Removal of claims related to a bankruptcy case 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.

However, a dispute 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 prosecution by a creditor of its case-in-chief, which would include any act to remove a state court action to federal court based on debtor’s bankruptcy filing.  The court concluded, therefore, that a creditor was guilty of stay violation in removing action to bankruptcy court without first seeking relief from stay.  Id.; 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.”).

A different conclusion was reached in In re Cashco, Inc., 599 B.R. 138 (Bankr.D.N.M.2019) which concluded that the automatic stay did not apply to efforts to remove an action to the bankruptcy court or to a motion to remand and abstention.  Such a result was required regardless of whether it was the creditor or the debtor who sought the removal, 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.

Worldview Entertainment Holdings, Inc. v. Woodrow, 611 B.R. 10 (S.D.N.Y.2019), endorsed the Cashco conclusion.  Quoting Cashco, it stated that “the filing of a notice of removal does nothing to advance the pending state court action litigation.” Id. at 15 (Cashco, 599 B.R. at 147).

The removal of an action from state court is not, by itself “the commencement or continuation” of a judicial proceeding because it does not advance the litigation at all but rather constitutes a change of venue to what the removing party believes is the proper forum, and thereby does not run the risk of “wasteful, duplicative, individual actions by creditors seeking individual recoveries from the debtor’s estate [.]”

Id. (quoting In re Tribune Co. Fraudulent Conveyance Litigation, 818 F.3d 98, 108 (2nd Cir.2016).  Similarly, the court noted that any actions by the court to exercise its power of remand or abstention did not fall within the scope of the stay, as those actions also did not constitute a “continuation” of the action but would simply “restore[ ] the action to the status quo as it existed upon commencement of the bankruptcy case prior to removal.” Id. (quoting Cashco, 599 B.R. at 147).


Matthew T. Gensburg