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Diversity Provides Trustee with Opportunity to Transfer Proceeding Due to Lack of Bankruptcy Court Jurisdiction

By GianClaudio Finizio

On February 14, 2012, Judge Kevin J. Carey, issued an opinion denying a liquidating trustee’s request to transfer venue of an adversary proceeding pursuant to 28 U.S.C. § 1631 because of lack of bankruptcy court jurisdiction, but granting the liquidating trustee’s request to withdraw the reference for the limited purpose of seeking such a transfer. Troisio v. Erickson, (In re IMMC Corp.), Adv. No. 10-53063 (Bank.D.Del. Feb. 14, 2012).

The procedural background is as follows. On September 18, 2010, the trustee commenced an action for damages against the defendants based on claims of breach of fiduciary duty arising from defendants’ control and management of the debtor. In an earlier opinion dated December 29, 2011, Judge Carey had determined that the bankruptcy court was without jurisdiction to decide the claims asserted in the adversary proceeding. See Troisio v. Erickson (In re IMMC Corp.), Adv. No. 10-53063, 2011 WL 6832900 (Bank.D.Del. Dec. 29, 2011). In response and in an effort to ensure the claims were preserved, the trustee requested the transfer of the proceeding to the District Court for the Eastern District of Pennsylvania pursuant to 28 U.S.C § 1631.

The bankruptcy court found sufficient doubt concerning its authority to transfer the action to deny the request, based on (i) the exclusion of bankruptcy courts from both the express language of § 1631 and the definition of “court” in 28 U.S.C. § 610, and (ii) the legislative history which indicates a Congressional intent to omit bankruptcy court from the definition of “court”.

In anticipation of the bankruptcy court’s concerns, the trustee also requested permission to seek withdrawal of the reference for the limited purpose of asking the District Court to transfer the adversary proceeding pursuant to § 1631. The defendants opposed the request on the grounds of futility because of lack of diversity. Relying on the United States Supreme Court’s decision in Navarro Savings Assoc. v. Lee, 446 U.S.458, 100 S.Ct. 1779 (1980), the bankruptcy court found that complete diversity between the trustee, as plaintiff, and the defendants existed. Based on its finding of diversity, the bankruptcy court granted the trustee’s request to move for withdrawal of the reference.

A copy of the bankruptcy court’s opinion is available here.

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