Summary:
Plaintiffs had brought suit against Howard A. Jacobson (“Jacobson”), Envision Sales & Marketing Group LLC (“Envision”), CILPS Acquisition LLC (“CILPS”), and the debtor (collectively “business court defendants”) and it was designated a mandatory complex business case and assigned to the North Carolina Business Court pursuant to N.C. Gen. Stat. § 7A–45.4(b). The dispute arose out of the plaintiffs’ investments in high–yield and fixed–return real estate investment groups that were allegedly established and utilized by Jacobson as vehicles to facilitate an elaborate Ponzi scheme.
28 U.S.C. § 1334 sets forth the situations where a bankruptcy court must abstain and when it may abstain in favor of state court adjudication of a particular issue or action. Abstention is mandatory, under 28 U.S.C. 1334(c)(2), when the party seeking abstention proves the all six of the following factors:
(1) a timely motion to abstain is filed;
(2) the removed proceeding is based on a state law claim or state law cause of action;
(3) the removed proceeding is “related to” a bankruptcy case, but does not “arise under” Title 11 or “arise in” a case under Title 11;
(4) the action could not have been commenced in a United States court absent jurisdiction under 28 U.S.C. § 1334;
(5) the action was pending when the bankruptcy was filed; and
(6) the action can be timely adjudicated in the state forum of appropriate jurisdiction.
See L. Ardan Dev. Corp. v. Touhey (In re Newell), 424 B.R. 730, 733–34 (Bankr. E.D.N.C. 2010).
The first five factors were conceded by the Debtor, who contended, however, that adjudication by the bankruptcy court this action would be more expeditious and beneficial to the success of the reorganization efforts, given the fact that it involves the resolution of claims against the debtor’s bankruptcy estate. In evaluating the potential timeliness of the determination by the North Carolina Business Court, the bankruptcy court looked to the following seven factors:
(1) the backlog of the state court and federal court calendars;
(2) status of the proceeding in state court prior to being removed;
(3) status of the proceeding in the bankruptcy court;
(4) the complexity of the issues to be resolved;
(5) whether the parties consent to the bankruptcy court entering judgment in the non-core case;
(6) whether a jury demand has been made; and
(7) whether the underlying bankruptcy case is a reorganization or a liquidation case.
Here the bankruptcy court held that the plaintiffs established that the matter could be timely decided by the North Carolina Business Court, particularly as the bankruptcy court was “virtually unaware of the intricate facts and issues accompanying this complex adversary proceeding which the business court has familiarized itself with since the business court action was designated a mandatory complex business case....”
Commentary:
For a copy of the opinion, please see:
Bolton v. Jacobson (In re Province Grande Olde Liberty)- Mandatory Abstention Factors.pdf
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