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court actions containing only potential but unasserted claims for contribution and indemnification, the court would permissively abstain from exercising jurisdiction. The bankrupt debtor was a manufacturer of an allegedly defective pharmaceutical drug, and multidistrict product liability litigation was pending before the district court. Several wrongful death and injury cases were also pending before other federal and state courts. The bankruptcy trustee moved to transfer all such cases to the district court as a matter of efficiency, even state court cases where the plaintiffs chose to proceed against local clinics and physicians and not the debtor or its affiliates. The court found that under 11 U.S.C. § 1334(b), the scope of the court's "related to" jurisdiction is broad and covers any civil proceeding whose outcome could conceivably have any effect on the bankruptcy estate. The court also found that federal and state court actions against entities or individuals that had contractual indemnity claims against the debtor or where the affiliate was an additional insured under any of the debtor's liability policies, but where the debtor was not a named defendant, could conceivably affect the bankruptcy estate. Additionally, the court found that state court actions where the plaintiff actually asserted a claim, or a defendant actually asserted a claim for contribution or indemnification, against the debtor or its affiliate "could clearly have an effect, indeed a substantial effect, on the bankruptcy estate." As to abstention, the court found that claims for contribution or indemnity based on personal injury and wrongful death are covered under 28 U.S.C. § 157(b)(2)(B)'s exception to mandatory abstention. However, the court decided to exercise its discretion in permissively abstaining from exercising jurisdiction over state court cases against defendants other than the debtor and its affiliates, where no claim for contribution or indemnification hadf been asserted. In concluding, the court granted in part and denied in part the trustee's motion to transfer certain cases.
v. Zazzali v. 1031 Exchange Group, et al. (In re DBSI, Inc. et al.), 467 B.R. 767 (Bankr. D. Del. 2012)
Issue: Whether the court could constitutionally adjudicate the chapter 11 trustee's claims.
Holding: The court held that the bankruptcy court could enter final judgment disposing of "core" preference, unauthorized post-petition transfer, fraudulent transfer, and unjust enrichment claims and could issue proposed findings of fact and conclusions of law as to other non-core claims. The court first noted that it had previously determined that the trustee's actions involved both core and non-core claims. The court then stated that "[e]Essentially, Movants are seeking to have the adversary actions dismissed entirely because, on their reading of Stern, this Court cannot enter final judgments in these proceedings." The court then stated that "[i]n so arguing, I find that Movants both misinterpret Stern's narrow holding and do not acknowledge the distinction between the bankruptcy court's ability to hear a proceeding and to adjudicate such proceeding." The court then summarized the Stern holding as follows: "the Supreme Court [] held that although there was statutory authority in § 157 for the bankruptcy court to finally adjudicate the counterclaim, Article III of the Constitution did not permit such a result. The Court concluded that '[t]he Bankruptcy Court below lacked the constitutional authority to enter a final judgment on a state law counterclaim that is not resolved in the process of ruling on a creditor's proof of claim.'" The court then noted that since Stern, courts have split between a narrow reading of that
©2014 William L. Norton III
