IN RE: DRO 15R LLC (2022)

ORDER DENYING DEFENDANT AJAR HOLDINGS, LLC'S MOTION FOR ABSTENTION AND REMAND

This matter came before the Court for hearing on April 13, 2022 at 1:30 p.m. upon the Motion for Abstention and Remand (ECF #7) (the “Motion”) filed on March 29, 2022 by Defendant AJAR Holdings, LLC (“AJAR”). This adversary proceeding was removed from the state court on March 19, 2022 by the Debtor. The state court proceeding DRO 15R, LLC et al. v. AJAR Holdings, LLC et al., Case No. 2021-014716-CA-01 (the “State Court Case”) was pending before the Hon. Carlos Guzman in the Circuit Court of the Eleventh Judicial Circuit in and for Miami-Dade County, Florida.

AJAR argues that (a) the mandatory abstention provisions of 28 U.S.C. § 1334 requires the Court to abstain from hearing this proceeding or (b) that the Court should abstain under the permissive abstention provisions under § 1334 or (c) remand the proceedings on equitable grounds under 28 U.S.C. § 1452(b). For the reasons more fully outlined, the Court finds that this proceeding is not subject to mandatory abstention under § 1334(c)(2) because this proceeding is a core proceeding and because this proceeding cannot be timely adjudicated in state court. Furthermore, the Court declines to permissively abstain or equitably remand this proceeding.

Under § 1334(c)(2) the Court shall abstain from hearing a state law claim if the following requirements are met: (1) the claim has no independent basis for federal jurisdiction, other than § 1334(b); (2) the claim is a non-core proceeding. That is, it is related to a case under title 11 but does not arise under or arise in a case under title 11; (3) an action has been commenced in state court; and (4) the action could be adjudicated timely in state court. 28 U.S.C. § 1334(c)(2). Under the permissive abstention provisions of § 1334 “courts have broad discretion to abstain from hearing state law claims whenever appropriate in the interest of justice, or in the interest of comity with state courts or respect for state law.” 28 U.S.C. § 1334(c)(1); In re United Container LLC, 284 B.R. 162, 176 (Bankr. S.D. Fla. 2002). Similarly, under 28 U.S.C. § 1452(b), the Court may remand a state law claim or cause of action on “any equitable ground.” The permissive abstention and equitable remand doctrines are similar and therefore the same factors for relief are considered for both. United Container, 284 B.R. 162 at 176.

Because the determination of property of the estate is a core proceeding, regardless of whether the proceeding was pending prior to a bankruptcy case being filed, mandatory abstention is not appropriate. See In re BankUnited Fin. Corp., 462 B.R. 885, 893-94 (Bankr. S.D. Fla. 2011) (“What is or is not property of a bankruptcy estate is an issue that stems from the bankruptcy itself ․ one that can only arise in a bankruptcy proceeding ․ since the concept of what is property of a bankruptcy estate does not exist outside of a bankruptcy case.”). Further, the fact that this litigation commenced outside of, and preceded, the bankruptcy does not change the core nature of the dispute. “[The] fact that the determination of whether the [disputed property is] property of the estate is determined under non-bankruptcy law and is an issue that could be resolved in a non-bankruptcy forum is irrelevant since the issue of what is property of the estate is virtually always a matter of state law or other non-bankruptcy law. Butner v. U.S., 440 U.S. 48, 99, 99 S.Ct. 914, 59 L.Ed.2d 136 (1979). And, in the absence of a bankruptcy case, unresolved disputes over claims will always be resolved outside of bankruptcy court.” BankUnited, 462 B.R. 885 at 894.

Timely adjudication is an additional consideration with respect to both mandatory and permissive abstention. In this case, the removed State Court Case had been delayed by what AJAR describes as dilatory tactics by the Debtor and other parties, so much so that apparently the state court judge had under advisement a possible indirect criminal contempt. There were other pending discovery sanctions under consideration by the state court judge at the time this case was removed. AJAR argues that Judge Guzman was about to rule on a motion for default final judgment on AJAR's counterclaim to quiet title based on the Debtor's failure to file an answer despite a court order to do so. Consequently, AJAR argues, the issues in the State Court Case will be adjudicated very timely. However, as the Court advised the parties at the hearing, the Court will not permit the issue of what is property of the estate to be determined on a procedural technicality no matter how serious the technicality.¹

Conversely, this Court can adjudicate this matter expeditiously. The Court has time, and, as the Court warned the parties at the hearing, the Court does not entertain delay or non-compliance. The Court strictly enforces Rules 26 and 37 of the Federal Rules of Civil Procedure ² including the meet and confer and sanctions provisions. Thus any attempts to delay trial through discovery shenanigans will be dealt with immediately. Moreover, it is in all of the parties’ best interests to get this dispute resolved expeditiously. Consequently, the Court expects that the parties will focus on getting to the merits of the underlying dispute.

As counsel for AJAR pointed out, this Court, by retaining this removed action, must deal with all pending matters in the State Court Case. The Court will abate all pending sanctions requests; the state court is best able to rule on the appropriate sanctions arising from conduct that occurred before that court. After resolving the ownership issue, the Court will remand the remaining sanctions issues to the state court insofar as those sanctions do not impact the ruling on the ownership issue of the property.

The Court will ask the parties to submit a list of all pending matters other than the sanctions motions for the Court to review and rule on. As counsel for AJAR pointed out, there are non-debtor defendants named in AJAR's counterclaim who are not listed as defendants in the Debtor's Adversary Proceeding Case No. 22-01130-LMI, in which adversary proceeding the Debtor seeks the same relief AJAR seeks in the counterclaim-determination of who owns the property (the “Title Adversary”). Therefore, rather than abate this entire removed action, the Court will consolidate for the trial and all pre-trial matters this removed case with the Title Adversary. Accordingly, it is ORDERED as follows:

1. The Motion is DENIED.

2. The parties shall submit a list of all pending matters that were pending in the State Court Case at the time of removal, other than the sanctions matters, within fourteen days from the entry of this order.

ORDERED in the Southern District of Florida on April 15, 2022.

FOOTNOTES

1.   The Court notes the Debtor's state court counsel's explanation why no response was filed. While that position may or may not have merit, a party that fails to abide a court order assumes the risks of non-compliance.

2.   As incorporated by Fed. R. Bankr. P. 7026 and Fed. R. Bankr. P. 7037.

Laurel M. Isicoff, Chief United States Bankruptcy Judge