How does a debtor move a lawsuit pending in another district to the debtor’s home bankruptcy court?
One thing’s for sure: It’s not by removal under the bankruptcy removal statute, 28 U.S.C. § 1452, according to District Judge Dora L. Irizarry of Brooklyn, N.Y.
A pair of beverage distributors filed chapter 11 petitions in the Southern District of New York. Before bankruptcy, they had been sued in district court in the Eastern District of New York for withdrawal liability from a union retirement fund.
The clerk in the Eastern District noted the debtors’ default when they did not respond to the complaint. Judge Irizarry tasked a magistrate judge with issuing a recommendation on granting the plaintiff’s motion for default.
The magistrate judge recommended entering a default judgment. Instead of objecting to the recommendation, the debtors filed a notice of removal under Bankruptcy Rule 9027 and Section 1452. The notice attempted to remove the suit from the district court in Brooklyn (the Eastern District) to the bankruptcy court in Manhattan (the Southern District).
The debtors even consented to a final adjudication of the pension withdrawal suit by the Manhattan bankruptcy court.
In her March 31 opinion, Judge Irizarry struck the notice and denied removal of the suit to the Manhattan bankruptcy court.
With exceptions not applicable here, Section 1452 allows a party to “remove any claim or cause of action in a civil action . . . to the district court for the district where such civil action is pending, if such district court has jurisdiction of such claim or cause of action under section 1334 of this title.”
Neither the Second Circuit nor any district court in the Second Circuit has decided whether a debtor can remove a suit in district court to the bankruptcy court in another district, Judge Irizarry said. However, district courts in the Second Circuit have ruled that Section 1452 does not permit withdrawing a suit to bankruptcy court from the district court in the same district.
On the other hand, Judge Irizarry said that “courts outside the Second Circuit have held that it is improper to remove a case from one district court to a bankruptcy court in another district.” For that proposition, she cited the Ninth Circuit Bankruptcy Appellate Panel in an opinion by Bankruptcy Judge William J. Lafferty of Oakland, Calif. See In re Curtis, 571 B.R. 441 (B.A.P. 9th Cir. 2017).
Judge Irizarry quoted Judge Lafferty for saying that Section 1452 “intentionally applies only to removal to bankruptcy court from state court and certain federal courts but not district courts . . . .” She went on to quote Judge Lafferty, who said that the “proper procedure for transferring a case from a federal district court to bankruptcy court is to request a referral by the district court.” Id. at 449.
Because the defendants wanted to transfer to a bankruptcy court in another district, the BAP said that the defendants “would first need to request a change of venue from the [district court in one district] to the [the district court in the other district] and then request a referral to the bankruptcy court for [that district].” Id.
Judge Irizarry ruled that the notice was improper and denied removal. But she didn’t stop there. For the debtors’ having failed to object to the magistrate judge’s report and recommendation, she said they waived the right to object to or to vacate the default judgment.
Judge Irizarry adopted the report and recommendation. A week later, the clerk of the district court entered judgment against the two debtors for almost $850,000.
How does a debtor move a lawsuit pending in another district to the debtor’s home bankruptcy court?
One thing’s for sure: It’s not by removal under the bankruptcy removal statute, 28 U.S.C. § 1452, according to District Judge Dora L. Irizarry of Brooklyn, N.Y.
A pair of beverage distributors filed chapter 11 petitions in the Southern District of New York. Before bankruptcy, they had been sued in district court in the Eastern District of New York for withdrawal liability from a union retirement fund.
The clerk in the Eastern District noted the debtors’ default when they did not respond to the complaint. Judge Irizarry tasked a magistrate judge with issuing a recommendation on granting the plaintiff’s motion for default.
The magistrate judge recommended entering a default judgment. Instead of objecting to the recommendation, the debtors filed a notice of removal under Bankruptcy Rule 9027 and Section 1452. The notice attempted to remove the suit from the district court in Brooklyn (the Eastern District) to the bankruptcy court in Manhattan (the Southern District).
The debtors even consented to a final adjudication of the pension withdrawal suit by the Manhattan bankruptcy court.
In her March 31 opinion, Judge Irizarry struck the notice and denied removal of the suit to the Manhattan bankruptcy court.
With exceptions not applicable here, Section 1452 allows a party to “remove any claim or cause of action in a civil action . . . to the district court for the district where such civil action is pending, if such district court has jurisdiction of such claim or cause of action under section 1334 of this title.”