When a debtor files a chapter 11 bankruptcy, the debtor–and other parties in litigation with the debtor–obtain a broad right to remove cases from the state court to the bankruptcy court. The bankruptcy removal statute, 28 U.S.C. § 1452, allows any party to remove any claim or cause of action in a civil action, so long as bankruptcy jurisdiction exists. By removing cases from state court forums, the estate often gains the opportunity to present cases in a single forum to a single judge.
Two exceptions exist to this broad removal power. A proceeding before US Tax Court or a civil action by a governmental unit to enforce such governmental unit’s police or regulatory power cannot be removed.
Despite the breadth of section 1452, sometimes other removal statutes may be used. For instance, perhaps a debtor will want to remove a case to federal court under section 1441, the general removal statute, which allows removal based upon diversity of citizenship, the presence of a federal question, and certain multiparty disputes. Can a debtor remove a case under section 1441 that would be prohibited from removal under section 1452?
The Southern District of Texas, finding this question was one of first impression in its court, answered with a yes: Debtors can remove cases under any applicable bankruptcy removal statute.
In In re Briseno, 17-70073, 2017 WL 1403143 (Bankr. S.D. Tex. Apr. 19, 2017), the State of Texas filed a deceptive trade practice cause of action (a “DTPA lawsuit”) against Adelina Briseno, claiming that she was deceiving citizens of Texas by taking funds paid for home construction without disclosing her inability to complete construction. The state sought monetary relief and injunctive relief to stop Briseno from these actions.
Briseno filed bankruptcy under chapter 11 and then removed the DTPA lawsuit to the bankruptcy court under section 1452. Later, she amended the removal petition to seek removal under section 1441. The state filed a motion to remand under section 1452 arguing that the DTPA lawsuit sought injunctive relief to enforce the state’s police and regulatory powers, and could not be removed. The Court agreed with the state, but looked at a case from another district, In re Methyl Tertiary Butyl Ether (“MTBE”) Prod. Liab. Litig., 522 F.Supp. 2d 557, 561 (S.D. N.Y. 2007), and stated it also had to consider the other grounds for removal under section 1441, which were federal question and diversity of citizenship.
The court found no federal question in the state’s request for injunctive relief because the state was not bringing the suit for its own financial interest or to challenge validity of any liens. Those two reasons, among others, could pose a federal question based on core bankruptcy jurisdiction. 28 U.S.C. § 157(b)(K) and (O). The court also found no diversity of citizenship and remanded the case.
Thus, when removing a case to bankruptcy court, if a challenge is expected under the bankruptcy removal statute, it may help to look for alternative grounds for removal. For more information regarding the statue, please contact our Dallas bankruptcy attorneys today.