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Lichtenfels v. Electro-Motive Diesel

February 22, 2010


The opinion of the court was delivered by: Judge Nora Barry Fischer


I. Introduction

This case is before the Court on Plaintiffs' Motion to Remand. (Docket No. 7). The case involves an asbestos exposure-related claim originally filed in the Court of Common Pleas of Westmoreland County, Pennsylvania. Raymond K. Lichtenfels and Karen I. Lichtenfels v. A.W. Chesterton Company, et al., Number 9725 of 2009. One of the named Defendants in the state proceeding, Electro-Motive Diesel, Inc. ("EMD" or "Defendant"), filed a Notice of Removal (Docket No. 1) of the Lichtenfels' ("Plaintiffs") claims in this Court. Defendant states that it is indemnified by General Motors Corporation ("GM"), which company is currently in bankruptcy proceedings before the United States Bankruptcy Court for the Southern District of New York. In re Motors Liquidation Company, et al., f/k/a General Motors Corp., et al., C.A. No. 09-50026. Defendant argues that pursuant to 28 U.S.C. §1452 and Rule 9027 of the Federal Rules of Bankruptcy Procedure, the Western District of Pennsylvania has proper jurisdiction over the Plaintiff's claim. In response, Plaintiffs filed a Motion to Remand (Docket No. 7) their claims to state court, citing 28 U.S.C. §1452, or alternatively requesting that the Court abstain from hearing the case pursuant to 28 U.S.C. §1334, as well as seeking attorney fees and costs.

For the reasons stated herein, the Court will GRANT Plaintiffs' Motion, in part, and DENY it, in part.

II. Factual Background

Plaintiff Raymond Lichtenfels was an employee of Pittsburgh & Lake Erie Railroad, and Buffalo & Pittsburgh Railroad, from 1965 through 2004. (Docket No. 1-3 at ¶18). During his period of employment, Mr. Lichtenfels worked as a machinist, and was allegedly exposed to asbestos products and residue. (Id. at ¶19). Mr. Lichtenfels now suffers from lung cancer, diagnosed on July 15, 2008. (Id. at ¶¶20-21). Plaintiffs filed their state court claims, seeking damages from his employers and other related companies for his exposure to the asbestos and asbestos-containing products that those companies allegedly distributed, supplied, manufactured, or otherwise used in the course of each defendant's respective business. (Id. at ¶¶22-26).

EMD is a corporation that was formed November 29, 2004, in anticipation of the purchase of assets from GM in 2005. (Docket No. 11 at 2). The assets purchased by EMD included those necessary to the manufacture of locomotives, engines, and other related parts. (Id.) A purchase agreement between EMD and GM stated that GM would assume liability for asbestos exposure-related claims for products manufactured by GM prior to 2005. (Id.). The available indemnity portion of EMD's purchase agreement with GM, as provided by Defendant, is as follows:

10.01 Indemnification by Sellers. From and after the Closing and subject to the provisions of this Article 10 (including the limitations set forth in Section 10.03*fn1 ), Sellers agree to pay and to indemnify fully, hold harmless and defend each Purchaser Indemnified Party from and against any and all Damages arising out of or relating to:

(c) any Excluded Liability or Canadian Excluded Liability. *** Excluded Claims

1. Any Claim or Liability arising from the exposure, or alleged exposure, to asbestos contained in products of the Business manufactured prior to the Closing.

(Docket No. 10-2 at 11-12). Following the acquisition by EMD in 2005, GM filed for Chapter 11 bankruptcy in June of 2009. (Docket No. 11 at 2). Actions filed against GM while it is in bankruptcy court are being stayed pursuant to 11 U.S.C. §362 of the Bankruptcy Code.(Id.)*fn2.

III. Procedural History

Plaintiffs filed their action in the Court of Common Pleas of Westmoreland County, Pennsylvania, on November 2, 2009. (Docket No. 1-3). Their Complaint named Defendant, EMD, among other defendants. (Id.).*fn3 As noted, Plaintiffs sought damages from the named Defendants for complications related to asbestos exposure, alleging in Counts I through VIII, liability due to strict product liability, negligence, the Federal Employee's Liability Act 45 U.S.C. §51 et seq.,*fn4 loss of consortium, and various other claims asserted against only defendant Metropolitan Life Insurance Company. (Docket No. 1-3 at ¶¶22-52).

Defendant EMD filed its Notice of Removal to the Western District of Pennsylvania on December 3, 2009. (Docket No. 1). Defendant then filed its Answer to Plaintiffs' Complaint on December 7, 2009. (Docket No. 5). Plaintiffs filed their Reply to Defendant's Answer and the instant Motion to Remand on December 16, 2009. (Docket Nos. 6-7). Defendant then filed a Response and Brief in Opposition on December 30, 2009 (Docket Nos. 10, 11). Plaintiffs sought leave of Court to file a Reply Brief (Docket No. 12), which was granted on January 5, 2010 (Docket No. 13), and filed same on January 15, 2010. (Docket No. 14).

As the parties have fully briefed the matter, it is now ripe for disposition.

IV. Discussion

The Court is faced with a series of questions to resolve in this matter. (1) Was the state court proceeding "related to" the GM bankruptcy, making removal proper under 28 U.S.C. §1452(a)? (2) If so, was the proceeding a "core" proceeding or was it a "non-core" proceeding, subject to mandatory abstention under 28 U.S.C §1334(c)(2)? (3) Is the case subject to permissive abstention under 28 U.S.C. §1334(c)(1)? (4) Is the case subject to equitable remand under 28 U.S.C. §1452(b)? And, finally, (5) is an award of attorney fees justified? The Court will address each issue, in turn.

A district court may exercise jurisdiction over all civil proceedings arising under title 11 of the Bankruptcy Code, or arising in or related to a case under title 11. 28 U.S.C. §1334(b). According to 28 U.S.C. §1452(a), a party may remove a claim that is "related to" a bankruptcy case to the federal district court presiding over the district in which a state court action has been commenced. A proceeding is considered to be "related to" a bankruptcy case for purposes of establishing jurisdiction if the "outcome of the proceeding could conceivably have any effect on the estate being administered in bankruptcy." Pacor v. Higgins, 743 F.2d 984, 994 (3d Cir. 1984), overruled on other grounds by Things Remembered, Inc. v. Petrarca 516 U.S. 124 (1995). However, "it is settled that the removal statutes are to be strictly construed against removal." Steel Valley Authority v. Union Switch and Signal Division, et al., 809 F. 2d 1006, 1010 (3d Cir. 1987).

When seeking removal, the removing party must declare whether the action is "core," or "non-core." FED. R. BANKR. P. 9027(a)(1). A core proceeding is either one that is specifically listed in 28 U.S.C. §157(b), one that invokes a substantive right provided by title 11 (i.e. "arises under" title 11), or one that could only arise in the context of a bankruptcy case (i.e. "arises in" a title 11 case). Halper v. Halper, 164 F.3d 830, 836 (3d Cir. 1999). All other proceedings that are "related to" a bankruptcy case are considered non-core. Id. at 837. Upon motion by a party, a district court is required to abstain from hearing proceedings that are non-core and are based solely on a state law claim or cause of action (i.e. "mandatory abstention"). 28 U.S.C. §1334(c)(2).

Under 28 U.S.C. §1334(c)(1), a district court may also abstain from hearing a core proceeding (except a case under chapter 15 of title 11), "in the interest of justice, or in the interest of comity with State courts or respect for State law" (i.e. "permissive abstention"). However, abstention is "an extraordinary and narrow exception,... justified only where resort to state proceedings clearly serves an important countervailing interest." In re Carriage House Condominiums, 415 B.R. 133, 143-44 (E.D.Pa. 2009), (citing United Servs. Auto. Ass'n v. Muir, 792 F. 2d 356, 360-61 (3d Cir. 1986)). And, "once a federal court is determined to properly have jurisdiction over a matter, it has a 'virtually unflagging obligation' to exercise the jurisdiction conferred upon it by the Constitution or Congress." Hohl v. Bastian, 279 B.R. 165, 171 (W.D.Pa. 2002) (citing Colorado River Water Conservation Dist. v. United States, 424 U.S. 800, 821 (1976)).

A removed proceeding may be remanded from a district court to a state court on any equitable ground (i.e. "equitable remand"). 28 U.S.C. §1452(b). The decision to remand or not remand is non-reviewable. Id., 28 U.S.C. §1334(d). "[A]ll doubts should be resolved in favor of remand." Steel Valley Authority, 809 F. 2d at 1010.

Finally, if a removed case is later remanded following a proper motion, the order to remand may include the just costs and actual expenses incurred as a result of the removal and motion to remand. 28 U.S.C. §1447(c).The discretion to award such costs rests solely with the district court, and there are no definitive criteria for making such a determination. Mints v. Educational Testing Service, 99 F. 3d 1253, 1259-60 (3d Cir. 1996).

1. Removal and "Related to" Jurisdiction

In Pacor v. Higgins, 743 F. 2d 984, 994 (3d Cir. 1984), the leading case in the Third Circuit on "related to" jurisdiction, the Court held that a civil proceeding is related to a bankruptcy case for purposes of establishing jurisdiction if the "outcome of that proceeding could conceivably have any effect on the estate being administered in bankruptcy." Common issues of fact between the proceeding and the bankruptcy case do not necessarily make a proceeding related to the bankruptcy case, and judicial economy cannot justify exercise of federal jurisdiction. Id. However, the proceeding does not have to involve the debtor in the bankruptcy to make it related to the bankruptcy. Halper v. Halper, 64 F. 3d 830, 837 (3d Cir. 1999). The term, "conceivable," in the Pacor test is a key component to making a determination about jurisdiction. Id. "Conceivable" does not simply mean that a proceeding will have a certain or likely impact upon a bankruptcy estate, but that "it is possible that a proceeding may impact the debtor's rights, liabilities, options, or freedom of action, or the handling and administration of the bankrupt estate." Id. (emphasis added).

In the current case, Defendant EMD argues that although GM is not a named party in Plaintiffs' complaint, "related to" jurisdiction exists because Defendant's clearly defined indemnity agreement with GM means that a judgment against EMD is essentially a judgment against GM's bankruptcy estate. (Docket No. 1 at 2). However, the fact that a defendant is seeking indemnity from a bankruptcy estate does not necessarily make a proceeding "related to" a bankruptcy. See Pacor, 743 F.2d 984. The potential significance of the indemnification to the bankruptcy's administration and the form of the indemnification agreement, if any exists, are important issues to resolve when determining if a proceeding will have a conceivable impact upon a bankruptcy estate.

In Pacor, the plaintiffs filed suit against Pacor, Inc., a chemicals distribution company, for asbestos related illness. Pacor, 743 F. 2d at 987. Pacor in turn impleaded its former asbestos supplier, Johns-Mansville Corporation, for indemnification. Id. Johns-Mansville subsequently filed for Chapter 11 bankruptcy, and Pacor sought to remove the proceeding against it to federal court under the court's "related to" jurisdiction. Id. The Court of Appeals for the Third Circuit held that such a removal would be improper, because the lack of a clear, explicit indemnification agreement meant that there would need to be intervening proceedings on the indemnification issue before any effect on the estate in bankruptcy. Id. at 995. The plaintiffs in Pacor never filed suit against Johns-Mansville, and if those plaintiffs won their case against Pacor, there would be no automatic liability on the part of Johns-Mansville. Id. Therefore, there was no "related to" jurisdiction in Pacor.

In a similar case, Hohl v. Bastian, 279 B.R. 165 (W.D. Pa. 2002), the plaintiff brought a claim against a former employer for breach of contract. Id. at 168. The employer subsequently filed for bankruptcy. The plaintiff also sued an executive working for his former employer in a separate action. Id. The executive was indemnified by the former employer against such suits by an explicit provision in the former employer's bylaws. Id. The district court determined that there was "related to" jurisdiction, citing Pacor as the basis for its reasoning. Id. at 172. Based upon the language of the indemnification agreement, the district court recognized that there was an "apparently unconditional duty to indemnify... [and] a judgment in favor of Plaintiff... would automatically result in indemnification liability." Id. at 174. This certainly would affect the administration of the bankruptcy estate, as liabilities owed to other creditors would be diverted to meet a new indemnity obligation. Id. In pertinent part, the indemnification agreement in Hohl provided:

The corporation shall indemnify any person who was or is a party or is threatened to be made a party... against expenses, including judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation.

Bastian, 279 B.R. at 174-75. The district court appeared unconcerned with the conditions in this indemnity agreement, because they did not pose a sufficient barrier to the likelihood of an impact upon the bankruptcy estate. Id. at 175. However, the court did suggest that some conditions -- such as limited duration of the agreement, a requirement of prompt notification to the indemnitor to invoke the agreement's provisions, or a necessity for specific request for defense and payment to the indemnitor -- could ...

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