Summary:
While Ms. Sparrow’s civil action for equitable distribution was pending in state court, she file a voluntary Chapter 11 bankruptcy. The primary assets of her bankruptcy estate consist of a fee simple interest in a house and lot located in Durham, North Carolina and a one-half undivided tenant-in-common interest in five tracts of real property located in Granville County, North Carolina, the stated intention being that the plan would liquidate these assets and pay creditors, potentially in full. Ms. Sparrow first commenced an Adversary Proceeding against Mr. Drew, her ex-husband, seeking to sell the Granville Property pursuant to 11 U.S.C. § 363(h) and also an Adversary Proceeding to remove the equitable distribution action from state court pursuant to 28 U.S.C. §§157, 1334, and 1452. Mr. Drew moved the bankruptcy court to abstain from hearing the equitable distribution pursuant to 28 U.S.C. § 1334(c).
As this matter involved a core matter, mandatory abstention under § 1334(c)(2) is not applicable and instead the the court turned to examine whether voluntary abstention is appropriate, considering twelve factors:
(1) the effect or lack thereof on the efficient administration of the estate if a Court recommends abstention;
(2) the extent to which state law issues predominate over bankruptcy issues;
(3) the difficulty or unsettled nature of the applicable law;
(4) the presence of a related proceeding commenced in state court or other non-bankruptcy court;
(5) the jurisdictional basis, if any, other than 28 U.S.C. § 1334;
(6) the degree of relatedness or remoteness of the proceeding to the main bankruptcy case;
(7) the substance rather than the form of the an asserted “core” proceeding;
(8) the feasibility of severing state law claims from core bankruptcy matters to allow judgments to be entered in state court with enforcement left to the bankruptcy court;
(9) the burden of the bankruptcy court’s docket;
(10) the likelihood that the commencement of the proceeding in bankruptcy court involves forum shopping by one of the parties;
(11) the existence of a right to a jury trial; and
(12) the presence in the proceeding of non-debtor parties.
Mitchell v. Keessee (In re Mitchell), No. 11-08880-8-ATS, 2013 Bankr. LEXIS 4479 (Bankr. E.D.N.C. Oct. 25, 2013) (quoting Gen. Wood Preserving Co. v. Wind Gap Farms (In re Gen. Wood Preserving Co.), L-02-00146-8-AP, 2002 Bankr. LEXIS 2131 (Bankr. E.D.N.C. Dec. 17, 2002)).
Finding that Ms. Sparrow would not be able to propose a confirmable plan until ownership of the Granville properties were determined and lacking confidence that the state court would timely resolve that matter, the bankruptcy court held that hearing the equitable distribution claim itself would neither be a burden nor prejudicial and accordingly, declined to abstain from hearing the matter.
Commentary:
This matter settled three weeks after the bankruptcy court determined to hear the equitable distribution itself (with the Granville properties being sold for $2.5 million). As such, it would seem that this decision was both justified and foresighted. It will be interesting to see if other equitable distribution case migrate to Eastern District of North Carolina bankruptcy court, particularly those without nearly the same amount of assets in dispute.
For a copy of the opinion, please see:
Sparrow- Voluntary Abstention in Equitable Distribution Matter Declined
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