A Single Error in Applying the Sixteen Factor Analysis to Determine Whether to Remand a Case to State Court is Harmless Error and Not an Abuse of Discretion

By Karl Johnson posted 04-03-2018 10:40

Karl Johnson, Hellmuth & Johnson, PLLC
Jeffrey Klobucar, Bassford Remele, P.A.
Contributing Editor: Jackie Williams, Manty & Associates, P.A.

In Zahn Law Firm, P.A. v. Ronald Stuart Baker (In re Baker), No. 17-6015 (B.A.P. 8th Cir. Nov. 16, 2017), the bankruptcy appellate panel considered whether the bankruptcy court abused its discretion by remanding a case to state court.

Prior to filing, a law firm brought an action against the debtor in state court, alleging breach of contract and account stated. The debtor filed a counterclaim, alleging the representation agreement between the debtor and the law firm was unenforceable and seeking recovery of fees paid to the law firm. Approximately one year later and after the law firm filed a motion for summary judgment, but before it was heard, the debtor filed a petition under chapter 13. Shortly after, the debtor removed the action to the bankruptcy court. The bankruptcy court required the parties to appear and show cause as to why the case should not be remanded to the state court. The bankruptcy court remanded the case.

The BAP explained that in evaluating whether to remand a case the bankruptcy court should use the same criteria as used to evaluate whether to abstain under 28 U.S.C. § 1334(c)(1). The BAP identified the twelve criteria as set forth in Stabler v. Beyers (In re Stabler), 418 B.R. 764, 769 (B.A.P. 8th Cir. 2009). The BAP also identified four additional factors as set forth in Sears v. Sears (In re Sears), 539 B.R. 368, 370 (D. Neb. 2015). The BAP explained that the bankruptcy court considered each of the sixteen required factors and no additional factors. The bankruptcy court found ten of the first twelve factors and three of the four additional factors favored remand. The debtor challenged the bankruptcy court’s findings in connection with four of the first twelve factors.

The BAP found that the bankruptcy court committed error with one of those factors. Specifically, the bankruptcy court found that the case did not involve difficult or unsettled law. The BAP explained that if the state law at issue is not difficult or unsettled, then the state court is not in a better position than the bankruptcy court to decide the case. Although the BAP found error with this one factor, this factor was not the deciding factor in the bankruptcy court’s decision and the error in applying this single factor was harmless.