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

> Briefs, arguments, decisions, and more.

URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386003_1734%3A1

## Record

- **Collection:** Supreme Court brief
- **Document type:** Petition for Writ of Certiorari
- **Published:** January 1, 1994

## Text

U

(1) rTcrsD

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?

ii

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

iv

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

Vv

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

vi

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 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).

15

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

16

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

17

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.

18

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

19

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.

20

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

21

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).

|

22

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.

23

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.

24

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

25

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

26

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

27

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.

28

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

J

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
ae

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
te

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,
vi
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,

ih

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.

---

Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386003_1734%3A1. Public record. Not legal advice.