Bond Street Associates, Ltd. v. Ames Dept. Stores, Inc., 94 Civ. 4394 (LMM).
| Decision Date | 24 October 1994 |
| Docket Number | No. 94 Civ. 4394 (LMM).,94 Civ. 4394 (LMM). |
| Citation | 174 BR 28 |
| Parties | BOND STREET ASSOCIATES, LTD., Plaintiff, v. AMES DEPARTMENT STORES, INC., Zayre Central Corp., Defendants. The United States Life Insurance Company in the City of New York, Additional Defendant on Counterclaim for Interpleader. |
| Court | U.S. District Court — Southern District of New York |
Samuel Kirschenbaum, Kirschenbaum & Kirschenbaum, P.C., Garden City, NY, for plaintiff.
Luc A. Despins, Skadden, Arps, Slate, Meagher & Flom, New York City, for defendants.
Plaintiff, Bond Street Associates, Ltd. ("Bond Street"), appeals from the Bankruptcy Court for the Southern District of New York. On August 4, 1994, Bond Street filed a notice of motion requesting the Court to remand this case to the Supreme Court of New York, County of Nassau. For the reasons stated below, Bond Street's motion is denied.
The complex nature of this motion requires that the substantive facts and the procedural history be dealt with separately. First, the substantive facts. On April 8, 1985, Bella Vista Investments, Inc., MAXXAM Properties, Inc., and Conthru, Inc., the predecessors in interest to Bond Street, entered into a lease agreement ("the Lease") with the TJX Companies, Inc. ("TJX") as lessee.1 (Am. Compl. ¶ 4.)
On October 25, 1988, TJX assigned its interest under the Lease to Zayre Central Corp. ("Zayre Central"), a wholly owned subsidiary of TJX. On October 28, 1988, Ames Department Stores, Inc. ("Ames") purchased the Zayre Stores Division of TJX ("Zayre Stores"), including the stock of Zayre Central. Ames agreed to assume all liabilities of Zayre Stores and to indemnify TJX for any losses arising out of the Lease. On April 29, 1989, Bond Street took title to the leased property. (Am.Compl. ¶¶ 5, 6.)
Therefore, as of April 29, 1989, the situation was this: Bond Street was the lessor of the property; TJX was the named lessee, still primarily liable on the Lease; and Ames was the tenant in possession, having been assigned TJX's rights and liabilities and having agreed to indemnify TJX.
In April 1990, Ames and its subsidiaries filed petitions under Chapter 11 of the Bankruptcy Code in the Southern District of New York, and on October 9, 1990, pursuant to an order of the Bankruptcy Court, Ames and Zayre Central rejected the Lease. (Am. Compl. ¶ 9.) Soon thereafter, Bond Street wrote TJX objecting to the rejection, and stating that Bond Street still looked to TJX to make the lease payments. (Am.Compl. ¶ 13.) While Bond Street and TJX argued over their rights and responsibilities concerning the property, a water pipe broke causing extensive damage to the building. (Am. Compl. ¶¶ 19-22.)
The Court now turns to the procedural history. In February 1991, Bond Street filed a Complaint in the Supreme Court of New York for the County of Nassau. Bond street intended to name TJX, but mistakenly named and served the TJX Companies, Inc., a Nevada corporation ("TJX Nevada"). After TJX informed Bond Street that TJX Nevada was not a party to the Lease, Bond Street filed an Amended Complaint (the "Complaint") substituting TJX as defendant.2 (Pl.Mot. to Remand pp. 6-7.)
After the Complaint was filed, but before TJX was served, TJX Nevada filed a petition for removal in the United States District Court for the Eastern District of New York. The only basis for jurisdiction alleged in the petition was diversity. (Id. p. 7.) The District Court after removal ordered the case transferred to the Southern District of New York, and suggested that the case be referred to the Bankruptcy Court where the Ames bankruptcy proceeding was filed. (Id. p. 8.) The case was transferred and referred. Bond Street filed claims in Bankruptcy Court for the delinquent rent payments and for the damage caused to the building and moved for summary judgment. (Id. p. 9.)
On January 12, 1993, the Bankruptcy Court granted Bond Street's motion for partial summary judgment on the issue of TJX's liability for Lease payments. (Id. p. 10.) However, on August 10, 1993, the Bankruptcy Court, having earlier granted TJX's motion for reconsideration, vacated the summary judgment order. (Id. p. 11.)
On December 9, 1993, the Bankruptcy Court dismissed Count II of the Complaint concerning the water damage. On December 15, 1993, the Bankruptcy Court dismissed the entire Complaint with prejudice. (Id. pp. 12-13.) On December 23, 1993, Bond Street appealed to this Court pursuant to 28 U.S.C. § 158. Bond Street now moves this Court to remand on the basis of defective removal. (Id. p. 13.)
It must be stated at the outset that the parties are not, and were not, diverse. All parties concede that Bond Street, TJX Nevada,3 and TJX are incorporated, or have their principal place of business, in the state of Delaware. The Court must now decide whether the jurisdiction and the final judgment of the Bankruptcy Court can be preserved on the basis of jurisdiction other than diversity or whether this Court must remand. This involves a two-step analysis: may the Court look for an alternative basis of jurisdiction, and, if so, does one exist?
Removal is a privilege, not a right, conferred by the Congress to protect the defendant from litigating in a hostile forum. The privilege is waived if not exercised within 30 days of the filing of the original complaint. 28 U.S.C. § 1446(b). Likewise the plaintiff's opportunity to petition for remand is a privilege, also waived if not exercised within 30 days. 28 U.S.C. § 1447(c). This structure reveals Congress' intent that removal be resolved early and not revisited.
However, in keeping with the fundamental principle that federal courts are courts of limited jurisdiction, Congress allows the parties, or the court, to challenge the court's subject matter jurisdiction until final judgment is entered. Id. When removal is attacked prior to final judgment and the alleged basis of subject matter jurisdiction is found wanting, the Court must remand the case without consideration of an alternative basis. CBS, Inc. v. Snyder, 762 F.Supp. 71, 73 (S.D.N.Y.1991); see also Lupo v. Human Affairs Int'l, Inc., 28 F.3d 269 (2d Cir.1994).
On the other hand, once the federal court enters final judgment, the appellate court must expand the scope of its review and uphold the removal if any basis of jurisdiction existed at the time of removal. Grubbs v. General Elec. Credit Corp., 405 U.S. 699, 702, 92 S.Ct. 1344, 1347, 31 L.Ed.2d 612 (1972):
Where after removal a case is tried on the merits without objection and the federal court enters judgment, the issue in subsequent proceedings on appeal is not whether the case was properly removed, but whether the federal district court would have had original jurisdiction of the case had it been filed in that court.
Bond Street argues that Grubbs notwithstanding, the Second Circuit's recent decision in Lupo v. Human Affairs Int'l, Inc. necessarily restricts the scope of this Court's review, and precludes upholding removal on any basis other than that alleged in the original petition. 28 F.3d 269 (2d Cir.1994). Such a reading is too broad.
In Lupo, plaintiff filed a state claim in state court. Defendant petitioned for removal claiming that the Employee Retirement Income Security Act ("ERISA") preempted plaintiff's claims. After removal, the District Court for the District of Connecticut dismissed the complaint finding the claims preempted. Plaintiff appealed. 28 F.3d at 271.
On appeal, the Second Circuit held that the ERISA defense did not create subject matter jurisdiction for removal purposes. At oral argument, defendant suggested that if federal question jurisdiction did not exist, the Court should consider whether diversity existed. The Court of Appeals considered defendant's argument but refused to look beyond the complaint and the petition for removal to determine whether diversity jurisdiction existed. As neither document alleged the necessary jurisdictional amount, the court remanded the case to the state court. Id. at 272-74.
The court's holding in Lupo is very narrow and specific: when final judgment has been entered, but the appellate court finds that the original basis for removal was invalid, the appellate court will consider alternative bases for jurisdiction, but can look no further than the complaint and the removal petition. This Court finds itself in precisely the same procedural posture as the Court of Appeals in Lupo.
Having resolved that this Court may look for an alternative basis of jurisdiction, the Court now determines whether one exists.
The Complaint alleges the following chronology of events. Bond Street's predecessors enter into a lease with TJX. TJX assigns its interest to Zayre Central. Ames purchases Zayre Central and "assumes the obligations as assignee of the lease." Ames files for relief under Chapter 11, and pursuant to order of the Bankruptcy Court, Ames rejects the Lease. (Am.Compl. ¶¶ 4-9). In Count II of the Complaint, Bond Street alleges that TJX's negligence allowed a water pipe to burst and damage the property. (Am.Compl. ¶¶ 17-22).
On the face of the Complaint, then, Bond Street alleges that its lease agreement with TJX has been assigned to Ames, that Ames has assumed the rights and obligations of the lessee, that Bond Street did not object to the assignment, and that Ames has been the tenant for a number of years.
The only important fact omitted from the Complaint is that Ames was contractually bound to indemnify TJX for all liability arising from the Lease. The indemnification agreement is an important and potentially dispositive fact, but under Lupo, the Court may not consider the undenied existence of the agreement when reviewing the propriety of removal.
The petition for removal, couched exclusively in terms of diversity, lends nothing to TJX's argument that this case was, or is, related to a Bankruptcy proceeding; and therefore, need not be...
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