In Re: Parmalat Securities Litigation ( 2012 )

09-4302-cv (L)
In re: Parmalat Securities Litigation
1
2 UNITED STATES COURT OF APPEALS
3
4 FOR THE SECOND CIRCUIT
5 ____________________________________
6
7 August Term, 2011
8
9 Argued: December 7, 2011 Decided: February 21, 2012
10
11 Docket Nos. 09-4302-cv (L); 09-4306-cv (con);
12 09-4373-cv (con)
13 ____________________________________
14
15 PARMALAT CAPITAL FINANCE LIMITED,
16
17 Plaintiff-Appellant,
18
19 DR. ENRICO BONDI, EXTRAORDINARY COMMISSIONER OF PARMALAT FINANZIARIA
20 S.P.A., PARMALAT S.P.A., AND OTHER AFFILIATED ENTITIES, IN
21 EXTRAORDINARY ADMINISTRATION UNDER THE LAWS OF ITALY,
22
23 Plaintiff-Counter-Defendant-Third-Party-Defendant-Appellant,
24
25 CAPITAL & FINANCE ASSET MANAGEMENT S.A., CATTOLICA PARTECIPAZIONI
26 S.P.A., HERMES FOCUS ASSET MANAGEMENT EUROPE LIMITED, ERSTE
27 SPARINVEST KAPITALANLAGEGESELLSCHAFT M.B.H., SOLOTRAT, SOCIETE
28 MODERNE DES TERRASSEMENTS PARISIENS, RENATO ESPOSITO, FONDAZIONE
29 ITALO MONZINO, SOUTHERN ALASKA CARPENTERS PENSION FUND, ON BEHALF OF
30 ITSELF AND ALL OTHERS SIMILARLY SITUATED, CRISTINA PONCIBO, MARGERY
31 LOUISE KRONENGOLD, ROBERT MCQUEEN, CUSTODIAN, INDIVIDUALLY AND ON
32 BEHALF OF ALL OTHERS SIMILARLY SITUATED, FERRI GIAMPOLO, FOOD
33 HOLDINGS LIMITED, DAIRY HOLDINGS LIMITED, G. JAMES CLEAVER, GORDON
34 I. MACRAE, GERALD K. SMITH, LAURA J. STURAITIS, MONUMENTAL LIFE
35 INSURANCE COMPANY, TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY,
36 TRANSAMERICA LIFE INSURANCE COMPANY, AVIVA LIFE INSURANCE COMPANY,
37 PRINCIPAL GLOBAL INVESTORS, LLC, PRINCIPAL LIFE INSURANCE COMPANY,
38 SCOTTISH RE (US) INC., HARTFORD LIFE INSURANCE COMPANY, PLAN
39 ADMINISTRATOR G. PETER PAPPAS,
40
41 Plaintiffs,
42
1 —v.—
2
3 BANK OF AMERICA CORPORATION, BANC OF AMERICA SECURITIES LIMITED,
4 BANK OF AMERICA, N.A., BANK OF AMERICA NATIONAL TRUST & SAVINGS
5 ASSOCIATION, BANC OF AMERICA SECURITIES LLC, BANK OF AMERICA
6 INTERNATIONAL, LTD., GRANT THORNTON INTERNATIONAL, LTD.,
7
8 Defendants-Appellees,
9
10 GRANT THORNTON INTERNATIONAL, GRANT THORNTON LLP,
11
12 Defendants—Third-Party-Plaintiffs-Counter-Claimants-Appellees,
13
14 DEUTSCHE BANK AG, MORGAN STANLEY & CO., INCORPORATED, BONLAT
15 FINANCING CORPORATION, CALISTO TANZI, FAUSTO TONNA, COLONIALE
16 S.P.A., CITIGROUP INC., BUCONERO, LLC, ZINNI & ASSOCIATES, P.C.,
17 DELOITTE TOUCHE TOHMATSU, DELOITTE & TOUCHE S.P.A., A SOCIETA PER
18 AZIONI UNDER THE LAWS OF ITALY, JAMES E. COPELAND JR., PARMALAT
19 FINANZIARIA S.P.A., STEFANO TANZI, LUCIANO DEL SOLDATO, DOMENICO
20 BARILI, FRANCESCO GIUFFREDI, GIOVANNI TANZI, DELOITTE & TOUCHE
21 USA, LLP, DELOITTE & TOUCHE L.L.P., CREDIT SUISSE FIRST BOSTON,
22 CITIBANK, EUREKA SECURITISATION PLC, VIALATTEA LLC, PAVIA E
23 ANSALDO, BANCA NAZIONALE DEL LAVORO S.P.A., CITIBANK, N.A.,
24 PROFESSOR MARIA MARTELLINI, BANCA INTESA S.P.A., DELOITTE & TOUCHE
25 TOHMATSU AUDITORES INDEPENDENTES, CREDIT SUISSE INTERNATIONAL,
26 CREDIT SUISSE SECURITIES (EUROPE) LIMITED, CREDIT SUISSE, CREDIT
27 SUISSE GROUP, GRANT THORNTON S.P.A., A SOCIETA PER AZIONI UNDER THE
28 LAWS OF ITALY, NOW KNOWN AS ITALAUDIT, S.P.A.,
29
30 Defendants,
31
32 PARMATOUR S.P.A.,
33
34 Defendant-Third-Party-Defendant.
35 ___________________________________
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1
2 Before: CABRANES and WESLEY, Circuit Judges, and KOELTL, District
3 Judge.*
4
5
6 This is an appeal from the judgments of the United States
7 District Court for the Southern District of New York (Kaplan,
8 J.) dismissing the claims of plaintiffs-appellants Parmalat
9 Capital Finance Limited and Dr. Enrico Bondi against the Grant
10 Thornton defendants after determining, pursuant to the mandate
11 of this Court, that mandatory abstention under 28 U.S.C.
12 § 1334(c)(2) was not required in these bankruptcy-related cases.
13 Because we find that mandatory abstention was required in these
14 cases under the test we laid out in our prior Opinion, we vacate
15 the judgments of the District Court, and remand these cases to
16 the District Court with instructions to transfer them to the
17 United States District Court for the Northern District of
18 Illinois so that they can be remanded to Illinois state court.
19
* The Honorable John G. Koeltl, of the United States District
Court for the Southern District of New York, sitting by
designation.
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1 ______________
2
3 J. GREGORY TAYLOR, Allan B. Diamond, J.
4 Benjamin King, Diamond McCarthy
5 LLP, for Appellant Parmalat
6 Capital Finance Limited.
7
8 KATHLEEN M. SULLIVAN, Peter E. Calamari,
9 Terry L. Wit, Sanford I.
10 Weisburst, Quinn Emanuel Urquhart
11 & Sullivan, LLP, New York, NY, for
12 Appellant Dr. Enrico Bondi.
13
14 JAMES L. BERNARD, David M. Cheifetz,
15 Stroock & Stroock & Lavan LLP, New
16 York, NY, for Appellees Grant
17 Thornton International, Inc. and
18 Grant Thornton International Ltd.
19
20 LINDA T. COBERLY, Bruce R. Braun, William
21 P. Ferranti, Winston & Strawn LLP,
22 Chicago, IL, for Appellee Grant
23 Thornton LLP.
24
25 ______________
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1 PER CURIAM:
2 Plaintiffs-appellants Parmalat Capital Finance Limited
3 (“PCFL”) and Dr. Enrico Bondi (“Bondi,” and collectively,
4 “Appellants”) appeal from the judgments of the United States
5 District Court for the Southern District of New York (Kaplan,
6 J.) dismissing their claims against Grant Thornton
7 International, Inc., Grant Thornton International Ltd, and Grant
8 Thornton LLP (collectively, “Grant Thornton” or “Appellees”).
9 In our prior Opinion in this case, Parmalat Capital Fin. Ltd. v.
10 Bank of America Corp. (“Parmalat”), 639 F.3d 572, 582-83 (2d
11 Cir. 2011), we vacated the decisions not to abstain from
12 deciding these cases pursuant to the mandatory abstention
13 provision in 28 U.S.C. § 1334(c)(2) that applied to these
14 bankruptcy-related proceedings.
15 We remanded the cases to the District Court for a
16 determination of whether the cases could be “timely adjudicated”
17 in Illinois state court in accordance with the factors we set
18 forth in that Opinion. On remand, the District Court again
19 concluded that mandatory abstention did not apply, In re
20 Parmalat Sec. Litig., Nos. 04 Civ. 9771, 06 Civ. 2991, 2011 WL
21 3874824, at *1 (S.D.N.Y. Aug. 31, 2011), and the Appellants
22 renewed their appeals to this Court arguing for mandatory
23 abstention. Because we find that these cases can be “timely
24 adjudicated” within the meaning of the statute and pursuant to
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1 the test we laid out in our prior Opinion, we conclude that
2 abstention was mandatory in these cases. Accordingly, we vacate
3 the judgments of the District Court and remand these cases with
4 instructions that the cases be transferred to the Northern
5 District of Illinois and remanded to Illinois state court.
6
7 BACKGROUND
8 The facts in these long-running cases were fully set forth
9 in our prior Opinion, Parmalat, 639 F.3d at 576-78, and we
10 provide only a summary here.
11 These cases arise out of the collapse of Parmalat
12 Finanziaria, S.p.A. (“Old Parmalat”) in 2003. Plaintiff-
13 appellant Bondi represents Old Parmalat’s Italian bankruptcy
14 estate as its Extraordinary Commissioner under Italian law.
15 Parmalat’s plan of reorganization, the Concordato, was approved
16 after the commencement of these lawsuits, and is proceeding in
17 Italy. Plaintiff-appellant PCFL is a Grand Caymans-based
18 corporate subsidiary of Parmalat. PCFL is in liquidation in the
19 Cayman Islands.
20 In 2004, PCFL and Bondi commenced separate proceedings
21 pursuant to former 11 U.S.C. § 304 in the Bankruptcy Court for
22 the Southern District of New York. These proceedings permitted
23 PCFL and Bondi, as representatives of the foreign bankruptcy
24 estates, to commence bankruptcy cases in the United States in
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1 order to enjoin litigation against PCFL and Parmalat in the
2 United States courts. The bankruptcy court entered a
3 preliminary injunction shielding Old Parmalat from American
4 lawsuits. Purchasers of Old Parmalat’s debt and equity
5 securities had filed securities fraud class action lawsuits in
6 the United States against Old Parmalat and against various banks
7 and auditing firms that had allegedly participated in the fraud,
8 including Appellees Grant Thornton, who had been auditors for
9 Old Parmalat and PCFL. After the issuance of the preliminary
10 injunction, the securities fraud plaintiffs dropped Old Parmalat
11 as a defendant.
12 In August 2004, Bondi filed suit in Illinois state court
13 against Grant Thornton, alleging claims arising under Illinois
14 law including professional malpractice, fraud, negligent
15 misrepresentation, and unlawful civil conspiracy. Bondi filed a
16 similar suit in New Jersey state court against Citigroup. In
17 September 2004, Grant Thornton removed the Illinois case to the
18 United States District Court for the Northern District of
19 Illinois on the basis of 28 U.S.C. §§ 1334(b) and 1452, arguing
20 that removal was proper because the case was “related to”
21 Bondi’s § 304 proceeding in the Southern District of New York.
22 Bondi filed a motion to remand, arguing that the court was
23 required to abstain from hearing the case pursuant to 28 U.S.C.
24 § 1334(c)(2). The Judicial Panel on Multidistrict Litigation
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1 transferred Bondi's action against Grant Thornton to Judge
2 Kaplan in the Southern District of New York. On February 25,
3 2005, Judge Kaplan denied Bondi's motion to remand to state
4 court. The District Court found that it had jurisdiction
5 pursuant to § 1334(b) and that abstention was not mandatory.
6 The District Court denied Bondi’s motion for an interlocutory
7 appeal pursuant to 28 U.S.C. § 1252(b).
8 In December 2005, PCFL filed suit against Grant Thornton in
9 the same Illinois state court, alleging similar claims to those
10 asserted by Bondi. PCFL also filed a complaint in North
11 Carolina state court against Bank of America alleging some
12 similar claims. Grant Thornton removed the Illinois case to the
13 United States District Court for the Northern District of
14 Illinois, again arguing that removal was proper because the
15 state law claims were related to PCFL’s § 304 proceeding. PCFL,
16 like Bondi, filed a motion to abstain and remand, arguing that
17 abstention was mandatory pursuant to 28 U.S.C. § 1334(c)(2).
18 The Northern District of Illinois denied PCFL's motion. That
19 court then transferred the case to Judge Kaplan in the Southern
20 District of New York for consolidation with Bondi’s case. In a
21 separate proceeding, the North Carolina case against Bank of
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1 America was also transferred to the Southern District of New
2 York.1
3 In October, 2005, the Italian bankruptcy court approved the
4 Concordato. Under the Concordato, a newly formed entity,
5 Parmalat, S.p.A. (“New Parmalat”), assumed all of the legal
6 liabilities, as well as the assets, of its predecessor
7 companies. New Parmalat acts as a claims administrator for
8 creditors of Old Parmalat under the Concordato. See Bondi v.
9 Capital & Fin. Asset Mgmt. S.A., 535 F.3d 87, 89 (2d Cir. 2008).
10 In June 2007, the District Court denied Bondi’s motion to bar
11 the securities fraud plaintiffs from bringing direct claims
12 against New Parmalat. See In re Parmalat Sec. Litig., 493 F.
13 Supp. 2d 723 (S.D.N.Y. 2007), aff’d, Bondi, 535 F.3d at 94. The
14 District Court also granted a motion to permit Grant Thornton to
15 file third party contribution claims against Parmalat in the
16 securities class action. See In re Parmalat Sec. Litig., 472 F.
17 Supp. 2d 582 (S.D.N.Y.), aff’d, 240 F. App’x 916 (2d Cir. 2007).
18 The securities class actions eventually settled.
19 Meanwhile, the Illinois and North Carolina actions
20 continued in the Southern District of New York. Following
21 discovery, the District Court issued a detailed and thoughtful
1
Bondi’s New Jersey case against Citigroup remained in New
Jersey state court. See, e.g., Bondi v. Citigroup, Inc., 32
A.3d 1158 (N.J. Super. Ct. App. Div. 2011).
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1 opinion granting summary judgment to the defendants. See In re
2 Parmalat Sec. Litig., 659 F. Supp. 2d 504 (S.D.N.Y. 2009). With
3 regard to the North Carolina action, we affirmed the District
4 Court’s grant of summary judgment to Bank of America. See
5 Parmalat Capital Fin. Ltd. v. Bank of Am. Corp., 412 F. App’x
6 325 (2d Cir. 2011) (summary order).
7 In a separate Opinion regarding the Illinois actions
8 against Grant Thornton, we vacated the decisions not to abstain
9 from deciding these cases pursuant to the mandatory abstention
10 provision in 28 U.S.C. § 1334(c)(2). Parmalat Capital Fin. Ltd.
11 v. Bank of Am. Corp., 639 F.3d 572, 582-83 (2d Cir. 2011). We
12 remanded the Illinois cases to the District Court for a
13 determination of whether the cases could be “timely adjudicated”
14 in Illinois state court within the meaning of § 1334(c)(2), in
15 accordance with the factors we set forth in that Opinion. On
16 remand, the District Court again concluded that mandatory
17 abstention did not apply. In re Parmalat Sec. Litig., Nos. 04
18 Civ. 9771, 06 Civ. 2991, 2011 WL 3874824, at *1 (S.D.N.Y. Aug.
19 31, 2011). The Appellants renewed their appeals to this Court
20 arguing for mandatory abstention.
21
22
23
24
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1 DISCUSSION
2 Section 1334(c)(2) provides that, in certain circumstances,
3 a district court must abstain from hearing state law claims that
4 are related to a bankruptcy case when those proceedings can be
5 “timely adjudicated” in state court. 28 U.S.C. § 1334(c)(2).
6 In our previous Opinion, we explained that “[f]our factors come
7 into play in evaluating § 1334(c)(2) timeliness: (1) the backlog
8 of the state court's calendar relative to the federal court's
9 calendar; (2) the complexity of the issues presented and the
10 respective expertise of each forum; (3) the status of the title
11 11 bankruptcy proceeding to which the state law claims are
12 related; and (4) whether the state court proceeding would
13 prolong the administration or liquidation of the estate.”
14 Parmalat, 639 F.3d at 580 (citing In re Georgou, 157 B.R. 847,
15 851 (N.D. Ill. 1993)). The issue on this renewed appeal is
16 whether that four factor test was met in these cases. We review
17 the decision whether to abstain de novo. Id.18
19 I.
20 With regard to the first factor, “the backlog of the state
21 court’s calendar relative to the federal court’s calendar,” we
22 explained that “[t]he inquiry does not turn exclusively on
23 whether an action could be adjudicated most quickly in state
24 court[, but] is, however, informed by the comparative speeds of
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1 adjudication in the federal and state forums.” Id. The
2 District Court found that this factor ultimately weighs in favor
3 of denying abstention. In re Parmalat, 2011 WL 3874824, at *1-
4 *3. We agree that this factor weighs in favor of denying
5 abstention, but this factor is not dispositive. It is plainly
6 the case that, were this claim to remain in federal court, we
7 would reach the merits of the already-decided motions for
8 summary judgment. There would be a decision on the merits
9 sooner if abstention were denied. But that difference in timing
10 appears to be a matter of months, rather than years.
11 The Appellants have conceded that, if this case were
12 remanded to the Illinois state courts, the Appellants will not
13 seek to relitigate the discovery issues already decided by the
14 District Court. If they received an adverse judgment, it could
15 then be appealed directly through the Illinois appellate courts.
16 There is no allegation in the record that the Illinois courts
17 are “backlogged,” and no dispute over the assertion that the
18 difference in the time it takes to resolve a case between
19 federal and Illinois state courts, when both start at the same
20 time, is no more than a few months. The conclusion that there
21 would be years of delay from a remand overestimates, based
22 solely on the complexity of the record, the amount of time an
23 Illinois court might take to decide or review a summary judgment
24 motion.
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1 On balance, this factor does tip in favor of denying
2 abstention. At the very least, there will be delay added for
3 the review of the summary judgment motion by an Illinois trial
4 court. But the entire inquiry cannot “turn exclusively on
5 whether an action could be adjudicated most quickly in state
6 court.” Parmalat, 639 F.3d at 580; see also In re Exide Techs.,
7 544 F.3d 196, 218 n.14 (3d Cir. 2008) (“The question is not
8 whether the action would be more quickly adjudicated in [the
9 bankruptcy court] than in state court, but rather, whether the
10 action can be timely adjudicated in the state court.”
11 (alterations in original) (internal quotation marks omitted)).
12 The District Court did not specifically address each of the
13 other three factors.2 We now address them in turn.
14 The second factor, “the complexity of the issues presented
15 and the respective expertise of each forum” cuts in favor of
16 remand. We explained in our prior Opinion that “[t]he district
17 court may find that this factor particularly favors abstention
18 here because one of the key issues in this case—the defense of
19 in pari delicto—is a matter of Illinois state law and there is
20 some doubt as to the nature and reach of the defense.”
21 Parmalat, 639 F.3d at 580 n.8. The District Court did not
22 address these legal issues, despite the fact that, as the
2
The remaining factors solely involve issues of law that are not
premised on findings of fact.
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1 Appellees conceded at oral argument, basic questions regarding
2 in pari delicto under Illinois law are unsettled. See, e.g.,
3 Peterson v. McGladrey & Pullen, LLP, --- F. Supp. 2d ----, 2010
4 WL 4435543, at *2-*3 (N.D. Ill. 2010) (“[T]here is no
5 controlling authority in the Seventh Circuit or Illinois on
6 whether the defense of in pari delicto is available against a
7 bankruptcy trustee.”), on appeal, No. 10-3770 (7th Cir.) (argued
8 Sept. 8, 2011).3
9 Instead, the District Court appeared to find that this
10 factor supported denying abstention, because the facts in the
11 case are complex, and the District Court is already familiar
12 with them. In re Parmalat, 2011 WL 3874824, at *2-*3. But the
13 District Court did not address the complexity of the legal
14 issues, even though we specifically highlighted that the
15 complexity of state law issues here “particularly favors
16 abstention,” and despite the fact that the District Court=s
17 disposition of these cases rested on its prediction and
18 interpretation of Illinois law. See In re Parmalat Sec. Litig.,
3
Although Amici Curiae have argued that in pari delicto should
not apply to Bondi because he is an appointed public official
charged with overseeing Parmalat’s bankruptcy affairs, Bondi has
analogized his position to that of a bankruptcy trustee
throughout this litigation. Indeed, Bondi conceded to the
District Court that he “stands in the shoes” of Parmalat, and on
appeal, he likewise did not assert that in pari delicto did not
apply to him on the basis of his position as Extraordinary
Commissioner of Old Parmalat.
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1 659 F. Supp. 2d 504, 519-20 & nn. 101, 103 (S.D.N.Y. 2009); id.2 at 530-32 & nn. 162, 166-168, 170. This Court, in another
3 case, found that the application of in pari delicto to auditor
4 malpractice under New York law was sufficiently important and
5 unsettled to warrant certifying questions to the New York Court
6 of Appeals. See Kirschner v. KPMG LLP, 590 F.3d 186 (2d Cir.
7 2009); 938 N.E.2d 941 (N.Y. 2010) (responding to certified
8 questions). The high courts of Pennsylvania and New Jersey have
9 each issued recent decisions limiting the in pari delicto
10 doctrine in auditor malpractice cases. See Official Comm. of
11 Unsecured Creditors of Allegheny Health Educ. & Research Found.
12 v. PricewaterhouseCoopers, LLP, 989 A.2d 313 (Pa. 2010); NCP
13 Litig. Trust v. KPMG LLP, 901 A.2d 871 (N.J. 2006). In our
14 prior Opinion we specifically noted that, “Illinois does not
15 permit our Court to certify questions of Illinois state law to
16 the Illinois Supreme Court.” Parmalat, 639 F.3d at 580 n.8.
17 Remand will allow the state courts of Illinois to speak directly
18 on these issues of state law. Moreover, the complexity of the
19 factual issues in these cases is tempered by the fact that there
20 is a thorough summary judgment record that will accompany this
21 case back to the Illinois state court.
22 The third factor, “the status of the title 11 bankruptcy
23 proceeding to which the state law claims are related,” also
24 favors remand. We specifically explained in our prior Opinion
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1 that “[b]ecause a [bankruptcy] court overseeing a ' 304 case is
2 not tasked with overseeing reorganization or liquidation of the
3 estate, we see no reason why, as a result of the ' 304
4 proceeding, the litigants in a state law proceeding would
5 require swift resolution of the state law claims.” Parmalat,
6 639 F.3d at 581 n.9. The District Court did not explain why
7 such swift resolution of the ' 304 proceeding was required here,
8 or even whether a quicker resolution of the Illinois claims
9 would have any effect on the ' 304 proceeding. It is difficult
10 to see how these actions will affect the § 304 proceeding, and
11 the Appellees do not claim that they would. They argue that the
12 factor is “neutral,” but it is not, in our view, neutral. It
13 supports the proposition that these cases can be timely
14 adjudicated in state court without affecting the federal
15 interest in “related-to” jurisdiction.
16 The fourth factor, “whether the state court proceeding
17 would prolong the administration or liquidation of the estate,”
18 also favors remand. The Appellees do not challenge the
19 assertion that the ability of New Parmalat to pay creditors
20 according to the Concordato does not depend on the resolution of
21 the Illinois claims. It appears undisputed that the Italian
22 reorganization of Parmalat will be completed when the current
23 appeal in Italy is concluded, so that the pendency of the
24 Illinois cases will not affect the reorganization of Parmalat.
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1 Nor is there any dispute that PCFL is in liquidation in the
2 Cayman Islands. See In re Leco Enters., Inc., 144 B.R. 244,
3 251 (S.D.N.Y. 1992) (“In deciding whether a matter may be timely
4 adjudicated, perhaps the single most important factor is the
5 nature of the underlying chapter proceeding. In a Chapter 7
6 proceeding there is no administrative urgency or plan of
7 reorganization to facilitate and timely adjudication can be
8 weighed relatively lightly.” (alterations and internal quotation
9 marks omitted)); accord Bates & Rogers Constr. Corp. v. Cont’l
10 Bank, N.A., 97 B.R. 905, 908 (N.D. Ill. 1989) (“Bates & Rogers
11 is involved in a liquidating Chapter 11 which involves no
12 reorganization. Consequently, no administrative urgency or plan
13 of reorganization exists to facilitate. In light of this fact,
14 we do not believe that a potential delay in state court will
15 significantly affect the administration or liquidation of the
16 estate.” (citation omitted)); see also Parmalat, 639 F.3d at17 581-82 (“Unlike WorldCom, the district court here is not charged
18 with administration of a bankruptcy estate. As a result, the
19 possibility that remand of the state court claims will slow down
20 the ' 304 proceeding is insufficient to show that state court
21 adjudication would be untimely. The inquiry=s proper focus is on
22 the timely administration of the estate, not the ' 304
23 proceeding.”).
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1 The District Court did not address this factor with
2 specific reference to the types of proceedings at issue, but the
3 Appellees argue that remand would harm the creditors by
4 increasing the cost of litigation. The issue, though, is
5 plainly not whether abstention increases the ultimate payout to
6 the creditors, but whether it “unduly prolong[s] the
7 administration of the estate” at issue. Parmalat, 639 F.3d at
8 581. As we noted, the Appellants are the administrators of the
9 estates at issue, and were presumably “well versed in the
10 timeliness concerns of their respective foreign bankruptcy
11 proceedings when they selected the state forum.” Id. at 581
12 n.10. That presumption is only buttressed by the nature of the
13 foreign bankruptcy proceedings and the extent to which they do
14 not depend on the Illinois claims for resolution.
15 These are unusual cases. They have existed in parallel
16 with a securities fraud class action that was also before the
17 District Court, in which Grant Thornton had asserted third-party
18 contribution claims against Parmalat. At least Bondi likely
19 could have asserted Parmalat’s state law claims against Grant
20 Thornton in that securities fraud action, but he chose not to do
21 so. Instead, Bondi chose to assert these claims as a separate
22 action in a state forum, and the unusual procedural posture of
23 these cases reflects that decision. However, mandatory
24 abstention affords that choice. By contrast, when PCFL
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1 attempted to sue Bank of America in North Carolina state court,
2 there was an independent basis for federal jurisdiction,
3 unrelated to bankruptcy jurisdiction. Mandatory abstention did
4 not apply in that case, and we summarily affirmed the District
5 Court’s grant of summary judgment to Bank of America.
6 In sum, the four factors weigh in favor of abstention.
7 While some additional time will be expended by remanding these
8 cases, that delay does not outweigh the substantial factors that
9 militate in favor of abstention, namely the complexity of the
10 state law issues, the deference owed to state courts in deciding
11 state law issues where possible, and the minimal effect of the
12 state cases on the federal bankruptcy action and on the
13 administration of the underlying estates.
14 The four factors are meant to guide courts= analyses with
15 respect to the ultimate balance, struck by Congress, between, on
16 the one hand, creating a federal forum for purely state law
17 cases which, due to delay, might impinge upon the federal
18 interest in the administration of a bankruptcy estate, and, on
19 the other, ensuring that purely state law cases remain in state
20 courts when they would not significantly affect that federal
21 interest. See Leco, 144 B.R. at 252 (' 1334 mandatory abstention
22 “comports with principles of federalism”); cf. Stern v.
23 Marshall, 131 S. Ct. 2594, 2619-20 (2011) (“The dissent asserts
24 . . . that, ‘to be effective, a single tribunal must have broad
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1 authority to restructure debtor-creditor relations.’ But the
2 framework Congress adopted in the 1984 Act already contemplates
3 that certain state law matters in bankruptcy cases will be
4 resolved by judges other than those of the bankruptcy courts.
5 Section 1334(c)(2), for example, requires that bankruptcy courts
6 abstain from hearing specified non-core, state law claims that
7 ‘can be timely adjudicated in a State forum of appropriate
8 jurisdiction’” (citation and alterations omitted)). The factors
9 are ultimately interrelated: an action might be “timely
10 adjudicated” in state court, despite some substantial delay,
11 where the delay has little or no effect on the bankruptcy estate
12 which creates the federal interest. See Stoe v. Flaherty, 436
13 F.3d 209, 219 (3d Cir. 2006) (“[T]imeliness in this context must
14 be determined with respect to needs of the title 11 case and not
15 solely by reference to the relative alacrity with which the
16 state and federal court can be expected to proceed.”).
17 Conversely, even a relatively brief delay might make state court
18 adjudication untimely where the state action substantially
19 affects the bankruptcy estate, or where the estate=s resolution
20 is contingent upon the state action. Based on the particular
21 facts of these cases, the four-factor test indicates that these
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1 cases can be “timely adjudicated” in Illinois state court.4
2 Abstention is therefore mandatory.
3
4 II.
5 The District Court also concluded that, even if this case
6 could be “timely adjudicated” in the Illinois state courts,
7 mandatory abstention did not apply because these cases “could .
8 . . have been commenced” in federal court. See In re Parmalat,
9 2011 WL 3874824, at *3 (citing 28 U.S.C. §
10 1334(c)(2)). It was error to consider this argument, because it
11 had been waived, and because it was outside the scope of the
12 mandate set forth in our previous Opinion.
13 It is plain that this argument was waived in the initial
14 appeal, because it had not been raised with the District Court
15 as a basis to avoid mandatory abstention. See, e.g., Singleton
16 v. Wulff, 428 U.S. 106, 120 (1976) (“It is the general rule, of
17 course, that a federal appellate court does not consider an
18 issue not passed upon below.”); see also Stoe, 436 F.3d at 219.
4
The District Court did not resolve the issue of which party
bears the burden of showing timely adjudication. Our previous
Opinion, while noting that other courts have held to the
contrary, explained that there were reasons for imposing the
burden on the party opposing abstention. Parmalat, 639 F.3d at
582 (citing Younger v. Harris, 401 U.S. 37, 44 (1971)).
However, because the balance of the four factors weighs in favor
of abstention, we do not need to resolve this issue.
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1 The argument was not raised on the initial appeal, and we
2 issued a mandate that focused specifically and exclusively on
3 the question of “timely adjudication.” Parmalat, 639 F.3d at
4 582. The Appellees argue that the mandate reasonably can be
5 read as allowing consideration of an alternative basis for
6 denying mandatory abstention. We have explained that, “[t]o
7 determine whether an issue remains open for reconsideration on
8 remand, the trial court should look to both the specific
9 dictates of the remand order as well as the broader ‘spirit of
10 the mandate.’” United States v. Ben Zvi, 242 F.3d 89, 95 (2d
11 Cir. 2001). Here, both the “specific dictates of the mandate”
12 and the “spirit of the mandate” focus entirely on the question
13 of timely adjudication, with no mention of an alternative basis
14 for denying mandatory abstention. It is not reasonable to
15 construe the mandate as allowing alternative, dispositive bases
16 for denying abstention to be raised for the first time on
17 remand, particularly when the cases had been pending for years
18 and had already been the subject of an appeal. The more
19 reasonable reading of the mandate is that it directed the
20 District Court to examine the issue of timely adjudication as a
21 bar to abstention, and that alternative grounds for denying
22 abstention that had not been raised either before the District
23 Court or on the initial appeal were “impliedly decided” to have
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1 been waived in the first instance. Id. The District Court
2 therefore should not have entertained this argument.
3
4 CONCLUSION
5 We have considered all of the arguments of the parties. To
6 the extent not specifically addressed above, they are either
7 moot or without merit. For the reasons explained above, we
8 VACATE the judgments of the District Court and REMAND these
9 cases to the District Court with instructions to transfer them
10 to the Northern District of Illinois so that they can be
11 remanded to Illinois state court.5 The mandate shall issue
12 forthwith.
13
14
15
5
The proper procedure to remand a case subject to mandatory
abstention under 28 U.S.C. § 1334(c)(2) is found in 28 U.S.C. §
1452(b). See Covanta Onondaga Ltd. v. Onondaga Cnty. Res.
Recovery Agency, 318 F.3d 392, 398-99 (2d Cir. 2003). However,
under § 1452(b), the appropriate court to remand a case to state
court is the “court to which [the] claim or cause of action
[was] removed.” 28 U.S.C. § 1452(b). Because the Illinois
state court actions were originally removed to the United States
District Court for the Northern District of Illinois, from which
they were transferred to the District Court for the Southern
District of New York, only the District Court for the Northern
District of Illinois has the authority to remand the actions
back to the Illinois state court. Thus, on remand, the District
Court for the Southern District of New York should transfer the
actions to the District Court for the Northern District of
Illinois, which can then remand the actions to Illinois state
court.
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