Petition for Writ of Certiorari — Foxmeyer Drug Co. v. Coopers & Lybrand, 115 S. Ct. 296 (1994) (No. 93-2014)

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a ee 982014 JUN 15 1994

IN THE OFFGE OF TRE CLERK

Supreme Court OF Che United States

OCTOBER TERM, 1993

FOXMEYER DRUG COMPANY,

Petitioner,

CoopPpERS & LYBRAND, :

Respondent.

In re FOXMEYER DRUG COMPANY,

Petitioner.

PETITION FOR WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

and in the alternative

PETITION FOR COMMON-LAW WRIT OF CERTIORARI,

AND FOR WRIT OF MANDAMUS

TO HONORABLE DONALD E. ZIEGLER,

UNITED STATES DISTRICT JUDGE

FOR THE WESTERN DISTRICT OF PENNSYLVANIA

PETITION FOR WRIT OF CERTIORARI

MARVIN S. SLOMAN

Counsel of Record

WILLIAM B. DAWSON

KAREN L. HIRSCHMAN

WILLIAM D. UNDERWOOD

CARRINGTON, COLEMAN, SLOMAN

& BLUMENTHAL, L.L.P.

200 Crescent Court, Suite 1500

Dallas, Texas 75201

214-855-3000

Telecopier: 214-855-1333

Counsel for Petitioner

Questions Presented

1. Does a civil action between nondiverse and nonban-

krupt parties which involves only state-law claims “arise

under” federal law within the meaning of Article III, § 2

of the United States Constitution, and “relate to” a

pending bankruptcy within the meaning of 28 U.S.C.

§ 1334(b), simply because the action could, depending on

a number of contingencies, have some hypothetical and

indirect effect on administration of the bankruptcy estate?

2. Under 28 U.S.C. § 1334(c)(2), does a district

court’s mandatory obligation to abstain in a state-law

action, “commenced” in a state court, and that “relates

to” a pending bankruptcy, not apply simply because the

action had been removed to federal court and thus was

not “pending” in state court when abstention was

requested?

3. Does 28 U.S.C. § 1334(c) (2), which precludes cer-

tain specified avenues of appellate review of a mandatory

abstention decision, also preclude other, unspecified ave-

nues of appellate review, such as mandamus pursuant to

28 U.S.C. § 1651, when a district court’s decision refusing

to abstain is based upon statutorily impermissible

considerations?

List of Parties, Affiliated Corporations,

and Interested Persons

The undersigned hereby certifies that, to the best of his

knowledge, the following are “interested parties” with

respect to the subject matter of this petition, and related

entities under Rule 29.1, i.e., all parent companies and

subsidiaries.

District judge:

Honorable Donald E. Ziegler

United States District Judge

Western District of Pennsylvania

Parties:

FoxMeyer Drug Company

Related entities:

National Intergroup, Inc.

Coopers & Lybrand

The following persons, partners in Coopers &

Lybrand, may be deemed also to be “interested”

in the subject matter of the petition, by virtue of

an order signed July 23, 1993, in Jn re Phar-Mor,

Inc. Securities Litigation, MDL No. 959 in the

United States District Court for the Western Dis-

trict of Pennsylvania, that all pleadings of record in

the multidistrict litigation be “deemed amended to

assert claims against the individual partners

and/or principals of Coopers & Lybrand,” and

treating the following as “adequate class repre-

sentatives of the current partners and/or principals

of Coopers & Lybrand”:

ada ie de “ ee

Eugene M. Freedman .

William K. O’Brien

Larry S. Schumer

eee

ili

John Henry Cynkar

Robert Scott Williams

Richard L. Baird

John E. Easton

Philip H. Reed, Jr.

Vincent M. O’Reilly

John J. Roberts

Steven L. Skalak

Robert T. Caruso

Bjorn Hanson

William F. Buettner, Jr.

Gregory S. Finerty

Richard E. Sherman

The following persons, believed to be partners in

Coopers & Lybrand, filed responses to complaints

in all cases in In re Phar-Mo;, Inc. Securities

Litigation, after the entry of the above-mentioned

order of July 23, 1993:

Thomas J. Colligan

Warren D. Jones

Theodore G. Glyptis

John H. Holzapfel

James R. Lattanzi

Garret L. Stauffer

Louis L. Testoni

Howard K. Von Schaven

James H. Weber

The following additional persons or entities may be

considered “interested” by virtue of having been

named in this action by Coopers & Lybrand and

others at various times (and, in some instances,

from time to time dropped) as third-party defend-

ants after removal of petitioner’s state-court suit:

Phar-Mor, Inc.

David S. Shapira

Patrick B. Finn

Jeffrey C. Walley

A. Joel Arnold

Westinghouse Credit Corporation

First Westinghouse Capital Corporation

Corporate Partners, L.P.

Corporate Offshore Partners, L.P.

State Board of Administration of Florida

Lester Pollack

Jonathan H. Kagan

Nathan H. Monus

Giant Eagle, Inc.

Giant Eagle of Delaware, Inc.

This action is now pending in the Phar-Mor, Inc.

Securities Litigation proceeding, and has been consoli-

dated for discovery purposes with 35 other actions now

pending in that proceeding. Other than the various per-

sons and entities identified above in this certificate, the

parties to other actions pending in the MDL proceeding

are not parties to or interested in this action.

MARVIN S. SLOMAN

TABLE OF CONTENTS

Page

el a i

List of Parties, Affiliated Corporations, and

I EE Re ii

II, Wg dia a 6c Se ea 6'ds vacaser veces Vv

es 6 in 6b. 6 a00 WKS 6 500-65 0 vii

es A ane ae akan m4 ade Bae 6.8 & 2

aa eh 6k coda db Swed A054 EO RW 0 2

Constitutional and Statutory Provisions Involved 2

I 2

Reasons for Granting the Writ................ 6

NE WIS 55a occ ces wesccecnesecs 6

PE Was WAG e ean cOe bcd cacaeeeseess 9

I. The district court’s decision to exercise

jurisdiction in this case despite the

entirely contingent nature of any

federal interest raises an important

question concerning the constitutionally

permissible scope of “related to”

bankruptcy jurisdiction under 28

eR re 9

Il. The district court’s refusal to apply the

mandatory abstention provision in 28

U.S.C. § 1334(c) to an action removed

from state court undermines a

significant restraint on the exercise of

federal bankruptcy jurisdiction ....... 16

III. Mandamus review of the district

court’s order is appropriate and

TS an te 23

A. Mandamus is appropriate and

necessary given the district court’s

constitutionally impermissible exercise

of federal authority and the absence of

any adequate alternative remedy..... . 23

B. Mandamus review of the district

court’s decision refusing to abstain is

appropriate despite the language in 28

U.S.C. § 1334(c) precluding certain

appellate review of mandatory

i, 25

Conclusion... ci iss... 28

vii

TABLE OF AUTHORITIES

Cases

Aldinger v. Howard, 427 U.S. 1 (1976) ......

Allen County Bank & Trust Co. v. Valvmatic

Int'l Corp., 51 B.R. 578 (N.D. Ind. 1985) ..

Baxter Healthcare Corp. v. Hemex Liquid.

Trust, 132 B.R. 863 (N.D. Ill. 1991) ......

Carden v. Arkoma Assocs., 494 U.S. 185

DE IS a ee

Carnegie-Mellon Univ. v. Cohill, 484 U.S. 343

SE SE ee te

Channel Bell Assocs. v. W.R. Grace & Co.,

1992 WL 232085 (S.D.N.Y. August 31,

ee das se 4 t'e 8c es

Cel ch a witRaes CaN ae eh en sanese ees

Dunkirk Ltd. Part. v. TJX Cos., Inc., 139 B.R.

643 (Bankr. N.D. Ohio 1992).............

Gully v. First Nat'l Bank,

div cee ee eee

Hoffman v. Blaski, 363 U.S. 335 (1960) .....

In re 666 Assoc., 57 B.R. 8 (Bankr. S.D.N.Y.

1985), rev'd sub nom. Paul v. Chemical

Bank, No. 85 Civ. 1978 (ULB), slip op.

ps eis BS )

In re Alpha Steel Co., 142 B.R. 465 (M.D.

GA IS aa

In re Baldwin Park Inn Assocs., 144 B.R. 475

ee en

In re Bowen Corp., 150 B.R. 777 (Bankr. D.

re as bas die So bade d'x esc’

Vili

In re Branded Products, Inc., 154 B.R. 936

(Bankr. W.D. Tex. ROE ER a

In re Chiodo, 88 B.R. 780

Seek. k., ., eA arena

In re Dogpatch U.S.A., Inc., 810 F.2d 782 (8th

nee Bia, ET RS a Rea

In re Fairchild Aircraft Corp., 1990 WL

119650 (Bankr. W.D. Tex. June 18, 1990)

In re Jasperson, 116 B.R. 740 (Bankr. S.D.

ORM bake itt seid eu S

In re Marshall, 118 B.R. 954 (W.D. Mich.

sient. SER T E eer CNET C ae

In re Micro Mart, Inc., 72 B.R. 63 (Bankr.

N.D. Ga. | ETE, Ceo

In re Pacor, Inc., 72 B.R. 927 (Bankr. E.D.

Pa. 1987), aff'd, 86 B.R. 808 (E.D. Pa.

1987), appeal dism’d, 1988 WL 235479

(ewe

In re Revco DS, Inc., 99 B.R. 768

(N.D. Ohio EES EY Pe

In re Ross, 64 B.R. 829

(Bankr. S.D.N.Y. BS Ser

In re School Asbestos Litig., 977 F.2d 764

Fe OE Cees ee

In re Selig, 135 B.R. 241 (Bankr. E.D. Pa.

ites eT eT OTTO

In re Wood, 825 F.2d 90 (Sth Cir. 1987) .....

In re World Solar Corp., 81 B.R. 603

(Bankr. S.D. Cal. cea EE PS

Indian River Homes, Inc. v. Young, Conaway,

Stargatt & Taylor, 1991 WL 171267

EE a cheb cahs bb ewes v0.00

Kenrose Mfg. Co. v. Fred Whitaker Co., 512

oe fe Re | re

Kline v. Burke Construction Co., 260 U.S. 226

ee kes ing Gs dwce.ele oe 8

Louisville & N.R.R. v. Mottley,

ee nS kee k

Maritime Elec. Co. v. United Jersey Bank,

959 F.2d 1994 (3d Cir. 1991) ............

National Acceptance Co. v. Levin, 75 B.R. 457

SEN ORS RE SI a

Neuman vy. Goldberg, 159 B.R. 681

Og SS

Northern Pipeline Const. Co. v. Marathon

Pipe Line Co., 458 U.S. 50 (1982) ........

O'Rourke v. Cairns, 129 B.R. 87

EEE EE ee

Pacor, Inc. v. Higgins, 743 F.2d 984

pe RO Ee ee

Paul v. Chemical Bank, No. 85 Civ. 1978

(ULB), slip op. (S.D.N.Y. Dec. 22,

RE a ae a rr

Railroad Comm’n v. Pullman Co., 312 U.S.

8 ESE a

Robinson v. Michigan Consol. Gas Co., 918

es, Be

Roche v. Evaporated Milk Ass’n, 319 U.S. 21

ee ae ea slat bb awe <e«

Page _

Textile Workers Union v. Lincoln Mills, 353

iets cc) PORTE ET ene 1]

Thermtron Prod., Inc. vy. Hermsdorfer,

423 US. 336 (1976) .................... 26, 27

United States Alkali Export Ass'n y.

_ United States, 325 U.S. 196 [. | ye

Weisman v. Southeast Hotel Properties, Ltd.,

No. 91 Civ. 6232, 1992 WL 131080 (Bankr.

SDILY, Jae SFG) oa 21

United States Constitution

U. S. Const., Article III, 2 ey are rae 16

U. S. Const., Article 8, $2, 0.1... -4 2, 6-8, 10-12,

16, 23, A-14

Statutes

RE EI ook ca. 25

Oe Stee BIRD) 5... co ok i, & am ae

pistes uc EOE RE Ree 23, 25

“tech cca t .,. SRNR S ire eter nee EsE ae 25

We eR is i idan ee 5

BO Wie BAAD) os ok oo ive. 5, 23

cots tga, hE, PERE a ae te ORE Ss TE 3, 4

Oe OE ake oo ccn tice ok 3

28 U.S.C. § 1334(b)....... i, 4-6, 9, 11, 22, 25, A-15

28 U.S.C. § 1334(c) .. i, 4, 5, 7, 8, 16-22, 25-27, A-15

We RE BRORIGG) oo oss iv oko cede 26

Oe RINE ies pied cs Sdudc ay cak enter 2

Other Authorities

130 ConG. REc. S6098

BE) re

130 Conca. REc. S17152-53, 17155

SR 5s Saw bos 640s evn wees

130 ConG. REc. $8891

(carey Oe. Jame ae, 1964) 2.2.6.2... 0220

American Enterprise Institute for Public

Policy Research, Bankruptcy Reform

| Bee FOS a ae

Ferriell, Jeffrey T., Constitutionality of the

Bankruptcy Amendments and Federal

Judgeship Act of 1984, 63 AM. BANKR. L.J.

ee ere Sena cae 4 6s oe

Note, Bankruptcy and the Limits of Federal

Jurisdiction, 95 Harv. L. Rev. 703

rn en eace

Note, Selective Exercise of Jurisdiction in

Bankruptcy-Related Civil Proceedings,

oe Rs tn WEED, Se LESBO Soe sci e eee

S. REP. No. 98-55, 98th Cong., Ist Sess. 1

Raa a Cie Cel ded pas Casa ee vas en

WEBSTER’S NEW INTERNATIONAL

DICTIONARY (2d ed. 1960) ..............

No. 93-

IN THE

Supreme Court Of Che United States

OCTOBER TERM, 1993

FOXMEYER DRUG COMPANY,

Petitioner,

CoopPERS & LYBRAND,

Respondent.

In re FOXMEYER DRUG COMPANY,

Petitioner.

PETITION FOR WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

and in the alternative

4 PETITION FOR COMMON-LAW WRIT OF CERTIORARI,

AND FOR WRIT OF MANDAMUS

TO HONORABLE DONALD E. ZIEGLER

UNITED STATES DISTRICT JUDGE

FOR THE WESTERN DISTRICT OF PENNSYLVANIA

Sah ite a eta ae

PETITION FOR WRIT OF CERTIORARI

Petitioner respectfully prays that a writ of certiorari

issue pursuant to 28 U.S.C. § 1254(1) to review the order

: and decision of the United States Court of Appeals for

the Third Circuit, filed March 25, 1994. In the alternative

petitioner prays that a common-law writ of certiorari issue

pursuant to 28 U.S.C. § 1651(a) to review the order and

decision of Honorable Donald E. Ziegler, United States

District Judge for the Western District of Pennsylvania,

signed November 5, 1993, and that upon final hearing a

writ of mandamus issue to the district judge.

OPINIONS BELOW

The decision of the court of appeals is unreported and is

reproduced in Appendix 1. The decision of the district

court is also unreported and is reproduced in Appendix 2.

JURISDICTION

The court of appeals entered its judgment on March 25,

1994. The jurisdiction of the Court is invoked under 28

U.S.C. § 1254(1), and alternatively under 28 U.S.C.

§ 1651 (a).

CONSTITUTIONAL AND STATUTORY

PROVISIONS INVOLVED

The text of Article III, § 2, cl. 1 of the United States

Constitution and the text of 28 U.S.C. § 1334(b) and

STATEMENT OF THE CASE

Petitioner, FoxMeyer Drug Company (“FoxMeyer’),

commenced this case in state district court of Dallas

County, Texas, against respondent Coopers & Lybrand

(“Coopers”) seeking over $72 million in damages.

(App. 4 Item 1)' FoxMeyer had invested money and

extended credit to a client of Coopers, PharMor, Inc.

(“Phar-Mor’’), in reliance on representations by Coopers

'Record citations throughout are to filed papers in the courts

below, numbered and identified by their full names in Appendix 4.

Thus the record citation “App. 4 Item 1” refers to item numbered |

on the list appearing in Appendix 4.

DAA aE VAG CRI stile

that it had audited the financial statements of Phar-Mor

in accordance with generally accepted auditing standards,

the financial statements were prepared in accordance with

generally accepted accounting principles, and the finan-

cial statements fairly represented Phar-Mor’s financial

condition. These representations were false. Phar-Mor

filed for bankruptcy protection in 1992 without having

repaid FoxMeyer.

FoxMeyer’s suit against Coopers alleged only state-law

claims for negligent misrepresentation and professional

negligence. Coopers was the only defendant, and

FoxMeyer and Coopers are both considered to be citizens

of Texas for purposes of diversity jurisdiction. FoxMeyer

also filed a claim as an unsecured creditor in the Phar-

Mor bankruptcy, but Phar-Mor was not named a defen-

dant in FoxMeyer’s action against Coopers.*(App. 4

Item 1)

Despite the absence of diversity jurisdiction under 28

U.S.C. § 1332 or of federal question jurisdiction under 28

*FoxMeyer is a Kansas corporation with its principal office in

Carrollton, Dallas County, Texas. (App. 4 Item 1) Coopers is a

national accounting partnership licensed to practice accountancy in

Texas with a business address and partners in Dallas, Texas. (App. 4

Item 7) See 28 U.S.C. § 1332(c) (as to FoxMeyer) and Carden v.

Arkoma Assocs., 494 U.S. 185 (1990) (as to Coopers).

Coopers has at various times in this proceeding filed pleadings

purporting to name Phar-Mor as a third-party defendant. Coopers’s

most recent third-party pleading, however, does not name Phar-Mor.

No responsive pleading of Phar-Mor appears of record. It thus

appears that Phar-Mor remains unconnected to this action.

In any event Coopers’s third-party complaints would have no

impact on the issue of the district court’s subject-matter jurisdiction

of FoxMeyer’s action against Coopers. Louisville & N.R.R. v. Mot-

tley, 211 U.S. 149 (1908) (federal jurisdiction must depend on the

state of circumstances when the jurisdiction is invoked).

U.S.C. § 1331, Coopers removed the action to federal

court. (App. 4 Item 2) The only basis for federal jurisdic-

tion asserted by Coopers was 28 U.S.C. § 1334(b);

Coopers claimed that the case “related to” the Phar-Mor

bankruptcy pending in Ohio. Having removed the case to

a federal district court in Texas, Coopers then moved that

the case be transferred, but not to the federal district in

Ohio where the supposedly “related” Phar-Mor bank-

ruptcy was pending. (App. 4 Item 3) Instead, Coopers

sought to transfer the case to the United States District

Court for the Western District of Pennsylvania as a “tag-

along” to other suits pending in Jn re Phar-Mor, Inc.,

Securities Litigation, MDL Docket No. 959. After the

case was removed to federal court, FoxMeyer responded

by filing a timely motion to remand, and in the alternative

to abstain. (App. 4 Item 3) FoxMeyer urged that federal

courts could not exercise “related to” jurisdiction over the

case, and that in any event, the district court was required

to abstain from exercising jurisdiction pursuant to the

mandatory abstention provisions of 28 U.S.C.

§ 1334(c) (2).

The Judicial Panel on Multidistrict Litigation ulti-

mately granted Coopers’s transfer request, and transferred

FoxMeyer’s suit against Coopers to the MDL where it

was consolidated for discovery with the other suits pend-

ing in the Phar-Mor securities litigation. (App. 4 Item 8)

Once the case was transferred, the United States District

Court for the Western District of Pennsylvania denied

FoxMeyer’s motion to remand or abstain. (App. 2 at 3)

The district court concluded that the case might affect the

Phar-Mor bankruptcy, if FoxMeyer prevailed on its claim

against Coopers, by possibly removing FoxMeyer from

the Phar-Mor creditor pool. The court concluded that

such a contingent effect was sufficient for the case to

“relate to” the Phar-Mor bankruptcy within the meaning

PS a Ri il SO a SA a ctnl GtNGSD RE SIA AT ol ravers

of 28 U.S.C. § 1334(b). (App. 2 at 3-7) With respect to

FoxMeyer’s alternative request for abstention, the district

court noted that mandatory abstention was only required

under § 1334(c) (2) when a case is “commenced” in state

court. Although FoxMeyer’s case against Coopers was

commenced in state court, the district court concluded

that abstention was not required because the case was not

“pending” in state court when FoxMeyer requested ab-

stention. (App. 2 at 7-9)

Because the district court’s order was neither an imme-

diately appealable final decision under 28 U.S.C. § 1291

nor an appealable interlocutory order under 28 U.S.C.

§ 1292(a)(1), FoxMeyer moved the district court to

certify the order for interlocutory appeal pursuant to 28

U.S.C. § 1292(b). (App. 4 Item 9) The district court

denied FoxMeyer’s motion. (App. 4 Item 10) Having no

other adequate remedy, FoxMeyer filed a petition for writ

of mandamus pursuant to 28 U.S.C. § 1651(a) with the

United States Court of Appeals for the Third Circuit.

(App. 4 Item 11) On March 25, 1994 the court of appeals

denied the petition without written opinion. (App. 1)

FoxMeyer now petitions this Court for relief.

REASONS FOR GRANTING THE WRIT

SUMMARY OF ARGUMENT

This case presents issues of fundamental importance

concerning the scope of federal judicial authority under

Article III, §2 of the United States Constitution.

FoxMeyer properly filed the case in state court, alleged

only state-law claims, and sued a nondiverse and nonban-

krupt party. Despite the absence of any federal interest in

the action, the district court nonetheless exercised federal

subject-matter jurisdiction based on the entirely hypo-

thetical possibility that the case could ultimately affect

the administration of the pending Phar-Mor bankruptcy.

The district court concluded that the case “related to” the

Phar-Mor bankruptcy proceedings within the meaning of

28 U.S.C. § 1334(b), even though Phar-Mor was not a

party to FoxMeyer’s case against Coopers, even though

the case does not seek to adjudicate claims by or against

the bankruptcy estate, and even though the case could

only affect the estate if several contingencies were to

occur.

For the case to affect the Phar-Mor bankruptcy,

FoxMeyer must prevail against Coopers; FoxMeyer must

recover on any judgment against Coopers; the debtor,

Phar-Mor, must be entitled under state law to a reduction

in liability to FoxMeyer based on any recovery FoxMeyer

might obtain from Coopers; sufficient funds must be

available in the Phar-Mor bankruptcy to pay claims of

unsecured creditors such as FoxMeyer; and the amount of

any distribution to FoxMeyer must actually be reduced

because of FoxMeyer’s recovery from Coopers. Indeed,

given these many contingencies, the district court ac-

knowledged that this case “may not” have any effect on

the Phar-Mor bankruptcy but nonetheless concluded that

any possibility that the case would implicate federal

interests in administration of the bankruptcy estate was

sufficient to confer federal jurisdiction.

Such an exercise of federal jurisdiction based on an

entirely hypothetical possibility that the case might affect

administration of a bankruptcy estate, if permitted, would

dramatically expand the scope of federal authority over

cases traditionally the province of state courts. Federal

jurisdiction would be limited only by the creativity of the

party seeking to invoke federal authority in conceiving of

some nexus to a pending bankruptcy. The Court has never

considered the restraint on federal “related to” bank-

ruptcy jurisdiction imposed by the requirement in

Article III, § 2 of the United States Constitution that an

action “arise under” federal law. But the Constitution

must require more than the conjuring of a hypothetical

scenario to support federal jurisdiction. Indeed, the dis-

trict court’s expansive reading of federal judicial authority

is fundamentally inconsistent with settled doctrine that

contingent federal interests are insufficient for the exer-

cise of federal jurisdiction. The district court’s decision is

also inconsistent with Congress’s expressed intent in en-

acting § 1334(b). The district court’s insistence on exer-

cising jurisdiction, despite the exclusively local character

of the dispute, presents an important question justifying

issuance of the writ.

Having decided to assume jurisdiction, the district

court then refused to comply with a mandatory obligation

_to abstain under 28 U.S.C. § 1334(c) (2). This obligation

was intended by Congress to broadly apply whenever a

party sought abstention with respect to exclusively state-

law claims that could be timely adjudicated in state court.

This broad obligation to abstain was believed necessary to

prevent unconstitutionally broad exercises of “related to”

bankruptcy jurisdiction. The district court, however, nar-

rowly construed mandatory § abstention under

§ 1334(c)(2) as inapplicable to cases that had been

removed to federal court. Relying on the requirement in

§ 1334(c)(2) that an action be “commenced ... in a

state forum of appropriate jurisdiction,” the court refused

to abstain because this case was not “pending” in state

court, even though the case was “commenced” in state

court before it was improperly removed to federal court.

The district court’s construction of its obligation to ab-

stain is clearly contrary to the plain meaning of the

statute. Moreover, by first construing “related to” bank-

ruptcy jurisdiction so broadly as to violate Article III, § 2

of the Constitution, and then narrowly construing

mandatory abstention as not applying to removed cases,

the district court has turned the Congressional policy

favoring state-court resolution of entirely local disputes on

its head. Preserving this important policy necessitates

issuance of the writ.

As a consequence of the district court’s refusal to

remand or abstain, FoxMeyer is trapped in a federal

forum it did not choose, there to pursue state-law claims

against a nondiverse party over which the judicial author-

ity of the United States does not extend. Absent review by

mandamus, no adequate remedy is available to review the

district court’s order. Under 28 U.S.C § 1334(c) (2), that

portion of the order refusing to abstain can only be

reviewed by extraordinary writ, either in the court of

appeals or in this Court. That portion of the order refusing

to remand for lack of subject-matter jurisdiction is not

immediately appealable. Requiring FoxMeyer to await a

final judgment would force it to incur astronomical costs

in a remote federal MDL proceeding, as well as impose

an unnecessary burden on federal judicial resources.

Given this extraordinary expense, the important federal-

ism concerns implicated by the district court’s order, and

the need to restore the important policy favoring state

court resolution of local disputes, mandamus is necessary.

ARGUMENT

I. The District Court’s Decision to Exercise Juris-

diction in this Case Despite the Entirely Contin- -

gent Nature of Any Federal Interest Raises An

Important Question Concerning the Constitution-

ally Permissible Scope of “Related To” Bank-

ruptcy Jurisdiction Under 28 U.S.C. § 1334(b).

Federal court jurisdiction over cases “related to”’ bank-

ruptcy proceedings cannot constitutionally extend so far

as to encompass cases involving purely state-law claims

between nonbankrupt and nondiverse parties. The district

court nonetheless concluded that it had jurisdiction in this

case because of the mere possibility that the outcome

could affect the Phar-Mor bankruptcy. Explaining its

conclusion, the district court hypothesized that “a judg-

ment in favor of FoxMeyer in this action could conceiva-

bly effect [sic] the bankruptcy proceedings. The fact that,

in the end, it may not have an effect is irrelevant to our

jurisdictional analysis.” (App. 2 at 6 n.1)

The district court thus recognized that any effect on the

Phar-Mor bankruptcy would be contingent on FoxMever

prevailing in the case. In addition, even were FoxMeyer to

prevail, for the case to affect the Phar-Mor bankruptcy

FoxMeyer must recover on any judgment against

Coopers; the debtor, Phar-Mor, must be entitled under

state law to a reduction in liability to FoxMeyer based on

any recovery FoxMeyer might obtain from Coopers; suffi-

cient funds must be available in the Phar-Mor bankruptcy

to pay claims of unsecured creditors such as FoxMeyer;

and the amount of any distribution to FoxMeyer must

actually be reduced because of FoxMeyer’s recovery from

Coopers. Any judgment in favor of FoxMeyer would not,

therefore, necessarily reduce or even affect FoxMeyer’s

allowed claim in the Phar-Mor bankruptcy.

The hypothetical possibility that FoxMeyer’s action

might have some future effect on the Phar-Mor bank-

ruptcy is manifestly insufficient to establish subject mat-

ter jurisdiction under Article III of the United States

Constitution. Article III, § 2 grants jurisdiction to the

federal courts over cases and controversies “arising

under” the Constitution or laws of the United States. The

mere existence of some remote or contingent federal

interest in an action is insufficient to confer “arising

under” jurisdiction. Gully v. First Nat'l Bank, 299

U.S. 109 (1936). In Gully, the Court held there was no

federal jurisdiction over a suit to collect state taxes from a

national bank, even though the power to levy a tax upon a

national bank had its origin in federal law. The Court

rejected a broad abstract definition of “arising under,”

Suggesting instead a practical, common sense application:

If we follow the ascent far enough countless

claims of right can be discovered to have their

source or their operative limits in the provisions

of a federal statute or in the Constitution itself

with its circumambient restrictions upon legisla-

tive power. To set bounds to the pursuit, the

courts have formulated the distinction between

controversies that are basic and those that are

collateral, between disputes that are necessary

and those that are merely possible. We shall be

lost in a maze if we put that compass by.

Id. at 118 (Cardozo, J.). For federal question jurisdiction

to exist the federal interest must be directly implicated by

the plaintiff's claim. It is not enough that a federal

interest is implicated remotely or indirectly. Textile

Workers Union v. Lincoln Mills, 353 U.S. 448, 482

(1957) (Frankfurter, J., dissenting) (rejecting any princi-

ple that would permit “assertion of original federal juris-

diction on the remote possibility of presentation of a

federal question”).

Congress may not extend the jurisdiction of the federal

courts over actions “related to” bankruptcy proceedings

beyond the limits established by Article III, § 2 of the

Constitution. Kline v. Burke Constr. Co., 260 U.S. 226,

234 (1922) The legislative history of 28 U.S.C.

§ 1334(b) reflects a strong belief that applying “related

to” bankruptcy jurisdiction over state-law claims, if based

solely on the bankrupt status of a party to the litigation,

would raise grave constitutional concerns. During debates

over § 1334(b) Senator Hatch observed, for example,

that

State tort or contract cases in which one party

happens to be bankrupt are still State law

claims. They are not Federal questions. Thus,

there is no Federal jurisdiction for these claims.

The Constitution only grants Federal court juris-

diction to cases “arising under” Federal law and

diversity cases. This is neither.

** *

Article III, section 2 of the Constitution speci-

fies the types of cases that may be litigated in

Federal courts. Other than cases involving a

State as a party, these types of cases are basi-

cally two — cases “arising under” Federal law

and cases “between citizens of different States.”

Cases based solely on State law cannot be adju-

dicated in any Federal court where there is no

diversity and where the only Federal connection

is that one of the parties is a chapter 11 debtor.

In the absence of the bankruptcy of one party,

no one questions that a State tort or contract

claim would be adjudicated to completion in

State court without any feasible assertion of

Federal question jurisdiction. Financial status,

however, is not mentioned as a qualification for

Federal question jurisdiction in article III. Thus,

the provision allowing any case “related to”

bankruptcy to be adjudicated in Federal court

violates article III. Purely State law claims can-

not be adjudicated in a Federal court.

130 Cona. REC. $8891 (daily ed. June 29, 1984).* See

also Note, Bankruptcy and the Limits of Federal Jurisdic-

tion, 95 Harv. L. REv. 703, 710-11 (1982). It was

unquestioned that applying “related to” jurisdiction in

cases, like the present case, involving only state-law

claims between nondiverse and nonbankrupt parties

would violate Article III, § 2. As Senator Hatch pointedly

remarked, “In the absence of the bankruptcy of one party,

no one questions that a State tort or contract claim would

be adjudicated to completion in State court without any

feasible assertion of Federal question jurisdiction.” 130

Conc. REc. $8891.

Nonetheless, numerous lower courts, including the dis-

trict court in this case, have expansively construed “re-

lated to” jurisdiction to require only some “conceivable”

nexus between a state action and a pending bankruptcy.

“Senator Hatch’s statement is a principal component of the

limited legislative history of the Bankruptcy Amendments and Fed-

eral Judgeship Act of 1984. There is no committee report accompa-

nying the Act. Rather, the legislative history consists entirely of

several statements made by senators and representatives in the last

few days prior to the Act’s enactment. See Jeffrey T. Ferriell,

Constitutionality of the Bankruptcy Amendments and Federal Judge-

ship Act of 1984, 63 AM. BANKR. L.J. 109, 110 n.4 (1989).

Applying this conceptually limitless standard, federal

courts have found actions based exclusively on state law

alleging fraudulent misrepresentation, breach of contract,

and conversion, for example, to somehow “arise under”

federal law. In re Wood, 825 F.2d 90, 93-94

(Sth Cir. 1987) (suit to recover stock and monies alleg-

edly misappropriated by the debtor); Jn re Dogpatch

U.S.A, Inc., 810 F.2d 782 (8th Cir. 1987) (suit for alleged

breach of contract of sale of debtor’s property; if plaintiff

prevailed, debtor would remain liable for mortgage on

property); Maritime Elec. Co. v. United Jersey Bank, 959

F.2d 1994, 1210-13 (3d Cir. 1991) (debtor’s counter-

claim and third-party claim asserted in suit against debtor

for conversion and unjust enrichment). To illustrate the

unconstitutionally boundless nature of the “any conceiva-

ble nexus” concept, one commentator has suggested that

an action as traditionally local in character as a state court

proceeding to modify a decree awarding alimony to a

debtor would “arise under” federal law were this standard

correct. Note, Selective Exercise of Jurisdiction in Bank-

ruptcy-Related Civil Proceedings, 59 Tex. L. REv. 325,

331 n. 43 (1981).

Even under the boundless “conceivable nexus” con-

cept, however, courts had previously refrained from exer-

cising jurisdiction unless the debtor was a party to the

action, the bankruptcy court had in rem jurisdiction, or

resolution of the action would have an automatic and

binding detrimental effect upon the bankruptcy estate.

Pacor, Inc. v. Higgins, 743 F.2d 984 (3d Cir. 1984) (no

“related to” jurisdiction over products liability action

simply because of contingent indemnification claim of

defendant against the debtor); Jn re Alpha Steel Co., 142

B.R. 465 (M.D. Ala. 1992) (no jurisdiction over suit by

debtor’s general contractor against lender for misrepre-

sentation which induced general contractor to disburse

portion of contract funds to debtor); Jn re Selig, 135 B.R.

241 (Bankr. E.D. Pa. 1992) (no jurisdiction over dispute

between creditors over property sold by debtor 18 months

before bankruptcy; substitution of creditors insufficient

effect for “related to” jurisdiction).

Notwithstanding these decisions, the district court in

the instant case has substantially extended the already

expansive definition of “related to” jurisdiction by exer-

cising authority over a state court action between non-

diverse and nonbankrupt parties where the only “conceiv-

able” federal interest is admittedly entirely hypothetical.

Under this unrestrained extension of “related to” jurisdic-

tion, any limit that remains on federal jurisdiction be-

comes itself purely hypothetical. Suppose, for example,

that a manufacturer of good sells its product to a retailer.

Shortly after the sale, the seller learns that the buyer is

insolvent. The seller makes written demand for reclama-

tion of the goods, but before the seller can recover the

goods the buyer declares bankruptcy. Fortunately for the

seller, there is a solvent co-debtor to sue, and at this point

the seller would prefer to recover the price of the goods

rather than the goods themselves. If the seller would also

prefer to sue in federal court, the seller could bring a

state-law action against the nonbankrupt co-debtor in

federal court because it “relates to” the buyer’s bank-

ruptcy — or at least this would be the result were the

district court’s construction of “related to” jurisdiction in

this case correct. > Yet clearly, were such an entirely local

dispute a case “arising under” federal law, the restrictions

on judicial power declared in Article III, § 2 would have

vanished altogether.

*For similar examples, see Note, Selective Exercise of Jurisdiction

in Bankruptcy-Related Civil Proceedings, 59 Tex.L.REvV. 325, 330-31

(1981).

The ever expanding assumption of “related to” jurisdic-

tion has been largely driven by a desire to expe-lite

bankruptcy proceedings by avoiding delays in case admin-

istration caused by litigation outside the bankruptcy sys-

tem. See generally American Enterprise Institute for

Public Policy Research, Bankruptcy Reform 7-11 (1978).

To the extent the federal judicial system becomes con-

gested with bankruptcy-related civil cases, however, a

broad jurisdictional construction may itself exacerbate the

existing delay and expense of crowded dockets. In fact,

precisely because of federal docket congestion, FoxMeyer

was able to establish in the district court that its claims

against Coopers would be resolved more expeditiously in

Texas state court than in the federal MDL proceedings.

(App. 4 Items 6A, 6B)

Moreover, the broad interpretation of “related to” juris-

diction in this particular case does nothing to allow the

bankruptcy court to control the litigation, given that the

case has been transferred to the MDL litigation in Penn-

sylvania rather than to the federal district in Ohio where

the Phar-Mor bankruptcy is pending. Finally, and most

importantly, even if a federal interest in efficient adminis-

tration of bankruptcy proceedings might somehow be

served by broadly construing “related to” jurisdiction as

extending to this action, the Court has held that “the

value of efficiency in the disposition of lawsuits” does not

justify ignoring the limitations on federal jurisdiction

contained in Article III. Aldinger v. Howard, 427 U.S. 1,

15 (1976) (quoting Kenrose Mfg. Co. v. Fred Whitaker

Co., 512 F.2d 890, 894 (4th Cir. 1972)).

To avoid overstepping the bounds of Article III,

“related to” bankruptcy jurisdiction must be informed by

constitutional principles defining the outer reaches of the

federal judicial power. Although the Court has never

considered the Article III, § 2 restraints on “related to”

bankruptcy jurisdiction,° the Constitution requires more

than the mere conjuring of a hypothetical scenario to

support federal court jurisdiction. To provide the basis for

federal jurisdiction, the “effect” on a bankruptcy adminis-

tration must be direct and substantial, not collateral and

remote. Gully v. First Nat’l Bank, 299 U.S. 109, 113-118

(1936). Here, any hypothetical effect would be entirely

indirect and remote. Absent the chapter 11 filing by Phar-

Mor, which is not a party to this dispute, FoxMeyer would

unquestionably be entitled to adjudicate its claims against

Coopers in Texas state court. The action involves purely

state-law claims and is between nondiverse parties. The

district court’s insistence on exercising federal jurisdiction

in these circumstances, despite the exclusively local char-

acter of the dispute, presents an important question justi-

fying issuance of the writ.

II. The District Court’s Refusal to Apply the

Mandatory Abstention Provision in 28 U.S.C.

§ 1334(c) to an Action Removed from State

Court Undermines a Significant Restraint on the

Exercise of Federal Bankruptcy Jurisdiction.

Even assuming the federal court did have jurisdiction

over these purely state-law claims between non-diverse

parties, Congress has mandated in 28 U-S.C.

§ 1334(c)(2) that the court abstain from hearing such

cases, upon a timely motion and the satisfaction of speci-

fied criteria. FoxMeyer met these requirements in the

district court. The district court, however, construed the

‘The Court’s decision in Northern Pipeline Constr. Co. v. Mara-

thon Pipe Line Co., 458 U.S. 50 (1982) focused on Article III, § 1,

and required that judges exercising Article II] power possess the

attributes of the federal judiciary outlined in § 1.

-. a alice cnt

ee ee

ee ee ee eee ee ee ee ee ee eS eee ae a

statute as not applying to cases removed from state court,

and for that reason refused to abstain even though

FoxMeyer satisfied the statutory criteria. In so doing, the

court exceeded the bounds of its authority as prescribed

by Congress.

28 U.S.C. § 1334(c)(2) imposes a mandatory obliga-

tion to abstain in cases “related to” bankruptcy upon

timely motion where three requirements are satisfied: (1)

the action must be one that “could not have been com-

menced in a court of the United States absent jurisdiction

under this section”; (2) the action could be “timely

adjudicated” in the state forum; and (3) “the action is

commenced . . . in a state forum of appropriate jurisdic-

tion.” FoxMeyer timely moved to abstain; plainly the

action could not have been commenced in federal court

absent the Phar-Mor bankruptcy; and FoxMeyer estab-

lished in the district court that the action could be timely

adjudicated in the state court where it was properly

commenced (App. 4 Items 6A, 6B). The requirements of

§ 1334(c) (2) were thus met, but the district court denied

FoxMeyer’s motion to abstain based upon a mistaken

construction of the statutory requirement that a district

court abstain only if “an action is commenced... in a

state forum of appropriate jurisdiction.” In the district

court’s view, “an action is commenced” within the mean-

ing of the statute only if the action is pending in state

court when the motion to abstain is filed. (App. 2 at 8, 9)

The district court concluded, based upon this erroneous

interpretation of the statute, that mandatory abstention

under § 1334(c)(2) “does not apply to removal [sic]

cases where there is no corresponding state law action . .

..” (App. 2 at 8) The district court’s ruling is contrary to

the plain meaning of § 1334(c) (2), and wholly frustrates

the Congressional policy that led to enactment of the

Statute.

The district court’s construction of § 1334(c) (2) is

directly contrary to the language of the statute. ‘““Com-

mence” is defined by Webster’s as “ . . . To enter upon; to

begin; initiate; to perform the first act of; as to commence

a lawsuit,” WEBSTER’s NEW INTERNATIONAL DICTION-

ARY (2d ed. 1960) (emphasis in original). This case was

“commenced . . . in a state forum of appropriate jurisdic-

tion” because FoxMeyer began the case by filing it in

state court. Because Coopers subsequently removed the

case to federal court, the case was not “pending” in state

court when FoxMeyer filed its motion to abstain. But

§ 1334(c)(2) simply does not require that an action be

“pending” in state court for mandatory abstention to

apply.

Not only is the district court’s construction of

§ 1334(c) (2) contrary to the plain meaning of the stat-

ute, it is also inconsistent with the statute’s legislative

history. That legislative history reveals that Congress

intended for mandatory abstention to be broadly con-

strued, largely to prevent unconstitutionally broad exer-

cises of “related to” bankruptcy jurisdiction. The

mandatory abstention language in § 1334(c) (2) first ap-

peared in the Bankruptcy Amendments and Federal

Judgeship Act of 1984. Remarking on the bill, Senator

Heflin stated:

Section 1334(c)(2) mandates the Court on the

motion of a party to abstain from determining

matters that could not have been commenced in

Federal court without the filing of a petition in

bankruptcy and is based upon a State claim or

cause of action.

** *

The fundamental question at the heart of this

debate on the restructure of our bankruptcy

courts is: Does the Congress of the United

States want to authorize a super court bank-

ruptcy system, with greater authority than the

civil jurisdiction of the U.S. District court, that

is able to supersede any State court in this

country? I cannot believe that is what the Sen-

ate of the United States wants to create — I

certainly am for continuing our great system of

federalism in this country and not for the crea-

tion of an all powerful Federal bankruptcy

system.

130 ConG. REc. $17152 (June 19, 1984). The Report of

the Committee on the Judiciary of the United States

Senate accompanying the Senate version of the bill am-

plifies Senator Heflin’s remarks:

[T]he 1978 Act went too far in providing for

Federal jurisdiction over claims based purely on

state law which are only tangentially related to a

case under title 11. While one obvious approach

to addressing this concern is to remove Federal

jurisdiction over such claims, the Committee

chose to preserve the thrust of 1978 Act [sic]

and to simply provide a mechanism for the

parties to litigate these claims in state court

should one of the parties so move.

S. REP. No. 98-55, 98th Cong., Ist Sess. 1, 18 (1983).

According to the Senate Report, mandatory abstention

was a Compromise solution adopted in lieu of following

the sentiments of some members of the Judiciary Com-

mittee that all state-law proceedings should be returned

to state court. The Committee felt § 1334(c) (2) drew an

equitable balance between the legitimate interests of

federalism and the important interests promoted by the

1978 Bankruptcy Act in consolidating as much jurisdic-

tion as possible in a single decision-making body. Jd. at

40-41.

One will search in vain in the Congressional Record for

the proposition that Congress did not intend

§ 1334(c) (2) to apply to removed cases. Indeed, even the

legislators who opposed a broad mandatory abstention

provision concurred that abstention should be required if

a non-debtor party objected to the federal court hearing a

state-law dispute. 130 Conc. Rec. $6098 (daily ed.

May 21, 1984) (remarks of Senator DeConcini). See also

130 Cong. Rec. S17153, S17155 (June 19, 1984). Thus,

the legislators interpreted § 1334(c)(2) as requiring ab-

stention even when the debtor itself is the party plaintiff.’

Given this legislative history evidencing an intent that

§ 1334(c)(2) be broadly construed, as well as the plain

language of the statute, the majority of federal courts to

consider the issue have held that mandatory abstention

under § 1334(c)(2) does apply to cases that have been

removed from state court.

'The district court, without citation to legislative history, cited as

one ground for refusing to abstain, that:

[I]t is unlikely that Congress would, on the one hand,

grant jurisdiction over bankruptcy-related cases to federal

courts, while, on the other hand, prohibit those courts

from exercising jurisdiction. Such an interpretation im-

plies that Congress is engaged in futile statutory exercises

rather than enacting meaningful law, and we reject that

view.

(App. 2 at 8)

“See In re Bowen Corp., 150 B.R. 777, 783 (Bankr. D. Idaho

1993); Dunkirk Lid. Part. v. TJX Cos., 139 B.R. 643, 645 (Bankr.

N.D. Ohio 1992) (citing dicta in Robinson v. Michigan Consol. Gas

Co., 918 F.2d 579 (6th Cir. 1990); Channel Bell Assocs. v. W.R.

Grace & Co., 1992 WL 232085 at *8 (S.D.N.Y. August 31, 1992);

In re Baldwin Park Inn Assocs., 144 B.R. 475, 481 (C.D. Cal. 1992);

Baxter Healthcare Corp. v. Hemex Liquid. Trust, 132 B.R. 863, 869

n.7 (N.D. Ill. 1991); Indian River Homes, Inc. v. Young, Conaway,

Stargatt & Taylor, 1991 WL 171267 at *2 (D. Del. 1991); O’Rourke

Nonetheless, a minority of federal courts, including the

district court in this case, have reached a contrary conclu-

sion.” These latter courts have concluded that

§ 1334(c)(2) necessarily requires the existence of a

pending state court proceeding because “[i]ndeed if there

were only one proceeding, and the court abstained with

respect to it, nothing would go forward.” Jn re 666 Assoc.,

57 B.R. 8 (Bankr. S.D.N.Y. 1985), rev'd sub nom. Paul

v. Chemical Bank, No. 85 Civ. 1978 (ULB), slip op.

(S.D.N.Y. Dec. 22, 1978).

This reasoning reflects a miscomprehension of the

concept of abstention. The absence of a “pending” state

court action does not prevent a federal court from ab-

staining. For example, federal courts commonly abstain

from exercising jurisdiction over pendent state-law claims

after the federal law claims have been dismissed, even in

the absence of a pending state court proceeding. Car-

v. Cairns, 129 B.R. 87, 89-90 (E.D. La. 1991); In re Jasperson, 116

B.R. 740, 742 & 746 (Bankr. S.D. Cal. 1990); In re Marshall, 118

B.R. 954, 964-65 (W.D. Mich. 1990); In re Revco D.S., Inc., 99 B.R.

768, 773 (N.D. Ohio 1989); In re Chiodo, 88 B.R. 780, 785

(W.D. Tex. 1988); In re World Solar Corp., 81 B.R. 603, 609

(Bankr. S.D. Cal. 1988); National Acceptance Co. v. Levin, 75 B.R.

457, 459-60 (D.-Ariz. 1987); In re Pacor, Inc., 72 B.R. 927, 931

(Bankr. E.D. Pa. 1987), aff'd, 86 B.R. 808 (E.D. Pa. 1987), appeal

dism’d, 1988 WL 235479 (3d Cir. 1988); Allen County Bank &

Trust Co. v. Valvmatic Int'l Corp., 51 B.R. 578, 583

(N.D. Ind. 1985).

*See Neuman v. Goldberg, 159 B.R. 681, 687-88

(S.D.N.Y. 1993); In re Branded Products, Inc., 154 B.R. 936, 939-

40 (Bankr. W.D. Tex. 1993); Weisman v. Southeast Hotel Proper-

ties, Lid., No. 91 Civ. 6232, 1992 WL 131080, at *5 (S.D.N.Y.

June 1, 1992); In re Fairchild Aircraft Corp., 1990 WL 119650 at *2

(Bankr. W.D. Tex. June 18, 1990); In re Micro Mart, Inc., 72 B.R.

63, 64-65 (Bankr. N.D. Ga. 1987); In re Ross, 64 B.R. 829, 834-35

(Bankr. S.D.N.Y. 1986).

negie-Mellon Univ. v. Cohill, 484 U.S. 343 (1988). Upon

making a decision to abstain, the court has the option to

Stay the proceeding awaiting the resolution of any pending

Sstate-court proceeding, to dismiss, or to remand the case

to state court. In re Chiodo, 88 B.R. 780, 784 (W.D. Tex.

1988) (citing Railroad Comm’n v. Pullman Co., 312 U.S.

496 (1941)).

The strained and narrow construction of the statute

adopted by the district court here so circumscribes the

application of § 1334(c)(2) so as to render it virtually

meaningless. That construction would limit the applica-

tion of mandatory abstention to: (1) proceedings initiated

only in federal court; (2) but only if a parallel state-court

action was also brought; (3) and only if such parallel state

court action was not itself removed. It is difficult to

conjure the circumstances that would give rise to such an

unusual procedural posture. Unquestionably, Congress

did not intend § 1334(c)(2) to be interpreted so as to

strip it of virtually any meaning whatsoever. The proper

construction of mandatory abstention under

§ 1334(c)(2), and the relationship between mandatory

abstention and “related to” bankruptcy jurisdiction under

§ 1334(b), present important questions justifying issu-

ance of the writ.

III. Mandamus Review of the District Court’s Order

is Appropriate and Necessary.

A. Mandamus is Appropriate and Necessary

Given the District Court’s Constitutionally

Impermissible Exercise of Federal Authority

and the Absence of Any Adequate Alternative

Remedy.

A traditional office of mandamus has been to confine

lower courts to their prescribed jurisdiction. The Court

has consistently held that mandamus is appropriate “to

confine inferior courts to the exercise of their prescribed

jurisdiction or to compel them to exercise their authority

when it is their duty to do so.” Roche v. Evaporated Milk

Assn, 319 U.S. 21, 26 (1943). Accord, Hoffman vy.

Blaski, 363 U.S. 335 (1960); United States Alkali Export

Ass'n v. United States, 325 U.S. 196, 203-204 (1945).

The district court’s decision that it has jurisdiction be-

cause the present case “relates to” the Phar-Mor bank-

ruptcy proceeding, and its related decision refusing to

abstain, exhibit a failure to recognize the constitutional

limits on federal authority required by Article III, § 2.

Absent review by mandamus, no adequate remedy is

available to reyiew the district court’s order. The order is

plainly not an appealable final decision under 28 U.S.C.

§ 1291, and the district court refused to certify an inter-

locutory appeal under 28 U.S.C. § 1292(b). Nor is the

order an appealable collateral order. Cf Coopers &

Lybrand v. Livesay, 437 U.S. 463, 468 (1978). The only

alternative means for appellate review of the order, there-

fore, is after final judgment years from now, after

FoxMeyer has incurred astronomical expense litigating its

claim against Coopers in the MDL, and after the federal

trial and appellate courts have been needlessly burdened

with the litigation.

The hardship to FoxMeyer if mandamus is not granted

in this case far exceeds the ordinary hardship that results

to a litigant when a dispositive interlocutory motion is

wrongfully denied. FoxMeyer’s ability to litigate its claims

in the MDL has already been severely prejudiced by the

gargantuan and cumbersome nature of that proceeding.

To date 36 cases are consolidated in the MDL involving

some 182 different parties with appearances by some 56

separate law firms. The presence of so many parties

makes the discovery process extremely burdensome, and

necessitates the creation of committees, subcommittees,

and liaison counsel to which particular issues and tasks

are delegated. (App. 4 Items 12-15) The process of

litigating petitioners’ state-law claims in the MDL is

intensely time-consuming, and as a result, quite expen-

sive, especially when compared with the relatively inex-

pensive state court properly selected by FoxMeyer.

Awaiting relief until after a final judgment would require

FoxMeyer to incur the extraordinary expense and delay of

litigating its state-court claims in a remote, complex

federal MDL proceeding, then enduring lengthy and ex-

pensive federal appellate proceedings, and then relitigat-

ing the claims in Texas state court. Such belated relief,

exacted at such an incredible cost to FoxMeyer, is simply

not adequate. See, e.g., In re School Asbestos Litig., 977

F.2d 764, 778 n. 14 (3d Cir. 1992) (“the extraordinary

size and complexity of a case” is not alone a sufficient

basis for mandamus, but it “may assist in creating the

extraordinary circumstances necessary to invoke

mandamus... .”’).

The extraordinary expense and delay that would result

from awaiting final judgment coupled with the important

federalism concerns implicated by the district court’s

order in this case themselves suffice to render mandamus

an appropriate remedy. An additional factor, however,

makes this case a compelling one for the exercise of

mandamus. Here the district court’s order undermines the

important Congressional policy that “related to” bank-

ruptcy jurisdiction not be exercised to reach cases tradi-

tionally and properly within the exclusive province of state

courts. That concern is evident in the legislative history to

28 U.S.C. § 1334(b), and motivated the mandatory ab-

stention provision in 28 U.S.C. § 1334(c) (2). By expan-

sively interpreting “related to” jurisdiction, but then

restrictively interpreting mandatory abstention, the dis-

trict court has egregiously undermined the Congressional

policy favoring state court resolution of local disputes.

The need to restore this important Congressional policy

clearly justifies mandamus. United States Alkali Exp.

Ass'n v. United States, 325 U.S. 196, 203-204 (1945).

B. Mandamus Review of the District Court’s Deci-

sion Refusing to Abstain is Appropriate Despite

the Language in 28 U.S.C. § 1334(c) Precluding

Certain Appellate Review of Mandatory Absten-

tion Orders.

Although 28 U.S.C. § 1334(c) forbids certain appellate

review of district court abstention decisions, the statute

does not preclude review by mandamus. Sec-

tion 1334(c) provides that a district court’s abstention

decision “is not reviewable by appeal or otherwise by the

court of appeals under section 158(d), 1291, or 1292 of

[28 U.S.C.] or by the Supreme Court of the United

States under section 1254 of '28 U.S.C.].” FoxMeyer did

not, however, invoke the court of appeals’s jurisdiction to

review final decisions pursuant to § 1291, to review vari-

ous interlocutory orders and certified appeals pursuant to

§ 1292, or to hear bankruptcy appeals under § 158(d).

Nor does it seek §1254 certiorari here with respect to

abstention, except as the Court may deem it procedurally

appropriate to direct the court of appeals to issue manda-

mus. FoxMeyer instead requested mandamus in the court

of appeals, and invokes the Court’s authority to issue

mandamus and common-law certiorari, pursuant to the

All Writs Act, 28 U.S.C. § 1651 (a).

The very language of § 1334(c), therefore, does not

preclude issuance of a writ of mandamus. Had Congress

intended to preclude all review of trial court abstention

decisions, it would have used more generally preclusive

language. For example, 28 U.S.C. § 1447(d) provides, in

contrast to § 1334(c), that “[a]n order remanding a case

to the State court from which it was removed is not

reviewable on appeal or otherwise” (emphasis supplied).

Significantly, § 1447(d) does not limit its nonreview-

ability provision by reference to certain specific avenues of

review, as does § 1334(c).

Moreover, even when a _sstatute such as

§ 1447(d) generally prohibits appellate review, a trial

court’s decision is unreviewable only to the extent the trial

court relies upon proper statutory considerations in reach-

ing its decision. When the lower court acts for reasons not

authorized by statute, review of the court’s decision by

mandamus is essential to ensure that legislative restraints

on the court’s authority are honored. Thermtron Prod,

Inc. v. Hermsdorfer, 423 U.S. 336 (1976).

In Thermtron, the district court remanded a properly

removed case because the court’s heavy docket would

“unjustly delay” plaintiffs in obtaining a trial on the

merits. This Court concluded that mandamus review of

the trial court’s remand order was appropriate, despite the

pervasive prohibition in § 1447(d). The Court concluded

that § 1447(d) precluded review based on improper appli-

cations of statutory remand criteria, but did not preclude

review where the trial court acted for reasons not autho-

rized by statute. The Court reasoned as follows:

[W]e are not convinced that Congress ever

intended to extend carte blanche authority to

the district courts to revise the federal statutes

governing removal by remanding cases on

grounds that seem justifiable to them but which

are not recognized by the controlling statute.

That justice may move more slowly in some

federal courts than in their state counterparts is

not one of the considerations that Congress has

permitted the district courts to recognize in

passing on remand issues.

423 U.S. at 351. Because the district court acted upon an

improper consideration, rather than simply improperly

applying a proper consideration, review by mandamus was

appropriate.

As in Thermiron, the district court in the present case

acted outside its statutory authority. Rather than base its

decision of the motion to abstain on permissible consider-

ations specified in § 1334(c), the court improperly re-

fused mandatory abstention based upon its legally

incorrect conclusion that abstention was not authorized

because the case was no longer pending in state court. In

so doing, the district court undermined an essential statu-

tory restraint on the exercise of federal authority over

state matters. Indeed, Congress concluded that the

mandatory abstention provision in § 1334(c) was neces-

sary to confine trial courts within the scope of their

Article III authority. As in Thermtron, Congress could

not have intended that district courts have carte blanche

authority to define the scope of this restraint on their own

authority. Review by mandamus is not only permissible in

this case; mandamus is essential.

CONCLUSION

For the foregoing reasons a writ of certiorari pursuant

to 28 U.S.C. § 1254(1) should issue to the United States

Court of Appeals for the Third Circuit.

In the alternative, a common-law writ of certiorari

should issue pursuant to 28 U.S.C. § 1651(a) to the

United States District Court for the Western District of

Pennsylvania, and on final hearing the Court should issue

its writ of mandamus to Honorable Donald E. Ziegler,

United States District Judge, requiring the district judge

to remand this case to the Texas state court in which it

was commenced, or in the alternative to abstain from

hearing the case and to remand the case for plenary

adjudication by the Texas court in which it was

commenced.

Respectfully submitted,

MARVIN S. SLOMAN

Counsel of Record

WILLIAM B. DAWSON

KAREN L. HIRSCHMAN

WILLIAM D. UNDERWOOD

CARRINGTON, COLEMAN, SLOMAN

& BLUMENTHAL, L.L.P.

200 Crescent Court, Suite 1500

Dallas, TX 75201

Phone: 214-855-3000

Telecopier: 214-855-1333

Counsel for Petitioner

June 14, 1994

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

No. 94-3071 February 23, 1994

# A-95

IN RE: Phar-Mor, Inc., Securities Litigation

W.D. of Pa. Civil 92-1938

MDL No. 959

Master File No. Misc. 93-96

W.D. of Pa. Civil 93-933, 93-1226 and 93-1797

FoxMeyer Drug Co., et al., Petitioners

Present: BECKER, NYGAARD and ROTH,

Circuit Judges.

Petition for Writ of Mandamus,

/s/ RITA GOLDEN

Deputy Clerk 597-3080

ORDER

The foregoing petition is denied.

By the Court,

/s/ EDWARD R. BECKER

Circuit Judge

Dated: March 25, 1994

RG/CC: CM

GGR

MSS

DJA

IN THE

United States Bistrict Court

FOR THE WESTERN DISTRICT OF PENNSYLVANIA

IN RE: 4

PHAR-Mor, INC.

SECURITIES LITIGATION CivIL ACTION 92-1938

|MDL No. 959

FoxMEYER DruG Company,| MASTER FILE No.

Misc. 93-96

Plaintiff,

) THIS OPINION

Coopers & LYBRAND, | APPLIES TO

Defend CiviL ACTION

efendant. | No. 93-0933

MEMORANDUM OPINION

ZIEGLER, District Judge

Pending before this court is a motion to remand or, in

the alternative, to abstain and remand filed by plaintiff,

FoxMeyer Drug Company. FoxMeyer contends that this

court lacks subject matter jurisdiction over this action,

and that, even if subject matter jurisdiction is present, we

are required to abstain and remand to the Texas state

court where the action was initially brought.

This action began in the 193rd Judicial District Court,

Dallas County, Texas, with the filing of an original peti-

tion by FoxMeyer on February 15, 1993. FoxMeyer’s

Motion and Brief to Remand or in the Alternative Ab-

App. 2

stain and Remand (“FoxMeyer Brief”), p. 1. The petition

alleges that defendant, Coopers & Lybrand (“Coopers”),

a public accounting firm, “knowingly, recklessly, or

negligently failed to audit the financial statements of

Phar-Mor, Inc. (“Phar-Mor’”), a large retail discount

drugstore chain, in accordance with generally accepted

auditing standards. Petition, 13. FoxMeyer contends

that as a result of the allegedly faulty audits, Coopers

misrepresented to FoxMeyer that the financial statements

accurately reflected the financial position of Phar-Mor.

Id. FoxMeyer claims that it relied on these financial

Statements and the representations of Coopers, to its

detriment, in deciding to extend credit to Phar-Mor.

Id., 17.

On or about August 4, 1992, Phar-Mor publicly dis-

closed that its financial statements had been falsified to

conceal substantial losses and to overstate income.

Coopers’ Memorandum In Opposition (“Coopers

Memo.”), p. 5. Shortly thereafter, Phar-Mor filed a

voluntary petition under Chapter 11 of the Bankruptcy

Code in the United States District Court for the Northern

District of Ohio. Id. See In re Phar-Mor, Inc., et al., Case

Nos. 92-41599 to 41614. FoxMeyer has filed a claim

against the bankrupt estate in the bankruptcy proceed-

ings. Id., p. 8.

On March 8, 1993, Coopers filed a Notice of Removal

with the United States District Court for the Northern

District of Texas. The stated statutory basis for removal is

28 U.S.C. § 1452(a), which provides that a party may

remove an action to the district court if the action “is

related to” a title 11 bankruptcy proceeding. Notice of

Removal, § 4.

App. 2

On March 16, 1993, FoxMeyer filed the instant motion

with the district court in Texas. Before that court had an

opportunity to rule on the motion, the Judicial Panel on

Multidistrict Litigation transferred the action to this

court, as a “tag-along” case, where coordinated and

consolidated proceedings are being held over numerous

civil actions related to Phar-Mor’s fraudulent financial

statements and resultant bankruptcy. The Judicial Panel

concluded that the instant case involved questions of fact

which are common to the actions which had previously

been transferred to this court. See Conditional Transfer

Order of the Judicial Panel on Multidistrict Litigation.

FoxMeyer contends that we should remand for two

reasons: first, this action is not “related to” the Phar-Mor

bankruptcy litigation, thereby depriving this court of sub-

ject matter jurisdiction; and second, the abstention provi-

sion of 28 U.S.C. § 1334(c)(2) mandates abstention. In

either event, FoxMeyer asserts that we should remand the

case to the Texas state court in which its petition was

originally filed. For the reasons discussed below, we will

deny FoxMeyer’s motion.

I. SUBJECT MATTER JURISDICTION

The instant action comes before us pursuant to the

removal statute, 28 U.S.C. § 1452(a), which provides in

relevant part that:

A party may remove any claim or cause of

action in a civil action . . . to the district court

for the district where such civil action is pend-

ing, if such district court has jurisdiction of such

claim or cause of action under section 1334 of

this title.

App. 2

uh.

Jurisdiction is granted to the federal district courts under

section 1334(b) over “all civil proceedings arising under

title 11, or arising or related to cases under title 11.”

(emphasis supplied).

The instant state law negligence action clearly does not

arise under title 11 and Coopers does not allege as much.

Instead, Coopers asserts that the action is related to the

Phar-Mor bankruptcy litigation, and that we have juris-

diction on that basis. Notice of Removal, 4. We agree.

The Court of Appeals has stated that the test for

determining whether a civil action is related to a bank-

ruptcy proceeding so as to vest a district court with

jurisdiction is whether the outcome of that action “could

conceivably have an effect on the estate being adminis-

tered in bankruptcy.” Pacor, Inc. v. Higgins, 743 F.2d

984, 994 (3d Cir. 1984). A civil action need not be filed

against the debtor or the debtor’s property to be deemed

related. It is sufficient that the outcome of the action

could result in the alteration of the debtor’s “rights,

liabilities, options or freedom of action (either positively

or negatively)”, and which could effect the “handling and

administration of the bankrupt estate.” Jd.

In applying this test, we must be mindful of the purpose

underlying this jurisdictional grant. As the Court of Ap-

peals for the Fifth Circuit stated in In re Wood, 825 F.2d

90 (Sth Cir. 1990), Congress intended that a “broad

range of matters [be] subject to the bankruptcy jurisdic-

tion of federal courts.” Jd., at 92. In making this grant,

Congress was seeking to eliminate or minimize

the inefficiencies of piecemeal adjudication of

matters affecting the administration of bank-

ruptcies and intended to give federal courts the

App. 2

power to adjudicate all matters having an effect

on the bankruptcy.

Id.

FoxMeyer and Coopers both cite to Pacor in support of

their arguments. In Pacor, the plaintiffs initially brought

an action in state court against Pacor, Inc. seeking dam-

ages for injuries allegedly caused by exposure to asbestos,

which had been distributed by Pacor. Pacor filed a third

party complaint against the manufacturer of the asbestos,

Johns-Manville Corporation. Shortly thereafter, Johns-

Manville filed for bankruptcy. Nearly six months later, as

the state court was preparing for trial, Pacor filed a

petition for removal in the Bankruptcy Court for the

Eastern District of Pennsylvania on the basis of “related

to” bankruptcy jurisdiction. Pacor, 743 F.2d at 986. The

bankruptcy court recommended that the entire action be

remanded to state court. The district court agreed that the

action by the plaintiffs against Pacor was not related to

the bankruptcy action and ordered that part of the case

should be remanded. At the same time, the court severed

the third party action and ruled that part of the lawsuit

should remain in the bankruptcy court. The Court of

Appeals affirmed.

In affirming the district court’s decision to remand, the

Court determined that the outcome of the action between

the plaintiffs and Pacor would in “no way . . . determine

any rights, liabilities, or course of action of the debtor.”

Id., at 995. The Court found probative the fact that

any judgment received by the [plaintiffs] could

not itself result in even a contingent claim

against Manville, since Pacor would still be

obligated to bring an entirely separate proceed-

ing to receive indemnification.

App. 2

sf.

Id. Thus, the civil action was not related to the bank-

ruptcy proceedings and the federal courts had no subject

matter jurisdiction over the action.

Unlike the situation in Pacor, the outcome of the

present controversy could have a direct effect on Phar-

Mor’s rights and liabilities. FoxMeyer is a claimant in the

Phar-Mor bankruptcy proceeding, and in fact is the larg-

est (or one of the largest) trade creditor(s) in the

bankruptcy proceeding. The damages that it seeks to

recoup in this action are the identical losses on which

FoxMeyer bases its bankruptcy claim. Consequently,

should FoxMeyer recover, its bankruptcy claims would be

satisfied and FoxMeyer would effectively be removed

from the creditor pool, thereby lessening Phar-Mor’s

liabilities and positively altering the rights of the remain-

ing creditors. " Other courts have held that actions which

may directly effect a plaintiff's claims against the debtor

in the bankruptcy proceeding are related for purposes of

jurisdiction under § 1334(b).° See, Civic Center Cleaning

'The fact that a full recovery of losses by FoxMeyer here may

result in a “mere transfer” of FoxMeyer’s bankruptcy claim to

Coopers fails to persuade us that this action is not related to the

bankruptcy proceedings. We decline FoxMeyer’s invitation to deny

jurisdiction on the basis of speculative, post-action maneuverings of

the parties. We are satisfied that a judgment in favor of FoxMeyer in

this action could “conceivably” effect the bankruptcy proceedings.

The fact that, in the end, it may not have an effect is irrelevant to our

jurisdictional analysis.

*FoxMeyer’s statement that a judgment in its favor against

Coopers would not give rise to “automatic liability” on the part of

Phar-Mor (FoxMeyer Reply Brief, p.3) fails to take into account the

fact that “related to” jurisdiction does not require that the effect on

the bankrupt estate be a negative one. See Pacor, at 994. A positive

effect on the estate, resulting from the elimination of a creditor’s

claim, is sufficient for a finding of jurisdiction.

App. 2

Co., Inc. v. Reginella Corporation, 140 B.R. 374 (W.D.

Pa. 1992); In re M. Paolella & Sons, Inc., 85 B.R. 965

(Bankr. E.D. Pa. 1988); Howard Brown Co. v. Reliance

Ins. Co., 66 B.R. 480 (E.D. Pa. 1986); In re Showcase

Natural Casing Co., 54 B.R. 142 (Bankr. S.D. Ohio

1985).

We hold that the instant action satisfies the test of

Pacor and is related to the Phar-Mor bankruptcy. We

therefore hold that subject matter jurisdiction is present

pursuant to 28 U.S.C. § 1334(b).

Il. ABSTENTION

Our conclusion that we have jurisdiction does not end

our inquiry into the propriety of adjudicating the instant

action. FoxMeyer asserts that, even if we have jurisdiction

over this matter, we are required to abstain due to the

abstention provision set forth at 28 U.S.C. § 1334(c) (2).

That section provides in part:

Upon timely motion of a party in a proceed-

ing based upon a State law claim or State law

cause of action, related to a case under title 11

but not arising under title 11 or arising in a case

under title 11, with respect to which an action

could not have been commenced in a court of

the United States absent jurisdiction under this

section, the district court shall abstain from

hearing such proceeding if an action is com-

menced, and can be timely adjudicated, in a

State forum of appropriate jurisdiction.

*We also note that the proceedings in the state court in Pacor had

been ongoing for nearly six months when the case was removed to

federal court. Here, the action was removed shortly after service of

the complaint on Coopers. Hence, the state court had not engaged in

any significant activity over the action prior to its removal.

| ateeatl ies ON Pee ae

App. 2

e %

The claims in this negligence action are solely state law

claims. There is neither a federal question nor diversity

jurisdiction. As a result, absent § 1334’s jurisdictional

grant, we would lack jurisdiction over the matter.

We hold that the abstention provision does not apply to

removal cases where there is no corresponding state law

action, and that the statutory vehicles for removal and

remand must be applied independently of the abstention

provisions. See, Neuman v. Goldberg, —B.R.—, C.A.

No. 93-2092, 1993 WL 403179 at *5 (S.D.N.Y. Sept. 30,

1993) (“the statutory scheme of § 1334 precludes the

application of the mandatory abstention provision in

§ 1334(c)(2) to removed actions absent a parallel state

case”); In re Branded Products, Inc., 154 B.R. 936 (W.D.

Tex. 1993); In re Micro Mart, Inc., 72 B.R. 63 (Bankr.

N.D.Ga. 1987), In re AK Services, Inc. v. AK Engineer-

ing, Inc.,_B.R.—, C.A. No. 93-14887, 1993 WL 385529

(Bankr. D. Mass. Sept. 24, 1993). Thus, we will not

abstain.

We reach this conclusion for several reasons: first, it is

unlikely that Congress would, on the one hand, grant

jurisdiction over bankruptcy-related cases to federal

courts, while, on the other hand, prohibit those courts

from exercising jurisdiction. Such an interpretation im-

plies that Congress is engaged in futile statutory exercises

rather than enacting meaningful law, and we reject that

view. Had Congress intended to effectively eliminate the

district courts’ ability to adjudicate state law claims re-

lated. to bankruptcy proceedings, it is reasonable to as-

sume that it would have taken the direct approach and

simply excluded the “related to” clause from the jurisdic-

tional grant in § 1334.

App. 2

-9-

Moreover, we agree with the courts which have found

significant the fact that Congress did not expressly amend

§ 1452(b) (the remand statute) to limit the district

court’s discretion over remand. See, Weisman v. South-

east Hotel Properties Ltd. Partnership, No. 91 Civ. 6232,

1992 WL 131080 at *5 (S.D.N.Y. June 1, 1992); General

American Corp. v. Merrill Lynch Commodities, Inc., 64

B.R. 829 (Bankr. S.D.N.Y. 1986). Under that provision,

a district court may remand to state court any removed

claim or cause of action “on any equitable ground”. In the

absence of an express limitation on a district court’s

discretionary authority, we hold that the abstention provi-

sion does not apply to the remand statute, and Congress

intended that the remand decision remain solely a discre-

tionary function of the district courts.

Finally, our conclusion that the abstention provision of

§ 1334(c) (2) is not applicable to this action is buttressed

by the fact that there is no pending state law action, and

therefore, no threat of inconsistent judgments or friction

between state and federal courts. It is also important that

the negligence claims do not appear to raise any nove!

state law issues which would be better adjudicated in a

state forum. As a result, issues of comity and preference

for state court interpretation of its own laws, the central

factors that the abstention provision was designed to

address, are not implicated. Ram Construction Company,

Inc. v. Port Authority of Allegheny County, 49 B.R. 363

(W.D. Pa. 1985) (refusing to abstain where case did not

present unsettled questions of state law or comity issues).

For the above reasons, we hold that the mandatory

abstention provisions of 28 U.S.C. § 1334(c) (2) are inap-

plicable to the circumstances of this action and do not

require that we abstain.

_—

App. 2

-10-

fil. REMAND — EQUITABLE

CONSIDERATIONS

We also conclude that equitable considerations militate

against remanding this action to state court. As we stated

above, we are empowered by statute to remand to the

state court any claim or cause of action if the equities so

warrant.

Various equitable factors have been considered by the

courts in deciding whether to remand an action to state

court. These factors include: (1) the court’s duty to

decide matters properly before it; (2) the plaintiff's right

to choose the forum; (3) the nature of the claim; (4) the

unsettled nature of the state law issues such that state law

would be better addressed by the state courts; (5) the

prejudice to the involuntarily removed parties; (6) comity

considerations; (7) economical versus duplicative use of

judicial resources; (8) the effect on efficient administra-

tion of bankruptcy estates; (9) the possibility of inconsis-

tent results; (10) the right to a jury trial; and (11) the

relative expertise of the federal and state courts on the

issues presented. See, e.g, Lone Star Industries, Inc. vy.

Liberty Mutual Ins. Co., 131 B.R. 269 (D.Del. 1991);

Baxter Healthcare Corp. v. Hemex Liquidation Trust, 132

B.R. 863 (N.D.IIl. 1991); In re Riverside Nursing Home,

144 B.R. 951 (S.D.N.Y. 1992); Western Helicopters, Inc.

v. Hiller Aviation, Inc., 97 B.R. 1 (E.D. Cal. 1988).

In applying these factors, we conclude that the equities

in favor of retaining this action in federal court outweigh

the equities in favor of remand. The genesis of this action,

as in each of the other actions consolidated in this court,

is Phar-Mor’s fraudulent financial statements and

Coopers’ allegedly negligent performance in auditing such

statements. Each of the consolidated cases is by or be-

ee ee ae

eS ob OR YUEN Aig.

A etnias ate

omen

App. 2

sit.

tween Phar-Mor, its officers, directors and equity owners,

Coopers and Phar-Mor’s bankruptcy creditors. While va-

rious and diverse legal theories and causes of action

abound, the central issue which we are ultimately charged

to decide in all of these cases is the same: Who bears

responsibility for the fraud perpetrated by Phar-Mor

which resulted in losses suffered by corporations, busi-

nesses and individuals?

There is no doubt that remand of this action would

waste judicial resources and could easily result in incon-

sistent judgments. Moreover, as rehearsed, there are no

difficult or unsettled state law issues apparent on the face

of the complaint such that the state court in Texas would

be better suited to adjudicate this case. The nature of the

claim in this action is identical to claims made by others

against Coopers in the consolidated cases. Hence, much

of the evidence which will be produced and many of the

witnesses who will testify in the consolidated cases pres-

ently before us would also appear in any state court

litigation of this action.

Additionally, while the Texas state court is obviously

capable of trying this action, this court is more familiar

with the subject matter of this case due to the multidis-

trict litigation and the similar or identical claims raised in

the consolidated actions. Furthermore, as discussed, is-

sues of comity and preference for state court adjudication

of its own laws are not implicated by the instant

circumstances.

Finally, FoxMeyer has not established that it would be

unduly prejudiced by litigation of its claims in this forum.

FoxMeyer is a corporation engaged in business through-

out the continental United States. We are not persuaded

App. 2

239.

that a Pittsburgh situs will cause undue inconvenience or

expense.”

In sum, we find that trying the instant case as part of

the multidistrict litigation will promote efficient use of

judicial resources, eliminate duplicative efforts, and elimi-

nate the possibility of inconsistent judgments. At the

same time, plaintiffs will neither be unduly prejudiced nor

will comity between the federal and state courts suffer.

We will retain this action as part of the multidistrict

litigation and we will deny FoxMeyer’s motion to remand.

A written order will follow.

Dated: November 5, 1993 /s/ DONALD E. ZIEGLER

Donald E. Ziegler

United States District Judge

“It should also be noted that, unlike many actions which have been

removed to federal court based on “related to” jurisdiction,

FoxMeyer in this case does not lose its right to a jury trial. Thus,

although FoxMeyer loses its initial choice of forum, for all practical

purposes it is not materially prejudiced by trying its case in federal

court.

App. 2

a. *

IN THE

United States Bistrict Court

FOR THE WESTERN DISTRICT OF PENNSYLVANIA

IN RE: 7

PHAR-Mor, INC.

: Civit ACTION 92-1938

LIT

SECURITIES LITIGATION | MDL No. 959

FOxMEYER DruG Company,| MASTER FILE No.

Misc. 93-96

Plaintiff,

THIS ORDER

Coopers & LYBRAND, | APPLIES TO

CivIL ACTION

No. 93-0933

Defendant.

ORDER OF COURT

AND NOW, this Sth day of November, 1993, IT IS

ORDERED that the motion of plaintiff, FoxMeyer Drug

Company, to remand, or in the alternative, to abstain and

remand be and hereby is denied.

/s/ DONALD E. ZIEGLER

Donald E. Ziegler

United States District Judge

pa D4 nla a

United States Constitution

Article III, Section 2, Clause 1

The judicial Power shall extend to all Cases, in Law

and Equity, arising under this Constitution, the Laws of

the United States, and Treaties made, or which shall be

made, under their Authority; — to all Cases affecting

Ambassadors, other public Ministers and Consuls; — to

all Cases of admiralty and maritime Jurisdiction; — to

Controversies to which the United States shall be a

Party; — to Controversies between two or more States; —

between a State and Citizens of another State; — be-

tween Citizens of different States; — between Citizens of

the same State claiming Lands under Grants of different

States, and between a State, or the Citizens thereof, and

foreign States, Citizens or Subjects.

28 U.S.C. § § 1334(b) and (c)

(b) Notwithstanding any Act of Congress that confers

exclusive jurisdiction on a court or courts other than the

district courts, the district courts shall have original but

not exclusive jurisdiction of all civil proceedings arising

under title 11, or arising in or relating to cases under

title 11.

(c)(1) Nothing in this section prevents a district court

in the interest of justice, or in the interest of comity with

State courts or respect for State law, from abstaining from

hearing a particular proceeding arising under title 11 or

arising in or related to a case under title 11.

(2) Upon timely motion of a party in a proceeding

based upon a State law claim or State law cause of action,

related to a case under title 11 but not arising under title

11 or arising in a case under title 11, with respect to which

an action could not have been commenced in a court of

the United States absent jurisdiction under this section,

the district court shall abstain from hearing such proceed-

ing if an action is commenced, and can be timely adjudi-

cated, in a State forum of appropriate jurisdiction. Any

decision to abstain or not to abstain made under this

subsection is not reviewable by appeal or otherwise by the

court of appeals under section 158(d), 1291, or 1292 of

this title or by the Supreme Court of the United States

under section 1254 of this title. This subsection shall not

be construed to limit the applicability of the stay provided

for by section 362 of title 11, United States Code, as such

section applies to an action affecting the property of the

estate in bankruptcy.

6A.

. Plaintiffs Original Petition, FoxMeyer Drug Co. v.

Coopers & Lybrand; 93-1535; 193rd Judicial District,

Dallas County, Texas; filed February 15, 1993.

Defendant’s Notice of Removal; FoxMeyer Drug Co.

v. Coopers & Lybrand; C.A. No. 3-93-CV-0470-D;

Northern District of Texas, Dallas Division; filed

March 8, 1993.

Defendant Coopers & Lybrand’s Request for transfer

to the Western District of Pennsylvania; Docket No.

959, Before the Judicial Panel of MultiDistrict Liti-

gation, In re Phar-Mor Securities Litigation; dated

March 9, 1993.

Defendant Coopers & Lybrand’s Original Answer;

FoxMeyer Drug Co. v. Coopers & Lybrand; C.A. No.

3-93-CV-0470-D; Northern District of Texas, Dallas

Division; filed March 15, 1993.

Plaintiffs Motion and Brief to Remand Or In the

Alternative Abstain and Remand; FoxMeyer Drug

Co. v. Coopers & Lybrand; C.A. No. 3-93-CV-

0470-D; Northern District of Texas, Dallas Division;

filed March 16, 1993.

Plaintiffs Reply to Defendant’s Memorandum in

Opposition to Plaintiff's Motion to Remand, or In

the Alternative, Abstain and Remand; FoxMeyer

Drug Co. v. Coopers & Lybrand; C.A. No. 3-93-

CV-0470-D; Northern District of Texas, Dallas Divi-

sion; filed April 16, 1993.

. Affidavit of William B. Dawson, verified April 16,

1993 (Exhibit B to Item 6A.)

Supplemental Brief in Opposition to Plaintiff's Mo-

tion to Remand, or in the Alternative, Abstain and

10.

11.

12.

13.

App. 4

Fr, %

Remand; FoxMeyer Drug Co. v. Coopers & Lybrand;

C.A. No. 3-93-CV-0470-D; Northern District of

Texas, Dallas Division; filed April 16, 1993.

Transfer Order; Docket No. 959, Before the Judicial

Panel on MultiDistrict Litigation, Jn re Phar-Mor

Securities Litigation; filed May 26, 1993.

Joint Motion and Brief to Modify the Court’s No-

vember 5 Order to Permit an Interlocutory Appeal

Pursuant to 28 U.S.C. § 1292(b); In re Phar-Mor

Securities Litigation: FoxMeyer Drug Co. v. Coopers

& Lybrand; C.A. No. 93-933, MDL No. 959; West-

ern District of Pennsylvania; filed December 15,

1993.

Opinion and Order Denying Joint Motion to Modify

Order and to Permit an Interlocutory Appeal under

28 U.S.C. §1292(b); In re Phar-Mor Securities

Litigation: FoxMeyer Drug Co. v. Coopers &

Lybrand; C.A. No. 93-933, MDL No. 959; Western

District of Pennsylvania; filed December 28, 1993.

Petition for Writ of Mandamus; Jn re Phar-Mor

Securities Litigation: FoxMeyer Drug Co. v. Coopers

& Lybrand; 94-3071; United States Court of Appeals

for the Third Circuit, filed February 18, 1994.

Case Management Order; In re Phar-Mor Securities

Litigation; MDL No. 959; Western District of Penn-

sylvania; filed May 5, 1993.

Case Management Order #2; Jn re Phar-Mor Secu-

rities Litigation, MDL No. 959; Western District of

Pennsylvania; filed September 15, 1993.

14,

App. 4

aie

Case Management Order #3; In re Phar-Mor Secu-

rities Litigation, MDL No. 959; Western District of

Pennsylvania; filed November 8, 1993.

Case Management Order #4; Jn re Phar-Mor Secu-

rities Litigation, MDL No. 959; Western District of

Pennsylvania; filed March 29, 1994.

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.