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Stoe v. Flaherty

January 23, 2006

GEORGE P. STOE, APPELLANT
v.
WILLIAM E. FLAHERTY; DAVID CARPENTER; JAMES CARPENTER; WILLIAM SMELAS; ROBERT SUNDERMAN; RONALD STATILE



On Appeal From the United States District Court For the Western District of Pennsylvania (D.C. Civil Action No. 04-cv-00489) District Judge: Hon. Donetta W. Ambrose.

The opinion of the court was delivered by: Stapleton, Circuit Judge.

PRECEDENTIAL

Argued October 18, 2005

BEFORE: SMITH, STAPLETON and NYGAARD, Circuit Judges.

OPINION OF THE COURT

Plaintiff-appellant George Stoe ("Stoe") brought a state-law action in state court to recover unpaid severance benefits from current and former officers of his previous employer, which is now bankrupt. The defendants removed the case to federal court pursuant to 28 U.S.C. § 1452, which provides for the removal of claims related to a bankruptcy case. In the District Court, the defendants successfully opposed Stoe's motion for mandatory abstention and ultimately won dismissal on the merits. Because we conclude that the District Court committed errors of law in ruling that the Bankruptcy Code's mandatory abstention provision was inapplicable to a case of this kind, we will remand for further consideration of whether the District Court must abstain from hearing Stoe's case.

I.

Stoe was formerly the president of Zinc Corporation of America ("Zinc"), a division of Horsehead Industries, Inc. ("Horsehead"). In April 2002, Stoe entered into a severance agreement with Zinc that provided for Stoe to receive a severance of $648,000, payable in biweekly installments of $13,500, for services he had rendered to the company prior to his departure. Zinc and Horsehead made all payments required by the severance agreement until Horsehead filed for Chapter 11 bankruptcy in the United States District Court for the Southern District of New York in August 2002. The Bankruptcy Code prohibited Horsehead from making further payments to Stoe after the filing of the petition. See Belcufine v. Aloe, 112 F.3d 633, 634 (3d Cir. 1997) (noting that filing of a Chapter 11 petition bars the payment of pre-petition claims by the company).

Stoe brought an action to recover the unpaid severance payments under Pennsylvania's Wage Payment and Collection Law, 43 Pa. Cons. Stat. § 260.1 et seq. ("WPCL"), against David Carpenter, Executive Chairman and CEO of Horsehead, James Carpenter, President of Horsehead, William Smelas and Robert Sunderman, both former Executive Vice Presidents of Zinc, Ronald Statile, former Chief Financial Officer of Zinc, and William Flaherty, former Chairman and CEO of Zinc. Under the WPCL, when a corporation fails to pay wages and benefits that it owes its employees, the corporation's top officers can be held personally liable for the non-payments. Belcufine, 117 F.3d at 634. Stoe did not name Horesehead as a defendant in the suit, but if Stoe is successful, the defendants will be entitled to indemnification from Horsehead, pursuant to Horsehead's by-laws.

After removing Stoe's state court action to federal court, the defendants moved to dismiss Stoe's action under Fed. R. Civ. P. 12(b)(6), or, in the alternative, to transfer the action to the Bankruptcy Court. Stoe moved to remand the action to state court, or, in the alternative, for both permissive and mandatory abstention.

The District Court denied Stoe's motion to remand or to abstain. With respect to mandatory abstention, the court made two rulings. First, it ruled that "abstention cannot apply to removed cases." App. at 9. Second, the District Court concluded that even if mandatory abstention applied as a general matter to removed cases, it would not apply to Stoe's case because mandatory abstention requires that the state law claim be only "related to" the bankruptcy proceeding, and not "arise under" the Bankruptcy Code or "arise in" a bankruptcy case. In the District Court's view, Stoe's claim was "inextricably intertwined with the Bankruptcy Code and would not exist, but for, the bankruptcy filing." As a result, the District Court held that Stoe's claim "'arises in' the bankruptcy proceeding." Id. at 10.

After Stoe responded to the defendants' motions to dismiss, the District Court ruled, following our decision in Belcufine v. Aloe, 112 F.3d 633 (3d Cir. 1997), that Stoe did not state a valid claim under the WPCL. Stoe does not challenge the merits of that ruling before us, but rather argues that the District Court was required to abstain from hearing his case and consequently lacked jurisdiction to enter the order of dismissal.

II.

We have jurisdiction to review the District Court's order dismissing Stoe's action pursuant to 28 U.S.C. § 1291. In addition, the District Court's prior order denying Stoe's motion for mandatory abstention is reviewable under 28 U.S.C. § 1334(d). We are cognizant that decisions not to remand are "not reviewable by appeal or otherwise by the court of appeals under section 158(d), 1291, or 1292 of [title 28]." 28 U.S.C. § 1452(b). By contrast, appeals of decisions not to exercise mandatory abstention pursuant to § 1334(c)(2) are explicitly permitted under § 1334(d). Stoe appeals the District Court's decision not to abstain and we accordingly consider only the propriety of that decision, not the District Court's decision regarding remand. As the Second Circuit noted recently, "If we determine. . . the district court erred by not abstaining, the district court properly could both abstain and remand when this lawsuit is returned to it. However, that reality would not alter the fact that we would have reviewed only the decision not to abstain." Mt. McKinley Ins. Co. v. Corning Inc., 399 F.3d 436, 445 (2nd Cir. 2005). The District Court's determination that the mandatory abstention provision of § 1334(c)(2) does not apply to removed cases is a question of statutory interpretation that we review de novo. Tavarez v. Klingensmith, 372 F.3d 188, 189 n.1 (3d Cir. 2004). We similarly exercise plenary review over the legal question of whether Stoe's claim is a "core" proceeding. See Mt. McKinley, 399 F.3d at 447.

III.

Section 1334 of title 28 provides, in pertinent part:

(a) Except as provided in subsection (b) of this section, the district courts shall have original and exclusive jurisdiction of all cases under title 11.

(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 ...


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