415 B.R. 133, 137-39 (Bankr. E.D. Pa. 2009) (finding that most cases reject such removals), with MATV-Cable Satellite Inc. v. Phoenix Leasing Inc., 159 B.R. 56, 60 (Bankr. S.D. Fla. 1993) (permitting removal). Since § 1452(a) refers to removal to “the district where such civil action in pending,” the provision cannot be used to remove an action directly to a district court or bankruptcy court in another state or jurisdiction. See Nat’l Developers Inc. v. Ciba-Geigy Corp. (In re Nat’l Developers Inc.), 803 F2d 616, 619-20 (11th Cir. 1986). For a way around this statutory restriction, see generally Bruce H. White, “Maneuvering a ‘Related to’ Case from State Court to Bankruptcy Court in Another Jurisdiction,” Am. Bankr. Inst. J., May 1997, at 30.
[15] E.g., Mitchell v. Fukuoka Daiei Hawks Baseball Club (In re Mitchell), 206 B.R. 204, 210-11 (Bankr. C.D. Cal. 1997); see also Henry M. Karwowski, “Removal of District Court Actions to Bankruptcy Court May Be Improper,” Am. Bankr. Inst. J., December/January 2004, at 52.
[16] See, e.g., McKinstry v. Sergent, 442 B.R. 567, 572 (E.D. Ky. 2011); Searcy v. Knostman, 155 B.R. 699, 704 (S.D. Miss. 1993); In re Schuler, 45 B.R. 684, 686 (Bankr. D.N.D. 1985).
[17] Cook v. Cook, 215 B.R. 975, 977 (Bankr. E.D. Mich. 1997).
[18] Townsquare Media Inc. v. Brill, 652 F.3d 767, 770 (7th Cir. 2011); Geruschat v. Ernst Young LLP (In re Seven Fields Dev. Corp.), 505 F.3d 237, 247 n.8 (3d Cir. 2007).
[19] See, e.g., Townsquare, 652 F.3d at 770; Seven Fields, 505 F.3d at 247 n.8.
[20] Collier on Bankruptcy ¶ 3.07[1] at n.15 (Alan N. Resnick and Henry J. Sommer eds., 16th ed.).
[21] See Federal Courts Jurisdiction and Venue Clarification Act of 2011, H.R. 394, P.L. 112-63, 125 Stat. 758 (2011).
[22] See Townsquare, 652 F.3d at 770; Cal. Pub. Emps.’ Ret. Sys. v. Worldcom Inc., 368 F.3d 86, 103 (2d Cir. 2004); Creasy v. Coleman Furniture Corp., 763 F.2d 656, 660 (4th Cir. 1985); see also Daleske v. Fairfield Comtys. Inc., 17 F.3d 321, 323 (10th Cir. 1994).
[23] See, e.g., Ret. Sys. of Ala. v. Merrill Lynch & Co., 209 F. Supp. 2d 1257, 1264 (M.D. Ala. 2002); Hills v. Hernandez, No. Civ. A. 98-1108, 1998 WL 241518, at *1-2 (E.D. La. May 12, 1998).
[24] Ross v. Thousand Adventures of Iowa Inc., 178 F. Supp. 2d 996, 1001-02 (S.D. Iowa 2001).
[25] See Fed. R. Bankr. P. 9027(a)(2) and 11 U.S.C. § 301(b).
[26] Intra Muros Trust v. Truck Stop Scale Co., 163 B.R. 344, 345 n.1 (N.D. Ind. 1994) (“This court is well aware that this is a minority position.”).
[27] See Burke v. Donington, Karcher, Salmond, Ronan & Rainone PA (In re Donington, Karcher, Salmond, Ronan & Rainone PA), 194 B.R. 750, 756 (D.N.J. 1996) (collecting cases).