In re Nu-Cast Step & Supply, Inc.

• Decision Date: 17 November 2021
• Docket Number: Case No. 15-58539
• Citation: 639 B.R. 440
• Parties: IN RE: NU-CAST STEP & SUPPLY, INC., Debtor.
• Court: U.S. Bankruptcy Court — Eastern District of Michigan

639 B.R. 440

IN RE: NU-CAST STEP & SUPPLY, INC., Debtor.

Case No. 15-58539

United States Bankruptcy Court, E.D. Michigan.

Signed November 17, 2021

Robert N. Bassel, Clinton, MI, for Debtor In Possession.

Opinion Denying Motion to Reopen Bankruptcy Case

Lisa S. Gretchko, United States Bankruptcy Judge

NuCast, LLC has filed a motion to reopen the Chapter 11 bankruptcy case of Nu-Cast Step & Supply, Inc. ("Motion to Reopen"). This opinion explains why the Court denies the Motion to Reopen and exercises its discretion to permissively abstain pursuant to 28 U.S.C. § 1334(c)(1).

Background

Nu-Cast Step & Supply, Inc. (the "Debtor") filed Chapter 11 on December 27, 2015. On May 11, 2016, Chief Bankruptcy Judge Shefferly entered a stipulated order granting the Debtor's motion to sell substantially all of its assets ("Sale Order") to Legacy Rochester Hills Site Condominium Development, LLC ("Legacy"). The Sale Order contains the following language ("Retention of Jurisdiction Provision"):

10. This Court retains jurisdiction to enforce and implement the terms and provisions of this Order, and of any agreements executed in connection therewith in all respects, including, but not limited to, retaining jurisdiction to: (a) resolve any disputes arising under or related to the Sale, except as otherwise provided therein; and (b) interpret, implement and enforce the provisions of this Order.

Shortly after Legacy purchased the Debtor's assets, Legacy transferred them to NuCast, LLC.

After selling substantially all of its assets, the Debtor confirmed a Chapter 11 Plan of Liquidation, and its bankruptcy case was closed in June of 2017.

In November of 2019, NuCast, LLC filed a complaint and jury demand in the Wayne County Circuit Court (the "State Court Complaint") against its competitor, Livonia Pre Cast LLC, and Guilio Ledda, Bruno Ledda and Giuseppe Ciccarelli (collectively, the "Defendants") alleging violations of the Michigan Uniform Trade Secrets Act and the Michigan Consumer Protection Act, misrepresentation, fraud and breach of contract.

The Defendants deny liability. They assert that the Debtor did not own any intellectual property and, consequently, the sale that Judge Shefferly approved did not transfer any intellectual property to Legacy. Therefore, no intellectual property was assigned to NuCast, LLC and its claims alleged in the State Court Complaint must fail.

These issues—whether the Debtor had any intellectual property and, if so, whether the Debtor sold that intellectual property to Legacy (which later transferred it to NuCast, LLC)—are central to the conflict between NuCast, LLC and the Defendants. The parties disagree on which court should decide these issues.

NuCast, LLC filed the State Court Complaint in the Wayne County Circuit Court. In lieu of an answer, the Defendants filed a motion for summary disposition alleging that the Wayne County Circuit Court lacks subject matter jurisdiction. The Wayne County Circuit Court granted the Defendants’ summary disposition motion.

NuCast, LLC appealed to the Michigan Court of Appeals, which affirmed the trial court. On May 13, 2021, the appellate court issued an opinion ("MCOA Opinion") holding that the bankruptcy court has subject matter jurisdiction over the State Court Complaint pursuant to 28 U.S.C. § 157 and the Retention of Jurisdiction Provision in the Sale Order. Nevertheless, the Michigan Court of Appeals stated:

We understand, however, that we cannot confer jurisdiction on the bankruptcy court. Therefore, we clarify that the trial court's dismissal of plaintiff's action for lack of subject-matter jurisdiction is without prejudice to the plaintiff returning to state court to pursue one or more of its current claims in the event that the bankruptcy court disagrees with our analysis and determines that it does not have jurisdiction over one or more claims.

Discussion

In Kokkonen v. Guardian Life Ins. Co. of Am. , 511 U.S. 375, 377, 114 S.Ct. 1673, 128 L.Ed.2d 391 (1994), the Supreme Court stated that:

Federal courts are courts of limited jurisdiction. They possess only that power authorized by Constitution and statute, see Willy v. Coastal Corp. , 503 U.S. 131, 136-137, 112 S.Ct. 1076, 1080, 117 L.Ed.2d 280 (1992) ; Bender v. Williamsport Area School Dist. , 475 U.S. 534, 541, 106 S.Ct. 1326, 1331, 89 L.Ed.2d 501 (1986), which is not to be expanded by judicial decree, American Fire & Casualty Co. v. Finn , 341 U.S. 6, 71 S.Ct. 534, 95 L.Ed. 702 (1951). It is to be presumed that a cause lies outside this limited jurisdiction, Turner v. Bank of North America , 4. U.S. (4 Dall.) 8, 11, 1 L.Ed. 718 (1799), and the burden of establishing the contrary rests upon the party asserting jurisdiction, McNutt v. General Motors Acceptance Corp. , 298 U.S. 178, 182-183, 56 S.Ct. 780, 782, 80 L.Ed. 1135 (1936).

It is undisputed and beyond question that the bankruptcy court had jurisdiction over the Debtor's bankruptcy case when it entered the Sale Order containing the Retention of Jurisdiction Provision. However, the Debtor's bankruptcy case was closed in June of 2017, the State Court Complaint among non-debtor parties was filed nearly eighteen months later, and NuCast, LLC filed the Motion to Reopen more than four years after the Debtor's bankruptcy case was closed.

This situation raises several questions, including:

1. Does NuCast, LLC have standing to reopen the Debtor's bankruptcy case?

2. What is the source of jurisdiction over bankruptcy cases and proceedings? Is it 28 U.S.C. § 1334, or is it 28 U.S.C. § 157 ?

3. Does the "Retention of Jurisdiction Provision" in the Sale Order constitute an independent basis for the bankruptcy court's jurisdiction to adjudicate the claims in the State Court Complaint?

4. If the bankruptcy court has jurisdiction over the claims raised in the State Court Complaint, is that jurisdiction exclusive, or does the Wayne County Circuit Court also have jurisdiction to adjudicate those claims?

5. If the bankruptcy court has jurisdiction, may it abstain pursuant to 28 U.S.C. § 1334(c)(1) in the absence of a motion to abstain?

This Court will address these issues in sequence.

1. Does NuCast, LLC have standing to reopen the Debtor's bankruptcy case?

F. R. Bankr. P. 5010 governs who may file a motion to reopen and states, in pertinent part: "A case may be reopened on motion of the debtor or other party in interest pursuant to § 350(b) of the Code."¹ Section 1109(b) of the Bankruptcy Code defines a "party in interest" to include the debtor, the trustee, a creditors’ committee, an equity security holders’ committee, a creditor, an equity security holder, or any indenture trustee.

NuCast, LLC did not hold any of those positions with respect to the Debtor. However, 11 U.S.C. § 102(3) states that the words "includes" and "including" are not limiting. Consequently, the term "party in interest" is not confined to the list of examples set forth in § 1109(b). See , e.g. , In re RnD Eng'g, LLC , 556 B.R. 303, 311 (Bankr. E.D. Mich. 2016), citing Vermejo Park Corp. v. Kaiser Coal Corp. (In re Kaiser Steel Corp.) , 998 F.2d 783, 788 (10th Cir. 1993). Although the parties concur that NuCast, LLC has standing to bring the Motion to Reopen, the Court has an independent obligation to analyze the issue.

Courts have found that the phrase "party in interest" in 11 U.S.C. § 1109(b) "invites interpretation and ‘is generally understood to include all persons whose pecuniary interests are, directly affected by the bankruptcy proceedings.’ " In re Morton , 298 B.R. 301, 306 (6th Cir. BAP 2003), citing In re Alpex Comput. Corp , 71 F.3d 353, 356 (10th Cir. 1995). In RnD Eng'g , LLC , 556 B.R. at 311, Judge Shefferly noted that "parties in interest" include not just creditors but also anyone whose pecuniary interests are directly affected or who has a practical stake in the outcome of a case. The term "party in interest" has also been described as "an expandable concept depending on the particular factual context in which it is applied." In re Morton , 298 B.R. at 306, citing In re Cowan , 235 B.R. 912, 915 (Bankr. W.D. Mo. 1999).

Here NuCast, LLC clearly has a pecuniary interest in the claims asserted in the State Court Complaint. NuCast, LLC and its pecuniary interests are directly affected by this Motion to Reopen, which will determine the forum in which its claims will be litigated. As a practical matter, the MCOA Opinion renders NuCast, LLC a "party in interest" for purposes of the Motion to Reopen. Thus, the Court concludes that NuCast, LLC has standing pursuant to F. R. Bankr. P. 5010 to file and pursue the Motion to Reopen.

2. The source of jurisdiction over bankruptcy cases and proceedings is 28 U.S.C. § 1334, rather than 28 U.S.C. § 157.

The source of bankruptcy jurisdiction is 28 U.S.C. § 1334.

Section 1334(a) of title 28 states: "Except as provided in subsection (b) of this section, the district courts shall have original and exclusive jurisdiction of all cases under title 11."

Section 1334(b) of title 28 states, in pertinent part: "... the district courts shall have original but not exclusive jurisdiction of all civil proceedings a rising under title 11, or arising in or related to cases under title 11."

Although 28 U.S.C. § 1334 is titled "Bankruptcy cases and proceedings," that statute refers only to "federal district courts" and does not mention bankruptcy courts at all. Section 157 of title 28 (titled "Procedures") does not use the term "bankruptcy court" either, but it does mention bankruptcy judges. In the statutory scheme, 28 U.S.C. § 1334 grants federal district courts jurisdiction over bankruptcy cases and over civil proceedings arising under title 11, or arising in or related to cases under title 11. Section 157 of title 28 then authorizes the federal district courts to "refer" those bankruptcy cases and civil proceedings to the bankruptcy judges for the district. The United States District Court for the Eastern District of Michigan has done that in its local rule, E.D. Mich. LR...