Joining three other circuits, the First Circuit held that the Bankruptcy Rules, not the Federal Rules of Civil Procedure, apply to lawsuits adjudicated in federal district court when the district court has “related to” jurisdiction under 28 U.S.C. § 1334(b).
Unable to tease a definitive answer from the language of the statutes and the rules, the Boston-based appeals court based the outcome on “the practicalities attendant to the efficient operation of a modern bankruptcy system.”
The Personal Injury Lawsuits
In 2013, a train derailed in a small Canadian town, spilling crude oil, causing a massive fire and killing 47 residents. The railroad transporting the crude ended up in bankruptcy in Maine.
On behalf of those killed or injured, scores of plaintiffs commenced 39 personal injury suits in several states against numerous defendants. Later, the plaintiffs joined a Canadian railroad as a defendant. The Canadian railroad was a connecting carrier, not the railroad whose train derailed to cause the disaster.
The scattered lawsuits were consolidated in the federal district court in Maine under 28 U.S.C. § 157(b)(5). Although the lawsuits were non-core, the district court had subject matter jurisdiction under 28 U.S.C. § 1334(b), because the personal injury suits were “related to” the bankruptcy in Maine.
Later, the plaintiffs settled with all of the defendants aside from the Canadian railroad. The other defendants were dismissed from the suit, leaving the Canadian railroad as the sole remaining defendant.
The district court entered judgment dismissing the suit after granting the Canadian railroad’s motion to dismiss for lack of personal jurisdiction. The plaintiffs filed a motion for reconsideration 28 days after entry of judgment.
The district court summarily denied reconsideration, ruling that the deadline for a reconsideration motion was 14 days under Bankruptcy Rule 9023.
The plaintiffs appealed to the First Circuit, making a variety of arguments for the proposition that the time limit for reconsideration was 28 days under Federal Rule 59(b).
In an opinion on June 2, Circuit Judge Bruce M. Selya dismissed the appeal for want of appellate jurisdiction. Because the reconsideration motion in district court was untimely, the time for appealing dismissal to the circuit had not been tolled. In the absence of tolling, Judge Selya explained that “the plaintiffs’ ensuing notice of appeal was untimely and, therefore, their appeal must be dismissed for want of appellate jurisdiction.”
Which Rules Apply?
Judge Selya framed the question like this: “Do the Bankruptcy Rules or the Civil Rules govern the procedures in a case over which a federal court exercises section 1334(b) jurisdiction as one ‘related to’ a pending bankruptcy proceeding?”
Judge Selya traced the history of bankruptcy jurisdiction following the adoption of the Bankruptcy Reform Act in 1978 but found no explicit answer in either title 28, the Bankruptcy Rules or the Federal Rules. He nevertheless said that title 28 and the rules “point strongly” to the idea that the Bankruptcy Rules apply to non-core, “related to” cases in district court.
For Judge Selya, “the sockdolager is found in the practicalities attendant to the efficient operation of the modern bankruptcy system.” If the Federal Rules applied to non-core issues, a district court would be simultaneously applying the Federal Rules and the Bankruptcy Rules in a suit where the claims were both core and non-core.
Judge Selya offered another example of the practical need for applying one set of rules. If the district court were ruling de novo on the bankruptcy court’s proposed findings and conclusions, the district court would be applying the Federal Rules when the bankruptcy court had been following the Bankruptcy Rules.
Judge Selya rejected several “fallback” arguments by the plaintiffs. First, he found no basis in the rules giving a district court the ability to select between the two sets of rules.
Next, the plaintiffs argued that they should have been given notice that the Bankruptcy Rules were controlling. Judge Selya dismissed the idea, saying there is “no room for an equitable exception to the quintessentially legal determination of which set of rules applies to a particular case.”
Judge Selya was not alone in his conclusion. He cited the Collier treatise alongside the Third, Fourth and Seventh Circuits for holding that the Bankruptcy Rules govern when adjudication in district court is founded on “related to” jurisdiction under Section 1334. Two of those circuits explicitly warned against a procedural hybrid, the judge said.
Judge Selya held as follows: “The Bankruptcy Rules apply to non-core, related to cases adjudicated in federal district courts under section 1334(b)’s ‘related to jurisdiction.’”
Joining three other circuits, the First Circuit held that the Bankruptcy Rules, not the Federal Rules of Civil Procedure, apply to lawsuits adjudicated in federal district court when the district court has “related to” jurisdiction under 28 U.S.C. § 1334(b).
Unable to tease a definitive answer from the language of the statutes and the rules, the Boston-based appeals court based the outcome on “the practicalities attendant to the efficient operation of a modern bankruptcy system.”
The Personal Injury Lawsuits
In 2013, a train derailed in a small Canadian town, spilling crude oil, causing a massive fire and killing 47 residents. The railroad transporting the crude ended up in bankruptcy in Maine.
On behalf of those killed or injured, scores of plaintiffs commenced 39 personal injury suits in several states against numerous defendants. Later, the plaintiffs joined a Canadian railroad as a defendant. The Canadian railroad was a connecting carrier, not the railroad whose train derailed to cause the disaster.
The scattered lawsuits were consolidated in the federal district court in Maine under 28 U.S.C. § 157(b)(5). Although the lawsuits were non-core, the district court had subject matter jurisdiction under 28 U.S.C. § 1334(b), because the personal injury suits were “related to” the bankruptcy in Maine.
Later, the plaintiffs settled with all of the defendants aside from the Canadian railroad. The other defendants were dismissed from the suit, leaving the Canadian railroad as the sole remaining defendant.
The district court entered judgment dismissing the suit after granting the Canadian railroad’s motion to dismiss for lack of personal jurisdiction. The plaintiffs filed a motion for reconsideration 28 days after entry of judgment.