Things to Note About Federal Rule of Civil Procedure 45, As Amended
1. Issuing Court – Subpoena must issue
from the court where the action is pending. See Fed. R. Civ. P. 45(a)(2). An attorney is authorized to issue/sign a subpoena provided that she is
authorized to practice in the issuing court. See Fed. R. Civ. P. 45(a)(3).
2. Service Anywhere in the United States –
Under the amended rule, a subpoena may be served at any place within the United
States. See Fed. R. Civ. P.45(b)(2).
3. Non-Party Witness Subject to 100-Mile Rule
for Hearing or Deposition -- A
non-party may be compelled to attend a deposition or hearing (not a trial) only
if same is within 100 miles of where the person resides, is employed, or
regularly transacts business in person (the "’100 mile’ rule”). If a subpoena seeks to compel the presence of
a non-party for trial, the non-party may be compelled to appear within the
state in which the non-party resides, is employed, or regularly transacts business
in person if the non-party would not incur substantial expense (the "statewide
rule”). The Advisory Committee notes
suggest that, if substantial expense is involved, that the issuing party offer
to pay the costs and that the issuing court may condition compliance upon such
payment. See Fed. R. Civ. P.45(c).
4. Party and Party Officer Witnesses Subject
to 110-Mile Rule/Statewide Appearance – A party and party officer witness
may be compelled to appear for a trial, hearing or deposition only subject to
the "100 mile” rule or statewide rule. See Fed.
R. Civ. P. 45(c).
5. Compliance Court Presumptively Responsible
for Hearing Motions to Modify/Quash – The court for the district where
compliance with the subpoena is required – not the issuing court – determines
motions to quash/modify the subpoena. See Fed.
R. Civ. P. 45(d)(3).
to modify/quash a subpoena may be transferred to the issuing court if (i) the
person subject to the subpoena consents or (ii) the court finds exceptional
circumstances. If such a transfer
occurs, the lawyer for the non-party witness is automatically admitted to the
issuing court for the purpose of filing papers and appearing on the motion. SeeFed. R. Civ. P. 45(f). Advisory committee note further indicates
that telecommunications methods are encouraged to minimize the expense on
non-parties when a transfer of the motion to the issuing court occurs.
6. Judges in Issuing/Compliance Courts
Encouraged to Communicate – Advisory committee notes encourage the judges
in the issuing/compliance courts to communicate with each other when addressing
7. Noncompliance May Lead to Contempt of Two
Courts – Both the compliance court
and the issuing court (after a motion is transferred) may hold in contempt a
witness who fails without adequate excuse to obey a subpoena or an order
related to same. See Fed. R. Civ. P.45(g).
Emerging Economies: Mid Life Crisis or Why I Can't Have My Growth Now
Paul L. Sloate
Chief Executive Officer
Green Drake Partners, LLC
September 11, 2013
The Emerging Economies, the economic sprinters of the past 30 years, now represent over 50% of the Global Economy. While some look to this past record as an indicator of what the future holds, these countries' current position in the global economy and their stage of development would indicate otherwise. For economies built on Export Growth and Infrastructure development, this will represent wrenching change. And with the Emerging Economies warring amongst themselves over the share of the global economic pie they each possess, a stalemate is developing that will likely severely constrain their collective growth. Thus, these countries must rely on internal growth to drive their economies, unlike the past. With underdeveloped Consumer markets, they will face difficult choices and a long period of adjustment. Given this reality, we see Developed Economy and Emerging Economy growth rates converging over time.
We will highlight China as the poster child for these issues. However, the issues China faces apply to almost every other Emerging Economy, such as Indonesia, Malaysia, Brazil, India, …, which has built its economic growth using a Mercantilist economic policy. China confronts huge challenges in transforming its economy. Gross Fixed Capital Investment represents a full 48% of its economy. This is well above the typical peak of 35% for a Developing Economy and compares to more mature Asian economies, such as South Korea, where the ratio is 25% or less. While we do not expect China to reach South Korea’s level in the next 5 years, a drop to 35% would be reasonable. Despite the reality of massive overinvestment occurring in its economy, China continues to grow its Fixed Asset Investment (FAI) over 20%. With Government at 19% of GDP and Consumption at only 33%, we wonder who will buy the goods that such massive investment will produce? While China possesses a major middle class, given the vast size of the economy, the average citizen cannot afford to buy many of the goods it produces, such as TVs or washing machines. Even if they can afford these goods, they cannot afford the electricity to run them. Thus, even though China theoretically possesses the populace to absorb its goods, the reality of income levels for the average family prevents them from moving up the income spectrum rapidly enough to absorb this additional capacity. With a minimum growth target of 7% for its GDP, this leaves China with a quandry. China must invest the equivalent of over 40% of US GDP to prevent its FAI from falling. If it does this, it will create more goods than its populace can absorb. Thus, to maintain its GDP growth targets, it must continue to increase its exports at a rapid rate or displace imported goods.
There is only one major problem with this strategy. China’s Emerging Economy and Developed Economy trade partners have begun to lose patience with it. We will use Aluminum as an example of the structural issues facing large parts of the Chinese economy. Our tale starts in Indonesia, which is a major Bauxite producer, the raw material for Aluminum. Two years ago, Indonesia passed a law ending Bauxite exports for Aluminum smelting, requiring the processing to occur in Indonesia. Why did Indonesia do this? China was the major destination for the raw material which it then sent back to Indonesia in the form of finished products containing processed Aluminum. In other words, China treated Indonesia as a colony, using classic Mercantilist economic policy to capture all Value Add for itself. This might make economic sense if China were a global low cost or even medium cost producer of Aluminum. However, China is neither. In fact, it is a high cost producer. The key to economic aluminum production is low cost electricity, something clearly lacking in China. This makes this a very curious proposition based on the facts. However, it appears normal market signals do not matter here. Despite this key fact for locating Aluminum smelter capacity, China currently stands as the largest producer of Aluminum in the world, at over 30% of global production, and continues to grow its production rapidly. China, which has grown its Aluminum production every year for the past 15 years at 12% to 30%, except for 2009, will grow its production 11% this year followed by 10% in 2014 and 7.5% in 2015. Despite this economic reality, China continues to produce large amounts of Aluminum, losing money in the process, with the government clearly subsidizing production. They do this to feed their vast manufacturing machine, whose goal is to export goods and collect hard currency.
On the import side of the equation, China’s government recently proposed banning low quality and/or high sulfur Coal imports, mainly originating in its Emerging Economy brethren, such as Indonesia and Vietnam. These imports grew 30% in 2012, as low cost inputs into the need to produce power. This displaced Chinese Coal production, as the cost of moving the Coal from where it was mined made these imports an attractive economic proposition. Such a ban would eliminate over 90% of Indonesia’s Coal exports to China, despite its much lower production costs. (We note, this will also have an impact on the US, who is a major coal exporter globally.) Mexico recently complained to China over its exports to that country. While Mexico opened its economy to goods from China over the last decade, which now total $57 billion, Chinese imports from Mexico total a paltry $6 billion. This is despite cheaper production in Mexico for many goods than in China. Mexico recently imposed anti-dumping duties on exports of Chinese Steel Pipe for the oil industry. As China already has a major dispute with the US over Electric Steel, this is no surprise. We would note production of Steel is electricity dependent, just like Aluminum. Brazil also complained about China recently and its refusal to open its borders. This partially led to Brazil imposing 65% Domestic Content requirements on all goods. (We would note that Brazil is equal opportunity when it comes to trade disputes. It has fought with both Argentina and Mexico recently, as well.)
While China’s average tariff has declined to only 10% over the past 15 years, China imposes a VAT of 5% to 17% on all imported goods, driving the average total import tax to 15% to 27%. In addition, the average tariff rate covers up wide variations in duties that lead to protections for China’s industry while encouraging imports of raw materials. For example, food tariffs range from 12% to 27% while oil imports only face a 5% tariff. Footwear and apparel duties are 13% and 16%, respectively, as China wants to protect its domestic apparel food chain. Most manufactured goods face double digit tariffs, with some extremely high. For example, Passenger Vehicles face a 25% import duty. They also face a Gas Guzzler tax that can turn a $25,000 import at the dock into a $63,000 retail sale. We note that this analysis excludes the targeted investigation of non-Chinese companies operating in China. The purpose of these investigations clearly is to hamstring foreign competitors, such as Danone, Tetra Pak, Merck, Corning, and Yum Brands, as they compete highly effectively against domestic Chinese companies. We note, despite China growing to be the #2 Economy in the world, the WTO continues to consider China a "non-market economy”, enabling China to sidestep rules that apply to Developed Economies. We wonder how much longer this charade will continue, given China's role in the global economy.
On the Developed Economy side, Chinese trade frictions continue to grow. Fighting with your major customers is never a good thing. And that is what the Developed Economies are, China’s major customers. They have begun to respond to China’s actions to continue to grow at their expense. Over the past two years, Europe imposed anti-dumping tariffs on steel wire, aluminum foils in rolls, aluminum radiators, ceramic tableware, oxalic acid, and solar panels produced in China. China, to protect its high cost chemical producers, recently imposed tariffs on Toluidine, a necessary chemical to manufacture dies, among other things. The major manufacturers of this chemical are European. We note this is similar to tariffs, put in place several years ago by China, for chemicals necessary to produce polyester staple that goes into clothing. To further send a message to Europe, China continues to threaten to impose dumping duties on imports of luxury cars and wine from the EU. We find it hard to understand how bottles of Chateau Lafite-Rothschild or cars such as BMW or Mercedes-Benz are being dumped in China. The net result of these trade frictions is that Chinese exports to the EU are down over 8% year-over-year and European exports to China are under pressure.
Things are not much better for China with the US, with disagreements escalating. Most major manufacturing plants, today, are highly automated with little labor input. And with the rise in China’s labor costs, most high labor content goods have migrated to other Emerging Economies, such as Thailand and Vietnam, over the past five years. Given that China no longer relies on cheap labor to drive its exports and its high cost energy position, its ability to produce manufactured goods more cheaply than the US is highly limited. This realization has led the US to impose anti-dumping duties on numerous products including steel wire, electric steel, cylinders, wheels, aluminum extrusions, wood flooring, bricks, paper, tires, and citric acid. There is also pressure for the government to impose duties on auto parts and solar panels. The outcome of such policies is quite predictable: a 5% year-over-year decrease in exports to the US from China in June.
The impact on global trade of such trade disputes is clear. Global trade, which grew at a 7.6% compound growth rate from January 2002 until December 2007, grew at only a 1.8% compound growth rate since January 2011, after the snapback from the global recession. For economies built on ever growing trade to drive economic growth, this creates a fundamental problem with the Developing Economy growth model. In addition, the Law of Large Numbers stands to significantly impact these economies. Growing from 10% to 20% of a market feels great. Growing from 20% to 40% of a market feels good. But growing rapidly, once you are 50%+ of a market, is impossible. You are the market. And your growth is equivalent to the overall growth of the market. That is where China and its Emerging Economy brethren stand today.
The implications of this new reality are significant. First, Gross Fixed Capital Investment growth must decelerate significantly for China and all the Emerging Economies. When this deceleration occurs, it will produce feed back into the domestic economies for these countries, as a fall in demand for capital goods and investment into new plants. Second, many of these Emerging Economies are Commodity sensitive, producing copious quantities of raw materials to feed the global industrial machine. They benefitted significantly from the rapid global demand increase for raw materials in the 2000’s, driven by the outsized Fixed Capital Investment into industrial plant to support export growth. Fixed Capital Investment growth is 15x as commodity intensive as growth in Consumption. With Consumption growth playing a more critical role in the Emerging Economies, commodity producing countries will experience slowing commodity demand growth and less need to invest to increase supply through new mines and processing facilities. This slowdown in growth also will impact commodity pricing negatively, lowering trade surpluses and ultimately the investment into new rail and port facilities, providing further negative impacts on the rate of economic growth. One need only look at what is occurring in Australia to view the future of many of these economies. Given this economic reality, we see the Emerging Economies facing a Mid-Life Crisis as summarized in the phrase "Why I Can't Have My Economic Growth Now".
Paul Sloate is Chief Executive Officer for Green Drake Partners, LLC. Green Drake Partners serves High Net Worth Investors, Family Offices, and Independent Registered Investment Advisors, providing them Investment Services, Economic Analysis, and Strategic Advice. More information about Green Drake Partners can be found at their website at www.greendrakepartners.com or by contacting them in Wayne, PA at 610-687-7766.
Confidential – Do not copy or distribute. The information herein is being provided in confidence and may not be reproduced or further disseminated without Green Drake Partners, LLC’s express written permission. This document is for informational purposes only and does not constitute an offer to sell or solicitation of an offer to buy securities or investment services. The information presented above is presented in summary form and is therefore subject to numerous qualifications and further explanation. More complete information regarding the investment products and services described herein may be found in the fund’s confidential private placement memorandum. The information contained in this document is the most recent available to Green Drake Partners, LLC. However, all of the information herein is subject to change without notice. ©2013 by Green Drake Partners, LLC. All Rights Reserved.
Sixth Circuit Revisits Trustee Liability and Scope of Quasi-Judicial Immunity
Joseph J. McMahon, Jr.
In Grant, Konvalinka and Harrison, P.C. v. Banks (In re McKenzie), 2013 U.S. App. LEXIS 10491 (6th Cir. May 24, 2013), the United States Court of Appeals for the Sixth Circuit revisited the issues of when a trustee can be held liable and the scope of quasi-judicial immunity.
The chapter 11 trustee in McKenzie filed three civil actions. The litigation centered on the transfer of a fifty-acre parcel of land from an entity in which the Debtor held a 50% interest to a newly-formed entity in which the Debtor held no interest. Addressing one of the three actions (the Trustee’s adversary proceeding to avoid the transfer), the Bankruptcy Court granted the defendants’ motion to dismiss, concluding that the Trustee failed to aver a transfer of the Debtor’s interest in property; while the Debtor owned a one-half interest in the property’s corporate owner, the 50-acre parcel itself was not property of the estate.
One of the Defendants, in turn, filed two adversary proceedings against the Trustee, and sought permission to bring a third action against the Trustee in state court pursuant to the Barton doctrine (which limits jurisdiction over certain claims to Bankruptcy Court), on grounds of malicious prosecution and abuse of process. The Bankruptcy Court dismissed the two adversary proceedings on grounds that they were barred by quasi-judicial immunity. The Bankruptcy Court also denied the defendant permission to sue the Trustee in state court. On appeal, the Defendant advanced two arguments: first, the Trustee’s actions were outside the scope of his authority; second, the Trustee acted without prior Bankruptcy Court approval.
The Sixth Circuit addressed the prior approval argument first. While noting that obtaining prior bankruptcy court approval would typically shield a trustee from claims other than claim for breach of fiduciary duty, the Sixth Circuit concluded that "a trustee is not required to obtain prior court approval in order to invoke quasi-judicial immunity from suit by a third party for actions taken by the trustee on behalf of the estate and within the scope of his authority.” Id. at *18-*19.
With regard to the defendants’ ultra vires argument, the Sixth Circuit observed that the only context in which courts have found a trustee to be acting outside the scope of his authority has been where the trustee has seized property which is not estate property. The defendants sought to apply the aforementioned authorities to the Trustee’s litigation on the theory that the Trustee was attempting to seize property that was not an asset of the estate. The Sixth Circuit ruled that the Trustee did the right thing: the Trustee went to court for the purpose of determining the parties’ respective rights to the property in question, as opposed to attempting to unilaterally seize same. Accordingly, the Sixth Circuit held that the Trustee did not act ultra vires.
Fourth Circuit Follows Recent Third Circuit Guidance on Taxable ESI Production Costs Under 28 U.S.C. § 1920(4)
by Joseph J. McMahon, Jr.
28 U.S.C. § 1920(4) provides that "[a] judge or clerk of any court of the United States may tax as costs . . . [f]ees for exemplification and the costs of making copies of any materials where the copies are necessarily obtained for use in the case.”
Last year, the United States Court of Appeals for the Third Circuit considered an appeal from a district court ruling taxing the plaintiff for a range of e-discovery services. In Race Tires America, Inc. v. Hoosier Racing Tire Corp., 674 F.3d 158 (3d Cir. 2012), the Third Circuit concluded that a wide range of pre-production services related to ESI did not constitute "exemplification” for purposes of section 1920(4) and that only scanning and file format conversion could be considered to be "making copies” for purposes of that subsection. In Race Tires, the case management order contained standard provisions related to e-discovery – specifically, the parties’ respective obligations to conduct a search of ESI through the use of search terms and to produce discoverable items in a format that permits the opposing party/parties to review same. The parties retained vendors to assist them with e-discovery processing.
Ultimately, the District Court granted the defense motions for summary judgment. After the Third Circuit affirmed the summary judgment rulings, the Clerk of Court taxed approximately $365,000 in e-discovery costs, including vendor costs related to production.
The Third Circuit first considered whether the "electronic discovery consultant‘s charges for data collection, preservation, searching, culling, conversion, and production” constituted "exemplification” under section 1920(4). The Third Circuit looked to authorities from the Federal Circuit and the Seventh Circuit, respectively, to observe that "exemplification” has been defined narrowly as the authentication of public records or, alternatively, more broadly as the production of illustrative evidence. The Third Circuit concluded that the e-discovery services at issue did not fall within either definition. The Third Circuit also concluded that only (i) the conversion of native files to TIFF and (ii) the scanning of documents to create digital duplicates constitutes "making copies” under section 1920(4). The court noted that the panoply of production services leading up to copying were not considered taxable in the pre-digital period. At bottom, "Congress did not authorize taxation of charges necessarily incurred to discharge discovery obligations. It allowed only for the taxation of the costs of making copies.” Id. at 169. Accordingly, approximately $30,000 was ultimately found to be taxable.
More recently, the United States Court of Appeals for the Fourth Circuit followed the Third Circuit’s lead in construing the phrase "[f]ees for exemplification and the costs of making copies” in connection with e-discovery. In The Country Vinter of North Carolina, LLC v. E. & J. Gallo Winery, Inc., 2013 U.S. App. LEXIS 8629 (4th Cir. Apr. 29, 2013), the Fourth Circuit affirmed the district court order "taxing only the costs of converting electronic files to non-editable formats, and transferring files onto CDs,” as such costs were the only costs tendered by Country Vinter that constituted "making copies” for purposes of section 1920(4). Id. at *35. Faced with Country Vinter’s discovery request, Gallo filed a motion for a protective order. Country Vinter filed a motion to compel the requested discovery. The District Court denied Gallo’s motion for a protective order and granted Country Vinter’s motion to compel. The District Court also adopted Country Vinter’s proposal for handling ESI. In the wake of the District Court’s rulings, Gallo collected its ESI and forwarded a large amount (more than 62 GB) of information to its counsel for review.
Less than two months after Gallo began producing documents, the District Court issued a ruling dismissing certain claims. The District Court ultimately granted summary judgment in favor of Gallo on the remaining claims.
Gallo subsequently filed its bill of costs in the amount of $111,047.75 for ESI charges. The total figure broke down as follows:
$71,910 for the initial processing of data (flattening and indexing);
$15,660 for Searching/Review Set/Data Extraction (extracting metadata and preparing same for production);
$178.59 for "TIFF Production” and "PDF Production” (converting original documents to a .TIF or .PDF format to render them non-editable);
$74.16 for Bates numbering;
$40 for copying images onto a CD or DVD; and
$23,185 for miscellaneous consulting costs ("management of the processing of the electronic data,” "quality assurance procedures,” "analyzing corrupt documents and other errors,” and "preparing the production of documents to other counsel.”).
The District Court awarded Gallo $218.59 (the sum of the "TIFF Production”/”PDF Production” and "copying images onto a CD or DVD” amounts).
On appeal, Gallo sought all of the above costs, less (i) the $74.16 charge for Bates numbering, (ii) $8,897 in billable time related to Bates numbering, searching, or production-related activities,” and (iii) the $218.59 awarded by the District Court. In The Country Vinter, the Fourth Circuit followed the Third Circuit’s reasoning in Race Tires America and concluded that, while ESI may require substantial pre-production processing to make it intelligible, that does not mean that the services leading up to the actual production constitute "making copies” under section 1920(4). The Fourth Circuit noted that the producing party’s proper remedy from excessive production-related costs is a protective order and, to the extent protection is denied by the district court, an appeal from the denial of relief; the producing party cannot attempt to remedy what it perceives to excessive ESI production costs by attempting to shoehorn same into a section 1920(4) request, given that the statute does not permit the taxation of such costs.
At bottom, the Third Circuit and Fourth Circuit rulings, taken together, suggest that counsel involved in litigation with an e-discovery component should be preparing their client(s) for the likelihood that they will bear a substantial portion of those costs, win or lose, and to factor that likelihood into various considerations, including (i) the need to obtain protection from burdensome discovery requests, (ii) the timing of mediation, and (iii) the pursuit of settlement.
Ciardi partners start mediation firm
July 23, 2013
Jeff Blumenthal's comprehensive coverage of the Ciardi firm's recent enterprises; available http://www.bizjournals.com/philadelphia/news/2013/07/23/ciardi-partners-start-mediation-firm.html
Carl Singley weighs in on Detroit bankruptcy on THELAW.TV
July 12, 2013
Released Friday July 12 2013 is a feature of Carl Singley (Of Counsel toCiardi Ciardi & Astin) on the record to discuss the options available to municipal workers when their city goes bankrupt on THELAW.TV
Check out the link and hear Carl as he addresses the question, "How bad is it?" http://news.thelaw.tv/2013/07/08/you-should-be-scared-if-you-work-for-this-city/
Al Ciardi III on 98.1
July 2, 2013
On radio talk show 98.1 Philadelphia Agenda with Brad Segall, Al Ciardi and Military AssistanceProject Executive Director DiannaSchwartz discuss their bankruptcy organization which works to assist veterans.
Al Ciardi wins Top Partnership Award
May 22, 2013
Albert Ciardi III received the Top Partnership Award at the Philadelphia Business Journal's May awarding of the MassMutual Citizenship Award. The award recognizes three inspiring partnerships between local businesses and non-profits.
Full length article available at
Ciardi attorney Gary Elmer named one of San Diego's Top Lawyers
Gary Elmer was recently selected by San Diego Magazine as one of the "Top Lawyers in San Diego". Full list available http://www.sandiegomagazine.com/San-Diego-Magazine/March-2013/Top-Lawyers-in-San-Diego-2013/Bankruptcy/
The Second Circuit Revisits the "Timely Adjudication” of State Law Claims in the Context of Mandatory Abstention: Parmalat Capital Finance Limited v. Bank of America Corporation
Daniel K. Astin and
Joseph J. McMahon, Jr.
April 15, 2012
Click for a PDF
The United States Court of Appeals for the Second Circuit recently revisited the issue of whether state law claims may be "timely adjudicated” under the mandatory abstention provision of 28 U.S.C. § 1334(c)(2) in Parmalat Capital Finance Limited v. Bank of America Corporation, Nos. 09-4302-cv, 09-4306-cv, and 09-4373-cv, 2012 U.S. App. LEXIS 3391 (2d Cir. Feb. 21, 2012).
By way of factual background, Plaintiff-appellant Dr. Enrico Bondi represents Parmalat Finanziaria, S.p.A.’s ("Parmalat”) Italian bankruptcy estate as its Extraordinary Commission under Italian law. Plaintiff-appellant Parmalat Capital Finance Limited ("PCFL”) is a Grand Caymans-based corporate subsidiary of Parmalat and is party to liquidation proceedings in the Cayman Islands. In 2004, Bondi and PCFL commenced separate proceedings under 11 U.S.C. § 304 in the United States Bankruptcy Court for the Southern District of New York for the purpose of enjoining litigation against Parmalat and PCFL in United States courts. The Bankruptcy Court entered a preliminary injunction shielding Parmalat from American lawsuits. Subsequently, Bondi filed suit against Grant Thornton (who had been auditors for Parmalat and PCFL) in Illinois state court, alleging professional malpractice, fraud, negligent misrepresentation and unlawful civil conspiracy claims under Illinois state law. Bondi filed a similar suit against Citigroup in New Jersey state court. Grant Thornton subsequently removed the Illinois case to the United States District Court for the Northern District of Illinois on grounds that the case was "related to” the section 304 proceeding. Bondi moved to remand the case on mandatory abstention grounds pursuant to 28 U.S.C. 1334(c)(2). The Judicial Panel on Multidistrict Litigation transferred the Illinois action to the United States District Court for the Southern District of New York. The New York District Court denied Bondi’s motion, finding that it had jurisdiction pursuant to 28 U.S.C. § 1334(b) and that abstention was not mandatory. The District Court subsequently denied Bondi’s motion for an interlocutory appeal.
In October 2005, the Italian bankruptcy court approved the Concordato. Pursuant to the Concordato, a newly-formed entity, Parmalat, S.p.A. ("New Parmalat”) assumed all of the assets and liabilities of its predecessor companies. New Parmalat also acts as claims administrator for creditors of Parmalat under the Concordato. In 2007, the District Court denied Bondi’s motion to bar plaintiffs that had brought securities fraud litigation against Parmalat, banks and auditing firms (including Grant Thornton) from bringing direct claims against New Parmalat. The District Court also permitted Grant Thornton to file third party contribution claims in the securities class action litigation. The securities class action litigation eventually settled.
After Bondi’s motion for mandatory abstention was denied and the Concordato was approved, PCFL filed a suit similar to Bondi’s against Grant Thornton in Illinois state court. PCFL also filed a complaint against Bank of America in North Carolina state court alleging some similar claims to those asserted by Bondi. Grant Thornton removed the Illinois case to the United States District Court for the Northern District of Illinois, and PCFL moved for abstention and remand, arguing that abstention was mandatory. The Illinois District Court denied PCFL’s motion. The Illinois District Court proceeded to transfer the case to New York for consolidation with Bondi’s case. In a separate and unrelated development, the North Carolina matter was transferred to the Southern District of New York as well.
After discovery, the New York District Court granted summary judgment to the defendants. The Second Circuit ultimately affirmed the District Court’s summary judgment ruling as to Bank of America. With respect to the Illinois actions against Grant Thornton, the Second Circuit vacated the decisions not to abstain from deciding the cases pursuant to the mandatory abstention provision in 28 U.S.C. § 1334(c)(2). The Second Circuit remanded the cases to the District Court for a determination of whether the cases could be "timely adjudicated” consistent with the factors set forth in its opinion.  On remand, the New York District Court again concluded that mandatory abstention did not apply.  Bondi and PCFL renewed their appeals, arguing that mandatory abstention was required.
The Second Circuit identified four factors in evaluating whether state law claims can be "timely adjudicated” in state court: first, the backlog of the state court’s calendar relative to the federal court’s calendar; second, the complexity of the issues presented and the respective expertise of each forum; third, the status of the title 11 bankruptcy proceeding to which the state law claims are related; and fourth, whether the state court proceeding would prolong the administration or liquidation of the estate.
With respect to the first factor, the backlog comparison (state versus federal), there was "no allegation in the record that the Illinois courts are ‘backlogged,’” and there was no dispute between the parties that "the difference in time it takes to resolve a case between federal and Illinois state courts, when both start at the same time, is no more than a few months.” Accordingly, while the Second Circuit observed that the factor "does tip in denying abstention,” the court indicated that the real issue is whether the action can be "’timely adjudicated’” in the state court; the Second Circuit implied that the Illinois court was capable of timely adjudicating the cases.
Considering the second factor, the Second Circuit determined that the factor weighed in favor of remand. The District Court concluded that the cases were factually complex. The Second Circuit keyed on the fact that the District Court did not address the complexity of the legal issues involved. Specifically, there was no question that the in pari delicto defense was unsettled under Illinois law. Further, Illinois law does not permit the Second Circuit to certify state law issues to the Illinois Supreme Court. Accordingly, the Second Circuit was prepared to let the Illinois state courts address this unsettled issue of state law. The Second Circuit also noted that the District Court’s concern with the complexity of the factual record was offset by the availability of the summary judgment record.
The Second Circuit found that the third factor – the status of the title 11 proceeding – favored remand. The Second Circuit focused on the nature of a section 304 proceeding, observing that there was no explanation as to why swift resolution of the state law claims was required in a context where the bankruptcy court was not tasked with overseeing a reorganization or liquidation.
The Second Circuit also concluded that the potential state court proceeding would not prolong the administration or liquidation of the estate and, accordingly, the (fourth) factor should weigh in favor of remand to the state court. The Second Circuit determined that there was no administrative urgency associated with the Italian reorganization of Parmalat or the Cayman liquidation of PCFL that required prompt adjudication of the Illinois claims brought by the appellants. Further, the Second Circuit rejected the appellees’ argument that remand was not warranted because it would harm creditors by increasing the cost of litigation; the court noted that the issue is "not whether abstention increases the ultimate payout to the creditors, but whether it ‘unduly prolong[s] the administration of the estate’ at issue.” The Second Circuit deferred to the appellants’ respective statuses as estate administrators, noting that they "were presumably ‘well versed in the timeliness concerns of their respective foreign bankruptcy proceedings when they selected the state forum.’”
In sum, considering the four factors together, the Second Circuit concluded that they weighed in favor of abstention. The Second Circuit noted the importance of keeping the proverbial "forest” in view; "[t]he four factors are meant to guide courts’ analyses with respect to the ultimate balance, struck by Congress, between, on the one hand, creating a federal forum for purely state law cases which, due to delay, might impinge upon the federal interest in the administration of a bankruptcy estate, and, on the other, ensuring that purely state law cases remain in state courts when they would not significantly affect that federal interest.” In considering whether the subject action might be "timely adjudicated” in state court, the Second Circuit underscored the need to evaluate whether the action at issue "substantially affects the bankruptcy estate, or whether the estate’s resolution is contingent upon the state action.”
 See 28 U.S.C. § 1334(b), 1452.
 See Parmalat Capital Fin. Ltd. v. Bank of America Corp., 639 F.3d 572, 582-83 (2d Cir. 2011).
 See In re Parmalat Sec. Litig., Nos. 04 Civ. 9771, 06 Civ. 2991, 2011 WL 3874824, at *1 (S.D.N.Y. Aug. 31, 2011)