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Seeking Removal to the Arizona Bankruptcy Court as a Non-Debtor Third Party

Your client, AZ Company, conducts business with Debtor Co. and both have been sued in state court. Debtor Co. has filed for bankruptcy protection under Chapter 11.  You’re now left thinking about strategy and how to best represent your client in light of Debtor Co.’s bankruptcy filing. You dig deep into your brain’s filing cabinets and consider several options: filing an answer in state court, responding with a dispositive motion, and reaching out to the plaintiff’s attorney, among other things. Although it seems like a distant memory from the first year of law school, you also remember that parties have the ability to have an action transferred from a state court to federal court. You recall federal statutes and jurisdictional concepts that enable removing a case from Arizona state court to the District Court for the District of Arizona and even to the Arizona Bankruptcy Court. Where do you begin? 

You know that Debtor Co., with certain time restraints, can seek removal of the state court action based on its debtor status and the direct effect the state court case may have on its bankruptcy. But, you’re left wondering whether your client, AZ Company, has the ability in its own right to remove the state court case as a non-debtor third party to the Debtor’s bankruptcy case. To put it simply, the answer is yes, but there are some limitations and additional considerations.

So, let’s discuss first, what is removal? Removal describes a party’s ability to move a civil action pending in state court to the federal court in the district in which the state court is located. Removal is only proper if the court to which the case is being transferred has jurisdiction over the case. In other words, removal is based on whether the federal court could exercise original or exclusive jurisdiction over the matter. Original jurisdiction refers to the court’s power to hear a case while exclusive jurisdiction refers to the court’s power to hear a case to the exclusion of other courts. According to 28 U.S.C. § 1331, federal district courts have original jurisdiction of all civil actions arising under the Constitution, laws, or treaties of the United States. Furthermore, district courts have original and exclusive jurisdiction of all cases under title 11, which encompasses the U.S. Bankruptcy Code. See 28 U.S.C. § 1334(a). As a side note, the bankruptcy court’s power to hear bankruptcy cases and proceedings is derivative to the district court’s jurisdiction.  In re Curtis, 571 B.R. 441, 447 (B.A.P. 9th Cir. 2017). Accordingly, 28 U.S.C. § 157 allows a federal district court to refer cases under and related to the Bankruptcy Code to Bankruptcy Courts. Pursuant to General Order 01-15 of the United States District Court for the District of Arizona, all bankruptcy cases are referred to the Bankruptcy Courts.

There are two main federal statutes that allow for removal of a state court case to federal court: 28 U.S.C. § 1441 and 28 U.S.C. § 1452. Section 1441 is the general removal statute and states that any civil action brought in a State court of which the district court of the United States has original jurisdiction, may be removed by the defendant or the defendants, to the district court of the United States for the district in which the action is pending. This means that as a defendant in the state court case, your client, AZ Company, can use the powers of 28 U.S.C. § 1441 to seek removal of the entire state court action to the Debtor’s bankruptcy case.

There is also Section 1452 which is the federal removal statute specific to claims related to bankruptcy cases. Section 1452 states that any party may remove any claim or cause of action other than a proceeding before the United States Tax Court or in a civil action by a governmental unit to enforce such governmental unit’s police or regulatory power, to the district court for the district where such civil action is pending, if such district court has jurisdiction of such claim or cause of action under section 1334. Thus, AZ Company can also utilize Section 1452’s powers to remove the state court case because this federal statute permits any party, including AZ Company, to remove any claim or cause of action to federal court besides those involving tax court cases and governmental police or regulatory power cases.

AZ Company can use Section 1452 to remove the state court case if the district court has jurisdiction over a case “related to” the Bankruptcy Code. Here, Debtor Co. filed for Chapter 11 with the goal of achieving plan confirmation, so the court’s interpretation of “related to” depends on the status of debtor’s bankruptcy plan. If Debtor Co.’s bankruptcy plan has already been confirmed, the term “related to” has a limited meaning and a state court case may only be removed if it involves matters affecting the bankruptcy plan’s interpretation, implementation, consummation, execution, and administration. Cnty. of San Mateo v. Chevron Corp., 32 F.4th 733, 761 (9th Cir. 2022), cert. denied sub nom. Chevron Corp. v. San Mateo Cnty., CA, 22-495, 2023 WL 3046226 (U.S. Apr. 24, 2023). However, if Debtor Co.’s bankruptcy plan has yet to be confirmed, “related to” is defined much more broadly due to concerns over the state court case’s impact on the bankruptcy case itself, the plan, and its administration. Id.

So, you determine that AZ Company can remove the state court action pursuant to either §§ 1441 and 1452. However, there are other issues you should consider before deciding which of these two statutes to use. First, Section 1441 is the more general statute while Section 1452 provides for the removal of any action subject to federal bankruptcy jurisdiction. Section 1452 also provides for specific textual exceptions (tax court and government police and regulatory power cases). Additionally, you should think about joinder of parties as Section 1441 requires joinder by all defendants whereas Section 1452 does not have this unanimity requirement. (“Under the general removal statute, all properly served defendants must join in the removal or else the action is not removal.” In re Mortgages Ltd., 399 B.R. 673, 675 (Bankr. D. Ariz. 2008)). In addition, Section 1452 allows any party to remove the state court case and not just the defendant(s). A factor of significance is also that Section 1441 removes the entire civil action while Section 1452 permits any claim or cause of action to be removed. Also note, both statutes only allow “civil actions” to be removed. For example, a proceeding before the National Labor Relations Board is not a civil action and is not removable to the district court. In re Adams Delivery Service, Inc., 4 B.R. 589 (1982).

 Therefore to summarize, AZ Company, as a non-debtor third party is allowed to seek removal of the pending state court case under either §§ 1441 or 1452, and which statute to use will depend on the limitations set forth above. If AZ Company decides to proceed with the removal of the state court case, then the next procedural step is to file a timely Notice of Removal pursuant to 28 U.S.C. § 1446 and/or Federal Rule of Bankruptcy Procedure 9027. Remember too that if the plaintiff in the state court action disputes the removal, the plaintiff has the ability to file a Motion to Remand, which motion will be ruled upon by the Bankruptcy Court.

Arizona Appellate Court Rules that COVID Closures Do Not Excuse Tenant’s Non-Payment of Rent

by Bradley D. Pack

A “force majeure” clause (sometimes called an “Act of God” clause) is a contract provision that excuses a party from liability if their ability to perform was prevented by extraordinary circumstances beyond the party’s control, like a natural disaster or a riot. These clauses became the focus of heavy litigation during the COVID-19 pandemic when many commercial tenants were forced to temporarily close their businesses due to emergency proclamations and other measures taken to prevent the spread of infection. The Arizona Court of Appeals recently became the first Arizona appellate court to weigh in on the issue of whether a force majeure provision in a lease or other common law defenses relieve a tenant whose business had been shut down of responsibility for paying rent. The short answer, the Court held, is no—at least under the facts of that case.

Vereit Real Estate, LP v. Fitness Int’l LLC, 1 CA-CV 22-0402 (Ariz. App. Apr. 11, 2023) involved three Arizona fitness centers owned by Fitness International. In an effort to curb the spread of COVID-19, then-Governor Ducey issued executive orders that required such centers to close from March to August 2020. Fitness International did not pay rent for the three fitness centers at issue for the months of April through August 2020, leaving over $900,000 in rent unpaid. When the landlords sued for the unpaid rent, Fitness International defended on the ground that it was excused from paying rent under the force majeure provisions of the leases, the common law doctrine of frustration of purpose, and other affirmative defenses. The trial court ruled that none of these defenses applied, and entered judgment in favor of the landlords for the unpaid rent. Fitness International appealed. The Arizona Court of Appeals affirmed the trial court’s ruling in favor of the landlord, holding neither the contractual force majeure clauses at issue in the leases nor any of the common law defenses operated to excuse its payment of rent

The appellate court first noted that “force majeure is not a common law defense applicable when a contract lacks a force majeure provision.” Thus, force majeure clauses must be analyzed under traditional standards of contract interpretation. In this case, all of the leases expressly stated that “Delays or failures to perform resulting from lack of funds or which can be cured by the payment of money shall not be Force Majeure Events.” Two of the three leases included the additional language: “Nothing in this Section shall excuse Tenant from the prompt payment of any rental or other charges required of Tenant hereunder.”

The tenant acknowledged that the force majeure clause did not excuse payment of rent under the two leases that included the bolded language, but argued that it was excused from paying rent under the lease that did not include it. The court rejected the tenant’s argument. It held that under the plain language of the lease provisions common to all of the leases, “the failure to make lease payments can be cured by the payment of money.” Thus, non-payment of rent is not excused by a force majeure event (here, the COVID-19 pandemic or the emergency proclamation requiring gyms to close).

The court went on to hold that the frustration of purpose doctrine, which “arises when a change in circumstances makes one party’s performance virtually worthless to the other,” did not apply in this case. Initially, the court pointed out that Fitness International did not preserve for appeal its objection to the trial judge’s ruling that even if there was a temporary frustration of purpose (a legal doctrine that no Arizona appellate court has yet recognized), the obligation to pay rent was only “suspended” during the period of time when it was prevented from operating (meaning that it would have to pay the delinquent rent once it began operating again). The appellate court also held there was not a complete frustration of purpose because “Tenant has not shown that a four-month restriction imposed on 15-year commercial leases constitutes such a substantial frustration of purpose that the resulting value of leasing the premises is totally or nearly totally destroyed.” And, the frustration of purpose doctrine applies only “if the risk of loss was not placed on the party seeking relief.” Because the leases required Fitness International to pay rent “even during force majeure events,” the court held, the leases placed the risk of loss on the tenant, and precluded it from asserting a frustration of purpose defense.

Finally, the court rejected a variety of other defenses raised by Fitness International, finding that the defenses had either been waived or were not supported by the evidence.

The holding in Vereit does not necessarily foreclose the availability of defenses for commercial tenants faced with extraordinary disruptions to their business caused by forces beyond their control. The court’s holding that the force majeure clauses at issue did not excuse the payment of rent was heavily dependent on the specific language the parties used in their leases. With the lessons learned from the pandemic, tenants and landlords alike may find themselves negotiating over the language of force majeure clauses harder and more thoughtfully in the future. The benefit of being represented by experienced legal counsel in such negotiations cannot be overstated.

High School Students Learning to Love the Law with Mock Trials

We’re honored to coach students who participate in the Arizona High School Mock Trial program. Teams of students receive a fictional case for which they must learn both sides of the case, and students must act as both attorneys and witnesses. Along with their coaches, each student learns the facts of the case and collaborates with their classmates and coaches to create strategies for trial.

Scott Cohen served as Volunteer Attorney Coach to this group of exceptional youths from BASIS High School in Chandler.

In addition to the procedural aspects of the mock trial, there is a competition for courtroom artists. For seven of the last eight years, a BASIS has won this competition. A special congratulations go to BASIS student artist Keshav Jha, who won the Arizona state courtroom artist contest this year!

It is a privilege to help students develop an understanding and love for the practice of law through the Arizona High School Mock Trial program. We’re especially thrilled to learn that former Mock Trial student Rahul Jayaraman, who helped start the program at BASIS in 2015, will be attending Harvard Law School in the fall.

Well done, students. We’re already excited to see the teams come together next year!

24 years went by in a flash… Engelman Berger celebrates by giving back.

When thinking about the practice of law, it’s easy to forget that law firms are businesses, just like any other. Our firm happens to be in the business of helping other businesses. Businesses are about people, and we are so grateful for the incredible people who make up our firm’s hard-working staff, our clients who trust us to solve all manner of problems, and our colleagues in the practice of law. 

On March 1, 2023, Engelman Berger, PC celebrated its 24th anniversary.  Our team of administrators, support staff, and attorneys know that their contributions make a difference, not only in the legal community but more importantly in the greater Phoenix community as well. That is why each year we celebrate our anniversary with a day of community service.

This year we volunteered at HonorHealth Desert Mission in Sunnyslope. Its mission is to make health and social services available to the most vulnerable in the Phoenix community. Our community service activities extended beyond the actual volunteer day by including an office food drive and financial contributions throughout the month leading up to the firm’s 24th anniversary.  

When David Engelman and Steven Berger started the firm in 1999, it was with two legal secretaries and a mission to be lawyers who listen. Listening to the needs of those we serve, and responding to those needs with action, has been a foundational principle that has allowed us to effectively and efficiently help our clients reach their goals. As our clients’ businesses have grown and expanded, we have too. 

We are now a firm of over 15 lawyers who practice in a variety of specialties, including commercial litigation, bankruptcy, real estate, water rights, business formation and reformation, public finance, and cannabis law. As we’ve grown, we continue to come back to those founding principles of listening and service. We are so excited to celebrate this anniversary and are looking forward to an even bigger milestone next year! 

Hiring a Legal Assistant

We are Hiring a Legal Assistant

Engelman Berger is looking to hire a motivated, experienced, and organized Litigation Legal Assistant (LA) to join our 15 lawyer mid-town firm. This LA will be an integral part of our legal support team, often working on all phases of a matter from beginning to resolution.

Best Lawyers In America 2022


Fourteen of Engelman Berger’s attorneys have been selected for inclusion in The Best Lawyers in America© 2022, considered by many to be the definitive guide to legal excellence. EB attorneys were chosen in the areas of Bankruptcy, Litigation, Commercial Litigation, Creditor Debtor Rights, Insolvency and Reorganization Law, Appellate Practice, Public Finance Law, Water Law, Banking and Finance Law, Health Care Law, and Real Estate Law. EB would like to congratulate Rachel Phillips for being our newest addition to the Best Lawyers list!

The Best Lawyers in America 2022:

Steven N. Berger

Bankruptcy and Creditor Debtor Rights / Insolvency and Reorganization Law

Litigation – Bankruptcy

Brigitte Finley Green

Public Finance Law

Tamalyn E. Lewis

Bankruptcy and Creditor Debtor Rights / Insolvency and Reorganization Law

Kurt A. Peterson

Real Estate Law

Patrick A. Clisham

Bankruptcy and Creditor Debtor Rights / Insolvency and Reorganization Law

Scott B. Cohen

Bankruptcy and Creditor Debtor Rights / Insolvency and Reorganization Law

Litigation – Bankruptcy

Bradley D. Pack

Bankruptcy and Creditor Debtor Rights / Insolvency and Reorganization Law

Appellate Practice

Commercial Litigation

William H. Anger

Banking and Finance Law

Real Estate Law

Water Law

Wade M. Burgeson

Bankruptcy and Creditor Debtor Rights / Insolvency and Reorganization Law

Kevin M. Judiscak

Commercial Litigation

Litigation – Real Estate NEW in 2022!

Damien R. Meyer

Commercial Litigation

Julie Arvo MacKenzie

Health Care Law

The Best Lawyers in America: Ones to Watch 2022:

Michael P. Rolland

Bankruptcy and Creditor Debtor Rights / Insolvency and Reorganization Law

Commercial Litigation

Litigation – Bankruptcy

Rachel E. Phillips

Commercial Litigation

Best Lawyers® is the oldest and most respected peer review publication in the legal profession. Best Lawyers® selects its honored attorneys entirely by peer review. Their methodology is designed to gather as accurate of a consensus opinion of the leading attorneys in the profession. Selections are made after compiling data from extensive peer review surveys in which tens of thousands of leading lawyers confidentially review and evaluate their professional peers. Opinions are based on the lawyers’ professional abilities which are compared to others in the same geographical location and legal practice area. Congratulations Steve, Brigitte, Tami, Kurt, Patrick, Scott, Brad, Bill, Wade, Kevin, Damien, Julie, Rachel, and Michael!


We are shining a light on our Engelman Berger Rising Stars! Michael Rolland and Rachel Phillips have been selected as 2021 Super Lawyers® Rising Stars. They have displayed excellence in the categories of Bankruptcy, Business Litigation, Business/Corporate, and Class Action/Mass Torts. Congratulations Michael and Rachel!

We would like to congratulate Michael for being selected for the third year in a row and Rachel for being selected for the sixth year in a row!

Super Lawyers® is a legal industry rating service of outstanding lawyers in more than 70 practice areas who have attained a high-degree of peer recognition and professional achievement. Only 4% of attorneys in Arizona are named as Super Lawyers® and only 2.5% of lawyers under the age of 40 are named as Rising Stars. For more information about Super Lawyers®.

Engelman Berger 2021 Southwest Rising Stars®:

  1. Michael P. Rolland – Business/Corporate, Business Litigation, Bankruptcy
  2. Rachel E. Phillips – Business Litigation, Class Action/Mass Torts


Super news from Engelman Berger, P.C. The business law boutique firm of Engelman Berger PC has had 7 of its 15 lawyers recognized as Super Lawyers in the Southwest Super Lawyers® List for 2021. Out of the 7, 2 of Engelman Berger’s lawyers have been included in the “Top 50 Arizona Lawyers” designation. These attorneys have displayed excellence in the categories of Alternative Dispute Resolution, Business/Corporate, Business Litigation, Real Estate, Creditor Debtor Rights, Closely Held Business, Bankruptcy, General Litigation, Banking, Civil Litigation, Construction Litigation, Appellate, and Civil Litigation. Congratulations David, Steve, Kevin, Scott, Patrick, Brad, and Damien!

Super Lawyers® is a legal industry rating service of outstanding lawyers in more than 70 practice areas who have attained a high-degree of peer recognition and professional achievement. Only 4% of attorneys in Arizona are named as Super Lawyers® and only 2.5% of lawyers under the age of 40 are named as Rising Stars. For more information about Super Lawyers®.

Engelman Berger 2021 Southwest Super Lawyers®:

  1. David Wm. Engelman – Creditor Debtor Rights, Closely Held Business, Bankruptcy
  2. *Steven N. Berger – Bankruptcy, Alternative Dispute Resolution, Business/Corporate, Business Litigation, Real Estate, Creditor Debtor Rights
  3. Kevin M. Judiscak – Business Litigation, Civil Litigation: Defense
  4. *Scott B. Cohen – Bankruptcy, General Litigation, Banking, Creditor Debtor Rights
  5. Patrick A. Clisham – Bankruptcy, Business/Corporate, Business Litigation
  6. Brad D. Pack – Bankruptcy, Appellate, General Litigation
  7. Damien R. Meyer – Business Litigation, Construction Litigation, Civil Litigation, Civil Litigation, Bankruptcy, General Litigation

*Top 50: 2021 Arizona Super Lawyers® List:

  1. Steven N. Berger
  2. Scott B. Cohen

EB Attorney, Scott Cohen, Presenting at State Bar of Arizona “2021 Advanced Current Issues in Real Estate” Virtual CLE Program Panel

Engelman Berger attorney, Scott Cohen, will presenting at a State Bar of Arizona virtual CLE program panel titled “2021 Advanced Current Issues in Real Estate” this Friday, April 9, 2021 from 8:45 a.m. to Noon.

Scott, along with other panelists which include attorneys and real estate professionals, will cover current issues concerning the Arizona real estate market, deal making, development, and closings.

Some discussions that will be covered during the CLE program include:

  • Is the Phoenix market too hot, too cold, or just right?:  How affordability, infrastructure, regulations, healthcare, and the Schires v. Carlat decision are impacting the Arizona market.
  • Behind (and After) the Mask:  Advanced deal making issues in the Covid / post-Covid environment.  Scott’s section will address distressed real estate deals concerning such topics as forbearance agreements, loan-to-own, and bankruptcy sales.

This upcoming CLE program (which qualifies for 3.0 hours of CLE credit, with 0 hours of ethics included) will be held remotely via Zoom. In order to foster greater discussion and interaction between panel members, the speakers will all be together at Engelman Berger, if they so choose.

For more information about the State Bar of Arizona’s CLE programs, visit

EB Attorney Brad Pack Article “Small Business Bankruptcy Relief Expansion About to Expire” Published by AZ Big Media

Engelman Berger banking and finance attorney Brad Pack’s article titled “Small Business Bankruptcy Relief Expansion About to Expire” was published by AZ Big Media.

In his article, Brad explains how the addition of “Subchapter V” to Chapter 11 of the U.S. Bankruptcy Code provides small businesses in financial distress the opportunity to restructure their debts without the complex disclosure obligations, costly fees, and other procedural hurdles of traditional bankruptcy proceedings.

The law that created Subchapter V originally limited eligibility to businesses whose debts did not exceed $2,725,625. That limit was increased to $7.5 million by the CARES Act, but only for a one year period. Brad’s article warns that time may be running out for small businesses to take advantage of the increase in the debt limit.

There may still be hope for businesses that want to take advantage of Subchapter V’s enactment, though. Brad states that, “Senators Dick Durbin and Chuck Grassley have recently introduced a separate bill that would extend the increase in the debt limit by another year.” It is uncertain whether or not the bill will gain the support necessary for its passage, so Brad suggests that “financially distressed businesses whose debts exceed $2.7 million consult with bankruptcy counsel now to determine whether a Subchapter V bankruptcy petition is right for them,” as every client’s situation is unique.

To read Brad’s article, click here.