Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca8-06-06024/USCOURTS-ca8-06-06024-0/pdf.json

Nature of Suit Code: 422
Nature of Suit: Bankruptcy Appeals Rule 28 USC 158
Cause of Action: 

---

United States Bankruptcy Appellate Panel

FOR THE EIGHTH CIRCUIT

_____________

06-6024MN

_____________

In re: *

*

Refco, Inc., et al *

*

Debtors. *

______________________________ *

 * 

Cargill, Incorporated, * Appeal from the United States

* Bankruptcy Court for the 

* District of Minnesota

Plaintiff - Appellee, *

*

v. *

*

Man Financial, Inc. *

*

Defendant - Appellant. *

_____________

Submitted: September 13, 2006

Filed: October 19, 2006

_____________

FEDERMAN, MAHONEY, and MCDONALD, Bankruptcy Judges.

_____________

FEDERMAN, Bankruptcy Judge

This is an appeal of Man Financial, Inc. (“Man”) from the final order of the

United States Bankruptcy Court for the District of Minnesota entered on March 15,

2006, remanding this removed action to the District Court of the State of Minnesota

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1

 No. 05-60006 (Bankr. S.D. N.Y. filed Oct. 17, 2005).

2

for Hennepin County (the “State Court”). We reverse and remand, with instructions

to transfer this action to the United States Bankruptcy Court for the Southern District

of New York.

FACTUAL BACKGROUND

Cargill, Incorporated (“Cargill”), filed suit in Minnesota State Court on January

4, 2006 (the “Minnesota Lawsuit”). On January 13, 2006, Man removed the

Minnesota Lawsuit to the United States Bankruptcy Court for the District of

Minnesota based on subject matter jurisdiction under 28 U.S.C. § 1334.

Thereafter, Man moved to transfer the Minnesota Lawsuit to the United States

Bankruptcy Court for the Southern District of New York (the “New York Bankruptcy

Court”), where related proceedings, In re Refco, Inc., et al1

 (the “Bankruptcy Cases”),

are pending.

On February 15, 2006, thirty-three days after Man filed its notice of removal,

Cargill filed a motion to remand the Minnesota Lawsuit to the State Court, along with

an objection to Man’s transfer motion. On March 15, 2006, the Minnesota Bankruptcy

Court granted Cargill’s motion to remand, holding that the Minnesota Lawsuit was

subject to mandatory abstention under 28 U.S.C. § 1334(c)(2). That same day, Man

filed its notice of appeal to this Court.

Since the Minnesota Lawsuit is intertwined with the pending Bankruptcy Cases

of Refco, Inc. and its affiliates (collectively, the “Debtors”) in New York, certain

undisputed facts of the Bankruptcy Cases are set forth as background.

Prior to the Refco bankruptcy, the Debtors were engaged in the commodities

futures and options clearing business. On August 31, 2005, Cargill and its subsidiaries

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3

sold certain assets, and shares of stock, to one of the Refco affiliates, Refco Group

Ltd., LLC, pursuant to a Purchase and Sale Agreement for $208,600,000. In addition

to that price, Refco owes a post-closing payment to Cargill, which is due

approximately August 31, 2007. The amount of that payment is to range from

$67,000,000 to $192,000,000, depending upon the performance of the business

purchased by Refco from Cargill. At the same time they entered the Purchase and Sale

Agreement, Cargill and Refco entered into an Exclusivity Agreement under which

Cargill and its affiliates bound themselves to use the Debtors’ services for all of

Cargill’s commodities futures clearance business over a five-year period.

On October 17, 2005, the Debtors commenced their Bankruptcy Cases in New

York. By order dated November 14, 2005 (the “Man Sale Order”), the New York

Bankruptcy Court authorized the Debtors, inter alia, to sell their domestic regulated

futures commission merchant business, Refco LLC, to Man pursuant to an Acquisition

Agreement dated as of November 13, 2005. By order dated November 25, 2005 (the

“Refco LLC Sale Order”), the New York Bankruptcy Court authorized the chapter 7

trustee of Refco LLC to consummate that transaction. Man contends that the

Acquisition Agreement and Refco LLC Sale Order required assignment and transfer

to Man of all Refco LLC customer accounts, including Cargill’s, and all rights under

the Exclusivity Agreement.

On December 9, 2005, Cargill objected to the assignment of the Exclusivity

Agreement. Essentially, Cargill contended that, as part of the assignment, Man should

be obligated to assume Refco’s obligation to make the post-closing payment owed by

Refco, which is due on August 31, 2007. The Debtors and Man both filed oppositions

to Cargill’s objection. 

Before the New York Bankruptcy Court had the opportunity to rule on Cargill’s

objections to the assignment of the Exclusivity Agreement, Cargill instructed Man to

transfer all of Cargill’s accounts then held at Man to a third-party futures commission

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2

 See Appellant’s App. 11-19 (Compl. ¶¶ 1, 4, 30, 35, 38, 42-46).

4

merchant, J.P. Morgan Futures, Inc. (“J.P. Morgan”). Although these accounts were

subject to the Exclusivity Agreement, Cargill asserted that the Exclusivity Agreement

could be enforced neither by Refco (because Cargill’s accounts were no longer at

Refco) nor by Man (because Cargill had objected to the assignment of the Exclusivity

Agreement). 

Thereafter, Man advised Cargill that, if Cargill insisted on transferring its

accounts to J.P. Morgan, Man would cooperate for regulatory reasons, but would also

exercise what it claims to be its right – under the Refco customer agreement – to

withhold and place in a segregated cash collateral account some $66 million (the

“Cash Collateral”) as security for the damages allegedly caused by Cargill’s breaches

of the Exclusivity Agreement. Cargill thereafter directed Man to move the accounts.

Accordingly, acting under a full reservation of rights, Man effected the demanded

transfer, and placed the Cash Collateral in a segregated account invested at Cargill’s

direction.

On January 4, 2006, Cargill commenced the Minnesota Lawsuit. The gravamen

of its Complaint is that Man “is not a party to,” “has not been assigned any rights

pursuant to,” and “has no rights under” the Exclusivity Agreement.2

 On that basis, the

Minnesota Lawsuit asserts that Man is not entitled to enforce the Exclusivity

Agreement, and hence cannot legally withhold the Cash Collateral.

On January 31, 2006, the New York Bankruptcy Court ruled that the

Exclusivity Agreement is a non-executory contract validly assigned to Man as of

November 25, 2005. The upshot of this ruling is that, while Man has succeeded to

Refco’s rights under the Exclusivity Agreement, it did not assume Refco’s obligations

to Cargill under the Purchase and Sale Agreement. Cargill has appealed that ruling to

the United States District Court for the Southern District of New York. Cargill’s

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3 See Cargill Opening Brief at 3, Cargill, Inc. v. Refco, Inc., Man Financial Inc.,

Official Committee of Unsecured Creditors, (S.D. N.Y. 2006) (No. 1:06-CV-02133-

KMK); Record at 5 (filed April 21, 2006).

4

First Nat’l Bank of Olathe, Kansas v. Pontow (In re Pontow), 111 F.3d 604, 609 (8th

Cir. 1997); Sholdan v. Dietz (In re Sholdan), 108 F.3d 886, 888 (8th Cir. 1997).

5

appeal deals specifically with the question of “[w]hether, as a result of the Bankruptcy

Court’s rulings, the Exclusivity Agreement is enforceable by Man Financial as a valid

and binding standalone contract.”3

 Man contends on this appeal that the Minnesota

Lawsuit is an attempt to obtain a second ruling on that same issue.

STANDARD OF REVIEW

We review the legal conclusions of the bankruptcy court de novo.4

DISCUSSION

1. Jurisdiction

Cargill argues that we have no jurisdiction to hear this appeal, because Man did

not seek a stay pending appeal of the Minnesota Bankruptcy Court’s remand order.

We disagree.

We have jurisdiction to hear this appeal pursuant to 28 U.S.C. §§ 158(a)(1) and

158(c)(1), which vest the Bankruptcy Appellate Panel with jurisdiction to hear appeals

from final judgments, orders, and decrees of the bankruptcy courts. Under 28 U.S.C.

§§ 1334(d) and 1452(b), decisions to abstain or remand are not subject to review “by

appeal or otherwise” by “the court of appeals” or by “the Supreme Court of the United

States,” but appellate review by this Court is fully permitted. Indeed, the legislative

history of those provisions makes it plain that Congress considered appellate review

Appellate Case: 06-6024 Page: 5 Date Filed: 10/19/2006 Entry ID: 2101084
5 See Judicial Improvements Act of 1990, Pub. L. No. 101-750 § 309(c), 104 Stat.

5089, 5113 (1990); 136 Cong. Rec. 17570, 17580 (1990) (appellate review of remand

orders required because “bankruptcy judges may enter trial orders only if there is

appellate review in an Article III court”). We note that, with the consent of all parties,

the Bankruptcy Appellate Panel has jurisdiction over any matter appealable to the

district court. 28 U.S.C. § 158(c)(1).

6

 193 F.R.D. 43 (D. P.R. 2000).

7 Id. at 45.

8

 28 U.S.C. § 1447(d).

9 See, e.g., In re La Providencia Dev. Corp., 406 F.2d 251, 252-53 (1st Cir. 1969)

(“[T]here is no more reason for a district court being able to review its own decision,

and revoke the remand, than for an appellate court requiring it to do so. Both are

foreclosed [by section 1447(d)].”).

6

at the district court level to be constitutionally required in order to permit the

bankruptcy court to enter a final remand or abstention order.5

No provision of section 1334(d) or section 1452(b) conditions this Court’s

exercise of appellate jurisdiction upon the grant of a stay pending appeal. Nor do the

cases cited by Cargill support that proposition. In Rivera Perez v. Massachusetts

General Hospital,6

 the defendant in a non-bankruptcy case sought a stay pending

appellate review by the court of appeals of a district court’s remand order. The district

court denied the application on the basis that its prior execution of the remand order

divested it of the authority to enter a stay pending appeal.7

 Although the court did not

explain why the execution of the remand order divested it of such authority, the

reasons for that conclusion are apparent from the statute. First, 28 U.S.C. § 1447(d)

– unlike sections 1334(d) and 1452(b) – precludes review of a remand order “by

appeal or otherwise,”8

 and thus prevents a district court from reviewing its own

remand order.9

 Second, because the district court’s remand order had been fully

executed, jurisdiction had re-vested in the state court prior to the time the stay

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10 See 28 U.S.C. § 1447(c) (“A certified copy of the order of remand shall be mailed

by the clerk to the clerk of the State court. The State court may thereupon proceed

with such case.” (emphasis added)); accord Fed. Deposit Ins. Corp. v. Santiago Plaza,

598 F.2d 634, 636 (1st Cir. 1979).

11 278 F.3d 426, 438 (5th Cir. 2001).

12 See 28 U.S.C. §§ 1334(d) and 1452(b) (no statutory right of appeal to “court of

appeal”).

13 28 U.S.C. §§ 1441 and 1447.

14 28 U.S.C. § 1452.

7

application was made.10 Similarly, in Arnold v. Garlock,

11 the Fifth Circuit lacked any

jurisdiction to hear an appeal from the remand orders of the district courts because it

was a court of appeals.12

Here, by contrast, there is a statutory right of appeal to this Court. Neither

Rivera Perez nor Garlock holds that obtaining a stay pending appeal is a prerequisite

to the entitlement to appellate review by a district court or bankruptcy appellate panel.

Indeed, any such requirement would clash directly with Congress’ express

preservation of that appellate right in 28 U.S.C. §§ 1334(d) and 1452(b).

2. Timeliness of the Motion to Remand

The motion to remand was filed thirty-three days after the case was removed

to the Minnesota Bankruptcy Court. There are two possible bases for removal to the

Bankruptcy Court, the general removal statute13 and the removal statute specifically

referencing bankruptcy proceedings.14 Section 1447 provides that “a motion to remand

a case on the basis of any defect other than lack of subject matter jurisdiction must be

made in 30 days after the filing of the Notice of Removal under § 1446(a).” The

bankruptcy removal statute, by contrast, provides that a case may be remanded “on

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15 Fed. R. Bankr. P. 9027.

16 516 U.S. 124, 116 S.Ct. 494, 133 L.Ed.2d 461 (1995).

8

any equitable grounds,” without specifying a time limit. Federal Rule of Bankruptcy

Procedure 9027, which implements § 1452, provides generally that a case must be

removed by the longer of ninety days after the order for relief in the case, or, if the

automatic stay is applicable, thirty days after entry of an order terminating the stay.15

Significantly, neither § 1452 nor Rule 9027 contains any time limitation for the filing

of a motion to remand.

Man relies on the Supreme Court’s decision in Things Remembered, Inc. v.

Petrarca16 to argue that the strict time limits in § 1447 are applicable to causes of

action removed to the bankruptcy court. The bankruptcy court here held that Things

Remembered did not so determine, and that the time limits applicable to removal of

other civil actions to the district court are not applicable in bankruptcy cases. We

agree.

In Things Remembered, the creditor’s removal of its state court case to

bankruptcy court was late under both §§ 1452 and 1441. The only issue before the

Supreme Court was whether the decision of the district court so holding was appealable

to the court of appeals. Section 1447(d), applicable to general removal to district court,

provides that an order remanding a case to the state court from which it was removed

is not reviewable on appeal or otherwise. Section 1452(b) provides that an order under

that section remanding a claim or cause of action, or not remanding it, is not

reviewable by appeal by the court of appeals or by the Supreme Court. Therefore, the

Sixth Circuit had held, and the Supreme Court agreed, that regardless of whether the

case had been removed under § 1441 or § 1452, the decision of the district court to

remand the case was not reviewable by the court of appeals. While the Supreme Court

did note that the motion to remand had been filed within the thirty day time limit

imposed by § 1447, it did not hold that a later motion would have been time-barred.

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17 516 U.S. at 131-32, 116 S.Ct. at 499.

18 Accord Billington v. Winograde (In re Hotel Mt. Lassen, Inc.), 207 B.R. 935, 939

(Bankr. E.D. Cal. 1997).

19 28 U.S.C. § 1334(c)(1).

9

While the holding in Things Remembered does not deal with whether the § 1447

time requirements are applicable in bankruptcy proceedings, the Court there did state

that “Congress, when it added § 1452 to the Judicial Code chapter on removal of cases

from state courts – a chapter now comprising 28 U.S.C. §§ 1441-1452 – meant to

enlarge, not to rein in, federal trial court removal/remand authority for claims related

to bankruptcy cases.”17 We hold that the motion to remand was timely because the

remand procedure prescribed by § 1447, which includes the 30-day time limit, does not

preempt the different remand procedure that applies to § 1452(b), which permits

remand on “any equitable ground” without mentioning a time limit.18 To require strict

adherence to a strict deadline would not be consistent with the liberal approach to

bankruptcy remands embodied in § 1452(b). In bankruptcy cases, the bankruptcy court

is authorized to abstain from hearing a matter, even if the matter has been properly

removed. Such abstention is authorized, for example, in the interest of comity with

state courts or respect for state law.19 A liberal interpretation of time requirements as

to remand provides bankruptcy courts added flexibility in determining whether remand,

for reasons of abstention or otherwise, is appropriate. In view of the need for additional

flexibility in dealing with remand issues in the bankruptcy court, Federal Rule of

Bankruptcy Procedure 9027(d) provides a procedure for remand motions, but does not

impose a time limit. We hold, as did the Bankruptcy Court, that the motion to remand

was timely filed.

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20 Specialty Mills, Inc. v. Citizens State Bank, 51 F.3d 770, 773 (8th Cir. 1995).

21 Id.

22 Id. (citing 28 U.S.C. § 157(a), (b)).

23 Id. (citations omitted).

10

3. Abstention

Cargill asserts that the Minnesota Lawsuit is a dispute involving state contract

law and that it is not a core proceeding, and, therefore, the Minnesota Bankruptcy

Court was required to abstain and remand the matter to the State Court. 

The federal district court’s subject matter jurisdiction over bankruptcy matters

is set forth in 28 U.S.C. § 1334.20 District courts refer bankruptcy proceedings to the

bankruptcy judges of their district pursuant to 28 U.S.C. § 157(a).21 Under that

provision, district courts and their bankruptcy units have exclusive jurisdiction over

cases under Title 11, and non-exclusive jurisdiction over proceedings arising in or

‘related to’ a case under Title 11.22

Civil proceedings in a bankruptcy case are divided into two categories,

core proceedings and non-core, related proceedings. Core proceedings

under 28 U.S.C. § 157 are those which arise only in bankruptcy or

involve a right created by federal bankruptcy law. Non-core, related

proceedings are those which do not invoke a substantive right created by

federal bankruptcy law and could exist outside of a bankruptcy, although

they may be related by the bankruptcy.23

28 U.S.C. § 1334(c)(2) sets forth the circumstances for “mandatory abstention,” in

which a federal court must abstain from hearing a case over which it has bankruptcy

jurisdiction:

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24 11 U.S.C. § 1334(c)(2).

25 In re Williams, 256 B.R. 885, 891 (B.A.P. 8th Cir. 2001).

26 28 U.S.C. § 157(b)(2)(N). 

11

Upon timely motion of a party in a proceeding based upon a State law

claim or State law cause of action, related to a case under title 11 but not

arising under title 11 or arising in a case under title 11, with respect to

which an action could not have been commenced in a court of the United

States absent jurisdiction under this section, the district court shall abstain

from hearing such proceeding if an action is commenced, and can be

timely adjudicated, in a State forum of appropriate jurisdiction.24

Thus, if the Minnesota Lawsuit is not a core proceeding, i.e., a cause of action “arising

under” or “arising in” the New York Bankruptcy Cases, then the Minnesota

Bankruptcy Court was required to abstain and remand the case to the Minnesota State

Court. 

Cargill asserts here that the causes of action it asserts in the Minnesota Lawsuit

are state law causes of action and do not “arise under” or “arise in” the Bankruptcy

Cases. 

The phrase “arising under” applies to proceedings that involve causes of

action expressly created or determined by title 11, such as causes of

action to recover fraudulent conveyances and preferential transfers,

section 544 avoidance actions, dischargeability proceedings, and similar

rights that would not exist had there been no bankruptcy. The phrase

‘arising in’ generally refers to matters that, although not expressly created

by title 11, would have no existence but for the fact that a bankruptcy

case was filed. A nonexhaustive list of core proceedings is found in 28

U.S.C. § 157(b)(2).25 

The sale of a debtor’s assets is a specifically-enumerated core proceeding.26 Hence, the

New York Bankruptcy Court’s Man Sale Order, the Refco LLC Sale Order, and the

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27 In re Williams, 256 B.R. at 892. See also In re Eveleth Mines, L.L.C., 318 B.R.

682, 687 (B.A.P. 8th Cir. 2004) (holding that if the bankruptcy court has jurisdiction

to enter an order, it must also have jurisdiction to interpret and enforce that order).

28 Complaint at p. 1; App. at 11.

12

Order overruling Cargill’s objection to the transfer, in which the Court found that

Exclusivity Agreement was validly assigned to Man, are all core.

Since “the enforcement of orders resulting from core proceedings are themselves

considered core proceedings,”27 a determination as to whether Man is entitled to be

treated as a party to the Exclusivity Agreement, which determination flows from the

New York Bankruptcy Court’s Orders regarding the assignment of the Exclusivity

Agreement to Man, is also core.

Cargill says it does not seek to raise in the Minnesota Lawsuit the same issues

pending in the New York appeal, but, instead, intends to argue that Man did not have

the authority to unilaterally withhold Cargill’s funds, apparently regardless of whether

Man has rights under the Exclusivity Agreement. To the contrary, however, Cargill’s

Complaint in the Minnesota Lawsuit patently raises issues that are pending in the

appeal of the New York Bankruptcy Court’s decision.

Specifically, Cargill asserts in its Complaint that Man did not have the right to

withhold the funds when Cargill moved its accounts because Man “is not a party to,”

“has not been assigned any rights pursuant to,” “is not a third-party beneficiary of,”

and has no rights under” the Exclusivity Agreement.28 These are precisely the same

issues decided by the New York Bankruptcy Court, which decided that the Exclusivity

Agreement was validly assigned to Man: if the Exclusivity Agreement was validly

assigned to Man, then Man is a party to, and has rights under, it. 

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29 28 U.S.C. § 1334(c)(1).

30 In re Williams, 256 B.R. at 894 (listing the factors considered by the courts: (1) the

effect or lack thereof on the efficient administration of the estate if a Court

recommends abstention; (2) the extent to which state law issues predominate over

bankruptcy issues; (3) the difficult or unsettled nature of the applicable law; (4) the

presence of a related proceeding commenced in state court or other nonbankruptcy

court; (5) the jurisdictional basis, if any, other than 28 U.S.C. 1334; (6) the degree of

relatedness or remoteness of the proceeding to the main bankruptcy case; (7) the

substance rather than the form of an asserted ‘core proceeding; (8) the feasibility of

severing state law claims from core bankruptcy matters to allow judgments to be

entered in state court with enforcement left to the bankruptcy court; (9) the burden

[on] the bankruptcy court's docket; (10) the likelihood that the commencement of the

proceeding involves forum shopping by one of the parties; (11) the existence of a right

to a jury trial; and (12) the presence in the proceeding of nondebtor parties).

13

Clearly, Cargill is taking a contrary position in the Minnesota Lawsuit, and since

the outcome there could undercut the decision by the New York Bankruptcy Court in

a core proceeding, the issues raised in the Minnesota Lawsuit are also core.

Consequently, the Minnesota Bankruptcy Court was not required to abstain and

remand the matter to the State Court under § 1334(c)(2).

Alternatively, Cargill asserts it was appropriate for the Minnesota Bankruptcy

Court to abstain under § 1334’s “discretionary abstention” provision. That section

provides:

Nothing in this section prevents a district court in the interest of justice,

or in the interest of comity with State courts or respect for State law, from

abstaining from hearing a particular proceeding arising under title 11 or

arising in or related to a case under title 11.29

The courts have developed a number of factors that may be considered in determining

whether abstention is appropriate.30 However, the overriding issue here, weighing

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14

against even discretionary abstention, is the fact that the pending New York litigation

involves many of the same issues asserted by Cargill here, and remanding this action

to the Minnesota State Court could well produce inconsistent results. 

Arguably, Cargill is correct that the narrow issue of whether Man had the right

to withhold the funds under the terms of the Exclusivity Agreement is a state law

contract issue which should be heard by the State Court. However, the issue of whether

Man has rights under the Exclusivity Agreement is the issue that was raised by Cargill

in the Complaint it filed in the Minnesota Lawsuit; that issue must ultimately be

decided in the New York appeal first. If the outcome of that litigation necessitates the

interpretation of the Exclusivity Agreement’s terms, then it might be appropriate for

the New York Court at that time to remand the matter to the State Court under 28

U.S.C. § 1452, which we have already said has no time limits. Until the appeal is

resolved, however, such a remand is not proper because it could result in contradictory

judgments involving a core matter.

CONCLUSION

For the foregoing reasons, the Order of the United States Bankruptcy Court for

the District of Minnesota entered on March 15, 2006, remanding this removed action

to the District Court of the State of Minnesota for Hennepin County (the “State

Court”), is reversed. This matter is remanded to the Bankruptcy Court with instructions

to transfer this action to the United States Bankruptcy Court for the Southern District

of New York.

_________________________

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