In re Millennium Studios, Inc.

• Decision Date: 22 November 2002
• Docket Number: No. CIV.A. DKC 2002-1313.,Adversary No. 02-1036-PM.,CIV.A. DKC 2002-1313.
• Citation: 286 B.R. 300
• Parties: In re MILLENNIUM STUDIOS, INC., Debtor. Millennium Studios, Inc., Plaintiff, v. Man Roland, Inc., Defendant.
• Court: U.S. District Court — District of Maryland

286 B.R. 300

In re MILLENNIUM STUDIOS, INC., Debtor Millennium Studios, Inc., Plaintiff, v. Man Roland, Inc., Defendant.

No. CIV.A. DKC 2002-1313.

Adversary No. 02-1036-PM.

United States District Court, D. Maryland.

November 22, 2002.

COPYRIGHT MATERIAL OMITTED

Lynn A. Kohen, James J. O'Neill, III, Tydings and Rosenberg LLP, Baltimore, MD, for plaintiff.

Charles Kevin Kobbe, Piper Rudnick LLP, Baltimore, MD, for defendant.

MEMORANDUM OPINION

CHASANOW, District Judge.

Presently pending and ready for resolution in this adversary proceeding based on breach of contract and related claims brought by Plaintiff Millennium Studios, Inc. (Millennium), a debtor involved in Chapter 11 bankruptcy proceedings, is Defendant MAN Roland, Inc.'s (MAN Roland) Motion to Withdraw Reference to Bankruptcy Court and Motion to Dismiss based on a forum selection clause. The parties have had full opportunity to brief the issues and no hearing is deemed necessary. Local Rule 105.6. For the reasons that follow, the court will grant Defendant's motion to withdraw reference to bankruptcy court and, subject to hearing from the parties, either grant Defendant's motion to dismiss or transfer this case to the United States District Court for the Northern District of Illinois.

I. Background

The following facts are alleged by Plaintiff or are uncontroverted by Plaintiff. Plaintiff is a Maryland corporation that operates a printing, photographic, and design business. Defendant MAN Roland manufactures and sells printing presses and related products. Defendant's North American headquarters is located in Illinois. In May 2000, Defendant and Plaintiff entered into a contract for the sale to Plaintiff of a used MAN Roland 300 printing press and related products. The contract contained a forum selection clause designating Illinois as the forum for the resolution of disputes between the parties. The clause reads:

PURCHASER AND SELLER CONSENT, AGREE, AND SUBMIT TO THE EXCLUSIVE JURISDICTION OF THE APPROPRIATE STATE COURT IN DUPAGE COUNTY, ILLINOIS, OR FEDERAL COURT IN THE NORTHERN DISTRICT OF ILLINOIS TO RESOLVE ALL DISPUTES, CONTROVERSIES, DISAGREEMENTS, SUITS, OR PROCEEDINGS BETWEEN THE PARTIES[.]

Paper 5. The purchase price for the used printing press was $1.1 million. Plaintiff made a down payment of $20,000 and financed the purchase by executing three promissory notes to Defendant in the amount of $1.08 million. Personal guarantees were also executed by Plaintiff's principals.

On or about June 28, 2000, Plaintiff received the printing press from Defendant. Defendant began installation of the press soon after that. During the installation period, Plaintiff learned for the first time that the press was missing a myriad of parts that were critical to the operation of the press. Plaintiff also discovered that the press had additional extensive mechanical problems unrelated to the missing parts. The installation was not completed until September 1, 2000. Due to the missing parts and mechanical problems Defendant did not hand over the press to Plaintiff for commercial production until November 10, 2000. Even then, the press did not operate effectively and continued to malfunction. Plaintiff notified Defendant of the problems with the press which were so severe that they caused Plaintiff to shut down its commercial printing operations for 23 days between November 2000 and March 2001, leading to a disruption in Plaintiff's business.

During the period while Defendant was installing the press, Defendant assigned its rights under the promissory notes to its parent corporation, MAN Capital Corp. (MAN Capital). On July 31, 2001, MAN Capital declared Plaintiff in default and accelerated the balance due under the notes. On September 20, 2001, MAN Capital filed a replevin action against Plaintiff in Prince George's County, Maryland. Plaintiff filed a petition under Chapter 11 of the Bankruptcy Code on October 13, 2001. On February 4, 2002, the bankruptcy court denied MAN Capital's motion to lift the stay of the Prince George's County lawsuit and MAN Capital is now a creditor in Plaintiff's Chapter 11 case.

On February 5, 2002, Plaintiff initiated this proceeding against Defendant, asserting claims of breach of contract, negligence, breach of express warranty, breach of implied warranty, intentional misrepresentation, and negligent misrepresentation based on a myriad of installation and mechanical problems Plaintiff experienced with the printing press. Plaintiff seeks not less than $500,000 in damages under each count.

On April 10, 2002, Defendant simultaneously filed a motion with the district court to withdraw reference to bankruptcy court and filed a motion with the bankruptcy court to dismiss Plaintiff's claims against it. Plaintiff responded by filing oppositions to both motions with the district court on May 23, 2002. Defendant did not reply to Plaintiff's oppositions.

II. Motion to Withdraw Reference to Bankruptcy Court

A. Standard of Review

Defendant seeks the permissive withdrawal of the reference of this adversary proceeding to the bankruptcy court pursuant to 28 U.S.C. § 157(d), which provides in pertinent part, "The district court may withdraw, in whole or in part, any case or proceeding referred under this section, on its own motion or on timely motion of any party, for cause shown." The district court has "broad discretion" in deciding whether reference should be withdrawn for cause shown. In re C-TC 9th Avenue Partnership, 177 B.R. 760, 765 (N.D.N.Y.1995). The first factor the district court should consider in determining whether cause exists for withdrawal is whether the matter at issue between the parties is "core" within the meaning of § 157(b)(2) of the Bankruptcy Code (the Code). In re Northwestern Institute of Psychiatry, 268 B.R. 79, 85 (Bankr.E.D.Pa.2001). Additional factors to be considered include:

the uniformity of bankruptcy administration, forum shopping and confusion of fora, conservation of creditor and debtor resources, expediency of the bankruptcy proceeding, and the fact that equitable issues are posed, not requiring a jury trial but falling within the traditional equitable powers of a bankruptcy judge as chancellor.

In re EquiMed, Inc., 259 B.R. 269, 273 (D.Md.2001) (citing In re Merryweather Importers, Inc., 179 B.R. 61, 63 (D.Md.1995)). It is the movant's burden to show cause for the permissive withdrawal of reference to bankruptcy court. See In re Big v. Holding Corp., No. 01-233(GMS), 2002 WL 1482392, at *3 (D.Del. July 11, 2002).

B. Analysis

Defendant argues that the adversary proceeding instituted against it by Plaintiff is not core to Plaintiff's bankruptcy case. As such, the bankruptcy court would not be able to enter final judgment in the proceeding and its proposed findings of fact and conclusions of law would have to be reviewed de novo by the district court. 28 U.S.C. § 157(c)(1). Defendant anticipates that this dual review process would be "expensive, time-consuming and wasteful" and would not serve the interests of judicial efficiency.

The distinction between what is "core" to a bankruptcy case and what is "non-core" is unclear. In re Apex Express Corp., 190 F.3d 624, 631 (4th Cir.1999). Section 157(b)(2) of the Code provides an illustrative, but non-exhaustive, list of examples of what constitute core proceedings. Needless to say, none of the examples quite describes the present case, although Plaintiff highlights § 157(b)(2)(A): matters concerning the administration of the estate, § 157(b)(2)(C): counterclaims by the estate against persons filing claims against the estate, and § 157(b)(2)(O): other proceedings affecting the liquidation of the assets of the estate, as relevant to its case. The Fourth Circuit provided its view on the core/non-core distinction in In re Apex:

On the one hand, a broad reading of the literal terms of the statutory text could lead to the result that courts treat just about every dispute as "core." See, e.g., 28 U.S.C.A. § 157(b)(2)(A) ("matters concerning the administration of the estate"); § 157(b)(2)(O) ("Other proceedings affecting the liquidation of the assets of the estate"). But, the statute must be interpreted keeping in mind (1) that Congress passed it in response to the defects revealed by Northern Pipeline [Construction Co. v. Marathon Pipe Line Co., 458 U.S. 50, 102 S.Ct. 2858, 73 L.Ed.2d 598 (1982) (in which the Court decried the allowance of non-Article III bankruptcy courts to hear claims based upon state-created private rights that arose independent from and antecedent to the bankruptcy proceedings and involved strangers to the bankruptcy action)] and (2) that Northern Pipeline remains good law, even if perhaps narrowed by subsequent decisions ....

Id. at 631 (citations omitted). The In re Apex court considered the question of whether certain "accounts receivable" claims against strangers to a bankruptcy based on pre-petition contract-based rights could be considered "core." That court concluded that "[w]e think the better approach is that such claims, at least when grounded in state law and arising pre-petition, must be treated as non-core." Id.

Here, as in In re Apex, Plaintiff's claims are grounded in state law and derive from a pre-petition contract. However, as Plaintiff strenuously emphasizes, the holding in In re Apex can be distinguished from the present case because In re Apex involved contract claims asserted against a stranger to the bankruptcy case. Here, Defendant is not a stranger; it is a party to the troubled transaction — the sale of the used MAN Roland printing press — that is presumably in part a contributing factor in Plaintiff's bankruptcy filing. MAN Capital is a creditor in Plaintiff's bankruptcy case because the promissory notes executed to finance Plaintiff's purchase of the press were assigned to it by Defendant. Defendant is intimately — if not directly — involved in Plaintiff's bankruptcy case, and the breach of...