Artesanias Hacienda Real S.A. De C.V. v. N. Mill Capital LLC

• Decision Date: 08 August 2019
• Docket Number: CIVIL ACTION NO. 18-5553
• Citation: 607 B.R. 189
• Parties: ARTESANIAS HACIENDA REAL S.A. DE C.V., Appellant, v. NORTH MILL CAPITAL LLC and Leisawitz Heller, Appellees.
• Court: U.S. District Court — Eastern District of Pennsylvania

607 B.R. 189

ARTESANIAS HACIENDA REAL S.A. DE C.V., Appellant,

v.NORTH MILL CAPITAL LLC and Leisawitz Heller, Appellees.

CIVIL ACTION NO. 18-5553

United States District Court, E.D. Pennsylvania.

Filed August 8, 2019

Barry L. Goldin, Allentown, PA, for Appellant.

Jack M. Seitz, Zachary Jay Cohen, Lesavoy Butz & Seitz LLC, Allentown, PA, Sam P. Israel, Timothy L. Foster, Sam P. Israel, P.C., New York, NY, Jeffrey B. McCarron, Kathleen M. Carson, Swartz Campbell LLC, Philadelphia, PA, for Appellees.

MEMORANDUM OPINION

Smith, District Judge

This case arises from the appellees' alleged participation in a scheme to loot the assets of an indebted company, to which one appellee provided financing and the other legal services, so that the company was unable to satisfy its debts to the appellant. The litigation around this purported scheme has a nearly four-year history, including proceedings before this court, the bankruptcy court, and the court of appeals.

At issue here is the appellant's appeal of the bankruptcy court's decision dismissing its claims for lack of standing. The appellant argues first that the bankruptcy court erred in holding that core jurisdiction existed over the case, and second that the bankruptcy court ignored evidence showing it has standing to assert the claims at issue. Specifically, the appellant points to its agreement with the bankruptcy trustee—encompassed in an order a different bankruptcy court judge entered—which it claims establishes that the trustee relinquished standing over the claims. Alternatively, the appellant argues that its claims are particularized to it, and thus are not claims the trustee ever had standing to bring, a position the trustee also adopted in an affidavit. The appellees respond that the bankruptcy court's decision was proper in all respects, because (1) as this court previously held in referring the case to the bankruptcy court, bankruptcy jurisdiction exists over the claims, and (2) the appellant alleges a generalized harm that, even if true, all creditors would have suffered.

After a thorough review of the pleadings, the bankruptcy court's opinion dismissing the action, the parties' briefing, and the relevant jurisprudence, the court concludes that "related to," but not core, bankruptcy jurisdiction exists over the appellant's claims, because although the claims do not arise under the bankruptcy code or exist only in the bankruptcy context, their outcome could nevertheless have a conceivable effect on the estate. The court has therefore treated the bankruptcy court's decision as a recommendation and conducted a plenary review of the appellant's standing to assert the claims. The court holds that the bankruptcy court's standing decision was correct, because the asserted causes of actions belonged to the estate and therefore accrued to the trustee when the debtor filed for bankruptcy. This is true as a matter of law, and the trustee's conclusion to the contrary therefore does not mandate a different result. Moreover, although a trustee may relinquish certain claims to a creditor under limited circumstances, those circumstances are not present here and would only allow a creditor to seek damages on behalf of the estate in any event. Accordingly, the court will affirm the decision of the bankruptcy court.

I. PROCEDURAL HISTORY AND FACTUAL ALLEGATIONS

The appellant, Artesanias Hacienda Real S.A. de C.V. ("AHR"), filed a complaint against Wilton Armetale, Inc. ("Wilton" or the "Debtor") and its sole shareholder, director, and officer, Ivan Jeffery ("Jeffery" or the "Fiduciary"), on November 27, 2015, seeking a money judgment for wares it sold to Wilton for which it had not been paid. Artesanias Hacienda Real S.A. DE C.V. v. Wilton Armetale, Inc., et al. , Civ. A. No. 15-6350, Doc. No. 1. On April 6, 2016, the court entered summary judgment in favor of AHR and against Wilton in the amount of $900,658.17, plus prejudgment interest.¹ Artesanias Hacienda Real S.A. DE C.V. v. Wilton Armetale, Inc., et al. , Civ. A. No. 15-6350, Doc. No. 20. On April 29, 2016, this court entered summary judgment in favor of AHR and against Jeffery in the amount of $900,658.17, plus interest, and ordered Jeffery to deliver to AHR's counsel all shares of stock in Wilton.² Artesanias Hacienda Real S.A. DE C.V. v. Wilton Armetale, Inc., et al. , Civ. A. No. 15-6350, Doc. No. 25. AHR recorded the April 6, 2016 order with the Lancaster County Prothonotary as a judgment lien against Wilton's Mt. Joy real estate. Amended Opening Appellate Brief of Plaintiff/Appellant Artesanias Hacienda Real S.A. de C.V. ("Am. AHR Br.") at 8, Doc. No. 14.³

Per the court's April 29, 2016 order, Jeffery delivered his Wilton shares to AHR's affiliate, following which the affiliate terminated Jeffery's positions with the company, installed new management, and contacted one of the appellees in this action, Leisawitz Heller—counsel to both Wilton and Jeffery—to waive attorney client privilege and demand the documents which AHR believed were necessary to enforce its lien. Id. at 8–9. AHR alleges that during the discovery that followed, it uncovered evidence that Jeffery, in his capacity as Wilton's sole director,

signed [an] agreement to sell all Wilton's non-real estate assets for only $725,000 to North Mill [Capital LLC's] hand-picked liquidator Gordon Brothers, and for payment of all that $725,000 directly to North Mill, thereby leaving Wilton without funds or resources to protect its Mt. Joy real estate (which had been appraised as having an ‘as is’ fair market value of $895,000)[.]

Id. at 9–10 (internal citations omitted). AHR further alleges that Leisawitz Heller, as Wilton and Jeffery's counsel, arranged for the other appellee in this action, North Mill Capital, LLC ("North Mill"), to sign a separate agreement providing that Jeffery would receive a bribe, equal to 20% of the net proceeds of the real estate transaction, in exchange for approving the sale. Id. at 10. North Mill, again with Leisawitz Heller's assistance, then allegedly filed inflated confessions of judgment against and sought to foreclose on Wilton's real estate. Id. at 10–11. AHR asserts that but for the purported scheme, AHR could "have enforced its recorded judgment lien and so recovered the judgment owed [AHR] from [the] sale of Wilton's real estate." Id. at 12.

AHR filed a complaint regarding the above allegations against North Mill and Leisawitz Heller in a separate action on August 2, 2016. Artesanias Hacienda Real S.A. de CV v. North Mill Capital, LLC, et al. , Civ. A. No. 16-4197, Doc. No. 1. The next month, Wilton filed for bankruptcy. Am. AHR Br. at 13. AHR filed an amended complaint on January 3, 2017, asserting causes of action for aiding and abetting breach of fiduciary duties, conspiracy to breach fiduciary duties, conspiracy for fraudulent transfer, and conspiracy to engage in the commercially unreasonable disposition of assets. First Am. Compl. at ¶¶ 66–147, Artesanias Hacienda Real S.A. de CV v. North Mill Capital, LLC, et al. , Civ. A. No. 16-4197, Doc. No. 38.⁴

After receiving supplemental briefing from the parties on whether the action should be resolved independently of Wilton's bankruptcy proceedings, this court referred the case to the United States Bankruptcy Court for the Eastern District of Pennsylvania, indicating that "it appear[ed] that this matter would constitute a ‘core proceeding’ ... [or a]t a minimum, [that] this matter [wa]s related to the bankruptcy proceeding [then] pending in the Bankruptcy Court." July 12, 2017 Order at 1, n.1, Artesanias Hacienda Real S.A. de CV v. North Mill Capital, LLC, et al. , Civ. A. No. 16-4197, Doc. No. 79 (internal citations omitted). Leisawitz Heller then sought a writ of mandamus from the Third Circuit, arguing that the case was properly before this court, because bankruptcy court jurisdiction did not exist. Petition for Writ of Mandamus, Doc. No. 6-36. North Mill filed an answer to the petition, arguing in support of the writ's issuance. Answer to Pet. for Writ of Mandamus, Doc. No. 6-37. AHR filed an opposition, arguing that Leisawitz Heller did not meet the standard for a writ of mandamus and should be estopped from arguing that bankruptcy jurisdiction did not exist because it had previously taken the opposite position before this court. Opp. of Resp't Artesanias Hacienda Real S.A. de C.V. to the Pet. of Leisawitz Heller for Writ of Mandamus, In re: Leisawitz Heller , No. 17-2710 (3d Cir.).⁵ The Third Circuit seemingly agreed, entering an order on August 7, 2017, stating only that "[t]he foregoing petition [wa]s denied." Special App. at ECF p. 53, Doc. No. 6-1.⁶

The matter then moved forward in the United States Bankruptcy Court for the Eastern District of Pennsylvania. The Honorable Jean K. FitzSimon dismissed the amended complaint on December 6, 2018. Bankr. Ct. Op. at 1, Doc. No. 1-1.⁷ First, Judge FitzSimon held that the bankruptcy court had core jurisdiction "[b]ecause this matter involves a matter concerning the administration of the estate, or a proceeding affecting the liquidation of the assets of the estate...." Id. at 1 n.1 (citing 28 U.S.C. § 157(b)(2)(A), (O) ). Second, she held that AHR lacked standing to assert the claims, because "[a]ll of the Debtor's creditors were affected by the alleged collusion," and therefore it was for the trustee to bring any applicable causes of action. Id. at 5, 7.

AHR appealed the decision on December 21, 2018, challenging the bankruptcy court's holdings that bankruptcy court jurisdiction existed over the matter and that AHR lacked standing to bring the claims, as well as the resulting dismissal of the amended complaint. Notice of Appeal at 1, Doc. No. 1-1.⁸ AHR filed a brief on February 17, 2019. Doc. No. 6. On March 1, 2019, North Mill filed an emergency motion for an expedited briefing and hearing schedule and a motion to amend the record, seeking to exclude certain materials that AHR had designated in the appellate record—namely, an...