In re 666 Associates, Bankruptcy No. 84 B 11723 (PBA)

Decision Date31 May 1985
Docket Number84 B 11724 (PBA),Bankruptcy No. 84 B 11723 (PBA),Adv. No. 85-5582-A.
Citation57 BR 8
PartiesIn re 666 ASSOCIATES and Streeterville Utility Co., Inc., Debtors. David L. PAUL, Centrust Savings Bank (formerly known as Centrust Savings and Loan Association and Dade Savings and Loan Association), Centrust Trust (formerly known as the Westport Company), David Paul Properties, Inc. and 666 Associates, Plaintiffs, v. CHEMICAL BANK and Abacus Mortgage Investment Company, Defendants.
CourtU.S. Bankruptcy Court — Southern District of New York

Paul Weiss Rifkind Wharton & Garrison, New York City, for plaintiffs; Robert S. Smith, of counsel.

Cravath, Swaine & Moore, New York City, for Chemical Bank; Robert Mullen, of counsel.

Finley, Kumble, Wagner, Heine, Underberg, Manley & Casey, New York City, for Abacus Mort. Inv. Co.; Gerald M. Levine, of counsel.


PRUDENCE B. ABRAM, Bankruptcy Judge:

On December 18, 1984, 666 Associates ("666"), an Illinois limited partnership, filed a Chapter 11 petition in this district. Following a hearing at which numerous creditors requested a change of venue, the bankruptcy court issued an order dated January 25, 1985 in which it transferred the 666 Chapter 11 case, and that of an affiliate, Streeterville Utility Co., Inc. (Case 84 B 11724), to the Northern District of Illinois.1 666 is the owner of a real estate development located at 666 North Lake Shore Drive, Chicago, Illinois, formerly known as the Furniture Mart.2 This development is 666's principal asset. The development is presently encumbered by a first mortgage in an amount in excess of $90,000,000 running in favor of Abacus Mortgage Investment Company ("Abacus"). Chemical Bank ("Chemical") presently holds all of Abacus' interest in the mortgage.

Shortly prior to the Chapter 11 filing and on December 7, 1984, Chemical brought suit in an Illinois state court to foreclose on its mortgage. Thereafter, on December 17, 1984, which was the day before 666's Chapter 11 filing, Home Savings Bank commenced a foreclosure action on its first mortgage in the approximate amount of $11 million on portions of the development, also in the Illinois state court.

On or about February 19, 1985, 666, David L. Paul, Centrust Savings Bank, Centrust Trust, and David Paul Properties, Inc. (collectively the "Plaintiffs") commenced an action against Chemical and Abacus in the Supreme Court of the State of New York, County of New York (the "State Court Action"). The nature of the action is stated to be a civil action alleging fraud, promissory estoppel, tortious interference with business relations, prima facie tort and breach of a joint venture agreement. Damages in the amount of $35,000,000 are sought. The complaint which contains fifty-five numbered paragraphs and five causes of action, sets forth the Plaintiffs' view that Chemical and Abacus acted wrongfully and contrary to express representations in calling the loan and commencing the foreclosure action on December 7, 1984. A complicated tale is set forth in the complaint about Chemical's motive for calling the loan, which, in brief, is alleged to have been retaliation for the Plaintiffs' refusal to cooperate with Chemical in the Florida banking market.

Chemical, joined by Abacus, removed the State Court Action to this court by verified petition for removal filed March 12, 1985. The removal petition alleges that the claims in the State Court Action are "related to" 666's Chapter 11 case and that this court has jurisdiction pursuant to 28 U.S.C. § 1334(b) (1984). "The action is thus removable to this court pursuant to 28 U.S.C. § 1452 (1984)." Removal Petition at ¶ 4. On April 8, 1985, Chemical filed an answer denying the material allegations of the complaint.

Following removal, Chemical moved for an order pursuant to 28 U.S.C. § 1412, transferring venue of the removed action to the Northern District of Illinois, Eastern Division, in the interest of justice and for the convenience of the parties. The Plaintiffs countered with a request for an order pursuant to 28 U.S.C. § 1334(c) and 28 U.S.C. § 1452 abstaining from hearing the case and remanding it to the New York State Supreme Court.

There can be little question but that the relations between 666 and Chemical are central to 666's reorganization effort. That being said, however, the court is still left with attempting to find a path through the forest of amendments known as the Bankruptcy Improvements and Federal Judgeship Act of 1984 ("BAFJA") adopted by Congress July 1984 in response to the decision of the United States Supreme Court in Northern Pipeline Construction Co. v. Marathon Pipe Line Co., 458 U.S. 50, 102 S.Ct. 2858, 73 L.Ed.2d 598 (1982).

For the reasons which follow, the court has concluded that it should not issue an order of remand or abstention with respect to the State Court Action and that the Action should be transferred to the Northern District of Illinois, Eastern Division.


As amended, 28 U.S.C. § 1452 provides as follows:

"§ 1452. Removal of claims related to bankruptcy cases3
"(a) A party may remove any claim or cause of action in a civil action other than a proceeding before the United States Tax Court or 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 of this title.
"(b) The court to which such claim or cause of action is removed may remand such claim or cause of action on any equitable ground. An order entered under this subsection remanding a claim or cause of action, or a decision to not remand, is not reviewable by appeal or otherwise."

The ability to remove the State Court Action, in which 666 is a party plaintiff, is thus dependent on whether the district court has jurisdiction over it under 28 U.S.C. § 1334. See Hanna v. Philadelphia Asbestos Company, 743 F.2d 996, 1002 (3d Cir.1984); In re Pacor, Inc. v. Higgins, 743 F.2d 984, 993 (3d Cir.1984); and In re Baren, 47 B.R. 39, 42 (Bankr.N. D.Ill.1984). It plainly does as 28 U.S.C. § 1334(b) provides that the district court has original but not exclusive jurisdiction of all civil proceedings arising under title 11, or arising in or related to a case under title 11.

Once a case over which the district court has jurisdiction is removed, it can be remanded on "any equitable ground" under 28 U.S.C. § 1452(b).

"Among the types of equitable considerations relevant to a decision to remand are:
"(1) duplicative and uneconomical effort of judicial resources in two forums; (2) prejudice to the involuntarily removed parties; (3) forum non conveniens; (4) a holding that a state court is better able to respond to a suit involving questions of state law; (5) comity considerations; (6) lessened possibility of an inconsistent result; and (7) the expertise of the court in which the matter was pending originally, e.g., a court of claims, or the United States Customs Court.
"In re U.S. Air Duct Corporation, 8 B.R. 848, 854 (Bankr.N.D.N.Y.1981)." In re Baren, 47 B.R. 39 (Bankr.N.D.Ill. 1984).

The court finds no equitable ground for remand of the State Court Action. All of the indicia, other than respect for Plaintiffs' choice of forum, favor both retention of the State Court Action and a transfer of venue to the Northern District of Illinois where 666's Chapter 11 case is pending. The State Court Action had just been commenced at the time of removal. There is pending in the 666 Chapter 11 case a motion by Chemical to vacate the automatic stay to permit the Illinois foreclosure action to go forward. If the bankruptcy court declines to lift the stay, proceedings over the validity and enforceability of Chemical's mortgage would no doubt go forward in the bankruptcy court. Proceedings are likely to be multiplied if the State Court Action is remanded and the possibility of inconsistent results enhanced.

The Illinois bankruptcy court could be hampered in protecting the rights of creditors and the debtor in an orderly and timely Chapter 11 reorganization by a remand. It seems unlikely that a reorganization plan could be proposed until either the validity and enforceability of the Chemical mortgage is determined through litigation or a settlement of some sort reached. Should a trustee be appointed, either in the Chapter 11, or any subsequent Chapter 7 case, conduct of the State Court Action would be inconvenient and more expensive due to the necessity of having out-of-state counsel.

The State Court Action raises substantial matters of defense to the foreclosure. The State Court Action is likely to be governed, at least in part if not in whole, by Illinois law, and concerns an Illinois real estate development. There are minimal New York interests in the State Court Action. Whether or not a New York court would dismiss the State Court Action on forum non conveniens, it seems clear that the Illinois courts, including the bankruptcy court, have a greater interest because of the location of the real property in Illinois. Indeed, the only New York party to the Action is Chemical, and Chemical has both removed the Action and sought its transfer to the Northern District of Illinois.

Plaintiffs have urged that 28 U.S.C. § 1334(c)(2) mandates that the court abstain because the State Court Action is governed by state law, whether Illinois', New York's or some other state's,4 and not by the Bankruptcy Code. Section 1334(c) provides as follows:

"(c)(1) Nothing in this section prevents a district court in the interest of justice, or in the interest of comity with State courts or respect for State law, from abstaining from hearing a particular proceeding arising under title 11 or arising in or related to a case under title 11. "(2) Upon timely motion of a party in a

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