Case: 14-30857 Document: 00513069338 Page: 1 Date Filed: 06/05/2015
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
FILED
June 5, 2015
No. 14-30857
Lyle W. Cayce
Clerk
FIREFIGHTERS’ RETIREMENT SYSTEM; MUNICIPAL EMPLOYEES
RETIREMENT SYSTEM OF LOUISIANA; NEW ORLEANS
FIREFIGHTERS’ PENSION & RELIEF FUND,
Plaintiffs - Appellees
v.
CITCO GROUP LIMITED; CITCO FUND SERVICES (CAYMAN ISLANDS),
LIMITED; CITCO BANKING CORPORATION, N.V.; CITCO FUND
SERVICES (EUROPE), BV; CITCO (CANADA), INCORPORATED; CITCO
TECHNOLOGY MANAGEMENT, INCORPORATED; CITCO BANK
NEDERLAND, N.V. DUBLIN BRANCH; CITCO GLOBAL CUSTODY, N.V.;
CITCO FUND SERVICES (BERMUDA), LIMITED; FLETCHER ASSET
MANAGEMENT, INCORPORATED; ALPHONSE FLETCHER, JR., also
known as Buddy; DENIS KIELY; DUHALLOW FINANCIAL SERVICES,
L.L.C.; PETER ZAYFERT; CONSULTING SERVICES GROUP, L.L.C.; JOE
MEALS; SKADDEN, ARPS, SLATE, MEAGHER & FLOM, L.L.P.; GRANT
THORNTON INTERNATIONAL, LIMITED,
Defendants - Appellants
Appeal from the United States District Court
for the Middle District of Louisiana
Before STEWART, Chief Judge, HAYNES, Circuit Judge, and BROWN,
District Judge. *
HAYNES, Circuit Judge:
* District Judge of the Eastern District of Louisiana, sitting by designation.
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Defendants-Appellants appeal the district court’s order of remand on the
basis that the district court lacked the discretion to abstain from hearing the
case. Because we conclude that the district court could not permissively
abstain and equitably remand under 28 U.S.C. §§ 1334(c)(1) and 1452(b)
without considering the Chapter 15 bankruptcies, we REVERSE the district
court’s decision to remand the case to state court and REMAND the case to the
district court for consideration under its bankruptcy jurisdiction.
I. Background
Plaintiffs-Appellees are three Louisiana resident pension funds.
Plaintiffs invested in a leveraged feeder fund located in the Cayman Islands
(the “Leveraged Fund”). The Leveraged Fund was part of a larger fund, the
Fletcher Income Arbitrage Fund, Ltd. (the “Arbitrage Fund”). In June 2012,
the master fund entity, of which the Leveraged Fund and the Arbitrage Fund
were a part, filed a voluntary petition for bankruptcy under Chapter 11 in the
Bankruptcy Court for the Southern District of New York.
Plaintiffs sued Defendants, various organizations and individuals
involved in the transaction, in Louisiana state court in March 2013. Plaintiffs
accused Defendants of violating various Louisiana securities laws, among
other state law claims. Plaintiffs later amended the petition to add Skadden,
Arps, Slate, Meagher & Flom, L.L.P. (“Skadden”) as a defendant. In June
2013, Defendants removed the case to federal district court based on the
related Chapter 11 bankruptcy. Additionally, Defendants argued that the
federal court had diversity jurisdiction, as Skadden was improperly joined. 1
1 Although no Defendant is a Louisiana entity or person, the addition of Skadden
defeated diversity jurisdiction because Skadden, a partnership whose members include U.S.
citizens domiciled abroad, is stateless for the purposes of diversity jurisdiction. Coury v. Prot,
85 F.3d 244, 249–50 (5th Cir. 1996) (U.S. citizens domiciled abroad are not diverse); Harvey
v. Grey Wolf Drilling Co., 542 F.3d 1077, 1080 (5th Cir. 2008) (citizenship of partnership
determined by citizenship of members).
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After removal, Skadden moved to dismiss the case for lack of personal
jurisdiction. Plaintiffs moved to remand in July 2013, arguing that the district
court lacked subject matter jurisdiction under either bankruptcy or diversity
theories. In September 2013, the district court informed the parties that it
would address questions regarding subject matter jurisdiction before
examining personal jurisdiction, citing Ruhrgas AG v. Marathon Oil Co., 526
U.S. 574 (1999).
In January 2014, the Leveraged Fund and the Arbitrage Fund, through
Cayman liquidators, filed voluntary petitions under Chapter 15 in the S.D.N.Y.
Bankruptcy Court. See In re FIA Leveraged Fund, No. 14-10093 (Bankr.
S.D.N.Y. Feb. 27, 2014) (order recognizing foreign main proceeding); In re
Fletcher Income Arbitrage Fund Ltd., No. 14-10094 (Bankr. S.D.N.Y. Feb. 27,
2014) (order recognizing foreign main proceeding). Defendants notified the
district court of these bankruptcies in a supplemental memorandum in further
support of their motion to dismiss and their opposition to Plaintiffs’ motion to
remand.
In June 2014, the magistrate judge issued a report recommending that
the district court grant the motion to remand. The report found that the
district court had subject matter jurisdiction under 28 U.S.C. § 1334(b) because
the case was related to the Chapter 11 filing. The report considered and
rejected Plaintiffs’ argument that the district court must abstain under
§ 1334(c)(2). Though it found that mandatory abstention did not apply, the
report recommended that the district court permissively abstain from
exercising that jurisdiction and equitably remand under 28 U.S.C.
§§ 1334(c)(1) and 1452(b). The report did not address the Chapter 15
bankruptcies as part of this analysis, though it noted the existence of the
bankruptcies in a footnote.
Over Defendants’ objection, the district court adopted the report and
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recommendation. The district court stated that it would remand the case
“pursuant to 28 U.S.C. § 1334(c)(1) and 28 U.S.C. § 1452(b).” The district court
did not address diversity jurisdiction or the Chapter 15 bankruptcies in the
order. Defendants filed an emergency motion to stay the remand pending Fifth
Circuit review, but the district court denied the motion.
Defendants timely appealed. Defendants argue that the district court
erred by permissively abstaining and equitably remanding the case (1) without
considering diversity jurisdiction and (2) in spite of the Chapter 15
bankruptcies. As we conclude that the district court erred in remanding the
case in light of the Chapter 15 bankruptcies, we do not address Defendants’
first argument regarding diversity jurisdiction.
II. Appellate Jurisdiction
We must first determine whether we have appellate jurisdiction. 2 See
Bissonnet Invs. LLC v. Quinlan (In re Bissonnet Invs. LLC), 320 F.3d 520, 522
(5th Cir. 2003). This is an appeal from the district court’s order remanding the
case to state court. Ordinarily, we cannot review orders to remand based on
§§ 1334 or 1452. See § 1334(d) (“Any decision to abstain or not to abstain made
under subsection (c) . . . is not reviewable by appeal or otherwise by the court
of appeals . . . .”); § 1452(b) (“An order entered under this subsection remanding
a claim or cause of action, or a decision to not remand, is not reviewable by
appeal or otherwise by the court of appeals . . . .”). We have held that a remand
order is unreviewable even if the order “rests on a misinterpretation of the
remand statute,” In re Wilson Indus., 886 F.2d 93, 95 (5th Cir. 1989), or if the
district court’s reasons for the order are incorrect, Sykes v. Tx. Air Corp., 834
2 Plaintiffs moved to dismiss this appeal for lack of appellate jurisdiction. The motions
panel denied the motion. The motions panel’s denial of the motion to dismiss the appeal does
not bind the oral argument panel. See Newby v. Enron Corp., 443 F.3d 416, 419 (5th Cir.
2006) (citing In re Grand Jury Subpoena, 190 F.3d 375, 378 n.6 (5th Cir. 1999)).
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F.2d 488, 492–93 (5th Cir. 1987) (noting an “absolute bar” against reviewing
district court’s decision to remand under § 1452, whether the reasons are
equitable or based on a lack of bankruptcy jurisdiction).
However, there are limited circumstances under which we may review a
remand order. See In re Shell Oil Co., 932 F.2d 1523, 1528 (5th Cir. 1991)
(“[W]here an exception to non-reviewability exists, an appellate court has
jurisdiction to review the remand order . . . .” (quotation marks and citation
omitted)). The Supreme Court has held that provisions barring review do not
apply if the district court exceeds its statutorily-defined authority to remand.
See, e.g., Thermtron Prods., Inc. v. Hermansdorfer, 423 U.S. 336, 351 (1976)
(holding that the district judge, who remanded a properly removed case where
there was diversity jurisdiction, exceeded statutory authority when he
remanded that case based on efficiency). 3 In Quackenbush v. Allstate
Insurance Company, the Supreme Court recognized a limited class of
situations in which remand orders under the general removal statute, 28
U.S.C. § 1447, are reviewable on appeal. 517 U.S. 706, 711–12 (1996); see also
Schexnayder v. Entergy La., Inc., 394 F.3d 280, 283 (5th Cir. 2004). Like the
provisions at issue in this case, § 1447(d) provides that “[a]n order remanding
a case to the State court from which it was removed is not reviewable on appeal
or otherwise . . . .” Though § 1447(d) does not explicitly provide an exception,
the Supreme Court reasoned that “‘§ 1447(d) must be read in pari materia with
§ 1447(c), so that only remands based on grounds specified in § 1447(c)’”—lack
of subject matter jurisdiction or procedural defects in removal—“‘are immune
from review under § 1447(d).’” Quackenbush, 517 U.S. at 711–12 (quoting
3 The Supreme Court overruled Thermtron only to the extent Thermtron stands for
the proposition that an order of remand is not a final order under 28 U.S.C. § 1291. See
Quackenbush v. Allstate Ins. Co., 517 U.S. 706, 714–15 (1996).
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Things Remembered, Inc. v. Petrarca, 516 U.S. 124, 127 (1995)). Thus, a
remand under § 1447 is reviewable if the district court remanded for a reason
other than those listed in § 1447(c). Id.; Schexnayder, 394 F.3d at 283. If the
statutory bars to review do not apply, a remand order is a final order for the
purposes of 28 U.S.C. § 1291. See Quackenbush, 517 U.S. at 713.
Though § 1447(d) is not at issue here, 4 the reasoning in Quackenbush is
applicable in this case as well. The district court permissively abstained under
§ 1334(c)(1) and equitably remanded pursuant to § 1452(b). The district court
did not address the related Chapter 15 bankruptcies. Courts may permissively
abstain from certain bankruptcy cases “[e]xcept with respect to a case under
chapter 15.” 28 U.S.C. § 1334(c)(1) (emphasis added). Defendants base their
challenge to the district court’s order on the argument that § 1452 does not
apply in this case, rather than on the court’s reasons for remand. We conclude
that Defendants’ challenge to the remand order thus falls within an exception
to nonreviewability. See Schexnayder, 394 F.3d at 283 (the Fifth Circuit will
review a case if based on a ground for remand not contemplated by remand
statute); Wilson Indus., 886 F.2d at 95 (holding that an appellate court can
review a district court’s decision to remand when that decision rests “upon a
ground not authorized by statute”). Accordingly, we have jurisdiction to review
this issue on appeal.
4 In Things Remembered, the Supreme Court held that § 1447(d) may bar review of
remands in cases where removal was based on § 1452. 516 U.S. at 129 (“If an order remands
a bankruptcy case to state court because of a timely raised defect in removal procedure or
lack of subject-matter jurisdiction, then a court of appeals lacks jurisdiction to review that
order under § 1447(d), regardless of whether the case was removed under . . . § 1452(a).”).
The remand in this case was not based on a lack of subject matter jurisdiction or a defect in
removal procedure, but rather permissive abstention based upon equity. Thus, § 1447(d)
does not bar review here. See Quackenbush, 517 U.S. at 711–12; see also In re Campos, 234
F.3d 705, 2000 WL 1598002, at *2 n.5 (5th Cir. 2000) (unpublished) (“Since this remand order
was premised on the bankruptcy court’s ‘equitable’ powers, § 1447(d) does not forbid appellate
review.”).
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III. Discussion
Turning to the merits of the appeal, Defendants argue that the district
court exceeded its statutory authority by permissively abstaining and
equitably remanding this lawsuit even though it relates to Chapter 15
bankruptcy cases. 5 The district court provided two statutory bases for its
decision to remand, §§ 1334(c)(1) and 1452(b). Section 1334(c)(1) provides:
Except with respect to a case under chapter 15 of title 11, nothing
in this section prevents a district court in the interest of justice, or
in the interest of comity with State courts or respect for State law,
from abstaining from hearing a particular proceeding arising
under title 11 or arising in or related to a case under title 11.
§ 1334(c)(1) (emphasis added).
We have not previously addressed the extent to which this provision bars
permissive abstention in Chapter 15 bankruptcy cases. There are two possible
interpretations of the subsection. First, the phrase “[e]xcept with respect to a
case under chapter 15 of title 11” could mean that § 1334(c)(1) only excepts the
Chapter 15 bankruptcy itself. See, e.g., Abrams v. Gen. Nutrition Cos., 2006
WL 2739642, at *7 (D.N.J. Sept. 25, 2006) (unpublished) (adopting this
interpretation). Second, the phrase could mean that both the Chapter 15 case
itself and cases “arising in or related to” Chapter 15 cases are excluded. See,
e.g., British Am. Ins. Co. v. Fullerton (In re British Am. Ins. Co.), 488 B.R. 205,
5 In their appellate brief, Plaintiffs do not challenge Defendants’ claim that the
Chapter 15 bankruptcies are related to this case, and we conclude that the two are related.
In concluding that the Chapter 11 bankruptcy was related to this case, the magistrate’s
report emphasized Plaintiffs’ allegations that the Chapter 11 debtor was an alter ego of
several defendants in this case and the Leveraged Fund and the Arbitrage fund, both of
which are now debtors in the Chapter 15 bankruptcies. Moreover, Plaintiffs in this case seek
the return of their investment loss suffered by purchasing shares in the Leveraged Fund,
which they allege was part of the Arbitrage Fund. Thus, a recovery in this case could affect
the Chapter 15 debtors’ liabilities. This is sufficient to establish “related to” jurisdiction. See
TXNB Internal Case v. GPR Holdings, L.L.C. (In re TXNB Internal Case), 483 F.3d 292, 298
(5th Cir. 2007).
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238–39 (Bankr. S.D. Fla. 2013) (adopting the latter interpretation); Fairfield
Sentry Ltd. v. Amsterdam (In re Fairfield Sentry Ltd.), 452 B.R. 64, 83 (Bankr.
S.D.N.Y.), rev’d on other grounds, 458 B.R. 665 (S.D.N.Y. 2011) (same).
We hold that the latter interpretation is more consistent with the plain
language and purpose of the statute. If one reads the rest of the subsection
after the initial clause, the subsection clearly distinguishes between a “case”
and a “proceeding.” The “case” arises under title 11; the statute permits a court
to abstain from a “particular proceeding” that arises under title 11 or arises in
or relates to the “case.” See § 1334(c)(1). We understand the word “case” to
mean the same thing in the initial clause that it does in the rest of the
subsection. See Sullivan v. Stroop, 496 U.S. 478, 484 (1990) (“[I]dentical words
used in different parts of the same act are intended to have the same meaning.”
(citation and quotation marks omitted)). Reading the initial clause in context,
the subsection indicates that a court may abstain from “a particular proceeding
arising under title 11 or arising in or related to a case under title 11” but not
from a proceeding “with respect to a case under Chapter 15 of title 11.”
§ 1334(c)(1).
The district court also relied on § 1452 to equitably remand. Though
§ 1452 does not explicitly exclude Chapter 15 cases, several courts have held
that § 1334(c) should be read in pari materia with § 1452(b). See, e.g., Lazar
v. California (In re Lazar), 237 F.3d 967, 981 (9th Cir. 2001) (quoting Sec.
Farms v. Int’l Bhd. of Teamsters, 124 F.3d 999, 1010 (9th Cir. 1997)); see also
Erlenbaugh v. United States, 409 U.S. 239, 243 (1972) (under rule of in pari
materia, statutes that pertain to the same subject should be construed “as if
they were one law” (quoting United States v. Freeman, 44 U.S. 556, 564 (1845)).
Lending support to the view that the provisions should be read in pari materia,
§ 1452 explicitly references § 1334 to define jurisdiction over bankruptcy cases.
See § 1452(a) (“A party may remove any claim or cause of action in a civil
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action . . . to the district court for the district where such civil action is pending,
if such district court has jurisdiction of such claim or cause of action under
section 1334 of this title.” (emphasis added)); see also United States v.
Rodriguez, 60 F.3d 193, 196 (5th Cir. 1995) (observing that parties’ position
that two provisions should be interpreted in pari materia was supported by the
Federal Sentencing Guidelines’ explicit reference to a Federal Rule of Criminal
Procedure). Reading §§ 1334(c)(1) and 1452(b) together, then, the prohibition
against abstention from proceedings related to Chapter 15 cases also applies
to bar the equitable remand of those proceedings under § 1452.
In their brief, 6 Plaintiffs do not challenge Defendants’ argument that the
court cannot permissively abstain from cases related to Chapter 15
bankruptcies. Rather, Plaintiffs’ sole argument in their brief is that removal
is judged at the time of removal, and the Chapter 15 bankruptcies were filed
later. See Grupo Dataflux v. Atlas Global Grp., L.P., 541 U.S. 567, 571 (2004);
In re Deepwater Horizon, 745 F.3d 157, 162–63 (5th Cir.) (“The defendants bear
the burden of establishing the basis for removal, and operative facts and
pleadings are evaluated at the time of removal.”), cert. denied sub nom., 135 S.
Ct. 401 (2014).
Here, however, the propriety of removal was not in doubt: removal was
6 At oral argument, Plaintiffs raised several theories not addressed in any way in
their brief, including their arguments that the confirmation of the plan in the Chapter 11
proceeding gave Plaintiffs the right to bring this case in state court and that Chapter 15 only
applies to claims by a foreign representative. We decline to address matters raised for the
first time in oral argument. See Herrmann Holdings Ltd. v. Lucent Techs. Inc., 302 F.3d 552,
562 n.2 (5th Cir. 2002). In any event, we conclude that these arguments are unavailing as
they do not alter the fact that the proceeding at issue “relates to” the Chapter 15
bankruptcies, even if the parties in this proceeding could not bring the Chapter 15 case
themselves. See In re Prescription Home Health Care, Inc., 316 F.3d 542, 547 (5th Cir. 2002)
(“It is well-established that, to be ‘related to’ a bankruptcy, it is not necessary for the
proceeding to be against the debtor or the debtor’s property.”). Additionally, the confirmation
of the Chapter 11 plan does not alter the potential liabilities of Leveraged and Arbitrage in
the Chapter 15 proceedings.
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proper based on the Chapter 11 proceedings, such that the district court had
subject matter jurisdiction at the time of removal. The issue in our case is the
propriety of remand. “[T]he ability of a party to remove a case and the ability
of a court to remand a case that has been properly removed by a party are
distinct concepts not necessarily subject to the same rules.” Buchner v.
F.D.I.C., 981 F.2d 816, 818 (5th Cir. 1993). “Once the district court has
assumed jurisdiction over a properly removed case . . . [t]he district court’s
authority to remand the case to state court depends on the nature of the district
court’s jurisdiction over the claims that comprise the case at the time of the
remand.” Cuevas v. BAC Home Loans Servicing, LP, 648 F.3d 242, 248 (5th
Cir. 2011) (emphasis added); Adair v. Lease Partners, Inc., 587 F.3d 238, 240
(5th Cir. 2009). 7 Thus, the propriety of the district court’s remand order is
judged at the time of that order, not the time of the original removal.
We hold that a district court cannot permissively abstain from exercising
jurisdiction in proceedings related to Chapter 15 cases. Accordingly, we
conclude that the district court erred by permissively abstaining and equitably
remanding the case in the face of the Chapter 15 bankruptcies. Because we
conclude that the district court’s remand was in error on this basis, we do not
reach Defendants’ arguments regarding possible diversity jurisdiction.
Accordingly, we REVERSE the district court’s decision to remand the case to
state court and REMAND the case to the federal district court for proceedings
consistent with this opinion.
7 Although Defendants informed the court of the pending Chapter 15 cases before the
magistrate judge made the recommendation to remand, Plaintiffs argue that Defendants
were required to amend their notice of removal to include the Chapter 15 bankruptcies as a
basis for federal jurisdiction. To the extent Plaintiffs suggest that we cannot consider the
Chapter 15 bankruptcies, we disagree. In this case, Defendants had already properly
removed the case based on bankruptcy jurisdiction; the new information about the Chapter
15 bankruptcies further supported removal on that basis and did not require a supplemental
notice of removal. See Yarnevic v. Brink’s, Inc., 102 F.3d 753, 755 (4th Cir. 1996).
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