Charles Schwab & Co. v. Girod Loanco, LLC

CHARLES SCHWAB & CO INC. v. GIROD LOANCO, LLC, ET AL.

CIVIL ACTION CASE NO. 19-13099 SECTION: "G"(4)

UNITED STATES DISTRICT COURT EASTERN DISTRICT OF LOUISIANA

June 9, 2020

ORDER AND REASONS

This civil action was initiated by Charles Schwab & Co., Inc. ("Schwab") to resolve competing claims by Girod LoanCo LLC ("Girod") and Regina Heisler ("Heisler") to the proceeds of a Schwab brokerage account (the "Funds").¹ After the Civil District Court for the Parish of Orleans granted summary judgment in favor of Girod and entered a "Final Judgment" directing the Clerk of Court for the Civil District Court for the Parish of Orleans to pay all sums remaining in the CDC Registry to Girod,² Heisler removed the action to this Court, alleging federal jurisdiction because this civil action is "related to" a pending bankruptcy action in the United States Bankruptcy Court for the Eastern District of Louisiana.³ For the reasons set forth herein, the Court finds it prudent to permissively abstain pursuant to 28 U.S.C. § 1334(c)(1) and remand this action to state court based on equitable considerations pursuant to 28 U.S.C. § 1452(b).

I. Background

Schwab initiated this action to resolve competing claims by Girod and Heisler to the proceeds of a Schwab brokerage account.⁴ Heisler held the Schwab brokerage account in hername.⁵ However, pursuant to the terms of a Pledged Asset Account Agreement, Heisler granted a security interest in the brokerage account to serve as collateral to secure a promissory note, payable to First NBC Bank.⁶ The promissory note was then modified and amended by an Allonge dated November 13, 2017, by the Federal Deposit Insurance Corporation, as Receiver for First NBC Bank, to reflect it is payable to Girod.⁷

After both Girod and Heisler made a demand on Schwab for the Funds in the brokerage account, Schwab liquidated the account and filed an interpleader action in the United States District Court for the Eastern District of Louisiana.⁸ This Court authorized Schwab to deposit the cash portion of the Account into the Court's registry.⁹ However, after filing the case in federal court, Schwab was advised that diversity jurisdiction did not exist and therefore, filed a Motion to Dismiss Without Prejudice in order to file a concursus proceeding in the Civil District Court for the Parish of Orleans.¹⁰ On May 10, 2018, this Court granted the Motion to Dismiss and authorized the Clerk of Court to transfer the funds to the Civil District Court upon the filing of this concursus proceeding.¹¹ Schwab requested that the funds be deposited into the registry of the state court (the "CDC Registry") upon the filing of the concursus action.¹²

After Schwab was dismissed from the state court action, Girod and Heisler litigated the issueof which party had the superior claim to the Funds. On September 5, 2019, the Civil District Court for the Parish of Orleans granted summary judgment in favor of Girod and entered a "Final Judgment."¹³ The state court determined that Girod had the superior claim to the Funds.¹⁴ As such, the state court ordered the Clerk of Court for the Civil District Court for the Parish of Orleans, State of Louisiana to pay all sums remaining in the CDC Registry to Girod.¹⁵ Lastly, the state court ordered "that this judgment [is] a final judgment which adjudicates all outstanding issues in this concursus proceeding."¹⁶

On October 11, 2019, Heisler removed this action to this Court.¹⁷ Heisler alleges federal jurisdiction because this civil action is "related to" a pending bankruptcy action in the United States Bankruptcy Court for the Eastern District of Louisiana.¹⁸ Additionally, Heisler alleges that "[t]he State-Court action became removable pursuant to 28 U.S.C. § 1446(b)(3) on October 9, 2019, when the Louisiana Supreme Court Denied a STAY sought against Girod LoanCo, a vulture-fund entity continuing to engage in fraud in the state of Louisiana."¹⁹

On October 5, 2019, Girod filed a "Motion to Enforce Judgment."²⁰ The motion was set for submission on November 20, 2019. Pursuant to Local Rule 7.5, "[e]ach party opposing a motion must file and serve a memorandum in opposition to the motion with citations of authorities no later than eight days before the noticed submission date." Therefore, any opposition memorandum by Heisler was due on November 12, 2019. Heisler has not filed any opposition, timely or otherwise.

Nevertheless, Heisler has filed multiple other motions and pleadings in an attempt to further convolute this case. Despite being the party that removed this case from state court, Heisler has repeatedly argued that the Court does not have jurisdiction in various subsequent filings.²¹ On December 3, 2019, Heisler filed a "Motion to Strike Girod LoanCo's Pleadings for Failure to Identify its Ownership and to Dismiss Girod LoanCo's Claims for Lack of Subject Matter Jurisdiction," arguing that Girod does not have Article III standing to file pleadings in this Court or in any state court in Louisiana.²² On February 7, 2020, Heisler filed a "Motion to Dismiss on Abstention Principles," arguing that the Court should abstain from considering the issues presented in this case under the Colorado River doctrine because related legal issues are currently being considered by the Louisiana Fourth Circuit Court of Appeal in another civil action involving these parties.²³

On May 28, 2020, Heisler filed a Petition for Writ of Mandamus in the Civil District Court for the Parish of Orleans, naming the Clerk of that Court as the sole defendant.²⁴ In the mandamus action, Heisler is seeking a court order directing the Clerk of Court for the Orleans Parish CivilDistrict Court to pay the funds in the state court registry to Heisler.²⁵

On June 5, 2020, Girod filed a motion requesting a status conference to address issues arising from the mandamus action instituted by Heisler in the Civil District Court for the Parish of Orleans, State of Louisiana.²⁶ That same day, the Court issued an order setting a status conference for June 8, 2020.²⁷ During the status conference, issues regarding jurisdiction were made apparent. Although no motion to remand has been filed, this Court finds it appropriate to remand this action to state court sua sponte for the reasons set forth below.²⁸

II. Law and Analysis

A. "Related To" Bankruptcy Jurisdiction

This matter solely involves questions of state law. Schwab initiated this action to resolve competing claims by Girod and Heisler to the proceeds of a Schwab brokerage account.²⁹ In the notice of removal, Heisler alleges that the Court has subject matter jurisdiction over the dispute because this civil action is "related to" a pending bankruptcy action in the United States Bankruptcy Court for the Eastern District of Louisiana.³⁰ Specifically, Heisler asserts that this action is "related to" a Chapter 11 bankruptcy proceeding, In re Cella III,³¹ and a related adversaryproceeding, Cella III, LLC v. Girod Loanco, LLC,³² because "the issue raised in the removed case regarding the misconduct and fraud perpetrated by Girod LoanCo are exactly the same as set forth in the Cella litigation, except that the Cella lawsuit has yet to raise the issue of Girod LoanCo being a vulture-fund which is legally non-existent."³³

28 U.S.C. § 1334(b) confers federal district courts with original and exclusive jurisdiction over "all cases under title 11." Pursuant to Section 1334(b), the district courts have original, but not exclusive, jurisdiction over "all proceedings arising under title 11, or arising in or related to cases under title 11." The Fifth Circuit has explained that in determining whether jurisdiction exists, it is "necessary only to determine whether a matter is at least 'related to' the bankruptcy."³⁴

The Fifth Circuit defines "related" to mean "whether the outcome of that proceeding could conceivably have any effect on the estate being administered in bankruptcy."³⁵ Additionally, the Court must consider whether the outcome of the case "could alter the debtor's rights, liabilities, options, or freedom of action (either positively or negatively) and which in any way impacts upon the handling and administration of the bankrupt estate."³⁶ Thus, for jurisdiction to attach, "the anticipated outcome of the action must both (1) alter the rights, obligations, and choices of action of the debtor, and (2) have an effect on the administration of the estate."³⁷ "To fall within the court's jurisdiction, the plaintiff's claims must affect the estate, not just the debtor."³⁸

The Supreme Court has made clear that "Congress intended to grant comprehensive jurisdiction to the bankruptcy courts so that they might deal efficiently and expeditiously with all matters connected with the bankruptcy estate."³⁹ However, the Supreme Court has further cautioned that a court's "related to" bankruptcy jurisdiction is not "limitless."⁴⁰ The Fifth Circuit has clarified that "related to" is a "term of art in bankruptcy jurisdiction, where its meaning is not as broad as it is in ordinary parlance where it means 'having some connection with.'"⁴¹ According to the Fifth Circuit, the "related to" provision includes a causal component, whereby the instant proceeding "must be capable of affecting the bankruptcy estate for it to be 'related to' the bankruptcy."⁴²

Because this litigation is between only non-debtor parties asserting state law claims, 28 U.S.C. § 1334(b) requires, at minimum, that this civil matter be "related to" the bankruptcy proceeding.⁴³ It is not apparent that this matter is related to the bankruptcy proceeding. The debtor in the bankruptcy proceeding, Cella III, is not a party to this litigation. The only purported relationship between this case and the bankruptcy litigation is that the alleged fraud and misconduct of Girod is the same in both actions.⁴⁴ In subsequent filings, Girod has stated that it"acknowledges and consents to this Court's jurisdiction" over this matter.⁴⁵ However, a "party may neither consent to nor...