Bankruptcy Update Blog

Which Procedural Rules Apply to Non-Core, “Related-To” Matters in Federal District Court?  Another Circuit Court Addresses the Issue

At stake in a recent decision by the First Circuit was this: when a bankruptcy matter is before a federal district court based on non-core, “related to” jurisdiction, should the court apply the Federal Rules of Bankruptcy Procedure or the Federal Rules of Civil Procedure?  The First Circuit ruled that the former apply, and in so doing joined three other circuits that have also considered this issue.  Roy v. Canadian Pac. Ry. Co. (In re Lac-Megantic Train Derailment Litig.), No. 17-1108, 2021 U.S. App. LEXIS 16428 (1st Cir. June 2, 2021).[i]

The ruling stemmed from a bankruptcy case that was filed after the fallout from a tragic train derailment.  The accident took place when oil was being transported from North Dakota to Canada.  The derailment caused death, injury, and property damage.

The company responsible for transporting the oil filed for bankruptcy in Maine. Lawsuits in various jurisdictions followed.  Corresponding wrongful death actions brought in state courts were removed to federal courts.  The plaintiffs and the trustee in the debtor’s bankruptcy case filed motions in the bankruptcy court to have those actions transferred to the U.S. District Court for the District of Maine.  The motion was granted, and the litigation was centralized in that court.

The lawsuits were eventually settled with all but one defendant.  That defendant moved to dismiss the complaint, arguing that the court lacked personal jurisdiction over it.  The district court agreed and (i) granted the defendant’s motion to dismiss, and (ii) denied a motion by plaintiffs to amend their complaint.

Significantly, 28 days later, the plaintiffs moved for reconsideration of that decision.  28 days is the maximum time period to file a motion for reconsideration under the Federal Rules of Civil Procedure.  The defendant opposed the motion, arguing that it was untimely because, under the Bankruptcy Rules, motions for reconsideration must be brought within 14 days following the issuance of the underlying ruling.

In addition, the plaintiffs later filed a notice of appeal of the district court’s decision denying plaintiffs leave to amend.  The defendant moved for summary disposition, arguing that the untimely motion for reconsideration did not toll the deadline for plaintiffs to appeal (a timely motion for reconsideration tolls appeal deadlines under both the Bankruptcy Rules and the Civil Rules), thus rendering the notice of appeal untimely.

In starting its analysis, the First Circuit observed that the Bankruptcy Amendments and Federal Judgeship Act of 1984 granted district courts jurisdiction over both bankruptcy cases arising under title 11 and cases “related-to” title 11 cases.  Even so, most district courts have a standing order that refers all bankruptcy cases to bankruptcy courts.  In core matters— those arising under title 11 — bankruptcy courts have the authority to issue final orders.  But in non-core matters that are “related to” cases arising under title 11, bankruptcy courts cannot issue final orders.   Instead, they must submit proposed findings of fact and conclusions of law to district courts.  There was no dispute in Roy that the wrongful death actions were non-core matters that were related to the underlying bankruptcy case.

The appellants argued that while the Bankruptcy Rules should apply to core matters, the Civil Rules should apply to non-core, “related to” matters.  The First Circuit disagreed, holding that neither the Bankruptcy Code and Rules nor “practicalities attendant to the efficient operation of the modern bankruptcy system” support that position.  2021 U.S. App. LEXIS 16428, at *14.

The First Circuit drove home the point by noting that it would make little sense to require a district court hearing both core and non-core matters to utilize two separate rules of procedure. The appellants’ view would also require a district court reviewing proposed findings to apply the Civil Rules after the bankruptcy court had already applied the Bankruptcy Rules to the same issues.  The First Circuit observed that “it [would be] implausible that Congress could have intended to create such a Rube Goldberg like adjudicative contraption.”  2021 U.S. App. LEXIS 16428, at *17.

The First Circuit’s ruling was outcome determinative to the case before it.  The plaintiffs’ motion for reconsideration was untimely because it was filed after the 14-day deadline under the Bankruptcy Rules.  As a result, the subsequent notice of appeal that was filed more than 30 days after the district court entered a final judgment (Fed. R. App. P. 4(a)) was also untimely, and thus the plaintiffs’ appeal was dismissed.

 

[i] In re Celotex Corp., 124 F.3d 619 (4th Cir. 1997); Phar-Mor, Inc. v. Coopers & Lybrand, 22 F.3d 1228 (3d Cir. 1994; and Diamond Mortg. Corp. of Ill. v. Sugar, 913 F.2d 1223 (7th Cir. 1990).