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U.S. Court of Appeals Sends Federal Case Back to State Court in a Case Involving Both the Second and Seventh Circuit U.S. Courts of Appeals

The 7th Circuit Court of Appeals in Chicago has reversed a decision of a U.S. district court judge regarding whether a case should be remanded back to an Illinois state court. This case arises out of the bankruptcy of a company known as Parmalat. Parmalat was a large Italian food and dairy company that entered bankruptcy in Italy in 2013. Enrico Bondi was appointed “extraordinary commissioner,” which is the Italian version of a bankruptcy trustee.

In 2004, Bondi initiated in the Southern District of New York Bankruptcy Court, a proceeding under Section 304 of the U.S. Bankruptcy Code to “enjoin the commencement” of a lawsuit against Parmalat with respect to property involved in the Italian bankruptcy.

After filing the lawsuit in the Southern District of New York’s Bankruptcy Court, Bondi filed a separate lawsuit in the Circuit Court of Cook County against Grant Thornton International, an accounting firm. That lawsuit claimed that Grant Thornton was responsible for Parmalat’s collapse through its involvement in fraudulent audits of Parmalat’s books in violation of Illinois law.

Grant Thornton removed the case to the Northern District of Illinois in Chicago. The Judicial Panel in the Multidistrict Litigation transferred the lawsuit from the Northern District of Illinois to the Southern District of Illinois so that the related lawsuits would be in the same district for pre-trial proceedings.

Bondi requested that the U.S. District Court Judge assigned to the case in New York abstain from deciding the case. The New York judge declined and granted summary judgment in favor of Grant Thornton, finding that the doctrine of in pari delicto barred Parmalat’s claim against the accounting firm. In pari delicto is Latin for “in equal fault” or mutual fault that prevents either side from winning.

Parmalat appealed that decision to the 2nd U.S. Court of Appeals in New York, which vacated the New York judge’s decisions with directions to remand the case to the Northern District of Illinois so that the case could be remanded back to Illinois state court.

When the case came back to Illinois, the U.S. District Court judge declined to remand it to state court. The judge ruled that any doubt about Illinois law applicable in the case had been erased by the recent 7th Circuit decision in the case of Peterson v. McGladrey & Tullen, LLP, No. 10-3770 (U.S. Court of Appeals, 7th Cir., April 3, 2012). Parmalat again appealed.

Parmalat requested that the decision of the district court be reversed with instructions to return the case to the state court. The 7th Circuit Court of Appeals began by stating that cases governed by U.S.Code Section 1334(c)(2) are required to be remanded to the state court if they can be timely adjudicated in a state forum of appropriate jurisdiction.

Grant Thornton, on the other hand, made the case that Peterson is a subsequent development that demonstrated that remand to a state court would not be “timely.”

The U.S. Court of Appeals disagreed and found that Grant Thornton had alerted the 2nd Circuit of the decision in Peterson, and the 2nd Circuit denied the petition for rehearing despite the defendants’ volunteered information.

Additionally, the panel found that Peterson was not a novel case, but rather a reaffirmation of Cenco, Inc. v. Seidman & Seidman, 686 F.2d 449 (7th Cir., 1982). Therefore, Peterson did not count as a subsequent development that would make remand to an Illinois court untimely.

Accordingly, the appeals panel concluded that the refusal to remand the case to Illinois state court was an unauthorized exercise of authority and the district court judge’s decision was reversed, remanding the case back to the district court with these instructions.

Parmalat Capital Finance Limited v. Grant Thornton International, No. 13-2245 (U.S. Court of Appeals, 7th Cir., June 25, 2014).

Kreisman Law Offices has been handling state and federal litigation for individuals, families and businesses for more than 38 years in and around Chicago, Cook County and its surrounding areas, including Oak Park, River Forest, River Grove, Park Ridge, Elmhurst, Chicago (Polish Village, Edgebrook, Jefferson Park, Irving Park, Albany Park, Roscoe Village, Lincoln Square, Bridgeport, Jackson Park), Summit, Justice, Hickory Hills and Oak Forest, Ill.

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