In Re Bwi Liquidating Corp. . Bwi Liquidating Corp. v. City Of Rialto

Decision Date28 September 2010
Docket NumberAdversary No. 10-50787 (MFW).,Bankruptcy No. 09-12526 (MFW).
Citation437 B.R. 160
PartiesIn re BWI LIQUIDATING CORP., et al., Debtors. BWI Liquidating Corp., et al., Plaintiff, v. City of Rialto, a California Municipal Corporation and Rialto Utility Authority, a California Joint Powers Authority, Defendants.
CourtU.S. Bankruptcy Court — District of Delaware

OPINION TEXT STARTS HERE

Michael R. Nestor, Esquire, Joseph M. Barry, Esquire, Jamie N. Luton, Esquire, Frank Grese, III, Esquire, Young, Conaway, Stargatt & Taylor, LLP, Wilmington, DE, for Plaintiff.

Bruce E. Jameson, Esquire, Prickett, Jones & Elliott, PA, Wilmington, DE, for Defendants.

MEMORANDUM OPINION 1

MARY F. WALRATH, Bankruptcy Judge.

Before the Court is the Motion filed by the City of Rialto and Rialto Utility Authority (collectively Rialto) to dismiss for lack of subject matter jurisdiction, abstain, or transfer venue of this adversary proceeding commenced by BWI Liquidating Trust (“the Plaintiff), which asserts a claim for breach of contract of a Water Services Agreement (“WSA”). For the reasons set forth below, the Motion will be granted, in part, and the adversary will be dismissed for lack of jurisdiction.

I. BACKGROUND

BWI designed, built and implemented systems for the treatment of contaminated groundwater, industrial process water, and air streams from municipal and industrial sources. Rialto is a city located in California that owns a groundwater well, identified as Chino Well No. 1 (the “Well”).

On December 23, 2003, the Debtors and Rialto entered into the WSA. Under the WSA, the Debtors were responsible for designing and installing facilities for the treatment of groundwater from the Well that met water quality standards. At the time of the contract, the Debtors were incorporated in California; three years after entering into the contract, the Debtors changed their state of incorporation to Delaware.

On July 16, 2009, the Debtors filed a petition for relief under chapter 11 of the Bankruptcy Code in Delaware. On the following day, the Debtors filed a motion for approval of a sale of substantially all their assets. That same day, the Debtors informed Rialto of the bankruptcy filing and advised Rialto that unless the WSA was renegotiated, the Debtors would reject it within 30 days of completion of the contemplated sale of their assets. The Debtors stated that they would continue regular service of the equipment until the decision to assume or reject the contract was officially made. In response, Rialto advised the Debtors that it had no interest in renegotiating the contract and acknowledged that the WSA would be terminated 30 days after completion of the sale.

As a result of that communication, the Debtors asserted that Rialto had materially breached and terminated the WSA. On December 30, 2009, the Debtors sent Rialto a written demand for payment of two outstanding invoices as well as additional damages for the alleged wrongful termination.

On January 15, 2010, the Debtors' Plan of liquidation was confirmed by this Court. Under the confirmed Plan, the Plaintiff was assigned all of the Debtors' claims and causes of action. The Plaintiff commenced this adversary proceeding on March 11, 2010, seeking damages for: (1) breach of contract for the failure to pay the outstanding invoices; (2) breach of contract for the wrongful termination of the contract; (3) quantum merit; and (4) unjust enrichment.

On April 12, 2010, Rialto filed a motion to dismiss the Complaint for lack of subject matter jurisdiction or alternatively for abstention or transfer of venue to California. Briefing is complete and the matter is ripe for decision.

II. JURISDICTION

The Court has jurisdiction to determine whether it has subject matter jurisdiction over this adversary proceeding. See, e.g., Chicot County Drainage Dist. v. Baxter State Bank, 308 U.S. 371, 376-77, 60 S.Ct. 317, 84 L.Ed. 329 (1940) (holding that a federal court has authority to determine whether it has subject matter jurisdiction over a dispute).

III. DISCUSSIONA. Subject Matter Jurisdiction

The motion to dismiss for lack of subject matter jurisdiction is filed pursuant to Rule 12(b)(1) of the Federal Rules of Civil Procedure, which is made applicable to this adversary proceeding by Rule 7012 of the Federal Rules of Bankruptcy Procedure.

A bankruptcy court may exercise jurisdiction over four categories of matters:

(1) cases under title 11, (2) proceedings arising under title 11, (3) proceedings arising in a case under title 11, and (4) proceedings related to a case under title 11.” In re Marcus Hook Dev. Park, Inc., 943 F.2d 261, 264 (3d Cir.1991).

Bankruptcy court jurisdiction is divided into “core” and “non-core” proceedings. Cases under title 11, proceedings arising under title 11, and proceedings arising in a case under title 11 are core proceedings. In re Combustion Eng'g Inc., 391 F.3d 190, 225-26 (3d Cir.2004). Cases under title 11 refers merely to the bankruptcy petition itself. See, e.g., Marcus Hook, 943 F.2d at 264. Proceedings arising under title 11 refers to the steps within the case and to any sub-action within the case that may raise a disputed legal matter. See, e.g., In re Wolverine Radio Co., 930 F.2d 1132, 1141 n. 14 (6th Cir.1991). Proceedings arising in a case under title 11 refer to proceedings that are not based on any right expressly created by title 11, but nevertheless would have no existence outside the bankruptcy case. See, e.g., Torkelsen v. Maggio (In re Guild and Gallery Plus, Inc.), 72 F.3d 1171, 1178 (3d Cir.1996). Proceedings that are merely related to a case under title 11, on the other hand, are non-core. See, e.g., Binder v. Price Waterhouse & Co., LLP (In re Resorts Int'l, Inc.), 372 F.3d 154, 162 (3d Cir.2004).

Because this is an adversary proceeding and does not involve any steps or sub-action within the bankruptcy case, it does not fall under either of the first two categories. With regard to arising under jurisdiction, the claims only involve state law breach of contract issues which would exist even outside the bankruptcy case. Therefore, the parties agree that the only category under which the Plaintiff's claims may fall is “related to” jurisdiction.

The test for “related to” jurisdiction is whether “the outcome of that proceeding could conceivably have any effect on the estate being administered in bankruptcy.” In re Exide Techs., 544 F.3d 196, 205-06 (3d Cir.2008) ( citing Pacor, Inc. v. Higgins, 743 F.2d 984, 994 (3d Cir.1984)). “After confirmation of a chapter 11 plan, however, the scope of the bankruptcy court's ‘related to’ jurisdiction diminishes.” AstroPower Liquidating Trust v. Xantrex Tech., Inc. (In re AstroPower Liquidating Trust), 335 B.R. 309, 323 (Bankr.D.Del.2005) ( citing Resorts, 372 F.3d at 164-65). Since there is no longer a bankruptcy estate that can be affected post-confirmation, the bankruptcy court will only exercise jurisdiction where a claim has “a close nexus to the bankruptcy plan or proceeding” and the matter at issue “affects the interpretation, implementation, consummation, execution, or administration of a confirmed plan or incorporated litigation trust agreement.” Resorts, 372 F.3d at 168-69. See also EXDS, Inc. v. Richard Ellis, Inc. (In re EXDS, Inc.), 352 B.R. 731, 735 (Bankr.D.Del.2006); AstroPower, 335 B.R. at 323.

In this case, the Plaintiff argues that there is a sufficiently close nexus between this adversary proceeding and the bankruptcy case because (1) the claims arose pre-confirmation, (2) the claims were incorporated into the Plan, which reserved jurisdiction over them, (3) the proceeds of the claims, if any, will benefit the estate's creditors, (4) the adversary proceeding was commenced shortly after the Plan's effective date, (5) this is a liquidating case rather than a reorganization, and (6) federal policy and consistency is fostered by having all actions in one central court.

1. Claims Arose Pre-Confirmation

The Plaintiff asserts that the events giving rise to its claims, including the services provided by the Debtors and the alleged breach of contract, occurred before the Plan was confirmed. (In fact, the services underlying the two invoices were performed pre-petition.) The Plaintiff argues that because the claims could have been brought pre-confirmation, there is a “close nexus” to the Plan.

Rialto responds that when the conduct giving rise to the claims arose is not a factor in determining whether the cause of action has a close nexus to the bankruptcy plan. Geruschat v. Ernst & Young LLP (In re Seven Fields Dev. Corp.), 505 F.3d 237, 265 (3d Cir.2007) (concluding that with respect to “related to” jurisdiction, the Pacor test does not apply to post-confirmation disputes and the “close nexus” test must be applied “regardless of when the conduct alleged in the complaint occurred.”). Therefore, the Court finds that the timing of the conduct alleged in the complaint is not a factor to be considered in determining whether there is a close nexus.

2. Reservation of Jurisdiction in Plan

The confirmed Plan states that the Bankruptcy Court shall retain jurisdiction ... [t]o determine all ... motions, adversary proceedings, contested matters, Causes of Action, and any other litigated matters instituted in the Chapter 11 Cases or on Behalf of the Debtors....” (Plan at § 10.1.b.) Also, the Plan defines the term “Causes of Action” to include “without limitation, any and all actions, causes of action, liabilities, Avoidance Actions, obligations, rights, suits, debts, sums of money, damages, judgments, Claims or proceedings to recover money or property and demands whatsoever, whether known or unknown, in law, equity or otherwise.” ( Id. at § 1.18.) The Plaintiff asserts that this language is sufficient to provide jurisdiction over this adversary.

Rialto responds that if such broad language was permitted to allow post-confirmation jurisdiction, it would potentially provide the Court with the “unending...

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