In re AK Services, Inc.

Decision Date24 September 1993
Docket NumberBankruptcy No. 93-14887-JNF,Adv. No. 93-1515.
PartiesIn re AK SERVICES, INC., Debtor. SOUTHERN MARINE AND INDUSTRIAL SERVICES, INC., Plaintiff, Shawmut Bank, N.A., Plaintiff-Intervenor, v. AK ENGINEERING, INC. a/k/a AK Services, AK Services, Inc., Fore River Shipyard & Iron Works, Inc., AK Technical Services Mid-Atlantic, Inc., Patrick Canonica, Carl Franson, and Patrick Hickey, Defendants, v. AMERICAN OVERSEAS MARINE CORPORATION and General Ship Corporation, Reach and Apply Defendants.
CourtUnited States Bankruptcy Courts. First Circuit. U.S. Bankruptcy Court — District of Massachusetts

COPYRIGHT MATERIAL OMITTED

Nina M. Parker, Boston, MA, for debtor.

Michael B. Feinman, Andover, MA, and Edward Kutchin, Boston, MA, for plaintiff, Southern Marine and Indust. Services.

Andrew M. Troop, Boston, MA, for plaintiff-intervenor Shawmut Bank.

Paul F. Denver, Boston, MA, for defendants, Patrick Canonica, Carl Franson, Patrick Hickey.

Joseph S.U. Bodoff, Boston, MA, for AK Engineering as Trustee Mortgagee.

J. Michael Faherty, Gloucester, MA, for defendant, Fore River Shipyard Ironworks, Inc.

Brian Levy, Boston, MA, for defendant, AK Engineering, Inc.

Kenneth W. Gurge, Boston, MA, for Reach and Apply defendant General Ship Corp.

MEMORANDUM

JOAN N. FEENEY, Bankruptcy Judge.

I. INTRODUCTION

The matter before the Court is the "Motion for Remand of Adversary Proceedings or Alternatively, for Abstention from Proceedings" filed by Southern Marine and Industrial Services, Inc. ("Southern Marine"), the Plaintiff in the above-captioned adversary proceeding that was removed to this Court from the Suffolk Superior Court on July 9, 1993 by AK Services, Inc. ("AK Services" or the "Debtor"), pursuant to Fed.R.Bankr.P. 9027.1 The Debtor filed an opposition to the motion, as did other parties in interest, including 1) Joseph S.U. Bodoff, Trust Mortgagee of AK Engineering, Inc. ("AK Engineering"); 2) Shawmut Bank, N.A. ("Shawmut" or the "Bank"), Plaintiff-Intervenor in the Suffolk Superior Court action and the purported holder of a perfected security interest in virtually all the assets of AK Engineering; 3) individual Defendants, Patrick Canonica ("Canonica"), Carl Franson ("Franson"), and Patrick Hickey ("Hickey") (collectively, the "Individual Defendants"), three of the four shareholders of AK Engineering and the shareholders of the Debtor.

II. BACKGROUND

On September 3, 1992, Southern Marine initiated a civil action in Suffolk Superior Court against "AK Engineering, Inc. a/k/a AK Services." Southern Marine, with leave of court, amended its complaint twice, naming additional defendants. On September 9, 1992, it obtained a preliminary injunction against American Overseas Marine Corporation ("AOMC") and General Ship Corporation ("GSC") (collectively, the "Reach and Apply Defendants") with respect to any monies owed to or standing in the name of "AK Services" up to the value of $145,932.00.

Prior to the filing of the first amended complaint, AK Services intervened in the civil action. On January 20, 1993, as a result of its default, partial judgment was entered against AK Engineering in the amount of $145,932.00. AK Services was not denominated as an alternative name for AK Engineering in the partial judgment that entered on January 20, 1993.

Shawmut moved to intervene in the civil action. Its motion was allowed on May 13, 1993, before the filing of the second amended complaint in which Southern Marine added Canonica, Franson and Hickey as additional defendants. Shawmut also filed a verified complaint, containing four counts. Prior to Shawmut's intervention, Southern Marine and Shawmut submitted to the Superior Court a "Stipulation and Order to Subordinate Equitable Attachment" in which they agreed that any monies owed to AK Engineering by the Reach and Apply Defendants were subject to and subordinate to the all asset security interest held by the Bank. The state court approved the stipulation on September 30, 1992.

The second amended complaint now before this Court contains eight counts. Through Count I, Southern Marine seeks damages in the amount of $145,932.00 for breach of a contract it had with AK Engineering whereby it was to completely overhaul, rebuild, and prepare for full operation two boilers of a marine vessel known as the SS Cape Avinoff. Through Counts II and VIII, Southern Marine seeks damages for violation of Massachusetts General Laws ch. 93A. In Count III, Southern Marine states a claim for quantum meruit. In Counts IV and V, Southern Marine seeks to reach and apply monies allegedly owed by AOMC and GSC. Finally, Counts VI and VII contain demands for declaratory relief. Specifically, in Count VI, Southern Marine seeks a determination that in an effort to hinder, delay and defraud creditors, AK Engineering transferred to and allowed AK Services, Fore River Shipyard & Iron Works, Inc. ("Fore River"), and AK Technical Services Mid-Atlantic, Inc. ("AK Technical") (collectively, the "Corporate Defendants") to use all of AK Engineering's tangible and intangible assets; that the Corporate Defendants were formed by the sole officers and directors of AK Engineering, who are the real parties in interest; that the Corporate Defendants are the alter egos of and are controlled and exclusively directed by the officers and directors of AK Engineering; and that as a result of the transfer of assets, AK Engineering was rendered insolvent. In Count VII, Southern Marine alleges that Canonica, Franson and Hickey entered into arrangements with AK Technical and AK Services whereby they were paid money that otherwise would be due and owing AK Engineering. It seeks similar relief against the Individual Defendants. In particular, it asks for a resolution of the following issues:

(1) whether the transfer of the tangible and intangible assets from AK Engineering to AK Services, Inc. and AK Technical were fraudulent transfers; (2) whether the payments from AK Services, Inc., and AK Technical to Canonica, Franson and Hickey were fraudulent; (3) whether AK Services, Inc., and AK Technical are alter egos of Canonica, Franson and Hickey requiring that the corporate identities should be disregarded; (4) whether Canonica, Franson and Hickey are now personally liable for the legal obligations due and owing Southern as a result of AK Engineering becoming insolvent; and (5) whether the corporate veil of AK Engineering, AK Services and/or AK Technical should be pierced and Canonica, Hickey and Franson held liable for the legal obligations of AK Engineering.

Southern Marine amended complaint contains a claim for a jury trial "as to all issues so triable."

In its complaint, Shawmut alleges that it is owed at least $238,607.67 under a Demand Note and Credit Agreement executed by AK Engineering. It also seeks declaratory relief with respect to 1) the validity of its security interest in the assets of AK Engineering whether standing in the name of the Corporate Defendants, the Reach and Apply Defendants or the Plaintiff; and 2) the priority of its security interest in the assets of the Corporate Defendants, if Southern Marine succeeds in proving that one or more of them received fraudulent conveyances from AK Engineering or is the alter ego of AK Engineering or is a successor corporation of AK Engineering.

III. LEGAL PRINCIPLES
A. Remand

Section 1452(b) of title 28 permits the court to which a claim or cause of action has been removed to remand such claim or cause of action "on any equitable ground." 28 U.S.C. § 1452(b). In Seale v. Owens & O-M Management Group, Inc., 134 B.R. 181 (Bankr.E.D.La.1991), the court identified the following equitable grounds for remand:

(1) forum non conveniens; (2) a holding that, if the civil action has been bifurcated by removal, the entire action should be tried in the same court; (3) a holding that a state court is better able to respond to questions involving state law; (4) expertise of the particular court; (5) duplicative and uneconomic effort of judicial resources in two forums; (6) prejudice to the involuntarily removed parties; (7) comity considerations; and (8) a lessened possibility of an inconsistent result.

Id. at 184, citing, Browning v. Navarro, 743 F.2d 1069, 1076 n. 21 (5th Cir.1984).

B. Abstention2
1. Mandatory Abstention (28 U.S.C. § 1334(c)(2))

Mandatory abstention is required upon proof of the following elements:

(1) the motion must be made timely; (2) the claims must be based on state law and is sic only `related to\' the case under title 11; (3) the claim could not have been brought in federal court, absent the court\'s bankruptcy jurisdiction; and (4) the court finds that a timely resolution of the claim can occur in state court.

134 B.R. at 185, citing, O'Rourke v. Cairns, 129 B.R. 87, 90 (E.D.La.1991).

2. Discretionary Abstention (28 U.S.C. § 1334(c)(1))

In In re Republic Reader's Serv., Inc., 81 B.R. 422 (Bankr.S.D.Tex.1987), the court identified the following twelve factors pertinent to a decision to voluntarily abstain from a proceeding:

(1) the effect or lack thereof on the efficient administration of the estate if a Court recommends abstention, (2) the extent to which state law issues predominate over bankruptcy issues, (3) the difficulty or unsettled nature of the applicable state law, (4) the presence of a related proceeding commenced in state court or other nonbankruptcy court, (5) the jurisdictional basis, if any, other than 28 U.S.C. § 1334, (6) the degree of relatedness or remoteness of the proceeding to the main bankruptcy case, (7) the substance rather than form of an asserted "core" proceeding, (8) the feasibility of severing state law claims from core bankruptcy matters to allow judgments to be entered in state court with enforcement left to the bankruptcy court, (9) the burden of ... the ... docket, (10) the likelihood that the commencement of the proceeding in bankruptcy court involves forum shopping by one of the parties, (11) the existence of a right to a jury trial, and
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