Sea Ranch II, Inc. v. Sea Ranch II Owners Association, Inc.

UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF NORTH CAROLINA
ELIZABETH CITY DIVISION
IN RE:
SEA RANCH II OWNERS ASSOCIATION, INC.
DEBTOR
CASE NO.
07-00475-8-RDD
SEA RANCH II, INC. and SEA RANCH II
OWNERS ASSOCIATION, INC.
Plaintiffs
v.
SEA RANCH II OWNERS ASSOCIATION, INC.
and SEA RANCH II, INC.
Defendants
ADVERSARY PROCEEDING NO.
08-00022-8-RDD-AP
ORDER DENYING MOTION TO ABSTAIN
This adversary proceeding is before the court on the plaintiff’s motion to abstain. A hearing
was held in Greenville, North Carolina on June 24, 2008 and in Wilson, North Carolina on June 25,
2008.
SO ORDERED.
SIGNED this 01 day of July, 2008.
________________________________________
Randy D. Doub
United States Bankruptcy Judge
____________________________________________________________
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The plaintiff, Sea Ranch II, Inc. (“SRII”), filed the pending motion to abstain, requesting that
the court abstain from hearing the above-referenced adversary proceeding and allow the claims
involved in that action to be heard by the state court. In support of its motion, SRII explains that the
parties have been involved in extensive litigation in the North Carolina state courts since 2000. In
its motion, counsel for SRII indicates that of the factors considered by bankruptcy courts in
determining whether to abstain from a case, several weigh in favor of SRII’s motion. These include
the state law’s predominance over the bankruptcy law over these issues, the state court’s prior
exercise of jurisdiction for more than seven years, the debtor’s forum shopping as a basis for filing
bankruptcy, and the duplication of effort and inefficient use of judicial resources since the state court
judge has already heard one-half of the evidence regarding the issues. At the hearing, counsel for
SRII argued that SRII brought a complaint for a declaratory judgment in the bankruptcy court, and
did not submit itself to having to defend counterclaims in this forum.
The debtor, Sea Ranch II Owners Association, Inc. (“SROA”), requests denial of the motion.
Counsel for the debtor argues that, upon the filing of the adversary proceeding by SRII, SRII waived
its right to seek abstention. In the pleadings, both parties have admitted that the bankruptcy court
has jurisdiction over the parties and the issues. 	Counsel further argues that the factors used to
determine whether permissive abstention is appropriate do not support abstention in this case
because the issues are not complex and the bankruptcy court is capable of adjudicating them
properly. 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 in state court or other non-bankruptcy court;
(5) the jurisdictional basis, if any, other than 28 U.S.C. § 1344;
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(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
judgment to be entered in state court with enforcement left to the bankruptcy court;
(9) the burden on 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.
In re Mercer’s Enterprises, Inc., Adversary Proceeding No. L-08-00011-8-AP (Bankr. E.D.N.C. May
8, 2008). Counsel pointed out that, in Mercer’s, the opposing party fought the lawsuit being brought
into the bankruptcy court by the debtor. In the case at hand, the opposing party is the party that
brought the case into the bankruptcy case, and is now asking for the court to abstain from hearing
it.
The court finds that SRII filed an action for a declaratory judgment in this adversary
proceeding. SROA filed an answer and counterclaim, to which responding replies were filed. All
pleadings in this adversary proceeding appear to be core issues, over which this court has
jurisdiction. In SRII’s complaint, it submits that this court would be the proper place to have these
issues resolved expeditiously in light of the previous rulings of the state court. In fact, in Paragraph
10 of SRII’s complaint, it states, “Sea Ranch submits that, especially in light of the previous rulings
from the state court, such a declaration can be achieved speedily in this Court and without undue
burden or cost.” The court finds that the issues involved in this proceeding turn on a determination
of whether the debtor has an asset, whether SRII has a claim, and whether there are any setoffs that
apply. 	There may also be issues of the preclusive effect of the state court orders and collateral
estoppel; however, those issues will be determined when properly brought before this court.
Therefore, SRII’s motion to abstain is DENIED.
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With respect to a request made by Mr. S. Strother Smith, III to be joined as a party-defendant
in this proceeding, the court will allow Mr. Smith 10 days from the date of the entry of this order
within which to file a motion requesting such relief. 	Further, the debtor is directed to file an
objection to SRII’s claim within 10 days of the entry of this order, to be heard in conjunction with
this adversary proceeding.
SO ORDERED.
END OF DOCUMENT
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