Permissive Abstention:

Part 1 of this blog series examined a bankruptcy court’s subject matter jurisdiction over a debtor’s legal malpractice claims. See, Part 1.  Part 2 of this blog series focused on mandatory abstention as a consideration in such a malpractice strategy. See, Part 2.  The final part of this blog series will examine permissive abstention as an alternative strategy.

Permissive abstention under 28 U.S.C. § 1334(c)(1) grants bankruptcy courts “broad discretion to abstain from hearing state law claims when appropriate ‘in the interest of justice, or in the interest of comity with state courts or respect for state law.'” Trustmark Nat’l Bank v. Sanford (In re Trimjoist Corp.) 2013 Bankr. Lexis 3080, 2013 WL 3934368 (N.D. Miss.); In re Gober, 100 F.3d at 1206 (citing Wood v. Wood (In re Wood), 825 F.2d 90, 93 (5th Cir. 1987)). Many bankruptcy courts considering permissive abstention have adopted or otherwise applied a twelve-factor test to consider when deciding whether to abstain from hearing state law claims, including:

(1) the effect or lack thereof on the efficient administration of the estate if the Court abstains;

(2) extent to which state law issues predominate over bankruptcy issues;

(3) difficult or unsettled nature of applicable law;

(4) presence of related proceeding commenced in state court or other nonbankruptcy proceeding;

(5) jurisdictional basis, if any, other than § 1334;

(6) degree of relatedness or remoteness of proceeding to main bankruptcy case;

(7) the substance rather than the form of an asserted core proceeding;

(8) the feasibility of severing state law claims from core bankruptcy matters to allow judgments to be entered in state court with enforcement left to the bankruptcy court;

(9) the burden of the bankruptcy court’s docket;

(10) the likelihood that the commencement of the proceeding in bankruptcy court involves forum shopping by one of the parties;

(11) the existence of a right to a jury trial;

(12) the presence in the proceeding of nondebtor parties;

(13) comity; and

(14) the possibility of prejudice to other parties in the action.

Trustmark Nat’l bank v. Sanford (In re Trimjoist Corp.) 2013 Bankr. LEXIS 3080; 2013 WL 3934368 (N.D. Miss. 2013); Vig v. Indianapolis Life Ins. Co., 336 B.R. 279, 285-86 (S.D. Miss. 2005) (citing Searcy v. Knostman, 155 B.R. 699, 710 (S.D.Miss.1993)). These factors are flexible, and the “relevance and importance will vary with the particular circumstances of each case, and no one factor is necessarily determinative.” Willliams v. Chism, 164 B.R. 735, 737 (N.D. Miss. 1994)(citation omitted).  Application of these factors to the facts of a specific malpractice claim will help evaluate the strengths and weaknesses of an argument for or against permissive abstention.  In the case where the elements of mandatory abstention cannot be satisfied, consideration of the applicable facts under the permissive abstention statute may prove advantageous in directing the legal malpractice claim.