In a case that could easily compete with Jarndyce v. Jarndyce for longevity and complexity, the Seventh Circuit held that the U.S. District Court for the Northern District of Illinois erred by failing to adhere to an earlier ruling in the same case by the Second Circuit. If that sounds unusual, welcome to the long-running Parmalat litigation. As Judge Posner noted in his preface to a summary of the case’s procedural history, “The litigation is highly complex; we’ll simplify ruthlessly.” Parmalat Capital Finance Ltd. v. Grant Thornton Int’l, 756 F.3d 549, 550 (7th Cir. 2014) (decided June 25, 2014).
Parmalat, a food company, entered the Italian bankruptcy system. Parmalat’s “extraordinary commissioner” (which, Judge Posner noted, was the “Italian equivalent of a bankruptcy trustee”) filed two lawsuits. First, he filed a proceeding in the bankruptcy court of the Southern District of New York to enjoin litigation against Parmalat with respect to property involved in the Italian bankruptcy proceedings. Second, he filed a tort suit in the Circuit Court of Cook County, Illinois, against Grant Thornton, an accounting firm that, the commissioner alleged, had performed fraudulent audits of Parmalat.
Grant Thornton removed the Cook County lawsuit to the U.S. District Court for the Northern District of Illinois under 28 U.S.C. § 1334(b). That provision, Judge Posner explained, “confers original though not exclusive federal jurisdiction” over civil suits that are related to bankruptcy cases, and the commissioner’s Cook County lawsuit related to the bankruptcy proceeding. Once removed to the U.S. District Court for the Northern District of Illinois, the commissioner’s suit against Grant Thornton was then transferred by the Judicial Panel on Multidistrict Litigation to the U.S. District Court for the Southern District of New York.
Once the Grant Thornton lawsuit was transferred to the Southern District of New York, the commissioner asked the federal district court judge there to abstain from deciding the case pursuant to 28 U.S.C. § 1334(c)(2). Section 1334(c)(2) provides:
“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.”
The commissioner argued that the tort suit against Grant Thornton could be “timely adjudicated” in an Illinois state court and met section 1334(c)(2)’s other requirements for federal abstention.
The federal judge in New York disagreed and awarded summary judgment to Grant Thornton on Illinois tort law grounds. (The substantive basis for that ruling is beyond the scope of this contribution to The Brief, but it is discussed in my law partner John J. Barber’s excellent Law & Accounting column in the August 6th edition of the Chicago Daily Law Bulletin.) On appeal, the U.S. Court of Appeals for the Second Circuit held that the federal district court in the Southern District of New York should have abstained pursuant to 28 U.S.C. § 1334(c)(2), remanded the case, and directed that the case be transferred to the U.S. District Court for the Northern District of Illinois so that it “can be remanded to Illinois state court.”
Once the case returned to the U.S. District Court for the Northern District of Illinois, however, it took another detour. Despite the Second Circuit’s holding that the tort claims should be decided by an Illinois state court pursuant to section 1334(c)(2), the federal judge in the Northern District of Illinois to whom the case was transferred decided not to remand the case to the Circuit Court of Cook County. “These cases have remained unresolved for nearly ten years, and it is unlikely that a remand back to state court will result in more timely dispositions of the cases,” the Illinois federal district court judge reasoned. Finding that the earlier award of summary judgment to Grant Thornton “should be respected” under the law of the case doctrine, the federal district court judge in Illinois awarded summary judgment to Grant Thornton.
On appeal from that ruling, the Seventh Circuit noted that 28 U.S.C. § 1334(d) expressly provides that “any decision to abstain . . . is not reviewable by appeal or otherwise by the court of appeals . . . or by the Supreme Court of the United States.” Writing for the Seventh Circuit panel, Judge Posner explained: “The statute doesn’t say in so many words that an order to abstain is not reviewable by another district court, but the idea that a district judge has appellate authority denied to the U.S. Supreme Court can’t be taken seriously.” For good measure, Judge Posner added that “[f]ederal district judges have appellate authority over decisions by magistrate judges, bankruptcy judges, and certain administrative law judges (administrative law judges in social security disability cases, for example), but not over decisions by other district judges, let alone by courts of appeals.”
Moreover, Judge Posner explained, “[n]othing has happened since the Second Circuit’s decision to justify a district court’s reopening and reversing it.” Grant Thornton argued that a recent Seventh Circuit case changed the legal landscape as to its entitlement to summary judgment on the merits, but Judge Posner rejected that argument, since that recent Seventh Circuit case had been brought to the Second Circuit’s attention in a petition for rehearing, which the Second Circuit had denied. That recent Seventh Circuit decision also, in Judge Posner’s estimation, was “not a novel decision.”
Thus, the Seventh Circuit reversed the district court’s “unauthorized . . . exercise of de facto appellate authority” and ordered it to remand the case to the Circuit Court of Cook County. Had the district court done so immediately upon receiving the case from the Second Circuit, Judge Posner noted, “the litigation might well be at an end rather than on the brim of restarting.” And so the Parmalat saga continues!
Recommended Citation: John M. Fitzgerald, Parmalat Capital Finance Ltd. v. Grant Thornton Int’l: Legendarily Complex Litigation Nears Its Conclusion, The Brief, (September 11, 2014), http://applawyers-thebrief.blogspot.com/2014/09/parmalat-capital-finance-ltd-v-grant.html.
