In re Dana Corporation, Case No. 06-10354 (BRL) (Bankr. S.D.N.Y. 11/6/2007)
| Decision Date | 06 November 2007 |
| Docket Number | Case No. 06-10354 (BRL). |
| Parties | In re: Dana Corporation, et al., Chapter 11, Debtors, |
| Court | U.S. Bankruptcy Court — Southern District of New York |
Dana Corporation ("Dana"), and forty of its domestic direct and indirect subsidiaries (collectively, the "Debtors"), seek entry of an order disallowing and expunging claim number 9592, filed by Jasco Tools, Inc. ("Jasco"), in the amount of $20 million (the "Jasco Claim"), pursuant to sections 105 and 502 of title 11, United States Code (the "Bankruptcy Code"), Rule 3007 of the Federal Rules of Bankruptcy Procedure (the "Bankruptcy Rules") and the Claims Procedures Order entered in these cases. Jasco opposes the motion and seeks abstention and stay relief.
At the initial hearing on the Debtor's objection to the Jasco Claim, Jasco protested that it had not been given sufficient notice that the Debtor was moving by summary judgment. Accordingly, the Court adjourned the objection to allow the parties to supplement their pleadings.
The Jasco Claim arises out of a purchase agreement (the "Agreement"), between Dana's predecessor, Eaton Corporation1 and Jasco on July 21, 1995. Pursuant to the Agreement, Jasco supplied precision-machined castings from 1995 through December 31, 2000 at which time the Agreement expired. The Agreement contained a term and termination provision that states: (Agreement § 4.01). The parties did not meet in the second quarter but in September 1999, Dana sent Jasco a letter attempting to schedule a meeting to discuss an extension. Jasco prepared a proposal for a contract extension and met with Dana's representatives on December 3, 1999. During that meeting Jasco proposed a price increase over the term of any renewed agreement. Dana found Jasco's proposal to be unacceptable and the Agreement expired by its terms the following year.
Prior to the expiration of the Agreement, Dana considered bids from several alternative suppliers, including Nationwide Precision Products ("Nationwide"). Nationwide submitted a proposal to Dana in November 1999 that contained a 10% reduction of the prices Dana was paying under the Agreement. Upon expiration of the Agreement Nationwide became the new supplier.2
Jasco's key personnel responsible for serving Dana under the Agreement included Gary Rogers, Jasco's president; Charles Zicari, a business manager; and Sean Convertino, a senior engineer. Mr. Rogers left Jasco in May 1999. Mr. Zicari and Mr. Convertino left Jasco at the end of June 1999 and went to work for Nationwide in August. Mr. Rogers pursued other business interests. When Mr. Convertino left Jasco, he retained information from Jasco on his personal computer such as machining cycle times, pricing information, and a list of machines required for performance under the Agreement. In his new position at Nationwide, Mr. Zicari played a role in soliciting the Dana business and Mr. Convertino helped prepare Nationwide's proposal to Dana.
On July 31, 2002, Jasco commenced an action against Dana, Nationwide and Messrs. Rogers, Zicari and Convertino in New York Supreme Court (the "Lawsuit") asserting causes of action against Dana for breach of contract, trade secret misappropriation, prima facie tort and unjust enrichment. Jasco claims that Dana diverted the contract from Jasco to its competitor, Nationwide, through the use of stolen trade secrets in conspiracy with Messrs. Convertino, Rogers, and Zicari.
Prior to the chapter 11 petition date, the parties had nearly four years to conduct discovery. Since the petition date, the Lawsuit has been stayed as to Dana, but Jasco and the remaining defendants, Nationwide and Messrs. Rogers and Zicari, continued to conduct depositions. The State Court severed Jasco's claim against Mr. Rogers from Jasco's claim against Dana. Ultimately Mr. Roger successfully moved for summary judgment, and Jasco settled with Nationwide and Messrs. Zicari and Convertino. On September 15, 2006, Jasco filed its proof of claim in this Court.
In a very similar matter in these chapter 11 proceedings — an objection to a claim of another disappointed supplier to Dana — this court issued a comprehensive ruling denying a motion for mandatory abstention and stay relief. Jasco and its attorney were present at that hearing and were advised to take heed of it as they had informed this Court they planned to make a similar motion. Jasco however, persisted upon filing the motion for mandatory abstention and stay relief on the same identical grounds. I find that conduct bordering on sanctionable. For the reasons set forth below, the motion for abstention and stay relief is denied.
First, mandatory abstention does not apply to core proceedings. See S.G. Phillips Constrs., Inc. v. City of Burlington (In re S.G. Phillips Constrs., Inc.), 45 F.3d 702, 708 (2d Cir.1995)("abstention is only mandated with respect to non-core matters"). Contrary to Jasco's assertions, proceedings for the allowance or disallowance of claims are "core." See 28 U.S.C. § 157(b)(2)(B); see also In re S.G. Phillips Constrs., Inc., 45 F.3d at 704, 707 (); see also In re G.I. Indus., Inc., 204 F.3d 1276, 1279 (9th Cir.2000) (). "Because nothing is more directly at the core of bankruptcy administration than the quantification of all liabilities of the debtor, the bankruptcy court's determination whether to allow or disallow a claim is a core function." See In re S.G. Phillips Constrs., Inc., 45 F.3d at 705 citing In re BKW Sys., Inc., 66 B.R. 546, 548 (Bankr. D.N.H. 1986). "[W]hen a creditor files a proof of claim, the bankruptcy court has core jurisdiction to determine that claim, even if it was a prepetition contract claim arising under state law." See In re S.G. Phillips Constrs., Inc., 45 F.3d at 705 citing Gulf States Exploration Co. v. Manville Forest Prods. Corp. (In re Manville Forest Prods. Corp.), 896 F.2d 1384, 1389-90 (2d Cir.1990); First Fidelity Bank, N.A. v. Hooker Invs., Inc. (In re Hooker Invs., Inc.), 937 F.2d 833, 838 (2d Cir.1991)("filing a proof of claim is not merely a means of providing information to the bankruptcy court, but is a means of invoking the bankruptcy court's equitable jurisdiction over the bankruptcy estate to establish the creditor's right to participate in the distribution of the estate."). See also Travellers International A.G. v. Robinson, 982 F.2d 96 (3d Cir. 1992) ().
Moreover, abstention is "an extraordinary and narrow exception to the duty of the federal courts to adjudicate controversies which are properly before it." See S.N.A. Nut Co. v. Haagen-Daz Co. (In re S.N.A. Nut Co.), 206 B.R. 495, 501 (Bankr.N.D.Ill.1997) citing Colorado River Water Conservation Dist. v. United States, 424 U.S. 800, 813 (1976). Abstention is the exception rather than the rule. In re Chicago, Milwaukee, St. Paul & Pacific R. Co., 6 F.3d 1184, 1189 (7th Cir.1993).
Although Jasco has not moved under 28 U.S.C. § 1334(c)(1), a movant must show "exceptional circumstances" to warrant permissive abstention where the claim, as here, involves a matter within the bankruptcy court's core jurisdiction. See Luan Investment, S.E. v. Franklin 145 Corp. (In re Petrie Retail, Inc.), 2001 WL 826122, at *5 (S.D.N.Y. July 19, 2001), aff'd 304 F.3d 223 (2d Cir.2002). The factors considered by the court in determining whether to exercise permissive abstention are virtually identical to the factors considered in deciding whether to lift the automatic stay, relief that is also sought by Jasco. Compare JCC Capital Corp. v. Fisher (In re JCC Capital Corp.), 147 B.R. 349, 354 (Bankr. S.D.N.Y. 1992) with Sonnax Indus., Inc. v. Tri Component Products Corp. (In re Sonnax Indus., Inc.), 907 F.2d 1280, 1286 (2d Cir.1990).
Under section 362(d)(1) of the Bankruptcy Code, the court may modify the automatic stay for "cause". The burden of proof on a motion to lift the automatic stay is a shifting one. In re Sonnax Indus., 907 F.2d at 1285. Section 362(d)(1) requires an initial showing of cause by the movant. Id. "If the movant fails to make an initial showing of cause, however, the court should deny relief without requiring any showing from the debtor that it is entitled to continued protection." Id.
Neither section 362(d)(1) nor the legislative history defines the term "for cause" and the legislative history gives only very general guidance. Id. However, the court in Sonnax adopted a dozen factors to be weighed in deciding whether litigation should be permitted to continue in another forum.1 Id. at 1286.
In a given case, however, not all of the factors will be relevant, and the court may disregard irrelevant factors. See Mazzeo v. Lenhart (In re Mazzeo), 167 F.3d 139, 143 (2d Cir. 1999). "When applying these factors and considering whether to modify the automatic stay, the Court should take into account the particular circumstances of the case, and ascertain what is just to the claimants, the debtor and the estate." In re Keene Corp., 171 B.R. 180, 183 (Bankr. S.D.N.Y. 1994).
Jasco argues that the stay should be lifted because its claim is based on noncore state law causes of action, final adjudication would not interfere with Dana's chapter 11 proceeding and that lifting...
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