Lothian Cassidy LLC v. Ransom

• Decision Date: 22 April 2010
• Docket Number: No. 10-CV-0420 (ENV)(SMG),10-CV-0420 (ENV)(SMG)
• Citation: 428 B.R. 555
• Parties: LOTHIAN CASSIDY LLC et al., Plaintiffs, v. Bruce RANSOM et al., Defendants.
• Court: U.S. District Court — Eastern District of New York

428 B.R. 555

LOTHIAN CASSIDY LLC et al., Plaintiffs,

v.Bruce RANSOM et al., Defendants.

No. 10-CV-0420 (ENV)(SMG).

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

April 22, 2010.

Jessica M. Sokol, New York, NY, for Plaintiffs.

Mark K. Anesh, Lewis Brisbois Bisgaard and Smith, LLP, James H. Neale, Fulbright & Jaworski LLP, Jonathan D. Pressment, Marty L. Brimmage, Jr., Haynes and Boone, LLP, Brian C. Dunning, Gabrielle Elise Farina, Thompson & Knight LLP, Steven Altman, Altman & Company, New York, NY, Jennifer L. Silvestro, Joseph C. Savino, Lazer, Aptheker, Rosella & Yedid, P.C., Melville, NY, Bart Wescott Huffman, Deborah D. Williamson, Cox Smith Matthews Incorporated, San Antonio, TX, Robert L. Paddock, Thompson & Knight LLP, Houston, TX, for Defendants.

MEMORANDUM & ORDER

VITALIANO, District Judge.

Defendant Charles Beckham and defendants Belridge Energy Advisors, L.P.; JVL Global Energy (QP), L.P.; JVL Global Energy, L.P.; John Vincent Lovoi; Paul Loyd, Jr.; Navitas Fund, L.P.; Nawab Energy Partners, L.P.; Peninsula Catalyst Fund (QP) L.P.; Peninsula Catalyst Fund, L.P.; and Michael Raleigh (collectively, "Belridge") have separately but simultaneously moved to transfer venue of this action removed from state court to the Western District of Texas for referral to the bankruptcy court there.¹ Plaintiffs oppose the motions and have moved for remand to state court (or, alternatively, for mandatory or permissive abstention). For the reasons set forth below, plaintiffs' motion is denied and the transfer motions are granted.

BACKGROUND

In June of 2007, nonparty Lothian Oil Inc. ("LOI") filed for Chapter 11 bankruptcy protection in the Western District of Texas. LOI is currently operating subject to the "Second Modified Amended Joint Plan of Liquidation of the Debtors Dated June 19, 2008" (the "plan"), which became effective through the bankruptcy court's June 27, 2008 confirmation order. ( See Doc. # 28-1. ²)

Plaintiffs are a multi-state collection of individuals, trusts, pension plans, and other entities who allegedly lost their investments in several Texas enterprises, one of which was LOI. Plaintiffs filed an amended complaint in Kings County Supreme Court, on January 4, 2010, advancing 15 state law causes of action ³ against, inter alia, various board members, officers, and representatives of LOI.

Beckham filed a notice of removal on February 1, 2010. Belridge filed a notice of consent to removal on February 3, 2010. The instant motions to transfer venue, aswell as plaintiffs' motion to remand (or for abstention), followed shortly thereafter.

STANDARD OF REVIEW

"When presented with competing motions to remand a case and to transfer venue, a court is to consider the remand motion first, and then address the motion to transfer venue only if it first denies the motion to remand." See, e.g., Stahl v. Stahl, No. 03-CV-0405, 2003 WL 22595288, at *2, 2003 U.S. Dist. LEXIS 20112, at *7 (S.D.N.Y. Nov. 7, 2003) (citation omitted). And, "because [28 U.S.C.] section 1452(b) permits remand 'on any equitable ground,' a court's remand analysis will generally take into consideration the possibility that the case might be transferred for consolidation with a pending bankruptcy proceeding." Renaissance Cosmetics, Inc. v. Development Specialists Inc., 277 B.R. 5, 11 (S.D.N.Y.2002) (citation omitted).

DISCUSSION

I. Removal Was Properly Executed

As an initial matter, the Court finds that removal of this action pursuant to 28 U.S.C. § 1452(a) was proper, notwithstanding plaintiffs' argument that they had not yet served Beckham with the complaint when he filed his remand notice. The argument is meritless, since service of process and formal commencement of the state court action against the removing party are not prerequisites for such a party to notice removal. See Delgado v. Shell Oil Co., 231 F.3d 165, 177 (5th Cir.2000) ("Generally, service of process is not an absolute prerequisite to removal ... We read § 1446(b) and its 'through service or otherwise' language as consciously reflecting a desire on the part of Congress to require that an action be commenced against a defendant before removal, but not that the defendant have been served." (citation omitted)); see also 28 U.S.C. § 1446(b). In fact, because Beckham had not been served, his time to remove had not even begun to run when he filed his notice. See Lead I JV, LP v. North Fork Bank, 401 B.R. 571, 577 (E.D.N.Y.2009) (noting that "the clock for removal does not begin until a defendant is properly served with process" (citations omitted)); see also Murphy Bros., Inc. v. Michetti Pipe Stringing, 526 U.S. 344, 119 S.Ct. 1322, 143 L.Ed.2d 448 (1999). The acknowledgement by plaintiffs that they had not served Beckham completely vitiates their further argument that removal was untimely. Moreover, Beckham's notice of removal was filed fewer than 30 days after the amended complaint was first served on any party, in compliance with 20 U.S.C. § 1446(b). Cf. Lead I, 401 B.R. at 577 ("[L]ast-served defendant rule is the proper interpretation of § 1446."). Finally, and again contrary to plaintiffs' contention, removal did not require defendants' unanimous consent. See Cal. Pub. Employees' Ret. Sys. v. WorldCom, Inc., 368 F.3d 86, 103 (2d Cir.2004) ("[B]ecause any one 'party' can remove under Section 1452(a), removal under that provision, unlike removal under Section 1441(a), does not require the unanimous consent of the defendants." (citation omitted)).

II. Plaintiffs' Motion to Remand

Under 28 U.S.C. § 1334(b), "the district courts 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." The threshold question on the motion to remand is whether § 1334(b) jurisdiction is present. Plaintiffs argue that it is not. Alternatively, plaintiffs argue that, even if such jurisdiction does exist, this Court has, at most, "related to" jurisdiction, of the kind requiring mandatory abstention under 28 U.S.C. § 1334(c)(2).

A. Subject-Matter Jurisdiction

The critical connection, of course, is the LOI bankruptcy proceeding. For the claimed § 1334(b) jurisdiction to exist, defendant-removers must show that the action brought by plaintiffs arises under, arises in, or is at least "related to" the LOI bankruptcy proceeding. "Arising under" and "arising in" proceedings "encompass the matters that are at the core of the jurisdiction of the bankruptcy courts, and depend upon the application or construction of bankruptcy law." In re 610 W. 142 Owners Corp., 219 B.R. 363, 366 (Bankr.S.D.N.Y.1998); see also Lead I JV, 401 B.R. at 578-79; In re Northwest Airlines Corp., 384 B.R. 51, 56 (S.D.N.Y.2008); In re Gen. Media, Inc., 335 B.R. 66, 72 (Bankr.S.D.N.Y.2005) ("Generally, a core proceeding is one that invokes a substantive right under title 11, or could only arise in the context of a bankruptcy case."); McCord v. Papantoniou, 316 B.R. 113, 119 (E.D.N.Y.2004) (stating that core proceedings are ones " 'that are unique to or uniquely affected by the bankruptcy proceedings, or directly affect a core bankruptcy function.' " (citations omitted)). A case that does not arise in or under a bankruptcy proceeding, but that "could conceivably have any effect on the estate being administered in bankruptcy," In re Pacor, Inc. v. Higgins, 743 F.2d 984, 994 (3d Cir.1984), overruled on other grounds by Things Remembered, Inc. v. Petrarca, 516 U.S. 124, 116 S.Ct. 494, 133 L.Ed.2d 461 (1995) (emphasis omitted), falls within federal "related to" jurisdiction. "Related to" matters are definitionally non-core. See In re Ben Cooper, Inc., No. 89-5026, 1990 U.S.App. LEXIS 20747, at *15 (2d Cir. Nov. 27, 1990); Shiboleth v. Yerushalmi, 412 B.R. 113, 116 (S.D.N.Y.2009).

"[W]hen a cause of action is one which is created by title 11, then that civil proceeding is one 'arising under title 11.' " See Winstar Holdings, LLC v. Blackstone Group L.P., No. 07-CV-4634, 2007 WL 4323003, at *2, 2007 U.S. Dist. LEXIS 90482, at *7 (S.D.N.Y. Dec. 10, 2007) (citation omitted). A case does not arise under title 11 unless a " 'plaintiff's statement of his own cause of action shows that it is based upon' " title 11. Id., 2007 WL 4323003 at *2, 2007 U.S. Dist. LEXIS 90482, at *8 (quoting Louisville & Nashville R. Co. v. Mottley, 211 U.S. 149, 152, 29 S.Ct. 42, 53 L.Ed. 126 (1908)). Here, plaintiffs' action does not arise under title 11 because it is based upon contract and tort claims arising under state law, none of which require that any "proposition of bankruptcy law ... be established for plaintiffs to prevail" or that implicate any provision of the bankruptcy code for plaintiffs to prevail. Id., 2007 WL 4323003 at *2, 2007 U.S. Dist. LEXIS 90482, at *9. Thus, the Court rejects a finding of jurisdiction on this ground.

Certainly defendants have, however, demonstrated that plaintiffs' action is, at the very least, "related to" the LOI bankruptcy proceeding. For example, the bankruptcy plan and the confirmation order make clear that any finding of liability on the state claims could give rise to a claim for indemnification against LOI. ( See, e.g., Doc. # 28-1 at 42-43 § 6.10; id. at 15 ¶¶ K, O; see also, e.g., Lead I JV, LP, 401 B.R. at 581-82 ("[The] purely state law claims between nondebtors sounding in tort and contract" were found to support "related to" jurisdiction because, "[a]lthough it is true that any liability imposed upon [the state court defendant] in connection with Plaintiffs' claims may give rise to an indemnification claim by [that defendant] against the debtor ... in the Court's view, that merely suggests that Plaintiffs' claims might have a conceivable effect on the [debtor's] estate and are thus, at best, related-to, non-core matters").) Indemnification claims directly affecting LOI are not hypothetical in this case, however, as defendants point out that LOI has already received indemnification payment requests stemming from plaintiffs'...