In re Railworks Corp.
| Decision Date | 13 July 2006 |
| Docket Number | Bankruptcy No. 01-6-4473.,Bankruptcy No. 01-6-4474.,Bankruptcy No. 01-6-4472.,Bankruptcy No. 01-6-4477.,Bankruptcy No. 01-6-4484.,Bankruptcy No. 01-6-4467.,Bankruptcy No. 01-6-4465.,Bankruptcy No. 01-6-4481.,Bankruptcy No. 01-6-4480.,Bankruptcy No. 01-6-4470.,Bankruptcy No. 01-6-4479.,Bankruptcy No. 01-6-4466.,Bankruptcy No. 01-6-4478.,Bankruptcy No. 01-6-4469.,Bankruptcy No. 01-6-4471.,Bankruptcy No. 01-6-4483.,Bankruptcy No. 01-6-4475.,Bankruptcy No. 01-6-4482.,Bankruptcy No. 01-6-4464.,Bankruptcy No. 01-6-4485.,Bankruptcy No. 01-6-4476.,Bankruptcy No. 01-6-4468.,Bankruptcy No. 01-6-4463.,Adversary No. 05-01238. |
| Citation | 345 B.R. 529 |
| Parties | In re RAILWORKS CORPORATION, et al., Debtors. Henry D. Hoge, et al., Plaintiffs, v. C. William Moore, Michael R. Azarela, John G. Larkin Jeffrey J. Lewis Michael P. Rivera, and Glass & Associates, Inc. |
| Court | U.S. Bankruptcy Court — District of Maryland |
Robert Francis Carney, Jesse Ernest Cox, Whiteford, Taylor, et al., Martin T. Fletcher, Carol L. Hoshall, Whiteford, Taylor & Preston LLP, Jason M. St. John, Saul Ewing LLP, Aryeh E. Stein, J. Daniel Vorsteg, Baltimore, MD, Troy Christopher Swanson, Cohen & Swanson, P.C., Bel Air, MD, Jeffrey L. Tarkenton, Womble, Carlyle et al., Washington, DC, for Debtors.
MEMORANDUM AND ORDER GRANTING IN PART AND DENYING IN PART MOTIONS TO DISMISS, AND REMANDING REMAINING CLAIMS
This matter is before the Court upon the Motion to Abstain or Remand filed by Plaintiffs Henry D. Hoge, Dona P. Hoge, and the Henry D. Hoge and Dona P. Hoge Family Trust (collectively the "Plaintiffs"), the Motion to Dismiss filed by Defendants C. William Moore, Jeffrey Lewis, Michael Rivera, and Glass & Associates, and the Motion to Dismiss filed by Defendants Michael R. Azarela and John G. Larkin (referred to collectively as the "Defendants"). The motions have been fully briefed, and the Court heard oral argument on the motions. For the reasons stated herein, the Court shall grant the motions to dismiss, in part, and shall remand the remaining claims to the California Superior Court, San Mateo County.
Pending in this court is the jointly administered Chapter 11 case of Railworks Corporation ("Railworks") and certain of its affiliates and subsidiaries, Case Nos. 01-6-4463 through 01-6-4485. The present litigation was filed in California Superior Court, San Mateo County, Civil Action No. CIV 441948, and it was removed to the United States Bankruptcy Court for the Northern District of California, by then Defendants Martin Fletcher, Esq. and Whiteford, Taylor & Preston, LLP ("Fletcher and Whiteford").1 Pursuant to a motion filed by Fletcher and Whiteford, the California Bankruptcy Court transferred the action to the United States District Court for the District of Maryland, and it was referred to this Court.
Plaintiff's Amended Complaint was filed on June 1, 2005, after the case was removed and referred to this Court. The Amended Complaint names original defendants C. William Moore, Jeffrey Lewis, Michael Rivera, and Glass & Associates, and adds as two additional Defendants Michael R. Azarela and John G.. Larkin.
The Amended Complaint seeks recovery for liability that Mr. Hoge and the other Plaintiffs incurred as guarantors on performance bonds issued by Liberty Mutual Insurance Company ("Liberty Mutual") for work conducted by HSQ Technology ("HSQ"). Amended Complaint, ¶ 62. Mr. Hoge was an officer and director of HSQ when it was acquired by Railworks in June 2000. Amended Complaint, ¶ 14. Prior to the acquisition, HSQ had contracted with the Port Authority of Allegheny County, PA ("PAAC") on a design/build contract, for which Liberty Mutual performance bonds were issued and under which the Plaintiffs indemnified Liberty Mutual for any payments made under the bonds. Amended Complaint, ¶¶ 21-24. Plaintiffs allege that certain representations were made to them by various of the Defendants as to the financial stability of Railworks at the time of the HSQ acquisition, and that later representations and promises were made by certain of the Defendants guarantying HSQ's performance of the PAAC contract, as well as assuring Plaintiffs that Railworks had the financial ability to fulfill such guaranty. Amended Complaint, ¶¶ 12, 32-35, 47.
Railworks and its subsidiaries, including HSQ, filed for bankruptcy on September 20, 2001. Amended Complaint, ¶ 26. Post-petition the PAAC contract with HSQ was rejected, Liberty Mutual paid approximately 84.5 Million to PAAC under the performance bonds, and Liberty Mutual obtained a judgment against the Plaintiffs herein in excess of $5 Million. Amended Complaint, ¶¶ 95-104. Plaintiffs seek to recover from Defendants based on the incurred liability.
The Amended Complaint alleges six separate causes of action against (1) Mr. Moore and Mr. Riveria, officers of Railworks or its affiliates; (2) Mr. Larkin and Mr. Azarela, representatives of Railworks and later Directors of HSQ; and (3) Glass and Associates and its principal or employee Mr. Lewis, financial consultants to Railworks. Glass and Associates was engaged by Railworks on a prepetition basis and was employed as Crisis Managers and Bankruptcy Consultants in Railworks bankruptcy reorganization case. Amended Complaint, ¶ 28; Order Granting Application To Employ Shaun K. Donnellan and Glass & Associates, Inc. as Crisis Managers and Bankruptcy Consultants by Rail-Works Corporation, entered December 20, 2001 (p. 386). The claims are as follows:
Claim One — Breach of oral contract against C. William Moore2
Claim Two — Interference with contract against all Defendants
Claim Three — Intentional misrepresentation or concealment against Michael R. Azarela and John G. Larkin
Claim Four — General negligence against all Defendants Claim Five — Intentional misrepresentation or concealment against all Defendants
Plaintiffs have filed a Motion to Abstain or Remand, arguing under 28 U.S.C. § 1334(c)(2) that this court must abstain from hearing this adversary proceeding, or, if not compelled to abstain should nonetheless choose to abstain under 28 U.S.C. § 1334(c)(1). Alternatively, Plaintiffs seek remand of this proceeding to the California Superior Court under 28 U.S.C. § 1452(b).
Defendants oppose abstention or remand, and have filed Motions to Dismiss. The Defendants maintain that the state law claims in this proceeding are preempted by the Railworks bankruptcy case and the Bankruptcy Code, and that they are barred by the releases and injunction contained in the Order confirming Railworks' Plan of Reorganization. Alternatively, Defendants argue notwithstanding preemption that each claim must be dismissed for failure to state a claim against the Defendants upon which relief can be granted.
The parties have filed lengthy briefs addressing the issues of preemption, abstention and remand. Plaintiffs would have the Court rule that the causes of action are state law claims completely independent of the bankruptcy case and of the actions of the Defendants therein and wholly outside the Confirmation Order injunction. Defendants would have the Court rule that the Plaintiffs' claims attack the actions taken by the Defendants in the bankruptcy case itself, are preempted and are barred by the Confirmation Order injunction. The court views the Confirmation Order injunction as controlling, and a bar to Plaintiffs' claims unless exceptions thereto apply.
Specifically, Claim One, Claim Four and Claim Seven will be dismissed as barred by the Confirmation Order injunction. Claim Two is an alleged intentional tort and Plaintiffs have alleged facts which, if proven, may fall outside the parameters of the Confirmation Order injunction. Similarly, Claims Three and Five are based on fraud, and Plaintiffs have alleged facts which, if proven, may fall outside the parameters of the Confirmation Order injunction. Finally, Claim Six is based on two specific California statutes for which the California Superior Court is in a better position to determine whether the Confirmation Order injunction bars prosecution thereof, based on the facts developed as to Claims Two, Three, and Five. All claims not dismissed by this Court pursuant to the Confirmation Order injunction will be remanded to the California Superior Court.
The Railworks Plan of Reorganization contains a release, § 11.6(b), that enjoins the commencement of any actions against Representatives of the Debtors. The Plan defines Representative as "any and all officers, directors, attorneys, advisors and investment bankers of Railworks," and further includes three specific individuals including C.W. Moore. Debtors' Second Amended Joint Plan of Reorganization (p. 1095), § 1.135. Each of the Defendants in this case is a Representative of the Debtors, being either an officer or director of Railworks (including subsidiaries) as in the case of Mr. Larkin, Mr. Azarela, and Mr. Riviera; are specifically named as a Representative in the Plan, as with Mr. Moore; or were advisors of Railworks, as in the case of Glass and Associates and Mr. Lewis.
The Plan enjoins actions by any claim holder against Representatives, as follows:
To the fullest extent permitted by law, each holder of a Claim (whether or not allowed) ... shall be enjoined from commencing and continuing any Cause of Action ... and shall be deemed to release any Claim or Cause of Action arising from the beginning of time through the Effective Date ... against any Representative, acting in such capacities, in any way relating to the Debtors,4 the Reorganization Cases or the Plan; provided,...
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