In re Ener1, Inc.

• Decision Date: 15 September 2016
• Docket Number: Case No. 12-10299 (MG)
• Citation: 558 B.R. 91
• Parties: In re: Ener1, Inc., Debtor.
• Court: U.S. Bankruptcy Court — Southern District of New York

558 B.R. 91

In re: Ener1, Inc., Debtor.

Case No. 12-10299 (MG)

United States Bankruptcy Court, S.D. New York.

Signed September 15, 2016

BERGER SINGERMAN LLP, Counsel for Charles Gassenheimer, James Gassenheimer, 1450 Brickell Ave., Suite 1900, Miami, FL 33131, By: James Gassenheimer, Esq.

TEITELBAUM LAW GROUP, LLC, Attorneys for Reorganized Debtor, Ener1, Inc., 1 Barker Avenue, White Plains, New York 10601, By: Jay Teitelbaum, Esq.

MEMORANDUM OPINION AND ORDER DENYING REORGANIZED DEBTOR'S REQUEST TO ADJUDICATE DEBTOR'S POST-CONFIRMATION BREACH OF CONTRACT CLAIM AGAINST CHARLES GASSENHEIMER

MARTIN GLENN

, United States Bankruptcy Judge

MARTIN GLENN UNITED STATES BANKRUPTCY JUDGE

Pending before the Court in this contested matter involving an objection to a proof of claim is the issue whether the Court has subject matter jurisdiction to adjudicate a post-confirmation breach of contract claim asserted defensively by a reorganized debtor, Ener1, Inc. (“Ener1,” or the “Debtor”), in response to a claim filed by Ener1's former chief executive officer, Charles Gassenheimer (“Gassenheimer”). The parties disputed the issue in the Joint Pre-Trial Order (the “Pre-Trial Order,” ECF Doc. # 148). Trial of this contested matter is scheduled for September 19, 2016. Resolution of the issue will affect the evidence and arguments at trial. The Court directed the parties to brief the issue. The following briefs were filed: (i) Ener1's Pre-Trial Memorandum of Law Concerning the Court's Post-Confirmation Jurisdiction to Determine Ener1's Breach of Contract Objection to Amended Claim Number 3 Filed by Charles Gassenheimer (the “Ener1 Brief,” ECF Doc. # 149), and (ii) Charles Gassenheimer's Supplemental Memorandum of Law on the Issue of the Court's Subject Matter Jurisdiction to Hear Debtor's Post-Confirmation Breach of Contract Claim (the “Gassenheimer Brief,” ECF Doc. # 150).

After considering the briefs and arguments of counsel, the Court concludes that it does not have subject matter jurisdiction to adjudicate the alleged post-confirmation breach of contract claim that Ener1 asserts as a potential setoff to any recovery by Gassenheimer on his proof of claim. Ener1 may, of course, assert the breach of contract claim in a federal or state court of competent jurisdiction.

I. RELEVANT BACKGROUND

Gassenheimer served as Chief Executive Officer (“CEO”) of the Debtor from August of 2008 through September 26, 2011, when the Ener1 board of directors terminated Gassenheimer's employment “without cause.” (Pre-Trial Order at 22.) Gassenheimer's employment agreement with Ener1 (the “Employment Agreement”) contained a covenant not to compete with Ener1. (See Pre-Trial Order at Exhibit B, Section 8(d).) The non-compete period lasted at least twelve months following the termination of Gassenheimer's employment. (Pre-Trial Order at 22.)

On January 26, 2012, Ener1 filed a petition for relief under chapter 11 of the Bankruptcy Code. Gassenheimer filed a proof of claim (the “Gassenheimer Claim”) in Ener1's bankruptcy case (the “Chapter 11 Case”) totaling $807,962.00 for unpaid vacation time and a contractual severance payment. On February 28, 2012, this Court confirmed the Debtor's prepackaged plan of reorganization (the “Plan,” ECF Doc. # 74). The Reorganized Debtor emerged from bankruptcy when the Plan became effective on March 30, 2012.

Gassenheimer's alleged breach of the covenant not to compete occurred no earlier than April 2012, when Gassenheimer co-founded Carnegie Hudson Resources (“CHR”), a business that provides investment and advisory services. Sometime during the spring or summer of 2012, Gassenheimer and CHR engaged in certain business transactions with an entity that allegedly competes with Ener1. Ener1 asserts that Gassenheimer's conduct violated the non-compete provision of Gassenheimer's Employment Agreement. Ener1 asserts this alleged breach of contract (the “Breach of Contract Claim”) defensively as a potential set off to any recovery by Gassenheimer on his proof of claim; Ener1 does not seek any affirmative recovery from Gassenheimer. Gassenheimer maintains that this Court does not have subject matter jurisdiction to hear and determine the Breach of Contract Claim.¹

II. DISCUSSION

A. Legal Standard

1. Standard for a Motion to Dismiss for Lack of Subject Matter Jurisdiction

Rule 12(b)(1) of the Federal Rules of Civil Procedure

is made applicable to a bankruptcy proceeding by Bankruptcy Rule 7012(b). See Fed. R. Bankr. P. 7012(b). “A case is properly dismissed for lack of subject matter jurisdiction under Rule 12(b)(1) when the district court lacks the statutory or constitutional power to adjudicate it.” Makarova v. United States, 201 F.3d 110, 113 (2d Cir.2000). A court must view the complaint liberally and accept as true all material facts alleged in the complaint when considering a Rule 12(b)(1) motion to dismiss for lack of subject matter jurisdiction. In re Finnie, No. 05–16373, 2007 WL 1574294, at *3 (Bankr.S.D.N.Y. May 29, 2007) (citing

19

Court Street Assocs., LLC v. Resolution Trust Corp. (In re 19 Court Street Assocs., LLC) , 190 B.R. 983, 995 (Bankr.S.D.N.Y.1996) ; Atlantic Mutual Ins. Co. v. Balfour Maclaine Int'l., Ltd., 775 F.Supp. 101, 103 (S.D.N.Y.1991) ). However, the court need not draw inferences favorable to the plaintiff from the complaint, as is the case with a Rule 12(b)(6) motion to dismiss. J.S. v. Attica Cent. Schools, 386 F.3d 107, 110 (2d Cir.2004). The court is allowed to consider extrinsic evidence and is not limited to the information contained in the pleadings. However, it may not rely on conclusory or hearsay evidence. Kamen v. Am. Tel. & Tel., 791 F.2d 1006, 1011 (2d Cir.1986) (“[W]hen ... subject matter jurisdiction is challenged under Rule 12(b)(1), evidentiary matter may be presented by affidavit or otherwise.”); Attica Cent. Schools, 386 F.3d at 110. “The party seeking to invoke the court's jurisdiction has the burden of establishing that subject matter jurisdiction exists over its complaint.” Luckett v. Bure, 290 F.3d 493, 497 (2d Cir.2002)

.

2. Bankruptcy Court's Post-Confirmation Jurisdiction

This Court has previously addressed the standards for a bankruptcy court's post-confirmation subject matter jurisdiction in In re Park Ave. Radiologists, P.C., 450 B.R. 461, 467–70 (Bankr.S.D.N.Y.2011)

. That case, like this one, involved a claim asserted by a reorganized debtor against a former employee based on an alleged breach of a covenant not to compete. The Court concluded that it did not have post-confirmation subject matter jurisdiction. The following discussion is largely-based on the Park Avenue Radiologists opinion and the cases discussed in it.

Bankruptcy courts, like other federal courts, have limited subject matter jurisdiction. Celotex Corp. v. Edwards, 514 U.S. 300, 307, 115 S.Ct. 1493, 131 L.Ed.2d 403 (1995)

. Bankruptcy court jurisdiction over civil proceedings (as opposed to cases) is set forth in 28 U.S.C. § 1334(b), limiting jurisdiction over proceedings arising in a bankruptcy case or arising under the bankruptcy law (i.e. , core proceedings), and proceedings that relate to a bankruptcy case (i.e ., non-core proceedings). Rubin Baum Levin Constant & Friedman v. Mushkin (In re Masterwear Corp.), 241 B.R. 511, 515 (Bankr.S.D.N.Y.1999).

Section 1334

does not expressly limit the bankruptcy court's post-confirmation jurisdiction. However, most courts agree that “once confirmation occurs, the bankruptcy court's jurisdiction shrinks.” General Media v. Guccione (In re General Media, Inc.), 335 B.R. 66, 73 (Bankr.S.D.N.Y.2005) ; see also

Cantor v. Am. Banknote Corp., No. 06 Civ. 1392 (PAC), 2007 WL 3084966, at *3 (S.D.N.Y. Oct. 22, 2007) (“Generally a bankruptcy court's jurisdiction abates upon confirmation of the reorganization plan.”); Guccione v. Bell, No. 06 Civ. 492 (SHS), 2006 WL 2032641, at *4 (S.D.N.Y. July 20, 2006) (“Courts generally agree that federal jurisdiction pursuant to section 1334 shrinks once plan confirmation has occurred.”).

Section 1141(b) of the Bankruptcy Code

provides that “a chapter 11 plan or confirmation order may specifically provide for the retention of jurisdiction by the bankruptcy court over actions pending at the time of confirmation and actions commenced after the time of confirmation, and over any assets recovered as a result of these actions.” Neptune World Wide Moving, Inc. v. Schneider Moving & Storage Co. (In re Neptune World Wide Moving, Inc.), 111 B.R. 457, 462–64 (Bankr.S.D.N.Y.1990). Section 1142 confers limited post-confirmation jurisdiction upon the bankruptcy court for the purpose of implementing the plan. Id. at 462 (citing

Goodman v. Phillip R. Curtis Enters., Inc., 809 F.2d 228, 232 (4th Cir.1987) ).

When a bankruptcy court is presented with a post-confirmation dispute involving a reorganized debtor, as is the case here, case law requires the court to determine whether the dispute has a “close nexus” to the bankruptcy case or “relates back to the effectuation of the Chapter 11 proceeding.” Donaldson v. Bernstein, 104 F.3d 547, 553 (3d Cir.1997)

. “[T]he distinction between core and non-core jurisdiction may not be particularly relevant after confirmation.” General Media, 335 B.R. at 74. “[T]he scope of the post-confirmation jurisdiction mapped out by the case law usually meets the definition of a core proceeding. Broadly speaking, the proceeding must affect some aspect of the plan—its meaning, its implementation or its consummation—to come within the Court's post-confirmation jurisdiction.” Id.

As the court in Neptune succinctly stated, “[t]he fact that Neptune's adversary proceeding might be characterized as core does not mean that this court retains subject matter jurisdiction to hear it after confirmation ....” Neptune World Wide Moving, Inc., 111 B.R. at 464.

Once a plan is confirmed, it is assumed the reorganized debtor is becoming self-sufficient, and no longer needs umbrella protection from the bankruptcy court. Pettibone Corp. v. Easley, 935...