27 Jan Your Case Was Removed to Bankruptcy Court? Better Consult the Local Rules
Better Consult the Local Rules
Henry FloresSenior Counsel
Most experienced litigators are familiar with this situation. Your client is a party to a state court lawsuit and one of the other parties files a bankruptcy case. The bankrupt party files a notice of removal in the state court and the removed case is docketed as an adversary proceeding in the bankruptcy case. You grimace because you know that you will have to dive into the fact-dependent (and sometimes murky) world of bankruptcy remand and abstention, and then assess whether your client should incur the expense associated with a remand fight. As you consider remand under the applicable statutes, however, do not forget to review relevant local bankruptcy rules to determine if there are extra steps that you need to take to protect your client’s rights. Local rules vary widely among jurisdictions (often within the same Federal Circuit), and notwithstanding their procedural nature, they sometimes create important substantive obligations or consequences for non-removing parties.
This note describes a few examples of local rule provisions regarding removal and remand that can trap the unwary litigant.
Consent to entry of final orders or judgments by the Bankruptcy Court. After a case is removed under the bankruptcy removal statute (28 U.S.C. §1452(a)), the Federal Rules of Bankruptcy Procedure require each non-removing party to file a statement indicating whether the party consents to entry of final orders or judgments by the Bankruptcy Court. The statement must be filed within 14 days after the case is removed. Fed. R. Bankr. P. 9027(e)(3).
Bankruptcy Rule 9027 does not provide a penalty for failure to comply with the 14-day deadline, and there appears to be a split of authority regarding whether such a failure constitutes a waiver of the right to dispute Bankruptcy Court jurisdiction.[i] However, local rules sometimes create a penalty that does not exist under the federal rules. For example, in the District of Delaware, failure to file the statement required by Bankruptcy Rule 9027 effects a waiver of the party’s right to challenge the Bankruptcy Court’s ability to enter final orders or judgments, absent further court order.[ii] In another example, the local rules for the District of New Mexico specifically state that the failure to comply with Bankruptcy Rule 9027 constitutes implied consent to entry of final orders or judgments by the Bankruptcy Court. [iii]
Notably, the implied consent provision in New Mexico is not found in the local rule relating to removal and remand. Instead, it is found in the local rule relating to general pre-trial matters in adversary proceedings (which is essentially a rule that works like Fed. R. Civ. P. 16).[iv]
If your removed case is pending in a jurisdiction that implements waiver or implied consent by local rule, failure to follow the requirements of Bankruptcy Rule 9027 could undermine your remand argument before you even file a motion.
Deadline to file a remand motion. Unlike the general federal removal statute, the bankruptcy removal statute does not include a deadline to file a remand motion.[v] Nonetheless, bankruptcy removals often trigger litigation regarding whether the 30-day deadline under the general removal statute applies to bankruptcy removals.[vi] Local rules sometimes dispense with any uncertainty by implementing their own deadlines for seeking remand. Here are a few examples:
|Jurisdiction||Remand Motion Deadline||Local Rule|
|Western District of Texas||30 days after removal||9027(b)(3)|
|Central District of California||30 days after removal||9027-1(c)|
|Southern District of Florida||21 days after removal||9027-1|
|Western District of Washington||14 days after removal||9027-1(b)|
Obviously, if you find yourself in a removed case that is pending in a Bankruptcy Court in Miami or Seattle, you need to move quickly if you plan to seek remand. The larger point, however, is that deadlines created by local rule can vary widely among different jurisdictions. Check for remand deadlines as soon as your case is removed.
Preservation of a jury trial right. Some local rules impact jury trial rights, even if a party presented a jury demand in state court before removal. For example, to preserve the right to trial by jury, the local rules for the Central District of California require a litigant to file a new jury trial demand within 14 days of removal.[vii] This is yet another example of how a mere oversight regarding a seemingly unusual, post-removal local rule deadline can significantly impact your client’s rights.
Conclusion. The examples listed above are not the only items to consider after the case is removed — local bankruptcy rules regarding removal often contain more mundane provisions, such as when and how to submit the state court record, automatic setting of a status conference in the removed case, deadlines to amend live pleadings and deadlines to file briefs relating to motions that were pending on the date of removal. While all these provisions are important, matters such as implied consent to Bankruptcy Court jurisdiction, deadlines to seek remand and preservation of jury trial rights can be critical to your client’s case, and all can be impacted by rules that are unfamiliar to a non-bankruptcy lawyer (or to a lawyer who practices in a different federal jurisdiction). Careful review of applicable local rules can prevent a lot of problems, including difficult conversations with a Judge or with a client.
[i] See, e.g., In re Application of Buran, 300 B.R. 351 (W.D.N.Y. 2006).
[ii] See D. Del. Local Bankr. R. 9027-1(b).
[iii] See D. N.M. Local Bankr. R. 7016-1.
[v] Compare 28 U.S.C. §1447(c)(remand motion must be filed within 30 days of a removal occurring under §1446) and 28 U.S.C. §1452(b)(no stated deadline for remand motion).
[vi] See, e.g., In re Ciclon Negro, Inc., 260 B.R. 832 (Bankr. S.D. Tex. 2001).
[vii] See C.D. Cal. Local Bankr. R. 9027-1(e).
ABOUT THE AUTHOR: Henry Flores is Senior Counsel at Rapp & Krock, PC in the Bankruptcy and Creditors Rights group.
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