Marshburn v. Braswell

IN THE UNITED STATES BANKRUPTCY COURT
FOR THE EASTERN DISTRICT OF NORTH CAROLINA
WILMINGTON DIVISION
IN RE:
DAVID RAY BRASWELL, 	Case No. 05-010422-8-JRL
Debtor.
KEVIN W. FLOARS, 	Adversary Proceeding No.
Plaintiff 	L-06-00116-8-AP
vs.
BERRIE G. MARSHBURN,
DAVID G. BRASWELL, COASTAL
TRUCK & AUTO, a general partnership,
and COASTAL TRUCK & AUTO, INC.
Defendants.
BERRIE G. MARSHBURN, 	Adversary Proceeding No.
Plaintiff 	L-06-00199-8-AP
vs.
DAVID RAY BRASWELL
Defendant.
______________________________________________________________________________
ORDER
The Floars case is before the court on the motion to dismiss for lack of jurisdiction filed
by Berrie G. Marshburn, Coastal Truck & Auto, and Coastal Truck & Auto, Inc., and the motion
SO ORDERED.
SIGNED this 29 day of March, 2007.
________________________________________
J. Rich Leonard
United States Bankruptcy Judge
____________________________________________________________
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1 For the purposes of these motions, the court presumes the allegations contained in the
plaintiff’s complaint are true.
2
to dismiss filed by David Braswell. On March 13, 2007, the court conducted a hearing on these
matters in Wilmington, North Carolina.
BACKGROUND
Kevin Floars is a citizen and resident of Johnston County, North Carolina. 1 Berrie G.
Marshburn is a citizen and resident of North Carolina. David Braswell, the debtor, is a citizen
and resident of North Carolina. Coastal Truck & Auto is a general partnership formed and
operated by and between defendants Marshburn and Braswell in New Hanover County, North
Carolina. Coastal Truck & Auto, Inc. is a North Carolina business corporation with a principal
place of business located in New Hanover County, North Carolina.
The debtor filed a petition for relief under chapter 13 of the Bankruptcy Code on October
16, 2005. The case was converted to chapter 7 on October 31, 2006. On June 27, 2006, Kevin
Floars filed a complaint against Berrie G. Marshburn, Coastal Truck & Auto, and Coastal Truck
& Auto, Inc. (“Marshburn and Coastal”), and the debtor. The complaint set forth claims for
fraud, breach of contract, fraudulent conveyance, successor liability, unfair and deceptive trade
practices, dischargeability, and discharge.
DISCUSSION
Defendants Marshburn and Coastal contend that the court does not have jurisdiction over
them, and the case should be dismissed. They argue that there is no diversity of jurisdiction
under federal law as the parties are all citizens and residents of the State of North Carolina.
Additionally, they contend the complaint raises predominately state law claims that should be
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determined in state court. Furthermore, the debtor asserts that Marshburn and Coastal are
indispensable parties to this case, and if the claims against them are dismissed, then the case
against the debtor should be dismissed as well. See Bankruptcy Rule 7019
Jurisdiction
The district courts have original jurisdiction of all civil proceedings arising under title 11
or arising in or related to cases under title 11. 28 U.S.C. § 1334(b). District courts have the
authority to refer these proceedings to bankruptcy courts pursuant to 28 U.S.C. § 157(a). The
United States District Court for the Eastern District of North Carolina entered its General Order
of Reference on August 3, 1984.
In determining whether a civil proceeding “relates to” a bankruptcy case the Fourth
Circuit adopted the test set forth in Pacor, Inc. v. Higgins, 743 F.2d 984 (3d Cir. 1984). See
Owens-Illinois, Inc. v. Rapid Am. Corp. (In re Celotex Corp.), 124 F.3d 619, 625 (4th Cir.
1997). According to the Pacor test:
[W]hether a civil proceeding is related to bankruptcy is whether the
outcome of that proceeding could conceivably have any effect of the estate being
administered in bankruptcy. Thus, the proceeding need not necessarily be against
the debtor or against the debtor’s property. An action is related to bankruptcy if
the outcome could alter the debtor’s rights, liabilities, options, or freedom of
action (either, positively or negatively) and which in any way impacts upon the
handling and administration of the bankrupt estate.
Pacor, 743 F.2d at 994. The Fourth Circuit construed the Pacor test broadly, as the court
required merely a possibility– not a certainty or even a likelihood–that the debtor’s rights,
liabilities, options, or freedom of actions may be altered. In re Celotex Corp., 124 F.3d at 626.
This adversary proceeding was brought against not only the debtor but also three
potentially solvent defendants. The issue of possible joint liability provides the requisite
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connection to the bankruptcy case.. If the plaintiff was able to recover the alleged claims from
the other defendants, then there would be no claim against the debtor or his estate. In applying
the Pacor test to this case, it appears clear that the outcome of this adversary proceeding has the
possibility of impacting the debtor’s estate. Therefore, this adversary proceeding relates to
claims against the debtor. This court has jurisdiction to hearing those claims pursuant to 28
U.S.C. § 1334(b), regardless of whether there is diversity of jurisdiction.
Permissive Abstention
Although the court has jurisdiction to hear this case under the Bankruptcy Code, the
analysis does not end there. In their motion to dismiss, Marshburn and Coastal alternatively
argue for abstention. Prior to the debtor filing bankruptcy, Floars filed a complaint in state court
against the same defendants alleging the same state law claims. That state proceeding has since
been dismissed. Marshburn and Coastal request that the court abstain from hearing this adversary
proceeding to allow all state claims to be re-filed and tried in state court.
The Bankruptcy Code, in the interest of justice, permits a district court to abstain from
hearing a particular proceeding related to a case under title 11. 28 U.S.C. § 1334(c)(1). This
court has applied a twelve-factor test to determine whether permissive abstention is appropriate
in a specific case. Those factors are:
(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
nonbankruptcy 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 form of 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
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likelihood that the commencement of the proceeding in the bankruptcy court
involves forum shopping by one of the parties, (11) the existence of the right of a
jury trial, and (12) the presence in the proceeding of non-debtor parties.
General Wood Preserving Co., Inc. v. Wind Gap Farms (In re General Wood Preserving Co.,
Inc.), Case No. L-02-00146-8-AP (Bankr. E.D.N.C. Dec. 17, 2002) These factors were identified
by the Seventh and Ninth Circuits as relevant to a bankruptcy court’s decision to abstain in a
particular case. See In re Chicago, Milwaukee, St. Paul & Pac. R. Co., 6 F.3d 1184, 1189 (7th
Cir. 1993), In re Eastport Assoc., 935 F.2d 1071, 1075-76 (9th Cir. 1991).
Based on the facts of this case, the court finds that abstention is warranted. This
adversary proceeding is taking place within a chapter 7 bankruptcy, and the court expects it to
have little practical effect on the administration of the debtor’s insolvent estate. Absent the fact
that one of the parties is in bankruptcy there is no federal jurisdiction. There are no federal
substantive law issues. Aside from the discharge and dischargeability claims, all causes of
action are state law claims. The parties may be entitled to a jury trial, and absent the consent of
all parties the trial cannot take place in the bankruptcy court. Thus, even if the bankruptcy court
retained jurisdiction of the adversary proceedings, two venues would be involved in order to
resolve this matter. The existence of non-debtor parties is not disputed. Therefore, the facts
support abstention as to the state law claims.
Consolidation
During the hearing, the court was informed of a pending motion to consolidate this
adversary proceeding with another adversary proceeding filed in the debtor’s bankruptcy case. A
court may consolidate legal actions where they involve “a common question of law or fact
pending before the court[.]” Fed. R. Bankr. P. 7042.
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2 The complaint sets forth claims for fraud, breach of contract, fraudulent conveyance,
unfair and deceptive trade practices, objection to discharge, and objection to dischargeability.
6
The second complaint was filed on August 16, 2006, by Marshburn against the debtor
asserting almost exactly the same claims as Floars’ complaint. 2 The court finds that the claims in
both adversary proceedings arise out of the same events and present common questions of law
and fact. In the interest of judicial economy, the court finds the claims brought by Marshburn
could be brought as cross-claims in the state court proceeding. Therefore, the court finds that
consolidation is appropriate as to the two adversary proceedings.
CONCLUSION
Based on the foregoing, the adversary proceedings Floars v. Marshburn, et al. (06-00116-
8-AP) and Marshburn v. Braswell (06-00199-8-AP) are consolidated. The court voluntarily
abstains from hearing the state law causes of action raised in the complaints. Specifically, the
court abstains from hearing claims one through five in adversary proceeding 06-00116-8-AP and
claims one through four in adversary proceeding 06-00199-8-AP. Accordingly, the above claims
are dismissed without prejudice to the plaintiffs’ abilities to renew their claims in state court.
The automatic stay is lifted to allow a law suit to commence and proceed in state court as to the
above claims.
This court, however, retains jurisdiction to determine claims six and seven in adversary
proceeding 06-00116-8-AP and claims five and six in adversary proceeding 06-00199-8-AP, as
the bankruptcy court has exclusive jurisdiction of discharge and dischargeability. These claims
are stayed, pending the resolution of the state court proceedings.
“END OF DOCUMENT”
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