UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT
decided: August 27, 1984.
IN RE PACOR, INC., APPELLANT
JOHN HIGGINS, JR. AND LOUISE HIGGINS APPELLEES
On Appeal From The United States District Court for the Eastern District of Pennsylvania
Garth and Sloviter, Circuit Judges, and Fisher, District Judge.*fn*
Opinion OF THE COURT
GARTH, Circuit Judge:
Philadelphia Asbestos Co. (trading as "Pacor, Inc.") appeals from a district court order which remanded a products liability action, brought against Pacor by John Higgins and his wife, to Pennsylvania state court. This case, as well as Hanna v. Philadelphia Asbestos Co., 743 F.2d 996, also decided this day, requires a determination of the limits to federal bankruptcy jurisdiction in proceedings "related to" bankruptcy under 28 U.S.C. § 1471(b).
While on its face, this appeal appears superficially simple, it nevertheless presents us with a complex of jurisdictional hurdles which must be surmounted before we may confront the merits of the controversy. The jurisdictional questions to be considered are: (1) Does an order of the district court in bankruptcy context, which order remanded an earlier state court proceeding to the state court, satisfy the final order criteria of Cohen v. Beneficial Industrial Loan Corp., 337 U.S. 541, 93 L. Ed. 1528, 69 S. Ct. 1221 (1949)? (2) Did Congress intend that appeal from such a remand order be controlled by the removal provisions of statutes pertaining to the district court, 28 U.S.C. §§ 1441-1447 (1982), or be controlled by 28 U.S.C. § 1478 (1982), the bankruptcy remand statute? (3) If governed by section 1478(b), is review authorized where the proceeding is not "related to" bankruptcy, and thus is an action in which no jurisdiction can attach? Only after answering those questions and finding that appellate jurisdiction inheres, and that appeal is not proscribed,*fn1 do we reach the merits of this action.
Because we decide that we have appellate jurisdiction, and because we agree with the district court that the action between Higgins and Pacor was not a proceeding "related to" bankruptcy, we will affirm the judgment below which remanded the Higgins-Pacor action to state court.
John and Louise Higgins initially brought suit against Pacor in the Pennsylvania Court of Common Pleas. They sought damages allegedly caused by Mr. Higgins' work-related exposure to asbestos supplied by Pacor, a distributor of chemical supplies. In response, Pacor filed a third party complaint impleading the Johns-Manville Corporation, which Pacor claims was the original manufacturer of the asbestos.
On August 26, 1982, Johns-Manville filed a chapter 11 petition in bankruptcy in the United States Bankruptcy Court for the Southern District of New York. In re Johns-Manville Corp., Nos. 82 B 11656 to 82 B 11676 (Bankr. S.D.N.Y. filed Aug. 26, 1982). In September, 1982, however, the Court of Common Pleas severed the third party action (Pacor against Johns-Manville) from the Higgins action against Pacor. On February 16, 1983, as the Court of Common Pleas was preparing to bring to trial the Higgins-Pacor claim, Pacor filed a Petition for Removal in the Bankruptcy Court for the Eastern District of Pennsylvania, seeking to remove the entire Higgins-Pacor-Manville controversy to federal bankruptcy court. Simultaneously, Pacor moved the Eastern District bankruptcy court to transfer the matter(s) to the Southern District of New York, where it would be joined with the rest of the Johns-Manville bankruptcy administration.
The bankruptcy court in the Eastern District of Pennsylvania, upon considering Pacor's removal application, was of the opinion that the entire Higgins-Pacor-Manville matter should be remanded back to the Court of Common Pleas. It reasoned that Pacor's removal petition was filed beyond the thirty day time limit prescribed by Interim Bankruptcy Rule 7004(a),*fn2 and therefore was fatally defective. Although that time limit had been extended by Bankruptcy Judge Lifland, who is handling the Manville bankruptcy administration in the Southern District of New York, the bankruptcy court below held that the time limit was mandatory and could not be extended.
Upon "appeal"*fn3 to the district court, Pacor argued that the bankruptcy judge administering the Manville chapter 11 proceedings was empowered to grant a motion to enlarge the time for filing removal petitions in matters related to the Manville case. It further contended that the entire Higgins-Pacor-Manville dispute, including the original action between Higgins and Pacor, was "related to" bankruptcy and therefore should be joined with all other Manville matters in the Southern District of New York.
The district court agreed with Pacor that the thirty day limit on filing petitions for removal could be extended by an appropriate order of the Manville chapter 11 court, and therefore Pacor was not time-barred from attempting to remove the actions to federal bankruptcy court. The district judge also ruled, however, that the original suit by Higgins against Pacor was not "related to" the Manville bankruptcy proceedings, and therefore there was no jurisdiction in the bankruptcy court to hear the matter under 28 U.S.C. § 1471(b). Thus, it ordered the Higgins-Pacor action remanded to state court.
The district court did agree, on the other hand, that the Pacor-Manville third party claim was a proceeding "related to" bankruptcy, and it remanded that portion of the action to the bankruptcy court for consideration of the transfer of venue motion made by Pacor. Pacor now appeals to this court from that portion of the district court's order which remanded the Higgins-Pacor lawsuit to state court.
Our first concern on this appeal is whether we have appellate jurisdiction to review the district court's order. Because of the complex statutory provisions involved, and the interrelationship between the roles of the bankruptcy court and the district court, it is necessary to analyze our jurisdiction in a three step mode.
First, we must determine whether the district court's order entered in a bankruptcy context and which granted remand to the state court satisfies the requirements of "finality" for general purposes of appealability. This determination, in turn, rests upon a "collateral order" analysis. See Cohen v. Beneficial Industrial Loan Corp., 337 U.S. 541, 93 L. Ed. 1528, 69 S. Ct. 1221 (1949).
Second, assuming that we conclude (as we do) that such a remand order is a final collateral order, we next examine whether our appellate jurisdiction has nevertheless been affirmatively precluded by Congress, pursuant to 28 U.S.C. § 1447(d).
Third, holding as we do that our answers to the first two inquiries permit appellate review of the remand order in question here, we must then consider whether our jurisdiction has been proscribed by the provisions of 28 U.S.C. § 1478(b) (1982).*fn4 We hold that it has not.
Under both 28 U.S.C. § 1291 (general final appeals from district court) and 28 U.S.C. § 1293 (bankruptcy appeals), for an order to be reviewable in this court, it must be "final."*fn5 While, in this case, it is true that there is no final judgment on the merits over all claims and parties, we believe that the remand order falls within the small class of orders, collateral to the rest of the litigation, which are appealable under the doctrine of Cohen v. Beneficial Industrial Loan Corp., 337 U.S. 541, 93 L. Ed. 1528, 69 S. Ct. 1221 (1949). For an order to be appealable under the Cohen collateral order doctrine, three requirements must be met: (1) it must conclusively determine the disputed question; (2) it must resolve an important question completely separate from the merits of the action; and (3) it must be effectively unreviewable on appeal from final judgment. Coopers & Lybrand v. Livesay, 437 U.S. 463, 468, 57 L. Ed. 2d 351, 98 S. Ct. 2454 (1978). We find that these conditions have been satisfied.
It is first apparent that the remand order conclusively determines the disputed question of whether the Higgins-Pacor claim is "related to" bankruptcy for purposes of 28 U.S.C. § 1471(b) (1982).*fn6 Indeed, the very fact that the district court remanded to the state court, indicates that it will not alter its determination that there is no jurisdiction under section 1471(b).
Secondly, the district court's determination that there was no section 1471(b) jurisdiction is easily separable from the remainder of the litigation. It does not involve consideration of the merits of Higgins' products liability-personal injury claim against Pacor (or indeed of Pacor's third party claim against Manville). It merely determined the collateral issue of whether that claim could properly be litigated in federal bankruptcy court. As is discussed infra, this jurisdictional question involves no more than a threshold determination of whether any judgment which might result from the Higgins-Pacor action could have a tangible effect on the Manville bankruptcy estate, such that it is "related to" that proceeding. It does not, however, involve any inquiry into how that judgment was reached, or whether that judgment was correct, and therefore does not implicate the merits of the claim itself.
Thirdly, the remand order would be effectively unreviewable if Pacor were forced to wait until a final judgment is entered in order to appeal.*fn7 It is true that a portion of the removed litigation still remains for adjudication in the federal courts, i.e. the original Pacor-Manville third party action. In this case, however, we believe that Pacor's opportunity to appeal might be irretrievably lost should review be withheld pending the outcome of the remaining third party claim. Here, the results of the district court's remand order would be felt immediately. Upon remand, the state court would continue to adjudicate the Higgins-Pacor claim, since even if we were to rule that the district court improperly remanded to the state court, the jurisdiction of the state court to proceed with the Higgins-Pacor claim would not be affected. At the very latest, jurisdiction was revested in the Court of Common Pleas at the time the district court, rightly or wrongly, issued its remand order, if indeed jurisdiction was ever lost by the state court.*fn8 See Chandler v. O'Bryan, 445 F.2d 1045, 1058 (10th Cir. 1971), cert. denied, 405 U.S. 964, 31 L. Ed. 2d 241, 92 S. Ct. 1176 (1972).
Thus, the state court would be free to proceed and actually litigate the dispute on the merits. Indeed (especially if the Pacor-Manville claim is transferred to the Manville bankruptcy administration), the likelihood is great that the state court will actually enter a judgment before the remainder of this litigation is completed in the federal courts. Pacor could therefore be confronted with a judgment which was entered by a court of competent jurisdiction, and which could be afforded res judicata effect. If a valid state court judgment were actually entered against Pacor by the Court of Common Pleas, then the remand order would be a fait accompli, and a later appeal challenging its correctness would come too late to be of utility in vindicating any alleged right to have a federal forum.
Our conclusion in this regard is supported, if indeed not required, by the Supreme Court's decision in Moses H. Cone Memorial Hospital v. Mercury Construction Corp., 460 U.S. 1, 103 S. Ct. 927, 74 L. Ed. 2d 765 (1983), which also employed a Cohen collateral order analysis. In Moses H. Cone, the Court held that a district court order, which stayed an action pending resolution of a parallel state proceeding, was final for purposes of jurisdiction. The Court noted that:
a stay of the federal suit pending resolution of the state suit mean[s] that there would be no further litigation in the federal forum; the state court's judgment on the issue would be res judicata. Thus, here, . . . [the plaintiff] was "effectively out of court." Hence, as the Court of Appeals held, this stay order amounts to a dismissal of the suit.
Id. at 934 (quoting Idlewild Liquor Corp. v. Epstein, 370 U.S. 713, 8 L. Ed. 2d 794, 82 S. Ct. 1294 (1962)); see also Hovsons v. Secretary of the Interior, 711 F.2d 1208, 1211 (3rd Cir. 1983); id. at 1214-16 (Garth, J. concurring and dissenting) (Pullman abstention orders appealable).
We therefore conclude that the district court's order remanding the Higgins-Pacor action is a final collateral order, and would therefore be appealable under 28 U.S.C. § 1291, absent some other jurisdictional barrier. See 15 Wright & Miller, Federal Practice & Procedure § 3914 at p. 548-49 (1976).*fn9
We next consider whether, given our holding that a remand order before us would normally be immediately appealable under 28 U.S.C. § 1291, Congress has nevertheless affirmatively precluded such review by special statute. Our analysis centers on two particular provisions: 28 U.S.C. § 1447(d), and 28 U.S.C. § 1478(b). We discuss each in turn.
The general provisions of the Judicial Code*fn10 contain the following sections:
§ 1441 Actions removable generally
(a) Except as otherwise expressly provided by Act of Congress, any civil action brought in a State court of which the district courts of the United States have original jurisdiction, may be removed by the defendants, to the district court of the United States for the district and division embracing the place where such action is pending.
§ 1447 Procedures after removal generally
(c) If at any time before final judgment it appears that the case was removed improvidently and without jurisdiction, the district court shall remand the case, and may order the payment of just costs. A certified copy of the order of remand shall be mailed by its clerk to the clerk of the State court. The State court may thereupon proceed with such case.
(d) An order remanding a case to the State court from which it was removed is not reviewable on appeal or otherwise, except that an order remanding a case to the State court from which it was removed pursuant to section 1443 [civil rights cases] of this title shall be reviewable by appeal or otherwise.
(Emphasis added). Higgins contends that section 1447(d) divests this court of jurisdiction to review the remand order. See Thermtron Products, Inc. v. Hermansdorfer, 423 U.S. 336, 343, 46 L. Ed. 2d 542, 96 S. Ct. 584 (1976) (§ 1447(d) normally prohibits review of remands pursuant to § 1447(c), whether by appeal or otherwise), but see also supra note 9. Pacor contends, on the other hand, that the general removal provisions of 28 U.S.C. §§ 1441-1447, including the prohibition of section 1447(d), do not apply to bankruptcy removals authorized by 28 U.S.C. § 1478. We must agree.
Since the relevant portions of sections 1441-1447 were all enacted together within the 1948 Judicial Code, a cardinal rule of construction requires that we read them as a whole. See, e.g., NLRB v. Lion Oil Co., 352 U.S. 282, 288, 1 L. Ed. 2d 331, 77 S. Ct. 330 (1957) (in expounding a statute, court must not be guided by single sentence, but rather should look to whole law). We first examine the statutory framework.
Section 1441 authorizes removals from state court to the district court of all actions over which the district court of all actions over which the district court has original jurisdiction. Section 1446(c) then dictates that any case over which the district court determines that it does not have jurisdiction shall be remanded to the state court. Thus, the proscription of section 1447(d) against review of remand orders is applicable to proceedings conducted pursuant to these provisions, i.e. cases which were removed from state court pursuant to section 1441 and which were then remanded pursuant to section 1447(c).
In this case, however, removal was not made from state court to the district court under the general provision of section 1441. Rather, removal was effected to the bankruptcy court pursuant to 28 U.S.C. § 1478(a), enacted as part of the Bankruptcy Reform Act of 1978, Pub. L. No. 95-598, § 241(a), 92 Stat. 2670 (1978), which provides:
§ 1478 Removal to the bankruptcy courts
(a) A party may remove any claim or cause of action in a civil action, other than a proceeding before the United States Tax Court or a civil action by a Government unit to enforce such governmental unit's police or regulatory power, to the bankruptcy court for the district where such civil action is pending, if the bankruptcy courts have jurisdiction over such claim or cause of action.
Section 1478(a) thus authorizes a very different type of removal than does section 1441. Under its provisions, a proceeding from any other court (including another federal court) may be removed to the bankruptcy court, provided the bankruptcy court has jurisdiction of the action under 28 U.S.C. § 1471. We find that, at the time the Bankruptcy Reform Act was passed, section 1478 removals simply could not be included within the general framework of sections 1441-1447.*fn11 Before its own terms, section 1478 deals with removals to the bankruptcy court, which -- at least at the time the 1978 Act was enacted -- was an entirely separate entity from the district court.*fn12 On the other hand, it allows removals not only from a state court, but from other federal courts as well, thus permitting removals which sections 1441-1447 do not. A double incongruity with sections 1441-1447 would therefore arise if we were to construe the two sets of statutes as embracing the exact same circumstances.
The fact that any attempt to apply the general removal provisions to removals brought under section 1478 would create a number of statutory conflicts and inconsistencies, supports the conclusion that the provisions of sections 1441-1447 were never meant to be read into the procedures for bankruptcy removals. Since, by their own terms, sections 1441-1447 can only apply to removal from state courts, while bankruptcy removals may come both from state and federal courts, an inexplicable hiatus would develop if the two statutes were engrafted onto each other, whereby some removed bankruptcy cases would be covered by the procedures of sections 1441-1447, while others would not. Similarly, section 1441 allows only a defendant to seek removal, whereas section 1478 allows any party to remove. Sections 1441-1447, again by their own terms, could not apply to matters removed by a plaintiff, creating another statutory limbo. We decline to read such incongruous results into the legislation. See generally, Commissioner v. Bilder, 289 F.2d 291, 298 (3d Cir. 1961) (court should avoid incongruous interpretations of statute).
It is a "well-established principle that a court will not construe a statute to restrict access to judicial review unless Congress manifests its intent to do so by 'clear and convincing evidence.'" South Windsor Convalescent Home, Inc. v. Mathews, 541 F.2d 910, 914 (2d Cir. 1976) (quoting Johnson v. Robison, 415 U.S. 361, 373-74, 39 L. Ed. 2d 389, 94 S. Ct. 1160 (1974)). Because we do not believe Congress could have intended to apply the general provisions of 28 U.S.C. §§ 1441-1447 to bankruptcy removals under section 1478, given the needless conflict and inconsistencies such an interpretation would raise, we conclude that the prohibition on review contained in section 1447(d) is inapplicable in this case.
We next consider whether review of the district court's remand order is specifically precluded by 28 U.S.C. § 1478(b) (1982) (re-enacted as amended in 28 U.S.C. § 1452). In its entirety, section 1478 provides:
§ 1478 Removal to the bankruptcy court
(a) A party may remove any claim or cause of action in a civil action, other than a proceeding before the United States Tax Court or a civil action by a Government unit to enforce such governmental unit's police or regulatory power, to the bankruptcy court for the district where such civil action is pending, if the bankruptcy courts have jurisdiction over such a claim or cause of action.
(b) The court to which such claim or cause of action is removed may remand such claim or cause of action on any equitable ground. An order under this subsection remanding a claim or cause of action, or a decision not so remanding, is not reviewable by appeal or otherwise.
(Emphasis added). Subsection (b) of section 1478 thus provides that, unlike regular removals to the district court, if a case has been properly removed pursuant to subsection (a), the bankruptcy court may nevertheless remand the matter based on equitable considerations. Cf. Thermtron, 423 U.S. 336, 46 L. Ed. 2d 542, 96 S. Ct. 584 (in removals under §§ 1441-1447, district court may not remand on grounds other than lack of jurisdiction). Congress apparently realized that, in some instances, a case over which the bankruptcy court has jurisdiction may nevertheless be more expeditiously litigated in another forum. See H. Rep. No. 95-595, 95th Cong., 2d Sess., at 51, reprinted in 1978 U.S. Code Cong. & Ad. News 5963, 6012. See also Levin, Bankruptcy Appeals, 58 N.C.L. Rev. 967, 993 (1980). To reinforce the bankruptcy court's discretion as to which of two permissible forums will more efficiently adjudicate the removed matter, the statute also provides that an "order under this subsection" (i.e. subsection (b)) which grants, or which refuses to grant remand on any equitable ground is not reviewable by appeal or otherwise.
The dispute in this case, however, does not involve a decision by the bankruptcy court,*fn13 in the exercise of its discretion, to remand the Higgins-Pacor actions on an equitable ground. Rather, the district court found that removal was flatly impermissible ab initio as a matter of law and it upheld Higgins' contention that subsection (a) of section 1478 did not permit removal of this action in the first place due to lack of jurisdiction. If this interpretation is correct, then discretion and "equitable grounds" are simply not involved, since removal would be statutorily prohibited.
Equitable action by the bankruptcy court based on subsection (b) must first presume that removal was legally proper under subsection (a). If subsection (a) does not permit the removal, then subsection (b) never comes into play, and the absolute prohibition on appellate review over equitable remands which were granted or denied under this subsection [section 1478(b)] never becomes operative.*fn14
We therefore conclude that section 1478(b) precludes appellate review only of orders remanding cases on equitable grounds, and does not forbid our examination of whether there is a statutory and constitutional basis for assuming jurisdiction over a particular matter in a federal court. See Kennedy, The Bankruptcy Court Under the New Bankruptcy Law: Its Structure, Jurisdiction, Venue, and Procedure, 11 St. Mary's L.J. 251, 288-89 (1979). Coupled with our previous holdings, therefore, we conclude that appellate jurisdiction properly lies to review the order remanding the Higgins-Pacor action to state court.
We turn now to the merits of this case, i.e. whether the Higgins-Pacor action is "related to" the Manville bankruptcy action, such that jurisdiction exists to entertain the matter in federal courts.
We must focus once more on 28 U.S.C. § 1471 (1982), which provides in part:
(b) Notwithstanding any Act of Congress that confers exclusive jurisdiction on a court or courts other than the district courts, the district courts shall have original but not exclusive jurisdiction of all civil proceedings arising under title 11 or arising in or related to cases under title 11.
(c) The bankruptcy court for the district in which a case under title 11 is commenced shall exercise all the jurisdiction conferred by this section on the district courts.
In enacting section 1471(b), Congress intended to grant comprehensive jurisdiction to the bankruptcy courts so that they might deal efficiently and expeditiously with all matters connected with the bankruptcy estate. See H. Rep. No. 598, 95th Cong., 2d Sess., 43-48, reprinted in 1978 U.S. Code Cong. & Ad. News 5963, 6004-08. See also Young v. Sultan, Ltd. (In re Lucasa International, Ltd.), 6 Bankr. 717, 719 (Bankr. S.D.N.Y. 1980) (§ 1471(b) jurisdiction is "pervasive"); Westinghouse Credit Corp. v. Yeary (In re Brothers Coal Co.), 6 Bankr. 567, 570-71 (Bankr. W.D. Va. 1980) (§ 1471(b) jurisdiction is "broad."). The jurisdiction of the bankruptcy courts to hear cases related to bankruptcy is not without limit, however, and there is a statutory, and eventually constitutional, limitation to the power of a bankruptcy court. For subject matter jurisdiction to exist, therefore, there must be some nexus between the "related" civil proceeding and the title 11 case. See In re Hall, 30 Bankr. 799, 802 (M.D. Tenn. 1983); 1 Collier on Bankruptcy para. 3.01, at 3-48 to 3-49 (15th ed. 1982). We find that nexus to be absent here.
As a threshold matter, it should be noted that the Higgins-Pacor suit is one between two parties, neither of which has filed in bankruptcy, in contrast to the Pacor-Manville third party claim, where the defendant Manville is engaged in bankruptcy proceedings and which is therefore clearly "related to" bankruptcy. It must therefore be determined whether the primary action between Higgins and Pacor, although not one directly involving the debtor Manville, is still sufficiently connected with the Manville bankruptcy estate, such that jurisdiction lies under 28 U.S.C. § 1471(b).
The usual articulation of the test for determining whether a civil proceeding is related to bankruptcy is whether the outcome of that proceeding could conceivably have any effect on the estate being administered in bankruptcy. E.g., In re Hall, 30 Bankr. at 802; In re General Oil Distributors, Inc., 21 Bankr. 888, 892 n.13 (Bankr. E.D.N.Y. 1982); In re U.S. Air Duct Corp., 8 Bankr. 848, 851 (Bankr. N.D.N.Y. 1981); 1 Collier on Bankruptcy para. 3.01 at 3-49. Thus, the proceeding need not necessarily be against the debtor or against the debtor's property. An action is related to bankruptcy if the outcome could alter the debtor's rights, liabilities, options, or freedom of action (either positively or negatively) and which in any way impacts upon the handling and administration of the bankrupt estate.
On the other hand, the mere fact that there may be common issues of fact between a civil proceeding and a controversy involving the bankruptcy estate does not bring the matter within the scope of section 1471(b). Judicial economy itself does not justify federal jurisdiction. See generally Aldinger v. Howard, 427 U.S. 1, 15, 49 L. Ed. 2d 276, 96 S. Ct. 2413 (1976). "Jurisdiction over nonbankruptcy controversies with third parties who are otherwise strangers to the civil proceeding and to the parent bankruptcy does not exist." In re Haug, 19 Bankr. 223, 224-25 (Bankr. D. Ore. 1982); See also In re McConaghy, 15 Bankr. 480, 481 (Bankr. E.D. Va. 1981) (Bankruptcy court lacks jurisdiction to decide disputes between third parties in which the estate of the debtor has no interest).
Our examination of the Higgins-Pacor-Manville controversy leads us to conclude that the primary action between Higgins and Pacor would have no effect on the Manville bankruptcy estate, and therefore is not "related to" bankruptcy within the meaning of section 1471(b). At best, it is a mere precursor to the potential third party claim for indemnification by Pacor against Manville. Yet the outcome of the Higgins-Pacor action would in no way bind Manville, in that it could not determine any rights, liabilities, or course of action of the debtor. Since Manville is not a party to the Higgins-Pacor action, it could not be bound by res judicata or collateral estoppel. See Borough of West View v. North Hills School District, 274 Pa. Super. 519, 418 A.2d 527 (1980); see generally Schubach v. Silver, 461 Pa. 366, 375, 336 A.2d 328, 332 (1978) (res judicata); Vanderveer v. Erie Malleable Iron Co., 238 F.2d 510 (3rd Cir. 1956) (collateral estoppel). Even if the Higgins-Pacor dispute is resolved in favor of Higgins (thereby keeping open the possibility of a third party claim), Manville would still be able to relitigate any issue, or adopt any position, in response to a subsequent claim by Pacor. Thus, the bankruptcy estate could not be affected in any way until the Pacor-Manville third party action is actually brought and tried.
Pacor stresses that the Higgins-Pacor claim would affect the Manville bankruptcy estate, in that without a judgment for plaintiff Higgins in that action, there could never be a third party indemnification claim against Manville. This argument does not alter our conclusion. At best, one could say that a judgment against the plaintiff on the primary claim would make absolutely certain that the Manville estate could never be adversely affected. This does not prove the converse, however, that a judgment in favor of the plaintiff Higgins necessarily does affect the estate. The fact remains that any judgment received by the plaintiff Higgins could not itself result in even a contingent claim against Manville, since Pacor would still be obligated to bring an entirely separate proceeding to receive indemnification.
We believe the circumstances here are readily distinguishable from those cases cited by Pacor. In In re Brentano's, 27 Bankr. 90 (Bankr. S.D.N.Y. 1983), MacMillan, (a nondebtor) agreed to act as guarantor of Brentano's (the debtor's) obligations under a lease. In turn, Brentano's contractually agreed to indemnify MacMillan for any liability or judgments incurred as a result of this guarantee agreement. When Brentano's defaulted on the lease, the landlord sued MacMillan to enforce the guarantee. MacMillan successfully removed the action to bankruptcy court as a proceeding "related to" bankruptcy.
In Brentano's, however, it is clear that the action between the landlord and MacMillan could and would affect the estate in bankruptcy. By virtue of the indemnification agreement between Brentano's and MacMillan, a judgment in favor of the landlord on the guarantee action would automatically result in indemnification liability against Brentano's. See also In re Johnie T. Patton, Inc., 12 Bankr. 470 (Bankr. D. Nev. 1981); In re Lucasa International, Ltd., 6 Bankr. 717 (Bankr. S.D.N.Y. 1980); In re Brothers Coal Co., 6 Bankr. 567 (Bankr. W.D. Va. 1980) (all involving guarantors of debtor's obligations). Moreover, even in the absence of an explicit indemnification agreement, an action by a creditor against a guarantor of a debtor's obligations will necessarily affect that creditor's status vis a vis other creditors, and administration of the estate therefore depends upon the outcome of that litigation.
In this case, however, there would be no automatic creation of liability against Manville on account of a judgment against Pacor. Pacor is not a contractual guarantor of Manville, nor has Manville agreed to indemnify Pacor, and thus a judgment in the Higgins-Pacor action could not give rise to any automatic liability on the part of the estate. All issues regarding Manville's possible liability would be resolved in the subsequent third party impleader action. Furthermore, Higgins is not a creditor of Manville and has filed no claim against Manville. Any judgment obtained would thus have no effect on the arrangement, standing, or priorities of Manville's creditors. There would therefore be no effect on administration of the estate, until such time as Pacor may choose to pursue its third party claim.
We recognize that this situation could work a hardship on distributors such as Pacor, since in practical terms, it may make it more difficult for them to recover from the ultimate manufacturer of a defective product. Middlemen always face the possibility, however, that attempts to recoup such losses from their manufacturers or suppliers will be hindered, or even unsuccessful, and there is never a guarantee that the original manufacturers will not be judgment proof or found not susceptible to process. Bankruptcy jurisdiction, however, was not conferred for the convenience of those not in bankruptcy to enlarge the possibility of recovery over and above that which they otherwise may have had.
We therefore conclude that the action brought by Higgins against Pacor is not "related to" bankruptcy, and that therefore there was no jurisdiction to remove the matter to federal court.*fn15 There being no federal jurisdiction, the district court had no alternative but to remand the Higgins-Pacor action to the state court.*fn16
The judgment of the district court, remanding the Higgins-Pacor action to state court, will be affirmed.*fn17