First Circuit Holds That Bankruptcy Rules, Rather Than Federal Rules of Civil Procedure, Govern Cases Proceeding Under 28 U.S.C. § 1334(b)

In Roy v. Canadian Pacific Railway Co., No.  17-1108 (1st Cir. June 2, 2021), the First Circuit decides an issue of first impression and holds that those cases proceeding in the district court as “related to” a pending bankruptcy proceeding, 28 U.S.C. § 1334(b), follow the Federal Rules of Bankruptcy Procedure rather than the Federal Rules of Civil Procedure. The decision is outcome-determinative here because the rules containing different deadlines for motions to reconsider, ultimately affecting the court of appeals’ appellate jurisdiction.

Following a devastating train derailment in Lac-Mégantic, Quebec, Canada, operator Montreal, Maine and Atlantic Railway (MMA) filed for bankruptcy in the federal district court in Maine. Thirty-nine lawsuits were filed and eventually removed (pursuant to 28 U.S.C. §§ 1332(a) and 1334(b)) and transferred to federal district court in Maine pursuant to 28 U.S.C. § 157(b)(5). “The court then created an omnibus docket captioned ‘In Re Lac-Mégantic Train Derailment Litigation,’ which became an umbrella docket for a wide swath of third-party claims (including the plaintiffs’ suits).”

Plaintiff eventually “joined Canadian Pacific — allegedly a connecting carrier — as an additional defendant” and dismissed MMA. “On September 28, 2016, the district court granted Canadian Pacific’s motion to dismiss on [personal] jurisdictional grounds and denied the plaintiffs’ motion to amend” their complaint to “add as defendants several Canadian Pacific subsidiaries based in the United States, including Soo Line Railroad Company (Soo Line).”

“On October 26, 2016 — twenty-eight days after the district court entered final judgment for Canadian Pacific — the plaintiffs moved for reconsideration in the district court of the denial of their motion to file an amended complaint. See Fed. R. Civ. P. 59(e).” Under the Federal Rules of Appellate Procedure, this move would have tolled the time for filing a notice of appeal. The district court denied the motion and on “January 19, 2017, the plaintiffs filed … notice of appeal, purporting to challenge the denial of the motion for leave to amend.”

On appeal, Canadian Pacific “press[ed] a threshold issue” that the First Circuit “lacked appellate jurisdiction because the plaintiffs’ notice of appeal was untimely.” This was owing to a quirk in the Bankruptcy Rules that a motion for reconsideration has a 14-day window, Fed. R. Bank. P. 9023, instead of a 28-day deadline as under Fed. R. Civ. P. 59. Because the motion was filed in more than 14 days but within 28 days, it became significant which rule applied for purposes of whether the filing of the notice of appeal was tolled under Fed. R. App. P. 4(a)(4)(A)(iv).

The First Circuit dismisses the appeal for lack of jurisdiction. “Here, the existence of appellate jurisdiction turns principally on the answer to the following question: do the Bankruptcy Rules or the Civil Rules govern the procedures in a case over which a federal court exercises section 1334(b) jurisdiction as one ‘related to’ a pending bankruptcy proceeding?”

The panel first considered the history of section 1334(b), originating from the Bankruptcy Amendments and Federal Judgeship Act of 1984 (BAFJA) that rebuilt the bankruptcy judicial edifice in the wake of N. Pipeline Constr. Co. v. Marathon Pipe Line Co., 458 U.S. 50 (1982) (holding that Congress’s delegation of authority to bankruptcy judges to adjudicate related cases violated Article III). “[T]he procedures governing the new system distinguish between ‘core’ and ‘non-core’ cases and identify different final decisionmakers for each. 28 U.S.C. § 157(b)-(c). With respect to core cases (that is, those cases arising under title 11), bankruptcy courts may issue final orders. See id. § 157(b)(1). But with respect to non-core cases (that is, those cases ‘related to’ core cases), a bankruptcy court may do no more than submit proposed findings of fact and conclusions of law to the district court, subject to de novo review.” Three circuits (the Third, Fourth, and Seventh) previously held that the Bankruptcy Rules apply.

Unfortunately, neither the statutes nor the rules specify which set of rules should govern non-core/”related to” cases in the district court. The Bankruptcy Rules “govern procedure in cases under title 11 of the United States Code,” Fed. R. Bank. P. 1001, but do not specify whether “non-core” cases are included. Yet “[h]ad the drafters wished to restrict the applicability of the Bankruptcy Rules to core cases alone, they simply could have used section 157’s definition of core cases. The fact that the drafters took a different tack suggests that the language employed should be read more broadly.”

Moreover, “the sockdolager[*] is found in the practicalities attendant to the efficient operation of the modern bankruptcy system. If the Civil Rules applied to non-core cases, a district court adjudicating both core and non-core cases in any given bankruptcy proceeding would need to apply two different sets of rules simultaneously. This anomaly would persist despite the fact that those cases likely would involve some of the same parties.”

Resolving the choice of law, then, the panel holds that the plaintiffs’ motion to amend, and thus the notice of appeal, came too late. Although the plaintiffs claimed they were “sandbagged” by the lack of clarity in make a bid for an equitable tolling of the limitations period, the panel isn’t hearing it. “[T]he plaintiffs joined in the request to transfer their cases from other federal courts to the District of Maine as cases ‘related to’ a pending bankruptcy proceeding within the purview of 28 U.S.C. § 157(b),” and “[a]t that time, the existing case law, though sparse, put them squarely on notice that the Bankruptcy Rules would apply.”

[* sockdolager: something that settles a matter; a decisive blow or answer. Thanks, Judge Selya.]