In re Jamuna Real Estate, LLC

• Decision Date: 20 December 2006
• Docket Number: Adversary No. 06-129.,Bankruptcy No. 04-37136.,Bankruptcy No. 04-37132.,Adversary No. 06-130.,Adversary No. 06-128.,Bankruptcy No. 04-37130.
• Citation: 357 B.R. 324
• Parties: In re JAMUNA REAL ESTATE, LLC, United Management Services, Inc., Bagga Enterprises, Inc., Debtors. Marvin Krasny, in his capacity as Chapter 7 Trustee of United Management Services, Inc.; Marvin Krasny, in his capacity as Chapter 7 Trustee of Jamuna Real Estate LLC; Gary Seitz, in his capacity as Chapter 7 Trustee of Bagga Enterprises, Inc. and FL Receivables Trust 2002-A, Plaintiffs v. Pratpal Bagga; Khushvinder Bagga Ravinder Chawla; Hardeep Chawla Welcome Group, Inc.; K & P Real Estate LLC; World Apparel Products, Inc. d/b/a/ SJM Trading Company, d/b/a Ten Tigers; American Merchandise Co., Inc., a/k/a American Merchandising Co., Inc.; 21st Century Restaurant Solutions, Inc.; Brand Trade, Inc.; H.B. Properties, Inc.; H.B. Properties LLP; Sant Properties; John and Jane Does and ABC Companies, Defendants.
• Court: U.S. Bankruptcy Court — Eastern District of Pennsylvania

357 B.R. 324

In re JAMUNA REAL ESTATE, LLC, United Management Services, Inc., Bagga Enterprises, Inc., Debtors Marvin Krasny, in his capacity as Chapter 7 Trustee of United Management Services, Inc.; Marvin Krasny, in his capacity as Chapter 7 Trustee of Jamuna Real Estate LLC; Gary Seitz, in his capacity as Chapter 7 Trustee of Bagga Enterprises, Inc. and FL Receivables Trust 2002-A, Plaintiffs v. Pratpal Bagga; Khushvinder Bagga Ravinder Chawla; Hardeep Chawla Welcome Group, Inc.; K & P Real Estate LLC; World Apparel Products, Inc. d/b/a/ SJM Trading Company, d/b/a Ten Tigers; American Merchandise Co., Inc., a/k/a American Merchandising Co., Inc.; 21st Century Restaurant Solutions, Inc.; Brand Trade, Inc.; H.B. Properties, Inc.; H.B. Properties LLP; Sant Properties; John and Jane Does and ABC Companies, Defendants.

Bankruptcy No. 04-37130.

Bankruptcy No. 04-37132.

Bankruptcy No. 04-37136.

Adversary No. 06-128.

Adversary No. 06-129.

Adversary No. 06-130.

United States Bankruptcy Court, E.D. Pennsylvania.

December 20, 2006.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

Lawrence J. Tabas, Deidre M. Richards, Lindsey Marie Glah, Obermayer Rebman Maxwell & Hippel LLP, Philadelphia, PA, Christopher F. Graham, Patrick E. Fitzmaurice, Robert H. Hermann, Thatcher Proffit & Wood LLP, White Plains, NY, for Plaintiffs.

Richard M. Simins, Jami B. Nimeroff, Buchanan Ingersoll & Rooney PC, Philadelphia, PA, Andrew Teitelman, Law Office of Andrew Teitelman, Huntingdon Valley, PA, for Defendants.

Opinion

STEPHEN RASLAVICH, Bankruptcy Judge.

Introduction.

The Plaintiffs filed in this Court a fifteen count complaint against the debtor corporations, related entities, and their principals. The Defendants have filed a motion to withdraw the reference of this adversary proceeding from the Bankruptcy to District Court. The District Court has remanded the motion to the Bankruptcy Court with a limited instruction: this Court must determine to what extent the Complaint raises core versus non-core matters.¹ Upon receipt of the remand order, the parties contacted this Court to request the opportunity to brief the issues. That request was allowed, the parties submitted briefs, and the matter was taken under advisement.²

Background

These claims had been originally brought by the creditor FL Receivables (FL) in the District Court. There, the Defendants filed a motion to dismiss two of the counts for failure to state, a claim. That motion would be granted and as discovery was about to proceed on the remaining claims, three of the corporate defendants—United Management, Jamuna Real Estate, and Bagga Enterprises—filed for bankruptcy under Chapter 7. The two Trustees assigned to handle the cases (Messrs. Krasny and Seitz)³ joined with FL to file the same claims in this Court.⁴ The Defendants filed a motion in the District Court requesting that the reference be withdrawn. That prompted the District Court to remand the case to this Court to determine which of the counts are core and which are non-core.

Core, Non-Core Proceedings and Bankruptcy Court Jurisdiction

The District Court's reference to core versus non-core matters necessarily implicates the jurisdictional parameters of the Bankruptcy Court.⁵ A term of art, "core" in this context derives from the Supreme Court's ruling in Northern Pipeline Construction Co. v. Marathon Pipe Line Co., 458 U.S. 50, 102 S.Ct. 2858, 73 L.Ed.2d 598 (1982). There, the High Court held unconstitutional the jurisdictional grants of the Bankruptcy Act of 1978. Specifically, it struck down the provision which authorized Article I bankruptcy courts to hear certain matters that constitutionally could only be heard by courts whose judges are protected by the safeguards in Article III. Id. at 84, 102 S.Ct. at 2878 ("bankruptcy courts do not constitutionally have jurisdiction over claims for breach of contract and misrepresentation, [because they] involve a right created by state law, a right independent and antecedent to the reorganization petition that conferred jurisdiction upon the Bankruptcy Court") (emphasis in original). That ruling prompted Congress to pass the Bankruptcy Amendments and Federal Judgeship Act of 1984. Under the 1984 Amendments, the

[b]ankruptcy judges may hear and determine all cases under title 11 and all core proceedings arising under title 11, or arising in a case under title 11, referred under subsection (a) of this section, and may enter appropriate orders and judgments, subject to review under section 158 of this title

28 U.S.C. § 157(b) (emphasis added).⁶ A proceeding is classified as "core" under 28 U.S.C. § 157 "if it invokes a substantive right provided by title 11 or if it is a proceeding that, by its nature, could arise only in the context of a bankruptcy case." In re Marcus Hook Development Park., Inc., 943 F.2d 261, 267 (3d Cir.1991) (quoting Beard v. Braunstein, 914 F.2d 434, 444 (3d Cir.1990)). Core proceedings represent those disputes so intertwined with the bankruptcy process that Congress has the power under Article I of the Constitution to direct a non-tenured judicial officer (i.e., bankruptcy judge) to render a final determination of their merits. See 1 Norton Bankruptcy Law and Practice 2d, 4.75 (1999) ("The word `core' was a shorthand word employed to signify issues and actions that traditionally formed part of the functions performed under federal bankruptcy law").

Where a matter does not qualify as "core" but has some meaningful nexus with the bankruptcy case, it may nevertheless be heard by the Bankruptcy Court on a preliminary basis:

A bankruptcy judge may hear a proceeding that is not a core proceeding but that is otherwise related to a case under title 11. In such proceeding, the bankruptcy judge shall submit proposed findings of fact and conclusions of law to the district court, and any final order or judgment shall be entered by the district judge after considering the bankruptcy judge's proposed findings and conclusions and after reviewing de novo those matters to which any party has timely and specifically objected.

28 U.S.C. § 157(c)(1) (emphasis added).⁷ The Third Circuit has defined a "non-core" yet "otherwise related" proceeding as one whose:

"outcome . . . could conceivably have any effect on the estate being administered in bankruptcy." Pacor v. Higgins, 743 F.2d 984, 994 (3d Cir.1984) (emphasis omitted); see In re Guild, 72 F.3d at 1180-81. "[T]he proceeding need not necessarily be against the debtor or against the debtor's property." In re Guild, 72 F.3d at 1180-81. "`A key word in [this test] is conceivable. Certainty, or even likelihood, is not a requirement. Bankruptcy jurisdiction will exist so long as it is possible that a proceeding may impact on the debtor's rights, liabilities, options, or freedom of action or the handling and administration of the bankrupt estate.'" Id. at 1181 (quoting In re Marcus Hook, 943 F.2d at 264) (emphasis omitted).

Halper v. Halper, 164 F.3d 830, 837 (3d Cir.1999)(footnote omitted). A leading commentator opines:

In light of the Marathon case, the legislative history surrounding the 1984 jurisdictional provisions and the post-1984 case law, it seems clear that civil proceedings encompassed by section 1334(b)'s "related proceedings" are those whose outcome could conceivably have an effect on the bankruptcy estate and that (1) involve causes of action owned by the debtor that became property of a title 11 estate under section 541 (as distinguished from postpetition causes of action, i.e., those that come into existence during the pendency of the bankruptcy case), or (2) are suits between third parties that "in the absence of bankruptcy, could have been brought in a district court or a state court."

1 Collier on Bankruptcy ¶ 3.01[4][c][ii] (Matthew Bender 15th Ed. revised). This matters for present purposes inasmuch as the parties agree that three of the fifteen counts in the Complaint do not raise core matters, but disagree as to whether all three are "otherwise related" to the bankruptcies. The Third Circuit has explained that a bankruptcy court may neither hear nor determine matters which are both non-core and un related. See Pacor, Inc. v. Higgins, 743 F.2d 984, 994 (3d Cir.1984) overruled on other grounds by Things Remembered, Inc. v. Petrarca, 516 U.S. 124, 116 S.Ct. 494, 133 L.Ed.2d 461 (1995); see also Torkelsen v. Maggio (In re Guild and Gallery Plus, Inc.), 72 F.3d 1171, 1181 (3d Cir.1996) (holding that third party's claim against trustee for failing to account for non-estate property was neither core nor related proceeding). The Court now turns to each of the fifteen counts to determine which raise "core" matters. See Halper, supra, 164 F.3d at 837 (explaining that where Court is confronted with disparate causes of actions in determining whether core matters raised, analysis must proceed on a claim-by-claim basis)⁸

Counts I and II—RICO

Counts I and II allege violations of the Racketeer Influenced and Corrupt Organizations Act of 1984⁹ (RICO). The parties concur that these claims are non-core, although they are silent as to whether the claims are related. See Plaintiffs Brief, 5; Defendants' Brief, 6,7. In any event, the question is a legal one which means that the Court is not bound by what the parties agree on and must make the determination on its own. Mintze v. American General Financial Services, Inc., 434 F.3d 222, 228 (3d Cir.2006) citing Halper, 164 F.3d at 836-37.

While there is no controlling Third Circuit law on this issue, the Seventh Circuit has observed that the weight of authority holds that a RICO claim is a non-core, related proceeding. See Barnett v. Stern, 909 F.2d 973, 979-80 (7th Cir.1990) (holding that RICO claims against debtor individual and debtors' son were non-core, explaining majority rule and citing cases). In this jurisdiction, the two decisions on point follow that majority rule. See In re Schlein, 188 B.R. 13, 14 (E.D.Pa.1995) (granting...