In re US Air Duct Corp., Bankruptcy No. 79 02454

• Decision Date: 28 January 1981
• Docket Number: Bankruptcy No. 79 02454,Adv. No. 80 0072.
• Citation: 8 BR 848
• Parties: In re U.S. AIR DUCT CORPORATION, Debtor. William S. MAZUR, as Fund Director of the Sheet Metal Workers International Association Local No. 58 Welfare Fund, Sheet Metal Workers International Association Local No. 58 Education Fund: and William S. Mazur, as Business Manager of Sheet Metal Workers International Association Local No. 58, Plaintiffs-Respondents, v. U.S. AIR DUCT CORPORATION and Franklin E. Bean, Defendants-Petitioners.
• Court: U.S. Bankruptcy Court — Northern District of New York

8 B.R. 848 (1981)

In re U.S. AIR DUCT CORPORATION, Debtor William S. MAZUR, as Fund Director of the Sheet Metal Workers International Association Local No. 58 Welfare Fund, Sheet Metal Workers International Association Local No. 58 Education Fund: and William S. Mazur, as Business Manager of Sheet Metal Workers International Association Local No. 58, Plaintiffs-Respondents, v. U.S. AIR DUCT CORPORATION and Franklin E. Bean, Defendants-Petitioners.

Bankruptcy No. 79 02454, Adv. No. 80 0072.

United States Bankruptcy Court, N.D. New York.

January 28, 1981.

Blitman & King, Syracuse, N.Y., for plaintiffs-respondents; Jules L. Smith, Syracuse, N.Y., of counsel.

Scott, Sardano & Pomeranz, Syracuse, N.Y., for defendants-petitioners.

Kenneth J. Bobrycki, Syracuse, N.Y., for debtor.

MEMORANDUM — DECISION AND ORDER

LEON J. MARKETOS, Bankruptcy Judge.

On or about October 9, 1979, William S. Mazur, as Fund Director for the Sheet Metal Workers International Association, Local No. 58, (hereinafter, the Association), commenced an action in the New York Supreme Court for the County of Onondaga to recover fringe benefits and/or wage supplement contributions against (1) U.S. Air Duct Corporation (hereinafter, the Debtor) and (2) its corporate president, Mr. Franklin E. Bean, Individually (hereinafter, the Non-Debtor).

The pleadings in this civil action, in substance, seek to recover contributions due and owing to numerous employees' benefit trust funds by the named co-defendants. The liabilities against the Debtor arise pursuant to the terms of a certain collective bargaining agreement between the Debtor and the Association. These liabilities derive from employees' work periods logged in April, May and June, 1979. Joined to the complaint is a separate cause of action against the Non-Debtor. Pursuant to New York Labor Law, Section 198-c., the latter action is to have the Non-Debtor held personally liable for the failure of its corporation, the Debtor, to make the aforesaid contributions. This liability arises from the breach of a statutorily imposed duty. The complaint narrates that payment of the contributions was made by checks on or about August 14, 1979. All checks were duly forwarded for deposit. All checks were dishonored by the Debtor's bank. At the date of the complaint all claimed amounts were still outstanding.

The Debtor and Non-Debtor served a single answer on November 14, 1979. It denied all material allegations of the causes of action stated. The answer sets up three affirmative defenses on behalf of the co-defendants and a fourth affirmative defense, i.e., a cross-claim against the Debtor's bank, Key Bank of Central New York (hereinafter, the Bank). The answer named the Bank as a co-defendant pursuant to the New York Civil Practice Law and Rules, Section 3019(d).

On November 15, 1979, the Debtor filed a voluntary petition in bankruptcy under Chapter 7 of the Bankruptcy Code in this United States Bankruptcy Court. The Non-Debtor did not then, nor as of the time of this motion's argument, file a petition in bankruptcy as an individual. Pursuant to Section 362 of the Bankruptcy Code, 11 U.S.C. 362, the state-court proceedings were technically stayed at the date of the petition's filing.

On June 5, 1980, the Association made a motion in the New York state-court proceedings, returnable on June 30, 1980, to sever the claims against the Debtor and the Non-Debtor and to obtain summary judgment against the Non-Debtor.

On June 26, 1980, the Non-Debtor filed an application and accompanying bond for removal of the New York state-court proceeding to this Court.

On August 25, 1980, the Association made a motion to this Court for (1) an order remanding the removed New York state-court proceeding to the Supreme Court of New York, County of Onondaga, or in the alternative; (2) an order severing the claims against the Debtor vis-a-vis his co-defendant, the Non-Debtor, and remanding the claims against the Non-Debtor to the New York state court; and (3) for costs and disbursements, including reasonable attorneys fees incurred by reason of the removal proceedings.

DISCUSSION

At the onset, this Court denies the first prayer for relief in this motion. This Court will not remand the entire state-court proceeding. That proceeding encompasses many claims in the nature of unsecured debts against the Debtor and their adjudication is well within this Court's jurisdiction as of the filing of the bankruptcy petition. This court shall now address the Association's contentions in its motion which seek to sever and remand its cause of action against the Non-Debtor.

The Association's motion papers seek remand pursuant to 28 U.S.C. 1478(b). The grounds for the motion are: (1) removal of the action is time barred under Interim Bankruptcy Rule 7004(a)(3) because the application for removal was filed more than thirty days after the date of the petition in bankruptcy; (2) the claims asserted against the Non-Debtor by the Association are not claims over which this Bankruptcy court has jurisdiction; (3) the New York civil action, itself, is not an action or proceeding subject to removal pursuant to 28 U.S.C. 1478; (4) the Non-Debtor's removal application, not having himself filed in bankruptcy, is improper; and (5) the application for removal was filed by the Non-Debtor in an attempt to interfere with and defeat the Association's claims against the Non-Debtor.

This Court must clarify and thereby dismiss some procedural issues in this motion. Pursuant to an enabling order,¹ the Bankruptcy Judges for the Northern District of New York on October 1, 1980 ordered, with minor deletions and amendments, that the Suggested Interim Bankruptcy Rules, e.g., Rule 7004, be adopted by this United States Bankruptcy Court to govern all cases filed on or after October 1, 1979. See Local Rule 27.

The case at bar, In re U.S. Air Duct Corporation, is a Chapter 7 liquidation proceeding filed on November 15, 1979. The application for removal and motion to remand, now in issue, were commenced on June 26, 1980, and August 25, 1980, respectively. This Court recognizes that the Suggested Interim Bankruptcy Rules were not binding in law² at the date of the application for removal. In addition, this Court, in the spirit of equitable treatment to the parties and in the interests of justice, waive any and all application of Rule 7004. This judicial exercise is made in light of the chronological facts surrounding this particular application and motion. Therefore, the Association's contentions and relief sought under Rule 7004, subsections (a)(3) and (j), respectively, are hereby dismissed.

I.

Section 241 of the Bankruptcy Reform Act of 1978, Pub.L. No. 95-598, 92 Stat. 2549 et seq., added a new Chapter 90 to Title 28 of the United States Code, Sections 1471 to 1482, entitled "DISTRICT COURTS AND BANKRUPTCY COURTS". The application for removal and motion to remand put into issue parts of two particular provisions. With portions here in controversy, infra, emphasized, they are as follows:

"Section 1471 Jurisdiction

* * * * * *

(b) Notwithstanding any Act of Congress that confers exclusive jurisdiction on a court or courts other than the district courts, the district courts shall have original but not exclusive jurisdiction of all civil proceedings arising under title 11 or arising in or to cases under title 11.

(c) The bankruptcy court for the district in which a case under title 11 is commenced shall exercise all of the jurisdiction conferred by this section and on the district courts." 28 U.S.C. 1471(b) and (c).

and,

"Section 1478 Removal to the bankruptcy court

(a) A party may remove any claim or cause of action, other than a proceeding before the United States Tax Court or a civil action by a Government unit to enforce such government unit\'s police or regulatory power, to the bankruptcy court for the district where such civil action is pending, if the bankruptcy courts have jurisdiction over such claim or cause of action.

(b) The court to which such claim or cause of action is removed may remand such claim or cause of action on any equitable ground. An order under this subsection remanding a claim or cause of action, or a decision not so remanding, is not reviewable or otherwise." 28 U.S.C. 1478.

The expansion of the bankruptcy court's jurisdiction is clearly one of the significant changes created by the Bankruptcy Reform Act of 1978. In fact, the new jurisdiction of the bankruptcy court expands from the old confines of in rem proceedings to new boundaries that are "all encompassing, limited only by whether the civil proceeding arises under, arises in, or is related to, the Title 11 case." (Emphasis added) 1 Collier on Bankruptcy, para. 3.01, p. 3-49 (15th ed. 1979); see, 28 U.S.C. 1471(b) and (c). The jurisdiction of the bankruptcy court and the state courts is concurrent as to civil proceedings arising in or related to cases under Title 11. In re Williams, 3 B.R. 401 (Bkrtcy.N.D.Ga.1980). It has been said,

"Conceptually, there is no limit to the reach of this jurisdiction, insofar as the matter `arising in or (is) related to\' the title 11 case." 1 Collier on Bankruptcy, supra, p. 3-49.

The Association's second contention is that the claims asserted against the Non-Debtor are not claims or a cause of action over which a bankruptcy court has jurisdiction. The claim or cause of action clearly does not arise under Title 11 (hereinafter, the Bankruptcy Code), but this Court must analyze whether the claim or cause of action against the Non-Debtor "arises in or (is) related to cases under Title 11." (Parentheses added) 28 U.S.C. 1471(b).

The fundamental question of relation to a case under the Bankruptcy Code is whether the determination of the claims against the Non-Debtor will or will not effect the Debtor's assets and/or liabilities as they existed at the date of the petition and its bankruptcy schedules. The criterion to be adopted in such a situation...