MEMORANDUM OPINION

This adversary proceeding is pending on the motion of the plaintiff, Firelight Investments Corporation (hereinafter “Firelight”) to remand this action to the Fayette Circuit Court from which it was removed by the defendant Central Bank and Trust Company (hereinafter “Central Bank”).

Firelight’s complaint, which was filed March 23, 2001 in the Fayette Circuit Court, Civil Action No. 2001-CI-1116, seeks enforcement of a subordination agreement. The agreement was executed September 27, 1988 by Second National Bank and Trust Company, Lexington, Kentucky as Trustee of the Warren Wright, Jr. Trust. At the time of execution of the agreement Calumet Farm, Inc. (hereinafter “Calumet Farm” or “debtor”) was indebted to the trust in the amount of $13,187,500, evidenced by two notes, plus accrued interest. To induce First City National Bank Houston, Texas to loan monies from time to time with or without security to Calumet Farm, the trust subordinated the indebtedness owed to it by Calumet Farm to indebtedness the debtor was in the process of incurring to First City National Bank, which indebtedness was evidenced by a line of credit note for $50,000,000 and a term note for $15,000,000. See Subordination Agreement.

Warren Wright, Jr., the son of the founder of Calumet Farm, predeceased his mother, Lucille Wright Markey, who held a life estate in the farm under the will of Warren Wright, Sr. Following the death of Lucille Wright Markey in 1982 the farm was incorporated and the owners were issued stock evidencing their interest in the farm. As a result of incorporation the Warren Wright, Jr. trust owned an approximately 62.5% interest in the farm. Bertha Wright, the widow of Warren Wright, Jr. is the life beneficiary of the trust. The four children of Warren Wright, Jr. and Bertha Wright, Lucille, Courtney, Warren III, and Tom Wright were issued stock evidencing their pro rata ownership of the remaining 37.5% interest in the farm.

Calumet Farm, Inc. filed a petition for relief under chapter 11 of the Bankruptcy Code in this court on July 11, 1991.

Since commencement of the bankruptcy proceeding there has been a transformation of the parties referred to in the Subordination Agreement.

The debtor in possession, formerly known as Calumet Farm, changed its name to Phoenix Corporation. Apparently this was to accommodate the fact the name Calumet Farm was sold as an asset along with the farm in order that the purchaser might continue to race thoroughbred horses under the name Calumet Farm.

Second National Bank and Trust Company, the trustee of the Warren Wright, Jr. Trust, merged with Bank of Commerce and became Commerce National Bank. The merged bank was acquired by National City Bank.

During the course of administration of the Warren Wright, Jr. Trust certain officers of these banks served on the board of directors of Calumet Farm, Inc., representing the interest of the trust in the farm.

The creditors’ committee in the Calumet Farm, Inc. bankruptcy case was granted leave of court to file an action against the officers and directors of Calumet Farm, including the bank officers who had served on the debtor’s board of directors, for, inter alia, alleged breach of their fiduciary duty. This action was filed by the committee in the U.S. District Court. Case No. 93-291. The action was settled with respect to National City Bank by payment of a substantial sum to the bankruptcy estate.

On November 1, 1994 the Probate Division of the Fayette Circuit court appointed Central Bank and Trust Company as Successor Trustee of the Warren Wright, Jr. Trust. The bank qualified as trustee on December 1, 1994. Thus, Central Bank and Trust Company is named defendant in the present action to enforce the subordination agreement executed by the trust in 1988 in favor of First City National Bank, Houston, Texas.

On October 30, 1992 First City National Bank, Houston, Texas was closed by the Comptroller of the Currency and the Federal Deposit Insurance Corporation, FDIC, was appointed receiver. On the same date the FDIC, as receiver, conveyed certain assets of the closed bank, including the notes and other documentation evidencing the indebtedness of Calumet Farm to the bank, to New First City National Association, a bridge bank. On February 13, 1993 the Comptroller of the Currency closed New First City National Association and appointed the FDIC as receiver. On the same date the FDIC as receiver conveyed the assets of New First City to Texas Commerce Bank, N.A. Thereby, Texas Commerce Bank became the owner of a claim against Calumet Farm, Inc. in the prepetition amount of $32,392,565.46, evidenced by the proof of claim in that amount filed by First City National Bank, Houston, Texas on January 2, 1992, Claim No. 54.

Thereafter, Texas Commerce Bank, N.A. transferred to First City Liquidating Trust Loans, LP, the loans it had acquired from New First City National Association. First City Liquidating Trust Loans, LP thereupon became the owner of Claim No. 54.

On August 23, 1995 the debtor in possession and First City Liquidating Trust Loans, LP entered into a settlement agreement whereby Claim No. 54 was allowed as a secured claim in the amount of $7,851,506.19 and as an unsecured claim in the amount of $10,372,150.41 (Document No. 1539). The court approved this settlement agreement by order entered on September 1, 1995. The secured portion of this claim is not in issue, apparently having been satisfied by proceeds realized from the sale of thoroughbred horses and from proceeds of stud fees in which First City National Bank, Houston, Texas held security interests.

On May 3, 1999 First City Liquidating Trust Loans, LP assigned the $10,372,150.41 unsecured portion of Claim No. 54 to Vigilant Insurance Company. This was after Frank Cihak, an officer of First City National Bank, Houston, Texas had been convicted in federal court of criminal charges in connection with loans made by the bank to Calumet Farm. This assignment may have been made in connection with settlement on a claim under an insurance policy issued by Vigilant insuring First City National Bank, Houston against loss due to misconduct of banks officers and employees. As hereinafter noted, Vigilant was the owner of this $10,372,150.41 unsecured claim when an order was entered confirming the debtor’s Liquidating Plan of Reorganization.

Early in the Calumet Farm chapter 11 bankruptcy case Second National Bank and Trust Company, the original Trustee of the Warren Wright, Jr. Trust, filed a claim in behalf of the trust. The claim was filed as a secured claim in the amount of $502,361.11 and as an unsecured claim in the amount of $23,417,609.65. See Proof of Claim No. 33 filed November 18, 1991 in the total amount of $23,919,970.76.

On November 15, 1995 the Warren Wright Jr. Trust amended its claim to reduce the amount of the claim to $23,847,470.76.

On March 29, 1999 the debtor in possession and the Warren Wright, Jr. Trust filed a joint motion for approval of a compromise agreement whereby the claim of the trust would be allowed as an unsecured claim in the amount of $7,500,000 and the remainder of the claim in the amount of $16,347,470.76 would be subordinated as equity (Document #2006). This joint motion was approved by order of the court entered June 21, 1999 (Document No. 2026).

On April 13, 2000 the debtor filed a Disclosure Statement and a Liquidating Plan of Reorganization (Document #2070). On April 14, 2000 the debtor filed an amendment to the Disclosure Statement (Document #2072).

A hearing on approval of the Disclosure Statement was noticed for May 8, 2000 (Document #2071).

On May 9, 2000 the court approved the debtor’s Disclosure Statement, as amended, subject to further amendment as agreed upon at the May 8 hearing.

On May 10, 2000, the debtor filed a First Amended Disclosure Statement.

A hearing on confirmation of the plan was noticed for June 12, 2000. However, on June 5, 2000 an order was entered rescheduling the confirmation hearing for June 26, 2000 (Document #2103).

On June 6, 2000 Donald and Nancy Puckett and Michael Sweeney, creditors, had filed objections to confirmation of the plan (Document #2103).

On June 27, 2000 an agreed order was entered resolving the objection of the Pucketts and Sweeney to confirmation of the plan (Document #2118). On the same date an order was entered confirming the plan.

At the time of confirmation of the plan the $10,372,150.41 unsecured claim, the surviving amount of Claim No. 54 originally filed by the defunct First city National Bank of Houston, Texas was owned by Vigilant Insurance Company.

On August 24, 2000 the disbursing agent paid a dividend of $1,551,300.07 on Claim No. 54 to Vigilant Insurance Company and a dividend of $1,121,729.83 to Central Bank and Trust Company as Trustee of the Warren Wright, Jr. Trust. The latter dividend was paid on the $7,500,000 unsecured amount of Claim No. 33 as compromised by the claimant and the debtor in possession.

Vigilant Insurance Company did not object to confirmation of the plan which proposed payment of a dividend on the claim of the Warren Wright Jr. Trust as a Class 4 unsecured claimant along with other claimants in that class, including Vigilant. Vigilant did not raise an issue about or seek enforcement of the subordination agreement executed by the trust in favor of First city National Bank of Houston, the original owner and filer of Claim No. 54.[1]

On February 1, 2001 Firelight Investments Corp., a Delaware corporation, filed notice and documentation of the assignment and transfer of Claim No. 54 to Firelight by Vigilant Insurance Company for a consideration of $100,000.

On March 23, 2001 Firelight commenced the present action in the Fayette Circuit Court against Central Bank and Trust Company to enforce the subordination agreement executed in 1988 by the Warren Wright, Jr. Trust in favor of First City National Bank of Houston. The objective of Firelight’s action is to recover the $1,121,729.83 dividend paid on the claim of the Warren Wright, Jr. Trust, and to be adjudged entitled to receive any future dividends that may be paid on the claim, a result that would follow from enforcement of the subordination agreement.

A further, albeit much smaller dividend, is contemplated on Class 4 unsecured claims pending the resolution of three outstanding controversies, only one of which involves the possible recovery of additional monies for the bankruptcy estate.

Pursuant to Article XI of the debtor’s plan the court retained jurisdiction “to determine any and all claims objections” and “to determine all controversies, suits, and disputes that may arise in connection with the interpretation, enforcement or consummation of the Plan.”

CONCLUSIONS OF LAW:

The case law in this circuit instructs that the jurisdictional provisions of title 28 U.S.C. § 1334(b) are to be liberally construed. In re Salem Mortgage Co., 783 F.2d 626, 631-635 (6^th Cir. 1986); Robinson v. Michigan Consol. Gas Co., Inc., 918 F.2d 579, 584 (6^th Cir. 1990); appeal after remand, 9 F.3^rd 109 (1993); In re Wolverine Radio Co.,

930 F.2d 1132, 1140-1143 (6^th Cir. 1991); In re Time Const., Inc., 43 F.3^rd 1041, 1044-1045 (6^th Cir. 1995).

The Supreme Court agrees that Congress intended to grant comprehensive jurisdiction to the bankruptcy courts so that they might deal efficiently and expeditiously with all matters connected with the bankruptcy estate. Celotex Corp. v. Edwards, 115 S.Ct. 1493, 1498-1499 (1995). The language in footnotes 5 and 6 of the Celotex opinion do not dictate a different conclusion. The word “include” used in footnote 5 is not a limiting term. 11 U.S.C. § 103(3). Notwithstanding the last sentence in footnote 6, the court in Celotex recognized that an action may be related to a bankruptcy case if the outcome of the proceeding could conceivably have an effect on the estate being administered in bankruptcy and not just on the debtor personally.

Section 510(a) of the Bankruptcy Code, 11 U.S.C. § 510(a), empowers the bankruptcy court in a bankruptcy case to enforce a subordination agreement to the same extent that such an agreement is enforceable under applicable nonbankruptcy law.

Under section 501(a) of the Bankruptcy Code, title 11 U.S.C. § 501(a), the filing of a proof of claim is voluntary. In this case the predecessors in interest of the holders of Claims No. 33 and 54 voluntarily filed claims and thereby submitted to the jurisdiction of the bankruptcy court for determination of objections to the claims and any distributions to be made on the claims.

The Second Circuit has held that a proceeding to enforce a contractual subordination agreement between parties that have filed proofs of claim against the debtor’s estate is a core proceeding over which the bankruptcy court has jurisdiction. In re Best Products, Inc., 68 F.3^rd 26 (2d Cir. 1995).

The Third Circuit was inclined to agree with the conclusion of the Second Circuit on this issue, but because of prior precedent in the circuit determined that in any event a claim based on a subordination agreement satisfies the requirement for classification as a non-core proceeding related to a bankruptcy case under title 11 over which the bankruptcy court has jurisdiction. Corestates Bank, N.A. v. Huls America, Inc., 176 F.3^rd 187, 203-205 (3^rd Cir. 1999).

By way of analogy, section 553(a) of the Bankruptcy Code, 11 U.S.C. § 553(a), preserves, with certain exceptions, the right to setoff in bankruptcy cases. The Sixth Circuit has held that when non-debtor third parties voluntarily submit to the jurisdiction of the bankruptcy court the determination of the right of setoff is a non-core proceeding over which the bankruptcy court has jurisdiction. In re Southern Indus. Banking Corp., DeVoisin v. Foster, 809 F.2d 327 (6^th Cir. 1987).

The fact the rights of the parties are determined by state law incorporated by reference in the Bankruptcy Code is not dispositive. For example, title 11 U.S.C. § 544(b)(1) empowers a trustee in bankruptcy to avoid any transfer of an interest of the debtor in property or any obligation incurred by the debtor that is avoidable under applicable law by a creditor holding an unsecured claim against the debtor. Title 28 U.S.C. § 157(b)(2)(F) and (H) define actions by the trustee to avoid preferential or fraudulent conveyances as core proceedings without distinction as to whether the actions are based on the preference and fraudulent conveyance provisions of the Bankruptcy Code or similar provisions of state law. Carlton v. BAWW, Inc., 781, 787-788 (5^th Cir. 1985).

A proceeding to determine the enforceability of a claim against property of the debtor (which includes the proceeds of liquidation of assets of the debtor) under any “agreement or applicable law,” is a core proceeding because it is a matter concerning administration of the estate. 11 U.S.C. § 502(b)(1); 28 U.S.C. § 157(b)(2)(A).

This removed action undeniably affects the administration of the estate in the Calumet Farm, Inc. bankruptcy case. Accordingly, the motion to remand the action to the Fayette Circuit Court shall be overruled.

In deciding this matter the state court would be determining which of these creditors is entitled to distributions already made and any future distributions to be made in this case.

Mandatory abstention is not applicable for several reasons.

The majority view appears to be that mandatory abstention is required only with respect to a non-core related proceeding that was pending in a state court prior to the commencement of the bankruptcy case. 1 Collier on Bankruptcy § 3.01 [3][b], 15^th Ed.

The plaintiff Firelight Investments Corporation identifies itself as a Delaware corporation. Central Bank and Trust Company, the Trustee of the Warren Wright, Jr. Trust, is a Kentucky banking corporation. The amount in controversy is the $1,121,729.83 dividend disbursed on August 24, 2000 on Claim No. 33, the claim of the Warren Wright, Jr. Trust against Calumet Farm, Inc., plus any future distributions made on the claim. It would appear from the record before the court that the U.S. District Court would have jurisdiction of this action under 28 U.S.C. § 1332 on the basis of diversity of citizenship of the parties. Thus, mandatory abstention is not required. Robinson v. Michigan Consol. Gas Co., Inc., 918 F.2d 579, 586 (6^th Cir. 1990).

By filing proofs of claim in the Calumet Farm, Inc. bankruptcy case the predecessors in interest of the present holders of Claims No. 33 and 54 voluntarily submitted to the jurisdiction of the bankruptcy court and the claims adjustment process provided for by the Bankruptcy Code. Grandfinanciera, S.A. v. Nordberg, 109 S.Ct. 2782, 2797-2799 (1989); Katchen v. Landy, 382 U.S. 323, 83 S.Ct. 467 (1966); In re Southern Indus. Banking Corp., 809 F.2d 329 (6^th Cir. 1987); In re J.T. Moran Financial Corp., 118 B.R. 233 (Bkrptcy. S.D.N.Y. 1990).

Discretionary abstention on the grounds of comity is not warranted in view of the fact the entire record of the Calumet Farm, Inc. case is before this court and the determination of the appropriateness of distributions on the claims of creditors is an obligation of this court.

The motion of Firelight insofar as it requests mandatory or in the alternative discretionary abstention in this case shall be overruled.

The issue of whether the relief sought by Firelight is barred by confirmation of the plan as an issue that could have been raised by Vigilant Insurance Company, the holder of Claim No. 54 at the time of confirmation of the plan, under the rationale of the decision of the Third Circuit in the Corestates Bank case, while discussed in the defendant Central Bank and Trust Company’s memorandum opposing plaintiff’s motion for remand, is not presently before the court by appropriate pleadings.

Dated this _____ day of March 2002

By the court –

________________________________

JOE LEE, U.S. BANKRUPTCY JUDGE

Copies to:

Gregory R. Schaaf, Esq.

David Bohannon, Esq.

Kevin Henry, Esq.

U.S. Trustee

[1] The predecessors in interest of Vigilant did not object to the compromise between the debtor in possession and the Warren Wright, Jr. Trust whereby the major portion of the claim of the trust was subordinated to equity. The plan gave notice of subordination of the claim.

MEMORANDUM OPINION

ORDER