The opinion of the court was delivered by: John T. Elfvin S.U.S.D.J.
INTRODUCTION AND BACKGROUND
This matter involves a proceeding, originally filed in New York State Supreme Court in May, 1997, for the dissolution of a business known as Amherst Medical Park, Inc. ("AMP")("the dissolution action"). On May 27, 2005, petitioner, Joseph E. Buran, filed a Notice of Removal to the District Court herein pursuant to 28 U.S.C.§1452 and Bankruptcy Rule 9027 (Dkt. #1) and on October 5, 2005 moved for referral of the matter to the Untied States Bankruptcy Court (Dkt. ##2 & 3) where petitioner has a pending Chapter 11 proceeding before the Hon. Carl L. Bucki, U.S.B.J. Respondent Ravinder Chopra opposes the motion and purports to make a motion for remand to the state court.*fn2
Petitioner and respondent each own 50% of the outstanding common voting stock of AMP. Prior to the filing of the dissolution action, AMP had begun eviction proceedings ("the eviction proceeding"), also in State court, against a tenant, Amherst Orthopedics, P.C. ("Amh. Ortho."), whose lease obligations petitioner had personally guaranteed. It was after AMP began the eviction proceedings against Amh. Ortho. that petitioner filed the dissolution action. In September, 1997, shortly after the filing of the dissolution action, respondent exercised a statutory right (under N.Y. Bus. Corp. Law §1118) to elect to buy out petitioner's 50% ownership share. Shortly thereafter, however, it was determined that the dissolution action was to be deferred until the pending eviction proceeding was resolved. A decision in the eviction proceeding was not rendered until December 2004, which resulted in a money judgment of over two million dollars against petitioner (and Amh. Ortho.). This judgment is what caused petitioner to file the Chapter 11 petition in Bankruptcy Court.*fn3 Both the order and the judgment in the eviction proceedings have been appealed by petitioner and are still pending in State court.
The valuation of the AMP stock (hence, petitioner's financial interest therein) is the primary matter to be resolved in the State dissolution action. The parties dispute how, and to what extent, the judgment in the eviction proceeding would affect the value of the stock in the dissolution action. While petitioner's financial interest in AMP is obviously germane to his Bankruptcy proceeding, the parties dispute whether or not it is appropriate to litigate the merits of the dissolution action in Bankruptcy Court.
Petitioner claims that the State dissolution action is sufficiently "related to" his Bankruptcy proceeding so as to confer federal jurisdiction under 28 U.S.C. §1334(b) and, further, that it is "core" for Bankruptcy Court jurisdictional purposes for both procedural and substantive reasons. Procedurally, petitioner claims that he complied with all filing requirements when the dissolution proceeding was removed, sufficiently stating that the matter was core and, as no party has filed a statement claiming that the matter is non-core, he is entitled to treat the matter as core. Substantively, petitioner argues that the dissolution proceeding, concerning the value of a major asset in his Chapter 11 estate, is "inextricably intertwined" with his Bankruptcy proceeding and should therefore be referred there.
Respondent's opposition to the referral motion and cross-motion for remand (see, fn 2 herein) argues that the dissolution actionisnon-core, that equitable considerations require that it be remanded back to State court and that this Court should nevertheless exercise discretionary abstention under 28 U.S.C. §1334(c)(1). Petitioner's reply (Dkt. #5) notes that respondent did not file an opposition to the removal in the approximately four months between the filing of the removal notice and the instant motion to refer. Federal Bankruptcy Rule 9027(e)(3) requires a party such as respondent to file a statement within 10 days of the filing of the Notice of Removal admitting or denying the allegations in the Notice that the affected claim is core. Petitioner argues that respondent's failure to file such statement (hereinafter "the Rule 9027(e)(3) statement") should be considered a waiver of his current argument that the removed action is non-core and whether or not it is found to be a waiver, it remains relevant with respect to the strength of conviction of respondent's argument that the matter is non-core. The reply nevertheless urges that the dissolution action is core to petitioner's Chapter 11 proceeding, that the Court should not exercise discretionary abstention and that the Court should not remand to the State court.
Bankruptcy Rule 9027(e) addresses procedures after removal and provides in pertinent part that:
(3) Any party who has filed a pleading in connection with the removed claim or cause of action, other than the party filing the notice of removal, shall file a statement admitting or denying any allegation in the notice of removal that upon removal of the claim or cause of action the proceeding is core or non-core. If the statement alleges that the proceeding is non-core, it shall state that the party does or does not consent to entry of final orders or judgment by the bankruptcy judge. A statement required by this paragraph shall be signed pursuant to Rule 9011 and shall be filed not later than 10 days after the filing of the notice of removal. Any party who files a statement pursuant to this paragraph shall mail a copy to every other party to the removed claim or cause of action.
Respondent acknowledges that, due to a mis-communication between co-counsel, the 9027(e)(3) statement was not filed, but that this failure does not preclude him from now arguing that the matter is non-core. Petitioner argues that it does. Respondent further argues that even if the Court were to find that respondent has waived the right to argue that the matter is non-core, this Court and/or the Bankruptcy Court can examine the issue sua sponte.
The parties acknowledge that the courts are split as to whether or not the failure to file a statement pursuant to Rule 9027(e)(3) constitutes a waiver.*fn4 Respondent's best argument against waiver lies in Wetzel v. Lumbermens Mut. Cas. Co. (324 B.R. 333 (S.D.Ind. 2005)) and Barge v. Western Southern Life Ins. Co.(307 B.R. 541 (S.D. W. Va. 2004)). The court in Wetzel declined to find a waiver wherein plaintiffs did not file the Rule 9027(e)(3) statement within the requisite ten days but did dispute the allegations that the matter was core in a motion to defer consideration of defendants' motion to transfer venue, filed eleven days after the notice of removal and in a motion to remand filed within thirty days. In light of the prompt filings, the fact that Rule 9027(e)(3) prescribes no penalty for failure to comply, and because defendants did not show prejudice by what the court described as an "insubstantial violation", the court declined to find that plaintiffs waived the right to argue that the matter was non-core. 324 B.R. at 339 (and fn. 15) (citing Barge, 307 B.R. at 545-46).*fn5 Barge likewise involved a party (plaintiff) who did not file the Rule 9027(e)(3) statement. Plaintiff in that case filed a motion to remand within 30 days after the notice of removal had been filed and specifically contested defendants' allegation that the underlying state cases were core to plaintiffs' bankruptcies. The Barge court held that "inasmuch as the rule prescribes no penalty for failure to comply timely with the ten-day rule and inasmuch as defendants have shown no prejudice, the court declines to find waiver in view of the prompt filing of a motion to remand by the plaintiffs." 307 B.R. at 546.
Respondent urges this Court to adopt the findings in these cases with a blanket holding that the failure to file a Rule 9027(e)(3) statement does not waive the right to raise the issues neglected in such failure to file. The Court declines. Clearly the Rule prescribes no penalty for failure to comply. However, the strong directive language of the Rule (such as "shall" and "required") suggests that some penalty for non-compliance is appropriate. The Court finds that the appropriate measure is to ...