In re General Oil Distributors, Inc.

Decision Date22 July 1982
Docket NumberBankruptcy No. 882-80516-20,Adv. No. 882-0379-20.
Citation21 BR 888
PartiesIn re GENERAL OIL DISTRIBUTORS, INC., et al., Debtors. CROWN CENTRAL PETROLEUM CORPORATION, Plaintiff, v. Alan WECHTER, Gerald Wechter, Southville Oil Corporation, Heidi Petroleum Corporation, Gasoline Truck Leasing Corp. of America, Inc., "E" Corporation, Pride Oil Corporation, Inwood Trucking Corporation, and Marine Midland Bank, N.A., Defendants.
CourtU.S. Bankruptcy Court — Eastern District of New York

Levin & Weintraub, P.C., New York City, for debtor; Barry Seidel, New York City, of counsel.

Weisman, Celler, Spett, Modlin & Wertheimer, New York City, for defendants other than Marine Midland Bank; Steven L. Cohen, New York City, of counsel.

Cable, McDaniel, Bowie & Bond, Baltimore, Md., Gehrig, Ritter, Coffey, McHale & McBride, Melville, N.Y., for Crown Central Petroleum; Craig R. Olsen, Melville, N.Y., Morton A. Sachs, Baltimore, Md., of counsel.

Kaye, Scholer, Fierman, Hays & Handler, New York City, for Marine Midland Bank; Harvey A. Strickon, New York City, of counsel.


ROBERT JOHN HALL, Bankruptcy Judge.

Marine Midland Bank, N.A. ("Marine") and all of the other above captioned defendants (collectively "the defendants") move this Court pursuant to Interim Rule 7004(j) to remand the above captioned proceeding to Nassau Supreme Court upon the grounds that this Court lacks jurisdiction over the subject matter of the dispute, or in the alternative, that the removal was unauthorized by the Interim Rules. Motion denied.

For a detailed history of these proceedings, the reader is referred to this Court's prior opinions, In re General Oil Distributors, Inc., 18 B.R. 654 (Bkrtcy.E.D.N.Y.1982) and 20 B.R. 873 (Bkrtcy.E.D.N.Y.1982). For the purposes of this motion, suffice it to say that Southville Oil Corporation is a holding company all of whose stock is owned equally by the brothers Allen and Gerald Wechter. General Oil Distributors, Inc. ("General") and Wechter Petroleum Corporation ("Wechter") (collectively "the debtors") are two of its wholly owned subsidiaries both of which are presently operating as debtors-in-possession under chapter 11 of the Bankruptcy Code, 11 U.S.C. § 1101 et seq. (Supp. IV 1980).1 Similarly, all of the above captioned defendants (with the obvious exception of Marine and the Wechter brothers) are also wholly owned subsidiaries of Southville Oil Corporation. None of the above named defendants, however, has filed for relief under the Bankruptcy Code.

General is a wholesale distributor of petroleum products. Wechter, on the other hand, owns and operates a petroleum storage facility which is apparently analogous to a gasoline warehouse. Prior to the commencement of these cases, General was factoring its accounts receivable through Marine who retained as collateral a continuing security interest in all of General's receivables.2 Thereafter, on 10 March 1982, which was shortly after General had filed for relief with this Court, based on General's representations that a financial emergency existed and that Marine was fully secured, this Court approved ex parte an interim financing package under which Marine was to loan General $700,000 and continue factoring General's accounts receivable. In return, the package provided, inter alia, for the vacatur of the automatic stay that Marine might collect on General's prepetition receivables. When this package fell apart, however, see In re General Oil Distributors, Inc., 18 B.R. 654, 655 (Bkrtcy.E.D.N.Y.1982), this Court approved a second package, this time on notice to the creditors, which provided that General might use the bulk of the proceeds of its remaining receivables, notwithstanding Marine's security interest therein, subject to Marine's right to gradually pay down General's debt. In re General Oil Distributors, Inc., 20 B.R. 873 (Bkrtcy. E.D.N.Y.1982). By this time, however, Marine had collected several million dollars of presumably estate assets on its apparently secured loans.

The State Court Action

In the interim, in April 1982, which was after the commencement of all of these cases, Crown Central Petroleum Corporation ("Crown") commenced an action in Nassau Supreme Court against the defendants. The gravamen of the complaint was that Crown had deposited approximately $1,000,000 worth of gasoline in the Wechter storage facility under a bailment contract; that Wechter in conspiracy with some or all of the other related companies or the brothers themselves had converted the gasoline and sold it; whereupon the proceeds found their way into Marine's vaults as it collected on General's accounts receivable. Accordingly, the complaint prayed for a judgment against all of the defendants awarding it possession of the gasoline or the proceeds thereof; or in the alternative, compensatory damages of $1,163,703 plus punitive damages of $5,000,000. Moreover, it is clear that the only reason that General and Wechter were not named as party defendants in this complaint was because of the section 362 stay.

The Actions to Vacate the Stay

Consequently, by a complaint filed on 29 April 1982, Crown commenced actions in this Court against both General and Wechter (1) seeking to vacate the automatic stay that the debtors might be joined as defendants in the state court action and (2) seeking a declaration that any such judgment would be nondischargeable. In response, the debtors moved to dismiss the complaint for failing to state a claim upon which relief could be granted.

At the 25 May 1982 trial, the Court initially expressed its reservations as to whether the complaint did state a claim for relief inasmuch as the Code seems clearly to indicate that all debts are discharged by an order of confirmation in a non-liquidating corporate chapter 11 proceeding. Transcript of 25 May 1982 ("Tr.") at 15.3 However, the Court also recognized that the resolution of the state pleaded causes of action would have great relevance in these reorganizations. See notes 5 & 7 infra. Accordingly the Court feared that by allowing Crown to join the debtors in the state forum would be to allow the state court to determine major issues in these cases, which would probably directly involve the application of bankruptcy law, Tr. at 17,4 notwithstanding that such issues might well have to be redetermined here. Tr. at 16, 18.5

In addition, both the debtor and the creditor's committee voiced their concern over the anticipated delay trying this case in Nassau Supreme Court would entail6 and projected their difficulties in planning a reorganization pending the outcome.7

In response, Crown indicated that it had no overwhelming desire to litigate this case in Nassau Supreme Court. Rather, it had only been attempting to find a convenient forum where it could properly join all of the debtors and defendants. Inasmuch as Marine is allegedly a national bank allegedly established in Buffalo, New York, Crown had opted for the New York Courts to avoid any venue problems. Cf. 12 U.S.C. § 94 (1976).8 However, inasmuch as the Court indicated its preference to see this case tried before it, Crown acceded to this request. Tr. at 28.9 Accordingly, by an application filed 2 June 1982, Crown removed the state court action to this Court.10


Which brings us to the instant motions. As indicated above, Marine and all of the other named defendants have moved this Court for an order remanding the state court action to Nassau Supreme Court upon the grounds that this Court does not have subject-matter jurisdiction over the dispute, or in the alternative, that the removal was not authorized by the applicable procedural rules.11

Subject-Matter Jurisdiction

The defendants contend that this Court cannot exercise jurisdiction "to decide what is essentially a private dispute between non-debtor parties." Marine brief at 5. Were that premise correct, the conclusion might have followed. The removed action, however, is not a private dispute between non-debtor parties. Rather, after the debtors are joined (as is Crown's stated intention) this will be an action in which named debtors are proper and perhaps indispensable parties12 to determine whether over one million dollars of gasoline ever properly came into their respective chapter 11 estates or whether, upon reconsideration, the Court should find that Marine was impermissibly authorized by this Court's orders to receive someone else's money in payment on its claims. Moreover, it is a dispute which may materially alter all of the parties' standing as creditors vis-a-vis each other and each estate while revealing information which may well impact on such related questions as the debtors' bona fides in commencing these proceedings and Marine's possibly inequitable conduct: issues which will probably have to be resolved before these estates can be fully administered. Accordingly, this Court finds that this proceeding is sufficiently related to cases under title 11 for it to exercise jurisdiction over the dispute. See 28 U.S.C. § 1471 (Supp. IV 1980).13

Removal Procedure

In addition to objecting to the jurisdiction of this Court, the defendants also contend that inasmuch as Crown commenced this action in the state court after the filing of the predicate bankruptcies its removal of the action now is unauthorized.

The applicable Rule provides in pertinent part:

(2) Time for Filing by Defendant. The application for removal of a civil action or proceeding shall be filed within 30 days after the receipt by the defendant, through service or otherwise, of a copy of the initial pleading setting forth the claim for relief upon which such action or proceeding is based, or within 30 days after the service of summons upon the defendant if such initial pleading has then been filed in court and is not required to be served on the defendant, whichever period is shorter.
(3) Time for Filing by Any Party. If the civil action or proceeding stated by the initial

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