In re Donington, Karcher, Salmond, Ronan & Rainone, PA
| Decision Date | 16 April 1996 |
| Docket Number | Civil Action No. 95-5737 (WHW). |
| Citation | 194 BR 750 |
| Parties | In re DONINGTON, KARCHER, SALMOND, RONAN & RAINONE, P.A., n/k/a Karcher, Salmond, Rainone & Barrett, P.A., Debtor. William M. BURKE, M.D., Individually and as Trustee of the William M. Burke, P.A. Employee Profit Sharing Trust, Plaintiffs, v. DONINGTON, KARCHER, SALMOND, RONAN & RAINONE, P.A., et al., Defendants. UNITED JERSEY BANK, Successor in Interest to United Jersey Bank/Central, N.A., Third-Party Plaintiff, v. KARCHER, SALMOND, RAINONE & BARRETT, P.A., et al., Third-Party Defendants. |
| Court | U.S. District Court — District of New Jersey |
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G. Glennon Troublefield, Carella, Byrne, Bain, Gilfillan, Cecchi, Stewart & Olstein, Roseland, NJ, Eric S. Lentz, Chatham, NJ, for William M. Burke, MD.
Harold J. Ruvoldt, Jr., Fischbein, Badillo, Wagner, Itzler, Jersey City, NJ, for Louis N. Rainone, Ronald H. Gordon, Alan J. Karcher.
Lawrence E. Miller, LeBoeuf, Lamb, Leiby & MacRae, Newark, NJ, for United Jersey Bank/Central, N.A.
AMENDED ORDER
In this action, plaintiff William M. Burke ("Burke") moved for abstention and remand to state court and for modification of the automatic stay. Third-party plaintiff United Jersey Bank ("UJB") moved to have its third-party action against certain individual guarantors severed and remanded to state court. The Court referred the motions to the magistrate judge.
The magistrate judge heard oral argument on the motions. By final order, he granted Burke and UJB's motions for remand of this action to state court. By report and recommendation, he suggested that Burke's motion to modify the stay be granted to permit him to adjudicate his state-law claims against debtor Donington, Karcher, Salmond, Ronan & Rainone, P.A. ("Donington, Karcher") in state court. However, the magistrate judge also advised that recovery of any judgment from these claims should be prohibited until a further order of the bankruptcy court permits Burke to pursue an action to collect from the property of Donington, Karcher. No party has filed exceptions to the magistrate judge's report and recommendation.
After reviewing the report and recommendation, the Court is satisfied that it is not clearly erroneous, but correct. Therefore, the Court enters the following order.
The Court approves and adopts the report and recommendation.
The Court grants Burke's motion to modify the stay to permit him to adjudicate his state-law claims against Donington, Karcher in state court.
The Court orders that recovery of any judgment from these claims will be prohibited until a further order of the bankruptcy court permits Burke to pursue an action to collect from the property of Donington, Karcher.
SO ORDERED.
March 20, 1996
Before the Court are two motions: First, plaintiff William M. Burke, M.D. moves for abstention and remand to state court and for modification of the automatic stay. Also, third-party plaintiff United Jersey Bank seeks to have its third-party action against the individual guarantors severed and remanded to state court. Opposition has been filed in response to both motions, and the Court heard oral argument on January 8, 1996.
This action arises out of several transactions involving the now-defunct law firm of Donington, Karcher, Salmond, Ronan & Rainone, P.A. ("Donington, Karcher"). The various complaints, answers, and third-party complaints detail the following factual backdrop to this complicated litigation.
In May, 1991, United Jersey Bank ("UJB") extended to Donington, Karcher a loan in the amount of $750,000, and the firm executed a Promissory Note in that amount. On the same date, Donington, Karcher and UJB entered into an Accounts Receivable Loan and Security Agreement ("1991 Security Agreement") which provided that UJB would hold a first lien on all of the firm's present or future accounts receivables, notes, instruments, or chattel paper. Also, several individual shareholders of the firm1 executed personal guaranties, unconditionally guaranteeing the loan made to the firm by UJB. The guarantees provided that the individual guarantors expressly waived any right to require UJB to bring an action against the Borrower in order to resort to collateral before pursuing payment.
In February, 1994, Donington, Karcher was faced with severe financial circumstances that were at least partially the result of delays of payments owed by the Warwick Insurance Company ("Warwick"), which was in liquidation by the State of New Jersey. To reduce the financial pressures on the firm, members of the firm solicited a loan in the amount of $100,000 from John Scott Donington, Esq. ("Donington"), a stockholder in the firm. Unable to make the loan, Donington sought to secure the amount from plaintiff William M. Burke, M.D. ("Burke"), a close personal friend of Donington and a client of the firm. As a result, Burke issued a check to the law firm in the amount of $100,000, and a Note was executed on February 24, 1994 between Donington and the firm in the same amount. The Note provided that the balance plus 10% interest was to be repaid on or before May 1, 1995, and that in the event the full amount was not repaid on that date, the firm agreed to pay interest at the rate of 10% per year on the outstanding balance. On the same day, Donington assigned the Note to Burke, and the firm was to make its payments directly to Burke. The Complaint alleges that any funds received in payment to the firm by Warwick would be first utilized the repay the Burke loan.
Plaintiff Burke filed the original Complaint in this action in the Superior Court of New Jersey, Essex County, on August 5, 1995 (the "Burke Action"). Burke named as defendants the Donington, Karcher law firm, UJB, and Karcher, Rainone, and Gordon, all shareholders of the firm. In the Complaint, Burke asserted three counts for damages in connection with the $100,000 loan to Donington, Karcher. The Complaint's first count seeks reformation of the loan documents, repayment of the entire outstanding balance, injunctive relief requiring the firm to place the Warwick receivables in a separate account, and a determination of the rights and obligations of Burke and UJB. Counts Two and Three allege malpractice claims against the firm and Karcher, Rainone, and Gordon individually. Burke's suit seeks payment of the law firm's accounts receivable, which UJB alleges are part of their collateral for their loans. The Complaint therefore named UJB for the purpose of determining the rights and obligations of Burke and UJB with respect to the accounts receivable.
In its Answer to Burke's Complaint, UJB brought cross-claims against the firm, seeking the appointment of a statutory receiver. UJB also brought a third-party Complaint against individual shareholders Karcher, Donington, Gordon, Lazarus, Rainone, McGuire, Ronan, Salmond, Luongo, Leroe, and Connell, each of whom individually guaranteed the loans made to the firm by UJB (the "Third-party Action"). Additionally, Donington served an answer to the third-party complaint and the crossclaims asserted against him in his individual capacity as a guarantor, as well as a fourth-party complaint against the law firm's various shareholders. The fourth-party Complaint alleges breach of contract claims in connection with the agreement entered into by the shareholders when Donington left the firm.
On August 17, 1995, Donington, Karcher filed a voluntary petition for relief under Title 11 of the federal bankruptcy laws. As a result of this filing, the Burke Action in Essex County was automatically stayed as to the law firm (the "Debtor"). Additionally, New Jersey Superior Court Judge Harry A. Margolis administratively stayed the remainder of the proceedings in the state court, including Burke's legal malpractice claims against the non-debtor defendants and the third-party action against the individual non-debtor defendants.
On November 6, 1995, Burke filed a motion in the bankruptcy court seeking to modify the automatic stay to permit him to pursue the state court action against both the Debtor and the non-debtor defendants. On the same date UJB made application to the Superior Court to continue its third-party action against the individual guarantors because the automatic stay was inapplicable to them. On November 15, 1995, non-debtor defendants Karcher, Rainone, and Gordon (the "removing defendants") filed a notice of removal, thereby removing the state court action from Essex County to this Court. Thereafter, the bankruptcy court denied Burke's motion to modify the automatic stay. Burke now moves this Court to abstain and remand the action back to state court and to modify the stay to permit him to pursue his state law claims against the Debtor. Also, third-party plaintiff UJB has moved to sever its third-party action against the individual guarantors from the Burke action and to remand it to state court. Both the Debtor and the individual non-debtor defendants oppose these motions and assert that this entire suit should be before the bankruptcy court.2
Because the District of New Jersey treats motions to remand as non-dispositive, the Court will decide these motions by final order. See Campbell v. IBM, 912 F.Supp. 116, 118 (D.N.J.1996).
Burke first asserts that the non-debtor defendants erroneously filed their notice of removal in violation of the general removal statute, 28 U.S.C. § 1446, which requires a notice of removal to be filed within thirty days of the service of the pleading upon which authority for the removal is based. Defendants' removal was based on the bankruptcy removal statute, 28 U.S.C. § 1452, which authorizes a party to remove a claim or action to the district court if 28 U.S.C. § 1334 provides a federal jurisdictional basis for the...
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