In re MAI Systems Corp., Bankruptcy No. 93-424. Adv. No. 93-159.
| Decision Date | 09 February 1995 |
| Docket Number | Bankruptcy No. 93-424. Adv. No. 93-159. |
| Citation | 178 BR 50 |
| Parties | In re MAI SYSTEMS CORPORATION, Debtor. MAI SYSTEMS CORPORATION, Plaintiff, v. C.U. TECHNOLOGIES, INC., Nanook Enterprises, Inc., The Computer Group, Ltd., Armond Schroeder, Computer Systems Management, Donald Bonfanti, Hector G. Pabon, Pablo M. Guzman, Carlos J. Molina Ramos, and Does IXXV, Defendants. |
| Court | U.S. Bankruptcy Court — District of Delaware |
Laura Davis Jones, Young, Conaway, Stargatt & Taylor, Wilmington, DE, for debtor.
John D. Demmy, Morris, James, Hitchens & Williams, Wilmington, DE, for C.U. Technologies, Inc., Nanook Enterprises, Inc., The Computer Group, Ltd. and Armond Schroeder.
In this adversary proceeding, four of the defendants, C.U. Technologies, Inc. (CUT), Nanook Enterprises, Inc., The Computer Group, Ltd., and Armond Schroeder ("the CUT group"), move to dismiss pursuant to Bankruptcy Rules 7012(b)(1) and 7012(b)(6). The CUT group moves in the alternative to transfer venue to the United States District Court for the Central District of California. There are also pending in MAI's Chapter 11 case several other adversaries filed by MAI. The defendants in three of those adversaries have filed similar motions raising similar issues. The briefing in those adversaries has been fully considered. This is the court's decision on the motions to dismiss of the CUT group. In Section III, the alternative motion of the CUT group to transfer venue is discussed.
The record on the motions to dismiss consists of the well-pleaded allegations in the complaint, and matters of public record. Pension Benefit Guaranty Corp. v. White Consolidated Indus., Inc., 998 F.2d 1192, 1196 (3d Cir.1993), cert. denied, ___ U.S. ___, 114 S.Ct. 687, 126 L.Ed.2d 655 (1994).
On April 12, 1993, MAI Systems Corporation filed a voluntary petition for relief under Chapter 11. MAI filed schedules listing total assets of over $36 million and total liabilities of over $111 million. This court approved MAI's First Amended Disclosure Statement on October 19, 1993, and MAI's First Amended Joint Chapter 11 Plan of Reorganization on November 18, 1993. The plan became effective on January 27, 1994. Case no. 93-424, docket no. 424 at 5. The plan merges two subsidiary debtors into the estate of MAI. Posteffective date, the reorganized MAI will operate in North America and Latin America, and will offer products and services relating to computer hardware, software, maintenance and related support. Case no. 93-424, docket no. 321 at 34-39.
On December 30, 1993, before the effective date of the joint plan, MAI filed a complaint which alleges the following facts. MAI owns software programs and related documentation ("the programs"), and copyrights, trademarks, trade secrets and other interests ("the interests") for use by credit unions. In a May 22, 1991 agreement, MAI granted CUT a license to the programs in exchange for certain acts by Nanook, CUT, and The Computer Group (TCG). In furtherance of the license, MAI entered into ancillary agreements with CUT, Nanook, and TCG. MAI also extended credit to TCG pursuant to the May 1991 license, and loaned equipment to Nanook pursuant to a related agreement. Armond Schroeder is the principal shareholder of Nanook, CUT and TCG.
Commencing on October 31, 1991 (prepetition), Nanook, CUT and TCG breached the agreements by failing to pay royalties and credit obligations, failing to act in accordance with contract terms, and failing to cooperate with MAI's collection efforts. On February 26, 1992, MAI served written notice of breach upon Nanook, CUT and TCG, and demanded cure. After no cure was made, MAI terminated their contracts and demanded performance of certain obligations. Nanook, CUT and TCG retained possession, use and licensing of MAI's programs and related materials and shared these items with third parties. These third parties include named defendants Computer Systems Management, and Does I — XXV, who are other unknown retailers of technology. These defendants continue to use and disclose the programs and interests in violation of contract terms.
The complaint further alleges that on October 19, 1993, Nanook, CUT and TCG encouraged Hector G. Pabon, Pablo M. Guzman, Carlos J. Molina Ramos, three MAI employees located in Puerto Rico, to terminate their employment contracts with MAI and join Nanook, CUT and TCG in marketing MAI's programs and interests.
In eleven counts, MAI seeks compensation from the CUT group and other defendants for breach of contract, misappropriation of trade secrets, unfair competition, tortious interference with employment contracts, and engaging in a conspiracy to commit the above illegal acts. The record does not indicate the magnitude of these sought damages. MAI also alleges that the CUT group owes MAI $302,696.89 for unpaid goods and services.1 The complaint also seeks related injunctive relief.
The CUT group first moves this court to dismiss MAI's adversary proceeding for lack of subject matter jurisdiction. Fed. R.Bankr.P. 7012(b)(1). This motion to dismiss will be granted if MAI fails to satisfy its burden that this court has subject matter jurisdiction over this proceeding. Koch v. U.S., 814 F.Supp. 1221, 1226-27 (M.D.Pa. 1993). In a nutshell, the CUT group's Rule 7012(b)(1) motion argues that this adversary proceeding is outside the scope of a bankruptcy court's post-confirmation jurisdiction. Pursuant to 28 U.S.C. § 1334(b), the United States District Court for the District of Delaware has original jurisdiction of "all civil proceedings arising under title 11, or arising in or related to cases under title 11." The United States District Court for the District of Delaware has referred its jurisdiction to this court. 28 U.S.C. § 157(a); In re Referral of Title 11 Proceedings to the United States Bankruptcy Court for This District, (D.Del. June 13, 1994) (order). In this Circuit, the above quoted language of section 1334(b) is to be construed very broadly. Pacor v. Higgins, 743 F.2d 984, 994 (3d Cir. 1984) (). Nothing in the language of 28 U.S.C. § 1334 limits this broad grant of jurisdiction to pre-confirmation proceedings. From these underpinnings, it has been carefully and properly concluded that post-confirmation, a bankruptcy court may retain jurisdiction over any proceeding that conceivably could affect the debtor's ability to consummate the confirmed plan. Eubanks v. Esenjay Petroleum Corp., 152 B.R. 459, 464 (E.D.La.1993) ().
The CUT group has cited court decisions it argues support a narrower view of post-confirmation jurisdiction. To be sure, each of those decisions articulated a definition of post-confirmation jurisdiction different from that employed in Eubanks — and each other. And it is true that there is some disagreement as to the scope of post-confirmation jurisdiction. See generally Eubanks, 152 B.R. at 463; Symposium, Postconfirmation Issues: The Effects of Confirmation and Postconfirmation Proceedings, 44 S.C. L.Rev. 621, 622-44 (1991) (). None of these conceptual differences are relevant here. The reasoning of the cases upon which the CUT group relies are very fact-specific, and the material facts in those cases are different than the facts here.
Here, the complaint alleges events occurring and causes of action arising pre-petition and pre-confirmation. The debtor is one of the parties to the lawsuit. The defendants either were employees of MAI, had a pre-petition business relationship with MAI, or were misappropriating property of the debtor. The complaint alleges ongoing wrongful conduct and seeks injunctive relief.
Thus, this court is not persuaded that any of the courts that the CUT group relies upon would find, as a matter of law, that a bankruptcy court does not have jurisdiction over this adversary proceeding.2 On this record, this proceeding could affect MAI's ability to consummate the confirmed plan. This court has subject matter jurisdiction over this adversary proceeding.
The CUT group next contends that MAI's cause of action should be dismissed for failure to state a claim upon which relief can be granted. Fed.R.Bankr.P. 7012(b)(6). Specifically, the CUT group asserts that the affirmative defenses of judicial estoppel and res judicata bar the claims MAI asserts in its complaint.3
In deciding the motion to dismiss under Bankruptcy Rule 7012(b)(6), the court should not dismiss any claim unless it appears beyond doubt that MAI can provide no set of facts in support of that claim which would entitle it to relief. E.g., Matter of Reitz, 134 B.R. 131, 132 (Bankr.D.Del.1991).
The CUT group's first affirmative defense is that judicial estoppel applies to preclude MAI from prosecuting this adversary proceeding. Judicial estoppel precludes a party from asserting a position which is inconsistent with one previously taken in a prior proceeding. See generally Scarano v. Central R. Co. of N.J., 203 F.2d 510, 512-13 (3d Cir.1953). The CUT group contends that MAI's pre-confirmation and post-confirmation positions are inconsistent. It refers to MAI's disclosure statement and plan, which did not individually list MAI's post-confirmation actions. The CUT group argues that this omission constitutes MAI's position that no such actions existed. It further argues that MAI's subsequent filing of this action is a change of position.
In support of these arguments, the CUT group first relies upon Oneida Motor Freights, Inc. v. United...
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