In re Exds, Inc.

Decision Date13 October 2006
Docket NumberAdversary No. 03-56185 (PJW).,Bankruptcy No. 01-10539 (PJW).
Citation352 B.R. 731
PartiesIn re EXDS, INC. (f/k/a Exodus Communications, Inc.), et al., Debtors. EXDS, Inc. (f/k/a Exodus Communications, Inc.), Plaintiff, v. CB Richard Ellis, Inc. (a/k/a CB Commercial Real Estate Group, a/k/a Insignia/ESG, Inc., n/k/a CB Richard Ellis Real Estate Services, Inc.), Highgate Holdings, Inc., Defendants.
CourtU.S. Bankruptcy Court — District of Delaware

Victoria Watson Counihan, Dennis A. Meloro, Greenberg Traurig, LLP, Wilmington, DE, Daniel J. Ansel', Ronald D. Lefton, Heath B. Kushnick, New York, NY, for Defendant CB Richard Ellis Real Estate Services, Inc. f/k/a Insignia/ESG, Inc. sued herein as CB Richard.

David M. Fournier, James C. Carignan, Pepper Hamilton LLP, Wilmington, DE, Beverly A. Whitley, John R.W. Fugitt, Bell Nunnally & Martin LLP, Dallas, TX, for Defendant Highgate Holdings, Inc., Ellis, Inc., (a/k/a CB Commercial Real Estate Group, a/k/a Insignia/ESG, Inc. n/k/a CB Richard Ellis Real Estate Services, Inc.).

David J. Margules, John M. Seaman, Bouchard Margules & Friedlander, P.A., Wilmington, DE, Jeffrey A. Koppy, Brian H. Meldrum, Thomas P. Monroe, Jenner & Block LLP, Chicago, IL, for Plaintiff EXDS, Inc.

MEMORANDUM OPINION

PETER J. WALSH, Bankruptcy Judge.

This opinion is with respect to the defendant CB Richard Ellis, Inc.'s (a/k/a CB Commercial Real Estate Group, a/k/a Insignia/ESG, Inc., n/k/a CB Richard Ellis Real Estate Services, Inc.) ("CBRE") motion to dismiss the complaint of plaintiff EXDS, Inc. ("EXDS" or "the plaintiff'), or in the alternative, to determine that this proceeding is non-core (Adv.Doc. # 83). Defendant Highgate Holdings, Inc. ("Highgate") has filed a joinder to the motion (Adv.Doc. # 96). The defendants argue that this Court lacks subject matter jurisdiction over this proceeding. For the reasons stated below, the Court will deny the defendants' motion to dismiss.1

BACKGROUND

EXDS filed a petition for relief under chapter 11 of Title 11 of the United States Code on September 26, 2001. (Adv.Doc. # 84, p. 3). A liquidation plan (the "Plan") was confirmed on June 5, 2002 (the "Confirmation Order"). (Id., Ex. 1). The Plan became effective on June 19, 2002. (Id., at 3).

On September 25, 2003, EXDS filed a complaint against CBRE and Highgate related to a transaction that occurred in 1999 between GlobalCenter, ("GlobalCenter") (a predecessor-in-interest to EXDS) and Insignia/ESG, Inc. ("Insignia") (a predecessor-in-interest to CBRE). (Adv.Doc. # 1). After discovery, which is still ongoing, the plaintiff filed the First Amended Complaint against CBRE and Highgate which alleges claims against CBRE for breach of contract, unjust enrichment and promissory estoppel and claims against Highgate for breach of contract and unjust enrichment (the "Claims"). (Adv.Doc. # 74, Ex. 1, ¶¶ 32-92).

The First Amended Complaint alleges the following:

In the fall of 1999, GlobalCenter retained Insignia to locate lease space in New York City for a new data center. (Id. at Ex. 1, ¶ 11). GlobalCenter and Insignia entered into a commission-sharing agreement under which Insignia agreed to pay GlobalCenter 50% of any commission that Insignia earned from the landlord in connection with the GlobalCenter lease. (Id.). On December 28, 1999 GlobalCenter executed a lease with the landlord of a building, thereby generating a commission for Insignia. (Id. at Ex. 1, ¶ 13). The plaintiff alleges that Insignia, failed to pay GlobalCenter the 50% share of the commission that it had promised under the commission-sharing agreement. (Id. at Ex. 1, ¶ 39).

When GlobalCenter needed more office space, GlobalCenter and Insignia entered into another agreement under which Insignia agreed again to pay a percentage of the commission fees. (Id. at Ex. ¶, 116). The plaintiff claims that Insignia similarly failed to pay these fees. (Id. at Ex. 1, ¶ 20). On May 24, 2000, representatives of GlobalCenter and Insignia met to renegotiate the amount of the fees that Insignia owed to GlobalCenter and agreed to reduce the percentage to 35%. (Id. at Ex. 1, ¶ 21). The parties signed a contract agreeing to this percentage on June 5, 2000. (Id. at Ex. 1, ¶ 22). As with the previous contracts, the plaintiff claims that Insignia never paid any portion of the fees agreed to under this renegotiated contract. (Id. at Ex. 1, ¶ 26).

In the course of their business dealings relating to commercial real estate leasing, Insignia assigned to Highgate its obligation to share commissions with Global-Center. (Id. at Ex. 1, ¶¶ 17 and 24).

DISCUSSION

The motion to dismiss the complaint is pursuant to Rule 12(b)(1) of the Federal Rules of Civil Procedure, made applicable to this proceeding by Rule 7012 of the Federal Rules of Bankruptcy Procedure, arguing that the Court lacks subject matter jurisdiction over this proceeding. Subject matter jurisdiction over bankruptcy cases and proceedings originates in 28 U.S.C. § 1334 (2006). Section 1334(a) grants the courts "original and exclusive jurisdiction of all cases under title 11," and 1334(b) (2006) grants "original but not exclusive jurisdiction of all civil proceedings arising under title 11, or arising in or related to cases under title 11." Thus, a bankruptcy court may exercise jurisdiction over four categories of title 11 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, 943 F.2d at 264.

The plaintiff asserts that the Court has jurisdiction over the defendants because the dispute at issue in this case is "related to a case under title 11." 28 U.S.C. § 157(a) (2006). The Third Circuit has noted the broad expanse of "related to" jurisdiction, stating that bankruptcy courts may exercise such jurisdiction in cases where "the outcome could conceivably have any effect on the estate being administered in bankruptcy." Pacor, Inc. v. Higgins, 743 F.2d 984, 994 (3d Cir. 1984).2 "A key word in this test is `conceivable.' Certainty, or even likelihood, is not a requirement." In re Marcus Hook, 943 F.2d at 264. However, the broad reach of "related to" jurisdiction "does not extend indefinitely, particularly after the confirmation of a plan and the closing of a case." In re Resorts Int'l, Inc., 372 F.3d at 164 (quoting Donaldson v. Bernstein, 104 F.3d 547, 553 (3d Cir.1997)). Once a plan has been confirmed, a bankruptcy court's jurisdiction over matters related to the case diminishes. AstroPower Liquidating Trust v. Xantrex Tech., Inc. (In re AstroPower Liquidating Trust), 335 B.R. 309, 323 (Bankr.D.Del.2005). The Third Circuit has noted that "[a]t the most literal level, it is impossible for the bankrupt debtor's estate to be affected by a post-confirmation dispute because the debtor's estate ceases to exist once confirmation has occurred." In re Resorts Int'l, Inc., 372 F.3d at 165. However, courts do not apply the "effect on the estate" test from Pacor so literally as to exclude all jurisdiction over post-confirmation disputes. Id. Courts may exercise post-confirmation jurisdiction when "there is a close nexus to the bankruptcy plan or proceeding, as when a matter affects the interpretation, implementation, consummation, execution, or administration of a confirmed plan or incorporated litigation trust agreement." Id. at 168-69.

The plaintiff argues that there is a sufficiently close nexus between the Claims and the bankruptcy case because (1) the Claims arose pre-petition and entered into the estate; (2) the Plan gave the estate the power and authority to prosecute the Claim and the creditors voted to approve the Plan in reliance on the retention of the Claims; (3) the Plan stated that the Court would retain jurisdiction over the Claims; (4) the debtor/estate is prosecuting the Claims rather than some nonbankruptcy vehicle, such as a litigation trust; and (5) the proceeds of the Claims, if any, will be distributed to the estate's creditors. (Adv.Doc. # 98, p. 10). The plaintiff draws comparison to two recent decisions within the Third Circuit where post-confirmation jurisdiction has been found: In re AstroPower Liquidating Trust, 335 B.R. at 325 (finding that where "the Plan specifically describes an action over which the Court had `related to' jurisdiction pre-confirmation and expressly provides for the retention of such jurisdiction to liquidate that claim for the benefit of the estate's creditors, there is a sufficiently close nexus with the bankruptcy proceeding to support jurisdiction post-confirmation"); and Michaels v. World Color Press, Inc. (In re LGI, Inc.), 322 B.R. 95, 108 (Bankr.D.N.J.2005) (finding that post-confirmation litigation of pre-petition claims that were "contemplated by the Plan and part of the corpus of the [Plan-created] Trust, serves the `implementation, consummation, [and] execution' of the Plan").

The Court finds the plaintiffs reasoning and cases to be persuasive and it will address each of the plaintiffs arguments in turn.

A. The Claims Arose Pre Petition and Entered the Estate

The events in question in this case (the negotiation and execution of various contracts between the plaintiff and the defendants and the defendants' alleged breach) occurred in 1999 and 2000, some months before the plaintiff filed for bankruptcy on September 26, 2001. Potential claims against third parties automatically enter the debtor's estate upon filing for bankruptcy. 5 COLLIER ON BANKRUPTCY § 541.08 (15th ed.2006). If the plaintiff had brought the Claims before confirmation the Court would have clearly had "related to" jurisdiction over the Claims.

Given that the claims arose pre-petition, this court does not face the same concerns that the Third Circuit faced in Resorts, a case the defendants attempt to analogize to this one. In Resorts, the plaintiff litigation trust alleged that, shortly after confirmation of the plan, the...

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