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Leal v. Bednar

United States District Court, N.D. Texas, Dallas Division

May 3, 2017

MINERVA LEAL, Plaintiff,
v.
TIMOTHY BEDNAR and JEFFREY BEDNAR, Defendants.

          MEMORANDUM OPINION AND ORDER

          A. JOE FISH Senior United States District Judge.

         Before the court is the defendants' motion to transfer venue, under 28 U.S.C. § 1412, to the Eastern District of Texas (docket entry 10). For the reasons stated below, the defendants' motion is granted.

         I. BACKGROUND

         On December 17, 2015, the plaintiff, Minerva Leal (“Leal”), commenced this breach of contract action in the County Court at Law No. 3 in Dallas County, Texas against Fountain Carwash -- Coit, Ltd. (“Coit”), Fountain Carwash Management, Inc., Tim Bednar, and Jeffrey Bednar (collectively, “the defendants”). Defendants' Notice of Removal (“Notice”) at 1 (docket entry 1); Plaintiff's Petition to Enforce Settlement Agreement (“Original Petition”) (docket entry 1-1). Leal seeks to enforce a settlement agreement that she entered into with the defendants. Original Petition ¶¶ 10-16. The agreement called for the defendants to pay Leal $1000 and to “indemnify Leal against any and all insurance subrogation claims in consideration of Ms. Leal releasing the [defendants] and dismissing her claims.” Id. Leal commenced the instant action contending that the defendants have refused to pay a pending subrogation claim. See id. ¶¶ 17-35.

         On December 14, 2016, the defendants removed the case to this court pursuant to 28 U.S.C. §§ 1334 and 1452. Notice at 1. Prior to removing the case, on December 13, 2016, Coit filed a voluntary petition under Chapter 7 of title 11 of the United States Code in the United States Bankruptcy Court for the Eastern District of Texas. Id. On January 8, 2017, the defendants filed the instant motion to transfer this case to the United States District Court for the Eastern District of Texas, Sherman Division, for potential referral to the United States Bankruptcy Court for the Eastern District of Texas. Defendants' Motion to Transfer (“Motion”) (docket entry 10). Notably, Leal did not file a response. The motion is now ripe for decision.

         II. ANALYSIS

         A. Applicable Law

         The defendants contend that 28 U.S.C. § 1412 is the proper basis for transfer.[1]Section 1412 states, “A district court may transfer a case or proceeding under title 11 to a district court for another district, in the interest of justice or for the convenience of the parties.” 28 U.S.C. § 1412. By its text, section 1412 applies to title 11 actions, which are “core proceedings” that arise in the bankruptcy context. Matter of Wood, 825 F.2d 90, 97 (5th Cir. 1987). Here, the defendants imply that the instant action is not entirely a core proceeding because it also includes related claims.[2] See Motion at 3 n.1.

         Section 1412 does not explicitly state whether “a case or proceeding under title 11” includes claims that are related to title 11 actions. Moreover, the Fifth Circuit has not decided this issue. System v. Limited, No. 13-373-SDD-EWD, 2016 WL 4059705, at *3 n.26 (M.D. La. July 6, 2016) (“The Fifth Circuit has not yet determined whether § 1412 applies only to core proceedings.”), report and recommendation adopted sub nom. Firefighters' Retirement System v. Citgo Group Limited, No. CV 13-373-SDD-EWD, 2016 WL 4059666 (M.D. La. July 27, 2016). District courts within the Fifth Circuit are split as to whether section 1412 applies to transfers involving related claims or whether section 1404 controls those transfers. Compare Rumore v. Wamstad, No. CIV. A. 01-2997, 2001 WL 1426680, at *2 (E.D. La. Nov. 13, 2001) (holding that section 1412 applies only to core proceedings and not related claims) with Marquette Transportation Company v. Trinity Marine Products, Inc., No. CIVA 06-0826, 2006 WL 2349461, at *4 (E.D. La. Aug. 11, 2006) (holding that Congress intended for section 1412 to apply to both core proceedings and related claims). Some courts in the Northern District of Texas have held that section 1412 permits the transfer of cases containing related claims. See LSREF2 Baron, LLC v. Aguilar, No. 3:12-CV-1242-M, 2013 WL 230381, at *4 (N.D. Tex. Jan. 18, 2013) (Lynn, J.) (holding that Congress intended for section 1412 to apply to not only core proceedings, but also cases that are merely related to a bankruptcy proceeding); In re Adkins Supply, Inc., No. 11-10353-RLJ-7, 2015 WL 1498856, at *4 (Bankr. N.D. Tex. Mar. 27, 2015) (noting that section 1412 is the appropriate statute for transfers involving claims “related to” title 11 actions). Both Northern District cases cite Marquette Transportation Company, 2006 WL 2349461 in support of their conclusions. See LSREF2 Baron, LLC, 2013 WL 230381, at *4; In re Adkins Supply, Inc., 2015 WL 1498856, at *2.

         In Marquette, the court held that section 1412 permits transfers of cases containing related claims. Id. at *4. The Marquette court looked to the term “proceeding” in 28 U.S.C. § 1409[3] -- the statute governing venue in title 11 cases --for guidance interpreting the term “proceeding” in section 1412. Id. “Proceeding” under section 1409 explicitly includes actions related to core proceedings. See 28 U.S.C. § 1409. The Marquette court held that the word “proceeding” in section 1412 should be accorded the same breadth. Marquette Transportation Company, 2006 WL 2349461, at *4. It reasoned that if section 1412 did not include related claims, then a court could only transfer cases closely related to core proceedings under the more-restrictive 28 U.S.C. § 1404. See id. at *3. The court believed that such a requirement would “hamper the well settled principle that the court in which the bankruptcy case itself is pending is the proper venue for adjudicating all related litigation.” Id. at *4 (quoting Baker v. Muscletech Research and Development, Inc., No. 06-C-492, 2006 WL 1663748, at *2 (E.D. Wis. June 9, 2006)). It concluded that Congress, in enacting section 1412, did not intend such a result. Id. at *4.

         Courts reaching the opposite conclusion reason that Congress intentionally omitted the “related to” language in section 1412 to limit the jurisdiction of the bankruptcy courts. See, e.g., Searcy v. Knostman, 155 B.R. 699, 707 (S.D.Miss. 1993). They point to the “related to” language in section 1412's predecessor, the now-repealed 28 U.S.C. § 1475. Id. at 706-07. Section 1475 stated, “A bankruptcy court may transfer a case under title 11 or a proceeding arising under or related to such a case to a bankruptcy court for another district, in the interest of justice and for the convenience of the parties.” 28 U.S.C. § 1475 (emphasis added). However, section 1412 does not refer to related proceedings. 28 U.S.C. § 1412. Some courts explain that the omission

is evidence of Congressional intent that motions to transfer actions that are related to title 11 cases should be controlled by 28 U.S.C. § 1404. The purpose of the [section 1412] supports this conclusion since the Amendments were passed in response to the decision in Northern Pipeline Construction Co. v. Marathon Pipe Line Co., 458 U.S. 50 (1982), in which the Supreme Court held that it was unconstitutional for bankruptcy courts to have jurisdiction over non-core bankruptcy proceedings. . . . [S]ection 1412 reflects Congress' intention to narrow the scope of the bankruptcy courts' jurisdiction by treating civil actions that are related to cases under title 11 differently from cases or proceedings arising under title 11.

Murray, Wilson & Hunter v. Jersey Boats, Inc., No. CIV. A. 91-7733, 1992 WL 37516, at *3 (E.D. Pa. Feb. 21, 1992) (internal citations omitted) (quoting Goldberg Holding Corporation v. NEP Productions, Inc., 93 B.R. 33, 34 (S.D.N.Y. 1988)). However, Dunlap v. Friedman's, Inc., 331 B.R. 674, 680 (S.D. W.Va. 2005) -- followed by several courts within the Fifth Circuit[4] -- disagreed with this reasoning. The Dunlap court distinguished section 1475 from section 1412: “[S]ection 1475 . . . treated the bankruptcy court as the transferor. Section 1412, on the other hand, switched transfer authority to the district court alone.” Dunlap, 331 B.R. At 679 (emphasis added). This single amendment, it reasoned, satisfied Congress's objective to limit the jurisdictional reach of bankruptcy courts. See id. Moreover, the court explained:

[If] . . . substantive effect should be given to the omission of the [“related to”] language [in section 1412], Congress did far more than deprive bankruptcy courts of the authority to transfer related-to actions. It also deprived the new district court transferor of the same power, whether exercised under section 1412 or, most importantly, under section 1404(a) pursuant to the well-settled rule ...

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