Tuesday, October 24, 2006

D. Delaware Bankruptcy Court Discusses Permissive Abstention Under 28 U.S.C. § 1334(c)(1); Declines to Abstain

Per In re RNI Wind Down Corp., 348 B.R. 286 (D. Del. Aug. 23, 2006):

This controversy arises from a series of derivative suits that were filed between August 2002 and March 2004 in the Superior Court of California and the United States District Court for the Northern District of California (the "District Court") against Riverstone Networks, Inc. ("RNI") and its directors and officers.

[T]his Court has authority under 28 U.S.C. § 1334(c)(1) in the interest of justice to abstain from hearing a particular proceeding arising under title 11 or arising or related to a case under title 11. Thus, notwithstanding that the principle of comity is not applicable in this case, the Court will consider whether it should abstain from considering the 9019 Motion. "Permissive abstention from core proceedings under 28 U.S.C. § 1334(c)(1) is left to the bankruptcy court's discretion." Luan Inv. S.E. v. Franklin 145 Corp. (In re Petrie Retail, Inc.), 304 F.3d 223, 232 (2d Cir.2002). Bankruptcy courts consider twelve nonexclusive factors to determine whether permissive abstention is appropriate . . . In re Sun Healthcare Group, 267 B.R. 673, 678-79 (Bankr.D.Del.2000). "Evaluating the twelve factors is not a mathematical formula." Id. at 679.

In this case, factors (2), (3) and (8) do not apply as they pertain to issues of state law and comity with state courts that are simply not present in this case. Factor (5) does not apply because this Court's subject-matter jurisdiction arises under 28 U.S.C. § 1334. In addition, factors (9), (10) and (11) are inapplicable because this Court's docket is not burdened, there is no evidence of forum shopping and there is no right to a jury trial, respectively. This leaves factors (1), (4), (6), (7), and (12) as the relevant factors for this Court to consider in determining whether it will abstain from considering the 9019 Motion. (1) The effect or lack thereof on the efficient administration of the estate. . . .Any further delay in resolving the issues raised by the 9019 Motion would have an adverse effect on the timely administration of this case. Therefore, this factor does not favor abstention. (4) The presence of a related proceeding commenced in state court or other non-bankruptcy court. Both proceedings arise from the settlement of the claims asserted in the derivative actions, however, the issues before each court are separate and distinct. . . . While the approval of the 9019 Motion alters the underlying facts of the Ninth Circuit Appeal, it does not change or determine any of the legal issues that were raised on appeal. Therefore, this factor does not favor abstention. (6) The degree of relatedness or remoteness of the proceeding to the main bankruptcy case. Consideration of the Amended Settlement through the 9019 Motion is a core proceeding and therefore related to the main bankruptcy case. This factor does not favor abstention. (7) The substance rather than the form of an asserted "core" proceeding. This is a core proceeding. This factor does not favor abstention. (12) The presence in the proceeding of nondebtor parties. While Mr. Grimes is a party to the appeal in the Ninth Circuit, his participation is not necessary for the Amended Settlement. This factor does not favor abstention.

All of the relevant factors considered by bankruptcy courts in determining whether to abstain under 28 U.S.C. § 1334(c)(1) do not favor abstention. Thus, it would not be in the interest of justice for this Court to abstain from considering the 9019 Motion and this Court will not do so.


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