Bondi v. Bank of America Corp. (In re Parlamat Secs. Lit.)

Summarized by George Klidonas , Latham & Watkins LLP
15 years 1 month ago

Citation:

No. 09-4302-cv (L) (2d Cir. Jan. 18, 2011)

Tag(s):

2nd Circuit

Ruling:

In deciding the issues of jurisdiction and abstention, the United States Court of Appeals for the Second Circuit held that the United States District Court for the Southern District of New York had jurisdiction and that the cases were properly removed under 28 U.S.C. § 1334(b). Alternatively, however, the Second Circuit vacated the district court’s holding on abstention for failure to use the proper standard in determining “timely adjudication” under § 1334(c)(2). On the jurisdictional issue, the Second Circuit rejected Bondi’s and PCFL’s (the plaintiffs) arguments that 11 U.S.C. § 304 proceedings are not “cases” within the meaning of the removal statute and that the state law claims were not “related to” the § 304 proceedings. The Second Circuit held that § 304 proceedings are “cases” within the context of the bankruptcy statute, and that § 101(42) defines § 304 as “a case” under the Bankruptcy Code. The Second Circuit explained that “related to” jurisdiction exists where the outcome of a case could have a “conceivable effect” on the estate. In the case at bar, if either plaintiff was victorious, the funds they recovered would have greatly benefitted the estates. The court did not draw a distinction between estates administered in foreign or domestic forums; the fact that a § 304 proceeding involves an estate located outside the United States did not abrogate the district court’s “related to” jurisdiction. On the abstention issue, the Second Circuit applied a de novo review standard and held the district court applied the incorrect standard for “timely adjudication.” The relevant factors in determining “timeliness” are: (1) the backlog of the state court’s calendar relative to the federal court’s calendar; (2) the complexity of the issues presented and respective expertise of each forum; (3) the status of the bankruptcy proceeding to which the state law claims are related; and (4) whether the state court proceeding would prolong the administration or liquidation of the estate. The first two factors require a comparison of the factual and procedural circumstances of both courts and the time-frame for each court to adjudicate the matter. When considering the complexity of the issues, the court most familiar with the record and issues is given deference, which facilitates more timely adjudication. In considering the third factor, courts should look to whether the litigants need the issues quickly resolved to expedite the bankruptcy case. The Second Circuit gave the example of a trustee or debtor in possession, who requires the prompt resolution of state law claims in order to determine the resources available to fund a chapter 11 plan. As for the final factor, if remand to state court would unduly prolong the administration of the estate, the Second Circuit explained that the matter cannot be timely adjudicated. The district court’s standard was improper because the coordination of the state law claims with the international bankruptcy and the securities action outweighed any interest in comity with Illinois courts. The Second Circuit opined that the only material question is whether remand will prolong the administration of the estate and not the § 304 proceeding. An example where remand would be improper is In re Worldcom, where the close connections between the defendants and the debtor and the complexity of the ligation would delay the pace of litigation dramatically and lead to unnecessary duplication. Finally, the Second Circuit held the burden is on the party opposing remand to show that these matters cannot be timely adjudicated in the state court, which is consistent with the presumption that state courts will operate efficiently and effectively.

Procedural context:

In Bondi’s action, the jurisdictional and abstention issues were decided by the Southern District of New York. In PCFL’s case, the same issues were decided by the Northern District of Illinois. The Southern District of New York and Northern District of Illinois both found that the federal courts had jurisdiction pursuant to § 1334(b), and that abstention was not mandatory. The courts reasoned that Bondi and PCFL failed to demonstrate that their claims could be timely adjudicated in Illinois state court under § 1334(c)(2). Following these decisions, the two cases were consolidated into the Southern District of New York. Bondi and PCFL appealed to the Second Circuit whereby the following issues were decided: (1) whether the district court erred in exercising jurisdiction over the state law claims pursuant to 28 U.S.C. § 1334(b); and (2) whether the district court properly declined to abstain from exercising that jurisdiction under 28 U.S.C. § 1334(c)(2).

Facts:

Parmalat Finanziaria and numerous of its subsidiaries filed for bankruptcy in Italy. As part of this bankruptcy proceeding, Italy’s Minister of Finance appointed Dr. Enrico Bondi (“Bondi”) to serve in a position analogous to a United States Bankruptcy Trustee. Parmalat Capital Finance Limited (“PCFL”), a subsidiary of Parmalat, filed liquidation proceedings in the Cayman Islands. In 2004, PCFL and Bondi commenced 11 U.S.C. § 304 proceedings in the Southern District of New York (although § 304 was subsequently repealed, it remained in effect and applicable to this case). Bondi and PCFL later filed separate lawsuits in Illinois state court against defendants Grant Thornton International and Grant Thornton LLP (“Defendants”), wherein Bondi and PCFL asserted numerous Illinois state law causes of actions. The Defendants removed the case to the United States District Court for the District of Illinois on the basis of 28 U.S.C. §§ 1334(b) and 1452, arguing that the removal was proper because the Illinois state law case was “related to” the § 304 proceeding. Bondi and PCFL, in their separate actions, moved to remand the case to state court asserting that the court must abstain pursuant to 28 U.S.C. § 1334(c)(2).

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