Removal of claims related to bankruptcy cases is governed by 28 U.S.C. §1452, which provides, in relevant part:

A party may remove any claim or cause of action in a civil action * * * to the district court for the district where such civil action is pending, if such district court has jurisdiction of such claim or cause of action under section 1334 of this title.

A split exists among the courts as to whether the automatic stay applies to efforts to remove a state court action to the bankruptcy court.  In re Hoskins, 266 B.R. 872 (Bankr.W.D.Mo.2001) held that upon commencement of a case, the automatic stay operated to bar any further prosecution by a creditor of its case-in-chief in the state court lawsuit, including any act of removing the state court action to federal court based on a debtor’s bankruptcy filing, until stay had been lifted.  The court stated, therefore, that in removing an action to the bankruptcy court without first seeking relief from stay, the creditor was guilty of a stay violation.  See also, Sec. Farms v. Int’l Bhd of Teamsters, Chauffers, Warehousemen & Helpers, 124 F.3d 999, 1007 n.3 (9th Cir.1997) (“[A party] could not remove the state court proceeding until the bankruptcy court officially lifted the automatic stay.”); Phillips v. FDIC, (In re Phillips), 124 B.R. 712, 716 n.7 (Bankr.W.D.Tex.1991) (stating that the creditor violated the automatic stay by removing a state court collection action and foreclosure action to federal court without first obtaining relief from the automatic stay); and Hill v. Wilson, 2009 WL 10689099 (N.D.Ala.) (“[R]emoval without permission of the United States Bankruptcy Court for the District of Arizona violated the automatic stay provision and was void.”).

However, a different conclusion was reached in In re Cashco, Inc., 599 B.R. 138 (Bankr.D.N.M.2019), where the court concluded that the automatic stay does not apply to removal of an action to the bankruptcy court, nor does it apply to a motion to remand and for abstention.  This was true regardless of whether it was the creditor or debtor who removed the action to the bankruptcy court and regardless of whether the removed claims are asserted by or against the debtor. Id. at 144.  The court explained that “[a] literal, overbroad application of the automatic stay to matters raised in the bankruptcy case itself would not serve the purposes underlying the automatic stay, would be illogical and unworkable, would frustrate the orderly administration of the bankruptcy case, and would lead to results demonstrably at odds with the intentions of the drafters.” Id. at 146.  Therefore, the automatic stay did not apply to the commencement of an adversary proceeding in the bankruptcy court where the debtor’s bankruptcy case was pending.

A notice of removal filed in a debtor’s bankruptcy case has the effect of commencing an adversary proceeding in the bankruptcy court.  Because the automatic stay does not apply to the commencement of an adversary proceeding, the Court concludes that the automatic stay does not apply to the filing of a notice of removal, which commences an adversary proceeding.

Id. at 146.  Citing to the Advisory Committee’s note to Fed.R.Bankr.P. 9027, however, the court also ruled that the continuation of the litigation in the bankruptcy court following removal did constitute the “continuation” of an action or proceeding against the debtor that was commenced before the Debtor filed its voluntary petition. Id. at 148.  The court stated that “[i]f the automatic stay did not apply to the continuation of the litigation after removal, a debtor would be required, for example, to respond to interrogatories and requests for production served prior to removal, and participate in previously scheduled depositions even if such depositions were scheduled to occur after the filing of the bankruptcy.  This would deprive the debtor of the breathing spell from the onslaught of pre-petition litigation afforded by the automatic stay.” Id.


Matthew T. Gensburg