Who Decides Whether Bankruptcy Jurisdiction
Exists after Removal from State Court?
By Regan Loper January 2017
Imagine that while a bankruptcy case is pending, the debtor-in-possession or bankruptcy trustee files
a state law claim against one of the estate's creditors. Presumably, if the debtor wins its state law
claim, that recovery augments the bankruptcy estate and increases the amount available to pay the
debtor's creditors.1 The creditor, seeking to avoid litigating the action in the debtor's home state
creditor argues that the case should proceed in federal bankruptcy court because that court has
bankruptcy jurisdiction over the matter under 28 U.S.C. § 1334(b).3 That provision says that
bankruptcy jurisdiction exists over all proceedings "related to cases under title 11."4 The debtor
responds by arguing that the state law claims have nothing to do with bankruptcy. Even if they did,
the bankruptcy court should abstain and allow the state court to hear the lawsuit.5
At first glance, the creditor appears to be right: the bankruptcy judge has jurisdiction over the claim.
According to the vast majority of case law, the debtor's state law claim appears to "relate to" the
debtor's underlying bankruptcy case under 28 U.S.C. § 1334(b) because it meets the standard for
"related to" jurisdiction – the outcome "could conceivably have an effect on the estate being
administered in bankruptcy."6 Moreover, all of the district courts in the United States have
Reference Orders providing that all proceedings arising under title 11 or arising in or related to a case
under title 11 shall be referred to the bankruptcy judge for that district.7 Given that the bankruptcy
judge appears to have "related to" jurisdiction over the debtor's claims in this scenario, it appears
that the bankruptcy judge has jurisdiction over the case barring the judge's decision to abstain.
The real question in this scenario is who gets to decide whether bankruptcy jurisdiction exists under
28 U.S.C. § 1334 and whether to abstain. Is it the federal district court judge, where the case is
1 For simplicity, assume that the state law claim arose pre-petition.
2 28 U.S.C. § 1452(a) states that a "party may remove any claim or cause of action in a civil action other than a proceeding
before the United States Tax Court or a civil action by a governmental unit to enforce such governmental unit's police or
regulatory power, to the district court for the district where such civil action is pending, if such district court has jurisdiction of
such claim or cause of action under section 1334 of this title." In turn, 28 U.S.C. § 1334 grants the district courts jurisdiction over
"all cases under title 11" and over "all civil proceedings arising under title 11, or arising in or related to cases under title 11."
4 Id.
5 28 U.S.C. § 1334(c) allows the district court to abstain from hearing a case, for example if it would be in the interest of
comity with state courts .
6 Matter of Lemco Gypsum, Inc., 910 F.2d 784, 788 (11th Cir. 1990); see also Pacor, Inc. v. Higgins, 743 F.2d 984, 994 (3d Cir.
1984); In re Pegasus Gold Corp., 394 F.3d 1189, 1193 (9th Cir. 2005); Celotex Corp. v. Edwards, 514 U.S. 300, 308 & n.6 (1995);
Nuveen Mun. Trust ex rel. Nuveen High Yield Mun. Bond Fund v. WithumSmith Brown, P.C., 692 F.3d 283, 293-94 (3d Cir. 2012).
7 28 U.S.C. § 157(a) permits each United States district court to refer "any or all cases under title 11 and any or all
proceedings arising under title 11 or arising in or related to a case under title 11" to the bankruptcy judge for that district. Every
district court has taken advantage of that opportunity and published Reference Orders to that effect.
