In re Astropower Liquidating Trust

• Decision Date: 22 December 2005
• Docket Number: Adversary No. 05-50867.,Bankruptcy No. 04-10322 (MFW).
• Parties: In re ASTROPOWER LIQUIDATING TRUST, f/k/a Astropower, Inc., Debtor. Astropower Liquidating Trust, f/k/a Astropower, Inc., Plaintiff, v. Xantrex Technology, Inc.; Mossadiq S. Umedaly; and Raymond James Ltd., Defendants.
• Court: U.S. Bankruptcy Court — District of Delaware

335 B.R. 309

In re ASTROPOWER LIQUIDATING TRUST, f/k/a Astropower, Inc., Debtor.

Astropower Liquidating Trust, f/k/a Astropower, Inc., Plaintiff, v. Xantrex Technology, Inc.; Mossadiq S. Umedaly; and Raymond James Ltd., Defendants.

Bankruptcy No. 04-10322 (MFW).

Adversary No. 05-50867.

United States Bankruptcy Court, D. Delaware.

December 22, 2005.

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Daniel B. Rath, Richard S. Cobb, James S. Green, Jr., Landis Rath & Cobb LLP, Wilmington, DE, for AstroPower Liquidating Trust.

Eric Lopez Schnabel, Mark R. Ownes, Klett Rooney Lieber & Schorling, Wilmington, DE, Mark J. Kalla, Chris Lenhart, Dorsey & Whitney LLP, Minneapolis, MN Kent Schmidt, Dorsey & Whitney LLP, Irvine, CA, For Xantrex Technology Inc.

Mark D. Collins, Russell C. Silbergilied, Christina M. Houston, Richards Layton & Finger, P.A., Wilmington, DE, for Raymond James Ltd.

OPINION¹

MARY F. WALRATH, Bankruptcy Judge.

Before the Court are (1) the Motion of Raymond James Ltd. ("RJL") to Dismiss Complaint for Lack of Personal and Subject Matter Jurisdiction and Improper Venue, or in the Alternative to Dismiss Counts I, II and IV and Abstain; and (2) the Motion of Xantrex, Inc. ("Xantrex") and Mossadiq S. Umedaly ("Umedaly") to (A) Dismiss the Complaint for Insufficient Service of Process; (B) Dismiss the Complaint for Lack of Personal Jurisdiction with Respect to Defendant Umedaly; (C) Abstain Pursuant to 28 U.S.C. § 1334; (D) in the Alternative, to Dismiss or Stay this Action to Enforce the Arbitration Provisions; or (E) Dismiss this Action Based on Forum Non Conveniens. For the reasons stated below, the Court will grant the motions in part and deny them in part.

I. BACKGROUND

AstroPower, Inc. (the "Debtor") filed a petition under chapter 11 on February 1, 2004. On December 3, 2004, the Court entered an order confirming the Revised Liquidating Plan proposed by the Debtor and the Official Committee of Unsecured Creditors (the "Plan"). Under the Plan, all the Debtor's assets, including causes of action, vested in the AstroPower Liquidating Trust (the "Plaintiff").

Xantrex is a Canadian corporation headquartered in Burnaby, British Columbia. Umedaly, a Canadian citizen, was a shareholder, the Chief Executive Officer, a Director, and the Chairman of the Board of Xantrex at all times relevant to this action. RJL is a Canadian corporation with principal offices in Vancouver, British Columbia.

On May 11, 2005, the Plaintiff filed an eleven-count complaint (the "Complaint"). The dispute arises from the Debtor's pre-petition sale of its Xantrex stock, with the help of the Defendants, for a price substantially less than the release price of Xantrex stock just two months later in an initial public offering ("IPO"). Counts I-IV² (fraudulent transfer), VI (misrepresentation), XI (unjust enrichment) and XII (constructive trust) of the Complaint are directed against all Defendants. Count V seeks to disallow Xantrex's claim against the estate pursuant to section 502 (d) of the Bankruptcy Code. Count VII alleges breach of fiduciary duty, agency, and contract against Xantrex arising from its shareholders' agreement (the "Shareholders' Agreement"). Counts VIII and X allege breaches of contract, fiduciary duty, and agency against RJL arising from its agreement to act as the Debtor's agent for the sale of the Xantrex stock. Count IX alleges breach of fiduciary duty against Xantrex and Umedaly based upon a purported special relationship of trust and confidence with the Debtor. In addition to disallowance of Xantrex's claim, the Complaint seeks damages of approximately $1.3 million.

Xantrex and Umedaly filed an answer to the Complaint on June 10, 2005, denying the allegations and asserting various affirmative defenses, including lack of personal jurisdiction. In lieu of an answer, RJL filed a motion on June 30, 2005, seeking dismissal or abstention. Xantrex and Umedaly filed a joint motion on July 1, 2005, seeking dismissal, abstention or a stay of these proceedings pending arbitration. On motion of the Defendants the Court entered orders on August 11, 2005, staying discovery pending resolution of the instant Motions. The Court heard oral argument on the Motions on September 27, 2005. After extensive briefing by the parties, this matter is now ripe for decision.

II. DISCUSSION

A. Personal Jurisdiction

RJL and Umedaly move to dismiss the Complaint for lack of personal jurisdiction.³ See Fed.R.Civ.P. 12(b)(2). In support of their motions, both filed affidavits to rebut several of the factual allegations in the Complaint and to establish that they lack sufficient contacts with the United States and Delaware to support the exercise of in personam jurisdiction here. In response, the Plaintiff filed an affidavit of the Debtor's former in-house counsel, Christopher A. Gallo, to corroborate the relevant allegations in the Complaint.

1. Standard on Rule 12(b)(2) Motion to Dismiss

The Plaintiff contends that the Court "must accept as true all allegations of jurisdictional fact made by the Plaintiff and resolve all factual disputes in [its] favor." CC Investors Corp. v. Raytheon Co., 219 F.R.D. 328, 329 (D.Del.2003) (citing Pinker v. Roche Holdings, Ltd., 292 F.3d 361, 368 (3d Cir. 2002)). According to the Plaintiff, it need only allege a prima facie case that "minimum contacts" exist; the burden then shifts to RJL and Umedaly to "present a compelling case that the presence of some other considerations would render jurisdiction unreasonable." Grand Entm't Group, Ltd. v. Star Media Sales, Inc., 988 F.2d 476, 483 (3d Cir.1993).

RJL disagrees and insists that the Plaintiff is not entitled to the same indulgence on a Rule 12(b)(2) motion as it enjoys on a Rule 12(b)(6) motion for failure to state a claim. According to RJL, the Plaintiff must establish that personal jurisdiction is in fact proper, not merely that it would be proper on some set of provable facts. See Harman Auto, Inc. v. Barrincorp Indus., Inc. (In re Harvard Indus., Inc.), 173 B.R. 82, 85 (Bankr.D.Del.1994) ("Where personal jurisdiction is challenged in a motion to dismiss, the plaintiff must do more than submit written materials that create issues of material fact.").

RJL is not entirely correct. It is true that, once a defendant raises the defense of lack of personal jurisdiction, the plaintiff may no longer rest upon the allegations in its complaint. Stranahan Gear Co. v. NL Indus., 800 F.2d 53, 58 (3d Cir. 1986). It is also true that to overcome the defense the plaintiff must (eventually) prove, by a preponderance of the evidence, facts sufficient to establish personal jurisdiction. Cateret Savings Bank, F.A. v. Shushan, 954 F.2d 141, 147 (3d. Cir. 1992). But RJL and Umedaly cite no authority for the proposition that a pre-answer (in the case of RJL), pre-discovery, pre-trial motion is the appropriate vehicle to hold the Plaintiff to its ultimate burden of persuasion on an essential element of its case. See, e.g., Oxford First Corp. v. PNC Liquidating Corp., 372 F.Supp. 191, 193 ("The jurisdictional facts in the instant case are so inextricably intertwined with the facts necessary to prove ultimate liability that it would be unfair to dismiss for lack of personal jurisdiction at this preliminary stage."). "When the court does not hold an evidentiary hearing on the motion to dismiss, the plaintiff need only establish a prima facie case of personal jurisdiction and... is entitled to have its allegations taken as true and all factual disputes drawn in its favor." Miller Yacht Sales, Inc. v. Smith, 384 F.3d 93, 97 (3d Cir.2004). The Court did not hold an evidentiary hearing in connection with RJL's and Umedaly's motions. Accordingly, it will base its conclusion on jurisdiction solely upon the Complaint and the Gallo affidavit and will consider RJL's and Umedaly's affidavits only for extraordinary circumstances that would render jurisdiction unreasonable. See Grand Entm't, 988 F.2d at 483.

2. Personal Jurisdiction in Bankruptcy Court

The Plaintiff argues that the Delaware long-arm statute provides the basis for personal jurisdiction over RJL and Umedaly. See 10 Del. C. § 3104. This is incorrect.

Personal jurisdiction in bankruptcy court is governed by Rule 7004(f), which provides:

If the exercise of jurisdiction is consistent with the Constitution and laws of the United States, serving a summons or filing a waiver of service in accordance with this rule or the subdivisions of Rule 4 F.R.Civ.P. made applicable by these rules is effective to establish personal jurisdiction over the person of any defendant with respect to a case under the Code or a civil proceeding arising under the Code, or arising in or related to a case under the Code.

Fed. R. Bankr.P. 7004(f). Rule 4(k)(1)(A) of the Federal Rules of Civil Procedure generally limits the in personam jurisdiction of the federal courts over non-resident defendants to that of a court of general jurisdiction in the forum state. However, this limitation does not apply where extra-territorial service of process is "authorized by a statute of the United States." Fed.R.Civ.P. 4(k)(1)(D). Bankruptcy Rule 7004(d), which allows nationwide service of process in bankruptcy cases, is just such a statute. Nordberg v. Granfinanciera, S.A. (In re Chase & Sanborn Corp.), 835 F.2d 1341, 1344 (11th Cir. 1988) ("Bankruptcy Rule 7004(d) provides for nationwide service of process and thus is the statutory basis for personal jurisdiction in this case...."), rev'd on other grounds, 492 U.S. 33, 109 S.Ct. 2782, 106 L.Ed.2d 26 (1989). Accordingly, the Court need not look to the Delaware long-arm statute, or the case law interpreting it, to determine whether it has personal jurisdiction over RJL and Umedaly.

The Fifth Amendment Due Process Clause, however, circumscribes the in personam jurisdiction of the federal courts. Chase & Sanborn, 835 F.2d at 1344. It imposes "a...