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Reunion Industries, Inc. v. Steel Partners II

April 1, 2008

REUNION INDUSTRIES, INC., PLAINTIFF,
v.
STEEL PARTNERS II, L.P., STEEL PARTNERS LLC, WEBFINANCIAL CORPORATION, AND LC CAPITAL MASTER FUND, LTD., DEFENDANTS.



The opinion of the court was delivered by: Terrence F. McVerry United States District Court Judge

MEMORANDUM ORDER

Pending now before the Court are Defendants' MOTION TO TRANSFER VENUE (Document No. 6) and Plaintiff Reunion Industries, Inc.'s ("Reunion") MOTION FOR MANDATORY ABSTENTION AND REMAND PURSUANT TO 28 U.S.C. § 1334(c)(2), OR IN THE ALTERNATIVE, PERMISSIVE ABSTENTION AND REMAND PURSUANT TO 28 U.S.C. § 1334(c)(1). The motions have been thoroughly briefed (Document Nos. 9, 12, 13, 14, 15, 17) and are ripe for disposition.

Factual and Procedural Background

Plaintiff originally filed the instant action in the Court of Common Pleas of Allegheny County in September 2007. Defendants removed the case, at Civil Action No. 07-1337, on the basis of federal question jurisdiction because the complaint contained claims based on the Securities and Exchange Act. Plaintiff then filed an Amended Complaint which dropped the federal claims. On November 13, 2007, the Court remanded the case to state court based upon the parties' stipulation. On November 26, 2007, Plaintiff filed a Chapter 11 voluntary petition, Case No. 07-50727, in the United States Bankruptcy Court for the District of Connecticut (Bridgeport Division).*fn1

On December 4, 2007, Defendants again removed the case to this Court, at Civil Action 07-1649. Defendant contends that this case is properly removed to federal court and moves that it be transferred to the Bankruptcy Court to be resolved as part of the bankruptcy case. Plaintiff contends that this Court cannot reach the question of transfer because it must first resolve the threshold issue of whether the case was properly removed. Plaintiff contends that this Court must abstain from adjudicating the case and must remand it to state court.

Discussion

The Court must first address Plaintiff's motion for mandatory abstention. The dispositive statutory provision is 28 U.S.C. § 1334(c)(2), which provides (emphasis added):

(2) Upon timely motion of a party in a proceeding based upon a State law claim or State law cause of action, related to a case under title 11 but not arising under title 11 or arising in a case under title 11, with respect to which an action could not have been commenced in a court of the United States absent jurisdiction under this section, the district court shall abstain from hearing such proceeding if an action is commenced, and can betimely adjudicated, in a State forum of appropriate jurisdiction.

The United States Court of Appeals for the Third Circuit issued a binding decision interpreting this provision in Stoe v. Flaherty, 436 F.3d 209 (3d Cir. 2006). In Stoe, the Court of Appeals stated that upon a timely motion, a district court "must" abstain if the following requirements are met:

(1) the proceeding is based on a state law claim or cause of action;

(2) the claim or cause of action is "related to" a case under title 11, but does not "arise under" title 11 and does not "arise in" a case under title 11;

(3) federal courts would not have jurisdiction over the claim but for its relation to a bankruptcy case;

(4) an action "is commenced" in a state forum of appropriate jurisdiction; and

(5) the action can be "timely adjudicated" in a state forum of appropriate jurisdiction.

Id. at 213. The Court will consider these requirements seriatim. It is undisputed that Plaintiff has filed a "timely ...


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