Master-Halco, Inc. v. D'Angelo, 3:C6cv1006 (JBA).

• Decision Date: 10 October 2006
• Docket Number: No. 3:C6cv1006 (JBA).,3:C6cv1006 (JBA).
• Citation: Master-Halco, Inc. v. D'Angelo, 351 B.R. 267 (D. Conn. 2006)
• Parties: MASTER-HALCO, INC., Plaintiff, v. Richard D'ANGELO and Rickster Associates, LLC, Defendants.
• Court: U.S. District Court — District of Connecticut

351 B.R. 267

MASTER-HALCO, INC., Plaintiff, v. Richard D'ANGELO and Rickster Associates, LLC, Defendants.

No. 3:C6cv1006 (JBA).

United States District Court, D. Connecticut.

October 10, 2006.

COPYRIGHT MATERIAL OMITTED

George D. Royster, Jr., Brian D. Rich, Halloran & Sage, Hartford, CT, for Plaintiff.

Brian C. Fournier, David A. Slossberg, Brian J. Wheelin, Hurwitz Sagarin Slossberg & LLC, Milford, CT, for Defendants.

RULING ON PLAINTIFF'S MOTION TO REMAND [DOC. # 16] AND DEFENDANTS' MOTION TO REFER [DOC. # 17]

ARTERTON, District Judge.

Plaintiff Master-Halco, Inc. ("Master-Halco"), a California corporation, brought this action in Connecticut Superior Court against Rickster Associates, LLC ("Rickster"), a limited liability company with its principal place of business in Connecticut, and Richard D'Angelo, alleged to be the sole member of Rickster, alleging civil conspiracy, aiding and abetting breach of a fiduciary and fraud, violations of the Connecticut Unfair Trade Practices Act ("CUTPA"), aiding and abetting CUTPA violations, recklessness, tortious interference, and negligence, arising out of an alleged "bust out scheme" whereby defendant D'Angelo assisted Atlas Fence, Inc., later Atlas Holding Company, ("Atlas"), a debtor to Master-Halco, and its principal Michael Picard in creating various companies and trusts, including Rickster, to which Picard could transfer Atlas's assets out of reach of its creditors. See Complaint [Doc. # 1].

Defendants removed this action from state court pursuant to 28 U.S.C. §§ 1452 and 1334, on grounds that it is related to two pending bankruptcy proceedings involving Atlas and Picard. See Notice of Removal [Doc. # 1]. Plaintiff has moved to remand pursuant to 28 U.S.C. § 1447 for lack of subject matter jurisdiction or, alternatively, for the Court to abstain from hearing this matter pursuant to 28 U.S.C. § 1334(c)(1) or (c)(2) and to remand the case to state court pursuant to 28 U.S.C. § 1452(b). See Mot. to Remand [Doc. # 16]. Defendants oppose remand and also move to refer this case to the United States Bankruptcy Court for the District of Connecticut, New Haven Division, pursuant to 28 U.S.C. § 157(a) and this District's Standing Order of Reference. See Mot. to Refer [Doc. # 17].

I. Subject Matter Jurisdiction

28 U.S.C. § 1452(a) allows for removal to federal court of a civil action "if such district court has jurisdiction of such claim or cause of action under section 1334 of this title." Section 1334 in turn provides that "the district courts shall have original and exclusive jurisdiction of all cases under title 11" 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." 28 U.S.C. § 1334(a), (b). "The test for whether a civil proceeding is `related to' a bankruptcy case is not controversial. It is: `whether the action's outcome might have any conceivable effect on the bankruptcy estate.'" Bondi v. Grant Thornton Int'l, 322 B.R. 44, 47 n. 9 (S.D.N.Y.2005) (citing Publicker Indus. Inc v. United States (In re Cuyahoga Equip. Corp.), 980 F.2d 110, 114 (2d Cir.1992)). "A proceeding need not necessarily be against the debtor or against the debtor's property to satisfy the requirements for `related to' jurisdiction.... Instead, there must be some nexus between the `related' civil proceeding and the title 11 case." Rahl v. Bande, 316 B.R. 127, 133 (S.D.N.Y.2004) (internal quotation omitted).

Plaintiff argues, that "the only connection between this case and the bankruptcy proceedings asserted by the defendants is that the allegations against the defendants in this case involve their participation in nefarious schemes with Michael Picard and Atlas Fence. In other words, only the fact that Michael Picard happens to be in bankruptcy supports the Defendants' claims. As a review of the case caption alone would indicate, however, Michael Picard is not a party to this litigation and the liability of these Defendants is separate and distinct from Michael Picard's liability, although Mr. Picard is part of the conspiracy to hide assets and defraud the plaintiff. Indeed, the allegations against the Defendants bear only upon their own liability, not on Michael Picard's." Pl. Mem. [Doc. # 16-2] at 4-5.

However, as plaintiff admits, that Michael Picard and Atlas are not parties to this action does not preclude "related" jurisdiction under § 1334(b). Additionally, notwithstanding plaintiff's characterizations, it is clear that the outcome of this action might have an effect on the bankruptcy estate because plaintiff seeks, inter alia, recovery of the $625,000 in unpaid invoices alleged owed to it by Atlas, which money plaintiff claims defendants in this case assisted in unlawfully and fraudulently transferring to shell companies to protect it from Atlas's creditors, including plaintiff. Thus, plaintiff's success in this action in recovering all or a portion of that $625,000 would result in plaintiff taking possession of those assets which might otherwise lawfully belong to the bankruptcy estate.¹

II. Abstention/Equitable Remand

Thus, it appears to the Court that there is federal jurisdiction over this action under § 1334 and the Court next considers plaintiff's contention that, even if the Court has subject matter jurisdiction, it should abstain from hearing the matter and remand pursuant to 28 U.S.C § 1334(c). § 1334(c) provides for both mandatory abstention in certain instances and permissive abstention as follows:

(1) Except with respect to a case under chapter 15 of title 11, nothing in this section prevents a district court in the interest of justice, or in the interest of comity with State courts or respect for State law, from abstaining from hearing a particular proceeding arising under title 11 or arising in or related to a case under title 11.(2) Upon timely motion of a party in a proceeding based upon a State law claim or State law cause of action, related to a case under title 11 but not arising under title 11 or arising in a case under title 11, with respect to which an action could not have been commenced in a court of the United States absent jurisdiction under this section, the district court shall abstain from hearing such proceeding if an action is commenced, and can be timely adjudicated, in a State forum of appropriate jurisdiction.

Application of subsections (c)(1) and (c)(2) depends on whether the matter at issue is considered a "core" bankruptcy proceeding or a "non-core" proceeding as "[a]bstention is only mandated with respect to non-core matters .... Therefore, where a matter constitutes a core proceeding, the mandatory abstention provisions of section 1334(c)(2) are inapplicable."² In re Petrie Retail, Inc., 304 F.3d 223, 232 (2d Cir. 2002).

As noted above, 28 U.S.C. § 1334(b) provides federal district courts with original, although not exclusive, jurisdiction of civil proceedings "arising under title 11," "arising in ... a case under title 11," and/or "related to a case under title 11." As a general matter, "`[a]rising under' and `arising in' cases are collectively called `core' bankruptcy proceedings, while `related to' cases are non-core." In re Methyl Tertiary Butyl Ether Prods. Liability Litig., 341 F.Supp.2d 386, 411 (S.D.N.Y.2004) (citing, inter alia, In re Wood, 825 F.2d 90, 97 (5th Cir.1987) ("A proceeding is core if it invokes a substantive right provided by title 11 or if it is a proceeding that, by its nature, could arise only in the context of a bankruptcy case.")). 28 U.S.C. § 157(b)(2) contains a non-exhaustive list of types of actions that constitute "core" proceedings and includes "(A) matters concerning the administration of the estate" and "(H) proceedings to determine, avoid, or recover fraudulent conveyances." Notwithstanding plaintiffs protestations that defendants have not adequately demonstrated that this action constitutes a "core" proceeding, it seems clear that it falls within either or both of these "core" categories, as plaintiff advances causes of action including fraud which seek to recover assets alleged due to it by the debtors (Atlas, Picard) which plaintiff claims were transferred out of the debtors' estates and into the, hands of defendant Rickster (among other entities). See also, e.g., Cent. Vt. Public Serv. Corp. v. Herbert, 341 F.3d 186, 192 (2d Cir.2003) ("[W]e have ruled that the [bankruptcy] trustee is the proper person to assert claims ... against the debtor's alter ego or others who have misused the debtors property in some fashion, and by extension, we have held that such alter ego claims are core proceedings.") (internal quotation omitted).³

Thus, because the Court determines that this action constitutes a "core" proceeding, the mandatory abstention provision of § 1334(c)(2) is inapplicable. However, this Court may still opt to abstain and remand this case based on the permissive abstention provision at § 1334(c)(1), or to grant an "equitable" remand, as provided by § 1452(b). "The factors to be considered by the district court when determining whether permissive abstention or equitable remand is appropriate are virtually the same." Rahl, 316 B.R. at 135. These factors include: "(1) whether issues of state law predominate; (2) whether judicial economy would be served by abstention or equitable remand; (3) whether § 1334(b) is the sole basis for exercising federal jurisdiction; (4) whether the proceeding involves nondebtors; (5) the degree of relatedness or remoteness of the proceeding to the main bankruptcy case; and (6) the likelihood that the proceeding was commenced in a particular forum because of forum shopping on the part of one of the parties."⁴ Id. The Court will address each of these factors in turn.

First, all of plaintiffs claims are state statutory or common law claims. Nevertheless, the Court also considers the fact that although plaintiff asserts state law claims, recovery of...