Lead I Jv, Lp v. North Fork Bank, 08-CV-0843 (DRH)(MLO).

• Decision Date: 11 March 2009
• Docket Number: No. 08-CV-0843 (DRH)(MLO).,08-CV-0843 (DRH)(MLO).
• Citation: 401 B.R. 571
• Parties: LEAD I JV, LP and Frio Lead I JVGP, LLC, Plaintiffs, v. NORTH FORK BANK and North Fork Bank—Winchester Branch, Defendants. North Fork Bank, Third-Party Plaintiff, v. Bruce Ransom and Lothian Oil, Inc., Third-Party Defendants.
• Court: U.S. District Court — Eastern District of New York

401 B.R. 571

LEAD I JV, LP and Frio Lead I JVGP, LLC, Plaintiffs, v. NORTH FORK BANK and North Fork Bank—Winchester Branch, Defendants.

North Fork Bank, Third-Party Plaintiff, v. Bruce Ransom and Lothian Oil, Inc., Third-Party Defendants.

No. 08-CV-0843 (DRH)(MLO).

United States District Court, E.D. New York.

March 11, 2009.

COPYRIGHT MATERIAL OMITTED

The Cook Law Firm, by Damon G. Cook, Esq., Houston, TX, Nimkoff Rosenfeld & Schechter, LLP, by Robert J. Schechter, Esq., New York, NY, for Plaintiffs.

Lazer, Aptheker, Rosella & Yedid, P.C., by Joseph C. Savino, Esq., Melville, NY, for Defendants.

Haynes and Boone, LLP, by April L. Neave, Esq., Kenneth J. Rubinstein, Esq., New York, NY, for Third-Party Defendant Lothian Oil, Inc.

MEMORANDUM AND ORDER

HURLEY, Senior District Judge:

Presently pending before the Court is the motion by plaintiffs Lead I JV, LP ("Lead LP") and Frio Lead I JVGP, LLC ("Frio Lead") (collectively, "Plaintiffs") to remand this case in its entirety to the New York State Supreme Court, Suffolk County. For the reasons that follow, Plaintiffs' motion is granted to the extent the main action is remanded to state court. Plaintiffs' motion is denied with regard to the third-party action which is transferred to the United States District Court for the Western District of Texas, Midland Division, for referral to the United States Bankruptcy Court for the Western District of Texas, Midland Division.

BACKGROUND

On May 15, 2007, Plaintiffs commenced this action by filing a Complaint against defendants North Fork Bank and North Fork Bank—Winchester Branch (hereinafter collectively referred to as "North Fork") in the Supreme Court of New York, Suffolk County (the "New York action"). Plaintiffs assert claims for violations of N.Y. U.C.C. § 3-404, breach of contract, and negligence as a result of the alleged unauthorized withdrawal of funds from Plaintiffs' North Fork account. Thereafter, on June 19, 2007, defendant North Fork Bank filed a Third-Party Complaint against third-party defendants Lothian Oil, Inc. ("Lothian") and Bruce Ransom, Lothian's Chief Executive Officer ("Ransom"), asserting claims for, inter alia, conversion, indemnification, and contribution should North Fork Bank be found liable to Plaintiffs in the main action.

On June 13, 2007, prior to the filing of the Third-Party Complaint in the New York action, Lothian filed a voluntary Chapter 11 petition under Title 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the Western District of Texas, Midland Division (the "Bankruptcy Court"). On October 19, 2007, North Fork filed a Proof of Claim in the Lothian bankruptcy and asserted, inter alia, a constructive trust on one or more of Lothian's assets, which were allegedly purchased with the funds at issue in the New York action. Thereafter, North Fork made a motion in the Bankruptcy Court to modify the automatic stay to permit North Fork to prosecute its third-party claims against Lothian in the New York action. This motion was granted by the Bankruptcy Court via "Agreed Order" on November 28, 2007. The Order further provides that North Fork cannot contest removal of the New York action nor can it contest transfer of the New York action to the Lothian bankruptcy case.

On February 28, 2008, Lothian filed a Notice of Removal of the New York action to the instant court pursuant to 28 U.S.C. §§ 1446 and 1452. Presently before the Court is Plaintiffs' motion to remand the entire action to state court. For the reasons stated below, Plaintiffs' motion is granted to the extent Plaintiffs' claims against North Fork are remanded to state court; it is denied with respect to the third-party action, which is transferred to the United States District Court for the Western District of Texas, Midland Division, for referral to Bankruptcy Court.

DISCUSSION

Plaintiffs advance several arguments as to why this action should be remanded to state court. The Court will address Plaintiffs' arguments in turn.

I. The Timeliness of the Notice of Removal

Lothian's Notice of Removal states that it is being filed pursuant to 28 U.S.C §§ 1446 and 1452. Plaintiffs contend that the Notice was untimely under both sections. For the reasons that follow, the Court finds Plaintiffs' arguments to be without merit.

A. Sections 1446 and 1452

28 U.S.C. § 1446 is entitled "Procedure for removal." Thus, § 1446 sets forth the procedural requirements for removing an action to federal court. However, in addition to complying with the removal procedures set forth in § 1446, a defendant, or third-party-defendant, must also demonstrate the presence of federal jurisdiction. See, e.g., In re Methyl Tertiary Butyl Ether ("MTBE") Prods. Liab. Litig., 2006 WL 1004725, at *3 (S.D.N.Y. Apr.17, 2006).

28 U.S.C. § 1452 authorizes a district court to exercise jurisdiction over a bankruptcy case. More specifically, § 1452 provides, in pertinent part, as follows:

A party may remove any claim or cause of action in a civil action ... to the district court for the district where such civil action is pending, if such district court has jurisdiction of such claim or cause of action under section 1334 of this title.

28 U.S.C. § 1452(a). Section 1334 provides that "the district courts shall have original and exclusive jurisdiction of all cases under title 11,"¹ 28 U.S.C. § 1334(a), and "shall have original but not exclusive jurisdiction of all civil proceedings arising under title 11, or arising in or related to cases under title 11," id. § 1334(b). As discussed infra in the jurisdictional portion of this decision, Lothian contends that the Court has jurisdiction over the entire action as arising in or related to the Lothian bankruptcy.

B. Under Both 28 U.S.C. § 1446 and Bankruptcy Rule 9027(a)(2), the Notice of Removal had to be Filed Within Thirty Days of Service of Process

In arguing that the Notice of Removal was untimely, Plaintiffs rely on both § 1446(b) and Bankruptcy Rule 9027(a). Section 1446(b) provides, in relevant part:

The notice of removal of a civil action or proceeding shall be filed within thirty days after the receipt by the defendant, through service or otherwise, of a copy of the initial pleading setting forth the claim for relief upon which such action or proceeding is based.

...

28 U.S.C. § 1446(b). Similarly, Bankruptcy Rule 9027(a)(3) provides, in pertinent part:

If a claim or cause of action is asserted in another court after the commencement of a case under the Code, a notice of removal may be filed with the clerk only within ... 30 days after receipt, through service or otherwise, of a copy of the initial pleading setting forth the claim or cause of action sought to be removed ....

Fed. R. Bankr.P. 9027(a)(3).² Since the time period for removal set forth in § 1446(b) is identical to that provided in Rule 9027(a)(3),³ the Court need not decide which provision applies to the instant case.⁴

Plaintiffs contend that the thirty-day time period for removal began to accrue upon Lothian's actual notice of the third-party claim filed against it, which Plaintiffs claim was on October 19, 2007, when North Fork filed a Proof of Claim against Lothian in the Bankruptcy Court and attached thereto a copy of North Fork Bank's Third-Party Complaint in the New York action. Because Lothian filed its Notice of Removal on February 28, 2008, more than thirty days after October 19, 2007, Plaintiffs argue that Lothian's Notice of Removal was untimely. Plaintiffs are mistaken.

Despite the language of 28 U.S.C. § 1446(b) indicating that the time period for removal accrues upon "service or otherwise, of a copy of the initial pleading," it is well-settled that the time to file a notice of removal under § 1446(b) is not triggered until service of the initial pleading has been properly effectuated. See Murphy Bros., Inc. v. Michetti Pipe Stringing, Inc., 526 U.S. 344, 349-56, 119 S.Ct. 1322, 143 L.Ed.2d 448 (1999). In Murphy Bros., the Court found that since a court cannot exercise personal jurisdiction over a party named in a complaint until that party has been properly served, "one becomes a party officially, and is required to take action in that capacity, only upon service of a summons or other authority-asserting measure stating the time within which the party served must appear and defend." Id. at 350, 119 S.Ct. 1322.

Here, Lothian was served with the third-party complaint on January 31, 2008, and filed its Notice of Removal less than thirty days later, on February 28, 2008. Thus, the Notice of Removal would appear timely under 28 U.S.C. § 1446(b), and presumably also under Bankruptcy Rule 9027(a)(3).⁵

That does not end the Court's inquiry, however, as the Court must also consider third-party defendant Ransom, who was served with the Third-Party Complaint in the New York action on both July 31, 2007 and December 12, 2007, more than thirty days prior to Lothian's filing of the Notice of Removal.⁶ Thus, the question is when the thirty day period for removal begins to run where, as here, there are multiple third-party defendants who were not served at the same time. Plaintiffs do not address this issue. Lothian contends that the thirty day period begins to run when the last defendant is served. For the reasons set forth below, the Court agrees.

C. In a Case Involving Multiple Defendants Under § 1446(b), the Thirty Day Period Begins to Run from the Time the Last Defendant is Properly Served

In actions involving multiple defendants, or in this case, multiple third-party defendants, the federal court are split as to whether the time for removal under § 1446(b) is determined by the date of service upon the first-served defendant (the "first-served rule") or the date of service upon the last defendant served (the "last-served defendant rule"). See Piacente v. State Univ. of N.Y. at Buffalo, 362 F.Supp.2d 383, 385 (W.D.N.Y.2004).⁷ The issue has not yet been addressed by the Supreme Court or the...