Covanta Onondaga Limited Partnership v. Onondaga County Resource Recovery Agency

318 F.3d 392, 288 B.R. 392, 2003 U.S. App. LEXIS 1410, 40 Bankr. Ct. Dec. (CRR) 216, 2003 WL 193073
Court of Appeals for the Second Circuit·Decided January 29, 2003·No. Docket 02-9107·Published·Cited by 36 cases

Opinion

NEWMAN, Circuit Judge.

This appeal concerns a district court’s authority to act in a case that was initially removed from a state court, pursuant to 28 U.S.C. § 1452, because it was related to a bankruptcy case, and then remanded back to the state court because the district court determined that mandatory abstention applies. The specific issue is whether, after such a remand, the district court may enjoin a party in the remanded case — the debtor in the pending bankruptcy case— from asking the bankruptcy court to stay the remanded state court action. This issue arises on an appeal by Covanta Onondaga Limited Partnership (“Covanta”) from the September 23, 2002, order of the District Court for the Northern District of New York (Howard G. Munson, District Judge), granting a permanent injunction sought by the Onondaga County Resource Recovery Agency (“OCRRA”). We conclude that the injunction must be vacated.

Background

The origin of the pending appeal is a waste disposal agreement entered into by Covanta and OCRRA in 1992. Covanta operates a waste-to-energy municipal waste incinerator in Jamesville, N.Y., on property leased to it by OCRRA. In February 2002, OCRRA notified Covanta that the agreement between the parties was terminated by reason of Covanta’s alleged breach of the agreement’s requirement concerning maintenance of adequate credit. On March 1, Covanta filed a suit in the New York Supreme Court (“the State Court”) seeking a declaratory judgment that OCRRA was not entitled to terminate the parties’ agreement (“the State Court case”). 1 On March 22, OCRRA filed an answer asserting numerous defenses and seeking a judgment declaring, among other things, that OCRRA properly terminated the parties’ agreement.

On April 1, Covanta filed a voluntary petition under Chapter 11 in the Bankruptcy Court of the Southern District of New York (“Bankruptcy Court”). Chapter 11 petitions were simultaneously filed by Covanta’s parent company and 122 related companies. On April 8, Covanta filed in the District Court for the Northern District (“the District Court” or “Northern District”) a notice of removal of the State Court case pursuant to 28 U.S.C. § 1452 and Rule 9027 of the Federal Rules of Bankruptcy Procedure. On April 12, Covanta filed in the Northern District a motion to transfer the removed case to the Southern District of New York so that it could be referred to the Bankruptcy Court in the Southern District.

Also on April 12, OCRRA filed in the Northern District a motion to remand the State Court case to the State Court, or, in the alternative, to have the District Court retain jurisdiction and adjudicate the action. Remand was sought on the ground that the criteria for mandatory abstention specified in 28 U.S.C. § 1334(c)(2) were met. On August 8, OCRRA filed a proof of claim in the Bankruptcy Court. On August 13, the District Court granted OCRRA’s motion and remanded the State Court case to the State Court. Covanta Onondaga Limited [Partnership] v. Onondaga County Resource Recovery Agency, 281 B.R. 809 (N.D.N.Y.2002) (“Covanta Remand”). The District Court agreed with OCRRA that mandatory abstention was required by subsection 1334(c)(2) and *395 remanded, apparently using the remand authority conferred by 28 U.S.C. § 1452(b). On August 19, 2002, OCRRA notified the District Court that it had filed a proof of claim with the SDNY Bankruptcy Court earlier that month and apologized for not previously informing the Court.

On September 5, Covanta filed an adversary proceeding against OCRRA in the Bankruptcy Court seeking, among other things, a declaration that the automatic stay of 11 U.S.C. § 362 applied to the State Court case, or, in the alternative, an injunction under 11 U.S.C. § 105(a) to prevent OCRRA from further prosecuting the State Court case pending confirmation of a plan of reorganization. Covanta also sought an injunction under section 105(a), apart from the pendency of the adversary proceeding.

On September 11, OCRRA moved in the Northern District for a temporary restraining order (“TRO”), which was issued that same day. The TRO prohibited Covanta and the Bankruptcy Court from proceeding with Covanta’s adversary proceeding and with Covanta’s motion, filed in that proceeding, for section 362 or section 105(a) relief. On September 13, the District Court continued the TRO after a hearing. On September 23, the District Court issued the permanent injunction that is the subject of the pending appeal. Covanta Onondaga Ltd. [Partnership] v. Onondaga County Resource Recovery Agency, 283 B.R. 651 (N.D.N.Y.2002) (“Covanta Injunction ”). That injunction prohibits Covanta from proceeding in the Bankruptcy Court with the adversary proceeding and the motion contained within it, and “from instituting any further action or proceeding in [the Bankruptcy Court] or in any other court against any party regarding the application of the automatic bankruptcy stay to this case,” id. at 657, presumably referring to the State Court case. Covanta’s motion for interim injunctive relief pending appeal was denied by the District Court and initially denied by this Court, without prejudice to renewal before the merits panel. On December 19, after oral argument, we entered an order maintaining the status quo, pending this appeal, by barring OCRRA from proceeding with the State Court case and barring Covanta from seeking relief in the Bankruptcy Court with respect to the State Court case.

Discussion

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Covanta Onondaga Limited Partnership v. Onondaga County Resource Recovery Agency, 318 F.3d 392, 288 B.R. 392, 2003 U.S. App. LEXIS 1410, 40 Bankr. Ct. Dec. (CRR) 216, 2003 WL 193073 (2d Cir. 2003).

318 F.3d 392 (Covanta Onondaga Limited Partnership v. Onondaga County Resource Recovery Agency) — published by Counsel Stack Legal Research, free access to 12M+ legal documents.

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