In another case where a court in New York could not transfer a lawsuit to the bankruptcy court in Delaware, Bankruptcy Judge Michael E. Wiles of Manhattan wrote an opinion with a twist.
Judge Wiles found himself incapable of “unreferring” a lawsuit that by all rights should have been in district court.
The facts were almost the same as those in ICICI Bank Ltd v. Essar Global Fund Ltd., 16-7836, 2017 BL 10008 (S.D.N.Y. Jan. 12, 2017), decided in January by District Judge Gregory H. Woods. Before a company’s bankruptcy, a creditor sued the company and its officers in state court in New York.
The creditor was suing the company to be paid for work performed under a contract. Against the officers, the creditor alleged fraud for lying about the company’s ability or intention to pay.
After the company filed a chapter 11 petition in Delaware, the officers removed the case to federal district court and filed a motion to transfer the suit to the bankruptcy court in Delaware, where it could be handled alongside the reorganization. Rather than rule on the venue motion, the New York district judge referred the case to Bankruptcy Judge Wiles for him to handle the venue question.
ICICI ordained the result insofar as venue was concerned. Because the suit against the officers was non-core and had federal jurisdiction only as “related to” a bankruptcy, Judge Wiles could not employ 28 U.S.C. § 1412 because that venue statute only applies to cases that “arise under title 11.”
Transferring venue for a non-core proceeding is governed by 28 U.S.C. § 1404(a), which permits sending a case to a district “where it might have been brought or to any district or division to which all parties have consented.” Since the creditor-plaintiff did not consent to suing in Delaware, where the case likely would have been referred to the bankruptcy court, Judge Wiles could only change venue if the suit could have been brought originally in Delaware.
In his April 6 opinion, Judge Wiles denied the venue-transfer motion because he determined that the plaintiff could not have sued the company officers in Delaware since they did not reside there. Venue was proper in New York because the officers maintained their offices in Manhattan, where the allegedly tortious conduct took place.
Having succeeded in keeping the suit in New York, the plaintiff wanted Judge Wiles to send the case back to the district judge, since the debtor corporation was no longer in the case by virtue of the automatic stay and the suit did not raise any bankruptcy claims.
Judge Wiles concluded that he did not “have authority to remand the case to the district court.”
The case was before him because it was referred by the district court, not because of removal. Judge Wiles therefore said, “I have no authority to remand it to the district court under Section 1452(b). Similarly, I have no authority under title 28 to turn down or to negate a reference from the district court.”
Power to withdraw the reference lies in the district court. “In short,” Judge Wiles said, “district judges tell me what to do, not vice versa.”
Since the plaintiff was demanding a jury trial, Judge Wiles said “it will have to be reclaimed by the district court.”
Immediately after Judge Wiles handed down his decision, the plaintiff filed a letter motion to withdraw the reference, and the district judge took the case back.
To read ABI’s discussion of ICICI, click here.